<PAGE>
TCW/DW TERM TRUST 2002
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
DEAR SHAREHOLDER:
- ------------------------------------------------------------------------------
For the fiscal year ended September 30, 1996, the market price of the
TCW/DW Term Trust 2002's net asset value per share increased from $9.13 to
$9.18. Based on this change, and including reinvestment of dividends totaling
approximately $0.59 per share, the Trust's total return for the period was 8.15
percent. Over the same period, the market price of the Trust's shares on the
New York Stock Exchange (NYSE) increased from $7.75 to $8.125 per share. Based
on this change, and including reinvestment of dividends, the Trust's total
return for the period was 12.77 percent. The Trust's investment performance is
largely attributable to the narrowing of the market discount to net asset value
of the Trust's shares from 15.1 percent to 11.5 percent during the fiscal year.
In August, the Trust raised its monthly dividend from $0.0475 to $0.0520
per share to reflect an increase in portfolio earnings, which was largely the
result of the Federal Reserve Board's decision to cut short-term interest rates
by 25 basis points in July and December 1995 and January of this year.
THE MARKET
Reports on the U.S. economy during the fourth quarter of 1995 and January
1996 indicated weaker overall economic conditions and prompted the Federal
Reserve Board to twice move to ease its monetary policy. In response, the yield
on three-month U.S. Treasury bills, a key short term interest rate benchmark,
declined 38 basis points (0.38 percentage points). However, subsequently
stronger gross domestic product, employment, housing and consumer confidence
data showed signs of a robust level of activity. These stronger data resulted
in higher long-term interest rates, as shown by a 52 basis point yield increase
on 10 year U.S. Treasury notes.
Minutes of the August meeting of the Federal Reserve Board's Federal Open
Market Committee were interpreted by some investors as an indication that the
central bank was likely to tighten monetary policy before the end of the year
in response to the increase in economic activity. Accordingly, investors
anticipate a modest tightening of short-term rates while maintaining a neutral
outlook on intermediate to long term interest rates.
According to the Trust's investment adviser, TCW Funds Management, Inc.
(TCW) the recent rise in long-term interest rates reduced mortgage prepayment
risk, which aided the recent performance of mortgage-backed securities. The
issuance of new collateralized mortgage obligations (CMOs) is currently at a
fraction of the volume generated in previous years, lending support to mortgage
yield spreads.
THE PORTFOLIO
During the fiscal year ended September 30, 1996, the Trust sold a small
portion of its tax-exempt municipal bonds. The proceeds from these transactions
were used to repurchase the Trust's shares on the open market and to purchase
fixed-rate mortgage-backed securities. Additional portfolio changes are
expected to be made as market conditions and specific opportunities warrant.
Approximately 67 percent of the Trust's assets is invested in AAA-rated
mortgage pass-through securities or CMOs with durations, average lives or
expected maturity dates that correspond closely to the Trust's termination
date. An additional 19 percent is invested in inverse floating rate CMOs issued
by U.S.
<PAGE>
government agencies. Inverse floaters have coupons that reset by a multiple
in a direction opposite that of a specified index. The remaining 14 percent
is invested in AAA-rated municipal bonds and short-term investments. The
municipal bond holdings play an important role as the Trust seeks to achieve
its objective of returning the original $10 offering price to shareholders at
maturity. On September 30, 1996, the Trust's degree of leverage (the ratio of
debt to assets) was 27 percent of total assets.
LOOKING AHEAD
The Trust's adviser is generally positive regarding the mortgage-backed
sector over the long-term. Although signs of robust economic activity have
reappeared in recent months, real interest rates (interest rates minus
inflation) remain at historically high levels. (in the past, periods of strong
bond market performance have correlated with high real rates of interest). The
Trust's net asset and NYSE market values will continue to fluctuate as both
respond to changes in market conditions and interest rates.
We would like to remind you that the Trustees have approved a procedure
whereby the Trust may attempt, when appropriate, to reduce or eliminate a
market value discount from net asset value by repurchasing shares in the open
market or in privately negotiated transactions at a price not above market
value or net asset value, whichever is lower at the time of purchase. During
the fiscal year under review, the Trust purchased 2,861,300 shares of
beneficial interest at a weighted average market discount of 12.58 percent.
We appreciate your support of TCW/DW Term Trust 2002 and look forward to
continuing to serve your investment needs and objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo
Charles A. Fiumefreddo
Chairman of the Board
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS September 30, 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- -------- ---------- ------------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE
OBLIGATIONS (116.1%)
U.S. GOVERNMENT AGENCIES (58.8%)
$ 727 Federal Home Loan Mortgage Corp. 1385 SB ..................... 10.572+% 10/15/07 $ 668,756
3,063 Federal Home Loan Mortgage Corp. 1389 SB ..................... 10.027+ 10/15/07 2,634,674
30,000 Federal Home Loan Mortgage Corp. 1465 G (PAC)++ .............. 7.00 12/15/07 29,616,312
15,600 Federal Home Loan Mortgage Corp. 1481 H (PAC)++ .............. 6.875 08/15/21 15,137,975
4,536 Federal Home Loan Mortgage Corp. 1519 J ...................... 10.826+ 05/15/08 3,808,856
16,447 Federal Home Loan Mortgage Corp. 1606 SC ..................... 6.931+ 11/15/08 10,484,864
10,712 Federal Home Loan Mortgage Corp. 1609 LG (PAC) ............... 5.416+ 11/15/23 7,963,422
19,884 Federal Home Loan Mortgage Corp. 1611 QB (PAC) ............... 9.843+ 11/15/23 15,919,744
18,300 Federal Home Loan Mortgage Corp. 1633 B++ .................... 6.50 09/15/23 17,042,592
18,500 Federal Home Loan Mortgage Corp. 1638 K (PAC)++ .............. 6.50 03/15/23 17,234,328
1,584 Federal National Mortgage Assoc. 1992-138 O .................. 7.50 07/25/22 1,584,119
13,993 Federal National Mortgage Assoc. 1992-150 SV (PAC) .......... 11.706+ 05/25/21 12,982,830
15,703 Federal National Mortgage Assoc. 1992-208 C (TAC)++ ......... 7.50 10/25/07 15,761,799
16,248 Federal National Mortgage Assoc. 1992-214 K++ ................ 7.50 12/25/22 15,976,734
8,333 Federal National Mortgage Assoc. 1993-139 SP (PAC) .......... 7.50 + 12/25/21 6,443,999
27,362 Federal National Mortgage Assoc. 1993-141 A++ ................ 7.00 12/25/22 26,357,766
9,843 Federal National Mortgage Assoc. 1993-179 SV ................. 4.829+ 10/25/21 6,187,005
18,193 Federal National Mortgage Assoc. 1993-190 S .................. 5.529+ 10/25/08 12,069,512
8,383 Federal National Mortgage Assoc. 1993-190 SB (PAC) .......... 5.816+ 10/25/08 7,470,021
5,814 Federal National Mortgage Assoc. 1993-238 SA ................. 7.507+ 07/25/08 3,935,322
20,000 Federal National Mortgage Assoc. G1992-44 SC ................. 13.143+ 08/25/20 19,418,600
------------
TOTAL U.S. GOVERNMENT AGENCIES
(IDENTIFIED COST $281,166,074) ..................................................... 248,699,230
------------
PRIVATE ISSUES (57.3%)
9,022 Bear Stearns Mortgage Securities, Inc. 1993-10 A7 (PAC) ..... 7.20 07/25/24 8,593,287
19,844 Citicorp Mortgage Securities, Inc. 1992-20 A5++ .............. 7.50 12/25/07 19,719,975
19,574 CMC Securities Corp. III 1994-C A9 (PAC) ..................... 6.75 03/25/24 17,714,660
11,232 CountryWide Funding Corp. 1994-4 A12 ......................... 6.95 04/25/24 10,063,828
21,117 CountryWide Mortgage Backed Securities, Inc. 1993-B A6 (PAC)++ 6.75 11/25/23 18,688,545
28,165 General Electric Capital Mortgage Services, Inc. 1994-6 A9 .. 6.50 09/25/22 24,423,872
10,000 NorWest Asset Securities Corp. 1996-1 A5 ..................... 7.50 08/25/26 10,100,000
20,832 Prudential Home Mortgage Securities 1992-50 A3 ............... 8.00 12/25/23 20,849,859
13,170 Prudential Home Mortgage Securities 1993-2 A7 ................ 7.00 02/25/08 12,533,674
20,312 Prudential Home Mortgage Securities 1993-34 A1 ............... 7.00 08/25/23 20,206,151
20,000 Prudential Home Mortgage Securities 1993-60 A3 (PAC) ........ 6.75 12/25/23 17,845,406
41,182 Resolution Funding Mortgage Securities I 1992-S38 A6 ........ 7.50 02/25/18 41,361,965
16,836 Resolution Funding Mortgage Securities I 1993-S40 A8 (TAC) .. 6.75 11/25/23 15,591,725
4,731 Ryland Mortgage Securities Corp. 1992-18 C++ ................. 7.75 09/25/19 4,738,097
------------
TOTAL PRIVATE ISSUES
(IDENTIFIED COST $251,581,185) ..................................................... 242,431,044
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $532,747,259) ..................................................... 491,130,274
------------
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS September 30, 1996 (continued)
- ------------------------------------------------------------------------------
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- -------- ---------- ------------
U.S. GOVERNMENT AGENCY MORTGAGE
PASS-THROUGH SECURITY (2.2%)
$ 9,178 Government National Mortgage Assoc. II
(Identified Cost $9,298,608) ................................ 7.125% 06/20/25 $ 9,320,407
------------
MUNICIPAL BONDS (17.2%)
ELECTRIC REVENUE (1.4%)
8,400 Lower Colorado River Authority, Texas,
Jr Lien 4th Ser (FGIC) ...................................... 0.00 01/01/04 5,813,304
------------
INDUSTRIAL DEVELOPMENT REVENUE (4.3%)
Metropolitan Pier & Exposition Authority, Illinois,
6,610 McCormick Place (AMBAC) ..................................... 0.00 06/15/02 4,969,596
7,400 McCormick Place (AMBAC) ..................................... 0.00 12/15/02 5,426,272
10,465 Pennsylvania Convention Center Authority,
Ser A (FGIC) (ETM) .......................................... 0.00 09/01/02 7,871,250
------------
18,267,118
------------
OTHER REVENUE (7.4%)
17,500 North Slope Boro, Alaska, Ser 1992 A (MBIA) .................. 0.00 06/30/03 12,318,250
33,140 Johnson County, Kansas, (AMBAC) (ETM) ........................ 0.00 06/01/12 11,454,178
10,400 Texas, 1992 Refg Ser C (FGIC) ................................ 0.00 04/01/03 7,519,408
------------
31,291,836
------------
TAX ALLOCATION (2.1%)
12,370 Harris County, Texas (MBIA) .................................. 0.00 10/01/02 9,218,124
------------
TRANSPORTATION REVENUE (2.0%)
12,000 Contra Costa Transportation Authority, California, Sales Tax
(FGIC) (ETM) ................................................ 0.00 03/01/04 8,342,760
------------
TOTAL MUNICIPAL BONDS (IDENTIFIED COST $68,558,168) ................................. 72,933,142
------------
SHORT-TERM INVESTMENTS (1.4%)
U.S. GOVERNMENT AGENCY (a) (0.2%)
1,000 Federal Home Loan Mortgage Corp. ............................. 5.19 10/10/96 998,703
------------
REPURCHASE AGREEMENT (1.2%)
5,000 The Bank of New York (dated 09/30/96; proceeds $5,000,694;
collateralized by $4,994,894 U.S. Treasury Note 5.625% due
10/31/97 valued at $5,100,000) (Identified Cost $5,000,000) 5.00 10/01/96 5,000,000
------------
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $5,998,703) 5,998,703
------------
TOTAL INVESTMENTS (IDENTIFIED COST $616,602,738)(b) ...................... 136.9% $579,382,526
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS .......................... (36.9) (156,288,015)
---------- ------------
NET ASSETS ............................................................... 100.0% $423,094,511
========== ============
</TABLE>
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS September 30, 1996 (continued)
- ------------------------------------------------------------------------------
- ---------------
ETM Escrowed to Maturity.
PAC Planned Amortization Class.
TAC Targeted Amortization Class.
+ Inverse floater: interest rate moves inversely to a designated index,
such as LIBOR (London Inter-Bank Offered Rate) or COFI (Cost of Funds
Index), typically at a multiple of the changes of the relevant index
rate.
++ Some or all of these securities are pledged in connection with reverse
repurchase agreements.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation was
$9,633,820 and the aggregate gross unrealized depreciation was
$46,854,032, resulting in net unrealized depreciation of $37,220,212.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
<PAGE>
TCW/DW TERM TRUST 2002
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
- ------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $616,602,738) ...... $579,382,526
Cash .................................. 4,964
Interest receivable ................... 3,390,391
Deferred organizational expenses ..... 15,897
Prepaid expenses ...................... 53,468
------------
TOTAL ASSETS ....................... 582,847,246
------------
LIABILITIES:
Reverse repurchase agreements ......... 158,964,000
Payable for:
Interest ............................. 238,116
Shares of beneficial interest
repurchased .......................... 209,197
Management fee ....................... 138,653
Investment advisory fee .............. 92,435
Accrued expenses ...................... 110,334
Contingencies (Note 8) ................ --
------------
TOTAL LIABILITIES .................. 159,752,735
------------
NET ASSETS:
Paid-in-capital ....................... 438,435,216
Net unrealized depreciation ........... (37,220,212)
Accumulated undistributed net
investment income .................... 20,920,552
Accumulated undistributed net realized
gain ................................. 958,955
------------
NET ASSETS ......................... $423,094,511
============
NET ASSET VALUE PER SHARE, 46,110,640
shares outstanding (unlimited shares
authorized of $.01 par value) ........ $9.18
=====
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended September 30, 1996
- ------------------------------------------------------------------------------
NET INVESTMENT INCOME:
INTEREST INCOME ...................... $46,295,215
-----------
EXPENSES
Management fee ...................... 1,718,323
Investment advisory fee ............. 1,145,549
Transfer agent fees and expenses ... 173,062
Professional fees ................... 101,028
Shareholder reports and notices .... 83,021
Insurance expenses .................. 49,794
Registration fees ................... 49,280
Custodian fees ...................... 49,264
Trustees' fees and expenses ......... 31,040
Pricing Fees ........................ 26,286
Organizational expenses ............. 14,369
Other ............................... 5,520
-----------
TOTAL OPERATING EXPENSES ........... 3,446,536
Interest expense .................... 8,468,155
-----------
TOTAL EXPENSES ..................... 11,914,691
-----------
NET INVESTMENT INCOME .............. 34,380,524
-----------
NET REALIZED AND
UNREALIZED GAIN (LOSS):
Net realized gain ................... 778,924
Net change in unrealized
depreciation ....................... (8,123,925)
-----------
NET LOSS ........................... (7,345,001)
-----------
NET INCREASE ....................... $27,035,523
===========
See Notes to Financial Statements
<PAGE>
TCW/DW TERM TRUST 2002
FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year For the year
ended ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ......................................... $ 34,380,524 $ 33,430,837
Net realized gain ............................................. 778,924 433,720
Net change in unrealized depreciation ......................... (8,123,925) 61,921,924
------------ ------------
Net increase ................................................. 27,035,523 95,786,481
------------ ------------
Dividends and distributions from:
Net investment income ......................................... (27,791,846) (33,619,948)
Net realized gain ............................................. (253,689) (17,102)
------------ ------------
Total ........................................................ (28,045,535) (33,637,050)
Net decrease from transactions in shares of beneficial interest (22,900,449) (8,058,878)
------------ ------------
Total increase (decrease) .................................... (23,910,461) 54,090,553
NET ASSETS:
Beginning of period ............................................ 447,004,972 392,914,419
------------ ------------
END OF PERIOD (Including undistributed net investment
income of $20,920,552 and $14,331,874, respectively) .......... $423,094,511 $447,004,972
============ ============
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW TERM TRUST 2002
FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS For the year ended September 30, 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income .......................................................... $ 34,380,524
Adjustments to reconcile net investment income to net cash provided by operating
activities:
Increase in receivables and other assets related to operations ............... (171,974)
Decrease in payable related to operations ..................................... (377,158)
Net amortization of discount/premium .......................................... (6,459,861)
------------
Net cash provided by operating activities .................................... 27,371,531
------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of investments ........................................................ (44,002,753)
Principal prepayments/sales of investments ..................................... 41,117,656
Net purchases of short-term investments ........................................ (4,218,556)
------------
Net cash used for investing activities ....................................... (7,103,653)
------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Net payment for shares of beneficial interest repurchased ...................... (22,946,379)
Net proceeds from the issuance of reverse repurchase agreements ............... 30,729,000
Dividends to shareholders from net investment income ........................... (27,791,846)
Distributions to shareholders from capital gains ............................... (253,689)
------------
Net cash used for financing activities ....................................... (20,262,914)
------------
Net increase in cash ......................................................... 4,964
Cash at beginning of year ....................................................... --
------------
CASH BALANCE AT END OF YEAR ..................................................... $ 4,964
============
Cash paid during the year for interest .......................................... $ 8,806,688
============
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS September 30, 1996
- ------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- TCW/DW Term Trust 2002 (the
"Trust") is registered under the Investment Company Act of 1940, as amended, as
a diversified, closed-end management investment company. The Trust's investment
objective is to provide a high level of current income and return $10 per share
to shareholders on the termination date. The Trust seeks to achieve its
objective by investing in high quality fixed-income securities. The Trust was
organized as a Massachusetts business trust on August 28, 1992 and commenced
operations on November 30, 1992. The Trust will distribute substantially all of
its net assets on or about December 31, 2002 and will then terminate.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies:
A. Valuation of Investments -- (1) portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (2) when market
quotations are not readily available, including circumstances under which
it is determined by the Adviser that sale and bid prices are not reflective
of a security's market value, portfolio securities are valued at their fair
value as determined in good faith under procedures established by and under
the general supervision of the Trustees; (3) certain portfolio securities
may be valued by an outside pricing service approved by the Trustees. The
pricing service utilizes a matrix system incorporating security quality,
maturity and coupon as the evaluation model parameters, and/or research and
evaluations by its staff, including review of broker-dealer market price
quotations, if available, in determining what it believes is the fair
valuation of the portfolio securities valued by such pricing service; and
(4) short-term debt securities having a maturity date of more than sixty
days at the time of purchase are valued on a mark-to-market basis until
sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity
date of sixty days or less at the time of purchase are valued at amortized
cost.
B. Accounting for Investments -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. The Trust amortizes premiums and accretes discounts over the life
of the respective securities. Interest income is accrued daily.
C. Federal Income Tax Status -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. Dividends and Distributions to Shareholders -- The Trust records
dividends and distributions to its shareholders on the record date. The
amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent
in nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net
realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax
purposes, they are reported as distributions of paid-in-capital.
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS September 30, 1996 (continued)
- -----------------------------------------------------------------------------
E. Organizational Expenses -- Dean Witter InterCapital Inc.("InterCapital"),
an affiliate of Dean Witter Services Company Inc. (the "Manager"), paid the
organizational expenses of the Trust in the amount of approximately $70,200
which have been reimbursed for the full amount thereof. Such expenses have
been deferred and are being amortized on the straight-line method over a
period not to exceed five years from the commencement of operations.
2. MANAGEMENT AGREEMENT -- Pursuant to a Management Agreement, the Trust pays
the Manager a management fee, accrued weekly and payable monthly, by applying
the annual rate of 0.39% to the Trust's weekly net assets.
Under the terms of the Management Agreement, the Manager maintains certain
of the Trust's books and records and furnishes, at its own expense, office
space, facilities, equipment, clerical, bookkeeping and certain legal services
and pays the salaries of all personnel, including officers of the Trust who are
employees of the Manager. The Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Trust.
3. INVESTMENT ADVISORY AGREEMENT -- Pursuant to an Investment Advisory
Agreement with TCW Funds Management, Inc. (the "Adviser"), the Trust pays the
Adviser an advisory fee, accrued weekly and payable monthly, by applying the
annual rate of 0.26% to the Trust's weekly net assets.
Under the terms of the Investment Advisory Agreement, the Trust has
retained the Adviser to invest the Trust's assets, including placing orders for
the purchase and sale of portfolio securities. The Adviser obtains and
evaluates such information and advice relating to the economy, securities
markets and specific securities as it considers necessary or useful to
continuously manage the assets of the Trust in a manner consistent with its
investment objective. In addition, the Adviser pays the salaries of all
personnel, including officers of the Trust, who are employees of the Adviser.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from sales/prepayments of portfolio securities,
excluding short-term investments, for the year ended September 30, 1996 were
as follows:
Sales/
Purchases Prepayments
----------- -----------
U.S. Government Agencies .......................... $ 9,761,197 $ 5,545,112
Private Issue Collateralized Mortgage Obligations . 34,241,556 18,090,864
Municipal Bonds ................................... -- 17,481,680
Dean Witter Trust Company, an affiliate of the Manager, is the Trust's
transfer agent. At September 30, 1996, the Trust had transfer agent fees and
expenses payable of approximately $13,000.
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS September 30, 1996 (continued)
- -----------------------------------------------------------------------------
5. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Capital
Paid in
Par Value Excess of
Shares of Shares Par Value
------ --------- ---------
<S> <C> <C> <C>
Balance, September 30, 1994 ............... 50,010,640 $500,106 $468,894,437
Treasury shares purchased and retired
(weighted average discount 12.48%)* ...... (1,038,700) (10,387) (8,048,491)
---------- -------- ------------
Balance, September 30, 1995 ............... 48,971,940 489,719 460,845,946
Treasury shares purchased and retired
(weighted average discount 12.58%)* ...... (2,861,300) (28,613) (22,871,836)
---------- -------- ------------
Balance, September 30, 1996 ............... 46,110,640 $461,106 $437,974,110
========== ======== ============
</TABLE>
- --------------
* The Trustees have voted to retire the shares purchased.
6. REVERSE REPURCHASE AND DOLLAR ROLL AGREEMENTS -- Reverse repurchase and
dollar roll agreements involve the risk that the market value of the
securities the Trust is obligated to repurchase under the agreement may
decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase or dollar roll agreement files for bankruptcy or
becomes insolvent, the Trust's use of proceeds may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Trust's obligation to repurchase the securities.
Reverse repurchase agreements are collateralized by Trust securities with a
market value in excess of the Trust's obligation under the contract. At
September 30, 1996, securities valued at $169,260,196 were pledged as
collateral.
At September 30, 1996, the reverse repurchase agreements outstanding were
$158,964,000 with a weighted interest rate of 5.58% maturing within 51 days.
The maximum and average daily amounts outstanding during the period were
$163,253,000 and $150,625,066, respectively. The weighted average interest rate
during the period was 5.62%.
7. DIVIDENDS -- The Trust declared the following dividends from net
investment income payable to shareholders of record subsequent to September
30, 1996:
Declaration Amount per Record Payable
Date Share Date Date
------------------ ---------- --------------- -----------------
September 24, 1996 $0.052 October 4, 1996 October 18, 1996
October 30, 1996 $0.052 November 8, 1996 November 22, 1996
8. LITIGATION -- Four purported class action lawsuits have been filed in the
Superior Court for the State of California, County of Orange, against some of
the Trust's Trustees and officers, one of its underwriters, the lead
representative of its underwriters, the Adviser, the Manager and other
defendants - but not against the Trust - by certain shareholders of the
Trust and other trusts for which the defendants act in similar capacities.
These plaintiffs generally allege violations of state statutory and common
law in connection with the marketing of the Trust to customers of one of the
underwriters. Damages, including punitive damages, are sought in an
unspecified amount. On or about October 20, 1995, the plaintiffs filed an
amended complaint consolidating these four actions. All defendants except two
of the Trustees have filed answers and affirmative defenses to the
consolidated amended complaint. The two Trustees have moved to dismiss the
complaint against them. Certain of the defendants in these suits have
asserted their right to indemnification from the Trust. The ultimate outcome
of these matters is not presently determinable, and no provision has been
made in the Trust's financial statements for the effect, if any, of such
matters.
<PAGE>
TCW/DW TERM TRUST 2002
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
For the period
For the year ended September 30, November 30, 1992*
---------------------------------------- through
1996 1995++++ 1994 September 30, 1993
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....... $ 9.13 $ 7.86 $10.18 $ 9.40
------ ------ ------ ------
Net investment income ....................... 0.74 0.68 0.99 0.73
Net realized and unrealized gain (loss) .... (0.17) 1.25 (2.45) 0.65
------ ------ ------ ------
Total from investment operations ............ 0.57 1.93 (1.46) 1.38
------ ------ ------ ------
Less dividends and distributions from:
Net investment income ...................... (0.58) (0.68) (0.84) (0.59)
Net realized gain .......................... (0.01) -- (0.02) --
------ ------ ------ ------
Total dividends and distributions ........... (0.59) (0.68) (0.86) (0.59)
------ ------ ------ ------
Anti-dilutive effect of acquiring treasury
shares ..................................... 0.07 0.02 -- --
Less offering costs charged against capital -- -- -- (0.01)
------ ------ ------ ------
Net asset value, end of period .............. $ 9.18 $ 9.13 $ 7.86 $10.18
====== ====== ====== ======
Market value, end of period ................. $8.125 $ 7.75 $ 8.25 $10.25
====== ====== ====== ======
TOTAL INVESTMENT RETURN+ .................... 12.77% 2.52% (12.19)% 8.60%(1)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses .......................... 0.79% 0.80% 0.78% 0.77%(2)
Interest expense ............................ 1.93% 2.28% 1.44% 0.68%(2)
Total expenses .............................. 2.72% 3.08% 2.22% 1.45%(2)
Net investment income ....................... 7.85% 8.15% 10.85% 9.05%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .... $423,095 $447,005 $392,914 $509,220
Portfolio turnover rate ..................... 7% --%++ 24% 29%(1)
</TABLE>
- --------------
* Commencement of operations.
+ Total investment return is based upon the current market value on the
first day of each period reported. Dividends and distributions are
assumed to be reinvested at the prices obtained under the Trust's
reinvestment plan. Total investment return does not reflect brokerage
commissions.
++ Less than 0.5%.
++++ Restated for comparative purposes.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
<PAGE>
TCW/DW TERM TRUST 2002
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------------------------------------------------------------------------
To the Shareholders and Trustees of TCW/DW Term Trust 2002
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of
changes in net assets, and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of TCW/DW Term Trust
2002 (the "Trust") at September 30, 1996, the results of its operations and its
cash flows for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the three years in the period then ended and for the period November 30, 1992
(commencement of operations) through September 30, 1993, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 1996 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Our report on the September 30, 1995 financial statements referred to certain
pending litigation, the status of which is described in Note 8 to these
financial statements. Because of changes to professional auditing standards
recently adopted by the American Institute of Certified Public Accountants, our
report on the September 30, 1996 financial statements is no longer required to
refer to uncertainties such as this litigation.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
November 7, 1996
<PAGE>
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Sheldon Curtis
Vice President, Secretary and
General Counsel
Philip A. Barach
Vice President
Jeffrey E. Gundlach
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Haborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
TCW/DW
TERM TRUST
2002
ANNUAL REPORT
SEPTEMBER 30, 1996
