<PAGE>
TCW/DW TERM TRUST 2002
LETTER TO THE SHAREHOLDERS March 31, 1997
Two World Trade Center, New York, New York, 10048
DEAR SHAREHOLDER:
For the six months ended March 31, 1997, the net asset value of TCW/DW Term
Trust 2002 increased from $9.18 to $9.19 per share. Based on this change, and
assuming reinvestment of dividends and distributions totaling approximately
$0.37 per share, the Trust's total return for the period from October 1, 1996
through March 31, 1997 was 4.62 percent. Over the same period, the market
price of the Trust's shares on the New York Stock Exchange (NYSE) increased
from $8.125 to $8.50 per share. Based on this change, and assuming
reinvestment of dividends, the Trust's total return for the six-month period
was 9.33 percent. This strong investment performance is largely attributable
to the narrowing of the Trust's market price discount to net asset value from
11 percent to 8 percent.
In February, the Trust raised its monthly dividend from $0.052 to $0.055 per
share to reflect an increase in the Trust's portfolio earnings. This earnings
increase is largely attributable to the decline in short-term interest rates
over the past 18 months.
THE MARKET
In response to continuing signs of economic growth, the financial markets saw
a modest sell off of securities over the past six months. Unemployment claims
moved lower, there was a strong gain in manufacturing activity and reports of
higher retail sales indicate that consumer spending is fueling further
expansion. These strong economic data prompted the Federal Reserve Board to
tighten monetary policy by 25 basis points (0.25 percentage points) on March
25, 1997.
According to the Trust's investment adviser, TCW Funds Management, Inc.
(TCW), the recent rise in long-term interest rates reduced home mortgage
prepayment risk, which helped the mortgage-backed sector's recent
performance. 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.
<PAGE>
TCW/DW TERM TRUST 2002
LETTER TO THE SHAREHOLDERS, continued
THE PORTFOLIO
Approximately 66 percent of the Trust's assets is invested in AAA-rated
mortgage pass-through securities or CMOs. An additional 20 percent is
invested in inverse floating rate CMOs issued by U.S. 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
March 31, 1997, the Trust's degree of leverage (the ratio of debt to assets)
was 29 percent of total assets.
LOOKING AHEAD
TCW remains generally positive regarding the mortgage-backed sector's
long-term prospects. Although overall economic activity is still robust, real
interest rates 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.
Many analysts feel that a benign inflationary environment should temper the
severity of any future central bank actions.
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 period under review, the Trust purchased 1,690,200 shares of common stock
at a weighted average market discount of 10.41 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
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 27, 1996, an annual meeting of the Trust's shareholders was held
for the purpose of voting on three separate matters, the results of which
were as follows:
(1) Election of Trustees:
<TABLE>
<CAPTION>
<S> <C>
John C. Argue
For................. 33,965,434
Withheld ........... 929,015
Charles A. Fiumefreddo
For................. 33,962,526
Withheld ........... 931,923
Michael E. Nugent
For................. 33,962,002
Withheld ........... 932,447
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Richard M. DeMartini, John R. Haire, Dr. Manuel H. Johnson, Thomas E. Larkin,
Jr., John L. Schroeder and Marc I. Stern.
(2) Continuance of the Currently Effective Investment Advisory Agreement
between the Trust and TCW Funds Management, Inc.:
<TABLE>
<CAPTION>
<S> <C>
For ................ 31,295,070
Against ............ 2,114,341
Abstain ............ 1,485,038
</TABLE>
(3) Ratification of Price Waterhouse LLP as Independent Accountants:
<TABLE>
<CAPTION>
<S> <C>
For ................ 32,878,131
Against ............ 1,128,615
Abstain ............ 887,703
</TABLE>
In addition, a shareholder proposal to amend the Trust's Declaration of Trust
to require each Trustee, within 30 days of election, to become a shareholder
of the Trust failed to obtain the necessary quorum of a majority of shares
outstanding and entitled to vote at the meeting. Although no quorum was
obtained, the following represents the total of the shares whose votes
returned to the Trust prior to the meeting.
<TABLE>
<CAPTION>
PERCENTAGE OF
VOTE NO. OF SHARES OUTSTANDING SHARES
- --------- ------------- ------------------
<S> <C> <C>
For 5,922,134 12.91%
Against 13,548,417 29.54%
Abstain 1,626,592 3.55%
</TABLE>
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (118.8%)
U.S. GOVERNMENT AGENCIES (61.3%) ...............................
$ 727 Federal Home Loan Mortgage Corp. 1385 SB ........................ 10.567+% 10/15/07 $ 705,998
3,063 Federal Home Loan Mortgage Corp. 1389 SB ........................ 10.027+ 10/15/07 2,626,863
30,000 Federal Home Loan Mortgage Corp. 1465 G (PAC) ++................. 7.00 12/15/07 29,277,918
15,600 Federal Home Loan Mortgage Corp. 1481 H (PAC) ++................. 6.875 08/15/21 15,082,387
4,482 Federal Home Loan Mortgage Corp. 1519 J ......................... 11.853+ 05/15/08 4,224,289
16,447 Federal Home Loan Mortgage Corp. 1606 SC ........................ 7.679+ 11/15/08 12,062,610
10,623 Federal Home Loan Mortgage Corp. 1609 LG (PAC) .................. 5.416+ 11/15/23 7,813,413
19,884 Federal Home Loan Mortgage Corp. 1611 QB (PAC) .................. 9.625+ 11/15/23 16,653,075
18,300 Federal Home Loan Mortgage Corp. 1633 B ++....................... 6.50 09/15/23 16,752,008
18,500 Federal Home Loan Mortgage Corp. 1638 K (PAC) ++................. 6.50 03/15/23 17,127,145
1,419 Federal National Mortgage Assoc. 1992-138 O ..................... 7.50 07/25/22 1,394,476
13,993 Federal National Mortgage Assoc. 1992-150 SV (PAC) .............. 11.701+ 05/25/21 13,363,299
15,703 Federal National Mortgage Assoc. 1992-208 C (TAC) ++............. 7.50 10/25/07 15,385,180
16,248 Federal National Mortgage Assoc. 1992-214 K ++................... 7.50 12/25/22 15,639,917
8,333 Federal National Mortgage Assoc. 1993-139 SP (PAC) .............. 7.77 + 12/25/21 6,350,750
27,057 Federal National Mortgage Assoc. 1993-141 A ++................... 7.00 12/25/22 25,652,168
9,843 Federal National Mortgage Assoc. 1993-179 SV .................... 4.053+ 10/25/21 5,879,028
18,193 Federal National Mortgage Assoc. 1993-190 S ..................... 5.524+ 10/25/08 13,104,306
8,212 Federal National Mortgage Assoc. 1993-190 SB (PAC) .............. 5.441+ 10/25/08 7,236,197
5,814 Federal National Mortgage Assoc. 1993-238 SA .................... 7.50 + 07/25/08 4,453,117
20,000 Federal National Mortgage Assoc. G1992-44 SC .................... 13.137+ 08/25/20 19,518,600
-------------
TOTAL U.S. GOVERNMENT AGENCIES (Identified Cost $280,279,252) ........................ 250,302,744
-------------
PRIVATE ISSUES (57.5%) .........................................
9,022 Bear Stearns Mortgage Securities, Inc. 1993-10 A7 (PAC) ......... 7.20 07/25/24 8,583,472
19,844 Citicorp Mortgage Securities, Inc. 1992-20 A5 ++................. 7.50 12/25/07 19,639,210
19,574 CMC Securities Corp. III 1994-C A9 (PAC) ........................ 6.75 03/25/24 17,576,577
11,232 CountryWide Funding Corp. 1994-4 A12 ............................ 6.95 04/25/24 9,970,530
21,117 CountryWide Mortgage Backed Securities, Inc. 1993-B A6 (PAC) ++.. 6.75 11/25/23 18,354,476
29,091 General Electric Capital Mortgage Services, Inc. 1994-6 A9 ...... 6.50 09/25/22 24,954,361
10,000 NorWest Asset Securities Corp. 1996-1 A5 ........................ 7.50 08/25/26 9,820,936
16,638 Prudential Home Mortgage Securities 1992-50 A3 .................. 8.00 12/25/23 16,639,132
13,170 Prudential Home Mortgage Securities 1993-2 A7 ................... 7.00 02/25/08 12,223,165
18,023 Prudential Home Mortgage Securities 1993-34 A1 .................. 7.00 08/25/23 17,858,758
20,000 Prudential Home Mortgage Securities 1993-60 A3 (PAC) ............ 6.75 12/25/23 17,736,252
41,182 Resolution Funding Mortgage Securities I 1992-S38 A6 ............ 7.50 02/25/18 41,464,920
16,836 Resolution Funding Mortgage Securities I 1993-S40 A8 (TAC) ...... 6.75 11/25/23 15,387,430
4,731 Ryland Mortgage Securities Corp. 1992-18 C ...................... 7.75 09/25/19 4,732,226
-------------
TOTAL PRIVATE ISSUES (Identified Cost $246,222,233) .................................. 234,941,445
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Identified Cost $526,501,485) ....................................................... 485,244,189
-------------
U.S GOVERNMENT AGENCY MORTGAGE
PASS-THROUGH SECURITY (2.0%)
7,966 Government National Mortgage Assoc. II ARM
(Identified Cost $8,070,619) ................................... 7.125 06/20/25 8,124,577
-------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS March 31,1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (18.3%)
Electric Revenue (1.4%)
$ 8,400 Lower Colorado River Authority, Texas, Jr Lien 4th Ser (FGIC) ... 0.00 % 01/01/04 $ 5,959,632
-------------
Industrial Development Revenue (4.6%)
Metropolitan Pier & Exposition Authority, Illinois .............
6,610 McCormick Place (AMBAC) ........................................ 0.00 06/15/02 5,111,580
7,400 McCormick Place (AMBAC) ........................................ 0.00 12/15/02 5,582,930
10,465 Pennsylvania Convention Center Authority, Ser A (FGIC) (ETM) .... 0.00 09/01/02 8,038,376
-------------
18,732,886
-------------
Other Revenue (7.9%)
17,500 North Slope Boro, Alaska, Ser 1992 A (MBIA) ..................... 0.00 06/30/03 12,774,475
33,140 Johnson County, Kansas, (AMBAC)(ETM) ............................ 0.00 06/01/12 11,658,983
10,400 Texas, 1992 Refg Ser C (FGIC) ................................... 0.00 04/01/03 7,710,352
-------------
32,143,810
-------------
Tax Allocation (2.3%)
12,370 Harris County, Texas, (MBIA) .................................... 0.00 10/01/02 9,453,030
-------------
Transportation Revenue (2.1%) ..................................
12,000 Contra Costa Transportation Authority, California, Sales Tax
(FGIC) (ETM) ................................................... 0.00 03/01/04 8,510,520
-------------
TOTAL MUNICIPAL BONDS (Identified Cost $70,633,344) ............. 74,799,878
-------------
SHORT-TERM INVESTMENT (1.0%)
REPURCHASE AGREEMENT
3,865 The Bank of New York (dated 03/31/97; proceeds $3,865,498;
collateralized by $3,968,894 Federal Home Loan Banks 6.04% due
08/13/98 valued at $3,942,219)(Identified Cost $3,864,921) ..... 5.375 04/01/97 3,864,921
-------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS (Identified Cost $609,070,369)(a) ....................... 140.1% 572,033,565
LIABILITIES IN EXCESS OF OTHER ASSETS ..................................... (40.1) (163,719,005)
------- --------------
NET ASSETS ................................................................ 100.0% $ 408,314,560
======= ==============
</TABLE>
- ------------
ARM Adjustable Rate Mortgage.
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) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$6,007,952 and the aggregate gross unrealized depreciation is
$43,044,756, resulting in net unrealized depreciation of
$37,036,804.
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
March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $609,070,369) ...................................... $572,033,565
Interest receivable................................................... 3,256,369
Deferred organizational expenses...................................... 8,805
Prepaid expenses and other assets .................................... 51,838
------------
TOTAL ASSETS ....................................................... 575,350,577
------------
LIABILITIES:
Reverse repurchase agreements ........................................ 166,295,000
Payable for:
Interest ........................................................... 340,942
Management fee ..................................................... 137,857
Shares of beneficial interest repurchased .......................... 99,508
Investment advisory fee ............................................ 91,905
Accrued expenses and other payables .................................. 70,805
Contingencies (Note 8) ............................................... -
------------
TOTAL LIABILITIES .................................................. 167,036,017
------------
NET ASSETS:
Paid-in-capital ...................................................... 424,151,626
Net unrealized depreciation .......................................... (37,036,804)
Accumulated undistributed net investment income ...................... 21,199,749
Accumulated net realized loss ........................................ (11)
------------
NET ASSETS ......................................................... $408,314,560
============
NET ASSET VALUE PER SHARE
44,420,440 shares outstanding (unlimited shares authorized of $.01
par value) ......................................................... $ 9.19
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2002
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ...................... $22,493,219
-----------
EXPENSES
Management fee ....................... 832,956
Investment advisory fee .............. 555,304
Transfer agent fees and expenses .... 91,256
Professional fees .................... 41,768
Insurance expenses ................... 28,044
Shareholder reports and notices ..... 23,674
Registration fees .................... 21,110
Trustees' fees and expenses .......... 16,527
Service fees ......................... 16,367
Custodian fees ....................... 14,864
Organizational expenses .............. 7,092
Other ................................ 801
-----------
TOTAL OPERATING EXPENSES ........... 1,649,763
Interest Expense...................... 4,497,425
-----------
TOTAL EXPENSES ..................... 6,147,188
-----------
NET INVESTMENT INCOME .............. 16,346,031
NET CHANGE IN UNREALIZED DEPRECIATION 183,408
-----------
NET INCREASE ......................... $16,529,439
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2002
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 1997 SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 16,346,031 $ 34,380,524
Net realized gain ..................................... - 778,924
Net change in unrealized depreciation ................. 183,408 (8,123,925)
------------ ------------
NET INCREASE ........................................ 16,529,439 27,035,523
------------ ------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ................................. (16,066,834) (27,791,846)
Net realized gain ..................................... (958,966) (253,689)
------------ ------------
TOTAL ............................................... (17,025,800) (28,045,535)
------------ ------------
Net decrease from transactions in shares of beneficial
interest ............................................. (14,283,590) (22,900,449)
------------ ------------
NET DECREASE ........................................ (14,779,951) (23,910,461)
NET ASSETS:
Beginning of period ................................... 423,094,511 447,004,972
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$21,199,749 and $20,920,552, respectively) ........ $408,314,560 $423,094,511
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2002
FINANCIAL STATEMENTS, continued
STATEMENT OF CASH FLOWS
For the six months ended March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income ................................................ $ 16,346,031
Adjustments to reconcile net investment income to net cash provided
by operating activities:
Decrease in receivables and other assets related to operations ....... 142,744
Increase in payables related to operations ........................... 61,971
Net amortization of discount/premium ................................. (2,169,494)
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 14,381,252
------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Purchase of investments .............................................. (925,572)
Principal prepayments/sales of investments ........................... 8,480,134
Net sales of short-term investments .................................. 2,147,301
------------
NET CASH PROVIDED BY INVESTING ACTIVITIES .......................... 9,701,863
------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Net proceeds from shares of beneficial interest repurchased ......... (14,393,279)
Net proceeds from issuance of reverse repurchase agreements ......... 7,331,000
Dividends to shareholders from net investment income ................. (16,066,834)
Distributions to shareholders from capital gains ..................... (958,966)
------------
NET CASH USED FOR FINANCING ACTIVITIES ............................. (24,088,079)
------------
NET DECREASE IN CASH ................................................. (4,964)
CASH AT BEGINNING OF THE PERIOD ...................................... 4,964
------------
CASH BALANCE AT END OF PERIOD ........................................ -
============
Cash paid during the period for interest ............................. $ 4,394,599
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited)
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 TCW Funds Management, Inc. (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 may utilize 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.
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited) continued
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.
E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc., 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.
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited) continued
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement 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 WITH AFFILIATES
The cost of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the six months ended
March 31, 1997 were as follows:
<TABLE>
<CAPTION>
SALES/
PURCHASES PREPAYMENTS
---------- -----------
<S> <C> <C>
$
U.S. Government Agencies - $1,996,665
Private Issue Collateralized Mortgage Obligations 925,572 6,483,469
</TABLE>
Dean Witter Trust Company, an affiliate of the Manager, is the Trust's transfer
agent. At March 31, 1997, the Trust had transfer agent fees and expenses
payable of approximately $15,000.
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, 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
Treasury shares purchased and retired (weighted average discount 10.41%)* (1,690,200) (16,902) (14,266,688)
---------- -------- ------------
Balance, March 31, 1997 44,420,440 $444,204 $423,707,422
========== ======== ============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited) continued
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 March
31, 1997, securities valued at $172,027,086 were pledged as collateral.
At March 31, 1997, the reverse repurchase agreements outstanding were
$166,295,000 with a weighted interest rate of 5.67% maturing within 51 days.
The maximum and average daily amounts outstanding during the period were
$167,290,000 and $161,182,853, respectively. The weighted average interest
rate during the period was 5.49%.
7. DIVIDENDS
The Trust declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT PER RECORD PAYABLE
DATE SHARE DATE DATE
----------- ---------- ----------- -----------
<S> <C> <C> <C>
March 25, 1997 $0.055 April 4, 1997 April 18, 1997
April 29, 1997 $0.055 May 9, 1997 May 23, 1997
</TABLE>
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. The defendants thereafter filed answers and affirmative defenses
to the consolidated amended complaint. The defendants' answers deny all of the
material allegations of the plaintiffs' complaint. In 1996, the plaintiffs
voluntarily dismissed, without prejudice, their claims against two defendants
who were independent Trustees of the Trust. In March
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited) continued
1997, all of the remaining defendants in the litigation filed motions for
judgment on the pleadings, seeking dismissal of all of the claims asserted
against them. The defendants' motions were fully briefed by all parties and were
the subject of a hearing before the Court on April 18, 1997. As of May 6, 1997,
the motions were still under submission with the Court and no ruling had yet
been entered in connection with those motions. 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 SIX FOR THE YEAR ENDED SEPTEMBER 30, NOVEMBER 30, 1992*
MONTHS ENDED -------------------------------- THROUGH
MARCH 31, 1997 1996 1995++++ 1994 SEPTEMBER 30, 1993
- -------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............. $ 9.18 $ 9.13 $ 7.86 $ 10.18 $ 9.40
----------- ------ ------ ------- --------
Net investment income............................. 0.37 0.74 0.68 0.99 0.73
Net realized and unrealized gain (loss)........... (0.03) (0.17) 1.25 (2.45) 0.65
----------- ------ ------ ------- --------
Total from investment operations.................. 0.34 0.57 1.93 (1.46) 1.38
----------- ------ ------ ------- --------
Less dividends and distributions from:
Net investment income............................ (0.35) (0.58) (0.68) (0.84) (0.59)
Net realized gain................................ (0.02) (0.01) - (0.02) -
----------- ------ ------ ------- --------
Total dividends and distributions................. (0.37) (0.59) (0.68) (0.86) (0.59)
----------- ------ ------ ------- --------
Anti-dilutive effect of acquiring treasury
shares........................................... 0.04 0.07 0.02 - -
----------- ------ ------ ------- --------
Less offering costs charged against capital ...... - - - - (0.01)
----------- ------ ------ ------- --------
Net asset value, end of period.................... $ 9.19 $ 9.18 $ 9.13 $ 7.86 $ 10.18
=========== ====== ====== ======= ========
Market value, end of period....................... $ 8.50 $8.125 $ 7.75 $ 8.25 $ 10.25
=========== ====== ====== ======= ========
TOTAL INVESTMENT RETURN+.......................... 9.33%(1) 12.77% 2.52% (12.19)% 8.60%(1)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses................................ 0.78%(2) 0.79% 0.80% 0.78% 0.77%(2)
Interest expense.................................. 2.11%(2) 1.93% 2.28% 1.44% 0.68%(2)
Total expenses.................................... 2.89%(2) 2.72% 3.08% 2.22% 1.45%(2)
Net investment income............................. 7.67%(2) 7.85% 8.15% 10.85% 9.05%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $408,315 $423,095 $447,005 $392,914 $509,220
Portfolio turnover rate........................... - %(1)++ 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>
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 L. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
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
Harborside 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.
The financial statements included herein have been
taken from the records of the Trust without
examination by the independent accountants and
accordingly they do not express an opinion thereon.
TERM TRUST
2002
SEMIANNUAL REPORT
MARCH 31, 1997
