<PAGE>
TCW/DW TERM TRUST 2002 Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS September 30, 1997
DEAR SHAREHOLDER:
For the fiscal year ended September 30, 1997, TCW/DW Term Trust 2002's net
asset value per share increased from $9.18 to $9.89. Based on this change,
and including reinvestment of dividends and capital gains distributions
totaling approximately $0.70 per share, the Trust's total return on net asset
value for the fiscal year was 16.85 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 $9.125 per share. Based on this change, and including
reinvestment of dividends, the Trust's total return for the period was 21.81
percent. This strong investment performance is largely attributable to the
Trust's market discount to net asset value narrowing from 11.5 percent to 7.7
percent during the fiscal year, as well as the impressive rally in the
fixed-income markets.
In response to increasing portfolio earnings, the Trust raised its monthly
dividend from $0.052 to $0.055 per share in February 1997. The increase in
portfolio earnings during the period is largely attributable to the decline
in short-term interest rates experienced over the past two years.
THE MARKET
Propelled by reassuring inflation data, a declining federal budget deficit
and a watchful Federal Reserve Board, the fixed-income sector posted strong
returns during the year. However, some economists now doubt the market's
ability to sustain this rally, noting recent indications that the pace of
economic growth may be accelerating. Nonetheless, the Federal Reserve Board
was not expected to raise interest rates at its September meeting and indeed
the central bank did not alter its policy at that time.
Investor demand for mortgage-backed securities is strong and even though
yield spreads have tightened, the sector has retained its yield advantage
over other fixed-income securities. The Trust's investment adviser,
TCW Funds Management, Inc. (TCW), believes that mortgage-backed yield spreads
are positioned to remain relatively stable in the coming months provided the
yield on the 10 year U.S. Treasury note does not fall below six percent,
which would renew mortgage prepayment fears. Issuance of
<PAGE>
TCW/DW TERM TRUST 2002
LETTER TO THE SHAREHOLDERS, continued
collateralized mortgage obligations (CMOs) in 1997 is now in excess of $100
billion, which has helped support the mortgage-backed market as a whole.
THE PORTFOLIO
Approximately 64 percent of the Trust is invested in AAA-rated mortgage
pass-through securities or CMOs with durations, average lives or expected
maturity dates that correspond closely to the termination date of the Trust.
An additional 21 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 15
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. At September 30, 1997, the Trust's degree of
leverage (the ratio of debt to assets) was 28 percent of total assets.
LOOKING AHEAD
TCW remains generally positive regarding the mortgage-backed sector's
long-term prospects. Although signs of robust economic activity have
reappeared in recent months, 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.
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, the Trust repurchased 2,679,900 shares of common stock at a
weighted average market discount of
9.44 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, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (116.5%)
U.S. GOVERNMENT AGENCIES (60.7%)
$ 727 Federal Home Loan Mortgage Corp. 1385 SB ........................ 10.414+% 10/15/07 $ 750,281
3,063 Federal Home Loan Mortgage Corp. 1389 SB ........................ 9.507+ 10/15/07 2,987,654
30,000 Federal Home Loan Mortgage Corp. 1465 G (PAC)++ ................. 7.00 12/15/07 30,385,179
15,600 Federal Home Loan Mortgage Corp. 1481 H (PAC)++ ................ 6.875 08/15/21 15,774,636
4,205 Federal Home Loan Mortgage Corp. 1519 J ......................... 11.62 + 05/15/08 4,226,449
16,447 Federal Home Loan Mortgage Corp. 1606 SC++ ...................... 7.446+ 11/15/08 13,974,555
10,347 Federal Home Loan Mortgage Corp. 1609 LG (PAC)++ ................ 5.010+ 11/15/23 9,034,703
19,884 Federal Home Loan Mortgage Corp. 1611 QB (PAC)++ ................ 8.969+ 11/15/23 17,926,862
18,300 Federal Home Loan Mortgage Corp. 1633 B++ ....................... 6.50 09/15/23 17,600,354
18,500 Federal Home Loan Mortgage Corp. 1638 K (PAC)++ ................. 6.50 03/15/23 18,015,195
1,261 Federal National Mortgage Assoc. 1992-138 O++ ................... 7.50 07/25/22 1,273,726
13,993 Federal National Mortgage Assoc. 1992-150 SV (PAC) .............. 11.516+ 05/25/21 14,062,948
15,703 Federal National Mortgage Assoc. 1992-208 C (TAC)++ ............. 7.50 10/25/07 15,981,952
16,248 Federal National Mortgage Assoc. 1992-214 K++ ................... 7.50 12/25/22 16,305,582
8,333 Federal National Mortgage Assoc. 1993-139 SP (PAC) .............. 7.44 + 12/25/21 7,296,916
21,230 Federal National Mortgage Assoc. 1993-141 A++ ................... 7.00 12/25/22 20,927,397
9,843 Federal National Mortgage Assoc. 1993-179 SV++ .................. 3.859+ 10/25/21 7,535,550
18,193 Federal National Mortgage Assoc. 1993-190 S .................... 5.357+ 10/25/08 14,184,400
7,392 Federal National Mortgage Assoc. 1993-190 SB (PAC) .............. 5.347+ 10/25/08 6,993,398
5,814 Federal National Mortgage Assoc. 1993-238 SA++ .................. 7.274+ 07/25/08 4,983,645
20,000 Federal National Mortgage Assoc. G1992-44 SC .................... 12.939+ 08/25/20 20,400,000
-----------
TOTAL U.S. GOVERNMENT AGENCIES (Identified Cost $272,923,309) ..................... 260,621,382
-----------
PRIVATE ISSUES (55.8%)
9,022 Bear Stearns Mortgage Securities, Inc. 1993-10 A7 (PAC) ......... 7.20 07/25/24 9,053,659
19,844 Citicorp Mortgage Securities, Inc. 1992-20 A5 ................... 7.50 12/25/07 20,203,573
19,574 CMC Securities Corp. III 1994-C A9 (PAC) ........................ 6.75 03/25/24 18,684,669
11,232 CountryWide Funding Corp. 1994-4 A12 ............................ 6.95 04/25/24 10,699,176
21,117 CountryWide Mortgage Backed Securities, Inc. 1993-B A6 (PAC) .... 6.75 11/25/23 19,739,502
30,045 General Electric Capital Mortgage Services, Inc. 1994-6 A9 ...... 6.50 09/25/22 28,024,558
10,000 NorWest Asset Securities Corp. 1996-1 A5 ........................ 7.50 08/25/26 10,094,946
12,247 Prudential Home Mortgage Securities 1992-50 A3 .................. 8.00 12/25/23 12,277,433
13,170 Prudential Home Mortgage Securities 1993-2 A7 ................... 7.00 02/25/08 12,849,948
16,426 Prudential Home Mortgage Securities 1993-34 A1 .................. 7.00 08/25/23 16,459,696
20,000 Prudential Home Mortgage Securities 1993-60 A3 (PAC) ............ 6.75 12/25/23 18,827,632
41,182 Resolution Funding Mortgage Securities I 1992-S38 A6 ............ 7.50 02/25/18 41,516,398
16,836 Resolution Funding Mortgage Securities I 1993-S40 A8 (TAC) ...... 6.75 11/25/23 16,264,079
4,731 Ryland Mortgage Securities Corp. 1992-18 C ...................... 7.75 09/25/19 4,741,548
-----------
TOTAL PRIVATE ISSUES (Identified Cost $241,188,969) ............. 239,436,817
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Identified Cost $514,112,278) .................................................... 500,058,199
-----------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS September 30, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------
U.S GOVERNMENT AGENCY MORTGAGE
PASS-THROUGH SECURITY (1.6%)
$ 6,613 Government National Mortgage Assoc. II
(Identified Cost $6,699,707) ................................... 7.375*% 06/20/25 $ 6,807,168
---------------
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 6,290,088
---------------
Industrial Development Revenue (4.6%)
Metropolitan Pier & Exposition Authority, Illinois,
6,610 McCormick Place (AMBAC) ........................................ 0.00 06/15/02 5,340,814
7,400 McCormick Place (AMBAC) ........................................ 0.00 12/15/02 5,845,260
10,465 Pennsylvania Convention Center Authority, Ser A (FGIC) (ETM) .... 0.00 09/01/02 8,411,453
---------------
19,597,527
---------------
Other Revenue (7.9%)
17,500 North Slope Boro, Alaska, Ser 1992 A (MBIA) ..................... 0.00 06/30/03 13,450,500
33,140 Johnson County, Kansas, (AMBAC)(ETM) ............................ 0.00 06/01/12 12,300,905
10,400 Texas, 1992 Refg Ser C (FGIC) ................................... 0.00 04/01/03 8,106,176
---------------
33,857,581
---------------
Tax Allocation (2.3%)
12,370 Harris County, Texas, (MBIA) .................................... 0.00 10/01/02 9,886,599
---------------
Transportation Revenue (2.1%)
12,000 Contra Costa Transportation Authority, California, Sales Tax
(FGIC) (ETM) ................................................... 0.00 03/01/04 8,939,160
---------------
TOTAL MUNICIPAL BONDS (Identified Cost $72,781,389) ............. 78,570,955
---------------
SHORT-TERM INVESTMENTS (1.9%)
U.S. GOVERNMENT AGENCY (a) (0.9%)
4,000 Federal Home Loan Banks (Amortized Cost $4,000,000) ............ 6.00 10/01/97 4,000,000
---------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS September 30, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (1.0%)
$4,124 The Bank of New York (dated 09/30/97; proceeds $4,124,788) (b)
(Identified Cost $4,124,187) .................................. 5.25% 10/01/97 $ 4,124,187
---------------
TOTAL SHORT-TERM INVESTMENTS (Identified Cost $8,124,187) ............................. 8,124,187
---------------
TOTAL INVESTMENTS (Identified Cost $601,717,561)(c) ........................ 138.3% 593,560,509
LIABILITIES IN EXCESS OF OTHER ASSETS ...................................... (38.3) (164,232,235)
------ ---------------
NET ASSETS ................................................................. 100.0% $429,328,274
======== ===============
</TABLE>
- ------------
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.
* Floating rate security. Rate shown is the rate in effect at
September 30, 1997.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $132,672 U.S. Treasury Bond 7.875% due 02/15/21
valued at $156,075 and $3,973,609 U.S. Treasury Note 5.75% due
10/31/00 valued at $4,050,596.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$11,043,018 and the aggregate gross unrealized depreciation is
$19,200,070, resulting in net unrealized depreciation of
$8,157,052.
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, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $601,717,561).......... $593,560,509
Interest receivable...................... 3,144,863
Deferred organizational expenses ........ 1,857
Prepaid expenses ........................ 37,867
--------------
TOTAL ASSETS........................... 596,745,096
--------------
LIABILITIES:
Reverse repurchase agreements............ 166,575,000
Payable for:
Interest............................... 364,666
Management fee ........................ 145,979
Shares of beneficial interest
repurchased............................ 139,175
Investment advisory fee ............... 97,320
Accrued expenses ........................ 94,682
Contingencies (Note 9)................... --
--------------
TOTAL LIABILITIES...................... 167,416,822
--------------
NET ASSETS ............................ $429,328,274
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital.......................... $415,305,350
Net unrealized depreciation ............. (8,157,052)
Accumulated undistributed net investment
income.................................. 22,179,995
Accumulated net realized loss............ (19)
--------------
NET ASSETS ............................ $429,328,274
==============
NET ASSET VALUE PER SHARE,
43,430,740 shares outstanding
(unlimited shares authorized of $.01
par value).............................. $9.89
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended September 30, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ....................... $44,397,892
-------------
EXPENSES
Management fee ........................ 1,656,325
Investment advisory fee ............... 1,104,216
Transfer agent fees and expenses ...... 152,132
Professional fees ..................... 88,760
Shareholder reports and notices ...... 55,064
Insurance expenses .................... 51,008
Registration fees ..................... 40,408
Trustees' fees and expenses............ 32,116
Organizational expenses ............... 14,040
Other.................................. 128,760
-------------
TOTAL OPERATING EXPENSES ............ 3,322,829
Interest expense....................... 9,274,331
-------------
TOTAL EXPENSES....................... 12,597,160
-------------
NET INVESTMENT INCOME ............... 31,800,732
-------------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized loss ..................... (19)
Net change in unrealized depreciation 29,063,160
-------------
NET GAIN............................. 29,063,141
-------------
NET INCREASE........................... $60,863,873
=============
</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 YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 31,800,732 $ 34,380,524
Net realized gain (loss)............................... (19) 778,924
Net change in unrealized depreciation.................. 29,063,160 (8,123,925)
------------------ ------------------
NET INCREASE......................................... 60,863,873 27,035,523
------------------ ------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: ....
Net investment income ................................. (30,604,106) (27,791,846)
Net realized gain...................................... (958,955) (253,689)
------------------ ------------------
TOTAL................................................ (31,563,061) (28,045,535)
------------------ ------------------
Net decrease from transactions in shares of beneficial
interest.............................................. (23,067,049) (22,900,449)
------------------ ------------------
NET INCREASE (DECREASE).............................. 6,233,763 (23,910,461)
NET ASSETS:
Beginning of period.................................... 423,094,511 447,004,972
------------------ ------------------
END OF PERIOD
(Including undistributed net investment income of
$22,179,995 and $20,920,552, respectively) ......... $429,328,274 $423,094,511
================== ==================
</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, 1997
<TABLE>
<CAPTION>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income ................................................ $ 31,800,732
Adjustments to reconcile net investment income to net cash provided
by operating activities:
Decrease in receivables and other assets related to operations ...... 275,169
Increase in payables related to operations ........................... 123,109
Net amortization of discount/premium ................................. (4,325,022)
--------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 27,873,988
--------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Purchases of investments ............................................. (1,879,862)
Principal prepayments of investments ................................. 23,176,783
Net purchases of short-term investments .............................. (2,086,741)
--------------
NET CASH PROVIDED BY INVESTING ACTIVITIES .......................... 19,210,180
--------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Net payments for shares of beneficial interest repurchased .......... (23,137,071)
Net proceeds from the issuance of reverse repurchase agreements ..... 7,611,000
Dividends to shareholders from net investment income ................. (30,604,106)
Distributions to shareholders from capital gains...................... (958,955)
--------------
NET CASH USED FOR FINANCING ACTIVITIES.............................. (47,089,132)
--------------
NET DECREASE IN CASH ................................................. (4,964)
CASH BALANCE AT BEGINNING OF PERIOD .................................. 4,964
--------------
CASH BALANCE AT END OF PERIOD ........................................ $ --
==============
Cash paid during the period for interest ............................. $ 9,147,781
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS September 30, 1997
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 September 30, 1997, 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. ("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, 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.
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS September 30, 1997, continued
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 prepayments of portfolio securities,
excluding short-term investments, for the year ended September 30, 1997 were
as follows:
<TABLE>
<CAPTION>
PURCHASES PREPAYMENTS
------------ -------------
<S> <C> <C>
U.S. Government Agencies $-- $10,705,764
Private Issue Collateralized Mortgage Obligations 1,879,862 12,471,019
</TABLE>
Dean Witter Trust FSB, an affiliate of the Manager, is the Trust's transfer
agent. At September 30, 1997, the Trust had transfer agent fees and expenses
payable of approximately $1,500.
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 9.44%)* . (2,679,900) (26,799) (23,040,250)
------------- ----------- --------------
Reclassification due to permanent book/tax difference..................... -- -- (62,817)
------------- ----------- --------------
Balance, September 30, 1997 .............................................. 43,430,740 $434,307 $414,871,043
============= =========== ==============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
As of September 30, 1997, the Trust had permanent book/tax differences
attributable to nondeductible expenses. To reflect reclassifications arising
from these differences, paid-in-capital was charged and accumulated
undistributed net investment income was credited $62,817.
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS September 30, 1997, continued
7. 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, 1997, securities valued at $177,709,818 were pledged as
collateral.
At September 30, 1997, the reverse repurchase agreements outstanding were
$166,575,000 with a weighted interest rate of 5.62% maturing within 63 days.
The maximum and average daily amounts outstanding during the period were
$176,837,000 and $164,236,304, respectively. The weighted average interest
rate during the period was 5.65%.
8. 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>
September 23, 1997 $0.055 October 3, 1997 October 17, 1997
October 28, 1997 $0.055 November 7, 1997 November 21, 1997
</TABLE>
9. 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.
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS September 30, 1997, continued
In March 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.
In July, 1997, the Court denied the motion for judgement on the pleadings.
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 YEAR ENDED SEPTEMBER FOR THE PERIOD
30, NOVEMBER 30, 1992*
--------------------------------------------- THROUGH
1997 1996 1995 1994 SEPTEMBER 30, 1993
- ------------------------------------------------- ---------- ---------- ---------- ---------- ------------------
<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............................. 0.74 0.74 0.68 0.99 0.73
Net realized and unrealized gain (loss)........... 0.62 (0.17) 1.25 (2.45) 0.65
---------- ---------- ---------- ---------- ------------------
Total from investment operations.................. 1.36 0.57 1.93 (1.46) 1.38
---------- ---------- ---------- ---------- ------------------
Less dividends and distributions from:
Net investment income............................ (0.68) (0.58) (0.68) (0.84) (0.59)
Net realized gain................................ (0.02) (0.01) -- (0.02) --
---------- ---------- ---------- ---------- ------------------
Total dividends and distributions................. (0.70) (0.59) (0.68) (0.86) (0.59)
---------- ---------- ---------- ---------- ------------------
Anti-dilutive effect of acquiring treasury
shares........................................... 0.05 0.07 0.02 -- --
---------- ---------- ---------- ---------- ------------------
Less offering costs charged against capital ..... -- -- -- -- (0.01)
---------- ---------- ---------- ---------- ------------------
Net asset value, end of period.................... $ 9.89 $ 9.18 $ 9.13 $ 7.86 $10.18
========== ========== ========== ========== ==================
Market value, end of period....................... $9.125 $8.125 $ 7.75 $ 8.25 $10.25
========== ========== ========== ========== ==================
TOTAL INVESTMENT RETURN+.......................... 21.81% 12.77% 2.52% (12.19)% 8.60%(1)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses................................ 0.78% 0.79% 0.80% 0.78% 0.77%(2)
Interest expense.................................. 2.19% 1.93% 2.28% 1.44% 0.68%(2)
Net expenses...................................... 2.97% 2.72% 3.08% 2.22% 1.45%(2)
Net investment income............................. 7.51% 7.85% 8.15% 10.85% 9.05%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $429,328 $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%.
(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, 1997, 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 four 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, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
November 10, 1997
1997 FEDERAL TAX NOTICE (unaudited)
During the fiscal year ended September 30, 1997, the Fund paid to
shareholders $0.02 per share from long-term capital gains.
<PAGE>
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manual 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
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 FSB
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.
ADVISE
TCW Funds Management, Inc.
TCW/DW
TERM TRUST
2002
[GRAPHIC OF TCW/DW TERM TRUST]
ANNUAL REPORT
SEPTEMBER 30, 1997
