<PAGE>
TCW/DW TERM TRUST 2002 Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS March 31, 1998
DEAR SHAREHOLDER:
For the six-month period ended March 31, 1998, TCW/DW Term Trust 2002's net
asset value increased from $9.89 to $10.13 per share. Based on this change,
and including reinvestment of dividends totaling approximately $0.33 per
share, the Trust's total return for the period was 6.07 percent. Over the
same period, the market price of the Trust's shares on the New York Stock
Exchange (NYSE) increased from $9.125 to $9.438 per share. Based on this
change, and including reinvestment of dividends, the Trust's total return for
the period was 7.11 percent.
For the year ended March 31, 1998, the Trust was ranked #3 out of 29 (top 10
percent) U.S. Mortgage Funds, as measured by Lipper Analytical Services, Inc.
For the five years ended March 31, the Trust was ranked #2 out of 22 (top 9
percent) such funds, as measured by Lipper.
THE MARKET
During the past six months, growth remained robust throughout the U.S.
economy, while inflationary pressures remained minimal. Interest rates
declined across most points on the yield curve, with the largest declines
observed in the intermediate to long maturities. So far, the much anticipated
and debated effects of the Asian financial crisis on the U.S. economy have
been mild. Given the uncertainty surrounding the situation in Asia, few
investors expected the Federal Reserve Board to raise interest rates over the
last six months in spite of a very robust domestic economy, and they were not
disappointed. Lower market volatility over the past few months kept bonds
trading within a fairly tight range, bolstering the performance of
mortgage-backed securities.
Declining interest rates fueled a surge in refinancing activity in January
that boosted the MBA Refinancing Index to unprecedented levels before
moderating to simply very high readings. Reported prepayments on all
mortgage-backed pass-throughs above 7 percent increased dramatically through
March, validating the index's forecast. As expected, the adjustable-rate
mortgage sector was hardest hit. The flatter yield curve,
<PAGE>
TCW/DW TERM TRUST 2002
LETTER TO THE SHAREHOLDERS March 31, 1998, continued
combined with lower interest rates, offered adjustable-rate borrowers the
greatest incentive to refinance into fixed-rate loans and lock in lower
borrowing costs. Nonetheless, demand for mortgage products has been strong.
According to the Trust's investment adviser, TCW Funds Management, Inc.
(TCW), many sectors of the mortgage market look attractive on a yield basis
when compared to other fixed-income sectors of comparable quality. The
issuance of new collateralized mortgage obligations (CMOs) has risen
substantially since last year, and the agencies have become increasingly
involved in this sector.
THE PORTFOLIO
Approximately 61 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 22 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 to that of a specified index. The remaining
17 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 per share
offering price to shareholders at maturity. As of March 31, 1998, the Trust's
degree of leverage (the ratio of debt to assets) was 27 percent of total
assets.
LOOKING AHEAD
The most recent round of prepayment releases reflect strong refinancing
activity related to the strong Treasury rally in January. With the effective
30-year mortgage rate ending the quarter at around the 7.25 percent mark, the
mortgage market remains in a somewhat tenuous position. Some analysts expect a
mild rally back to the January lows, which would reignite more refinancing
fervor. If we remain in this trading range, however, prepayment speeds will
gradually taper off. According to TCW, even though mortgages are perched on a
precipice they remain attractive in terms of current yield, and this yield
advantage has consistently contributed to the performance advantage of the
mortgage-backed securities sector.
TCW maintains a positive outlook for the mortgage-backed sector for a number
of additional reasons. First and foremost is TCW's continued focus on call
protection and a goal of mitigating the potentially negative effects on
returns of rapid prepayments. Furthermore, the strong technical factors that
persisted for much of last year remain in place today. The demand for
mortgage-backed products remains strong, liquidity is high, mortgage yields
remain attractive and the market continues to innovate new product structures
quickly to take advantage of arbitrage opportunities and to meet investor
demand. The Trust's net asset value and NYSE market values will continue to
fluctuate in response to changes in market conditions and interest rates.
2
<PAGE>
TCW/DW TERM TRUST 2002
LETTER TO THE SHAREHOLDERS March 31, 1998, continued
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 1,394,700 shares of common stock
at a weighted average market discount of 7.00 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
3
<PAGE>
TCW/DW TERM TRUST 2002
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 18, 1997, 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 R. Haire
For .................. 34,181,374
Withheld ............. 1,233,549
Dr. Manuel H. Johnson
For .................. 34,204,975
Withheld ............. 1,209,948
John L. Schroeder
For .................. 34,255,742
Withheld ............. 1,159,181
Marc I. Stern
For .................. 34,200,266
Withheld ............. 1,214,657
</TABLE>
The following Trustees were not standing for reelection at this meeting: John
C. Argue, Richard M. DeMartini, Charles A. Fiumefreddo, Thomas E. Larkin, Jr.
and Michael E. Nugent.
(2) APPROVAL OF THE CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT
ADVISORY AGREEMENT BETWEEN THE TRUST AND TCW FUNDS MANAGEMENT, INC.:
<TABLE>
<CAPTION>
<S> <C>
For ....... 33,564,413
Against .. 813,948
Abstain .. 1,036,562
</TABLE>
(3) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT
ACCOUNTANTS:
<TABLE>
<CAPTION>
<S> <C>
For ....... 34,060,593
Against .. 485,715
Abstain .. 868,615
</TABLE>
In addition, a shareholder proposal to amend the Trust's Declaration of Trust
to require each Trustee, within thirty 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 a quorum
was not obtained, the following represents the total of the shares whose
votes were returned to the Trust prior to the Meeting: 6,061,586 shares,
constituting 14.03% of the total shares outstanding, voted in favor of the
proposal; 8,013,194 shares, constituting 18.54% of the total shares
outstanding, voted against the proposal; and 1,867,928 shares, constituting
4.32% of the total shares outstanding, abstained.
4
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (112.0%)
U.S. GOVERNMENT AGENCIES (60.8%)
$ 727 Federal Home Loan Mortgage Corp. 1385 SB ....................... 10.18 +% 10/15/07 $ 745,056
3,063 Federal Home Loan Mortgage Corp. 1389 SB ....................... 9.333+ 10/15/07 3,073,541
30,000 Federal Home Loan Mortgage Corp. 1465 G (PAC)++ ................ 7.00 12/15/07 30,386,631
15,600 Federal Home Loan Mortgage Corp. 1481 H (PAC)++ ................ 6.875 08/15/21 15,732,695
3,908 Federal Home Loan Mortgage Corp. 1519 J ........................ 14.56 + 05/15/08 3,980,384
16,447 Federal Home Loan Mortgage Corp. 1606 SC ....................... 7.094+ 11/15/08 15,372,537
9,745 Federal Home Loan Mortgage Corp. 1609 LG (PAC) ................. 4.874+ 11/15/23 9,046,319
19,884 Federal Home Loan Mortgage Corp. 1611 QB (PAC) ................. 8.531+ 11/15/23 18,225,126
18,300 Federal Home Loan Mortgage Corp. 1633 B++ ...................... 6.50 09/15/23 17,988,507
18,500 Federal Home Loan Mortgage Corp. 1638 K (PAC)++ ................ 6.50 03/15/23 18,217,366
1,076 Federal National Mortgage Assoc. 1992-138 O++ .................. 7.50 07/25/22 1,092,433
13,993 Federal National Mortgage Assoc. 1992-150 SV (PAC) ............. 11.236+ 05/15/21 14,255,351
15,703 Federal National Mortgage Assoc. 1992-208 C (TAC)++ ............ 7.50 10/25/07 15,985,662
16,225 Federal National Mortgage Assoc. 1992-214 K++ .................. 7.50 12/25/22 16,500,296
8,333 Federal National Mortgage Assoc. 1993-139 SP (PAC) ............. 7.461+ 12/25/21 7,674,500
14,386 Federal National Mortgage Assoc. 1993-141 A++ .................. 7.00 12/25/22 14,419,177
9,843 Federal National Mortgage Assoc. 1993-179 SV ................... 3.471+ 10/25/21 8,394,520
18,193 Federal National Mortgage Assoc. 1993-190 S .................... 5.103+ 10/25/08 15,747,872
6,594 Federal National Mortgage Assoc. 1993-190 SB (PAC) ............. 5.16 + 10/25/08 6,428,687
5,814 Federal National Mortgage Assoc. 1993-238 SA++ ................. 6.929+ 07/25/08 5,265,274
20,000 Federal National Mortgage Assoc. G1992-44 SC ................... 12.639+ 08/25/20 20,181,200
---------------
TOTAL U.S. GOVERNMENT AGENCIES (Identified Cost $264,174,563) ........................ 258,713,134
---------------
PRIVATE ISSUES (51.2%)
9,022 Bear Stearns Mortgage Securities, Inc. 1993-10 A7 (PAC) ........ 7.20 07/25/24 9,115,043
19,844 Citicorp Mortgage Securities, Inc. 1992-20 A5 .................. 7.50 12/25/07 20,308,945
19,574 CMC Securities Corp. III 1994-C A9 (PAC) ....................... 6.75 03/25/24 18,873,176
11,232 CountryWide Funding Corp. 1994-4 A12 ........................... 6.95 04/25/24 10,864,153
21,117 CountryWide Mortgage Backed Securities, Inc. 1993-B A6 (PAC) ... 6.75 11/25/23 20,026,514
31,031 General Electric Capital Mortgage Services, Inc. 1994-6 A9 ..... 6.50 09/25/22 29,501,339
10,000 NorWest Asset Securities Corp. 1996-1 A5 ....................... 7.50 08/25/26 10,175,246
3,648 Prudential Home Mortgage Securities 1992-50 A3 ................. 8.00 12/25/23 3,638,946
13,170 Prudential Home Mortgage Securities 1993-2 A7 .................. 7.00 02/25/08 13,005,624
13,854 Prudential Home Mortgage Securities 1993-34 A1 ................. 7.00 08/25/23 13,895,035
20,000 Prudential Home Mortgage Securities 1993-60 A3 (PAC) ........... 6.75 12/25/23 19,058,556
30,012 Resolution Funding Mortgage Securities I 1993-S38 A6 ........... 7.50 02/25/18 30,143,030
16,836 Resolution Funding Mortgage Securities I 1993-S40 A8 (TAC)++ ... 6.75 11/25/23 16,585,512
3,024 Ryland Mortgage Securities Corp. 1992-18 C ..................... 7.75 09/25/19 3,019,867
---------------
TOTAL PRIVATE ISSUES (Identified Cost $218,127,582) .................................. 218,210,986
---------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Identified Cost $482,302,145) ....................................................... 476,924,120
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S GOVERNMENT AGENCY MORTGAGE PASS-THROUGH SECURITY (1.2%)
$5,034 Government National Mortgage Assoc. II (ARM)++
(Identified Cost $5,100,282) .................................. 7.375% 06/20/25 $5,146,741
---------------
TAX-EXEMPT MUNICIPAL BONDS (19.1%)
Electric Revenue (1.5%)
8,400 Lower Colorado River Authority, Texas, Jr Lien 4th Ser (FGIC) .. 0.00 01/01/04 6,503,532
---------------
Industrial Development Revenue (4.8%)
Metropolitan Pier & Exposition Authority, Illinois,
6,610 McCormick Place (AMBAC) ....................................... 0.00 06/15/02 5,520,276
7,400 McCormick Place (AMBAC) ....................................... 0.00 12/15/02 6,049,056
10,465 Pennsylvania Convention Center Authority, Ser A (FGIC)(ETM) .... 0.00 09/01/02 8,676,008
---------------
20,245,340
---------------
Other Revenue (8.2%)
17,500 North Slope Boro, Alaska, Ser 1992 A (MBIA) .................... 0.00 06/30/03 13,882,400
33,140 Johnson County, Kansas, (AMBAC)(ETM) ........................... 0.00 06/01/12 12,717,475
10,400 Texas, 1992 Refg Ser C (FGIC) .................................. 0.00 04/01/03 8,349,743
---------------
34,949,618
---------------
Tax Allocation (2.4%)
12,370 Harris County, Texas, (MBIA) ................................... 0.00 10/01/02 10,192,139
---------------
Transportation Revenue (2.2%)
12,000 Contra Costa Transportation Authority, California, Sales Tax
(FGIC) (ETM) ................................................... 0.00 03/01/04 9,238,200
---------------
TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $74,998,494) ....................... 81,128,829
---------------
SHORT-TERM INVESTMENTS (4.2%)
U.S. GOVERNMENT AGENCIES (a)(3.0%)
2,000 Federal Home Loan Mortgage Corp. ............................... 5.45 04/01/98 2,000,000
8,000 Federal Home Loan Mortgage Corp. ............................... 5.47 04/01/98 7,980,551
3,000 Federal Home Loan Mortgage Corp. ............................... 5.48 04/01/98 2,992,693
---------------
TOTAL U.S. GOVERNMENT AGENCIES (Amortized Cost $12,973,244) .......................... 12,973,244
---------------
REPURCHASE AGREEMENT (1.2%)
4,124 The Bank of New York (dated 03/31/98; proceeds $5,000,747) (b)
(Identified Cost $5,000,000) .................................. 5.375 04/01/98 5,000,000
---------------
TOTAL SHORT-TERM INVESTMENTS (Identified Cost $17,973,244) ........................... 17,973,244
---------------
TOTAL INVESTMENTS (Identified Cost $580,374,165) (c) ...................... 136.5% 581,172,934
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS ............................ (36.5) (155,282,180)
----- ---------------
NET ASSETS ................................................................ 100.0% $425,890,754
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited) continued
- ------------
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) Securities were purchased on a discount basis. The interest rates
shown have been adjusted to reflect a money market equivalent
yield.
(b) Collateralized by $4,696,202 U.S. Treasury Note 6.625% due 05/15/07
valued at $5,100,000.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$11,987,733 and the aggregate gross unrealized depreciation is
$11,188,964, resulting in net unrealized appreciation of $798,769.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
TCW/DW TERM TRUST 2002
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $580,374,165)........... $581,172,934
Cash...................................... 208,274
Interest receivable ...................... 2,977,536
Prepaid expenses.......................... 70,492
--------------
TOTAL ASSETS ........................... 584,429,236
--------------
LIABILITIES:
Reverse repurchase agreements ............ 156,917,000
Payable for:
Interest ............................... 1,024,378
Shares of beneficial interest
repurchased............................ 284,281
Management fee ......................... 146,370
Investment advisory fee ................ 97,580
Accrued expenses ......................... 68,873
Contingencies (Note 8) ................... --
--------------
TOTAL LIABILITIES ...................... 158,538,482
--------------
NET ASSETS ............................... $425,890,754
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital........................... $402,265,922
Net unrealized appreciation .............. 798,769
Accumulated undistributed net investment
income................................... 22,826,298
Accumulated net realized loss ............ (235)
--------------
NET ASSETS ............................. $425,890,754
==============
NET ASSET VALUE PER SHARE,
42,036,040 shares outstanding
(unlimited shares authorized of $.01 par
value)................................... $ 10.13
==============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ........................ $21,013,244
-------------
EXPENSES
Management fee ......................... 837,895
Investment advisory fee ................ 558,597
Transfer agent fees and expenses ....... 74,343
Professional fees ...................... 46,328
Shareholder reports and notices ....... 29,979
Registration fees ...................... 19,143
Insurance expenses ..................... 18,328
Trustees' fees and expenses............. 17,614
Custodian fees.......................... 15,001
Organizational expenses ................ 1,857
Other................................... 20,181
-------------
TOTAL OPERATING EXPENSES ............. 1,639,266
Interest expense ....................... 4,593,644
-------------
TOTAL EXPENSES ....................... 6,232,910
-------------
NET INVESTMENT INCOME ................ 14,780,334
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss ...................... (216)
Net change in unrealized depreciation . 8,955,821
-------------
NET GAIN ............................. 8,955,605
-------------
NET INCREASE ........................... $23,735,939
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<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, 1998 SEPTEMBER 30, 1997
-------------- ------------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 14,780,334 $ 31,800,732
Net realized loss ..................................... (216) (19)
Net change in unrealized depreciation ................. 8,955,821 29,063,160
-------------- ------------------
NET INCREASE ........................................ 23,735,939 60,863,873
-------------- ------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................. (14,134,031) (30,604,106)
Net realized gain ..................................... -- (958,955)
-------------- ------------------
TOTAL ............................................... (14,134,031) (31,563,061)
-------------- ------------------
Net decrease from transactions in shares of beneficial
interest.............................................. (13,039,428) (23,067,049)
-------------- ------------------
NET INCREASE (DECREASE) ............................. (3,437,520) 6,233,763
NET ASSETS:
Beginning of period ................................... 429,328,274 423,094,511
-------------- ------------------
END OF PERIOD
(Including undistributed net investment income of
$22,826,298 and $22,179,995, respectively) ......... $425,890,754 $429,328,274
============== ==================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
TCW/DW TERM TRUST 2002
FINANCIAL STATEMENTS, continued
STATEMENT OF CASH FLOWS
For the six months ended March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income ................................................ $ 14,780,334
Adjustments to reconcile net investment income to net cash provided
by operating activities:
Decrease in receivables and other assets related to operations ...... 136,559
Increase in payables related to operations ........................... 634,554
Net amortization of discount/premium ................................. (2,254,687)
--------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 13,296,760
--------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Purchase of investments .............................................. (985,931)
Principal prepayments on investments ................................. 34,374,770
Net purchases of short-term investments .............................. (9,790,972)
--------------
NET CASH PROVIDED BY INVESTING ACTIVITIES .......................... 23,597,867
--------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Net payments for shares of beneficial interest repurchased .......... (12,894,322)
Net payments for maturities of reverse repurchase agreements ........ (9,658,000)
Dividends to shareholders from net investment income ................. (14,134,031)
--------------
NET CASH USED FOR FINANCING ACTIVITIES ............................. (36,686,353)
--------------
NET INCREASE IN CASH ................................................. 208,274
CASH BALANCE AT BEGINNING OF PERIOD .................................. --
--------------
CASH BALANCE AT END OF PERIOD ........................................ $ 208,274
==============
Cash paid during the period for interest ............................. $ 3,933,932
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS March 31, 1998 (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.
11
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS March 31, 1998 (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. ("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.
12
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS March 31, 1998 (unaudited) 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 six months ended March 31, 1998
were as follows:
<TABLE>
<CAPTION>
PURCHASES PREPAYMENTS
----------- -------------
<S> <C> <C>
U.S. Government Agencies........................... -- $24,047,334
Private Issue Collateralized Mortgage Obligations.. $985,931 10,327,436
</TABLE>
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Manager, is the
Trust's transfer agent. At March 31, 1998, the Trust had transfer agent fees
and expenses payable of approximately $12,000.
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, 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 differences................... -- -- (62,817)
------------- ----------- --------------
Balance, September 30, 1997.............................................. 43,430,740 434,307 414,871,043
Treasury shares purchased and retired (weighted average discount 7.00%)*. (1,394,700) (13,947) (13,025,481)
------------- ----------- --------------
Balance, March 31, 1998.................................................. 42,036,040 $420,360 $401,845,562
============= =========== ==============
</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.
13
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS March 31, 1998 (unaudited) continued
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, 1998, securities valued at $157,320,294 were pledged as collateral.
At March 31, 1998, the reverse repurchase agreements outstanding were
$156,917,000 with a weighted interest rate of 5.58% maturing within 57 days.
The maximum and average daily amounts outstanding during the period were
$167,540,000 and $159,834,477, respectively. The weighted average interest
rate during the period was 5.68%.
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 24, 1998 $0.055 April 3, 1998 April 17, 1998
April 28, 1998 $0.055 May 6, 1998 May 22, 1998
</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 the two defendants who were independent Trustees of the Trust. 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 motions for judgment 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.
14
<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, 1998 1997 1996 1995 1994 SEPTEMBER 30, 1993
-------------- ---------- ---------- ---------- ---------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............. $ 9.89 $ 9.18 $ 9.13 $ 7.86 $ 10.18 $ 9.40
-------------- ---------- ---------- ---------- ---------- ------------------
Net investment income ............................ 0.36 0.74 0.74 0.68 0.99 0.73
Net realized and unrealized gain (loss) ......... 0.19 0.62 (0.17) 1.25 (2.45) 0.65
-------------- ---------- ---------- ---------- ---------- ------------------
Total from investment operations ................. 0.55 1.36 0.57 1.93 (1.46) 1.38
-------------- ---------- ---------- ---------- ---------- ------------------
Less dividends and distributions from:
Net investment income ........................... (0.33) (0.68) (0.58) (0.68) (0.84) (0.59)
Net realized gain ............................... -- (0.02) (0.01) -- (0.02) --
-------------- ---------- ---------- ---------- ---------- ------------------
Total dividends and distributions ................ (0.33) (0.70) (0.59) (0.68) (0.86) (0.59)
-------------- ---------- ---------- ---------- ---------- ------------------
Anti-dilutive effect of acquiring treasury shares 0.02 0.05 0.07 0.02 -- --
-------------- ---------- ---------- ---------- ---------- ------------------
Less offering costs charged against capital ..... -- -- -- -- -- (0.01)
-------------- ---------- ---------- ---------- ---------- ------------------
Net asset value, end of period ................... $10.13 $ 9.89 $ 9.18 $ 9.13 $ 7.86 $10.18
============== ========== ========== ========== ========== ==================
Market value, end of period ...................... $9.438 $9.125 $8.125 $ 7.75 $ 8.25 $10.25
============== ========== ========== ========== ========== ==================
TOTAL INVESTMENT RETURN+ ......................... 7.11%(1) 21.81% 12.77% 2.52% (12.19)% 8.60%(1)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses ............................... 0.77%(2) 0.78% 0.79% 0.80% 0.78% 0.77%(2)
Interest expense ................................. 2.14%(2) 2.19% 1.93% 2.28% 1.44% 0.68%(2)
Net expenses ..................................... 2.91%(2) 2.97% 2.72% 3.08% 2.22% 1.45%(2)
Net investment income ............................ 6.90%(2) 7.51% 7.85% 8.15% 10.85% 9.05%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $425,891 $429,328 $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%.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
15
<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
Barry Fink
Vice President, Secretary and
General Counsel
Philip A. Barach
Vice President
Jeffrey E. Gundlach
Vice President
Frederick H. Horton
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley 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.
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.
TCW/DW
TERM TRUST
2002
SEMIANNUAL REPORT
MARCH 31, 1998
