<PAGE>
TCW/DW TERM TRUST 2002 Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS September 30, 1999
DEAR SHAREHOLDER:
For the 12-month period ended September 30, 1999, the net asset value of TCW/DW
Term Trust 2002 decreased from $10.66 to $9.92 per share. Based on this change,
and including reinvestment of dividends totaling approximately $0.66 per share
and a long-term capital gain distribution of $0.028 per share paid in December,
the Trust's total return for the period was -- 0.03 percent. Over the same
period, the market price of the Trust's shares on the New York Stock Exchange
(NYSE) decreased from $9.875 to $9.375 per share. Based on this change and
including reinvestment of dividends, the Trust's total return for the period was
1.90 percent.
MARKET OVERVIEW
Interest rates moved steadily higher during most of the period under review,
making the first three quarters of 1999 the second worst such period in terms of
the total return of the Lehman Aggregate Index since the inception of that
index. The U.S. economy has experienced robust economic growth and a tight labor
market, suggesting the potential of increased inflation. As a preemptive strike,
the Federal Reserve Bank raised rates at the end of June and then again in late
August. The mortgage sector was the top performing high-grade fixed-income asset
class for the past 12 months. By early August, yield spreads particularly
between U.S. Treasury securities and other bond sectors, including
mortgage-backed securities, had widened to the same levels seen during last
year's global financial crisis. (Yield spreads are the difference between the
yields of different fixed-income securities.) Spreads also widened in response
to the heavy volume of new issuance in corporate securities and due to other
technical factors.
The mortgage sector faced some unique problems of its own. Investor activity
and trading volume was light for most of the summer. Banks and agencies, which
once accounted for approximately 50 percent of mortgage market activity, were
less active participants in the market. Banks began accumulating cash reserves
to cover the unknown liquidity demands of
<PAGE>
TCW/DW TERM TRUST 2002
LETTER TO THE SHAREHOLDERS September 30, 1999, continued
Y2K and other year-end events. However, the decision of the Federal Reserve
Board to accept mortgage pass-throughs as collateral in repurchase transactions
over year-end was seen as an indication of the Fed's willingness to facilitate
year-end market liquidity, and as such, should reduce the banking sector's need
to hold large cash reserves.
TCW believes that the performance of the mortgage sector could remain choppy
over the next several months, due to thin trading volume and liquidity
restrictions. Furthermore, changes in the composition of the mortgage market
have reduced its coupon diversification, resulting in an increase in the overall
interest rate risk of the sector. The entire fixed-income market faces
considerable uncertainty due to lingering Y2K concerns, a heavy new-issue
calendar, a weakening dollar and inflation worries. Investors remain
understandably concerned about the possibility of another rate hike by the
Federal Reserve later this year. TCW believes that the mortgage sector is
fundamentally sound however, and mortgages are cheap relative to historical
valuations. For the first time in almost five years the incentive for an
adjustable-rate mortgage (ARM) borrower to switch from adjustable- to fixed-rate
financing has turned negative, indicating an extremely low level of prepayment
risk. This fundamental shift combined with very wide yield spreads has increased
the relative attractiveness of the ARM sector. TCW continues to recommend an
overweight in the mortgage sector overall, with a strategy of acquiring bonds on
weakness in the market. Today's relatively higher yield levels combined with
TCW's continued focus on security structure also foster its positive outlook on
the mortgage sector.
THE PORTFOLIO
Approximately 73 percent of the Trust's portfolio is invested in mortgage
pass-through securities issued by agencies of the U.S. government or AAA-rated
collateralized mortgage obligations (CMOs) with durations, average lives or
expected maturity dates that correspond closely to the termination date of the
Trust. An additional 14 percent of the portfolio 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. Approximately 13 percent of the portfolio 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
September 30, 1999 the Trust's degree of leverage (the ratio of debt to assets)
was 27 percent of total portfolio assets.
The Trust's net asset value and NYSE market values will continue to fluctuate in
response to changes in market conditions and interest rates. As stated in the
Trust's original prospectus, the Trust's income and dividends are expected to
decline to some extent over the term of the Trust and as the Trust approaches
its termination date.
2
<PAGE>
TCW/DW TERM TRUST 2002
LETTER TO THE SHAREHOLDERS September 30, 1999, 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 1,430,400 shares of common stock at a weighted
average market discount of 5.79 percent.
We appreciate your ongoing 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 /s/ Mitchell M. Merin
- -------------------------- ----------------------
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS September 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ------------- ---------- ---------------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (119.5%)
U.S. GOVERNMENT AGENCIES (80.7%)
$ 643 Federal Home Loan Mortgage Corp. 1389 SB ........................... 10.20+% 10/15/07 $ 627,610
30,000 Federal Home Loan Mortgage Corp. 1465 G (PAC)++ .................... 7.00 12/15/07 30,372,765
15,600 Federal Home Loan Mortgage Corp. 1481 H (PAC)++ .................... 6.875 08/15/21 15,650,689
1,504 Federal Home Loan Mortgage Corp. 1519 J ............................ 12.83+ 05/15/08 1,517,189
17,850 Federal Home Loan Mortgage Corp. 1542 HA (PAC) ..................... 6.00 10/15/20 17,721,659
16,447 Federal Home Loan Mortgage Corp. 1606 SC ........................... 8.81+ 11/15/08 14,951,169
3,833 Federal Home Loan Mortgage Corp. 1609 LG (PAC) ..................... 5.552+ 11/15/23 3,098,747
7,184 Federal Home Loan Mortgage Corp. 1611 QB (PAC) ..................... 10.062+ 11/15/23 7,215,837
18,300 Federal Home Loan Mortgage Corp. 1633 B++ .......................... 6.50 09/15/23 17,553,281
18,500 Federal Home Loan Mortgage Corp. 1638 K (PAC)++ .................... 6.50 03/15/23 18,006,910
10,000 Federal Home Loan Mortgage Corp. 2085 PA (PAC) ..................... 6.00 07/15/17 9,892,198
60,786 Federal Home Loan Mortgage Corp. 2143 CH (PAC) ..................... 6.00 02/15/19 59,569,888
103 Federal National Mortgage Assoc. 1992-138 O ........................ 7.50 07/25/22 102,935
7,020 Federal National Mortgage Assoc. 1992-150 SV (PAC) ................. 12.60+ 05/25/21 7,077,503
7,260 Federal National Mortgage Assoc. 1992-208 C (TAC)++ ................ 7.50 10/25/07 7,207,822
8,333 Federal National Mortgage Assoc. 1993-139 SP (PAC) ................. 8.127+ 12/25/21 7,190,417
2,494 Federal National Mortgage Assoc. 1993-141 A ........................ 7.00 12/25/22 2,411,601
9,843 Federal National Mortgage Assoc. 1993-179 SV ....................... 5.606+ 10/25/21 8,098,157
18,193 Federal National Mortgage Assoc. 1993-190 S ........................ 6.338+ 10/25/08 16,123,185
2,365 Federal National Mortgage Assoc. 1993-190 SB (PAC) ................. 6.191+ 10/25/08 2,293,921
5,814 Federal National Mortgage Assoc. 1993-238 SA ....................... 8.605+ 07/25/08 5,179,867
45,000 Federal National Mortgage Assoc. 98-47 PB (PAC) .................... 6.00 12/18/18 44,579,507
19,750 Federal National Mortgage Assoc. 98-52 PB (PAC)++ .................. 6.00 08/25/17 19,542,046
------------
TOTAL U.S. GOVERNMENT AGENCIES (Identified Cost $326,547,021) ............................. 315,984,903
------------
PRIVATE ISSUES (38.8%)
9,022 Bear Sterns Mortgage Securities, Inc. 1993-10 A7 (PAC) ............. 7.20 07/25/24 8,917,813
13,130 Citicorp Mortgage Securities, Inc. 1992-20 A5++ .................... 7.50 12/25/07 13,113,469
19,574 CMC Securities Corp. III 1994-C A9 (PAC) ........................... 6.75 03/25/24 18,366,045
11,232 CountryWide Funding Corp. 1994-4 A12 ............................... 6.95 04/25/24 10,450,681
21,117 CountryWide Mortgage-Backed Securities, Inc. 1993-B A6 (PAC)++ ..... 6.75 11/25/23 19,651,525
34,172 General Electric Capital Mortgage Services, Inc. 1994-6 A9 ......... 6.50 09/25/22 32,788,310
684 NorWest Asset Securities Corp. 1996-1 A5 ........................... 7.50 08/25/26 681,265
13,170 Prudential Home Mortgage Securities 1993-2 A7 ...................... 7.00 02/25/08 12,730,746
20,000 Prudential Home Mortgage Securities 1993-60 A3 (PAC)++ ............. 6.75 12/25/23 19,106,012
16,836 Residential Funding Mortgage Securities I 1993-S40 A8 (TAC)++ ...... 6.75 11/25/23 16,294,446
------------
TOTAL PRIVATE ISSUES (Identified Cost $156,414,698)........................................ 152,100,312
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Identified Cost $482,961,719) ............................................................ 468,085,215
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS September 30, 1999, 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 (0.6%)
$ 2,425 Government National Mortgage Assoc. II ARM
(Identified Cost $2,457,378)...................................... 6.375% 06/20/25 $ 2,444,739
--------------
TAX-EXEMPT MUNICIPAL BONDS (17.5%)
General Obligation (3.8%)
17,500 North Slope Boro, Alaska, Ser A (MBIA) ........................... 0.00 06/30/03 14,729,050
--------------
Industrial Development Revenue (5.5%)
Metropolitan Pier & Exposition Authority, Illinois,
6,610 McCormick Place (AMBAC) ......................................... 0.00 06/15/02 5,851,701
7,400 McCormick Place (AMBAC) ......................................... 0.00 12/15/02 6,405,366
10,465 Pennsylvania Convention Center Authority, Ser A (FGIC) (ETM) ..... 0.00 09/01/02 9,190,049
--------------
21,447,116
--------------
Other Revenue (2.3%)
10,400 Texas, 1992 Refg Ser C (FGIC) .................................... 0.00 04/01/03 8,853,312
--------------
Tax Allocation Revenue (3.4%)
33,140 Johnson County, Kansas, (AMBAC) .................................. 0.00 06/01/12 13,415,404
--------------
Transportation Facilities Revenue (2.5%)
12,000 Contra Costa Transportation Authority, California, Sales Tax
(FGIC) (ETM) ..................................................... 0.00 03/01/04 9,887,400
--------------
TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $65,195,378)................................. 68,332,282
--------------
TOTAL INVESTMENTS (Identified Cost $550,614,475) (a).......................... 137.6% 538,862,236
LIABILITIES IN EXCESS OF OTHER ASSETS ........................................ (37.6) (147,322,891)
--------------
NET ASSETS ................................................................... 100.0% $ 391,539,345
==============
</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
$3,778,517 and the aggregate gross unrealized depreciation is
$15,530,756, resulting in net unrealized depreciation of $11,752,239.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
TCW/DW TERM TRUST 2002
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $550,614,475).................. $538,862,236
Receivable from broker ............................ 19,488,451
Interest receivable ............................... 2,696,654
Prepaid expenses and other assets ................. 10,029
-------------
TOTAL ASSETS ................................. 561,057,370
-------------
LIABILITIES:
Reverse repurchase agreements ..................... 153,349,000
Payable for:
Management fee ............................... 142,657
Shares of beneficial interest repurchased..... 106,861
Investment advisory fee ...................... 95,105
Interest ..................................... 72,560
Payable to bank ................................... 15,642,183
Accrued expenses .................................. 109,659
Contingencies (Note 8) ............................ --
-------------
TOTAL LIABILITIES ............................ 169,518,025
-------------
NET ASSETS ................................... $391,539,345
=============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................... $377,312,617
Net unrealized depreciation ....................... (11,752,239)
Accumulated undistributed net investment
income ......................................... 25,978,967
-------------
NET ASSETS ................................... $391,539,345
=============
NET ASSET VALUE PER SHARE,
39,453,740 shares outstanding (unlimited
shares authorized of $.01 par value)............ $ 9.92
=============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended September 30, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ............................... $37,252,811
-----------
EXPENSES
Management fee ................................ 1,597,421
Investment advisory fee ....................... 1,064,948
Transfer agent fees and expenses .............. 169,417
Shareholder reports and notices ............... 69,258
Professional fees ............................. 60,593
Insurance expenses ............................ 36,812
Registration fees ............................. 35,592
Trustees' fees and expenses ................... 29,317
Custodian fees ................................ 28,436
Other ......................................... 54,503
-----------
TOTAL OPERATING EXPENSES ................. 3,146,297
Interest expense .............................. 5,184,278
-----------
TOTAL EXPENSES ........................... 8,330,575
Less: expense offset .......................... (5,638)
-----------
NET EXPENSES ............................. 8,324,937
-----------
NET INVESTMENT INCOME .................... 28,927,874
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain ............................. 241
Net change in unrealized appreciation ......... (31,563,650)
-----------
NET LOSS ................................. (31,563,409)
-----------
NET DECREASE .................................. $(2,635,535)
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<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, 1999 SEPTEMBER 30, 1998
-------------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .................................... $ 28,927,874 $ 29,132,981
Net realized gain ........................................ 241 1,136,065
Net change in unrealized appreciation/depreciation ....... (31,563,650) 27,968,463
------------- -------------
NET INCREASE (DECREASE) ............................... (2,635,535) 58,237,509
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................... (26,406,475) (27,855,408)
Net realized gain ........................................ (1,136,287) --
------------- -------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ..................... (27,542,762) (27,855,408)
------------- -------------
Net decrease from transactions in shares of beneficial
interest ............................................... (13,909,617) (24,083,116)
------------- -------------
NET INCREASE (DECREASE) ............................... (44,087,914) 6,298,985
NET ASSETS:
Beginning of period ...................................... 435,627,259 429,328,274
------------- -------------
END OF PERIOD
(Including undistributed net investment income of
$25,978,967 and $23,457,568, respectively) ............ $ 391,539,345 $ 435,627,259
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
TCW/DW TERM TRUST 2002
FINANCIAL STATEMENTS, continued
STATEMENT OF CASH FLOWS
For the year ended September 30, 1999
<TABLE>
<CAPTION>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income .................................................. $ 28,927,874
Adjustments to reconcile net investment income to net cash provided by
operating activities:
Increase in receivables and other assets related to operations ......... (19,721,955)
Increase in payables related to operations ............................. 15,559,488
Net amortization of discount/premium ................................... (6,085,956)
--------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................... 18,679,451
--------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of investments ............................................... (156,368,377)
Principal prepayments/sales of investments ............................. 87,128,135
Net sales of short-term investments .................................... 3,388,913
--------------
NET CASH USED FOR INVESTING ACTIVITIES .............................. (65,851,329)
--------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net payments for shares of beneficial interest repurchased ............. (14,312,360)
Net proceeds from issuance of reverse repurchase agreements ............ 89,027,000
Dividends to shareholders from net investment income ................... (26,406,475)
Distributions to shareholders from net realized gains .................. (1,136,287)
--------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................... 47,171,878
--------------
NET INCREASE (DECREASE) IN CASH ........................................ --
CASH BALANCE AT BEGINNING OF PERIOD .................................... --
--------------
CASH BALANCE AT END OF PERIOD .......................................... --
==============
Cash paid during the period for interest ............................... $ 5,239,236
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS September 30, 1999
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.
9
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS September 30, 1999, 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.
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Trust pays Morgan Stanley Dean Witter
Services Company Inc., (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.
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
10
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
consistent with its investment objective. In addition, the Adviser pays the
salaries of all personnel, including officers of the Trust, who are employees
of the Adviser.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the year ended September 30,
1999 were as follows:
<TABLE>
<CAPTION>
SALES/
PURCHASES PREPAYMENTS
--------------- --------------
<S> <C> <C>
U.S. Government Agencies .................................. $154,242,477 $61,165,727
Private Issue Collateralized Mortgage Obligations ......... 2,125,900 25,962,408
</TABLE>
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Manager, is the
Trust's transfer agent. At September 30, 1999, the Trust had transfer agent
fees and expenses payable of approximately $800.
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, 1997 ............................................. 43,430,740 $ 434,307 $ 414,871,043
Treasury shares purchased and retired (weighted average discount 6.86%)* (2,546,600) (25,466) (24,057,650)
---------- --------- -------------
Balance, September 30, 1998 ............................................. 40,884,140 408,841 390,813,393
Treasury shares purchased and retired (weighted average discount 5.79%)* (1,430,400) (14,304) (13,895,313)
---------- --------- -------------
Balance, September 30, 1999 ............................................. 39,453,740 $ 394,537 $ 376,918,080
========== ========= =============
</TABLE>
- ---------------
* The Trustees have voted to retire the shares purchased.
6. REVERSE REPURCHASE AND DOLLAR ROLL AGREEMENTS
Reverse repurchase and dollar roll agreements involve the risk that the market
value of the securities the Trust is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase or dollar roll agreement files for
bankruptcy or becomes insolvent, the Trust's use of proceeds may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Trust's obligation to repurchase the securities.
Reverse repurchase agreements are collateralized by Trust securities with a
market value in excess of the Trust's obligation under the contract. At
September 30, 1999, securities valued at $161,789,498 were pledged as
collateral.
11
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
At September 30, 1999, the reverse repurchase agreements outstanding were
$153,349,000 with a weighted interest rate of 5.45% maturing within 61 days.
The maximum and average daily amounts outstanding during the period were
$171,092,000 and $101,758,321, respectively. The weighted average interest rate
during the period was 5.09%.
7. DIVIDENDS
The Trust declared the following dividends from net investment income:
DECLARATION AMOUNT PER RECORD PAYABLE
DATE SHARE DATE DATE
- --------------------- ------------ ------------------- ------------------
September 28, 1999 $ 0.055 October 8, 1999 October 22, 1999
October 26, 1999 $ 0.055 November 5, 1999 November 19, 1999
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
motion for judgement on the pleadings. In August, 1997, plaintiffs filed a
motion for class certification. In their motion, the plaintiffs requested
certification of a "nationwide" class of Term Trust purchasers. On June 1,
1998, the Court granted in part and denied in part the plaintiff's motion for
class certification. The Court ruled that plaintiff's motion was "granted as to
[a California] statewide class," but was "denied as to a nationwide class." On
October 13, 1998, three separate class actions alleging similar claims on
behalf of the residents of the states of Florida, New Jersey and New York were
filed in the state courts of those states. The defendants removed the Florida
action to federal court and the plaintiffs'
12
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
motion to remand the action to state court was denied. Motions to dismiss were
filed by the defendants in the Florida action on August 30, 1999, in the New
Jersey action on July 26, 1999 and in the New York action on September 10,
1999. The New Jersey motion was denied by the court on September 27, 1999 and
the defendants have filed a motion to vacate. The motions to dismiss in Florida
and New York are pending. 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.
13
<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 30,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period .................. $ 10.66 $ 9.89 $ 9.18 $ 9.13 $ 7.86
------- ------- ------- ------- ------
Income (loss) from investment operations:
Net investment income ................................ 0.74 0.72 0.74 0.74 0.68
Net realized and unrealized gain (loss) .............. (0.81) 0.67 0.62 (0.17) 1.25
------- ------- ------- ------- ------
Total income (loss) from investment operations ........ (0.07) 1.39 1.36 0.57 1.93
------- ------- ------- ------- ------
Less dividends and distributions from:
Net investment income ................................ (0.66) (0.66) (0.68) (0.58) (0.68)
Net realized gain .................................... (0.03) -- (0.02) (0.01) --
------- ------- ------- ------- ------
Total dividends and distributions ..................... (0.69) (0.66) (0.70) (0.59) (0.68)
------- ------- ------- ------- ------
Anti-dilutive effect of acquiring treasury shares ..... 0.02 0.04 0.05 0.07 0.02
------- ------- ------- ------- ------
Net asset value, end of period ........................ $ 9.92 $ 10.66 $ 9.89 $ 9.18 $ 9.13
======= ======= ======= ======= ======
Market value, end of period ........................... $ 9.375 $ 9.875 $ 9.125 $ 8.125 $ 7.75
======= ======= ======= ======= ======
TOTAL RETURN+ ......................................... 1.90% 16.04% 21.81% 12.77% 2.52%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses .................................... 0.77% 0.78% 0.78% 0.79% 0.80%
Interest expense ...................................... 1.27% 1.79% 2.19% 1.93% 2.28%
Total expenses ........................................ 2.04% 2.57% 2.97% 2.72% 3.08%
Net investment income ................................. 7.08% 6.81% 7.51% 7.85% 8.15%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............... $391,539 $435,627 $429,328 $423,095 $447,005
Portfolio turnover rate ............................... 17% -- ++ -- 7% -- ++
</TABLE>
- -------------
+ Total 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 return does not reflect brokerage commissions.
++ Less than 0.5%.
SEE NOTES TO FINANCIAL STATEMENTS
14
<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, 1999, 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 five years in the period then ended, 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, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 9, 1999
1999 FEDERAL TAX NOTICE (unaudited)
During the year ended September 30, 1999, the Trust paid to shareholders
$0.03 per share from long-term capital gains.
15
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Morgan Stanley Dean Witter Services Company Inc.
Two World Trade Center
New York, New York 10048
ADVISER
TCW Funds Management, Inc.
865 South Figueroa Street, Suite 1800
Los Angeles, CA 90017
TCW/DW
TERM TRUST
2002
[GRAPHIC OMITTED]
ANNUAL REPORT
SEPTEMBER 30, 1999
