<PAGE>
TERM TRUST 2002 Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS March 31, 2000
DEAR SHAREHOLDER:
For the 6-month period ended March 31, 2000, the net asset value of TCW/DW Term
Trust 2002 decreased from $9.92 to $9.70 per share. Based on this change and
the reinvestment of dividends totaling approximately $0.32 per share, the
Trust's total return for the period was 1.16 percent. Over the same period, the
Trust's market price on the New York Stock Exchange (NYSE) decreased from
$9.375 to $8.875 per share. Based on this change and the reinvestment of
dividends, the Trust's total return for the period was -2.06 percent.
MARKET OVERVIEW
Strong cross-currents buffeted the fixed-income markets over the six-month
period. A Treasury buyback plan provided strong support for the long bond,
which eventually trickled down to the intermediate-term issues. Against this
backdrop, the U.S. economy remained incredibly resilient in spite of soaring
energy costs and higher interest rates, a matter of great concern to the
fixed-income markets. Even though the Federal Reserve Board raised interest
rates five times since last June, the economy has shown few signs of slowing.
Capital spending, construction activity and consumer spending remain high, and
the manufacturing sector is growing out of strong demand for U.S. goods. The
equity market has exhibited extreme volatility in response to both strong
economic growth and higher interest rates. Many analysts believe that the Fed
may take a more aggressive stance, a belief supported by the minutes of the
Federal Open Market Committee's February meeting, which revealed the preference
of a few committee members for incremental rate increases of 50 basis points
rather than 25. Some analysts are already predicting additional rate hikes by
the end of this year, with at least a quarter-point rise in May considered a
near certainty. The end result of all these factors has been a compromise of
sorts, with U.S. Treasuries rallying impressively while yields on mortgages,
corporates and high-yield bonds remain unchanged or higher.
<PAGE>
TCW/DW TERM TRUST 2002
LETTER TO THE SHAREHOLDERS March 31, 2000, continued
Mortgage-sector performance was led by the Government National Mortgage
Association (GNMA) subsector. Much of the return advantage of the GNMA sector
during this period was attributed to its superior credit quality, an issue that
came to the forefront of the market's focus as the result of concerns about
changes in the federal regulations of agency debt. Treasury Under Secretary
Gary Gensler's comments concerning the expanding role of government-sponsored
enterprises (GSEs) in the capital markets caused the price spreads between GNMA
and FNMA 6.0% pass-throughs to expand by approximately three quarters of a
point.
THE PORTFOLIO
Approximately 74 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 13 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. Approximately 13
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, 2000, the Trust's degree of leverage
(the ratio of debt to assets) was 28.5 percent of its total portfolio assets.
LOOKING AHEAD
According to TCW Investment Management Company (TCW), the Trust's adviser, the
four basic determinants of value in mortgage-backed securities (MBSs), namely
absolute yield, spread versus Treasuries, prepayment risk and supply, have
recently converged to make mortgages substantially more attractive now than
they have been at any other time in the past decade. The yields and spreads of
MBSs are at historic highs, with current-coupon mortgages yielding close to
8.00 percent and priced at almost 200 basis points over Treasuries. TCW
believes that the supply outlook for the MBS sector is currently very positive.
The issuance of new 30-year fixed-rate agency pass-throughs is down more than
45 percent because mortgage rates have climbed to a five-year high. Home
borrowers have gravitated toward adjustable rate mortgages (ARMs) to the degree
that 35 percent of total origination now consists of ARMs.
Not surprisingly, many dealers are now recommending that investors take
advantage of the market's current weakness by adding to their mortgage
positions, and TCW supports this recommendation. Nonetheless, the market's
heightened sensitivity to Treasury supply is unlikely to be alleviated any time
2
<PAGE>
TCW/DW TERM TRUST 2002
LETTER TO THE SHAREHOLDERS March 31, 2000, continued
soon. Treasury revenue is expected to surge over the next several months
because of tax receipts, which may cause the pace of Treasury buybacks to
accelerate. The lack of Treasury bond issuance, combined with the buyback
program, is likely to maintain pressure on the yield curve to stay inverted.
These factors will keep mortgage spreads vulnerable to further widening.
Nonetheless, TCW's current outlook on the mortgage sector is positive.
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.
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 543,800 shares of common stock at a weighted
average market discount of 5.46 percent.
We appreciate your ongoing support of TCW/DW Term Trust 2002 and look forward
to continuing to serve your investment needs.
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
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 21, 1999, 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:
Michael Bozic
For ................... 30,869,448
Withheld .............. 685,125
Charles A. Fiumefreddo
For ................... 30,809,819
Withheld .............. 744,754
The following Trustees were not standing for reelection at this meeting: Edwin
J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Michael E. Nugent, Philip J.
Purcell and John L. Schroeder.
(2) Ratification of the selection of PricewaterhouseCoopers LLP as Independent
Accountants:
For .............. 30,530,301
Against .......... 397,339
Abstain .......... 626,933
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: 4,372,356 voted in favor of the
proposal; 12,348,108 shares voted against the proposal; and 1,398,755 shares
abstained.
4
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (120.0%)
U.S. GOVERNMENT AGENCIES (80.5%)
$ 639 Federal Home Loan Mortgage Corp. 1389 SB .............................. 8.466+% 10/15/07 $ 581,699
30,000 Federal Home Loan Mortgage Corp. 1465 G (PAC)++ ....................... 7.00 12/15/07 29,723,055
15,600 Federal Home Loan Mortgage Corp. 1481 H (PAC)++ ....................... 6.875 08/15/21 15,336,777
1,504 Federal Home Loan Mortgage Corp. 1519 J ............................... 8.353+ 05/15/08 1,491,335
16,147 Federal Home Loan Mortgage Corp. 1542 HA (PAC) ........................ 6.00 10/15/20 15,899,342
16,447 Federal Home Loan Mortgage Corp. 1606 SC .............................. 7.397+ 11/15/08 14,817,456
3,528 Federal Home Loan Mortgage Corp. 1609 LG (PAC) ........................ 4.197+ 11/15/23 2,655,114
6,971 Federal Home Loan Mortgage Corp. 1611 QB (PAC) ........................ 8.093+ 11/15/23 6,888,623
18,300 Federal Home Loan Mortgage Corp. 1633 B++ ............................. 6.50 09/15/23 17,403,305
18,500 Federal Home Loan Mortgage Corp. 1638 K (PAC)++ ....................... 6.50 03/15/23 17,678,676
10,000 Federal Home Loan Mortgage Corp. 2085 PA (PAC) ........................ 6.00 07/15/17 9,790,916
60,786 Federal Home Loan Mortgage Corp. 2143 CH (PAC)++ ...................... 6.00 02/15/19 59,277,430
37 Federal National Mortgage Assoc. 1992-138 O ........................... 7.50 07/25/22 36,902
3,813 Federal National Mortgage Assoc. 1992-150 SV (PAC) .................... 11.477+ 05/25/21 3,783,924
7,260 Federal National Mortgage Assoc. 1992-208 C (TAC)++ ................... 7.50 10/25/07 7,266,927
8,333 Federal National Mortgage Assoc. 1993-139 SP (PAC) .................... 5.646+ 12/25/21 6,788,920
1,592 Federal National Mortgage Assoc. 1993-141 A ........................... 7.00 12/25/22 1,527,518
9,843 Federal National Mortgage Assoc. 1993-179 SV .......................... 1.418+ 10/25/21 6,955,965
18,193 Federal National Mortgage Assoc. 1993-190 S ........................... 5.321+ 10/25/08 15,702,390
2,029 Federal National Mortgage Assoc. 1993-190 SB (PAC) .................... 4.035+ 10/25/08 1,963,910
5,814 Federal National Mortgage Assoc. 1993-238 SA .......................... 7.225+ 07/25/08 5,061,785
45,000 Federal National Mortgage Assoc. 98-47 PB (PAC) ....................... 6.00 12/18/18 44,093,898
19,750 Federal National Mortgage Assoc. 98-52 PB (PAC)++ ..................... 6.00 08/25/17 19,306,492
------------
TOTAL U.S. GOVERNMENT AGENCIES (Identified Cost $319,654,309) .................................. 304,032,359
------------
PRIVATE ISSUES (39.5%)
9,022 Bear Sterns Mortgage Securities, Inc. 1993-10 A7 (PAC) ................ 7.20 07/25/24 8,728,287
11,783 Citicorp Mortgage Securities, Inc. 1992-20 A5 ......................... 7.50 12/25/07 11,679,593
19,574 CMC Securities Corp. III 1994-C A9 (PAC) .............................. 6.75 03/25/24 18,552,071
11,232 CountryWide Funding Corp. 1994-4 A12 .................................. 6.95 04/25/24 10,465,911
21,117 CountryWide Mortgage-Backed Securities, Inc. 1993-B A6 (PAC) .......... 6.75 11/25/23 19,122,506
35,293 General Electric Capital Mortgage Services, Inc. 1994-6 A9 ............ 6.50 09/25/22 32,963,395
13,170 Prudential Home Mortgage Securities 1993-2 A7 ......................... 7.00 02/25/08 12,567,259
20,000 Prudential Home Mortgage Securities 1993-60 A3 (PAC) .................. 6.75 12/25/23 18,998,782
16,836 Residential Funding Mortgage Securities I 1993-S40 A8 (TAC) ........... 6.75 11/25/23 15,950,588
------------
TOTAL PRIVATE ISSUES (Identified Cost $155,853,087) ............................................ 149,028,392
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Identified Cost $475,507,396) ................................................................. 453,060,751
------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH SECURITY (0.5%)
2,198 Government National Mortgage Assoc. II ARM++
(Identified Cost $2,226,678) ........................................ 6.375 06/20/25 2,206,320
------------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
TCW/DW TERM TRUST 2002
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (18.3%)
General Obligation (3.9%)
17,500 North Slope Boro, Alaska, Ser A (MBIA) ................................ 0.00% 06/30/03 $ 14,853,125
--------------
Industrial Development Revenue (5.7%)
Metropolitan Pier & Exposition Authority, Illinois,
6,610 McCormick Place (AMBAC) .............................................. 0.00 06/15/02 5,929,104
7,400 McCormick Place (AMBAC) .............................................. 0.00 12/15/02 6,476,184
10,465 Pennsylvania Convention Center Authority, Ser A (FGIC) (ETM) .......... 0.00 09/01/02 9,298,676
--------------
21,703,964
--------------
Other Revenue (2.4%)
10,400 Texas, 1992 Refg Ser C (FGIC) ......................................... 0.00 04/01/03 8,960,016
--------------
Tax Allocation Revenue (3.6%)
33,140 Johnson County, Kansas, (AMBAC) ....................................... 0.00 06/01/12 13,536,364
--------------
Transportation Facilities Revenue (2.7%)
12,000 Contra Costa Transportation Authority, California, Sales Tax
(FGIC) (ETM) ........................................................ 0.00 03/01/04 9,992,160
--------------
TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $67,229,225) ................................ 69,045,629
--------------
SHORT-TERM INVESTMENT (0.5%)
REPURCHASE AGREEMENT
1,749 The Bank of New York (dated 03/31/00; proceeds $1,750,144) (a)
(Identified Cost $1,749,260) ........................................ 6.063 04/03/00 1,749,260
--------------
TOTAL INVESTMENTS (Identified Cost $546,712,559) (b) .............................. 139.3% 526,061,960
LIABILITIES IN EXCESS OF OTHER ASSETS ............................................. (39.3) (148,505,142)
-------- --------------
NET ASSETS ........................................................................ 100.0% $ 377,556,818
======== ==============
</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 pledge in connection with reverse
repurchase agreements.
(a) Collateralized by $1,767,310 U.S. Treasury Note 5.875% due at
11/30/01 valued at $1,784,247.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$2,048,380 and the aggregate gross unrealized depreciation is
$22,698,979, resulting in net unrealized depreciation of
$20,650,599.
Bond Insurance:
---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
6
<PAGE>
TCW/DW TERM TRUST 2002
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $546,712,559) .......................... $526,061,960
Interest receivable ....................................... 2,549,533
Receivable from broker .................................... 181,580
Prepaid expenses .......................................... 44,602
-------------
TOTAL ASSETS ........................................... 528,837,675
-------------
LIABILITIES:
Reverse repurchase aggreements ........................... 150,676,000
Payable for:
Shares of beneficial interest repurchaed ............... 140,790
Management fee ......................................... 140,524
Investment advisory fee ................................ 93,682
Interest ............................................... 76,590
Payable to bank ........................................... 57,760
Accrued expenses and other payables ....................... 95,511
Contingencies (Note 7) .................................... -
-------------
TOTAL LIABILITIES ...................................... 151,280,857
-------------
NET ASSETS ................................................ $377,556,818
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital ........................................... $372,357,565
Net unrealized depreciation ............................... (20,650,599)
Accumulated undistributed net investment income ........... 25,849,852
-------------
NET ASSETS ............................................. $377,556,818
============
NET ASSET VALUE PER SHARE,
38,909,940 shares outstanding
(unlimited shares authorized of $.01 par value) ......... $9.70
=====
See Notes to Financial Statements
7
<PAGE>
TCW/DW TERM TRUST 2002
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended March 31, 2000 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME .................................. $18,188,786
-----------
EXPENSES
Management fee ................................... 746,171
Investment advisory fee .......................... 497,448
Transfer agent fees and expenses ................. 59,171
Professional fees ................................ 52,631
Shareholder reports and notices .................. 36,772
Insurance expenses ............................... 18,819
Registration fees ................................ 17,705
Custodian fees ................................... 14,800
Trustees' fees and expenses ...................... 4,938
Other ............................................ 7,120
-----------
TOTAL OPERATING EXPENSES ...................... 1,455,575
Interest expense ................................. 4,485,421
-----------
TOTAL EXPENSES ................................ 5,940,996
-----------
NET INVESTMENT INCOME ......................... 12,247,790
-----------
NET CHANGE IN UNREALIZED DEPRECIATION ......... (8,898,360)
-----------
NET INCREASE ..................................... $ 3,349,430
===========
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, 2000 SEPTEMBER 30, 1999
-----------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ...................................... $ 12,247,790 $ 28,927,874
Net realized gain .......................................... - 241
Net change in unrealized appreciation/depreciation ......... (8,898,360) (31,563,650)
------------ -------------
NET INCREASE (DECREASE) ................................. 3,349,430 (2,635,535)
------------ -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ...................................... (12,376,905) (26,406,475)
Net realized gain .......................................... - (1,136,287)
------------ -------------
TOTAL DIVIDENS AND DISTRIBUTIONS ........................ (12,376,905) (27,542,762)
------------ -------------
Decrease from transactions in shares of beneficial interest (4,955,052) (13,909,617)
------------ -------------
NET DECREASE ............................................ (13,982,527) (44,087,914)
NET ASSETS:
Beginning of period ........................................ 391,539,345 435,627,259
------------ -------------
END OF PERIOD
(Including undistributed net investment income of
$25,849,852 and $25,978,967, respectively) .............. $377,556,818 $ 391,539,345
============ =============
</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, 2000 (unaudited)
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income .................................................. $ 12,247,790
Adjustments to reconcile net investment income to net cash provided by
operating activities:
Decrease in receivables and other assets related to operations ......... 19,419,419
Decrease in payables related to operations ............................. (15,598,097)
Net amortization of discount/premium ................................... (2,225,409)
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................... 13,843,703
-------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Purchases of investments ............................................... (1,121,072)
Principal prepayments of investments ................................... 8,996,487
Net purchases of short-term investments ................................ (1,748,090)
-------------
NET CASH PROVIDED BY INVESTING ACTIVITIES ........................... 6,127,325
-------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Net payments for shares of beneficial interest repurchased ............. (4,921,123)
Net payments for maturities of reverse repurchase agreements ........... (2,673,000)
Dividends to shareholders from net investment income ................... (12,376,905)
-------------
NET CASH USED FOR FINANCING ACTIVITIES .............................. (19,971,028)
-------------
NET INCREASE (DECREASE) IN CASH ........................................ -
CASH BALANCE AT BEGINNING OF PERIOD .................................... -
-------------
CASH BALANCE AT END OF PERIOD .......................................... -
=============
Cash paid during the period for interest ............................... $ 4,481,391
=============
</TABLE>
See Notes to Financial Statements
10
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (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 Investment Management Company (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.
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.
11
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) continued
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/INVESTMENT ADVISORY AGREEMENTS
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.
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.
3. 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, 2000 were
as follows:
<TABLE>
<CAPTION>
PURCHASES PREPAYMENTS
------------- ------------
<S> <C> <C>
U.S. Government Agencies ................................... - $6,965,468
Private Issue Collateralized Mortgage Obligations .......... $1,121,072 2,031,019
</TABLE>
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Manager, is the
Trust's transfer agent. At March 31, 2000, the Trust had transfer agent fees
and expenses payable of approximately $1,800.
12
<PAGE>
TCW/DW TERM TRUST 2002
Notes to Financial Statements March 31, 2000 (unaudited) continued
4. 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, 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
Treasury shares purchased and retired (weighted average discount 5.46%)* (543,800) (5,438) (4,949,614)
---------- --------- -------------
Balance, March 31, 2000 ................................................. 38,909,940 $ 389,099 $ 371,968,466
========== ========= =============
</TABLE>
---------------
* The Trustees have voted to retire the shares purchased.
5. REVERSE REPURCHASE AND DOLLAR ROLL AGREEMENTS
Reverse repurchase and dollar roll agreements involve the risk that the market
value of the securities the Trust is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase or dollar roll agreement files for
bankruptcy or becomes insolvent, the Trust's use of proceeds may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Trust's obligation to repurchase the securities.
Reverse repurchase agreements are collateralized by Trust securities with a
market value in excess of the Trust's obligation under the contract. At
March 31, 2000, securities valued at $156,029,562, were pledged as collateral.
At March 31, 2000, the reverse repurchase agreements outstanding were
$150,676,000, with a weighted interest rate of 6.11% maturing within 32 days.
The maximum and average daily amounts outstanding during the period were
$153,571,000 and $151,994,208, respectively. The weighted average interest rate
during the period was 5.81%.
6. DIVIDENDS
The Trust declared the following dividends from net investment income:
DECLARATION AMOUNT PER RECORD PAYABLE
DATE SHARE DATE DATE
----------------- ------------ --------------- ---------------
March 28, 2000 $0.0475 April 7, 2000 April 20, 2000
April 25, 2000 $0.0475 May 5, 2000 May 19, 2000
13
<PAGE>
TCW/DW TERM TRUST 2002
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) continued
7. 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 plaintiff's 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 action was
dismissed by the court with prejudice and no appeal was filed. The motion to
dismiss the Florida action was denied January 27, 2000. The New York action was
dismissed by the Supreme Court of the State of New York with costs on April 25,
2000. 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 SIX
MONTHS ENDED
MARCH 31, 2000*
-------------------
(unaudited)
<S> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period .................. $ 9.92
------
Income (loss) from investment operations:
Net investment income ................................ 0.31
Net realized and unrealized gain (loss) .............. (0.22)
------
Total income (loss) from investment operations ........ 0.09
------
Less dividends and distributions from:
Net investment income ................................ (0.32)
Net realized gain .................................... -
------
Total dividends and distributions ..................... (0.32)
------
Anti-dilutive effect of acquiring treasury shares ..... 0.01
------
Net asset value, end of period ........................ $ 9.70
======
Market value, end of period ........................... $8.875
======
TOTAL RETURN+ ......................................... (2.06)%(1)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses .................................... 0.76% (2)
Interest expense ...................................... 2.35% (2)
Net expenses .......................................... 3.11% (2)
Net investment income ................................. 6.40% (2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............... $377,557
Portfolio turnover rate ............................... - ++(1)
<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%
Net 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>
-------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total return is based upon the current market value on the last 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%.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
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, NY 10048
ADVISER
TCW Investment Management Company
865 South Figueroa Street, Suite 1800
Los Angeles, CA 90017
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
[GRAPHIC OMITTED]
SEMIANNUAL REPORT
MARCH 31, 2002
