TCW/DW TERM TRUST 2003
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- -----------------------------------------------------------------------------
For the fiscal year ended March 31, 1996, TCW/DW Term Trust 2003's net
asset value increased from $7.96 to $8.88 per share. Based on this change, and
including reinvestment of income dividends totaling approximately $0.54 per
share, the Trust's total return for the period was 19.85 percent. For the same
period, the market price of the Trust's shares on the New York Stock Exchange
(NYSE) increased from $6.75 to $7.25 per share. Based on this change, and
including reinvestment of dividends, the Trust's total return for the period
was 15.39 percent. The Trust's investment performance during the fiscal year
is largely attributable to the strong rebound in the mortgage-backed
securities market and the effect of leverage on the Fund, as well as to
declining interest rates.
THE MARKET
After a difficult year in 1994, the U.S. bond market staged an impressive
rally during 1995. Between early April 1995 and the end of March 1996, the
yield on the 10-year U.S. Treasury note declined 87 basis points, despite the
recent backup in interest rates.
The bond market rally experienced during the period under review is
primarily attributable to numerous reports of a slowing economy. In response
to these reports, and declining inflation expectations, the Federal Reserve
Board cut short term interest rates by 25 basis points in July and December
1995 and January 1996. Recently, there have been signs of a rise in economic
activity prompted by stronger-than-expected employment reports in February and
March 1996. Despite this vigor, inflationary pressures have remained stable, a
positive piece of economic news for the bond market. Thus, the central bank
appears to be satisfied with current economic conditions and is not expected
to alter monetary policy for the short term.
According to the Trust's investment adviser, TCW Funds Management, Inc.
(TCW), the recent rise in interest rates reduced mortgage prepayment risk
which aided the mortgage-backed sector's recent performance. The issuance of
new collateralized mortgage obligations (CMOs) is currently at a fraction of
the volume generated in previous years, lending support to mortgage yield
spreads.
THE PORTFOLIO
During the fiscal year, the Trust sold a portion of its fixed-rate mortgage
securities. The proceeds from these transactions were used to repurchase the
Trust's shares on the open market. Additional portfolio changes will be made
as market conditions and specific opportunities warrant.
Approximately 70 percent of the Trust is invested in AAA-rated fixed rate
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 19 percent is invested in inverse floating rate CMOs
issued by U.S. government agencies. Inverse floaters have coupons that reset
by a multiple in a direction opposite that of a specified index. The remaining
11 percent is invested in AAA-rated municipal bonds and short-term
investments. The portfolio's municipal bond holdings play an important role as
the Trust seeks to achieve its objective of returning the original $10
offering price to shareholders at maturity. As of March 31, 1996, the Trust's
degree of leverage (the ratio of debt to assets) was 29 percent of total
assets.
<PAGE>
LOOKING AHEAD
TCW is generally positive regarding the mortgage-backed sector's long-term
prospects. Although hopes that Congress will pass a definitive
deficit-reduction plan have waned in recent months, real interest rates (minus
inflation) remain historically high. (In the past, periods of strong bond
market performance have correlated with high real rates of interest.) The
Trust's net asset and NYSE market values will continue to fluctuate as both
respond to changes in market conditions and interest rates.
We would like to remind you that the Trustees have approved a procedure
whereby the Trust may attempt, when appropriate, to reduce or eliminate a
market value discount from net asset value by repurchasing shares in the open
market or in privately negotiated transactions at a price not above market
value or net asset value, whichever is lower at the time of purchase. During
the fiscal year under review, the Trust purchased 5,694,900 shares of common
stock at a weighted average market discount of 14.75 percent.
We appreciate your support of TCW/DW Term Trust 2003 and look forward to
continuing to serve your investment needs and objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo
Charles A. Fiumefreddo
Chairman of the Board
<PAGE>
TCW/DW TERM TRUST 2003
Portfolio of Investments March 31, 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- ---------- --------------
<C> <S> <C> <C> <C>
COLLATERALIZED MORTGAGE
OBLIGATIONS (121.0%)
U.S. GOVERNMENT AGENCIES (89.7%)
$ 7,150 Federal Home Loan Mortgage Corp. 1409 S (PAC) ................ 14.21 +% 11/15/07 $ 6,204,842
70,000 Federal Home Loan Mortgage Corp. 1465 G (PAC)++ .............. 7.00 12/15/07 69,015,800
11,000 Federal Home Loan Mortgage Corp. 1479 M (PAC) ................ 7.50 10/15/22 10,490,590
8,100 Federal Home Loan Mortgage Corp. 1498 N (PAC) ................ 7.50 04/15/23 7,706,178
11,600 Federal Home Loan Mortgage Corp. 1504 B (PAC) ................ 7.00 12/15/22 10,856,092
20,594 Federal Home Loan Mortgage Corp. 1505 LA ..................... 7.00 08/15/22 19,238,915
21,675 Federal Home Loan Mortgage Corp. 1507 L ...................... 7.00 10/15/22 20,247,051
11,289 Federal Home Loan Mortgage Corp. 1517 O (PAC) ................ 7.50 01/15/23 10,754,466
9,700 Federal Home Loan Mortgage Corp. 1522 K++ .................... 6.50 12/15/22 8,852,511
2,406 Federal Home Loan Mortgage Corp. 1524 SA ..................... 8.50 + 05/15/08 2,109,129
6,334 Federal Home Loan Mortgage Corp. 1527 QD ..................... 7.50 01/15/07 6,437,054
17,099 Federal Home Loan Mortgage Corp. 1535 B ...................... 7.00 01/15/23 16,411,107
8,166 Federal Home Loan Mortgage Corp. 1539 SA ..................... 6.889+ 06/15/08 6,147,357
42,385 Federal Home Loan Mortgage Corp. 1542 N (PAC)++ .............. 7.00 01/15/22 41,253,744
38,223 Federal Home Loan Mortgage Corp. 1543 UG (PAC)++ ............ 7.00 01/15/23 36,694,364
17,005 Federal Home Loan Mortgage Corp. 1544 M ...................... 10.556+ 07/15/08 13,104,197
8,461 Federal Home Loan Mortgage Corp. 1556 SA ..................... 8.872+ 08/15/13 6,411,465
12,360 Federal Home Loan Mortgage Corp. 1563 SA ..................... 7.62 + 08/15/08 10,146,695
16,914 Federal Home Loan Mortgage Corp. 1565 IB (TAC) ............... 5.925+ 08/15/08 13,229,662
17,355 Federal Home Loan Mortgage Corp. 1576 SA ..................... 4.775+ 09/15/08 11,470,208
32,363 Federal Home Loan Mortgage Corp. 1602 PW++ ................... 6.50 12/15/21 31,578,845
15,812 Federal Home Loan Mortgage Corp. 1604 S ...................... 6.097+ 11/15/08 13,807,608
19,350 Federal Home Loan Mortgage Corp. 1606 KD (PAC) ............... 7.473+ 11/15/08 18,302,287
39,760 Federal Home Loan Mortgage Corp. G 15 PA++ ................... 7.00 12/25/21 38,540,163
6,710 Federal National Mortgage Assoc. 1993-101 SA (TAC) .......... 9.227+ 06/25/08 6,311,504
6,394 Federal National Mortgage Assoc. 1993-101 SB (TAC) .......... 10.003+ 06/25/08 5,229,459
4,526 Federal National Mortgage Assoc. 1993-114 SC ................. 9.00 + 07/25/08 4,031,156
32,200 Federal National Mortgage Assoc. 1993-121 B++ ................ 7.00 03/25/23 30,918,440
19,250 Federal National Mortgage Assoc. 1993-135 S .................. 6.499+ 07/25/08 13,895,998
12,570 Federal National Mortgage Assoc. 1993-135 SB ................. 6.685+ 06/25/08 9,207,361
26,400 Federal National Mortgage Assoc. 1993-141 B++ ................ 7.00 04/25/23 25,349,544
9,344 Federal National Mortgage Assoc. 1993-141 SA ................. 10.00 + 03/25/23 8,509,066
31,579 Federal National Mortgage Assoc. 1993-165 SM (TAC) .......... 7.217+ 05/25/23 24,881,053
12,289 Federal National Mortgage Assoc. 1993-173 S .................. 6.075+ 09/25/08 10,166,179
13,093 Federal National Mortgage Assoc. 1993-196 SA ................. 7.475+ 10/25/08 10,821,846
71,000 Federal National Mortgage Assoc. 1993-21 H (PAC)++ .......... 7.00 03/25/22 69,132,700
12,210 Federal National Mortgage Assoc. 1993-20 L ................... 7.00 12/25/22 11,710,489
7,210 Federal National Mortgage Assoc. 1993-24 C (PAC) ............ 7.50 09/25/22 7,068,035
26,250 Federal National Mortgage Assoc. 1993-206 N++ ................ 6.50 11/25/23 24,650,850
7,359 Federal National Mortgage Assoc. 1993-233 J .................. 6.00 06/25/08 7,006,676
12,330 Federal National Mortgage Assoc. 1993-40 K ................... 7.00 04/25/08 12,018,051
15,398 Federal National Mortgage Assoc. 1993-41 C (PAC) ............ 7.00 03/25/21 15,215,534
9,907 Federal National Mortgage Assoc. 1993-63 SD (TAC) ........... 7.738+ 05/25/08 8,473,341
4,854 Federal National Mortgage Assoc. 1993-65 SC .................. 8.433+ 06/25/12 4,285,486
</TABLE>
<PAGE>
TCW/DW TERM TRUST 2003
Portfolio of Investments March 31, 1996 (continued)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- ---------- --------------
<C> <S> <C> <C> <C>
$12,823 Federal National Mortgage Assoc. 1993-72 S ................... 8.75 +% 05/25/08 $ 11,376,487
15,947 Federal National Mortgage Assoc. 1993-72 SA .................. 6.59 + 05/25/08 11,083,026
6,579 Federal National Mortgage Assoc. 1993-86 SD .................. 9.707+ 05/25/08 5,894,323
9,019 Federal National Mortgage Assoc. 1993-93 SA .................. 9.846+ 05/25/08 7,824,199
13,292 Federal National Mortgage Assoc. 1993-95 SE .................. 9.805+ 06/25/08 11,800,565
10,000 Federal National Mortgage Assoc. 1993-98 N ................... 7.00 06/25/23 9,506,200
44,692 Federal National Mortgage Assoc. G 1993-26 A++ ............... 7.00 07/25/23 42,234,007
--------------
TOTAL U.S. GOVERNMENT AGENCIES
(IDENTIFIED COST $904,842,040) .................................................... 837,611,905
--------------
PRIVATE ISSUES (31.3%)
7,165 Bear Stearns Mortgage Securities Inc. 1993-6 A7 (PAC) ....... 7.10 06/25/24 6,975,772
14,026 Bear Stearns Mortgage Securities Inc. 1993-8 A7 (PAC) ....... 7.50 08/25/24 14,001,595
54,416 Bear Stearns Mortgage Securities Inc. 1993-8 A11 (TAC) ...... 7.50 08/25/24 51,559,160
25,800 Chase Mortgage Finance Corp. 1993-G A10 (PAC) ................ 7.00 05/25/24 23,758,962
4,784 First Boston Mortgage Securities Corp. 1993-5 A15 ........... 7.30 03/25/09 4,652,440
36,683 General Electric Capital Mortgage Services 1994-1 A8 ........ 6.50 01/25/24 32,156,318
14,252 Prudential Home Mortgage Securities 1993-23 A12 (PAC) ....... 6.50 07/25/08 13,226,996
27,363 Prudential Home Mortgage Securities 1993-35 A12 .............. 6.75 09/25/08 25,766,194
18,000 Prudential Home Mortgage Securities 1993-60 A3 (PAC) ........ 6.75 12/25/23 16,042,680
36,408 Residential Funding Mortgage Securities I 1993-S 40 A8 (TAC) 6.75 11/25/23 32,936,973
5,315 Ryland Mortgage Securities Corp. 1993-3 7 (PAC) .............. 6.71 08/25/08 4,941,674
28,218 Salomon Brothers Mortgage Securities VII Inc. 1993-3 A7C .... 7.20 08/25/23 27,515,090
40,500 Salomon Brothers Mortgage Securities VII Inc. 1993-5 A4 ..... 7.37* 10/25/18 38,373,750
--------------
TOTAL PRIVATE ISSUES
(IDENTIFIED COST $310,172,961) .................................................... 291,907,604
--------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $1,215,015,001) .................................................. 1,129,519,509
--------------
U.S. GOVERNMENT AGENCIES MORTGAGE
PASS-THROUGH SECURITIES (4.9%)
12,055 Federal Home Loan Mortgage Corp. PC Gold ..................... 6.00 06/01/08 11,565,230
2,544 Federal National Mortgage Assoc. ............................. 5.50 02/01/09 2,393,217
27,171 Federal National Mortgage Assoc. ............................. 6.50 06/01/00 26,967,614
5,060 Federal National Mortgage Assoc. ............................. 7.00 08/01/08 5,050,678
--------------
TOTAL U.S. GOVERNMENT AGENCIES MORTGAGE
PASS-THROUGH SECURITIES
(IDENTIFIED COST $47,375,727) ..................................................... 45,976,739
--------------
</TABLE>
<PAGE>
TCW/DW TERM TRUST 2003
Portfolio of Investments March 31, 1996 (continued)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- ---------- --------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (A) (15.0%)
EDUCATIONAL FACILITIES REVENUE (3.3%)
$ 5,000 Maricopa County Unified School District # 41, Arizona,
Gilbert Refg (FGIC) ......................................... 0.00% 01/01/03 $ 3,600,550
6,465 Maricopa County Unified School District # 97, Arizona, Deer
Valley Refg (Secondary MBIA) ................................ 0.00 07/01/04 4,259,013
6,000 Maricopa County Unified School District # 28, Arizona,
Kyrene Elementary Refg Ser 1993 B (FGIC) .................... 0.00 07/01/04 3,952,680
11,445 Houston Independent School District, Texas, Refg ............ 0.00 08/15/04 7,462,712
Spring Independent School District, Texas,
8,205 Refg Ser 1993 ............................................... 0.00 02/15/03 5,814,719
8,100 Refg Ser 1993 ............................................... 0.00 02/15/04 5,418,171
--------------
30,507,845
--------------
ELECTRIC REVENUE (3.6%)
12,840 Austin, Texas, Combined Ser A (MBIA) ......................... 0.00 11/15/02 9,273,818
5,200 Lower Colorado River Authority, Texas, Jr Lien 4th Ser (FGIC) 0.00 01/01/04 3,526,692
San Antonio, Texas,
12,700 Electric & Gas Refg Ser A (AMBAC) ........................... 0.00 02/01/03 9,017,762
17,500 Electric & Gas Refg Ser A (AMBAC) ........................... 0.00 02/01/04 11,729,200
--------------
33,547,472
--------------
GENERAL OBLIGATION (3.9%)
19,650 North Slope Boro, Alaska Ser 1992 A (MBIA) ................... 0.00 06/30/02 14,456,112
5,000 Scottsdale, Arizona, Refg (Secondary MBIA) ................... 0.00 07/01/04 3,301,850
Port of Oakland, California,
3,000 Refg Ser 1993 F (MBIA) ...................................... 0.00 11/01/03 2,056,230
3,500 Refg Ser 1993 F (MBIA) ...................................... 0.00 11/01/04 2,263,415
6,500 New Orleans, Louisiana, Refg (AMBAC) ......................... 0.00 09/01/04 4,228,770
16,000 Pennsylvania, Second Ser 1992 (Secondary MBIA) ............... 0.00 07/01/04 10,608,640
--------------
36,915,017
--------------
HOSPITAL REVENUE (0.7%)
10,000 California Statewide Communities Development Authority,
UniHealth Ser A (AMBAC) ..................................... 0.00 10/01/04 6,440,700
--------------
OTHER REVENUE (1.5%)
5,460 Rosemont, Illinois, Tax Increment Ser C-3 (FGIC) ............ 0.00 12/01/03 3,704,610
16,040 Texas State Public Finance Authority, Refg Ser 1990 (MBIA) .. 0.00 02/01/05 10,127,977
--------------
13,832,587
--------------
WATER & SEWER REVENUE (2.0%)
Houston, Texas,
10,000 Water & Sewer Jr Lien Ser C (AMBAC) ......................... 0.00 12/01/03 6,810,400
18,640 Water & Sewer Jr Lien Ser C (AMBAC) ......................... 0.00 12/01/04 11,973,031
--------------
18,783,431
--------------
TOTAL MUNICIPAL BONDS (IDENTIFIED COST $136,147,457) ............................... 140,027,052
--------------
</TABLE>
<PAGE>
TCW/DW TERM TRUST 2003
Portfolio of Investments March 31, 1996 (continued)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- ---------- --------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (0.1%)
REPURCHASE AGREEMENT
$ 1,333 The Bank of New York (dated 03/29/96; proceeds $1,333,794;
collateralized by $1,272,273 U.S. Treasury Bond 7.25% due
05/15/16 valued at $1,359,960) (Identified Cost $1,333,294) 4.50% 04/01/96 $ 1,333,294
--------------
TOTAL INVESTMENTS (IDENTIFIED COST $1,399,871,479) (B) .................. 141.0% 1,316,856,594
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS .......................... (41.0) (383,158,126)
--------------
NET ASSETS .............................................................. 100.0% $ 933,698,468
==============
<FN>
- ------------
PC Participation Certificate.
PAC Planned Amortization Class.
TAC Targeted Amortization Class.
+ Inverse floater: interest rate moves inversely to a designated
index, such as LIBOR (London Inter-Bank Offered Rate) or COFI (Cost
of Funds Index), typically at a multiple of the changes of the
relevant index rate.
++ Some or all of these securities are pledged in connection with
reverse repurchase agreements.
* Floating rate security. Rate shown is the rate in effect at March
31, 1996.
(a) Investments in Texas Municipal Obligations represent 8.7% of net
assets.
(b) The aggregate cost for federal income tax purposes is
$1,399,871,479; the aggregate gross unrealized appreciation is
$4,008,464 and the aggregate gross unrealized depreciation is
$87,023,349, resulting in net unrealized depreciation of
$83,014,885.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW TERM TRUST 2003
Financial Statements
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,399,871,479) ......... $1,316,856,594
Cash ...................................... 18,725
Interest receivable ....................... 7,074,961
Deferred organizational expenses .......... 13,132
Prepaid expenses and other assets ........ 107,997
--------------
TOTAL ASSETS ............................ 1,324,071,409
--------------
LIABILITIES:
Reverse repurchase agreements ............. 388,011,000
Payable for:
Interest ................................. 1,262,478
Management fee ........................... 375,445
Shares of beneficial interest repurchased 335,725
Investment advisory fee .................. 250,297
Accrued expenses and other payables ...... 137,996
Contingencies (Note 9) .................... --
--------------
TOTAL LIABILITIES ....................... 390,372,941
--------------
NET ASSETS:
Paid-in-capital ........................... 997,411,433
Net unrealized depreciation ............... (83,014,885)
Accumulated undistributed net investment
income ................................... 24,017,313
Accumulated net realized loss ............. (4,715,393)
--------------
NET ASSETS .............................. $ 933,698,468
==============
NET ASSET VALUE PER SHARE,
105,139,640 shares outstanding
(unlimited shares authorized of $.01 par
value) ................................... $8.88
=====
</TABLE>
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended March 31, 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ................... $ 97,048,836
-------------
EXPENSES
Management fee ................... 3,741,363
Investment advisory fee .......... 2,494,242
Transfer agent fees and expenses 409,908
Professional fees ................ 281,655
Insurance expenses ............... 122,984
Shareholder reports and notices . 92,059
Registration fees ................ 62,727
Custodian fees ................... 46,732
Trustees' fees and expenses ..... 46,567
Organizational expenses .......... 6,335
Other ............................ 39,240
-------------
TOTAL OPERATING EXPENSES ....... 7,343,812
Interest expense ................. 22,718,345
-------------
TOTAL EXPENSES .................. 30,062,157
-------------
NET INVESTMENT INCOME ........... 66,986,679
-------------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized loss ................ (295,785)
Net change in unrealized
depreciation .................... 86,800,987
-------------
NET GAIN ........................ 86,505,202
-------------
NET INCREASE .................... $153,491,881
=============
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW TERM TRUST 2003
Financial Statements (continued)
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ........................................ $ 66,986,679 $ 79,177,441
Net realized loss ............................................ (295,785) (4,419,608)
Net change in unrealized depreciation ........................ 86,800,987 (93,989,113)
-------------- --------------
Net increase (decrease) ..................................... 153,491,881 (19,231,280)
-------------- --------------
Dividends and distributions from:
Net investment income ........................................ (58,589,855) (68,772,914)
Net realized gain ............................................ -- (6,315,623)
-------------- --------------
Total ....................................................... (58,589,855) (75,088,537)
-------------- --------------
Net decrease from transactions in shares of beneficial
interest ...................................................... (43,280,134) --
-------------- --------------
Total increase (decrease) ................................... 51,621,892 (94,319,817)
NET ASSETS:
Beginning of period ........................................... 882,076,576 976,396,393
-------------- --------------
END OF PERIOD (Including undistributed net investment
income of $24,017,313 and $15,620,489, respectively) ........ $933,698,468 $882,076,576
============== ==============
</TABLE>
<PAGE>
TCW/DW TERM TRUST 2003
Financial Statements (continued)
- -----------------------------------------------------------------------------
STATEMENT OF CASH FLOWS For the year ended March 31, 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income .............................................. $ 66,986,679
Adjustments to reconcile net investment income to net cash provided
by operating activities:
Decrease in receivables and other assets related to operations ... 545,372
Decrease in payables related to operations ....................... (398,550)
Net amortization of discount/premium ............................. (6,699,882)
---------------
Net cash provided by operating activities ....................... 60,433,619
---------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Purchases of investments ............................................ (14,263,504)
Principal prepayments/sales of investments .......................... 49,189,695
Net sales of short-term investments ................................. 8,894,179
---------------
Net cash provided by investing activities ....................... 43,820,370
---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Net payments for shares of beneficial interest repurchased ......... (42,944,409)
Net payments for maturities of reverse repurchase agreements ....... (2,701,000)
Dividends to shareholders from net investment income ................ (58,589,855)
---------------
Net cash used for financing activities .......................... (104,235,264)
---------------
Net increase in cash ................................................ 18,725
Cash at beginning of year ............................................ --
---------------
CASH BALANCE AT END OF YEAR .......................................... $ 18,725
===============
Cash paid during the year for interest ............................... $ 23,193,346
===============
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW TERM TRUST 2003
Notes to Financial Statements March 31, 1996
- -----------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- TCW/DW Term Trust 2003 (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 January 20, 1993
and commenced operations on April 29, 1993. The Trust will distribute
substantially all of its net assets on or about December 31, 2003 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 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 utilizes 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 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 lives 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.
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
<PAGE>
TCW/DW TERM TRUST 2003
Notes to Financial Statements March 31, 1996 (continued)
- ---------------------------------------------------------------------------
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess of
net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized
capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
E. Organizational Expenses -- Dean Witter InterCapital Inc., an affiliate
of Dean Witter Services Company Inc. (the "Manager"), paid the
organizational expenses in the amount of approximately $31,600 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
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 with TCW Funds Management, Inc. (the "Adviser"), the Trust pays an
advisory fee, accrued weekly and payable monthly, by applying the annual rate
of 0.26% to the Trust's weekly net assets.
Under the terms of the Investment Advisory Agreement, the Trust has retained
the Adviser to invest the Trust's assets, including placing orders for the
purchase and sale of portfolio securities. The Adviser obtains and evaluates
such information and advice relating to the economy, securities markets and
specific securities as it considers necessary or useful to continuously manage
the assets of the Trust in a manner consistent with its investment objective.
In addition, the Adviser pays the salaries of all personnel, including
officers of the Trust, who are employees of the Adviser.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from sales/prepayments of portfolio securities,
excluding short-term investments, for the year ended March 31, 1996 were as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES/PREPAYMENTS
------------ -----------------
<S> <C> <C>
U.S. Government Agencies ......................... $ -- $36,798,514
Private Issue Collateralized Mortgage Obligations 14,263,504 12,391,181
</TABLE>
Dean Witter Trust Company, an affiliate of the Manager, is the Trust's
transfer agent. At March 31, 1996, the Trust had transfer agent fees and
expenses payable of approximately $29,900.
<PAGE>
TCW/DW TERM TRUST 2003
Notes to Financial Statements March 31, 1996 (continued)
5. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAR VALUE PAID IN
OF EXCESS OF
SHARES SHARES PAR VALUE
------------- ------------ --------------
<S> <C> <C> <C>
Balance, March 31, 1994 and 1995 .... 110,834,540 $1,108,345 $1,039,583,222
Treasury shares purchased and retired
(weighted average discount 14.75%)* (5,694,900) (56,949) (43,223,185)
------------- ------------ --------------
Balance, March 31, 1996 .............. 105,139,640 $1,051,396 $ 996,360,037
============= ============ ==============
<FN>
- ------------
* The Trustees have voted to retire the shares purchased.
</TABLE>
6. FEDERAL INCOME TAX STATUS -- At March 31, 1996, the Trust had a net capital
loss carryover of approximately $4,715,000 which will be available to offset
future capital gains to the extent provided by regulations. To the extent that
this carryover loss is used to offset future capital gains, it is probable
that the gains so offset will not be distributed to shareholders.
7. REVERSE REPURCHASE AND DOLLAR ROLL AGREEMENTS -- Reverse repurchase and
dollar roll agreements involve the risk that the market value of the
securities the Trust is obligated to repurchase under the agreement may
decline below the repurchase price. In the event the buyer of securities under
a reverse repurchase or dollar roll agreement files for bankruptcy or becomes
insolvent, the Trust's use of proceeds may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Trust's obligation to repurchase the securities.
Reverse repurchase agreements are collateralized by Trust securities with a
market value in excess of the Trust's obligation under the contract. At March
31, 1996, securities valued at $407,814,479 were pledged as collateral.
At March 31, 1996, the reverse repurchase agreements outstanding were
$388,011,000 with a weighted interest rate of 5.30% maturing within 51 days.
The maximum and average daily amounts outstanding during the period were
$397,234,000 and $386,077,240, respectively. The weighted average interest
rate during the period was 5.88%.
8. DIVIDENDS -- The Trust declared the following dividends from net investment
income payable to shareholders of record subsequent to March 31, 1996:
<TABLE>
<CAPTION>
DECLARATION AMOUNT PER RECORD PAYABLE
DATE SHARE DATE DATE
- -------------- ------------ --------------- --------------
<S> <C> <C> <C>
March 26, 1996 $0.045 April 4, 1996 April 19, 1996
April 23, 1996 $0.045 May 3, 1996 May 17, 1996
</TABLE>
9. LITIGATION -- Two purported class action lawsuits, which have been
consolidated for pretrial purposes, were instituted during 1994 in the United
States District Court, Southern District of New York, against the Trust, some
of its Trustees and officers, one of its underwriters, the lead representative
of its underwriters, the Adviser, the Manager and other defendants, by certain
shareholders of the Trust. The plaintiffs in these actions generally allege
that the defendants made inadequate and misleading disclosures in the
prospectus for
<PAGE>
TCW/DW TERM TRUST 2003
Notes to Financial Statements March 31, 1996 (continued)
- ------------------------------------------------------------------------------
the Trust, in particular as such disclosure relates to the nature and risks of
"inverse floaters," the Trust's investments in those securities, and the
weighted average maturity of the Trust's portfolio. Damages, including
punitive damages, are sought in an unspecified amount. The defendants have
moved to dismiss both complaints for failure to state a cause of action.
In addition, four purported class actions 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, plaintiffs filed an amended
complaint consolidating these four actions. All defendants except two of the
Trustees have filed answers and affirmative defenses to the consolidated
amended complaint. The two Trustees have an indefinite extension in which to
respond to the complaint.
Certain of the defendants in these suits have asserted their right to
indemnification from the Trust.
The ultimate outcome of these matters is not presently determinable, and no
provision has been made in the Trust's financial statements for the effect, if
any, of such matters.
<PAGE>
TCW/DW TERM TRUST 2003
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 FOR THE APRIL 29, 1993*
YEAR ENDED YEAR ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
-------------- -------------- ---------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............. $ 7.96 $ 8.81 $ 9.40
-------------- -------------- ---------------
Net investment income ............................ 0.63 0.71 0.66
Net realized and unrealized gain (loss) ......... 0.76 (0.88) (0.62)
-------------- -------------- ---------------
Total from investment operations ................. 1.39 (0.17) 0.04
-------------- -------------- ---------------
Less dividends and distributions from:
Net investment income ........................... (0.54) (0.62) (0.62)
-------------- -------------- ---------------
Net realized gain ............................... -- (0.06) --
-------------- -------------- ---------------
Total dividends and distributions ................ (0.54) (0.68) (0.62)
Anti-dilutive effect of acquiring treasury shares 0.07 -- --
-------------- -------------- ---------------
Less offering costs charged against capital ..... -- -- (0.01)
-------------- -------------- ---------------
Net asset value, end of period ................... $ 8.88 $ 7.96 $ 8.81
============== ============== ===============
Market value, end of period ...................... $ 7.25 $ 6.75 $8.875
============== ============== ===============
TOTAL INVESTMENT RETURN+ ......................... 15.39% (17.00)% (4.33)%(1)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses ............................... 0.77% 0.76% 0.73%(2)
Interest expense ................................. 2.36% 2.42% 1.06%(2)
Total expenses ................................... 3.13% 3.18% 1.79%(2)
Net investment income ............................ 6.98% 9.37% 7.61%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $933,698 $882,077 $976,396
Portfolio turnover rate .......................... 1% --%++ 53%(1)
<FN>
- ------------
* 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
dividend reinvestment plan. Total investment return does not reflect
brokerage commissions.
++ Less than 0.5%.
(1) Not annualized.
(2) Annualized.
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW TERM TRUST 2003
Report of Independent Accountants
- -----------------------------------------------------------------------------
To the Shareholders and Trustees of TCW/DW Term Trust 2003
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 2003 (the "Trust") at March 31, 1996, 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 two years in the period then ended and for the
period April 29, 1993 (commencement of operations) through March 31, 1994, 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 March 31, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
Our report on the March 31, 1995 financial statements referred to certain
pending litigation, the status of which is described in Note 9 to these
financial statements. Because of changes to professional auditing standards
recently adopted by the American Institute of Certified Public Accountants,
our report on the March 31, 1996 financial statements is no longer required to
refer to uncertainties such as this litigation.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
May 10, 1996
<PAGE>
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
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
Sheldon Curtis
Vice President, Secretary and
General Counsel
Philip A. Barach
Vice President
Jeffrey E. Gundlach
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
T C W / D W
TERM TRUST
2003
ANNUAL REPORT
MARCH 31, 1996
