<PAGE>
TCW/DW TERM TRUST 2003
LETTER TO THE SHAREHOLDERS March 31, 1997
Two World Trade Center, New York, New York 10048
DEAR SHAREHOLDER:
For the fiscal year ended March 31, 1997, the net asset value of TCW/DW Term
Trust 2003 increased from $8.88 to $8.97 per share. Based on this change, and
assuming reinvestment of dividends totaling approximately $0.59 per share,
the Trust's total return for the fiscal year from April 1, 1996 through March
31, 1997 was 9.01 percent. Over the same period, the market price of the
Trust's shares on the New York Stock Exchange (NYSE) increased from $7.25 to
$7.875 per share. Based on this change, and assuming reinvestment of
dividends, the Trust's total return for the fiscal year was 17.22 percent.
This strong investment performance is largely attributable to the narrowing
of Trust's market discount to net asset value from 18 percent to 12 percent
during the period.
The Trust raised its monthly dividend in August 1996 from $0.0450 to $0.0485
per share. In February 1997, the monthly dividend was increased further to
$0.0525. Both increases reflect an increase in portfolio earnings. This
earnings increase is largely attributable to the decline in short-term
interest rates over the past 18 months.
THE MARKET
In response to continuing signs of economic growth, the financial markets saw
a modest sell off of securities over the past year. Unemployment claims moved
lower, there was a strong gain in manufacturing activity and reports of
higher retail sales indicate that consumer spending is fueling further
expansion. These strong economic data prompted the Federal Reserve Board to
tighten monetary policy by 25 basis points (0.25 percentage points) on March
25, 1997.
According to the Trust's investment adviser, TCW Funds Management, Inc.
(TCW), the recent rise in long-term interest rates reduced home mortgage
prepayment risk, which helped 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.
<PAGE>
TCW/DW TERM TRUST 2003
LETTER TO THE SHAREHOLDERS, continued
THE PORTFOLIO
Approximately 69 percent of the Trust's assets is invested in AAA-rated
mortgage pass-through securities or CMOs. 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 12 percent are invested in
AAA-rated municipal bonds and short-term investments. The municipal bond
holdings play an important role as the Trust seeks to achieve its objective
of returning the original $10 offering price to shareholders at maturity. On
March 31, 1997, the Trust's degree of leverage (the ratio of debt to assets)
was 32 percent of total assets.
LOOKING AHEAD
TCW remains generally positive regarding the mortgage-backed sector's
long-term prospects. Although overall economic activity is still robust, real
interest rates remain at historically high levels. (In the past, periods of
strong bond market performance have correlated with high real rates of
interest). The Trust's net asset and NYSE market values will continue to
fluctuate as both respond to changes in market conditions and interest rates.
Many analysts feel that a benign inflationary environment should temper the
severity of any future central bank actions.
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 6,341,900 shares of common
stock at a weighted average market discount of 14.66 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
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On October 29, 1996, 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:
Richard M. DeMartini
For............................................................ 74,836,843
Withheld....................................................... 2,104,857
Thomas E. Larkin, Jr.
For............................................................ 74,823,668
Withheld....................................................... 2,118,032
The following Trustees were not standing for reelection at this meeting:
John C. Argue, Charles A. Fiumefreddo, John R. Haire, Dr. Manuel H. Johnson,
Michael E. Nugent, John L. Schroeder and Marc I. Stern.
(2) Continuance of the Currently Effective Investment Advisory Agreement
between the Trust and TCW Funds Management, Inc.:
For............................................................ 69,643,044
Against ....................................................... 3,832,187
Abstain ....................................................... 3,466,469
(3) Ratification of Price Waterhouse LLP as Independent Accountants:
For............................................................ 72,435,676
Against ....................................................... 2,498,168
Abstain ....................................................... 2,007,856
In addition, a shareholder proposal to amend the Trust's Declaration of Trust
to require each Trustee, within 30 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 no quorum was
obtained, the following represents the total of the shares whose votes
returned to the Trust prior to the meeting.
PERCENTAGE OF
VOTE NO. OF SHARES OUTSTANDING SHARES
---- ------------- ------------------
For 14,364,802 13.95%
Against 29,754,225 28.89%
Abstain 3,634,101 3.53%
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS March 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (124.9%)
U.S. GOVERNMENT AGENCIES (92.1%)
$7,150 Federal Home Loan Mortgage Corp. 1409 S (PAC) ................... 10.64 +% 11/15/07 $ 6,470,750
70,000 Federal Home Loan Mortgage Corp. 1465 G (PAC)++ ................. 7.00 12/15/07 68,315,142
11,000 Federal Home Loan Mortgage Corp. 1479 M (PAC) ................... 7.50 10/15/22 10,305,702
8,100 Federal Home Loan Mortgage Corp. 1498 N (PAC)++ ................. 7.50 04/15/23 7,558,371
11,600 Federal Home Loan Mortgage Corp. 1504 B (PAC) ................... 7.00 12/15/22 10,567,689
20,594 Federal Home Loan Mortgage Corp. 1505 LA ........................ 7.00 08/15/22 19,275,941
21,675 Federal Home Loan Mortgage Corp. 1507 L ......................... 7.00 10/15/22 20,276,269
11,289 Federal Home Loan Mortgage Corp. 1517 O (PAC) ................... 7.50 01/15/23 10,556,258
9,700 Federal Home Loan Mortgage Corp. 1522 K++ ....................... 6.50 12/15/22 8,735,265
2,406 Federal Home Loan Mortgage Corp. 1524 SA ........................ 8.50 + 05/15/08 2,203,859
5,637 Federal Home Loan Mortgage Corp. 1527 QD ........................ 7.50 01/15/07 5,716,791
17,099 Federal Home Loan Mortgage Corp. 1535 B ......................... 7.00 01/15/23 16,040,468
8,166 Federal Home Loan Mortgage Corp. 1539 SA ........................ 7.631+ 06/15/08 6,445,901
42,385 Federal Home Loan Mortgage Corp. 1542 N (PAC)++ ................. 7.00 01/15/22 40,152,141
38,223 Federal Home Loan Mortgage Corp. 1543 UG (PAC)++ ................ 7.00 01/15/23 35,857,162
17,005 Federal Home Loan Mortgage Corp. 1544 M ......................... 7.904+ 07/15/08 13,391,237
8,461 Federal Home Loan Mortgage Corp. 1556 SA ........................ 9.506+ 08/15/13 6,763,085
12,360 Federal Home Loan Mortgage Corp. 1563 SA ........................ 8.079+ 08/15/08 9,996,150
16,914 Federal Home Loan Mortgage Corp. 1565 IB (TAC) .................. 5.80 + 08/15/08 13,044,794
17,355 Federal Home Loan Mortgage Corp. 1576 SA ........................ 5.290+ 09/15/08 11,269,588
32,363 Federal Home Loan Mortgage Corp. 1602 PW++ ...................... 6.50 12/15/21 31,058,467
14,268 Federal Home Loan Mortgage Corp. 1604 S ......................... 5.909+ 11/15/08 12,352,551
14,945 Federal Home Loan Mortgage Corp. 1606 KD (PAC) .................. 7.249+ 11/15/08 13,646,072
39,760 Federal Home Loan Mortgage Corp. G 15 PA++ ...................... 7.00 12/25/21 37,556,680
6,710 Federal National Mortgage Assoc. 1993-101 SA (TAC) .............. 9.227+ 06/25/08 6,240,245
6,394 Federal National Mortgage Assoc. 1993-101 SB (TAC) .............. 11.017+ 06/25/08 5,924,857
4,526 Federal National Mortgage Assoc. 1993-114 SC .................... 9.00 + 07/25/08 3,927,912
32,200 Federal National Mortgage Assoc. 1993-121 B++ ................... 7.00 03/25/23 30,313,978
19,250 Federal National Mortgage Assoc. 1993-135 S ..................... 6.499+ 07/25/08 13,884,062
12,570 Federal National Mortgage Assoc. 1993-135 SB .................... 6.685+ 06/25/08 9,183,729
26,400 Federal National Mortgage Assoc. 1993-141 B++ ................... 7.00 04/25/23 24,850,766
9,344 Federal National Mortgage Assoc. 1993-141 SA .................... 10.00 + 03/25/23 8,684,271
31,579 Federal National Mortgage Assoc. 1993-165 SM (TAC) .............. 6.811+ 05/25/23 24,421,580
11,590 Federal National Mortgage Assoc. 1993-173 S ..................... 5.625+ 09/25/08 9,405,891
71,000 Federal National Mortgage Assoc. 1993-21 H (PAC)++ .............. 7.00 03/25/22 68,285,088
12,210 Federal National Mortgage Assoc. 1993-20 L ...................... 7.00 12/25/22 11,470,898
7,210 Federal National Mortgage Assoc. 1993-24 C (PAC) ................ 7.50 09/25/22 7,027,443
26,250 Federal National Mortgage Assoc. 1993-206 N++ ................... 6.50 11/25/23 24,018,445
6,934 Federal National Mortgage Assoc. 1993-233 J ..................... 6.00 06/25/08 6,606,708
12,236 Federal National Mortgage Assoc. 1993-40 K ...................... 7.00 04/25/08 11,604,941
15,398 Federal National Mortgage Assoc. 1993-41 C (PAC) ................ 7.00 03/25/21 14,733,085
9,907 Federal National Mortgage Assoc. 1993-63 SD (TAC) ............... 8.132+ 05/25/08 8,343,265
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS March 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
$4,854 Federal National Mortgage Assoc. 1993-65 SC ..................... 8.869+% 06/25/12 $ 4,265,777
15,947 Federal National Mortgage Assoc. 1993-72 S ...................... 7.30 + 05/25/08 12,488,258
12,823 Federal National Mortgage Assoc. 1993-72 SA ..................... 8.750+ 05/25/08 11,252,358
6,579 Federal National Mortgage Assoc. 1993-86 SD ..................... 10.301+ 05/25/08 5,902,547
9,019 Federal National Mortgage Assoc. 1993-93 SA ..................... 10.448+ 05/25/08 7,987,628
13,292 Federal National Mortgage Assoc. 1993-95 SE ..................... 10.505+ 06/25/08 11,804,685
10,000 Federal National Mortgage Assoc. 1993-98 N ...................... 7.00 06/25/23 9,540,600
13,093 Federal National Mortgage Assoc. 1993-196 SA .................... 8.242+ 10/25/08 10,752,324
37,790 Federal National Mortgage Assoc. G 1993-26 A++ .................. 7.00 07/25/23 36,007,044
-------------
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $890,143,450) .................................................. 816,484,718
-------------
PRIVATE ISSUES (32.8%)
7,165 Bear Stearns Mortgage Securities, Inc. 1993-6 A7 (PAC) .......... 7.10 06/25/24 6,938,334
14,026 Bear Stearns Mortgage Securities, Inc. 1993-8 A7 (PAC) .......... 7.50 08/25/24 13,966,390
54,416 Bear Stearns Mortgage Securities, Inc. 1993-8 A11 (TAC) ......... 7.50 08/25/24 51,025,557
25,800 Chase Mortgage Finance Corp. 1993-G A10 (PAC) ................... 7.00 05/25/24 23,597,415
4,784 First Boston Mortgage Securities Corp. 1993-5 A15 ............... 7.30 03/25/09 4,729,286
36,683 General Electric Capital Mortgage Services 1994-1 A8 ............ 6.50 01/25/24 31,294,418
14,252 Prudential Home Mortgage Securities 1993-23 A12 (PAC) ........... 6.50 07/25/08 13,005,426
27,363 Prudential Home Mortgage Securities 1993-35 A12 ................. 6.75 09/25/08 25,057,631
18,000 Prudential Home Mortgage Securities 1993-60 A3 (PAC) ............ 6.75 12/25/23 15,962,627
36,408 Resolution Funding Mortgage Securities I 1993-S 40 A8 (TAC) ..... 6.75 11/25/23 33,275,747
5,315 Ryland Mortgage Securities Corp. 1993-3 A7 (PAC) ................ 6.712 08/25/08 4,786,378
28,218 Salomon Brothers Mortgage Securities VII Inc. 1993-3 A7C ........ 7.20 08/25/23 27,690,205
40,500 Salomon Brothers Mortgage Securities VII Inc. 1993-5 A4 ......... 7.362* 10/25/18 39,520,925
-------------
TOTAL PRIVATE ISSUES
(Identified Cost $310,229,093) .................................................. 290,850,339
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Identified Cost $1,200,372,543) ................................................. 1,107,335,057
-------------
U.S. GOVERNMENT AGENCIES MORTGAGE PASS-THROUGH SECURITIES (4.4%)
10,693 Federal Home Loan Mortgage Corp. PC Gold++ ...................... 6.00 06/01/08 10,064,945
2,305 Federal National Mortgage Assoc. ................................ 5.50 02/01/09 2,119,108
23,208 Federal National Mortgage Assoc. ................................ 6.50 06/01/00 22,612,890
4,417 Federal National Mortgage Assoc. ................................ 7.00 08/01/08 4,338,629
-------------
TOTAL U.S. GOVERNMENT AGENCIES MORTGAGE PASS-THROUGH SECURITIES
(Identified Cost $41,082,574) .................................................... 39,135,572
-------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS March 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (16.7%)
Educational Facilities Revenue (3.6%)
$5,000 Maricopa County Unified School District #41, Arizona Gilbert
Refg (FGIC) ..................................................... 0.00% 01/01/03 $ 3,774,550
6,465 Maricopa County Unified School District #97, Arizona Deer Valley
Refg (Secondary MBIA) .......................................... 0.00 07/01/04 4,503,389
6,000 Maricopa County Unified School District #28, Arizona Kyrene
Elementary Refg Ser 1993 B (FGIC) .............................. 0.00 07/01/04 4,179,480
11,445 Houston Independent School District, Texas, Refg ................ 0.00 08/15/04 7,867,064
Spring Independent School District, Texas,
8,205 Refg Ser 1993 ................................................. 0.00 02/15/03 6,121,915
8,100 Refg Ser 1993 ................................................. 0.00 02/15/04 5,711,148
-------------
32,157,546
-------------
Electric Revenue (4.0%)
12,840 Austin, Texas, Combined Ser A (MBIA) ............................ 0.00 11/15/02 9,753,778
5,200 Lower Colorado River Authority, Texas, Jr Lien 4th Ser (FGIC) ... 0.00 01/01/04 3,689,296
San Antonio, Texas,
12,700 Electric & Gas Refg Ser A (AMBAC) .............................. 0.00 02/01/03 9,494,139
17,500 Electric & Gas Refg Ser A (AMBAC) .............................. 0.00 02/01/04 12,363,400
-------------
35,300,613
-------------
General Obligation (4.4%)
19,650 North Slope Boro, Alaska, Ser 1992 A (MBIA) ..................... 0.00 06/30/02 15,162,136
5,000 Scottsdale, Arizona, Refg (Secondary MBIA) ...................... 0.00 07/01/04 3,482,900
Port of Oakland, California
3,000 Refg Ser 1993 F (MBIA) ......................................... 0.00 11/01/03 2,184,090
3,500 Refg Ser 1993 F (MBIA) ......................................... 0.00 11/01/04 2,410,275
6,500 New Orleans, Louisiana, Refg (AMBAC) ............................ 0.00 09/01/04 4,457,895
16,000 Pennsylvania, Second Ser 1992 (Secondary MBIA) .................. 0.00 07/01/04 11,105,920
-------------
38,803,216
-------------
Hospital Revenue (0.8%)
10,000 California Statewide Communities Development Authority,
UniHealth Ser A (AMBAC) ........................................ 0.00 10/01/04 6,889,500
-------------
Other Revenue (1.7%)
5,460 Rosemont, Illinois, Tax Increment Ser C-3 (FGIC) ................ 0.00 12/01/03 3,902,863
16,040 Texas State Public Finance Authority, Refg Ser 1990 (MBIA) ...... 0.00 02/01/05 10,688,254
-------------
14,591,117
-------------
Water & Sewer Revenue (2.2%)
Houston, Texas,
10,000 Water & Sewer Jr Lien Ser C (AMBAC) ............................ 0.00 12/01/03 7,171,400
18,640 Water & Sewer Jr Lien Ser C (AMBAC) ............................ 0.00 12/01/04 12,622,449
-------------
19,793,849
-------------
TOTAL MUNICIPAL BONDS (Identified Cost $143,496,978) ............................ 147,535,841
-------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS March 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (0.7%)
U.S. GOVERNMENT AGENCY (a) (0.2%)
$1,500 Federal Home Loan Mortgage Corp.
(Amortized Cost $1,496,140) .................................... 5.45 % 04/18/97 $ 1,496,140
-------------
REPURCHASE AGREEMENT (0.5%)
4,825 The Bank of New York (dated 03/31/97; proceeds $4,826,027;
collateralized by $4,955,042 Federal Home Loan Banks
6.04% due 08/13/98 valued at $4,921,813)
(Identified Cost $4,825,307) ................................. 5.375 04/01/97 4,825,307
-------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $6,321,447) ..................................................... 6,321,447
-------------
TOTAL INVESTMENTS (Identified Cost $1,391,273,542) (b) .................... 146.7% 1,300,327,917
LIABILITIES IN EXCESS OF OTHER ASSETS ..................................... (46.7) (413,710,061)
-------------
NET ASSETS ............................................................... 100.0% $886,617,856
=============
</TABLE>
- --------------
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, 1997.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$4,105,661 and the aggregate gross unrealized depreciation is
$95,051,286, resulting in net unrealized depreciation of
$90,945,625.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2003
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,391,273,542) .................................... $1,300,327,917
Interest receivable .................................................. 6,991,819
Deferred organizational expenses ..................................... 6,812
Prepaid expenses ..................................................... 79,156
--------------
TOTAL ASSETS ....................................................... 1,307,405,704
--------------
LIABILITIES:
Reverse repurchase agreements ........................................ 418,356,000
Payable for:
Interest ............................................................ 1,396,558
Shares of beneficial interest repurchased ........................... 401,500
Management fee ...................................................... 300,098
Investment advisory fee ............................................. 200,065
Accrued expenses ..................................................... 133,627
Contingencies (Note 9)................................................ --
--------------
TOTAL LIABILITIES ................................................. 420,787,848
--------------
NET ASSETS:
Paid-in-capital ...................................................... 948,907,344
Net unrealized depreciation........................................... (90,945,625)
Accumulated undistributed net investment income ...................... 33,371,530
Accumulated net realized loss ........................................ (4,715,393)
--------------
NET ASSETS ......................................................... $ 886,617,856
==============
NET ASSET VALUE PER SHARE,
98,797,740 shares outstanding (unlimited shares authorized of $.01
par value) ......................................................... $8.97
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2003
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME........................ $98,025,540
-------------
EXPENSES
Management fee......................... 3,571,053
Investment advisory fee................ 2,380,702
Transfer agent fees and expenses ...... 346,777
Registration fees...................... 100,498
Professional fees ..................... 99,957
Insurance expenses .................... 98,884
Shareholder reports and notices ...... 64,584
Custodian fees ........................ 55,396
Trustees' fees and expenses ........... 33,859
Service fees .......................... 33,066
Organizational expenses ............... 6,320
Other ................................. 9,190
-------------
TOTAL OPERATING EXPENSES ............ 6,800,286
Interest Expense ...................... 22,085,935
-------------
TOTAL EXPENSES....................... 28,886,221
-------------
NET INVESTMENT INCOME................ 69,139,319
NET CHANGE IN UNREALIZED DEPRECIATION (7,930,740)
-------------
NET INCREASE .......................... $61,208,579
=============
</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 YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 69,139,319 $ 66,986,679
Net realized loss ..................................... -- (295,785)
Net change in unrealized depreciation ................. (7,930,740) 86,800,987
------------ ------------
NET INCREASE ........................................ 61,208,579 153,491,881
Dividends from net investment income .................. (59,785,102) (58,589,855)
Net decrease from transactions in shares of beneficial
interest ............................................. (48,504,089) (43,280,134)
------------ ------------
NET INCREASE (DECREASE) ............................. (47,080,612) 51,621,892
NET ASSETS:
Beginning of period.................................... 933,698,468 882,076,576
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$33,371,530 and $24,017,313, respectively) ........ $886,617,856 $933,698,468
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2003
FINANCIAL STATEMENTS, continued
STATEMENT OF CASH FLOWS
For the year ended March 31, 1997
<TABLE>
<CAPTION>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income ................................................ $ 69,139,319
Adjustments to reconcile net investment income to net cash provided
by operating activities:
Decrease in receivables and other assets related to operations ...... 118,303
Increase in payables related to operations ........................... 4,132
Net amortization of discount/premium ................................. (7,469,030)
--------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 61,792,724
--------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Principal prepayments of investments ................................. 20,972,865
Net purchases of short-term investments .............................. (4,905,898)
--------------
NET CASH PROVIDED BY INVESTING ACTIVITIES .......................... 16,066,967
--------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Net payments for shares of beneficial interest repurchased .......... (48,438,314)
Net proceeds from the issuance of reverse repurchase agreements ..... 30,345,000
Dividends to shareholders from net investment income ................. (59,785,102)
--------------
NET CASH USED FOR FINANCING ACTIVITIES.............................. (77,878,416)
--------------
NET DECREASE IN CASH ................................................. (18,725)
CASH AT BEGINNING OF PERIOD .......................................... 18,725
--------------
CASH BALANCE AT END OF PERIOD ........................................ $ --
==============
Cash paid during the period for interest ............................. $ 21,951,855
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1997
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 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 time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity
date of sixty days or less at the time of purchase are valued at amortized
cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. The Trust amortizes premiums and accretes discounts over the life of
the respective securities. Interest income is accrued daily.
<PAGE>
TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1997, continued
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc., 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 the Manager a management
fee, accrued weekly and payable monthly, by applying the annual rate of 0.39%
to the Trust's weekly net assets.
Under the terms of the Management Agreement, the Manager maintains certain of
the Trust's books and records and furnishes, at its own expense, office
space, facilities, equipment, clerical, bookkeeping and certain legal
services and pays the salaries of all personnel, including officers of the
Trust who are employees of the Manager. The Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Trust.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement the Trust pays the Adviser an
advisory fee, accrued weekly and payable monthly, by applying the annual rate
of 0.26% to the Trust's weekly net assets.
<PAGE>
TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1997, continued
Under the terms of the Investment Advisory Agreement, the Trust has retained
the Adviser to invest the Trust's assets, including placing orders for the
purchase and sale of portfolio securities. The Adviser obtains and evaluates
such information and advice relating to the economy, securities markets and
specific securities as it considers necessary or useful to continuously
manage the assets of the Trust in a manner consistent with its investment
objective. In addition, the Adviser pays the salaries of all personnel,
including officers of the Trust, who are employees of the Adviser.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The proceeds from prepayments of portfolio securities, excluding short-term
investments, for the year ended March 31, 1997 were $20,972,865.
Dean Witter Trust Company, an affiliate of the Manager, is the Trust's
transfer agent. At March 31, 1997, the Trust had transfer agent fees and
expenses payable of approximately $43,100.
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, March 31, 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
Treasury shares purchased and retired (weighted average discount 14.66%)* (6,341,900) (63,419) (48,440,670)
-------------- ------------ --------------
Balance, March 31, 1997 98,797,740 $ 987,977 $ 947,919,367
============== ============ ==============
</TABLE>
- --------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At March 31, 1997 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.
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.
<PAGE>
TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1997, continued
Reverse repurchase agreements are collateralized by Trust securities with a
market value in excess of the Trust's obligation under the contract. At March
31, 1997, securities valued at $428,490,285 were pledged as collateral.
At March 31, 1997, the reverse repurchase agreements outstanding were
$418,356,000 with a weighted interest rate of 5.50% maturing within 44 days.
The maximum and average daily amounts outstanding during the period were
$420,904,000 and $402,062,953, respectively. The weighted average interest
rate during the period was 5.42%.
8. DIVIDENDS
The Trust declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT PER RECORD PAYABLE
DATE SHARE DATE DATE
- -------------- ------------ --------------- --------------
<S> <C> <C> <C>
March 25, 1997 $0.0525 April 4, 1997 April 18, 1997
April 29, 1997 $0.0525 May 9, 1997 May 23, 1997
</TABLE>
9. LITIGATION
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, the plaintiffs filed an amended complaint consolidating these four
actions. The defendants thereafter filed answers and affirmative defenses to
the consolidated amended complaint. The defendants' answers deny all of the
material allegations of the plaintiffs' complaint. In 1996, the plaintiffs
voluntarily dismissed, without prejudice, their claims against two defendants
who were independent Trustees of the Trust. 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. As of May 6, 1997, the motions
were still under submission with the Court and no ruling had yet been entered
in connection with those motions. 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 YEAR ENDED MARCH 31, APRIL 29, 1993*
---------------------------- THROUGH
1997 1996 1995 MARCH 31, 1994
- ------------------------------------------------- -------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 8.88 $ 7.96 $ 8.81 $ 9.40
------ ------ ------- ------
Net investment income............................. 0.70 0.63 0.71 0.66
Net realized and unrealized gain (loss)........... (0.10) 0.76 (0.88) (0.62)
------ ------ ------- ------
Total from investment operations.................. 0.60 1.39 (0.17) 0.04
------ ------ ------- ------
Less dividends and distributions from:
Net investment income............................ (0.59) (0.54) (0.62) (0.62)
Net realized gain................................ - - (0.06) -
------ ------ ------- ------
Total dividends and distributions................. (0.59) (0.54) (0.68) (0.62)
------ ------ ------- ------
Anti-dilutive effect of acquiring treasury
shares........................................... 0.08 0.07 - -
------ ------ ------- ------
Less offering costs charged against capital ...... - - - (0.01)
------ ------ ------- ------
Net asset value, end of period.................... $ 8.97 $ 8.88 $ 7.96 $ 8.81
====== ====== ======= ======
Market value, end of period....................... $7.875 $ 7.25 $ 6.75 $8.875
====== ====== ======= ======
TOTAL INVESTMENT RETURN+.......................... 17.22% 15.39% (17.00)% (4.33)%(1)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses................................ 0.74% 0.77% 0.76% 0.73%(2)
Interest expense.................................. 2.42% 2.36% 2.42% 1.06%(2)
Total expenses.................................... 3.16% 3.13% 3.18% 1.79%(2)
Net investment income............................. 7.57% 6.98% 9.37% 7.61%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in millions............ $887 $934 $882 $976
Portfolio turnover rate........................... - % 1% - % ++ 53%(1)
</TABLE>
- --------------
* Commencement of operations.
+ Total investment return is based upon the current market value on the
first day of each period reported. Dividends and distributions are
assumed to be reinvested at the prices obtained under the Trust's
dividend reinvestment plan. Total investment return does not reflect
brokerage commissions.
++ Less than 0.5%.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW TERM TRUST 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, 1997, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the three 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, 1997 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
May 12, 1997
<PAGE>
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<PAGE>
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<PAGE>
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc L. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and
General Counsel
Philip A. Barach
Vice President
Jeffrey E. Gundlach
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust 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.
TCW/DW
TERM TRUST
2003
ANNUAL REPORT
MARCH 31, 1997
