<PAGE>
TCW/DW TERM TRUST 2003 Two World Trade Center,
LETTER TO THE SHAREHOLDERS March 31, 1998 New York, New York 10048
DEAR SHAREHOLDER:
For the fiscal year ended March 31, 1998, TCW/DW Term Trust 2003's net asset
value increased from $8.97 to $10.11 per share. Based on this change, and
including reinvestment of dividends totaling $0.63 per share, the Trust's
total return for the fiscal year was 21.10 percent. Over the same period, the
market price of the Trust's shares on the New York Stock Exchange (NYSE)
increased from $7.875 to $9.063 per share. Based on this change and including
reinvestment of dividends, the Trust's total return for the fiscal year was
23.65 percent.
For the year ended March 31, 1998, the Trust was ranked #1 out of 29 U.S.
Mortgage Funds, as measured by Lipper Analytical Services, Inc.
THE MARKET
During the past twelve months, the U.S. economy remained robust, while
inflationary pressures remained minimal. Interest rates declined across most
points on the yield curve, with the largest declines observed in the
intermediate to long maturities. So far, the much anticipated and debated
effects of the Asian financial crisis on the U.S. economy have been mild.
Given the uncertainty surrounding the situation in Asia, few investors
expected the Federal Reserve Board to raise interest rates over the last six
months in spite of a very robust domestic economy, and they were not
disappointed. Lower market volatility over the past few months kept bonds
trading within a fairly tight range, bolstering the performance of
mortgage-backed securities.
Declining interest rates fueled a surge in refinancing activity in January
that boosted the MBA Refinancing Index to unprecedented levels before
moderating to simply very high readings. Reported prepayments on all
mortgage-backed pass-throughs above 7 percent increased dramatically through
March, validating the index's forecast. As expected, the adjustable-rate
mortgage sector was hardest hit. The flatter yield curve, combined with lower
interest rates, offered adjustable-rate borrowers the greatest incentive to
refinance into fixed-rate loans and lock in lower
<PAGE>
TCW/DW TERM TRUST 2003
LETTER TO THE SHAREHOLDERS March 31, 1998, continued
borrowing costs. Nonetheless, demand for mortgage products has been strong.
According to the Trust's investment adviser, TCW Funds Management, Inc.
(TCW), many sectors of the mortgage market look attractive on a yield basis
when compared to other fixed-income sectors of comparable quality. The
issuance of new collateralized mortgage obligations (CMOs) has risen
substantially since last year, and the agencies have become increasingly
involved in this sector.
THE PORTFOLIO
Approximately 69 percent of the Trust is invested in AAA-rated mortgage
pass-through securities or CMOs with durations, average lives or expected
maturity dates that correspond closely to the termination date of the Trust.
An additional 21 percent is invested in inverse floating rate CMOs issued by
U.S. government agencies. Inverse floaters have coupons that reset by a
multiple in a direction opposite to that of a specified index. The remaining
10 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. At March 31, 1998, the Trust's
degree of leverage (the ratio of debt to assets) was 31.5 percent of total
assets.
LOOKING AHEAD
The most recent round of prepayment releases reflect strong refinancing
activity related to the strong Treasury rally in January. With the effective
30-year mortgage rate ending the quarter at around the 7.25 percent mark, the
mortgage market remains in a somewhat tenuous position. Some analysts expect
a mild rally back to the January lows, which would reignite another
refinancing fervor. If we remain in this trading range, however, prepayment
speeds will gradually taper off. According to TCW, even though mortgages are
perched on a precipice they remain attractive in terms of current yield, and
this yield advantage has consistently contributed to the performance
advantage of the mortgage-backed securities sector.
TCW maintains a positive outlook for the mortgage-backed sector for a number
of additional reasons. First and foremost is TCW's continued focus on call
protection and a goal of mitigating the potentially negative effects on
returns of rapid prepayments. Furthermore, the strong technical factors that
persisted for much of last year remain in place today. The demand for
mortgage-backed products remains strong, liquidity is high, mortgage yields
remain attractive and the market continues to innovate new product structures
quickly to take advantage of arbitrage opportunities and to meet investor
demand. The Trust's net asset value and NYSE market values will continue to
fluctuate in response to changes in market conditions and interest rates.
<PAGE>
TCW/DW TERM TRUST 2003
LETTER TO THE SHAREHOLDERS March 31, 1998, continued
We would like to remind you that the Trustees have approved a procedure
whereby the Trust may attempt, when appropriate, to reduce or eliminate a
market value discount from net asset value by repurchasing shares in the open
market or in privately negotiated transactions at a price not above
market value or net asset value, whichever is lower at the time of purchase.
During the period under review, the Trust purchased 6,287,400 shares of
common stock at a weighted average market discount
of 10.18 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 24, 1997, an annual meeting of the Trust's shareholders was held
for the purpose of voting on five separate matters, the results of which were
as follows:
(1) ELECTION OF TRUSTEES:
John C. Argue
For ................... 73,448,824
Withheld .............. 3,235,620
Charles A. Fiumefreddo
For ................... 73,364,949
Withheld .............. 3,319,495
Michael E. Nugent
For ................... 73,438,950
Withheld .............. 3,245,494
The following Trustees were not standing for reelection at this meeting:
Richard M. DeMartini, John R. Haire, Dr. Manuel H. Johnson, Thomas E. Larkin,
Jr., John L. Schroeder and Marc I. Stern.
(2) APPROVAL OF THE CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT
ADVISORY AGREEMENT BETWEEN THE TRUST AND TCW FUNDS MANAGEMENT, INC.:
For ....... 70,689,443
Against .. 2,801,456
Abstain .. 3,193,545
(3) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT
ACCOUNTANTS:
For ....... 72,422,193
Against .. 1,707,731
Abstain .. 2,554,520
(4) 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:
For ....... 14,923,065
Against .. 31,261,068
Abstain .. 4,535,970
(5) SHAREHOLDER PROPOSAL TO AMEND THE TRUST'S DECLARATION OF TRUST TO PERMIT
SHAREHOLDER NOMINATIONS OF INDEPENDENT TRUSTEES:
For ....... 12,224,854
Against .. 34,620,629
Abstain .. 3,874,620
4
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS March 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (129.8%)
U.S. GOVERNMENT AGENCIES (95.5%)
$7,150 Federal Home Loan Mortgage Corp. 1409 S (PAC) .................. 12.67 +% 11/15/07 $7,062,842
70,000 Federal Home Loan Mortgage Corp. 1465 G (PAC) ++ ................ 7.00 12/15/07 70,902,139
11,000 Federal Home Loan Mortgage Corp. 1479 M (PAC) .................. 7.50 10/15/22 10,964,184
8,100 Federal Home Loan Mortgage Corp. 1498 N (PAC) .................. 7.50 04/15/23 8,073,306
11,600 Federal Home Loan Mortgage Corp. 1504 B (PAC) .................. 7.00 12/15/22 11,491,833
20,594 Federal Home Loan Mortgage Corp. 1505 LA ....................... 7.00 08/15/22 20,608,953
21,675 Federal Home Loan Mortgage Corp. 1507 L ........................ 7.00 10/15/22 21,746,937
11,289 Federal Home Loan Mortgage Corp. 1517 O (PAC) .................. 7.50 01/15/23 11,252,006
9,700 Federal Home Loan Mortgage Corp. 1522 K ++ ..................... 6.50 12/15/22 9,528,404
2,406 Federal Home Loan Mortgage Corp. 1524 SA ....................... 8.50 + 05/15/08 2,464,781
4,866 Federal Home Loan Mortgage Corp. 1527 QD ++ ..................... 7.50 01/15/07 4,975,836
17,099 Federal Home Loan Mortgage Corp. 1535 B ........................ 7.00 01/15/23 17,109,300
8,086 Federal Home Loan Mortgage Corp. 1539 SA ....................... 7.05 + 06/15/08 7,626,068
42,385 Federal Home Loan Mortgage Corp. 1542 N (PAC) ++ ................ 7.00 01/15/22 42,351,176
38,223 Federal Home Loan Mortgage Corp. 1543 UG (PAC) ++ ............... 7.00 01/15/23 38,097,497
17,005 Federal Home Loan Mortgage Corp. 1544 M ......................... 9.412+ 07/15/08 15,091,711
8,461 Federal Home Loan Mortgage Corp. 1556 SA ....................... 9.00 + 08/15/13 8,132,673
12,360 Federal Home Loan Mortgage Corp. 1563 SA ....................... 7.719+ 08/15/08 11,927,400
16,202 Federal Home Loan Mortgage Corp. 1565 IB (TAC) ................. 5.30 + 08/15/08 15,113,640
16,829 Federal Home Loan Mortgage Corp. 1576 SA ....................... 4.887+ 09/15/08 14,667,422
32,363 Federal Home Loan Mortgage Corp. 1602 PW ++ ..................... 6.50 12/15/21 32,551,256
11,872 Federal Home Loan Mortgage Corp. 1604 S ........................ 5.159+ 11/15/08 11,532,444
10,311 Federal Home Loan Mortgage Corp. 1606 KD (PAC) ................. 6.357+ 11/15/08 10,303,889
20,356 Federal Home Loan Mortgage Corp. 1970 PC (PAC) ................. 6.75 11/15/21 20,457,780
39,760 Federal Home Loan Mortgage Corp. G 15 PA ++ .................... 7.00 12/25/21 39,800,547
6,710 Federal National Mortgage Assoc. 1993-101 SA (TAC) .............. 9.227+ 06/25/08 6,812,670
6,394 Federal National Mortgage Assoc. 1993-101 SB (TAC) .............. 10.223+ 06/25/08 6,578,308
4,526 Federal National Mortgage Assoc. 1993-114 SC ................... 9.00 + 07/25/08 4,466,806
32,200 Federal National Mortgage Assoc. 1993-121 B ++ .................. 7.00 03/25/23 32,261,615
19,250 Federal National Mortgage Assoc. 1993-135 S .................... 6.035+ 07/25/08 16,723,438
12,570 Federal National Mortgage Assoc. 1993-135 SB ................... 6.221+ 06/25/08 10,971,026
26,400 Federal National Mortgage Assoc. 1993-141 B ++ .................. 7.00 04/25/23 26,450,640
9,344 Federal National Mortgage Assoc. 1993-141 SA .................... 10.00 + 03/25/23 9,560,295
31,579 Federal National Mortgage Assoc. 1993-165 SM (TAC) ............. 6.608+ 05/25/23 30,284,843
10,825 Federal National Mortgage Assoc. 1993-173 S .................... 5.40 + 09/25/08 10,208,662
71,000 Federal National Mortgage Assoc. 1993-21 H (PAC) ++ ............ 7.00 03/25/22 71,473,464
12,210 Federal National Mortgage Assoc. 1993-20 L ...................... 7.00 12/25/22 12,192,093
7,210 Federal National Mortgage Assoc. 1993-24 C (PAC) ................ 7.50 09/25/22 7,433,005
26,250 Federal National Mortgage Assoc. 1993-206 N ++ .................. 6.50 11/25/23 25,769,730
6,026 Federal National Mortgage Assoc. 1993-233 J ..................... 6.00 06/25/08 5,948,575
9,620 Federal National Mortgage Assoc. 1993-40 K ...................... 7.00 04/25/08 9,634,957
15,398 Federal National Mortgage Assoc. 1993-41C ++ .................... 7.00 03/25/21 15,436,985
9,907 Federal National Mortgage Assoc. 1993-63 SD (TAC) ............... 7.824+ 05/25/08 9,157,501
4,854 Federal National Mortgage Assoc. 1993-65 SC ..................... 8.527+ 06/25/12 4,699,612
15,947 Federal National Mortgage Assoc. 1993-72 S ...................... 6.744+ 05/25/08 14,401,874
12,823 Federal National Mortgage Assoc. 1993-72 SA ..................... 8.750+ 05/25/08 12,606,745
6,579 Federal National Mortgage Assoc. 1993-86 SD ..................... 9.836+ 05/25/08 6,687,948
9,019 Federal National Mortgage Assoc. 1993-93 SA ..................... 9.977+ 05/25/08 9,261,597
13,292 Federal National Mortgage Assoc. 1993-95 SE ..................... 9.957+ 06/25/08 13,628,183
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS March 31, 1998, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------
$10,000 Federal National Mortgage Assoc. 1993-98 N ...................... 7.00 % 06/25/23 $10,171,800
13,093 Federal National Mortgage Assoc. 1993-196 SA .................... 7.641+ 10/25/08 12,090,129
34,007 Federal National Mortgage Assoc. 1993-26 A ++ ................... 7.00 07/25/23 33,932,083
---------------
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $893,506,233) ........................................................ 892,678,608
---------------
PRIVATE ISSUES (34.3%)
7,165 Bear Stearns Mortgage Securities, Inc. 1993-6 A7 (PAC) .......... 7.10 06/25/24 7,255,913
14,026 Bear Stearns Mortgage Securities, Inc. 1993-8 A7 (PAC) .......... 7.50 08/25/24 14,526,083
54,416 Bear Stearns Mortgage Securities, Inc. 1993-8 A11 (TAC) ......... 7.50 08/25/24 54,816,693
25,800 Chase Mortgage Finance Corp. 1993-G A10 (PAC) ................... 7.00 05/25/24 25,435,575
4,784 First Boston Mortgage Securities Corp. 1993-5 A15 ............... 7.30 03/25/09 4,926,087
36,683 General Electric Capital Mortgage Services, Inc. 1994-1 A8 ...... 6.50 01/25/24 35,243,258
14,252 Prudential Home Mortgage Securities 1993-23 A12 (PAC) ........... 6.50 07/25/08 13,807,664
27,363 Prudential Home Mortgage Securities 1993-35 A12 ................. 6.75 09/25/08 26,770,783
18,000 Prudential Home Mortgage Securities 1993-60 A3 (PAC) ............ 6.75 12/25/23 17,152,700
10,000 Resolution Funding Mortgage Securities I 1997-S 12 A12 (PAC) .... 6.75 08/25/27 10,050,000
36,408 Resolution Funding Mortgage Securities I 1993-S 40 A8 (TAC) ..... 6.75 11/25/23 35,866,633
5,315 Ryland Mortgage Securities Corp. 1993-3 7 (PAC) ................. 6.712 08/25/08 5,176,686
28,218 Salomon Brothers Mortgage Securities VII Inc. 1993-3 A7C ....... 7.20 08/25/23 28,655,198
40,500 Salomon Brothers Mortgage Securities VII Inc. 1993-5 A4 ........ 7.36 * 10/25/18 40,805,131
---------------
TOTAL PRIVATE ISSUES (Identified Cost $320,288,468) .................................. 320,488,404
---------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Identified Cost $1,213,794,701) ..................................................... 1,213,167,012
---------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH SECURITIES (1.6%)
9,199 Federal Home Loan Mortgage Corp. PC Gold ++ .................... 6.00 06/01/08 9,063,598
2,033 Federal National Mortgage Assoc. ................................ 5.50 02/01/09 1,959,137
3,560 Federal National Mortgage Assoc. ................................ 7.00 08/01/08 3,619,181
---------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH SECURITIES
(Identified Cost $14,728,658) ........................................................ 14,641,916
---------------
TAX-EXEMPT MUNICIPAL BONDS (13.9%)
Educational Facilities Revenue (3.2%)
5,000 Maricopa County Unified School District #41, Arizona, Gilbert
Refg (FGIC) .................................................... 0.00 01/01/03 4,064,300
6,000 Maricopa County Unified School District #28, Arizona, Kyrene
Elementary Refg Ser 1993 B (FGIC) ............................. 0.00 07/01/04 4,554,300
11,445 Houston Independent School District, Texas, Refg ............... 0.00 08/15/04 8,619,115
Spring Independent School District, Texas,
8,205 Refg Ser 1993 ................................................. 0.00 02/15/03 6,624,552
8,100 Refg Ser 1993 ................................................. 0.00 02/15/04 6,237,243
---------------
30,099,510
---------------
Electric Revenue (4.1%)
12,840 Austin, Texas, Combined Ser A (MBIA) ............................ 0.00 11/15/02 10,523,921
5,200 Lower Colorado River Authority, Texas, Jr Lien 4th Ser (AMBAC) . 0.00 01/01/04 4,025,996
San Antonio, Texas,
12,700 Electric & Gas Refg Ser A (AMBAC) ............................. 0.00 02/01/03 10,271,252
17,500 Electric & Gas Refg Ser A (AMBAC) ............................. 0.00 02/01/04 13,498,975
---------------
38,320,144
---------------
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS March 31, 1998, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------
General Obligation (4.5%)
$19,650 North Slope Boro, Alaska, Ser 1992 A (MBIA) ..................... 0.00 % 06/30/02 $16,351,944
5,000 Scottsdale, Arizona, Refg (Secondary MBIA) ..................... 0.00 07/01/04 3,795,250
Port of Oakland, California,
3,000 Refg Ser 1993 F (MBIA) ......................................... 0.00 11/01/03 2,368,290
3,500 Refg Ser 1993 F (MBIA) ......................................... 0.00 11/01/04 2,639,910
6,500 New Orleans, Louisiana, Refg (AMBAC) ............................ 0.00 09/01/04 4,928,560
16,000 Pennsylvania, Second Ser 1992 (Secondary MBIA) .................. 0.00 07/01/04 12,137,440
---------------
42,221,394
---------------
Hospital Revenue (0.8%)
10,000 California Statewide Communities Development Authority,
UniHealth Ser A (AMBAC) ........................................ 0.00 10/01/04 7,521,600
---------------
Other Revenue (0.5%)
5,460 Rosemont, Illinois, Tax Increment Ser C-3 (FGIC) ................ 0.00 12/01/03 4,261,858
---------------
Water & Sewer Revenue (0.8%)
10,000 Houston Texas, Water & Sewer Jr Lien Ser C (AMBAC) .............. 0.00 12/01/03 7,797,000
---------------
TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $122,737,924) ...................... 130,221,506
---------------
SHORT-TERM INVESTMENT (0.1%)
REPURCHASE AGREEMENT
1,290 The Bank of New York (dated 03/31/98; proceeds $1,290,533) (a)
(Identified Cost $1,290,341) ................................... 5.375 04/01/98 1,290,341
---------------
TOTAL INVESTMENTS (Identified Cost $1,352,551,624) (b) ..................... 145.4% 1,359,320,775
LIABILITIES IN EXCESS OF OTHER ASSETS ..................................... (45.4) (424,339,643)
---------------
NET ASSETS ................................................................ 100.0% $934,981,132
====== ===============
</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, 1998.
(a) Collateralized by $349,336 U.S. Treasury Note 6.625% due 05/15/07
valued at $379,253 and $880,024 U.S. Treasury Bond 6.375% due
08/15/27 valued at $936,894.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$19,229,387 and the aggregate gross unrealized depreciation is
$12,460,236, resulting in net unrealized appreciation of
$6,769,151.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
TCW/DW TERM TRUST 2003
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,352,551,624)..................................... $1,359,320,775
Interest receivable................................................... 6,914,519
Deferred organizational expenses...................................... 492
Prepaid expenses and other assets..................................... 78,573
--------------
TOTAL ASSETS ....................................................... 1,366,314,359
--------------
LIABILITIES:
Reverse repurchase agreements......................................... 428,321,000
Payable for:
Interest............................................................ 1,756,302
Shares of beneficial interest repurchased........................... 579,698
Management fee...................................................... 321,501
Investment advisory fee............................................. 214,334
Accrued expenses ..................................................... 140,392
Contingencies (Note 9)................................................ --
--------------
TOTAL LIABILITIES .................................................. 431,333,227
--------------
NET ASSETS ......................................................... $ 934,981,132
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital....................................................... $ 893,889,126
Net unrealized appreciation........................................... 6,769,151
Accumulated undistributed net investment income....................... 37,587,230
Accumulated net realized loss......................................... (3,264,375)
--------------
NET ASSETS ......................................................... $ 934,981,132
==============
NET ASSET VALUE PER SHARE,
92,510,340 shares outstanding (unlimited shares authorized of $.01
par value)........................................................... $ 10.11
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
TCW/DW TERM TRUST 2003
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended March 31, 1998
NET INVESTMENT INCOME:
INTEREST INCOME ...................... $ 95,181,928
-------------
EXPENSES
Management fee........................ 3,630,668
Investment advisory fee............... 2,420,445
Transfer agent fees and expenses ..... 315,769
Shareholder reports and notices ...... 110,444
Professional fees..................... 102,834
Registration fees..................... 84,376
Insurance expenses.................... 84,237
Custodian fees........................ 48,299
Trustees' fees and expenses........... 33,304
Organizational expenses............... 6,320
Other................................. 45,396
-------------
TOTAL OPERATING EXPENSES ........... 6,882,092
Interest expense...................... 23,614,829
-------------
TOTAL EXPENSES ..................... 30,496,921
-------------
NET INVESTMENT INCOME .............. 64,685,007
-------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain..................... 1,451,018
Net change in unrealized
depreciation......................... 97,714,776
-------------
NET GAIN ........................... 99,165,794
-------------
NET INCREASE ......................... $163,850,801
=============
SEE NOTES TO FINANCIAL STATEMENTS
9
<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, 1998 MARCH 31, 1997
- ----------------------------------------------------- -------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................ $ 64,685,007 $ 69,139,319
Net realized gain..................................... 1,451,018 --
Net change in unrealized depreciation ................ 97,714,776 (7,930,740)
-------------- --------------
NET INCREASE ....................................... 163,850,801 61,208,579
Dividends from net investment income.................. (60,469,307) (59,785,102)
Net decrease from transactions in shares of
beneficial interest.................................. (55,018,218) (48,504,089)
-------------- --------------
NET INCREASE (DECREASE)............................. 48,363,276 (47,080,612)
NET ASSETS:
Beginning of period................................... 886,617,856 933,698,468
-------------- --------------
END OF PERIOD
(Including undistributed net investment income of
$37,587,230 and $33,371,530, respectively) ......... $934,981,132 $886,617,856
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
TCW/DW TERM TRUST 2003
FINANCIAL STATEMENTS, continued
STATEMENT OF CASH FLOWS
For the year ended March 31, 1998
<TABLE>
<CAPTION>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income ................................................ $ 64,685,007
Adjustments to reconcile net investment income to net cash provided
by operating activities:
Decrease in receivables and other assets related to operations ...... 84,203
Increase in payables related to operations ........................... 402,181
Net amortization of discount/premium ................................. (7,701,191)
---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 57,470,200
---------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Purchases of investments ............................................. (31,612,527)
Principal prepayments/sales of investments ........................... 74,408,979
Net sales of short-term investments .................................. 5,077,675
---------------
NET CASH PROVIDED BY INVESTING ACTIVITIES .......................... 47,874,127
---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Net payments for shares of beneficial interest repurchased .......... (54,840,020)
Net proceeds from issuance of reverse repurchase agreements ......... 9,965,000
Dividends to shareholders from net investment income ................. (60,469,307)
---------------
NET CASH USED FOR FINANCING ACTIVITIES ............................. (105,344,327)
---------------
NET INCREASE (DECREASE) IN CASH ...................................... --
CASH BALANCE AT BEGINNING OF PERIOD .................................. --
---------------
CASH BALANCE AT END OF PERIOD ........................................ $ --
===============
Cash paid during the period for interest ............................. $ 23,255,085
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1998
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.
12
<PAGE>
TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1998, 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.
13
<PAGE>
TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1998, continued
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement the Trust pays the Adviser an
advisory fee, accrued weekly and payable monthly, by applying the annual rate
of 0.26% to the Trust's weekly net assets.
Under the terms of the Investment Advisory Agreement, the Trust has retained
the Adviser to invest the Trust's assets, including placing orders for the
purchase and sale of portfolio securities. The Adviser obtains and evaluates
such information and advice relating to the economy, securities markets and
specific securities as it considers necessary or useful to continuously
manage the assets of the Trust in a manner 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,
1998 were as follows:
SALES/
PURCHASES PREPAYMENTS
------------- -------------
U.S. Government Agencies $20,553,199 $42,784,626
Private Issue Collateralized Mortgage Obligations 10,059,375 --
Municipal Bonds -- 30,624,353
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Manager, is the
Trust's transfer agent. At March 31, 1998, the Trust had transfer agent fees
and expenses payable of approximately $4,900.
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, 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
Treasury shares purchased and retired (weighted average discount 10.18%)* (6,287,400) (62,874) (54,955,344)
------------- ------------ --------------
Balance, March 31, 1998 92,510,340 $ 925,103 $892,964,023
============= ============ ==============
</TABLE>
- ------------
* The Trustees have voted to retire the shares purchased.
14
<PAGE>
TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1998, continued
6. FEDERAL INCOME TAX STATUS
During the year ended March 31, 1998, the Trust utilized approximately
$1,451,000 of its net capital loss carryover. At March 31, 1998 the Trust had
a net capital loss carryover of approximately $3,264,000 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, 1998, securities valued at $431,922,066 were pledged as collateral.
At March 31, 1998, the reverse repurchase agreements outstanding were
$428,321,000 with a weighted interest rate of 5.57% maturing within 59 days.
The maximum and average daily amounts outstanding during the period were
$434,183,000 and $413,225,912, respectively. The weighted average interest
rate during the period was 5.64%.
8. DIVIDENDS
The Trust declared the following dividends from net investment income:
DECLARATION AMOUNT PER RECORD PAYABLE
DATE SHARE DATE DATE
- -------------- ------------ --------------- ---------------
March 24, 1998 $0.0525 April 3,1998 April 17, 1998
April 28, 1998 $0.0525 May 8, 1998 May 22, 1998
9. 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
15
<PAGE>
TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1998, continued
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 litigation
filed motions for judgment on the pleadings, seeking dismissal of all of the
claims asserted against them. The defendants' motions were fully briefed by
all parties and were the subject of a hearing before the Court on April 18,
1997. In July 1997, the Court denied the motions for judgment on the
pleadings. Certain of the defendants in these suits have asserted their right
to indemnification from the Trust. The ultimate outcome of these matters is
not presently determinable, and no provision has been made in the Trust's
financial statements for the effect, if any, of such matters.
16
<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
1998 1997 1996 1995 MARCH 31, 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 8.97 $ 8.88 $ 7.96 $ 8.81 $ 9.40
------- -------- -------- ---------- -------
NET INVESTMENT INCOME ............................. 0.70 0.70 0.63 0.71 0.66
NET REALIZED AND UNREALIZED GAIN (LOSS) .......... 1.01 (0.10) 0.76 (0.88) (0.62)
------- -------- -------- ---------- -------
TOTAL FROM INVESTMENT OPERATIONS .................. 1.71 0.60 1.39 (0.17) 0.04
------- -------- -------- ---------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
NET INVESTMENT INCOME ........................... (0.63) (0.59) (0.54) (0.62) (0.62)
NET REALIZED GAIN ............................... -- -- -- (0.06) --
------- -------- -------- ---------- -------
TOTAL DIVIDENDS AND DISTRIBUTIONS ................. (0.63) (0.59) (0.54) (0.68) (0.62)
------- -------- -------- ---------- -------
ANTI-DILUTIVE EFFECT OF ACQUIRING TREASURY SHARES 0.06 0.08 0.07 -- --
------- -------- -------- ---------- -------
LESS OFFERING COSTS CHARGED AGAINST CAPITAL ...... -- -- -- -- (0.01)
------- -------- -------- ---------- -------
NET ASSET VALUE, END OF PERIOD .................... $10.11 $ 8.97 $ 8.88 $ 7.96 $ 8.81
======= ======= ======== ========== ========
MARKET VALUE, END OF PERIOD ....................... $9.063 $7.875 $ 7.25 $ 6.75 $8.875
======= ======== ======== ========== =======
TOTAL INVESTMENT RETURN+ .......................... 23.65% 17.22% 15.39% (17.00)% (4.33)%(1)
RATIOS TO AVERAGE NET ASSETS:
OPERATING EXPENSES ................................ 0.74% 0.74% 0.77% 0.76 % 0.73 %(2)
INTEREST EXPENSE .................................. 2.54% 2.42% 2.36% 2.42 % 1.06 %(2)
TOTAL EXPENSES .................................... 3.28% 3.16% 3.13% 3.18 % 1.79 %(2)
NET INVESTMENT INCOME ............................. 6.97% 7.57% 6.98% 9.37 % 7.61 %(2)
SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD, IN MILLIONS ............ $935 $887 $934 $882 $976
PORTFOLIO TURNOVER RATE ........................... 2% -- 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
17
<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, 1998, 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 four 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, 1998 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, 1998
18
<PAGE>
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and
General Counsel
Philip A. Barach
Vice President
Jeffrey E. Gundlach
Vice President
Frederick H. Horton
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
TCW/DW
TERM TRUST
2003
[ART WORK]
ANNUAL REPORT
MARCH 31, 1998
