<PAGE>
TCW/DW TERM TRUST 2003 TWO WORLD TRADE CENTER,
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1998 NEW YORK, NEW YORK 10048
DEAR SHAREHOLDER:
For the six-month period ended September 30, 1998, TCW/DW Term Trust 2003's net
asset value increased from $10.11 per share to $10.79 per share. Based on this
change, and including reinvestment of dividends totaling $0.32 per share, the
Trust's total return for the period was 10.37 percent. Over the same period, the
market price of the Trust's shares on the New York Stock Exchange (NYSE)
increased from $9.063 per share to $9.625 per share. Based on this change and
including reinvestment of dividends, the Trust's total return for the period was
9.89 percent.
THE MARKET
International developments and the flow of capital played prominent roles in the
movement of the U.S. fixed-income markets over the past six months. A seemingly
endless stream of bad news out of the world's emerging markets induced investors
to seek the safety of the U.S. Treasury market. As a result, U.S. Treasury
yields plummeted and in late September the yield on the 30-year U.S. Treasury
bond broke through five percent for the first time since 1967. Over the last
five months, the yield on the 30-year U.S. Treasury bond has fallen 100 basis
points with the majority of the decline occurring since the beginning of August,
coinciding with the downturn in the U.S. stock market and the increased turmoil
in the global markets.
The economic collapse in Russia, threats to Latin America's stability and Asia's
persistent problems have some economists forecasting a global recession. Indeed,
the bailout of a prominent "hedge" fund, Long Term Capital Management, was
viewed by some observers as an indication of how fragile the financial system
has become. Despite the Federal Reserve Board's decision to cut the
federal-funds rate by 25 basis points (0.25 percentage points) at the end of
September, many investors remained concerned about the condition of financial
systems worldwide. However, concerns were eased somewhat when the central bank
initiated another 25 basis point cut less than a month later, suggesting a
commitment to keeping the U.S. financial system on track.
<PAGE>
TCW/DW TERM TRUST 2003
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1998, CONTINUED
According to the Trust's adviser, TCW Funds Management, Inc. (TCW), it is highly
unusual to see U.S. Treasury yields as far below the federal-funds rate as they
are currently. In TCW's view this scenario is an indication that the market
expects the central bank to continue cutting rates. Despite the turmoil in many
overseas economies and the very real possibility that these problems may spill
over into the United States, the domestic economy to date has been strong.
Unemployment is low, wages have been on an upswing and consumer spending has
been growing. Although some analysts feel that the recent decline in the U.S.
stock market and the uncertain political environment in Washington, D.C. may
slow the economy in the third and fourth quarters of 1998, consumer confidence
remains high. Inflation is below two percent and the federal budget surplus is
growing. In TCW's view, while this scenario could dampen enthusiasm for further
interest rate cuts, the recent easing is justified both as a preemptive strike
against both the increased likelihood of an economic slowdown and the growing
evidence of financial distress in the United States.
THE PORTFOLIO
Approximately 69 percent of the Trust's portfolio is invested in mortgage
pass-through securities issued by agencies of the U.S. government or AAA-rated
collateralized mortgage obligations (CMOs) with durations, average lives or
expected maturity dates that correspond closely to the Trust's termination date.
An additional 21 percent of the portfolio is invested in inverse floating rate
CMOs issued by U.S. government agencies. As a reminder, inverse floaters have
coupons that reset by a multiple in a direction opposite to that of a specified
index. The remaining 10 percent of the portfolio is invested in AAA-rated
municipal bonds and cash equivalents. The municipal bond holdings play an
important role as the Trust seeks to achieve its objective of returning the
original $10 per share offering price to shareholders at maturity. As of
September 30, 1998, the Trust's degree of leverage (the ratio of debt to assets)
was 30 percent of total assets.
LOOKING AHEAD
The mortgage-backed sector has underperformed the fixed-income market as a whole
over the past several months. Refinancing activity has not yet surpassed the
peak levels recorded during the first quarter of 1998, but analysts expect new
records to be set in the next few weeks. Mortgage lenders have been unable to
sell mortgages in this environment and have had little incentive to lower rates.
As a result, mortgage rates have declined much slower than U.S. Treasury yields
and mortgage spreads are now wider than they have been in several years. The
combination of wider spreads and the threat of another wave of refinancing
activity have kept many investors temporarily out of the
2
<PAGE>
TCW/DW TERM TRUST 2003
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1998, CONTINUED
mortgage-backed sector. Although dealer reluctance to take on additional risk in
this environment has slowed CMO issuance dramatically, new CMO issuance
year-to-date already exceeds last year's volume.
Despite the possibility that mortgage spreads could widen further, TCW believes
that purchases made at current levels are poised to perform well over the
remainder of the Trust's life. Today's high yield levels, combined with the
Trust's continued focus on call protection enables the portfolio management team
to maintain a positive outlook for the mortgage-backed sector in general and the
Trust in particular.
The Trust's net asset value and NYSE market values will continue to fluctuate in
response 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 period under review, the
Trust purchased 3,058,700 shares of common stock at a weighted average market
discount of 9.51 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,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
3
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (126.7%)
U.S. GOVERNMENT AGENCIES (92.3%)
$ 7,150 Federal Home Loan Mortgage Corp. 1409 S (PAC)................................ 12.985+% 11/15/07 $ 7,498,563
70,000 Federal Home Loan Mortgage Corp. 1465 G (PAC) ++............................. 7.00 12/15/07 72,823,422
8,100 Federal Home Loan Mortgage Corp. 1498 N (PAC)................................ 7.50 04/15/23 8,380,940
11,600 Federal Home Loan Mortgage Corp. 1504 B (PAC)................................ 7.00 12/15/22 12,113,829
14,712 Federal Home Loan Mortgage Corp. 1505 LA..................................... 7.00 08/15/22 15,143,112
21,675 Federal Home Loan Mortgage Corp. 1507 L...................................... 7.00 10/15/22 22,692,344
11,289 Federal Home Loan Mortgage Corp. 1517 O (PAC)................................ 7.50 01/15/23 12,019,335
9,700 Federal Home Loan Mortgage Corp. 1522 K...................................... 6.50 12/15/22 10,071,028
2,406 Federal Home Loan Mortgage Corp. 1524 SA..................................... 8.50 + 05/15/08 2,650,512
4,459 Federal Home Loan Mortgage Corp. 1527 QD..................................... 7.50 01/15/07 4,455,867
17,099 Federal Home Loan Mortgage Corp. 1535 B...................................... 7.00 01/15/23 17,889,962
7,836 Federal Home Loan Mortgage Corp. 1539 SA..................................... 7.316+ 06/15/08 7,865,844
42,385 Federal Home Loan Mortgage Corp. 1542 N (PAC) ++............................. 7.00 01/15/22 44,088,284
38,223 Federal Home Loan Mortgage Corp. 1543 UG (PAC) ++............................ 7.00 01/15/23 39,739,348
17,005 Federal Home Loan Mortgage Corp. 1544 M...................................... 9.646+ 07/15/08 16,127,811
6,718 Federal Home Loan Mortgage Corp. 1556 SA..................................... 9.237+ 08/15/13 6,910,629
12,360 Federal Home Loan Mortgage Corp. 1563 SA..................................... 7.884+ 08/15/08 12,792,600
12,319 Federal Home Loan Mortgage Corp. 1565 IB (TAC)............................... 5.55 + 08/15/08 12,376,991
14,120 Federal Home Loan Mortgage Corp. 1576 SA..................................... 5.071+ 09/15/08 13,136,366
32,363 Federal Home Loan Mortgage Corp. 1602 PW ++.................................. 6.50 12/15/21 33,552,602
9,325 Federal Home Loan Mortgage Corp. 1604 S...................................... 5.534+ 11/15/08 9,648,030
6,297 Federal Home Loan Mortgage Corp. 1606 KD (PAC)............................... 6.803+ 11/15/08 6,693,416
20,356 Federal Home Loan Mortgage Corp. 1970 PC (PAC)............................... 6.75 11/15/21 20,922,100
39,760 Federal Home Loan Mortgage Corp. G 15 PA ++.................................. 7.00 12/25/21 41,725,146
6,710 Federal National Mortgage Assoc. 1993-101 SA (TAC)........................... 9.227+ 06/25/08 7,338,997
6,394 Federal National Mortgage Assoc. 1993-101 SB (TAC)........................... 10.586+ 06/25/08 7,035,896
4,526 Federal National Mortgage Assoc. 1993-114 SC................................. 9.00 + 07/25/08 4,803,467
32,200 Federal National Mortgage Assoc. 1993-121 B ++............................... 7.00 03/25/23 33,645,999
19,250 Federal National Mortgage Assoc. 1993-135 S.................................. 6.035+ 07/25/08 18,064,778
12,570 Federal National Mortgage Assoc. 1993-135 SB................................. 6.221+ 06/25/08 11,874,416
26,400 Federal National Mortgage Assoc. 1993-141 B ++............................... 7.00 04/25/23 27,636,737
7,588 Federal National Mortgage Assoc. 1993-141 SA................................. 10.00 + 03/25/23 8,356,447
31,579 Federal National Mortgage Assoc. 1993-165 SM (TAC)........................... 6.743+ 05/25/23 34,009,580
8,786 Federal National Mortgage Assoc. 1993-173 S.................................. 5.55 + 09/25/08 8,740,831
71,000 Federal National Mortgage Assoc. 1993-21 H (PAC) ++.......................... 7.00 03/25/22 72,408,115
12,210 Federal National Mortgage Assoc. 1993-20 L................................... 7.00 12/25/22 12,805,616
7,210 Federal National Mortgage Assoc. 1993-24 C (PAC)............................. 7.50 09/25/22 7,237,038
26,250 Federal National Mortgage Assoc. 1993-206 N ++............................... 6.50 11/25/23 27,073,570
5,145 Federal National Mortgage Assoc. 1993-233 J.................................. 6.00 06/25/08 5,195,225
4,949 Federal National Mortgage Assoc. 1993-40 K................................... 7.00 04/25/08 5,119,264
15,398 Federal National Mortgage Assoc. 1993-41C ++................................. 7.00 03/25/21 16,022,940
9,907 Federal National Mortgage Assoc. 1993-63 SD (TAC)............................ 7.965+ 05/25/08 9,891,194
4,854 Federal National Mortgage Assoc. 1993-65 SC.................................. 8.684+ 06/25/12 5,089,466
15,947 Federal National Mortgage Assoc. 1993-72 S................................... 6.999+ 05/25/08 15,443,360
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED) 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 SA.................................. 8.75%+ 05/25/08 $ 13,524,373
6,579 Federal National Mortgage Assoc. 1993-86 SD.................................. 10.049+ 05/25/08 7,132,031
9,019 Federal National Mortgage Assoc. 1993-93 SA.................................. 10.193+ 05/25/08 9,907,014
13,045 Federal National Mortgage Assoc. 1993-95 SE.................................. 10.208+ 06/25/08 14,308,139
10,000 Federal National Mortgage Assoc. 1993-98 N................................... 7.00 06/25/23 10,531,200
13,071 Federal National Mortgage Assoc. 1993-196 SA................................. 7.916+ 10/25/08 12,805,815
32,738 Federal National Mortgage Assoc. 1993-26 A ++................................ 7.00 07/25/23 34,027,014
--------------
TOTAL U.S. GOVERNMENT AGENCIES
(IDENTIFIED COST $850,457,880)....................................................................... 891,346,603
--------------
PRIVATE ISSUES (34.4%)
7,165 Bear Stearns Mortgage Securities Inc. 1993-6 A7 (PAC)........................ 7.10 06/25/24 7,466,220
14,026 Bear Stearns Mortgage Securities Inc. 1993-8 A7 (PAC)........................ 7.50 08/25/24 15,018,577
54,416 Bear Stearns Mortgage Securities Inc. 1993-8 A11 (TAC)....................... 7.50 08/25/24 56,611,462
25,800 Chase Mortgage Finance Corp.1993-G A10 (PAC)................................. 7.00 05/25/24 26,197,524
4,784 First Boston Mortgage Securities Corp. 1993-5 A15............................ 7.30 03/25/09 5,059,518
36,683 General Electric Capital Mortgage Services, Inc. 1994-1 A8................... 6.50 01/25/24 37,549,122
14,252 Prudential Home Mortgage Securities 1993-23 A12 (PAC)........................ 6.50 07/25/08 14,403,475
27,363 Prudential Home Mortgage Securities 1993-35 A12.............................. 6.75 09/25/08 27,803,992
18,000 Prudential Home Mortgage Securities 1993-60 A3 (PAC)......................... 6.75 12/25/23 18,139,090
10,000 Resolution Funding Mortgage Securities I 1997-S 12 A12 (PAC)................. 6.75 08/25/27 10,291,600
36,408 Resolution Funding Mortgage Securities I 1993-S 40 A8 (TAC).................. 6.75 11/25/23 37,335,708
5,315 Ryland Mortgage Securities Corp. 1993-3 7 (PAC).............................. 6.712 08/25/08 5,442,643
28,218 Salomon Brothers Mortgage Securities VII Inc. 1993-3 A7C..................... 7.20 08/25/23 29,305,832
40,500 Salomon Brothers Mortgage Securities VII Inc. 1993-5 A4...................... 7.343* 10/25/18 40,962,093
--------------
TOTAL PRIVATE ISSUES
(IDENTIFIED COST $320,401,838)....................................................................... 331,586,856
--------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $1,770,859,718)..................................................................... 1,222,933,459
--------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH SECURITIES (1.4%)
8,366 Federal Home Loan Mortgage Corp. PC Gold ++.................................. 6.00 06/01/08 8,459,792
1,885 Federal National Mortgage Assoc. ++.......................................... 5.50 02/01/09 1,877,611
2,801 Federal National Mortgage Assoc.............................................. 7.00 08/01/08 2,873,627
--------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH SECURITIES
(IDENTIFIED COST $12,977,183)........................................................................ 13,211,030
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (14.1%)
EDUCATION FACILITIES REVENUE (3.3%)
$ 5,000 Maricopa County Unified School District # 41, Arizona, Gilbert Refg (FGIC)... 0.00% 01/01/03 $ 4,237,300
6,000 Maricopa County Unified School District # 28, Arizona, Kyrene Elementary
Refg Ser 1993 B (FGIC)..................................................... 0.00 07/01/04 4,782,900
11,445 Houston Independent School District, Texas, Refg............................. 0.00 08/15/04 9,063,868
Spring Independent School District, Texas,
8,205 Refg Ser 1993.............................................................. 0.00 02/15/03 6,911,482
8,100 Refg Ser 1993.............................................................. 0.00 02/15/04 6,543,423
--------------
31,538,973
--------------
ELECTRIC REVENUE (4.1%)
12,840 Austin, Texas, Combined Ser A (MBIA)......................................... 0.00 11/15/02 10,966,644
5,200 Lower Colorado River Authority, Texas, Jr Lien 4th Ser (AMBAC)............... 0.00 01/01/04 4,221,152
San Antonio, Texas,
12,700 Electric & Gas Refg Ser A (AMBAC).......................................... 0.00 02/01/03 10,714,228
17,500 Electric & Gas Refg Ser A (AMBAC).......................................... 0.00 02/01/04 14,158,900
--------------
40,060,924
--------------
GENERAL OBLIGATION (4.6%)
19,650 North Slope Boro, Alaska, Ser 1992 A (MBIA).................................. 0.00 06/30/02 16,994,106
5,000 Scottsdale, Arizona, Refg (Secondary MBIA)................................... 0.00 07/01/04 3,985,750
Port of Oakland, California,
3,000 Refg Ser 1993 F (MBIA)..................................................... 0.00 11/01/03 2,466,150
3,500 Refg Ser 1993 F (MBIA)..................................................... 0.00 11/01/04 2,760,205
6,500 New Orleans, Louisiana, Refg (AMBAC)......................................... 0.00 09/01/04 5,097,040
16,000 Pennsylvania, Second Ser 1992 (Secondary MBIA)............................... 0.00 07/01/04 12,689,760
--------------
43,993,011
--------------
HOSPITAL REVENUE (0.8%)
10,000 California Statewide Communities Development Authority, UniHealth Ser A
(AMBAC).................................................................... 0.00 10/01/04 7,865,500
--------------
OTHER REVENUE (0.5%)
5,460 Rosemont, Illinois, Tax Increment Ser C-3 (FGIC)............................. 0.00 12/01/03 4,444,658
--------------
WATER & SEWER REVENUE (0.8%)
10,000 Houston Texas, Water & Sewer Jr Lien Ser C (AMBAC)........................... 0.00 12/01/03 8,165,200
--------------
TOTAL TAX-EXEMPT MUNICIPAL BONDS
(IDENTIFIED COST $126,077,798).......................................................................
136,068,266
--------------
SHORT-TERM INVESTMENT (0.2%)
REPURCHASE AGREEMENT
2,286 The Bank of New York (dated 09/30/98; proceeds $2,285,854) (a) (IDENTIFIED
COST $2,285,537)........................................................... 5.00 10/01/98 2,285,537
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TOTAL INVESTMENTS (IDENTIFIED COST $1,312,200,236) (b).............................. 142.4 % $ 1,374,498,292
LIABILITIES IN EXCESS OF OTHER ASSETS............................................... (42.4) (409,404,485)
------ ---------------
NET ASSETS.............................................................................. 100.0 % $ 965,093,807
------ ---------------
------ ---------------
</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 September 30,
1998.
(a) Collateralized by $2,091,985 U.S. Treasury Note 8.50% due 11/15/00 valued
at $2,331,248.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$64,342,812 and the aggregate gross unrealized depreciation is
$2,044,756, resulting in net unrealized appreciation of $62,298,056.
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
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,312,200,236).......................................................... $1,374,498,292
Interest receivable......................................................................... 6,786,979
Prepaid expenses............................................................................ 31,369
--------------
TOTAL ASSETS........................................................................... 1,381,316,640
--------------
LIABILITIES:
Reverse repurchase agreements............................................................... 413,207,000
Payable for:
Interest................................................................................ 1,649,245
Shares of beneficial interest repurchased............................................... 655,876
Management fee.......................................................................... 336,831
Investment advisory fee................................................................. 224,554
Payable to bank............................................................................. 1,995
Accrued expenses............................................................................ 147,332
Contingencies (Note 9)...................................................................... --
--------------
TOTAL LIABILITIES...................................................................... 416,222,833
--------------
NET ASSETS............................................................................. $ 965,093,807
--------------
--------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................. $ 865,365,474
Net unrealized appreciation................................................................. 62,298,056
Accumulated undistributed net investment income............................................. 40,694,652
Accumulated net realized loss............................................................... (3,264,375)
--------------
NET ASSETS............................................................................. $ 965,093,807
--------------
--------------
NET ASSET VALUE PER SHARE,
89,451,640 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)............. $10.79
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
TCW/DW TERM TRUST 2003
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME................................................................................ $47,356,654
-----------
EXPENSES
Management fee................................................................................. 1,838,525
Investment advisory fee........................................................................ 1,225,683
Transfer agent fees and expenses............................................................... 155,462
Shareholder reports and notices................................................................ 45,699
Professional fees.............................................................................. 41,499
Registration fees.............................................................................. 40,048
Insurance expenses............................................................................. 25,088
Custodian fees................................................................................. 24,181
Trustees' fees and expenses.................................................................... 18,094
Organizational expenses........................................................................ 492
Other.......................................................................................... 26,472
-----------
TOTAL OPERATING EXPENSES.................................................................. 3,441,243
Interest expense............................................................................... 12,034,783
-----------
TOTAL EXPENSES............................................................................ 15,476,026
-----------
NET INVESTMENT INCOME..................................................................... 31,880,628
-----------
NET CHANGE IN UNREALIZED APPRECIATION..................................................... 55,528,905
-----------
NET INCREASE................................................................................... $87,409,533
-----------
-----------
</TABLE>
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 SIX FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 1998 MARCH 31, 1998
- --------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................................... $ 31,880,628 $ 64,685,007
Net realized gain....................................................................... -- 1,451,018
Net change in unrealized appreciation/depreciation...................................... 55,528,905 97,714,776
------------------ ------------------
NET INCREASE....................................................................... 87,409,533 163,850,801
Dividends from net investment income.................................................... (28,773,206 ) (60,469,307)
Net decrease from transactions in shares of beneficial interest......................... (28,523,652 ) (55,018,218)
------------------ ------------------
NET INCREASE....................................................................... 30,112,675 48,363,276
NET ASSETS:
Beginning of period..................................................................... 934,981,132 886,617,856
------------------ ------------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $40,694,652 AND $37,587,230,
RESPECTIVELY)....................................................................... $ 965,093,807 $ 934,981,132
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
TCW/DW TERM TRUST 2003
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income......................................................................... $ 31,880,628
Adjustments to reconcile net investment income to net cash provided by operating activities:
Decrease in receivables and other assets related to operations................................ 175,236
Decrease in payables related to operations.................................................... (72,572)
Net amortization of discount/premium.......................................................... (3,807,438)
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................................ 28,175,854
------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Principal prepayments of investments.......................................................... 45,059,561
Net purchases of short-term investments....................................................... (900,735)
------------
NET CASH PROVIDED BY INVESTING ACTIVITIES................................................ 44,158,826
------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Net payments for shares of beneficial interest repurchased.................................... (28,447,474)
Net payments for maturities of reverse repurchase agreements.................................. (15,114,000)
Dividends to shareholders from net investment income.......................................... (28,773,206)
------------
NET CASH USED FOR FINANCING ACTIVITIES................................................... (72,334,680)
------------
NET INCREASE (DECREASE) IN CASH............................................................... --
CASH BALANCE AT BEGINNING OF PERIOD........................................................... --
------------
CASH BALANCE AT END OF PERIOD................................................................. $ --
------------
------------
Cash paid during the period for interest...................................................... $ 12,141,840
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (UNAUDITED)
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 SEPTEMBER 30, 1998 (UNAUDITED) 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 -- Morgan Stanley Dean Witter Advisors Inc., formerly
Dean Witter InterCapital Inc., an affiliate of Morgan Stanley 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 were deferred and fully amortized as of April 28, 1998.
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 SEPTEMBER 30, 1998 (UNAUDITED) 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 proceeds from prepayments of portfolio securities, excluding short-term
investments, for the six months ended September 30, 1998 were as $45,059,561.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Manager, is the
Trust's transfer agent. At September 30, 1998, the Trust had transfer agent fees
and expenses payable of approximately $29,700.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
PAR VALUE OF EXCESS OF
SHARES SHARES PAR VALUE
----------- -------------- ------------
<S> <C> <C> <C>
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
Treasury shares purchased and retired (weighted average discount
9.51%)*......................................................... (3,058,700) (30,587) (28,493,065)
----------- -------------- ------------
Balance, September 30, 1998...................................... 89,451,640 $ 894,516 $864,470,958
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
14
<PAGE>
TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (UNAUDITED) CONTINUED
6. FEDERAL INCOME TAX STATUS
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
September 30, 1998, securities valued at $424,973,580 were pledge as collateral.
At September 30, 1998, the reverse repurchase agreements outstanding were
$413,207,000 with a weighted interest rate of 5.56% maturing within 77 days. The
maximum and average daily amounts outstanding during the period were
$436,305,000 and $423,357,639, respectively. The weighted average interest rate
during the period was 5.59%.
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>
September 29, 1998 $ 0.0525 October 9, 1998 October 23, 1998
October 27, 1998 $ 0.0525 November 6, 1998 November 20, 1998
</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
15
<PAGE>
TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (UNAUDITED) 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
judgement on the pleadings, seeking dismissal of all of the claims asserted
against them. The defendants' motions were fully briefed by all parties and were
the subject of a hearing before the Court on April 18, 1997. In July 1997, the
Court denied the motion for judgement on the pleadings. In August, 1997,
plaintiffs filed a motion for class certification. In their motion, the
plaintiffs requested certification of a "nationwide" class of Term Trust
purchasers. On June 1, 1998, the Court granted in part and denied in part the
plaintiffs' motion for class certification. The Court ruled that plaintiffs'
motion was "granted as to [a California] statewide class," but was "denied as to
a nationwide class." 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 FOR THE
SIX PERIOD
MONTHS APRIL 29,
ENDED 1993*
SEPTEMBER FOR THE YEAR ENDED MARCH 31, THROUGH
30, 1998 ------------------------------------------ MARCH 31,
(UNAUDITED) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 10.11 $ 8.97 $ 8.88 $ 7.96 $ 8.81 $ 9.40
---------- --------- --------- --------- --------- ---------
Net investment income.............. 0.37 0.70 0.70 0.63 0.71 0.66
Net realized and unrealized gain
(loss)............................ 0.60 1.01 (0.10) 0.76 (0.88) (0.62)
---------- --------- --------- --------- --------- ---------
Total from investment operations... 0.97 1.71 0.60 1.39 (0.17) 0.04
---------- --------- --------- --------- --------- ---------
Less dividends and distributions
from:
Net investment income........... (0.32) (0.63) (0.59) (0.54) (0.62) (0.62)
Net realized gain............... -- -- -- -- (0.06) --
---------- --------- --------- --------- --------- ---------
Total dividends and
distributions..................... (0.32) (0.63) (0.59) (0.54) (0.68) (0.62)
---------- --------- --------- --------- --------- ---------
Anti-dilutive effect of acquiring
treasury shares................... 0.03 0.06 0.08 0.07 -- --
---------- --------- --------- --------- --------- ---------
Less offering costs charged against
capital........................... -- -- -- -- -- (0.01)
---------- --------- --------- --------- --------- ---------
Net asset value, end of period..... $ 10.79 $ 10.11 $ 8.97 $ 8.88 $ 7.96 $ 8.81
---------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- ---------
Market value, end of period........ $ 9.625 $ 9.063 $ 7.875 $ 7.25 $ 6.75 $ 8.875
---------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN+........... 9.89%(1) 23.65% 17.22% 15.39% (17.00)% (4.33)%(1)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses................. 0.73%(2) 0.74% 0.74% 0.77% 0.76% 0.73%(2)
Interest expense................... 2.56%(2) 2.54% 2.42% 2.36% 2.42% 1.06%(2)
Total expenses..................... 3.29%(2) 3.28% 3.16% 3.13% 3.18% 1.79%(2)
Net investment income.............. 6.78%(2) 6.97% 7.57% 6.98% 9.37% 7.61%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions.......................... $965 $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>
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Morgan Stanley Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc
The financial statements included herein have been taken from the records of
the Trust without examination by the independent accountants and accordingly
they do not express an opinion thereon.
TERM TRUST
2003
[GRAPHIC]
SEMIANNUAL REPORT
SEPTEMBER 30, 1998
