<PAGE>
TCW/DW TERM TRUST 2003 Two World Trade Center,
LETTER TO THE SHAREHOLDERS March 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
For the fiscal year ended March 31, 1999, TCW/DW Term Trust 2003's net asset
value increased from $10.11 per share to $10.36 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 9.52 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 $9.375 per share. Based on this
change and including reinvestment of dividends, the Trust's total return for
the period was 10.56 percent.
THE MARKET
After a period of uncertainty during the first half of the fiscal year, the
global financial markets stabilized over the past six months as stock markets
rallied and volatility declined in many of the world's bond and currency
markets. The Federal Reserve Board's decision to lower interest rates three
times between September 29 and November 17 helped the market recover from the
summer liquidity crisis. As market tensions eased, investors began selling U.S.
Treasury securities to reinvest the proceeds in higher-yielding asset classes
such as corporate and mortgage-backed securities. This shift in investor
preference was one of the leading causes of the 80- to 100-basis-point increase
in U.S. Treasury yields over the last six months of the fiscal year. Investor
fears that the central bank would boost interest rates in response to the
strong economy also contributed to the back up in interest rates. However, the
persistent lack of inflationary pressures has recently improved market
sentiment and interest rates have declined. Equity market performance and
supply issues also played a role in determining the tone and direction of the
bond market.
The mortgage sector was a top-performing fixed-income asset class during the
second half of the Trust's fiscal year. Spreads between current-coupon GNMAs
and 10-year U.S. Treasury bonds have tightened significantly since the fall but
remain above historical averages. This factor bodes well for the mortgage
sector's future performance. As expected, prepayment
<PAGE>
TCW/DW TERM TRUST 2003
LETTER TO THE SHAREHOLDERS March 31, 1999, continued
rates have been on the decline since the beginning of 1999, due to rising rates
and seasonal factors. However, the recent decline in interest rates and
continued strength in housing and consumer spending have many analysts
forecasting rising prepayments again this summer when housing activity peaks.
The MBA Refinancing Index has been on the uptick once again and the Purchase
Index has already soared back to 1998 levels. TCW Funds Management, Inc. (TCW),
the Trust's adviser, believes that as long as mortgage rates remain close to
current levels, prepayments are unlikely to return to last year's record highs,
because the size of the universe of refinanceable mortgages has shrunk
considerably. The average gross coupon on outstanding conventional mortgages
now stands at 7.53 percent, down from 8.00 percent in January 1998.
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 19 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. Approximately 11 percent of the portfolio 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 the end of the fiscal year, less than 1 percent of the portfolio
is invested in U.S. government agency debentures. As of March 31, 1999, the
Trust's degree of leverage (the ratio of debt to assets) was less than 28
percent of total portfolio assets.
LOOKING AHEAD
TCW's outlook for the mortgage sector remains favorable. The demand for
mortgage products is strong and is forecast to remain that way. Both FHLMC and
FNMA continue to increase their portfolio holdings in mortgage-backed
securities (MBSs). The volume of new CMO issuance has been increasing steadily
for the past four years. Economic growth appears to have slowed down from last
quarter's torrid pace of 6 percent to a fairly robust rate of approximately 3.5
percent. Employment figures have recently shown signs of weakness, and
inflationary pressures continue to be minimal in spite of the market's concern.
Although the conflict in the former Yugoslavia continues to represent a threat
to market stability, to date it has had little impact on the financial markets
other than sparking keen interest in short-term Treasuries. Today's higher
yield levels, combined with a continued focus on call protection and security
structure, allow TCW to maintain a positive outlook on the mortgage sector.
2
<PAGE>
TCW/DW TERM TRUST 2003
LETTER TO THE SHAREHOLDERS March 31, 1999, continued
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 5,042,800 shares of common stock at a weighted average market
discount of 9.33 percent.
On May 1, 1999, Mitchell M. Merin was named President of the TCW/DW Funds. Mr.
Merin is also the President and Chief Operating Officer of Asset Management of
Morgan Stanley Dean Witter & Co. and President, Chief Executive Officer and
Director of Morgan Stanley Dean Witter Advisors Inc. and Morgan Stanley Dean
Witter Services Company Inc., the Trust's Manager. He also serves as Chairman,
Chief Executive Officer and Director of Morgan Stanley Dean Witter Distributors
Inc. and Morgan Stanley Dean Witter Trust FSB.
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 /s/ Mitchell M. Merin
- --------------------------------- ------------------------------------
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE>
TCW/DW TERM TRUST 2003
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 17, 1998, an annual meeting of the Trust's shareholders was held
for the purpose of voting on four separate matters, the results of which were
as follows:
(1) Election of Trustees:
John Haire
For.............................................................72,916,046
Withheld.........................................................1,877,519
Manuel H. Johnson
For.............................................................73,090,284
Withheld.........................................................1,703,281
John L. Schroeder
For.............................................................72,922,360
Withheld.........................................................1,871,205
Marc I. Stern
For.............................................................73,043,133
Withheld.........................................................1,750,432
The following Trustees were not standing for reelection at this meeting: John
C. Argue, Richard M. DeMartini, Charles A. Fiumefreddo, Thomas E. Larkin Jr.
and Michael E. Nugent.
(2) Approval of the continuance of the currently effective Investment
Advisory Agreement between the Trust and TCW Funds Management, Inc.:
For...........................................................69,252,815
Against........................................................1,136,056
Abstain........................................................2,727,145
(3) Ratification of the selection of PricewaterhouseCoopers LLP as
Independent Accountants:
For...........................................................70,323,403
Against..........................................................726,180
Abstain........................................................2,066,433
(4) Shareholder proposal to amend the Trust's Declaration of Trust to require
each Trustee, within thirty days of election, to become a shareholder of
the Trust:
For...........................................................10,711,941
Against.......................................................28,910,422
Abstain........................................................8,722,721
4
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS March 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (119.4%)
U.S. GOVERNMENT AGENCIES (84.0%)
$ 4,680 Federal Home Loan Mortgage Corp. 1409 S (PAC) ................ 14.175+% 11/15/07 $ 4,705,238
70,000 Federal Home Loan Mortgage Corp. 1465 G (PAC)++ .............. 7.00 12/15/07 71,849,050
6,912 Federal Home Loan Mortgage Corp. 1504 B (PAC) ................ 7.00 12/15/22 6,918,318
21,675 Federal Home Loan Mortgage Corp. 1507 L ++ ................... 7.00 10/15/22 21,751,066
9,700 Federal Home Loan Mortgage Corp. 1522 K ...................... 6.50 12/15/22 9,433,977
1,889 Federal Home Loan Mortgage Corp. 1524 SA ..................... 8.50 + 05/15/08 1,980,111
17,099 Federal Home Loan Mortgage Corp. 1535 B ++ ................... 7.00 01/15/23 17,151,432
5,253 Federal Home Loan Mortgage Corp. 1539 SA ..................... 8.378 + 06/15/08 5,067,124
42,385 Federal Home Loan Mortgage Corp. 1542 N (PAC) ++ ............. 7.00 01/15/22 42,318,981
38,223 Federal Home Loan Mortgage Corp. 1543 UG (PAC) ++ ............ 7.00 01/15/23 38,162,196
17,005 Federal Home Loan Mortgage Corp. 1544 M ...................... 10.53 + 07/15/08 15,399,838
3,252 Federal Home Loan Mortgage Corp. 1556 SA ..................... 10.143 + 08/15/13 3,238,562
12,360 Federal Home Loan Mortgage Corp. 1563 SA ..................... 8.541 + 08/15/08 12,186,095
8,398 Federal Home Loan Mortgage Corp. 1565 IB (TAC) ............... 6.80 + 08/15/08 8,292,944
10,698 Federal Home Loan Mortgage Corp. 1576 SA ..................... 5.807 + 09/15/08 9,494,222
32,363 Federal Home Loan Mortgage Corp. 1602 PW ..................... 6.50 12/15/21 32,840,053
6,522 Federal Home Loan Mortgage Corp. 1604 S ...................... 7.41 + 11/15/08 6,482,678
5,238 Federal Home Loan Mortgage Corp. 1606 KD (PAC) ............... 9.035 + 11/15/08 5,295,321
20,356 Federal Home Loan Mortgage Corp. 1970 PC (PAC) ............... 6.75 11/15/21 20,502,156
39,760 Federal Home Loan Mortgage Corp. G 15 PA ++ .................. 7.00 12/25/21 39,616,280
6,710 Federal National Mortgage Assoc. 1993-101 SA (TAC) ........... 9.227 + 06/25/08 6,995,113
6,394 Federal National Mortgage Assoc. 1993-101 SB (TAC) ........... 12.036 + 06/25/08 6,810,107
4,526 Federal National Mortgage Assoc. 1993-114 SC ................. 9.00 + 07/25/08 4,561,585
32,200 Federal National Mortgage Assoc. 1993-121 B ++ ............... 7.00 03/25/23 32,137,126
19,250 Federal National Mortgage Assoc. 1993-135 S .................. 7.429 + 07/25/08 17,138,468
6,915 Federal National Mortgage Assoc. 1993-135 SB ................. 7.614 + 06/25/08 6,190,933
26,400 Federal National Mortgage Assoc. 1993-141 B .................. 7.00 04/25/23 26,381,842
3,283 Federal National Mortgage Assoc. 1993-141 SA ................. 10.00 + 03/25/23 3,432,027
31,579 Federal National Mortgage Assoc. 1993-165 SM (TAC) ........... 8.369 + 05/25/23 30,649,264
6,342 Federal National Mortgage Assoc. 1993-173 S .................. 7.35 + 09/25/08 5,975,593
71,000 Federal National Mortgage Assoc. 1993-21 H (PAC) ++ .......... 7.00 03/25/22 72,129,014
12,210 Federal National Mortgage Assoc. 1993-20 L ................... 7.00 12/25/22 12,194,708
26,250 Federal National Mortgage Assoc. 1993-206 N ++ ............... 6.50 11/25/23 25,565,880
4,217 Federal National Mortgage Assoc. 1993-233 J .................. 6.00 06/25/08 4,215,613
15,398 Federal National Mortgage Assoc. 1993-41C ++ ................. 7.00 03/25/21 15,372,278
8,763 Federal National Mortgage Assoc. 1993-63 SD (TAC) ............ 8.528 + 05/25/08 8,288,961
4,854 Federal National Mortgage Assoc. 1993-65 SC .................. 9.309 + 06/25/12 4,819,466
15,947 Federal National Mortgage Assoc. 1993-72 S ................... 8.014 + 05/25/08 14,725,754
12,823 Federal National Mortgage Assoc. 1993-72 SA .................. 8.75 + 05/25/08 13,067,610
4,963 Federal National Mortgage Assoc. 1993-86 SD .................. 10.898 + 05/25/08 5,018,340
9,019 Federal National Mortgage Assoc. 1993-93 SA .................. 11.054 + 05/25/08 9,436,390
10,426 Federal National Mortgage Assoc. 1993-95 SE .................. 11.21 + 06/25/08 11,104,055
10,000 Federal National Mortgage Assoc. 1993-98 N ................... 7.00 06/25/23 10,109,300
10,729 Federal National Mortgage Assoc. 1993-196 SA ................. 9.012 + 10/25/08 10,243,132
31,589 Federal National Mortgage Assoc. 1993-26 A ................... 7.00 07/25/23 31,904,452
--------------
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $753,553,805) ....................................................... 761,152,653
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS March 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- --------- ---------- ----------------
<S> <C> <C> <C> <C>
PRIVATE ISSUES (35.4%)
$ 7,165 Bear Stearns Mortgage Securities Inc. 1993-6 A7 (PAC) ......................... 7.10 % 06/25/24 $ 7,301,859
14,026 Bear Stearns Mortgage Securities Inc. 1993-8 A7 (PAC) ......................... 7.50 08/25/24 14,635,784
54,416 Bear Stearns Mortgage Securities Inc. 1993-8 A11 (TAC) ........................ 7.50 08/25/24 54,851,290
25,800 Chase Mortgage Finance Corp. 1993-G A10 (PAC) ................................. 7.00 05/25/24 26,058,000
4,784 First Boston Mortgage Securities Corp. 1993-5 A15 ............................. 7.30 03/25/09 4,861,740
36,683 General Electric Capital Mortgage Services, Inc. 1994-1 A8 .................... 6.50 01/25/24 34,730,019
14,252 Prudential Home Mortgage Securities 1993-23 A12 (PAC) ......................... 6.50 07/25/08 13,970,078
27,363 Prudential Home Mortgage Securities 1993-35 A12 ............................... 6.75 09/25/08 26,728,970
18,000 Prudential Home Mortgage Securities 1993-60 A3 (PAC) .......................... 6.75 12/25/23 17,272,348
10,000 Residential Funding Mortgage Securities I 1997-S 12 A12 (PAC) ................. 6.75 08/25/27 10,014,093
36,408 Residential Funding Mortgage Securities I 1993-S 40 A8 (TAC) .................. 6.75 11/25/23 35,985,360
5,315 Ryland Mortgage Securities Corp. 1993-3 7 (PAC) ............................... 6.712 08/25/08 5,178,587
28,218 Salomon Brothers Mortgage Securities VII Inc. 1993-3 A7C ...................... 7.20 08/25/23 28,714,930
40,500 Salomon Brothers Mortgage Securities VII Inc. 1993-5 A4 ....................... 7.311* 9/25/23 40,654,325
--------------
TOTAL PRIVATE ISSUES (Identified Cost $320,253,045) .............................................. 320,957,383
--------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Identified Cost $1,073,806,850) ................................................................. 1,082,110,036
--------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH SECURITIES (1.3%)
7,414 Federal Home Loan Mortgage Corp. PC Gold ++ ................................... 6.00 06/01/08 7,364,878
1,720 Federal National Mortgage Assoc.++ ............................................ 5.50 02/01/09 1,673,926
2,371 Federal National Mortgage Assoc. .............................................. 7.00 08/01/08 2,422,068
--------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH SECURITIES
(Identified Cost $11,432,689) .................................................................... 11,460,872
--------------
TAX-EXEMPT MUNICIPAL BONDS (15.3%)
Education Facilities Revenue (3.5%)
5,000 Maricopa County Unified School District # 41, Arizona, Gilbert Refg (FGIC) 0.00 01/01/03 4,314,650
6,000 Maricopa County Unified School District # 28, Arizona, Kyrene Elementary
Refg Ser 1993 B (FGIC) ....................................................... 0.00 07/01/04 4,848,600
11,445 Houston Independent School District, Texas, Refg .............................. 0.00 08/15/04 9,178,661
Spring Independent School District, Texas,
8,205 Refg Ser 1993 ................................................................ 0.00 02/15/03 7,032,013
8,100 Refg Ser 1993 ................................................................ 0.00 02/15/04 6,630,903
--------------
32,004,827
--------------
Electric Revenue (4.5%)
12,840 Austin, Texas, Combined Ser A (MBIA) .......................................... 0.00 11/15/02 11,152,054
5,200 Lower Colorado River Authority, Texas, Jr Lien 4th Ser (AMBAC) ................ 0.00 01/01/04 4,278,300
San Antonio, Texas,
12,700 Electric & Gas Refg Ser A (AMBAC) ............................................ 0.00 02/01/03 10,901,680
17,500 Electric & Gas Refg Ser A (AMBAC) ............................................ 0.00 02/01/04 14,348,775
--------------
40,680,809
--------------
General Obligation (5.0%)
19,650 North Slope Boro, Alaska, Ser 1992 A (MBIA) ................................... 0.00 06/30/02 17,295,930
5,000 Scottsdale, Arizona, Refg (Secondary MBIA) .................................... 0.00 07/01/04 4,040,500
Port of Oakland, California,
3,000 Refg Ser 1993 F (MBIA) ....................................................... 0.00 11/01/03 2,522,310
3,500 Refg Ser 1993 F (MBIA) ....................................................... 0.00 11/01/04 2,816,415
6,500 New Orleans, Louisiana, Refg (AMBAC) .......................................... 0.00 09/01/04 5,208,905
16,000 Pennsylvania, Second Ser 1992 (Secondary MBIA) ................................ 0.00 07/01/04 12,909,600
--------------
44,793,660
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
TCW/DW TERM TRUST 2003
PORTFOLIO OF INVESTMENTS March 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
Hospital Revenue (0.9%)
$10,000 California Statewide Communities Development Authority,
UniHealth Ser A (AMBAC) ........................................ 0.00% 10/01/04 $ 8,060,000
--------------
Other Revenue (0.5%)
5,460 Rosemont, Illinois, Tax Increment Ser C-3 (FGIC) ................ 0.00 12/01/03 4,518,314
--------------
Water & Sewer Revenue (0.9%)
10,000 Houston Texas, Water & Sewer Jr Lien Ser C (AMBAC) .............. 0.00 12/01/03 8,294,300
--------------
TOTAL TAX-EXEMPT MUNICIPAL BONDS
(Identified Cost $129,505,121) .......................................................... 138,351,910
--------------
SHORT-TERM INVESTMENTS (1.5%)
U.S. GOVERNMENT AGENCIES (a) (1.1%)
5,000 Federal Farm Credit Bank ........................................ 4.71 04/23/99 4,985,608
5,000 Federal Home Loan Mortgage Corp. ................................ 4.75 04/14/99 4,991,424
--------------
TOTAL U.S. GOVERNMENT AGENCIES (Amortized Cost $9,977,032) .............................. 9,977,032
--------------
REPURCHASE AGREEMENT (0.4%)
3,421 The Bank of New York (dated 03/31/99; proceeds $3,421,671) (b)
(Identified Cost $3,421,208) .................................... 4.875 04/01/99 3,421,208
--------------
TOTAL SHORT-TERM INVESTMENTS (Identified Cost $13,398,240) .............................. 13,398,240
--------------
TOTAL INVESTMENTS (Identified Cost $1,228,142,900) (c) ................. 137.5 % 1,245,321,058
LIABILITIES IN EXCESS OF OTHER ASSETS .................................. (37.5) (339,542,161)
--------------
NET ASSETS ............................................................. 100.0 % $ 905,778,897
==============
</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,
1999.
(a) Securities were purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $2,872,055 U.S. Treasury Bill 0.00% due 04/15/99 valued
at $2,866,684 and $631,511 U.S. Treasury Bill 0.00% due 07/22/99 valued at
$622,948.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $23,994,425 and the
aggregate gross unrealized depreciation is $6,816,267, resulting in net
unrealized appreciation of $17,178,158.
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, 1999
<TABLE>
<S> <C>
ASSETS :
Investments in securities, at value
(identified cost $1,228,142,900) ..................................... $1,245,321,058
Interest receivable .................................................... 6,359,220
Prepaid expenses ....................................................... 69,476
--------------
TOTAL ASSETS ........................................................ 1,251,749,754
--------------
LIABILITIES:
Reverse repurchase agreements .......................................... 343,829,000
Payable for:
Interest ............................................................ 1,337,413
Management fee ...................................................... 319,828
Investment advisory fee ............................................. 213,219
Shares of beneficial interest repurchased ........................... 123,078
Accrued expenses and other payables .................................... 148,319
Contingencies (Note 9) ................................................. --
--------------
TOTAL LIABILITIES ................................................... 345,970,857
--------------
NET ASSETS .......................................................... $ 905,778,897
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital ........................................................ $ 846,395,503
Net unrealized appreciation ............................................ 17,178,158
Accumulated undistributed net investment income ........................ 45,469,611
Accumulated net realized loss .......................................... (3,264,375)
--------------
NET ASSETS .......................................................... $ 905,778,897
==============
NET ASSET VALUE PER SHARE,
87,467,540 shares outstanding (unlimited shares authorized of $.01 par
value) ............................................................... $10.36
======
</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, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME :
INTEREST INCOME .................................. $93,692,040
-----------
EXPENSES
Management fee ................................... 3,639,492
Investment advisory fee .......................... 2,426,328
Transfer agent fees and expenses ................. 300,613
Shareholder reports and notices .................. 118,096
Insurance expenses ............................... 81,241
Registration fees ................................ 79,020
Professional fees ................................ 67,046
Custodian fees ................................... 64,322
Trustees' fees and expenses ...................... 32,137
Organizational expenses .......................... 492
Other ............................................ 74,570
-----------
TOTAL OPERATING EXPENSES ...................... 6,883,357
Interest expense ................................. 22,318,502
-----------
TOTAL EXPENSES ................................ 29,201,859
-----------
NET INVESTMENT INCOME ......................... 64,490,181
-----------
NET CHANGE IN UNREALIZED APPRECIATION ......... 10,409,007
-----------
NET INCREASE ..................................... $74,899,188
===========
</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 YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
---------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .................................... $ 64,490,181 $ 64,685,007
Net realized gain ........................................ -- 1,451,018
Net change in unrealized appreciation/depreciation ....... 10,409,007 97,714,776
------------- -------------
NET INCREASE .......................................... 74,899,188 163,850,801
Dividends from net investment income ..................... (56,607,800) (60,469,307)
Net decrease from transactions in shares of beneficial
interest ............................................... (47,493,623) (55,018,218)
------------- -------------
NET INCREASE (DECREASE) ............................... (29,202,235) 48,363,276
NET ASSETS:
Beginning of period ...................................... 934,981,132 886,617,856
------------- -------------
END OF PERIOD
(Including undistributed net investment income of
$45,469,611 and $37,587,230, respectively) ............ $ 905,778,897 $ 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 year ended March 31, 1999
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income .................................................. $ 64,490,181
Adjustments to reconcile net investment income to net cash provided by
operating activities:
Decrease in receivables and other assets related to operations ......... 564,888
Decrease in payables related to operations ............................. (413,750)
Net amortization of discount/premium ................................... (8,197,626)
--------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................... 56,443,693
--------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Principal prepayments .................................................. 144,459,122
Net purchases of short-term investments ................................ (11,852,772)
--------------
NET CASH PROVIDED BY INVESTING ACTIVITIES ........................... 132,606,350
--------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Net payments for shares of beneficial interest repurchased ............. (47,950,243)
Net payments for maturities of reverse repurchase agreements ........... (84,492,000)
Dividends to shareholders from net investment income ................... (56,607,800)
--------------
NET CASH USED FOR FINANCING ACTIVITIES .............................. (189,050,043)
--------------
NET INCREASE (DECREASE) IN CASH ........................................ --
CASH BALANCE AT BEGINNING OF PERIOD .................................... --
--------------
CASH BALANCE AT END OF PERIOD .......................................... --
==============
Cash paid during the period for interest ............................... $ 22,737,391
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1999
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
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TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1999, 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.
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.
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TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1999, 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, 1999 were $144,459,122.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Manager, is the
Trust's transfer agent. At March 31, 1999, the Trust had transfer agent fees
and expenses payable of approximately $4,700.
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, 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 9.33%)* ... (5,042,800) (50,428) (47,443,195)
---------- --------- -------------
Balance, March 31, 1999 .................................................... 87,467,540 $ 874,675 $ 845,520,828
========== ========= =============
</TABLE>
- ---------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At March 31, 1999 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 offset will not be
distributed to shareholders.
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TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1999, continued
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, 1999, securities valued at $363,077,017 were pledged as collateral.
At March 31, 1999, the reverse repurchase agreements outstanding were
$343,829,000 with a weighted interest rate of 4.92% maturing within 33 days.
The maximum and average daily amounts outstanding during the period were
$436,305,000 and $405,837,816, respectively. The weighted average interest rate
during the period was 5.50%.
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 30, 1999 $ 0.0525 April 9, 1999 April 23, 1999
April 27, 1999 $ 0.0525 May 7, 1999 May 21, 1999
</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
15
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TCW/DW TERM TRUST 2003
NOTES TO FINANCIAL STATEMENTS March 31, 1999, continued
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 motion for judgment
on the pleadings. In August, 1997, plaintiffs filed a motion for class
certification. In their motion, the plaintiffs requested certification of a
"nationwide" class of Term Trust purchasers. On June 1, 1998, the Court granted
in part and denied in part the plaintiff's motion for class certification. The
Court ruled that plaintiff's motion was "granted as to [a California] statewide
class," but was "denied as to a nationwide class." On October 13, 1998, three
separate class actions alleging similar claims on behalf of the residents of
the states of Florida, New Jersey and New York were filed in the state courts
of those states. The time of the defendants to move or answer in the New Jersey
and New York actions has been extended by agreement. The defendants removed the
Florida action to federal court and the parties are awaiting decision on the
plaintiffs' motion to remand the action to state court. 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 YEAR ENDED MARCH 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ...................... $ 10.11 $ 8.97 $ 8.88 $ 7.96 $ 8.81
-------- ------- ------- ------ ------
Income (loss) from investment operations:
Net investment income .................................... 0.74 0.70 0.70 0.63 0.71
Net realized and unrealized gain (loss) .................. 0.09 1.01 (0.10) 0.76 (0.88)
-------- ------- ------- ------ ------
Total income (loss) from investment operations ............ 0.83 1.71 0.60 1.39 (0.17)
-------- ------- ------- ------ ------
Less dividends and distributions from:
Net investment income .................................... ( 0.63) ( 0.63) (0.59) (0.54) (0.62)
Net realized gain ........................................ -- -- -- -- (0.06)
-------- ------- ------- ------ ------
Total dividends and distributions ......................... ( 0.63) ( 0.63) (0.59) (0.54) (0.68)
-------- ------- ------- ------ ------
Anti-dilutive effect of acquiring treasury shares ......... 0.05 0.06 0.08 0.07 --
-------- ------- ------- ------ ------
Net asset value, end of period ............................ $ 10.36 $ 10.11 $ 8.97 $ 8.88 $ 7.96
======== ======= ======= ====== ======
Market value, end of period ............................... $ 9.375 $ 9.063 $ 7.875 $ 7.25 $ 6.75
======== ======== ======= ====== ======
TOTAL RETURN + ............................................ 10.56 % 23.65 % 17.22 % 15.39 % (17.00)%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses ........................................ 0.74 % 0.74 % 0.74 % 0.77 % 0.76 %
Interest expense .......................................... 2.40 % 2.54 % 2.42 % 2.36 % 2.42 %
Total expenses ............................................ 3.14 % 3.28 % 3.16 % 3.13 % 3.18 %
Net investment income ..................................... 6.93 % 6.97 % 7.57 % 6.98 % 9.37 %
SUPPLEMENTAL DATA:
Net assets, end of period, in millions .................... $ 906 $ 935 $ 887 $ 934 $ 882
Portfolio turnover rate ................................... -- 2 % -- 1 % -- ++
</TABLE>
- -------------
+ 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%.
SEE NOTES TO FINANCIAL STATEMENTS
17
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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, 1999, 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 five years in the period then ended, 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, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
May 14, 1999
18
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<PAGE>
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
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
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and
General Counsel
Philip A. Barach
Vice President
Jeffrey E. Gundlach
Vice President
Frederick H. Horton
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Morgan Stanley Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
TCW/DW
TERM TRUST 2003
[Graphic]
ANNUAL REPORT
MARCH 31, 1999
