<PAGE>
TCW/DW BALANCED FUND
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
For the twelve-month period ended September 30, 1996, TCW/DW Balanced Fund
produced a total return of 12.20 percent. Over the same period, the Fund's
comparative benchmarks, the Standard & Poor's 500 Composite Stock Price Index
(S&P 500) and the Lehman Brothers Aggregate Bond Index, produced total returns
of 20.32 percent and 4.90 percent, respectively. The accompanying chart
illustrates the growth of a $10,000 investment in the Fund from inception
(October 29, 1993) through September 30, 1996, versus a similar investment in
the issues that comprise the S&P 500 Index and Lehman Brothers Aggregate Bond
Index.
MARKET OVERVIEW
During the first nine months of the
fiscal year, the equity markets continued to
perform well, given the competitive position
and strong profitability of American
industry. However, the bull market came to
an abrupt halt as a sharp, broad-based
sell-off in stock prices occurred in the
first half of July. This correction brought
forth fears of a market crash, a secular
bear market and recession or worse. Several
factors, some actually in conflict with each
other, acted as triggers for the sell-off.
These included disappointment in some
quarters that the Federal Reserve Board did
not tighten policy at its early July meeting
in order to act preemptively against
inflation, which led to more nervous
sentiment in the bond market and affected
equities as well. Second, several earnings
disappointments among top tier technology
companies prompted fears that corporate
profitability had peaked and was doomed to
suffer in a recession. These announcements
accelerated the collapse of the speculative
bubble in small technology companies, which
was already underway. Finally, prompted by a
slowdown in mutual fund sales in June from
the torrid pace of the first five months,
there were fears of mass redemptions in
response to a falling stock market. While
the pace of the July correction was among
the steepest on record, we believe that a
collateral benefit has been the piercing of
the speculative bubble, which has now
brought investor expectations back to
reality. As a result a more gradual and more
sustainable rise in stock prices should
resume at a pace in line with earnings
growth.
Many would have welcomed a modest
tightening by the Federal Reserve Board, but
it is not at all clear, even recognizing the
lags involved in monetary policy changes,
that a tightening is called for at this
time. There is little pricing power in the
economy and intense global competition.
Clearly some resources are in short supply
and their prices are firm, but many others
in more than adequate supply are suffering
pricing pressures. The massive productivity
gains achieved through the deployment of
<PAGE>
technology, especially in the service sector, have undoubtedly lowered the
threshold unemployment rate below which inflation accelerates. A firmer dollar
cuts import prices, and the trade gap itself provides another safety valve, as
does the ongoing downsizing of both government and private industry.
Moreover, despite signs that growth is moderating from a rapid second
quarter pace, which may well have exceeded 4 percent, there are no serious
imbalances which should be regarded as harbingers of recession. Employment and
personal income growth are both vigorous, consumer confidence is high, the
savings rate is understated, and both capital spending and exports are still in
solid uptrends. The latter will benefit more as Europe and Japan recover along
with the emerging economies. The relatively few disappointments in corporate
profits, particularly among technology companies, were related principally to
some inventory and product cycles rather than an overall economic deterioration.
Overall corporate earnings reports continue to exceed expectations.
PORTFOLIO STRUCTURE
Due to TCW's continued positive outlook for equities, the Fund currently has
66 percent of its assets invested in equities. The remaining 34 percent is
invested in high-grade fixed-income securities. TCW expects long-term interest
rates to trade between 6.5 percent-7.0 percent. TCW believes equities should
outperform bonds due to strong corporate earnings growth.
Technology companies owned by the Fund include Intel Corp., Microsoft Corp.,
Hewlett-Packard Co., Ascend Communications, Inc and Cascade Communications Corp.
Three factors are stimulating rapid worldwide revenue and profit growth for
these industry leaders: (a) extremely rapid growth of online and Internet
services; (b) an imminent corporate PC upgrade cycle following the expected late
summer introduction of Windows NT and the Pentium Pro microprocessor; and the
impact of telecommunications deregulation in the U.S. and continuing
privatizations abroad.
Aerospace and defense companies owned in the Fund include Boeing Co., and
Honeywell, Inc. Orders for commercial aircraft are increasing due to the need to
replace old airplanes with more fuel efficient and safer models. Demand is also
strong in the emerging economies in Latin America and Asia.
Financial service companies include, Citicorp, Federal Home Loan Mortgage
Corp., Merrill Lynch & Co., Inc. and Marsh McLennan Companies, Inc. The
financial service sector is benefiting from several trends. The increasing
savings rate in the U.S. is stimulating demand for insurance and investment
products. Technology is lowering the cost of managing and distributing consumer
financial products such as credit cards and home mortgage loans. As a result the
consumer benefits from better services at a lower cost, which causes more rapid
industry growth. International growth is strong and just beginning. Basic
financial services such as credit cards and insurance are new products in the
emerging economies of Asia, Latin America and Eastern Europe.
The Fund's fixed-income portion is comprised of U.S. Treasuries, corporates
and mortgage pass-throughs. This segment's duration is slightly longer than its
benchmark index. (Duration measures a bond fund's sensitivity to interest-rate
movements; basically, the effect of interest-rate fluctuations on a bond
portfolio can be determined by multiplying its duration by the percentage rates
rise or fall.) Corporate bond spreads, which displayed signs of strength earlier
in the fiscal year, began to demonstrate signs of weakness during the summer
months.
LOOKING AHEAD
It is the belief of the Fund's investment adviser that the economy is not in
any immediate danger of overheating and that the threat of rising inflation is
remote given massive global excess capacity, fiscal downsizing and
privatizations, a rising dollar, restrained money supply growth and top heavy
consumer balance sheets. TCW believes the probabilities favor a moderation of
growth in the second half of this year and extension of the business cycle well
into 1997 and perhaps beyond. Nascent recoveries in Europe and Japan as well as
Latin America and Eastern Europe should support further growth of profits for
world class American
<PAGE>
companies, which are well represented in our portfolio. TCW remains optimistic
on the long-term outlook for equities and fixed-income securities.
We appreciate your support of TCW/DW Balanced Fund and look forward to
continuing to serve your investment needs and objectives.
Very truly yours,
[SIGNATURE]
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
TCW/DW BALANCED FUND
GROWTH OF $10,000
<TABLE>
<CAPTION>
DATE TOTAL S&P LEHMAN(AG)
-------------------- ---------- -------------- ----------
<S> <C> <C> <C>
October 29, 1993 $ 10000 $ 10000 $ 10000
September 30, 1994 $ 9520 $ 10149 $ 9642
September 30, 1995 $ 10660 $ 13164 $ 10997
September 30, 1996 $ 11960(2) $ 15837 $ 11536
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
LIFE OF
ONE YEAR FUND
--------- ---------
<S> <C>
12.20(1) 6.32(1)
</TABLE>
- -- Fund
- -- S&P 500 (3)
- -- LEHMAN (Aggregate Bond Index) (4)
Past performance is not predictive of future returns.
- -------------------
(1) Figure shown assumes reinvestment of all distributions. There is no sales
charge.
(2) Closing value assuming a complete redemption on September 30, 1996.
(3) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The performance of the index
does not include any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
(4) The Lehman Brothers Aggregate Bond Index tracks the performance of all U.S.
Government agency and Treasury securities, investment-grade corporate debt
securities, agency mortgage-backed securities and asset-backed securities.
The performance of the index does not include any expenses, fees or charges.
The Index is unmanaged and should not be considered an investment.
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ------------
<C> <S> <C>
COMMON STOCKS (66.0%)
AIR TRANSPORT (1.8%)
13,200 AMR Corp.*................................................................................... $ 1,051,050
9,200 Delta Air Lines, Inc......................................................................... 662,400
------------
1,713,450
------------
AIRCRAFT & AEROSPACE (3.6%)
21,800 Boeing Co.................................................................................... 2,060,100
15,500 Northrop Grumman Corp........................................................................ 1,243,875
------------
3,303,975
------------
AUTO PARTS - ORIGINAL EQUIPMENT (1.2%)
32,700 Lear Corp.*.................................................................................. 1,079,100
------------
AUTOMOTIVE (2.5%)
57,000 Chrysler Corp................................................................................ 1,631,625
21,900 Ford Motor Co................................................................................ 684,375
------------
2,316,000
------------
BANKS (1.7%)
17,700 Citicorp..................................................................................... 1,604,062
------------
BROADCAST MEDIA (1.0%)
9,700 Infinity Broadcasting Corp. (Class A)*....................................................... 305,550
17,500 Viacom, Inc. (Class B)*...................................................................... 621,250
------------
926,800
------------
BROKERAGE (1.9%)
27,100 Merrill Lynch & Co., Inc..................................................................... 1,778,437
------------
BUSINESS SYSTEMS (2.0%)
30,400 Electronic Data Systems Corp................................................................. 1,865,800
------------
CHEMICALS (1.3%)
27,000 Union Carbide Corp........................................................................... 1,231,875
------------
COMMERCIAL SERVICES (2.0%)
59,400 Corrections Corp. of America*................................................................ 1,856,250
------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (2.9%)
9,400 Cascade Communications Corp.*................................................................ 764,925
31,600 Cisco Systems, Inc.*......................................................................... 1,959,200
------------
2,724,125
------------
COMPUTER SERVICES (2.0%)
22,500 First Data Corp.............................................................................. 1,836,562
------------
COMPUTER SOFTWARE (0.7%)
5,200 Microsoft Corp.*............................................................................. 685,100
------------
CONSUMER PRODUCTS (1.9%)
19,800 Kimberly-Clark Corp.......................................................................... 1,744,875
------------
ELECTRICAL EQUIPMENT (0.7%)
9,600 Honeywell, Inc............................................................................... 606,000
------------
</TABLE>
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ------------
<C> <S> <C>
ELECTRONICS - DEFENSE (1.9%)
35,600 Hewlett-Packard Co........................................................................... $ 1,735,500
------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (3.9%)
24,300 Intel Corp................................................................................... 2,317,612
24,700 Motorola, Inc................................................................................ 1,275,137
------------
3,592,749
------------
ENTERTAINMENT (0.7%)
25,200 Mirage Resorts, Inc.*........................................................................ 645,750
------------
FINANCE (1.6%)
15,300 Federal Home Loan Mortgage Corp.............................................................. 1,497,487
------------
HEALTH EQUIPMENT & SERVICES (1.5%)
23,700 Columbia/HCA Healthcare Corp................................................................. 1,347,938
------------
HEALTHCARE - DIVERSIFIED (0.7%)
9,600 Warner-Lambert Co............................................................................ 633,600
------------
HEALTHCARE - DRUGS (3.5%)
34,400 Johnson & Johnson............................................................................ 1,763,000
21,400 Merck & Co., Inc............................................................................. 1,506,025
------------
3,269,025
------------
HOTELS (1.3%)
34,300 Circus Circus Enterprises, Inc.*............................................................. 1,213,363
------------
HOUSEHOLD APPLIANCES (1.4%)
37,300 American Standard Companies, Inc.*........................................................... 1,277,525
------------
INDUSTRIALS (1.6%)
19,300 Caterpillar, Inc............................................................................. 1,454,738
------------
INSURANCE (1.4%)
13,200 American International Group, Inc............................................................ 1,329,900
------------
INSURANCE BROKERS (1.4%)
13,600 Marsh & McLennan Companies, Inc.............................................................. 1,320,900
------------
NATURAL RESOURCES (0.7%)
7,300 Texaco, Inc.................................................................................. 671,600
------------
OFFICE EQUIPMENT & SUPPLIES (2.6%)
39,300 Corporate Express, Inc.*..................................................................... 1,517,963
15,900 Xerox Corp................................................................................... 852,638
------------
2,370,601
------------
OIL - INTERNATIONAL (1.4%)
20,700 Chevron Corp................................................................................. 1,296,338
------------
OIL WELL EQUIPMENT & SERVICE (1.3%)
14,700 Schlumberger, Ltd............................................................................ 1,242,150
------------
PAPER & FOREST PRODUCTS (1.0%)
19,400 Weyerhaeuser Co.............................................................................. 894,825
------------
RAILROADS (0.7%)
8,000 Burlington Northern Sante Fe Corp............................................................ 675,000
------------
</TABLE>
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ------------
<C> <S> <C>
RECREATION (0.8%)
11,400 Walt Disney Co............................................................................... $ 722,475
------------
RESTAURANTS (1.5%)
29,000 McDonald's Corp.............................................................................. 1,373,875
------------
RETAIL (2.2%)
50,600 CUC International, Inc.*..................................................................... 2,017,675
------------
RETAIL - FOOD CHAINS (1.4%)
29,400 Safeway, Inc.*............................................................................... 1,253,175
------------
RETAIL - SPECIALTY (1.3%)
20,700 Home Depot, Inc.............................................................................. 1,177,313
------------
SOAP & HOUSEHOLD PRODUCTS (1.2%)
11,400 Procter & Gamble Co.......................................................................... 1,111,500
------------
TELECOMMUNICATIONS (1.8%)
12,100 Ascend Communications, Inc.*................................................................. 798,600
15,800 Lucent Technologies, Inc..................................................................... 724,825
5,200 Sprint Corp.................................................................................. 202,150
------------
1,725,575
------------
TOTAL COMMON STOCKS (IDENTIFIED COST $48,251,605)............................................ 61,122,988
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (6.1%)
BANKS (1.3%)
$ 1,200 Citicorp................................................................... 7.125% 03/15/04 1,195,284
------------
FINANCIAL (1.1%)
1,000 Abbey National PLC (United Kingdom)........................................ 6.69 10/17/05 961,240
------------
INDUSTRIALS (2.1%)
600 Caterpillar, Inc........................................................... 9.375 03/15/21 712,002
600 General Motors Corp........................................................ 8.10 06/15/24 600,402
625 Lockheed Martin Corp....................................................... 7.25 05/15/06 623,131
------------
1,935,535
------------
UTILITIES (1.6%)
800 Florida Power & Light Co................................................... 7.05 12/01/26 733,016
800 Texas Utilities Electric Co................................................ 7.875 04/01/24 777,536
------------
1,510,552
------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $5,774,654)................................................ 5,602,611
------------
</TABLE>
<PAGE>
TCW/DW BALANCED FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH CERTIFICATES (13.7%)
$ 1,579 Federal Home Loan Mortgage Corp............................................ 7.50% 06/01/11 $ 1,589,292
1,706 Federal Home Loan Mortgage Corp............................................ 7.50 08/01/11 1,717,061
1,931 Federal Home Loan Mortgage Corp............................................ 7.00 08/01/25 1,866,177
1,493 Federal Home Loan Mortgage Corp............................................ 8.00 06/01/26 1,507,516
884 Government National Mortgage Assoc......................................... 6.50 02/20/23 886,431
2,825 Government National Mortgage Assoc......................................... 7.00 04/15/26 2,861,609
905 Government National Mortgage Assoc......................................... 8.00 06/15/26 913,879
1,273 Government National Mortgage Assoc......................................... 8.00 08/15/26 1,285,350
------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH CERTIFICATES (IDENTIFIED COST $12,487,499).....
12,627,315
------------
U.S. GOVERNMENT OBLIGATIONS (11.3%)
915 U.S. Treasury Bond......................................................... 7.50 11/15/24 966,578
1,105 U.S. Treasury Note......................................................... 5.00 01/31/98 1,091,585
950 U.S. Treasury Note......................................................... 5.125 03/31/98 938,505
1,225 U.S. Treasury Note......................................................... 6.00 08/15/99 1,216,474
1,675 U.S. Treasury Note......................................................... 6.625 06/30/01 1,685,737
1,615 U.S. Treasury Note......................................................... 6.375 08/15/02 1,604,018
3,105 U.S. Treasury Note......................................................... 5.875 11/15/05 2,931,524
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (IDENTIFIED COST $10,411,747)................................... 10,434,421
------------
ASSET-BACKED SECURITIES (1.4%)
393 First Alliance Mortgage Loan Trust 94 A-1.................................. 5.85 04/25/25 357,631
573 First Alliance Mortgage Loan Trust 94 A-2.................................. 7.625 07/25/25 573,064
354 UCFC Home Equity Loan 93 D................................................. 5.45 07/10/13 343,083
------------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $1,303,086)........................................ 1,273,778
------------
SHORT-TERM INVESTMENT (1.4%)
REPURCHASE AGREEMENT
1,334 The Bank of New York (dated 09/30/96; proceeds $1,333,731; collateralized
by $424,658 U.S. Treasury Bond 8.75% due 11/15/08 valued at $484,440 and
$854,937 U.S. Treasury Bond 6.125% due 05/15/98 valued at $875,777)
(Identified Cost $1,333,546 )............................................ 5.00 10/01/96 1,333,546
------------
TOTAL INVESTMENTS (IDENTIFIED COST $79,562,137)(A)........................................ 99.9% 92,394,659
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 0.1 96,618
------ -----------
NET ASSETS................................................................................ 100.0% $92,491,277
------ -----------
------ -----------
<FN>
- ----------------
* NON-INCOME PRODUCING SECURITY.
(A) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $79,806,902; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $13,700,811 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $1,113,054, RESULTING IN NET UNREALIZED
APPRECIATION OF $12,587,757.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $79,562,137)....... $ 92,394,659
Receivable for:
Interest............................ 360,469
Dividends........................... 61,078
Shares of beneficial interest
sold.............................. 57,915
Principal paydowns.................. 19,897
Deferred organizational expenses...... 74,132
Prepaid expenses...................... 31,325
------------
TOTAL ASSETS.................. 92,999,475
------------
LIABILITIES:
Payable for:
Shares of beneficial interest
repurchased....................... 181,487
Investments purchased............... 117,372
Plan of distribution fee............ 77,422
Management fee...................... 34,840
Investment advisory fee............. 23,227
Dividends to shareholders........... 3,170
Accrued expenses...................... 70,680
------------
TOTAL LIABILITIES............. 508,198
------------
NET ASSETS:
Paid-in-capital....................... 80,218,632
Net unrealized appreciation........... 12,832,522
Distributions in excess of net
investment income................... (3,171)
Accumulated net realized loss......... (556,706)
------------
NET ASSETS.................... $ 92,491,277
------------
------------
NET ASSET VALUE PER SHARE, 7,956,178
shares outstanding (unlimited shares
authorized of $.01 par value).......
$11.63
------------
------------
</TABLE>
Statement of Operations
FOR THE YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.......................... $ 2,296,803
Dividends (net of $149 foreign
withholding tax)................ 908,781
------------
TOTAL INCOME.................. 3,205,584
------------
EXPENSES
Plan of distribution fee.......... 971,665
Management fee.................... 442,975
Investment advisory fee........... 295,317
Transfer agent fees and
expenses........................ 105,362
Professional fees................. 82,301
Registration fees................. 50,351
Shareholder reports and notices... 50,312
Organizational expenses........... 35,743
Trustees' fees and expenses....... 35,165
Custodian fees.................... 19,250
Other............................. 14,546
------------
TOTAL EXPENSES................ 2,102,987
------------
NET INVESTMENT INCOME......... 1,102,597
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain................. 7,206,334
Net change in unrealized
appreciation.................... 2,886,118
------------
NET GAIN...................... 10,092,452
------------
NET INCREASE.................. $ 11,195,049
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income......................................... $ 1,102,597 $ 2,266,144
Net realized gain (loss)...................................... 7,206,334 (5,631,997)
Net change in unrealized appreciation......................... 2,886,118 14,919,841
---------------- ----------------
Net increase.............................................. 11,195,049 11,553,988
Dividends and distributions:
From net investment income.................................... (36,468) (1,210,475)
In excess of net investment income............................ (838,389) --
Net decrease from transactions in shares of beneficial
interest....................................................... (24,545,353) (52,984,026)
---------------- ----------------
Total decrease............................................ (14,225,161) (42,640,513)
NET ASSETS:
Beginning of period............................................. 106,716,438 149,356,951
---------------- ----------------
END OF PERIOD (Including distributions in excess of net
investment income of $3,171 and undistributed net investment
income of $729,690, respectively).............................. $ 92,491,277 $106,716,438
---------------- ----------------
---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES--TCW/DW Balanced Fund (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a diversified, open-end management investment company. The Fund's investment
objective is to achieve a high total return through a combination of income and
capital appreciation. The Fund seeks to achieve its objective by investing in a
diversified portfolio of common stocks and investment grade fixed-income
securities. The Fund was organized as a Massachusetts business trust on March 2,
1993 and commenced operations on October 29, 1993.
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) an equity security listed or traded on the
New York, American, other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the
latest bid price (in cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated as the
primary market by the Adviser); (2) all other 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; (3) when market
quotations are not readily available, including circumstances under which it
is determined by the Adviser that sale and bid prices are not reflective of
a security's market value, portfolio securities are valued at their fair
value as determined in good faith under procedures established by and under
the general supervision of the Trustees (valuation of debt securities for
which market quotations are not readily available may be based upon current
market prices of securities which are comparable in coupon, rating and
maturity or an appropriate matrix utilizing similar factors); (4) certain
portfolio securities may be valued by an outside pricing service approved by
the Trustees. The pricing service utilizes a matrix system incorporating
security quality, maturity and coupon as the evaluation model parameters,
and/or research and evaluation 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 (5) 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. Dividend income and other distributions are recorded on the
ex-dividend date except for certain dividends on foreign securities which
are recorded as soon as the Fund is informed after the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. FOREIGN CURRENCY TRANSLATION--The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value
of investment securities, other assets and liabilities and forward contracts
are translated at the exchange rates prevailing at the end of the period;
and (2) purchases, sales, income and expenses are translated at the exchange
rates prevailing on the respective dates of such transactions. The resultant
exchange gains and losses are included in the Statement of Operations as
realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange
gains/losses included in realized and unrealized gain/loss are included in
or are a reduction of ordinary income for federal income tax purposes. The
Fund does not isolate that
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the
securities.
D. FORWARD FOREIGN CURRENCY CONTRACTS--The Fund may enter into forward
foreign currency contracts which are valued daily at the appropriate
exchange rates. The resultant exchange gains and losses are included in the
Statement of Operations as unrealized gain/loss on foreign exchange
transactions. The Fund records realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished (compensated)
by entering into a closing transaction prior to delivery.
E. FEDERAL INCOME TAX STATUS--It is the Fund'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.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Fund records dividends
and distributions to its shareholders on the ex-dividend 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.
G. ORGANIZATIONAL EXPENSES--Dean Witter InterCapital Inc., an affiliate of
Dean Witter Services Company, Inc. (the "Manager"), paid the organizational
expenses of the Fund in the amount of $180,493 which have been reimbursed
for the full amount thereof. Such expenses have been deferred and are being
amortized on the straight-line method over a period not to exceed five years
from the commencement of operations.
2. MANAGEMENT AGREEMENT--Pursuant to a Management Agreement, the Fund pays the
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.45% to the net assets of the Fund determined as of the close of
each business day.
Under the terms of the Agreement, the Manager maintains certain of the
Fund'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 Fund who are employees
of the Manager. The Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. INVESTMENT ADVISORY AGREEMENT--Pursuant to an Investment Advisory Agreement
with TCW Funds Management, Inc. (the "Adviser"), the Fund pays the Adviser an
advisory fee, accrued daily and payable monthly, by applying the annual rate of
0.30% to the net assets of the Fund determined as of the close of each business
day.
Under the terms of the Agreement, the Fund has retained the Adviser to
invest the Fund'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 Fund
in a manner consistent with its investment objective. In addition, the Adviser
pays the salaries of all personnel, including officers of the Fund, who are
employees of the Adviser.
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
4. PLAN OF DISTRIBUTION--Dean Witter Distributors Inc. (the "Distributor"), an
affiliate of the Manager, is the distributor of the Fund's shares and, in
accordance with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under
the Act, finances certain expenses in connection therewith.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Fund, except for expenses that
the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor, Dean Witter Reynolds
Inc. ("DWR"), an affiliate of the Manager and Distributor, its affiliates and
other dealers who have entered into selected dealer agreements with the
Distributor under the Plan: (1) compensation to, and expenses of, account
executives of DWR and other selected broker-dealers and others including
overhead and telephone expenses; (2) sales incentives and bonuses to sales
representatives and to marketing personnel in connection with promoting sales of
the Fund's shares; (3) expenses incurred in connection with promoting sales of
the Fund's shares; (4) preparing and distributing sales literature; and (5)
providing advertising and promotional activities, including direct mail
solicitation and television, radio, newspaper, magazine and other media
advertisements.
The amount of each monthly reimbursement may in no event exceed an amount
equal to a payment at the annual rate of 1.0% of the Fund's average daily net
assets. Expenses incurred pursuant to the Plan in any fiscal year in excess of
1.0% of the Fund's average daily net assets will not be reimbursed by the Fund
through payments accrued in any subsequent fiscal year. For the year ended
September 30, 1996, the distribution fee accrued was at the annual rate of
0.99%.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES--The cost of
purchases and proceeds from sales of portfolio securities, excluding short-term
investments, for the year ended September 30, 1996 aggregated $112,692,059 and
$134,606,545, respectively. Included in the aforementioned are purchases and
sales of U.S. Government securities of $58,967,558 and $59,675,005,
respectively.
For the year ended September 30, 1996, the Fund incurred $9,886 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
Dean Witter Trust Company, an affiliate of the Manager and Distributor, is
the Fund's transfer agent. At September 30, 1996, the Fund had transfer agent
fees and expenses payable of approximately $12,000.
6. SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Sold................................................ 1,434,033 $ 15,701,592 1,576,172 $ 14,889,309
Reinvestment of dividends........................... 71,704 794,910 114,844 1,094,653
----------- -------------- ----------- --------------
1,505,737 16,496,502 1,691,016 15,983,962
Repurchased......................................... (3,751,703) (41,041,855) (7,332,918) (68,967,988)
----------- -------------- ----------- --------------
Net decrease........................................ (2,245,966) $ (24,545,353) (5,641,902) $ (52,984,026)
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
</TABLE>
7. FEDERAL INCOME TAX STATUS--During the year ended September 30, 1996, the
Fund utilized approximately $3,718,000 of its net capital loss carryover. At
September 30, 1996, the Fund had a net capital loss carryover of approximately
$312,000 which will be available through September 30, 2003 to offset future
capital gains to the extent provided by regulations.
<PAGE>
TCW/DW BALANCED FUND
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
As of September 30, 1996, the Fund had temporary book/tax differences
primarily attributable to capital loss deferrals on wash sales and permanent
book/tax differences attributable to foreign currency losses. To reflect
reclassifications arising from permanent book/tax differences for the year ended
September 30, 1996, distributions in excess of net investment income was charged
$960,601, paid-in-capital was charged $838,389 and accumulated net realized loss
was credited $1,798,990.
8. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS--The Fund
may enter into forward foreign currency contracts ("forward contracts") to
facilitate settlement of foreign currency denominated portfolio transactions or
to manage foreign currency exposure associated with foreign currency denominated
securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
<PAGE>
TCW/DW BALANCED FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR OCTOBER 29, 1993*
ENDED ENDED THROUGH
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------ -------------------- --------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 10.46 $ 9.43 $ 10.00
------ ------ ------
Net investment income....................................... 0.15 0.20 0.10
Net realized and unrealized gain (loss)..................... 1.12 0.93 (0.58)
------ ------ ------
Total from investment operations............................ 1.27 1.13 (0.48)
Less dividends and distributions:
From net investment income................................ -- (0.10) (0.09)
In excess of net investment income........................ (0.10) -- --
------ ------ ------
Net asset value, end of period.............................. $ 11.63 $ 10.46 $ 9.43
------ ------ ------
------ ------ ------
TOTAL INVESTMENT RETURN+.................................... 12.20% 11.97% (4.80)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 2.14% 2.11% 2.06%(2)
Net investment income....................................... 1.12% 1.88% 1.22%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $92,491 $106,716 $149,357
Portfolio turnover rate..................................... 117% 123% 113%(1)
Average commission rate paid................................ $0.0583 -- --
</TABLE>
- --------------
* COMMENCEMENT OF OPERATIONS.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW BALANCED FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of TCW/DW Balanced Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of TCW/DW Balanced Fund (the "Fund")
at September 30, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the two years in the period then ended
and for the period October 29, 1993 (commencement of operations) through
September 30, 1994, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund'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 owned at
September 30, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
November 7, 1996
1996 FEDERAL INCOME TAX NOTICE (UNAUDITED)
During the fiscal year ended September 30, 1996, 82% of the income dividends
paid qualifies for the dividends received deduction available to corporations.
<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
Sheldon Curtis
Vice President, Secretary and
General Counsel
James A. Tilton
Vice President
James M. Goldberg
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
BALANCED FUND
[GRAPHIC]
ANNUAL REPORT
SEPTEMBER 30, 1996
This report is submitted for the general information of shareholders
of the Fund. For more detailed information about the Fund, its officers and
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Fund.
This report is not authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an effective prospectus.
