<PAGE>
TCW/DW TOTAL RETURN TRUST Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS July 31, 1998
DEAR SHAREHOLDER:
For the fiscal year ended July 31, 1998, TCW/DW Total Return Trust's Class B
shares returned 8.25 percent, compared with 19.28 percent for the Standard &
Poor's 500 Composite Stock Price Index (S&P 500) and 11.17 percent for the
Lipper Growth and Income Funds Index. During the same period, the Fund's Class
A, C and D shares posted total returns of 8.94 percent, 8.12 percent and 9.20
percent, respectively. The performance of the Fund's four share classes varies
since each class has different expenses.
The accompanying chart illustrates the growth of a hypothetical $10,000
investment in the Fund's Class B shares from inception (November 30, 1994)
through the fiscal year ended July 31, 1998, versus similar hypothetical
investments in the issues that comprise the S&P 500 and the Lipper Growth and
Income Funds Index.
The Fund's recent performance has been negatively impacted by its ownership of
several aerospace/defense stocks. Our rationale for investing in these
companies is multifaceted and based on long-term goals. With respect to the
commercial aircraft sector, TCW Funds Management, Inc. (TCW), believes that
demand for convenient, comfortable and cost-efficient air transportation will
continue to rise despite interim events, such as the current malaise caused by
the Asian Financial Flu. Regarding the defense sector, pressure to enhance our
inventory of weaponry is again mounting -- after years of apparent apathy -- in
recognition of the increasing antagonism among many nations, but particularly
against the United States. Finally, relating to the space sector, the need for
more dependable systems for transmitting information globally on a timely basis
- -- be it for business, personal or military purposes -- is now regarded as
crucial. We believe that these make for a powerful argument for investing in
these sectors.
MARKET COMMENTARY
The U.S. economy continues to perform well. Gross domestic product (GDP) growth
slowed in the second quarter of 1998 to 1.6 percent from
<PAGE>
TCW/DW TOTAL RETURN TRUST
LETTER TO THE SHAREHOLDERS July 31, 1998, continued
5.5 percent in the first quarter, but at least 0.5 percent of the slowdown was
due to the General Motors strike. Meanwhile, unemployment, another broad
indicator of economic health, stands at 4.5 percent, only 0.2 percent above its
20-year low. This strength of the U.S. economy is the result of several
factors. The U.S. economy is consumer based and not heavily dependent on
exports. Spending on consumer products accounts for three-quarters of GDP
versus only one-eighth for exports. Also, the United States has the largest,
most efficient capital markets, which, along with the dollar's reserve-currency
status, makes the U.S. Treasury market an excellent port in the storm of world
financial instability. Simultaneously, the U.S. budget deficit has swung from a
large-deficit position to one with a moderate surplus, owing to spending
restraints and strong tax revenue growth from the healthy real estate and
financial markets. As a result, since the start of the Asian crisis in July
1997, interest rates on U.S. Treasury notes and bonds have fallen by more than
100 basis points, from the 6.0-6.5 percent range to a range of 5.0-5.5 percent,
despite no change in the Federal-funds rate, which has been maintained at 5.5
percent since March 1997.
Given the heavy dependence of the United States on personal consumption, a drop
in commodity prices and the lowering of interest rates has actually more than
offset the initial decline in exports to emerging markets. Combined with the
strong labor market, personal consumption spending boomed as real disposable
income increased. In July and August, sales of lightweight vehicles which were
restrained temporarily by the G.M. strike, reached a record level annual rate
of almost 17 million in June. New and existing home sales are at record levels.
Demand for all types of services, from leisure travel and accounting to stock
brokerages, are robust. In addition, there is the ongoing desire of businesses
to enhance productivity through investing in improved technology, and both
Federal and municipal governments have improved their financial conditions. As
a result, real final domestic sales; i.e., GDP excluding foreign trade and
inventory adjustment, rose at a sizzling 6.5 percent annual rate from the
second quarter of 1997 through the same quarter of 1998. In summary, despite
all the concerns about slowing foreign economies, the evidence suggests that
the U.S. economy is on solid ground.
PORTFOLIO STRUCTURE
Currently the Fund's portfolio is invested entirely in U.S. stocks. We will
continue to invest in companies with attractive growth rates, improving returns
on invested capital and attractive valuations. Specific industries the Fund is
focused on are technology, aerospace, financial services and pharmaceuticals.
Among the technology companies held by the Fund are Microsoft, Intel,
Hewlett-Packard, Cisco Systems, Motorola and Applied Materials. The demand for
technology continues to expand due to improving productivity and the rapid
growth of the Internet. New products from Intel and Microsoft will continue to
stimulate industry demand.
2
<PAGE>
TCW/DW TOTAL RETURN TRUST
LETTER TO THE SHAREHOLDERS July 31, 1998, continued
The aerospace and defense companies in the Fund's portfolio include Boeing,
Hexcel, Sundstrand and Wyman-Gordon. Orders for commercial aircraft are
increasing because of the need to replace old, inefficient aircraft. Concerns
about Asia have hurt aerospace stocks thus far during 1998, and at current
prices, TCW believes these stocks to be undervalued.
Financial service companies held by the Fund include IndyMac Mortgage Holdings,
Merrill Lynch, Citicorp, Bank of America, Wells Fargo, American International
Group, Marsh & McLennan, Charles Schwab and J. P. Morgan. The increasing
savings rate in the United States is stimulating demand for insurance and
investment products. Technology is lowering the cost of managing and
distributing consumer financial products such as credit cards, home mortgage
loans and mutual funds. As a result, the consumer benefits from better services
at lower cost, which TCW believes will lead to more rapid industry growth.
The Fund's pharmaceutical holdings include Johnson & Johnson, Merck, Pfizer,
Schering-Plough, Eli Lilly and Warner-Lambert. The industry is benefiting from
the aging of the baby boomers and new product growth. We believe these stocks
should do well in either a strong or weak economy.
LOOKING AHEAD
Although past forecasts have been consistently revised upward to show strong
growth, there is now a growing sense of uncertainty and the outlook for 1999
could be worse than many economists expect. TCW believes a distinction has to
be made between the strong fundamentals of the U. S. economy and the
deteriorating outlook for emerging markets. Thus, TCW believes that real growth
in 1998 will be 3.5 percent, representing another upward revision, because
domestic spending has deteriorated only minimally in response to international
events. For 1999, however, TCW expects a growth rate of 2.4 percent, which may
well be revised downward if emerging markets do not improve.
The short-term outlook is more challenging today than in recent years. The
recent market correction has produced returns more in line with historical
averages for stocks. However, TCW believes the long-term outlook remains
outstanding. U.S. companies will emerge stronger and more competitive than
before. TCW will continue to manage TCW/DW Total Return Trust for long-term
capital appreciation. Thank you for your confidence and support.
Very truly yours,
/s/ Charles A. Fiumfreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
3
<PAGE>
TCW/DW TOTAL RETURN TRUST
FUND PERFORMANCE July 31, 1998
GROWTH OF $10,000 CLASS B
DATE TOTAL S&P 500 LIPPER
============================================================
November 30, 1994 $10,000 $10,000 $10,000
============================================================
July 31, 1995 $11,904 $12,610 $12,179
============================================================
July 31, 1996 $12,883 $14,692 $13,778
============================================================
July 31, 1997 $19,539 $22,342 $19,858
============================================================
July 31, 1998 $20,951 (3) $26,649 $22,075
============================================================
Fund S&P 500(4) Lipper(5)
------- ------- -------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS A,
CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B SHARES
SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES**
- ------------------------------------------------------------
PERIOD ENDED 7/31/98
- ----------------------------
<S> <C> <C>
1 Year 8.25%(1) 3.25%(2)
Since Inception (11/30/94) 22.67%(1) 22.35%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++
- -----------------------------------------------------------
PERIOD ENDED 7/31/98
- ---------------------------
<S> <C> <C>
1 Year 8.12%(1) 7.12%(2)
Since Inception (7/28/97) 11.52%(1) 11.52%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES+
- -----------------------------------------------------------
PERIOD ENDED 7/31/98
- ---------------------------
<S> <C> <C>
1 Year 8.94%(1) 3.22%(2)
Since Inception (7/28/97) 12.37%(1) 6.51%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES++
- --------------------------------------------
PERIOD ENDED 7/31/98
- ---------------------------
<S> <C>
1 Year 9.20%(1)
Since Inception (7/28/97) 12.63%(1)
</TABLE>
<TABLE>
<CAPTION>
- ---------------
<S><C>
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the
deduction of the maximum applicable sales charge. See the Fund's
current prospectus for complete details on fees and sales charges.
(3) Closing value after the deduction of a 2% contingent deferred sales
charge (CDSC), assuming a complete redemption on July 31, 1998.
(4) The Standard & Poor's 500 Stock 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.
(5) The Lipper Growth and Income Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net
assets) in the Lipper Growth and Income Funds objective. The Index,
which is adjusted for capital gains distributions and income
dividends, is unmanaged and should not be considered an investment.
There are currently 30 funds represented in this Index.
* For periods of less than one year, the fund quotes its total return on
a non-annualized basis.
** The maximum CDSC for Class B shares is 5.00%. The CDSC declines to 0%
after six years.
+ The maximum front-end sales charge for Class A shares is 5.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within
one year of purchase.
++ Class D shares have no sales charge.
</TABLE>
4
<PAGE>
TCW/DW TOTAL RETURN TRUST
PORTFOLIO OF INVESTMENTS July 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------ ------------------
<S> <C> <C>
COMMON STOCKS (99.2%)
Aircraft & Aerospace (6.4%)
97,000 Boeing Co. ............................. $ 3,764,812
87,600 Coltec Industries, Inc.* ............... 1,494,675
161,400 Hexcel Corp.* .......................... 2,259,600
44,700 Sundstrand Corp. ....................... 2,338,369
------------
9,857,456
------------
Banking (5.2%)
17,400 BankAmerica Corp. ...................... 1,561,650
15,200 Citicorp ............................... 2,584,000
11,100 Wells Fargo & Co. ...................... 3,950,212
------------
8,095,862
------------
Banks -- Money Center (1.0%)
12,700 Morgan (J.P.) & Co., Inc. .............. 1,600,200
------------
Beverages -- Soft Drinks (2.3%)
24,700 Coca Cola Co. .......................... 1,992,981
41,750 PepsiCo, Inc. .......................... 1,620,422
------------
3,613,403
------------
Brokerage (6.0%)
30,900 Marsh & McLennan Companies,
Inc. ................................... 1,886,831
25,800 Merrill Lynch & Co., Inc. .............. 2,515,500
128,100 Schwab (CHARLES) Corp. ................. 4,803,750
------------
9,206,081
------------
Building Materials (1.4%)
101,500 Calmat Co. ............................. 2,112,469
------------
Chemicals -- Specialty (2.0%)
121,100 General Chemical Group Inc. ............ 3,103,187
------------
Communications -- Equipment &
Software (3.0%)
49,050 Cisco Systems, Inc.* ................... 4,696,537
------------
Computer Software (2.2%)
31,000 Microsoft Corp.* ....................... 3,408,062
------------
Drugs (14.4%)
63,700 Amgen Inc.* ............................ 4,673,987
21,200 Johnson & Johnson ...................... 1,637,700
60,400 Lilly (Eli) & Co. ...................... 4,061,900
18,000 Merck & Co., Inc. ...................... 2,219,625
28,200 Pfizer, Inc. ........................... 3,102,000
29,900 Schering-Plough Corp. .................. 2,892,825
47,100 Warner-Lambert Co. ..................... 3,558,994
------------
22,147,031
------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------ ------------------
<S> <C> <C>
Electrical Equipment (4.5%)
34,200 Honeywell, Inc. ........................ $ 2,866,387
249,200 Wyman-Gordon Co.* ...................... 4,111,800
------------
6,978,187
------------
Electronics -- Defense (2.3%)
35,900 Hewlett-Packard Co. .................... 1,992,450
27,800 Raytheon Co. (Class B) ................. 1,537,687
------------
3,530,137
------------
Electronics -- Semiconductors/
Components (11.8%)
39,000 General Electric Co. ................... 3,483,188
64,800 Intel Corp. ............................ 5,467,500
88,000 Motorola, Inc. ......................... 4,598,000
78,900 Texas Instruments, Inc. ................ 4,679,756
------------
18,228,444
------------
Financial (1.5%)
13,500 Fannie Mae ............................. 837,000
32,000 Freddie Mac ............................ 1,512,000
------------
2,349,000
------------
Household Products (2.6%)
61,100 Fort James Corp. ....................... 2,062,125
23,700 Procter & Gamble Co. ................... 1,881,188
------------
3,943,313
------------
Insurance (3.9%)
18,300 American International Group, Inc. 2,759,869
55,100 Hartford Life, Inc. (Class A) .......... 3,188,913
------------
5,948,782
------------
Lodging -- Hotels (3.0%)
183,300 Hilton Hotels Corp. .................... 4,616,869
------------
Oil & Gas Products (1.3%)
122,800 Enron Oil & Gas Co. .................... 1,949,450
------------
Oil -- Exploration & Production (1.3%)
113,400 Mitchell Energy & Development
Corp. (Class A) ........................ 2,076,638
------------
Oil -- Foreign (3.2%)
13,600 Chevron Corp. .......................... 1,123,700
54,600 Exxon Corp. ............................ 3,828,825
------------
4,952,525
------------
Oil Drilling & Services (1.9%)
217,900 ENSCO International, Inc. .............. 2,955,269
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
TCW/DW TOTAL RETURN TRUST
PORTFOLIO OF INVESTMENTS July 31, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ---------------
<S> <C> <C>
Oil Integrated -- International (1.1%)
32,400 Royal Dutch Petroleum Co.
(Netherlands) ....................... $ 1,652,400
------------
Oil Well Equipment & Service (0.4%)
15,100 Halliburton Co. ..................... 548,319
------------
Paper & Forest Products (0.0%)
600 Weyerhaeuser Co. .................... 25,200
------------
Publishing -- Newspaper (0.5%)
11,500 Tribune Co. ......................... 773,375
------------
Real Estate Investment Trust (2.5%)
185,600 IndyMac Mortgage Holdings, Inc....... 3,909,200
------------
Restaurants (3.2%)
34,700 McDonald's Corp. .................... 2,318,394
74,810 TRICON Global Restaurants, Inc.* 2,646,404
------------
4,964,798
------------
Retail -- Department Stores (2.4%)
59,800 Wal-Mart Stores, Inc. ............... 3,774,875
------------
Retail -- General Merchandise (2.1%)
72,920 Fred Meyer, Inc.* ................... 3,213,038
------------
Semiconductor Equipment (3.3%)
150,000 Applied Materials, Inc.* ............ 5,015,625
------------
Wholesale Distributor (2.5%)
78,100 Supervalu, Inc. ..................... 3,870,831
------------
TOTAL COMMON STOCKS
(Identified Cost $127,223,755)....... $153,116,563
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------- ---------------
<S> <C> <C>
SHORT-TERM INVESTMENT (0.6%)
REPURCHASE AGREEMENT
$ 893 The Bank of New York 5.50%
due 08/03/98 (dated 07/31/98;
proceeds $893,378) (a)
(Identified Cost $892,969) .......... $ 892,969
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $128,116,724) (b)..... 99.8% 154,009,532
OTHER ASSETS IN EXCESS OF
LIABILITIES ........................... 0.2 314,423
----- -----------
NET ASSETS ............................ 100.0% $154,323,955
===== ============
</TABLE>
- --------------------------------
* Non-income producing security.
(a) Collateralized by $569,213 U.S. Treasury Bond 11.125% due 08/15/03
valued at $734,593 and $169,286 U.S. Treasury Note 7.75% due
11/30/99 valued at $176,234.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$34,611,294 and the aggregate gross unrealized depreciation is
$8,718,486, resulting in net unrealized appreciation of $25,892,808.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
TCW/DW TOTAL RETURN TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS :
Investments in securities, at value
(identified cost $128,116,724)................................... $ 154,009,532
Receivable for:
Investments sold ................................................ 1,436,571
Shares of beneficial interest sold .............................. 689,137
Dividends ....................................................... 150,839
Deferred organizational expenses .................................. 40,503
Prepaid expenses and other assets ................................. 43,369
--------------
TOTAL ASSETS .................................................... 156,369,951
--------------
LIABILITIES :
Payable for:
Investments purchased ........................................... 923,013
Shares of beneficial interest repurchased ....................... 831,121
Plan of distribution fee ........................................ 115,170
Management fee .................................................. 62,069
Investment advisory fee ......................................... 41,380
Accrued expenses and other payables ............................... 73,243
--------------
TOTAL LIABILITIES ............................................... 2,045,996
--------------
NET ASSETS ...................................................... $ 154,323,955
==============
COMPOSITION OF NET ASSETS :
Paid-in-capital ................................................... $ 120,657,014
Net unrealized appreciation ....................................... 25,892,808
Accumulated undistributed net investment income ................... 3,083
Accumulated undistributed net realized gain ....................... 7,771,050
--------------
NET ASSETS ...................................................... $ 154,323,955
==============
CLASS A SHARES :
Net Assets ........................................................ $ 1,254,354
Shares Outstanding (unlimited authorized, $.01 par value).......... 74,736
NET ASSET VALUE PER SHARE ....................................... $ 16.78
==============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ................ $ 17.71
==============
CLASS B SHARES :
Net Assets ........................................................ $ 152,358,435
Shares Outstanding (unlimited authorized, $.01 par value) ......... 9,134,394
NET ASSET VALUE PER SHARE ....................................... $ 16.68
==============
CLASS C SHARES:
Net Assets ........................................................ $ 699,874
Shares Outstanding (unlimited authorized, $.01 par value) ......... 42,011
NET ASSET VALUE PER SHARE ....................................... $ 16.66
==============
CLASS D SHARES :
Net Assets ........................................................ $ 11,292
Shares Outstanding (unlimited authorized, $.01 par value) ......... 671
NET ASSET VALUE PER SHARE ....................................... $ 16.83
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
TCW/DW TOTAL RETURN TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended July 31, 1998
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME :
INCOME
Dividends (net of $4,357 foreign withholding tax) ......... $ 1,707,676
Interest .................................................. 276,135
-----------
TOTAL INCOME ............................................ 1,983,811
-----------
EXPENSES
Plan of distribution fee (Class A shares) ................. 1,129
Plan of distribution fee (Class B shares) ................. 1,196,377
Plan of distribution fee (Class C shares) ................. 4,605
Management fee ............................................ 641,236
Investment advisory fee ................................... 427,491
Transfer agent fees and expenses .......................... 138,552
Registration fees ......................................... 90,383
Shareholder reports and notices ........................... 50,834
Professional fees ......................................... 49,780
Trustees' fees and expenses ............................... 38,711
Organizational expenses ................................... 30,313
Custodian fees ............................................ 19,137
Other ..................................................... 12,934
-----------
TOTAL EXPENSES .......................................... 2,701,482
-----------
NET INVESTMENT LOSS ..................................... (717,671)
-----------
NET REALIZED AND UNREALIZED GAIN :
Net realized gain ......................................... 10,549,425
Net change in unrealized appreciation ..................... 1,702,988
-----------
NET GAIN ................................................ 12,252,413
-----------
NET INCREASE .............................................. $11,534,742
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
TCW/DW TOTAL RETURN TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 1998 JULY 31, 1997*
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS :
OPERATIONS :
Net investment income (loss) ......................... $ (717,671) $ 202,878
Net realized gain .................................... 10,549,425 7,872,093
Net change in unrealized appreciation ................ 1,702,988 23,391,695
------------ ------------
NET INCREASE ....................................... 11,534,742 31,466,666
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM :
Net investment income
Class B shares ...................................... -- (243,888)
Net realized gain
Class A shares ...................................... (7,061) --
Class B shares ...................................... (9,224,024) (5,079,906)
Class C shares ...................................... (24,164) --
Class D shares ...................................... (712) --
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS .................. (9,255,961) (5,323,794)
------------ ------------
Net increase from transactions in shares of beneficial
interest ........................................... 34,945,345 42,432,561
------------ ------------
NET INCREASE ....................................... 37,224,126 68,575,433
NET ASSETS :
Beginning of period .................................. 117,099,829 48,524,396
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$3,083 and $5,972, respectively) .................. $154,323,955 $117,099,829
============ ============
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
TCW/DW TOTAL RETURN TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
TCW/DW Total Return Trust (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund's investment objective is high total
return from capital growth and income. The Fund seeks to achieve its objective
by investing primarily in equity and equity-related securities issued by
domestic and foreign companies. The Fund was organized as a Massachusetts
business trust on June 29, 1994 and commenced operations on November 30, 1994.
On July 28, 1997, the Fund commenced offering three additional classes of
shares, with the then current shares designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
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 or 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 pursuant to
procedures adopted by the Trustees); (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 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; 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.
10
<PAGE>
TCW/DW TOTAL RETURN TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 1998, continued
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.
Discounts are accreted over the life of the respective securities. Dividend
income and other distributions are recorded on the ex-dividend date. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are charged to
each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are allocated directly to the
respective class.
D. 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.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund 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.
F. 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
of the Fund in the amount of approximately $127,000 of which approximately
$122,000 has been reimbursed. 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.
11
<PAGE>
TCW/DW TOTAL RETURN TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 1998, continued
Under the terms of the Management 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 the Adviser, the Fund pays 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 Investment Advisory 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.
4. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The
Plan provides that the Fund will pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A -- up to
0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Class B shares
since the inception of the Fund (not including reinvestment of dividend or
capital gain distributions) less the average daily aggregate net asset value of
the Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or waived; or (b) the average daily net
assets of Class B; and (iii) Class C -- up to 1.0% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the Plan are paid to the Distributor for
services provided and the expenses borne by it and others in the distribution
of the shares of these Classes, including the payment of commissions for sales
of these Classes and incentive compensation to, and expenses of, Morgan Stanley
Dean Witter Financial Advisors and others who engage in or support distribution
of the shares or who service shareholder accounts, including overhead and
12
<PAGE>
TCW/DW TOTAL RETURN TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 1998, continued
telephone expenses; printing and distribution of prospectuses and reports used
in connection with the offering of these shares to other than current
shareholders; and preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan, in the case of Class B shares, to compensate Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and Distributor,
and other selected broker-dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. The Distributor has advised the Fund that such excess amounts,
including carrying charges, totaled $4,799,182 at
July 31, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended July 31, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the year ended July 31, 1998, it
received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $316,290 and $494, respectively and
received $14,513 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense
of the Fund.
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 July 31, 1998 aggregated
$154,729,887 and $130,352,065, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $13,289,711 and
$13,535,242, respectively.
13
<PAGE>
TCW/DW TOTAL RETURN TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 1998, continued
For the year ended July 31, 1998, the Fund incurred brokerage commissions of
$8,215 with Morgan Stanley & Co., Inc., an affiliate of the Manager, for
portfolio transactions executed on behalf of the Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Manager and
Distributor, is the Fund's transfer agent. At July 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $1,000.
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 1998 JULY 31, 1997*
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ................................................ 77,071 $ 1,323,814 624 $ 10,020
Reinvestment of distributions ....................... 473 7,061 -- --
Redeemed ............................................ (3,432) (58,689) -- --
------ ------------- --- -------------
Net increase -- Class A ............................. 74,112 1,272,186 624 10,020
------ ------------- --- -------------
CLASS B SHARES
Sold ................................................ 3,642,674 60,041,237 3,902,145 54,982,768
Reinvestment of dividends and distributions ......... 553,040 8,234,768 356,843 4,658,943
Redeemed ............................................ (2,117,176) (35,250,499) (1,245,479) (17,266,663)
---------- ------------- ---------- -------------
Net increase -- Class B ............................. 2,078,538 33,025,506 3,013,509 42,375,048
---------- ------------- ---------- -------------
CLASS C SHARES
Sold ................................................ 42,555 699,553 2,311 37,473
Reinvestment of distributions ....................... 1,578 23,504 -- --
Redeemed ............................................ (4,433) (76,116) -- --
---------- ------------- ---------- -------------
Net increase -- Class C ............................. 39,700 646,941 2,311 37,473
---------- ------------- ---------- -------------
CLASS D SHARES
Sold ................................................ -- -- 624 10,020
Reinvestment of distributions ....................... 47 712 -- --
---------- ------------- ---------- -------------
Net increase -- Class D ............................. 47 712 624 10,020
---------- ------------- ---------- -------------
Net increase in Fund ................................ 2,192,397 $ 34,945,345 3,017,068 $ 42,432,561
========== ============= ========== =============
</TABLE>
- ---------------
* For Class A, C and D shares, for the period July 28, 1997 (issue date)
through July 31, 1997.
7. FEDERAL INCOME TAX STATUS
At July 31, 1998, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to a net operating loss. To reflect
reclassifications arising from the permanent differences, accumulated
undistributed net realized gain was charged and accumulated undistributed net
investment income was credited $714,782.
14
<PAGE>
TCW/DW TOTAL RETURN TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31, NOVEMBER 30, 1994*
--------------------------------------------------- THROUGH
1998++ 1997** 1996 JULY 31, 1995
--------------- -------------- ---------------- ----------------------
<S> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE :
Net asset value, beginning of period ............ $ 16.59 $ 12.00 $ 11.75 $ 10.00
---------- --------- ---------- -----------
Net investment income (loss) .................... ( 0.08) 0.04 0.15 0.21
Net realized and unrealized gain ................ 1.31 5.81 0.80 1.68
---------- --------- ---------- -----------
Total from investment operations ................ 1.23 5.85 0.95 1.89
---------- --------- ---------- -----------
Less dividends and distributions from:
Net investment income .......................... -- (0.06) (0.21) (0.14)
Net realized gain .............................. (1.14) (1.20) (0.49) --
---------- ---------- ---------- -----------
Total dividends and distributions ............... (1.14) (1.26) (0.70) (0.14)
---------- ---------- ---------- -----------
Net asset value, end of period .................. $ 16.68 $ 16.59 $ 12.00 $ 11.75
========== ========== ========== ===========
TOTAL INVESTMENT RETURN + ....................... 8.25 % 51.66% 8.23% 19.04%(1)
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.90 % 2.05% 1.98%(3) 0.94%(2)(3)
Net investment income (loss) .................... (0.50)% 0.28% 1.30%(3) 3.19%(2)(3)
SUPPLEMENTAL DATA :
Net assets, end of period, in thousands ......... $152,358 $117,041 $48,524 $36,018
Portfolio turnover rate ......................... 93 % 198% 261% 91%(1)
</TABLE>
- -------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or waived
by the Manager and Adviser, the above annualized expense and net
investment income ratios would have been 2.21% and 1.07%, respectively,
for the year ended July 31, 1996 and 2.66% and 1.47%, respectively, for
the period ended July 31, 1995.
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
TCW/DW TOTAL RETURN TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
JULY 31, 1998++ JULY 31, 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE :
Net asset value, beginning of period .............. $ 16.59 $ 16.07
------- --------
Net investment income (loss) ...................... ( 0.01) 0.01
Net realized and unrealized gain .................. 1.34 0.51
------- --------
Total from investment operations .................. 1.33 0.52
------- --------
Less distributions from net realized gain ......... ( 1.14) --
------- --------
Net asset value, end of period .................... $ 16.78 $ 16.59
======= ========
TOTAL INVESTMENT RETURN+ .......................... 8.94 % 3.24%(1)
RATIOS TO AVERAGE NET ASSETS
Expenses .......................................... 1.31 % 1.31%(2)
Net investment income (loss) ...................... (0.07)% 4.08%(2)
SUPPLEMENTAL DATA :
Net assets, end of period, in thousands ........... $1,254 $10
Portfolio turnover rate ........................... 93 % 198%
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE :
Net asset value, beginning of period .............. $ 16.59 $ 16.07
-------- -----------
Net investment income (loss) ...................... (0.12) 0.01
Net realized and unrealized gain .................. 1.33 0.51
-------- -----------
Total from investment operations .................. 1.21 0.52
-------- -----------
Less distributions from net realized gain ......... (1.14) --
-------- -----------
Net asset value, end of period .................... $ 16.66 $ 16.59
======== ===========
TOTAL INVESTMENT RETURN + ......................... 8.12 % 3.24%(1)
RATIOS TO AVERAGE NET ASSETS
Expenses .......................................... 2.06 % 2.06%(2)
Net investment income (loss) ...................... (0.70)% 2.75%(2)
SUPPLEMENTAL DATA :
Net assets, end of period, in thousands ........... $ 700 $38
Portfolio turnover rate ........................... 93 % 198%
</TABLE>
- --------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. 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
16
<PAGE>
TCW/DW TOTAL RETURN TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
JULY 31, 1998++ JULY 31, 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE :
Net asset value, beginning of period .............. $ 16.59 $ 16.07
------- --------
Net investment income ............................. 0.06 0.01
Net realized and unrealized gain .................. 1.32 0.51
------- --------
Total from investment operations .................. 1.38 0.52
------- --------
Less distributions from net realized gain ......... (1.14) --
-------- --------
Net asset value, end of period .................... $ 16.83 $ 16.59
======== ========
TOTAL INVESTMENT RETURN + ......................... 9.20% 3.24%(1)
RATIOS TO AVERAGE NET ASSETS
Expenses .......................................... 1.06% 1.06%(2)
Net investment income ............................. 0.34% 4.33%(2)
SUPPLEMENTAL DATA :
Net assets, end of period, in thousands ........... $11 $10
Portfolio turnover rate ........................... 93% 198%
</TABLE>
- --------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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
17
<PAGE>
TCW/DW TOTAL RETURN TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF TCW/DW TOTAL RETURN TRUST
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 Total Return Trust (the
"Fund") at July 31, 1998, 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 periods presented, 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 at July 31, 1998 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
September 11, 1998
1998 FEDERAL TAX NOTICE (unaudited)
For the year ended July 31, 1998, the Fund paid to its shareholders $0.32
per share from long-term capital gains. Of this $0.32 distribution, $0.29
is taxable as 28% rate gain and $.03 is taxable as 20% rate gain. For
such period, 24.72% of the income paid qualified for the dividends
received deduction available to corporations.
18
<PAGE>
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumfreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Shroeder
Marc I. Stern
OFFICERS
Charles A. Fiumfreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and
General Counsel
James A. Tilton
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.
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 preceeded or accompanied by an effective prospectus.
TCW/DW
TOTAL RETURN
TRUST
[GRAPHIC OMITTED]
ANNUAL REPORT
JULY 31, 1998
