-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VCvyO5kgVNYC7rUJ98efiFGlPRTlvQPQrzROsAJ3qaEcomjLW9TiOpVJ2/H/+V9w SjeHY0PivS4hc1G87x13rw== 0000950136-97-001721.txt : 19971201 0000950136-97-001721.hdr.sgml : 19971201 ACCESSION NUMBER: 0000950136-97-001721 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971128 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TCW DW TERM TRUST 2003 CENTRAL INDEX KEY: 0000896346 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07448 FILM NUMBER: 97730236 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CENTER STREET 2: 72ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123922550 MAIL ADDRESS: STREET 1: TWO WORLD TRADE CENTER STREET 2: 72ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10048 N-30D 1 SEMIANNUAL REPORT TCW/DW TERM TRUST 2003 Two World Trade Center, New York, New York 10048 LETTER TO THE SHAREHOLDERS September 30, 1997 DEAR SHAREHOLDER: For the six-month period ended September 30, 1997, TCW/DW Term Trust 2003's net asset value per share increased from $8.97 to $9.79. Based on this change, and including reinvestment of dividends totaling approximately $0.32 per share, the Trust's total return on net asset value for the period was 13.31 percent. Over the same period, the market price of the Trust's shares on the New York Stock Exchange (NYSE) increased from $7.875 to $8.875 per share. Based on this change, and including reinvestment of dividends, the Trust's total return for the period was 17.00 percent. This strong investment performance is largely attributable to the Trust's market discount to net asset value narrowing from 12.2 percent to 9.3 percent during the fiscal year, as well as the impressive rally in the fixed-income markets. THE MARKET Propelled by reassuring inflation data, a declining federal budget deficit and a watchful Federal Reserve Board, the fixed-income sector posted strong returns during the year. However, some economists now doubt the market's ability to sustain this rally, noting recent indications that the pace of economic growth may be accelerating. Nonetheless, the Federal Reserve Board was not expected to raise interest rates at its September meeting and indeed the central bank did not alter its policy at that time. Investor demand for mortgage-backed securities is strong and even though yield spreads have tightened, the sector has retained its yield advantage over other fixed-income securities. The Trust's investment adviser, TCW Funds Management, Inc. (TCW), believes that mortgage-backed yield spreads are positioned to remain relatively stable in the coming months provided the yield on the 10 year U.S. Treasury note does not fall below six percent, which would renew mortgage prepayment fears. Issuance of collateralized mortgage obligations (CMOs) in 1997 is now in excess of $100 billion, which has helped support the mortgage-backed market as a whole. TCW/DW TERM TRUST 2003 LETTER TO THE SHAREHOLDERS, continued THE PORTFOLIO Approximately 68 percent of the Trust is invested in AAA-rated mortgage pass-through securities or CMOs with durations, average lives or expected maturity dates that correspond closely to the termination date of the Trust. An additional 20 percent is invested in inverse floating rate CMOs issued by U.S. government agencies. Inverse floaters have coupons that reset by a multiple in a direction opposite that of a specified index. The remaining 12 percent is invested in AAA-rated municipal bonds and short-term investments. The municipal bond holdings play an important role as the Trust seeks to achieve its objective of returning the original $10 offering price to shareholders at maturity. At September 30, 1997, the Trust's degree of leverage (the ratio of debt to assets) was 31 percent of total assets. LOOKING AHEAD TCW is generally positive regarding the mortgage-backed sector's long-term prospects. Although signs of robust economic activity have reappeared in recent months, real interest rates remain at historically high levels. (In the past, periods of strong bond market performance have correlated with high real rates of interest.) The Trust's net asset and NYSE market values will continue to fluctuate as both respond to changes in market conditions and interest rates. We would like to remind you that the Trustees have approved a procedure whereby the Trust may attempt, when appropriate, to reduce or eliminate a market value discount from net asset value by repurchasing shares in the open market or in privately negotiated transactions at a price not above market value or net asset value, whichever is lower at the time of purchase. During the period, the Trust repurchased 2,984,500 shares of common stock at a weighted average market discount of 11.33 percent. We appreciate your support of TCW/DW Term Trust 2003 and look forward to continuing to serve your investment needs and objectives. Very truly yours, /s/ Charles A. Fiumefreddo CHARLES A. FIUMEFREDDO Chairman of the Board TCW/DW TERM TRUST 2003 PORTFOLIO OF INVESTMENTS September 30, 1997 (unaudited)
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS (124.6%) U.S. GOVERNMENT AGENCIES (91.8%) $ 7,150 Federal Home Loan Mortgage Corp. 1409 S (PAC) .................. 10.465+% 11/15/07 $ 6,910,904 70,000 Federal Home Loan Mortgage Corp. 1465 G (PAC)++ ................ 7.00 12/15/07 70,898,751 11,000 Federal Home Loan Mortgage Corp. 1479 M (PAC) .................. 7.50 10/15/22 10,924,617 8,100 Federal Home Loan Mortgage Corp. 1498 N (PAC)++ ................ 7.50 04/15/23 8,040,697 11,600 Federal Home Loan Mortgage Corp. 1504 B (PAC) .................. 7.00 12/15/22 11,395,620 20,594 Federal Home Loan Mortgage Corp. 1505 LA ....................... 7.00 08/15/22 20,350,562 21,675 Federal Home Loan Mortgage Corp. 1507 L ........................ 7.00 10/15/22 21,415,531 11,289 Federal Home Loan Mortgage Corp. 1517 O (PAC) .................. 7.50 01/15/23 11,208,789 9,700 Federal Home Loan Mortgage Corp. 1522 K++ ...................... 6.50 12/15/22 9,311,629 2,406 Federal Home Loan Mortgage Corp. 1524 SA ....................... 8.50 + 05/15/08 2,405,374 5,259 Federal Home Loan Mortgage Corp. 1527 QD ++ .................... 7.50 01/15/07 5,422,608 17,099 Federal Home Loan Mortgage Corp. 1535 B ........................ 7.00 01/15/23 16,848,265 8,166 Federal Home Loan Mortgage Corp. 1539 SA ....................... 7.40 + 06/15/08 7,185,975 42,385 Federal Home Loan Mortgage Corp. 1542 N (PAC)++ ................ 7.00 01/15/22 42,135,874 38,223 Federal Home Loan Mortgage Corp. 1543 UG (PAC)++ ............... 7.00 01/15/23 37,965,874 17,005 Federal Home Loan Mortgage Corp. 1544 M ........................ 7.774+ 07/15/08 14,299,801 8,461 Federal Home Loan Mortgage Corp. 1556 SA ....................... 9.308+ 08/15/13 7,291,867 12,360 Federal Home Loan Mortgage Corp. 1563 SA ....................... 7.936+ 08/15/08 10,834,282 16,914 Federal Home Loan Mortgage Corp. 1565 IB (TAC) ................. 5.425+ 08/15/08 13,885,073 17,355 Federal Home Loan Mortgage Corp. 1576 SA ....................... 5.129+ 09/15/08 12,967,047 32,363 Federal Home Loan Mortgage Corp. 1602 PW++ ..................... 6.50 12/15/21 32,480,695 13,168 Federal Home Loan Mortgage Corp. 1604 S ........................ 5.347+ 11/15/08 12,373,007 12,919 Federal Home Loan Mortgage Corp. 1606 KD (PAC) ................. 6.58 + 11/15/08 12,643,989 39,760 Federal Home Loan Mortgage Corp. G 15 PA++ ..................... 7.00 12/25/21 39,137,462 6,710 Federal National Mortgage Assoc. 1993-101 SA (TAC) ............. 9.227+ 06/25/08 6,808,442 6,394 Federal National Mortgage Assoc. 1993-101 SB (TAC) ............. 10.701+ 06/25/08 6,720,137 4,526 Federal National Mortgage Assoc. 1993-114 SC ................... 9.00 + 07/25/08 4,373,475 32,200 Federal National Mortgage Assoc. 1993-121 B++ .................. 7.00 03/25/23 31,695,709 19,250 Federal National Mortgage Assoc. 1993-135 S .................... 6.035+ 07/25/08 14,948,780 12,570 Federal National Mortgage Assoc. 1993-135 SB ................... 6.221+ 06/25/08 9,820,137 26,400 Federal National Mortgage Assoc. 1993-141 B++ .................. 7.00 04/25/23 25,985,623 9,344 Federal National Mortgage Assoc. 1993-141 SA ................... 10.00 + 03/25/23 9,560,295 31,579 Federal National Mortgage Assoc. 1993-165 SM (TAC) ............. 6.743+ 05/25/23 28,706,211 11,305 Federal National Mortgage Assoc. 1993-173 S .................... 5.55 + 09/25/08 10,253,220 71,000 Federal National Mortgage Assoc. 1993-21 H (PAC)++ ............. 7.00 03/25/22 71,759,870 12,210 Federal National Mortgage Assoc. 1993-20 L ..................... 7.00 12/25/22 12,012,391 7,210 Federal National Mortgage Assoc. 1993-24 C (PAC) ............... 7.50 09/25/22 7,372,225 26,250 Federal National Mortgage Assoc. 1993-206 N++ .................. 6.50 11/25/23 25,277,062 6,463 Federal National Mortgage Assoc. 1993-233 J .................... 6.00 06/25/08 6,321,315 SEE NOTES TO FINANCIAL STATEMENTS TCW/DW TERM TRUST 2003 PORTFOLIO OF INVESTMENTS September 30, 1997 (unaudited) continued PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- $11,038 Federal National Mortgage Assoc. 1993-40 K ..................... 7.00 % 04/25/08 $ 10,952,228 15,398 Federal National Mortgage Assoc. 1993-41 C (PAC) ............... 7.00 03/25/21 15,356,370 9,907 Federal National Mortgage Assoc. 1993-63 SD (TAC) .............. 8.009+ 05/25/08 8,940,840 4,854 Federal National Mortgage Assoc. 1993-65 SC .................... 8.733+ 06/25/12 4,581,311 15,947 Federal National Mortgage Assoc. 1993-72 S ..................... 7.079+ 05/25/08 13,649,345 12,823 Federal National Mortgage Assoc. 1993-72 SA .................... 8.75 + 05/25/08 12,354,256 6,579 Federal National Mortgage Assoc. 1993-86 SD .................... 10.116+ 05/25/08 6,554,329 9,019 Federal National Mortgage Assoc. 1993-93 SA .................... 10.261+ 05/25/08 9,044,593 13,292 Federal National Mortgage Assoc. 1993-95 SE .................... 10.287+ 06/25/08 13,383,083 10,000 Federal National Mortgage Assoc. 1993-98 N ..................... 7.00 06/25/23 9,996,800 13,093 Federal National Mortgage Assoc. 1993-196 SA ................... 8.003+ 10/25/08 11,877,374 35,400 Federal National Mortgage Assoc. G 1993-26 A++ ................. 7.00 07/25/23 34,890,695 -------------- TOTAL U.S. GOVERNMENT AGENCIES (Identified Cost $882,294,176) ...................................................... 861,530,409 -------------- PRIVATE ISSUES (32.8%) 7,165 Bear Stearns Mortgage Securities, Inc. 1993-6 A7 (PAC) ......... 7.10 06/25/24 7,241,522 14,026 Bear Stearns Mortgage Securities, Inc. 1993-8 A7 (PAC) ......... 7.50 08/25/24 14,470,589 54,416 Bear Stearns Mortgage Securities, Inc. 1993-8 A11 (TAC) ........ 7.50 08/25/24 54,168,206 25,800 Chase Mortgage Finance Corp. 1993-G A10 (PAC) .................. 7.00 05/25/24 25,165,588 4,784 First Boston Mortgage Securities Corp. 1993-5 A15 .............. 7.30 03/25/09 4,908,912 36,683 General Electric Capital Mortgage Services 1994-1 A8 ........... 6.50 01/25/24 34,351,542 14,252 Prudential Home Mortgage Securities 1993-23 A12 (PAC) .......... 6.50 07/25/08 13,659,353 27,363 Prudential Home Mortgage Securities 1993-35 A12 ................ 6.75 09/25/08 26,542,146 18,000 Prudential Home Mortgage Securities 1993-60 A3 (PAC) ........... 6.75 12/25/23 16,944,869 36,408 Resolution Funding Mortgage Securities I 1993-S 40 A8 (TAC) .... 6.75 11/25/23 35,171,526 5,315 Ryland Mortgage Securities Corp. 1993-3 7 (PAC) ................ 6.712 08/25/08 5,120,180 28,218 Salomon Brothers Mortgage Securities VII Inc. 1993-3 A7C ....... 7.20 08/25/23 28,663,438 40,500 Salomon Brothers Mortgage Securities VII Inc. 1993-5 A4 ........ 7.362* 10/25/18 40,893,227 -------------- TOTAL PRIVATE ISSUES (Identified Cost $310,229,093) ...................................................... 307,301,098 -------------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Identified Cost $1,192,523,269) .................................................... 1,168,831,507 -------------- U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH SECURITIES (1.7%) 9,989 Federal Home Loan Mortgage Corp. PC Gold++ ..................... 6.00 06/01/08 9,741,927 2,173 Federal National Mortgage Assoc. ............................... 5.50 02/01/09 2,073,672 4,010 Federal National Mortgage Assoc. ............................... 7.00 08/01/08 4,047,870 -------------- TOTAL U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH SECURITIES (Identified Cost $16,108,441) ........................................................ 15,863,469 -------------- SEE NOTES TO FINANCIAL STATEMENTS TCW/DW TERM TRUST 2003 PORTFOLIO OF INVESTMENTS September 30, 1997 (unaudited) continued PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS (16.6%) Educational Facilities Revenue (3.6%) $ 5,000 Maricopa County Unified School District #41, Arizona, Gilbert Refg (FGIC) .................................................... 0.00% 01/01/03 $ 3,951,700 6,465 Maricopa County Unified School District #97, Arizona, Deer Valley Refg (Secondary MBIA) ............................. 0.00 07/01/04 4,746,086 6,000 Maricopa County Unified School District #28, Arizona, Kyrene Elementary Refg Ser 1993 B (FGIC) ...................... 0.00 07/01/04 4,404,720 11,445 Houston Independent School District, Texas, Refg ............... 0.00 08/15/04 8,327,038 Spring Independent School District, Texas, 8,205 Refg Ser 1993 ................................................. 0.00 02/15/03 6,432,392 8,100 Refg Ser 1993 ................................................. 0.00 02/15/04 6,031,260 -------------- 33,893,196 -------------- Electric Revenue (4.0%) 12,840 Austin, Texas, Combined Ser A (MBIA) ............................ 0.00 11/15/02 10,206,131 5,200 Lower Colorado River Authority, Texas, Jr Lien 4th Ser (FGIC) .. 0.00 01/01/04 3,893,864 San Antonio, Texas, 12,700 Electric & Gas Refg Ser A (AMBAC) ............................. 0.00 02/01/03 9,973,818 17,500 Electric & Gas Refg Ser A (AMBAC) ............................. 0.00 02/01/04 13,053,950 -------------- 37,127,763 -------------- General Obligation (4.3%) 19,650 North Slope Boro, Alaska, Ser 1992 A (MBIA) .................... 0.00 06/30/02 15,846,939 5,000 Scottsdale, Arizona, Refg (Secondary MBIA) ..................... 0.00 07/01/04 3,670,600 Port of Oakland, California, 3,000 Refg Ser 1993 F (MBIA) ........................................ 0.00 11/01/03 2,295,030 3,500 Refg Ser 1993 F (MBIA) ........................................ 0.00 11/01/04 2,544,570 6,500 New Orleans, Louisiana, Refg (AMBAC) ........................... 0.00 09/01/04 4,735,510 16,000 Pennsylvania, Second Ser 1992 (Secondary MBIA) ................. 0.00 07/01/04 11,738,080 -------------- 40,830,729 -------------- Hospital Revenue (0.8%) 10,000 California Statewide Communities Development Authority, UniHealth Ser A (AMBAC) ....................................... 0.00 10/01/04 7,272,500 -------------- Other Revenue (1.7%) 5,460 Rosemont, Illinois, Tax Increment Ser C-3 (FGIC) ............... 0.00 12/01/03 4,116,731 16,040 Texas State Public Finance Authority, Refg Ser 1990 (MBIA) ..... 0.00 02/01/05 11,383,107 -------------- 15,499,838 -------------- Water & Sewer Revenue (2.2%) Houston, Texas, 10,000 Water & Sewer Jr Lien Ser C (AMBAC) ........................... 0.00 12/01/03 7,562,600 18,640 Water & Sewer Jr Lien Ser C (AMBAC) ........................... 0.00 12/01/04 13,378,487 -------------- 20,941,087 -------------- TOTAL MUNICIPAL BONDS (Identified Cost $147,356,799) ................................. 155,565,113 -------------- SEE NOTES TO FINANCIAL STATEMENTS TCW/DW TERM TRUST 2003 PORTFOLIO OF INVESTMENTS September 30, 1997 (unaudited) continued PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (0.6%) U.S. GOVERNMENT AGENCY (a) (0.2%) $ 1,600 Federal Home Loan Mortgage Corp. (Amortized Cost $1,598,295) ................................... 5.48% 10/08/97 $ 1,598,295 -------------- REPURCHASE AGREEMENT (0.4%) 4,253 The Bank of New York (dated 09/30/97; proceeds $4,253,732) (b) (Identified Cost $4,253,112) .................................. 5.25 10/01/97 4,253,112 -------------- TOTAL SHORT-TERM INVESTMENTS (Identified Cost $5,851,407) ........................................................ 5,851,407 -------------- TOTAL INVESTMENTS (Identified Cost $1,361,839,916) (c) .................... 143.5 % 1,346,111,496 LIABILITIES IN EXCESS OF OTHER ASSETS ..................................... (43.5) (407,950,040) -------------- NET ASSETS ................................................................ 100.0 % $ 938,161,456 ===== ==============
- ------------ PC Participation Certificate. PAC Planned Amortization Class. TAC Targeted Amortization Class. + Inverse floater: interest rate moves inversely to a designated index, such as LIBOR (London Inter-Bank Offered Rate) or COFI (Cost of Funds Index), typically at a multiple of the changes of the relevant index rate. ++ Some or all of these securities are pledged in connection with reverse repurchase agreements. * Floating rate security. Rate shown is the rate in effect at September 30, 1997. (a) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (b) Collateralized by $3,687,651 U.S. Treasury Bond 7.875% due 02/15/21 valued at $4,338,174. (c) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $13,189,261 and the aggregate gross unrealized depreciation is $28,917,681, resulting in net unrealized depreciation of $15,728,420. Bond Insurance: - -------------- AMBAC AMBAC Indemnity Corporation. FGIC Financial Guaranty Insurance Company. MBIA Municipal Bond Investors Assurance Corporation. SEE NOTES TO FINANCIAL STATEMENTS TCW/DW TERM TRUST 2003 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES September 30, 1997 (unaudited)
ASSETS: Investments in securities, at value (identified cost $1,361,839,916)...................................... $1,346,111,496 Interest receivable ................................................... 6,771,175 Deferred organizational expenses ...................................... 3,642 Prepaid expenses....................................................... 74,093 -------------- TOTAL ASSETS ........................................................ 1,352,960,406 -------------- LIABILITIES: Reverse repurchase agreements.......................................... 411,966,000 Payable for: Interest............................................................. 1,744,994 Shares of beneficial interest repurchased............................ 426,550 Management fee....................................................... 318,683 Investment advisory fee.............................................. 212,456 Accrued expenses ...................................................... 130,267 Contingencies (Note 9)................................................. -- -------------- TOTAL LIABILITIES.................................................... 414,798,950 -------------- NET ASSETS........................................................... $ 938,161,456 ============== COMPOSITION OF NET ASSETS: Paid-in-capital........................................................ $ 923,928,337 Net unrealized depreciation............................................ (15,728,420) Accumulated undistributed net investment income........................ 35,429,048 Accumulated net realized loss ......................................... (5,467,509) -------------- NET ASSETS........................................................... $ 938,161,456 ============== NET ASSET VALUE PER SHARE, 95,813,240 shares outstanding (unlimited shares authorized of $.01 par value)............................................................ $ 9.79 ==============
SEE NOTES TO FINANCIAL STATEMENTS TCW/DW TERM TRUST 2003 FINANCIAL STATEMENTS, continued STATEMENT OF OPERATIONS For the six months ended September 30, 1997 (unaudited)
NET INVESTMENT INCOME: INTEREST INCOME ......................... $ 47,726,915 ------------- EXPENSES Management fee .......................... 1,792,683 Investment advisory fee ................. 1,195,122 Transfer agent fees and expenses ........ 165,493 Professional fees ....................... 56,928 Shareholder reports and notices ........ 44,831 Insurance expenses ...................... 44,786 Registration fees ....................... 42,729 Trustees' fees and expenses.............. 15,589 Organizational expenses ................. 3,170 Other.................................... 47,763 ------------- TOTAL OPERATING EXPENSES............... 3,409,094 Interest expense......................... 11,535,846 ------------- TOTAL EXPENSES......................... 14,944,940 ------------- NET INVESTMENT INCOME.................. 32,781,975 ------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized loss ....................... (752,116) Net change in unrealized depreciation .. 75,217,205 ------------- NET GAIN............................... 74,465,089 ------------- NET INCREASE............................. $107,247,064 =============
SEE NOTES TO FINANCIAL STATEMENTS TCW/DW TERM TRUST 2003 FINANCIAL STATEMENTS, continued STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED SEPTEMBER 30, 1997 MARCH 31, 1997 - ------------------------------------------------------ ------------------ -------------- (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income ................................. $ 32,781,975 $ 69,139,319 Net realized loss ..................................... (752,116) -- Net change in unrealized depreciation ................. 75,217,205 (7,930,740) ------------------ -------------- NET INCREASE......................................... 107,247,064 61,208,579 Dividends from net investment income................... (30,724,457) (59,785,102) Net decrease from transactions in shares of beneficial interest.............................................. (24,979,007) (48,504,089) ------------------ -------------- NET INCREASE (DECREASE).............................. 51,543,600 (47,080,612) NET ASSETS: Beginning of period.................................... 886,617,856 933,698,468 ------------------ -------------- END OF PERIOD (Including undistributed net investment income of $35,429,048 and $33,371,530, respectively) .......... $938,161,456 $886,617,856 ================== ==============
SEE NOTES TO FINANCIAL STATEMENTS TCW/DW TERM TRUST 2003 FINANCIAL STATEMENTS, continued STATEMENT OF CASH FLOWS For the six months ended September 30, 1997 (unaudited)
INCREASE (DECREASE) IN CASH: CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net investment income ................................................ $ 32,781,975 Adjustments to reconcile net investment income to net cash provided by operating activities: Decrease in receivables and other assets related to operations ...... 228,877 Increase in payables related to operations ........................... 376,052 Net amortization of discount/premium ................................. (3,869,928) -------------- NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 29,516,976 -------------- CASH FLOWS PROVIDED BY INVESTING ACTIVITIES: Purchases of investments ............................................. (999,953) Principal prepayments/sales of investments ........................... 33,064,291 Net sales of short-term investments................................... 487,100 -------------- NET CASH PROVIDED BY INVESTING ACTIVITIES .......................... 32,551,438 -------------- CASH FLOWS USED FOR FINANCING ACTIVITIES: Net payments for shares of beneficial interest repurchased .......... (24,953,957) Net payments for maturities of reverse repurchase agreements ........ (6,390,000) Dividends to shareholders from net investment income ................. (30,724,457) -------------- NET CASH USED FOR FINANCING ACTIVITIES.............................. (62,068,414) -------------- NET INCREASE (DECREASE) IN CASH ...................................... -- CASH BALANCE AT BEGINNING OF PERIOD .................................. -- -------------- CASH BALANCE AT END OF PERIOD ........................................ $ -- ============== Cash paid during the period for interest ............................. $ 11,187,410 ==============
SEE NOTES TO FINANCIAL STATEMENTS TCW/DW TERM TRUST 2003 NOTES TO FINANCIAL STATEMENTS September 30, 1997 (unaudited) 1. ORGANIZATION AND ACCOUNTING POLICIES TCW/DW Term Trust 2003 (the "Trust") is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company. The Trust's investment objective is to provide a high level of current income and return $10 per share to shareholders on the termination date. The Trust seeks to achieve its objective by investing in high quality fixed-income securities. The Trust was organized as a Massachusetts business trust on January 20, 1993 and commenced operations on April 29, 1993. The Trust will distribute substantially all of its net assets on or about December 31, 2003 and will then terminate. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of significant accounting policies: A. VALUATION OF INVESTMENTS -- (1) portfolio securities for which over-the-counter market quotations are readily available are valued at the latest available bid price prior to the time of valuation; (2) when market quotations are not readily available, including circumstances under which it is determined by TCW Funds Management, Inc. (the "Adviser") that sale and bid prices are not reflective of a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Trustees; (3) certain portfolio securities may be valued by an outside pricing service approved by the Trustees. The pricing service may utilize a matrix system incorporating security quality, maturity and coupon as the evaluation model parameters, and/or research and evaluations by its staff, including review of broker-dealer market price quotations, if available, in determining what it believes is the fair valuation of the portfolio securities valued by such pricing service; and (4) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost. B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. The Trust amortizes premiums and accretes discounts over the life of the respective securities. Interest income is accrued daily. TCW/DW TERM TRUST 2003 NOTES TO FINANCIAL STATEMENTS September 30, 1997 (unaudited) continued C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends and distributions to its shareholders on the record date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital. E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc., an affiliate of Dean Witter Services Company Inc. (the "Manager"), paid the organizational expenses in the amount of approximately $31,600 which have been reimbursed for the full amount thereof. Such expenses have been deferred and are being amortized on the straight-line method over a period not to exceed five years from the commencement of operations. 2. MANAGEMENT AGREEMENT Pursuant to a Management Agreement, the Trust pays the Manager a management fee, accrued weekly and payable monthly, by applying the annual rate of 0.39% to the Trust's weekly net assets. Under the terms of the Management Agreement, the Manager maintains certain of the Trust's books and records and furnishes, at its own expense, office space, facilities, equipment, clerical, bookkeeping and certain legal services and pays the salaries of all personnel, including officers of the Trust who are employees of the Manager. The Manager also bears the cost of telephone services, heat, light, power and other utilities provided to the Trust. 3. INVESTMENT ADVISORY AGREEMENT Pursuant to an Investment Advisory Agreement, the Trust pays the Adviser an advisory fee, accrued weekly and payable monthly, by applying the annual rate of 0.26% to the Trust's weekly net assets. TCW/DW TERM TRUST 2003 NOTES TO FINANCIAL STATEMENTS September 30, 1997 (unaudited) continued Under the terms of the Investment Advisory Agreement, the Trust has retained the Adviser to invest the Trust's assets, including placing orders for the purchase and sale of portfolio securities. The Adviser obtains and evaluates such information and advice relating to the economy, securities markets and specific securities as it considers necessary or useful to continuously manage the assets of the Trust in a manner consistent with its investment objective. In addition, the Adviser pays the salaries of all personnel, including officers of the Trust, who are employees of the Adviser. 4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES The proceeds from sales/prepayments of portfolio securities, excluding short-term investments, for the six months ended September 30, 1997 were $33,064,291. Dean Witter Trust FSB, an affiliate of the Manager, is the Trust's transfer agent. At September 30, 1997, the Trust had transfer agent fees and expenses payable of approximately $42,000. 5. SHARES OF BENEFICIAL INTEREST Transactions in shares of beneficial interest were as follows:
CAPITAL PAID IN PAR VALUE EXCESS OF SHARES OF SHARES PAR VALUE -------------- ------------ -------------- Balance, March 31, 1996 .................................................. 105,139,640 $1,051,396 $996,360,037 Treasury shares purchased and retired (weighted average discount 14.66%)*. (6,341,900) (63,419) (48,440,670) -------------- ------------ -------------- Balance, March 31, 1997 .................................................. 98,797,740 987,977 947,919,367 Treasury shares purchased and retired (weighted average discount 11.33%)*. (2,984,500) (29,845) (24,949,162) -------------- ------------ -------------- Balance, September 30, 1997 .............................................. 95,813,240 $ 958,132 $922,970,205 ============== ============ ==============
- ------------ * The Trustees have voted to retire the shares purchased. 6. FEDERAL INCOME TAX STATUS At March 31, 1997 the Trust had a net capital loss carryover of approximately $4,715,000 which will be available to offset future capital gains to the extent provided by regulations. 7. REVERSE REPURCHASE AND DOLLAR ROLL AGREEMENTS Reverse repurchase and dollar roll agreements involve the risk that the market value of the securities the Trust is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase or dollar roll agreement files for bankruptcy or TCW/DW TERM TRUST 2003 NOTES TO FINANCIAL STATEMENTS September 30, 1997 (unaudited) continued becomes insolvent, the Trust's use of proceeds may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Trust's obligation to repurchase the securities. Reverse repurchase agreements are collateralized by Trust securities with a market value in excess of the Trust's obligation under the contract. At September 30, 1997, securities valued at $430,296,181 were pledged as collateral. At September 30, 1997, the reverse repurchase agreements outstanding were $411,966,000 with a weighted interest rate of 5.60% maturing within 63 days. The maximum and average daily amounts outstanding during the period were $418,356,000 and $404,103,590, respectively. The weighted average interest rate during the period was 5.62%. 8. DIVIDENDS The Trust declared the following dividends from net investment income:
DECLARATION AMOUNT PER RECORD PAYABLE DATE SHARE DATE DATE - ------------------ ------------ ---------------- ---------------- September23,1997 $0.0525 October3,1997 October17,1997 October 28, 1997 $0.0525 November7,1997 November21,1997
9. LITIGATION Four purported class actions have been filed in the Superior Court for the State of California, County of Orange, against some of the Trust's Trustees and officers, one of its underwriters, the lead representative of its underwriters, the Adviser, the Manager and other defendants but not against the Trust by certain shareholders of the Trust and other trusts for which the defendants act in similar capacities. These plaintiffs generally allege violations of state statutory and common law in connection with the marketing of the Trust to customers of one of the underwriters. Damages, including punitive damages, are sought in an unspecified amount. On or about October 20, 1995, the plaintiffs filed an amended complaint consolidating these four actions. The defendants thereafter filed answers and affirmative defenses to the consolidated amended complaint. The defendants' answers deny all of the material allegations of the plaintiffs' complaint. In 1996, the plaintiffs voluntarily dismissed, without prejudice, their claims against two defendants who were independent Trustees of the Trust. In March 1997, all of the remaining defendants in the litigation filed motions for judgement on the pleadings, seeking dismissal of all of the claims asserted against them. The defendants' motions were fully briefed by all parties and were the subject of a hearing before the Court on April 18, 1997. In July, 1997, the Court denied the motion for judgement on the pleadings. Certain of the defendants in these suits have asserted their right to indemnification from the Trust. The ultimate outcome of these matters is not presently determinable, and no provision has been made in the Trust's financial statements for the effect, if any, of such matters. TCW/DW TERM TRUST 2003 FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE PERIOD FOR THE SIX FOR THE YEAR ENDED MARCH 31, APRIL 29, 1993* MONTHS ENDED ---------------------------- THROUGH SEPTEMBER 30, 1997 1997 1996 1995 MARCH 31, 1994 - ---------------------------------------------------------------------------------------------------------------------- (UNAUDITED) PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period............... $ 8.97 $ 8.88 $ 7.96 $ 8.81 $ 9.40 ------------------ -------- -------- ---------- --------------- Net investment income.............................. 0.35 0.70 0.63 0.71 0.66 Net realized and unrealized gain (loss)............ 0.76 (0.10) 0.76 (0.88) (0.62) ------------------ -------- -------- ---------- --------------- Total from investment operations................... 1.11 0.60 1.39 (0.17) 0.04 ------------------ -------- -------- ---------- --------------- Less dividends and distributions from: Net investment income............................. (0.32) (0.59) (0.54) (0.62) (0.62) Net realized gain ................................ -- -- -- (0.06) -- ------------------ -------- -------- ---------- --------------- Total dividends and distributions ................. (0.32) (0.59) (0.54) (0.68) (0.62) ------------------ -------- -------- ---------- --------------- Anti-dilutive effect of acquiring treasury shares 0.03 0.08 0.07 -- -- ------------------ -------- -------- ---------- --------------- Less offering costs charged against capital ...... -- -- -- -- (0.01) ------------------ -------- -------- ---------- --------------- Net asset value, end of period..................... $ 9.79 $ 8.97 $ 8.88 $ 7.96 $ 8.81 ================== ======== ======== ========== =============== Market value, end of period ....................... $8.875 $7.875 $ 7.25 $ 6.75 $8.875 ================== ======== ======== ========== =============== TOTAL INVESTMENT RETURN+ .......................... 17.00%(1) 17.22% 15.39% (17.00)% (4.33)%(1) RATIOS TO AVERAGE NET ASSETS: Operating expenses................................. 0.74%(2) 0.74% 0.77% 0.76% 0.73%(2) Interest expense................................... 2.52%(2) 2.42% 2.36% 2.42% 1.06%(2) Total expenses..................................... 3.26%(2) 3.16% 3.13% 3.18% 1.79%(2) Net investment income.............................. 7.15%(2) 7.57% 6.98% 9.37% 7.61%(2) SUPPLEMENTAL DATA: Net assets, end of period, in millions ............ $938 $887 $934 $882 $976 Portfolio turnover rate ........................... -- -- 1% -- ++ 53%(1)
- ------------ * Commencement of operations. + Total investment return is based upon the current market value on the first day of each period reported. Dividends and distributions are assumed to be reinvested at the prices obtained under the Trust's dividend reinvestment plan. Total investment return does not reflect brokerage commissions. ++ Less than 0.5%. (1) Not annualized. (2) Annualized. SEE NOTES TO FINANCIAL STATEMENTS TRUSTEES John C. Argue Richard M. DeMartini Charles A. Fiumefreddo John R. Haire Dr. Manuel H. Johnson Thomas E. Larkin, Jr. Michael E. Nugent John L. Schroeder Marc I. Stern OFFICERS Charles A. Fiumefreddo Chairman and Chief Executive Officer Thomas E. Larkin, Jr. President Barry Fink Vice President, Secretary and General Counsel Philip A. Barach Vice President Jeffrey E. Gundlach Vice President Thomas F. Caloia Treasurer TRANSFER AGENT Dean Witter Trust FSB Harborside Financial Center -- Plaza Two Jersey City, New Jersey 07311 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP 1177 Avenue of the Americas New York, New York 10036 MANAGER Dean Witter Services Company Inc. ADVISER TCW Funds Management, Inc The financial statements included herein have been taken from the records of the Fund without examination by the independent accountants and accordingly they do not express an opinion thereon. TCW/DW TERM TRUST 2003 [GRAPHIC OMITTED] SEMIANNUAL REPORT SEPTEMBER 30, 1997 -----END PRIVACY-ENHANCED MESSAGE-----