<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1997
SECURITIES ACT FILE NO. 33-
INVESTMENT COMPANY ACT FILE NO. 811-4980
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. [_]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 17 [X]
TCW CONVERTIBLE SECURITIES FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
865 SOUTH FIGUEROA STREET, LOS ANGELES, CA 90017 (213) 244-0000
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (REGISTRANT'S TELEPHONE NUMBER,
(NUMBER, STREET, CITY, STATE, ZIP CODE)) INCLUDING AREA CODE)
</TABLE>
PHILIP K. HOLL, SECRETARY
865 SOUTH FIGUEROA STREET, LOS ANGELES, CA 90017
(NAME AND ADDRESS (NUMBER, STREET, CITY,
STATE, ZIP CODE) OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT* OFFERING PRICE FEE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par 6,378,850
value................. Shares $9.44 $60,216,344 $18,245.55
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(C), on the basis of $9.44 per share, based on the average of the
high and low prices reported on the consolidated reporting system on January
30, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE AS MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TCW CONVERTIBLE SECURITIES FUND, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
CAPTION OR
ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
----------------------- ----------------------
<C> <S>
Part A
1. Outside Front Cover.......................................... Cover Page
2. Inside Front and Outside Back Cover Page..................... Cover Page
3. Fee table and Synopsis....................................... Fee Table; Prospectus
Summary
4. Financial Highlights......................................... Financial Highlights
5. Plan of Distribution......................................... The Offer
6. Selling Shareholders......................................... Inapplicable
7. Use of Proceeds.............................................. Use of Proceeds
8. General Description of the Registrant........................ Description of Common
Stock; Investment
Objective and
Policies; Special
Considerations and
Risk Factors
9. Management................................................... Management of the Fund;
Custodian, Transfer
Agent, Dividend-Paying
Agent, and Registrar
10. Capital Stock, Long-Term Debt, and Other Securities.......... Description of Common
Stock; Distributions;
Dividend Reinvestment
Plan; Taxation
11. Defaults and Arrears on Senior Securities.................... Inapplicable
12. Legal Proceedings............................................ Inapplicable
13. Table of Contents of the Statement of Additional Information. Same
<CAPTION>
CAPTION OR LOCATION
IN STATEMENT OF
ADDITIONAL INFORMATION
----------------------
<C> <S>
Part B
14. Cover Page................................................... Cover Page
15. Table of Contents............................................ Same
16. General Information and History.............................. Inapplicable
17. Investment Objective and Policies............................ Investment Policies;
18. Management................................................... Management of the Fund
19. Control Persons and Principal Holders of Securities.......... Principal Shareholders of the Fund
20. Investment Advisory and Other Services....................... Investment Advisory and Other Services
21. Brokerage Allocation and Other Practices..................... Portfolio Transactions and Brokerage
22. Tax Status................................................... Taxation
23. Financial Statements......................................... Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item in Part C of this Registration Statement.
<PAGE>
PROSPECTUS
[LOGO OF TCW]
TCW CONVERTIBLE SECURITIES FUND, INC.
SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH SHARES OF COMMON STOCK
----------------
TCW Convertible Securities Fund, Inc. (the "Fund"), which invests
principally in convertible securities, is issuing to its shareholders of
record ("Record Date Shareholders") as of the close of business on ,
1997 rights ("Rights") entitling the holders thereof to subscribe for an
aggregate of shares (the "Shares") of the Fund's Common Stock (the
"Offer") at the rate of one share of Common Stock for each five Rights held
and entitling such Record Date Shareholders to subscribe, subject to certain
limitations and subject to allotment, for any Shares not acquired by exercise
of primary subscription rights. The Rights are non-transferable and will not
be admitted for trading on the New York Stock Exchange ("NYSE"). See "The
Offer." THE SUBSCRIPTION PRICE PER SHARE (the "Subscription Price") WILL BE
THE GREATER OF (1) NET ASSET VALUE PER SHARE ON , 1997; AND (2) 90%
OF THE AVERAGE OF THE CLOSING SALE PRICES OF A SHARE OF THE FUND'S COMMON
STOCK AT THE CLOSE OF BUSINESS ON , 1997 AND THE FOUR PRECEDING
BUSINESS DAYS.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1997 (THE "EXPIRATION DATE").
The Fund announced the Offer before the start of trading on the New York
Stock Exchange on . The net asset values per share of the Fund's
Common Stock at the close of business on (the day of the
announcement) and were $ and $ , respectively, and the last
reported sale prices of a share of the Fund's Common Stock on the NYSE
(symbol: CVT) on (the day of the announcement) and
were $ and $ , respectively.
As a result of the terms of the Offer, shareholders who do not fully
exercise their Rights should expect that they will, upon completion of the
Offer, own a smaller proportional interest in the Fund than would otherwise be
the case. Such shareholders would also forego the opportunity to purchase
shares of the Fund at a discount from market price if such market price
remains above net asset value at the end of the offering period. This
Prospectus tells investors briefly the information they should know before
investing in the Fund. This Prospectus should be read and retained for future
reference. The telephone number for all questions and inquiries relating to
the Offer is .
A Statement of Additional Information dated , 1997 has been
filed with the Securities and Exchange Commission and contains certain
financial statements of the Fund. A copy may be obtained without charge by
calling (800) 386-3829 or writing the Fund at 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017. The Fund's telephone number is (213) 244-
0000. The Statement of Additional Information is incorporated herein by
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
UNDERWRITING
SUBSCRIPTION DISCOUNTS AND PROCEEDS TO
PRICE COMMISSIONS THE FUND(1)(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ None $
- -------------------------------------------------------------------------------------------
Total............................ $ None $
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated based on an assumed subscription price per share of $ .
(2) Before deduction of expenses incurred by the Fund, estimated at $250,000.
, 1997
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
Shareholder Transaction Expenses*
Sales Load (as a percentage of offering price)..................... None
Dividend Reinvestment and Cash Purchase Plan Fees.................. None
Annual Expenses (as a percentage of net assets attributable to common
shares)
Management Fees.................................................... 0.60%
Other Expenses..................................................... 0.21%
----
Total Annual Expenses.............................................. 0.81%
====
</TABLE>
<TABLE>
<CAPTION>
3 5 10
EXAMPLE 1 YEAR YEARS YEARS YEARS
------- ------ ------ ------ -------
<S> <C> <C> <C> <C>
You would pay the following expenses* on a
$1,000 investment, assuming five percent
annual return ............................. $9.00 $27.00 $46.00 $103.00
</TABLE>
- --------
*Excludes brokerage commissions paid on purchases and sales of shares of
Common Stock of the Fund.
The foregoing information is intended to assist the investor in
understanding the various costs and expenses that an investor in TCW
Convertible Securities Fund, Inc. (the "Fund") will bear directly or
indirectly. See "Investment Advisory and Other Services" for a description of
the Investment Advisory Agreement and expenses borne by the Fund. The example
is included to provide a means for the investor to compare expense levels of
investment companies with different fee structures over varying investment
periods. To facilitate such comparison, all investment companies are required
to utilize a hypothetical five percent annual return assumption. This
assumption is unrelated to the Fund's prior performance and is not a
projection of future performance. The example should not be considered a
representation of past or future expenses. Actual expenses may be greater or
lesser than those shown.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus.
TERMS OF THE OFFER
TCW Convertible Securities Fund, Inc. (the "Fund") is issuing to shareholders
of record ("Record Date Shareholders") as of the close of business on
, 1997 (the "Record Date") rights ("Rights") to subscribe for an
aggregate of shares of Common Stock (sometimes referred to herein
as the "Shares") of the Fund. Each such shareholder is being issued one Right
for each full share of Common Stock owned on the Record Date. The Rights
entitle the holder thereof to acquire at the Subscription Price (as hereinafter
defined) one Share for each five Rights held. Rights may be exercised at any
time during the period (the "Subscription Period"), which commences on the date
of this Prospectus and ends at 5:00 p.m., New York City time, on ,
1997 (the "Expiration Date"). The right to acquire during the Subscription
Period at the Subscription Price one additional Share for each five Rights held
is hereinafter referred to as the "Primary Subscription."
In addition, any Record Date Shareholder who fully exercises all Rights
initially issued to him (other than those Rights which cannot be exercised
because they represent the right to acquire less than one Share) is entitled to
subscribe for Shares which were not otherwise subscribed for by others on
Primary Subscription (the "Over-Subscription Privilege"). For purposes of
determining the number of Shares a Record Date Shareholder may acquire pursuant
to the Offer, broker-dealers whose shares are held of record by Cede & Company,
Inc. ("Nominee"), nominee for The Depository Trust Company, or by any other
depository or nominee, will be deemed to be the holders of the Rights that are
issued to Nominee or such other depository or nominee on their behalf. Shares
acquired pursuant to the Over-Subscription Privilege are subject to allotment,
which is more fully discussed under "The Offer--Over-Subscription Privilege."
The subscription price per share (the "Subscription Price") will be the
greater of (1) net asset value per share on , 1997; and (2) 90% of
the average of the closing sale prices of a share of the Fund's Common Stock at
the close of business on , 1997 and the four preceding business
days. Since the Expiration Date is prior to the Pricing Date, Record Date
Shareholders who choose to exercise their Rights will not know the Subscription
Price at the time they exercise such Rights. The steps for subscribing,
including how to pay, are specified below in "Steps to Subscribe."
Rights will be evidenced by subscription certificates ("Subscription
Certificates") and may be exercised by completing a Subscription Certificate
and delivering it, together with payment, either by means of a notice of
guaranteed delivery or a check, to The Bank of New York, Church Street Station,
New York, New York (the "Subscription Agent"). A Rights holder will have no
right to rescind a purchase after the Subscription Agent has received the
holder's Subscription Certificate or notice of guaranteed delivery. See "The
Offer--Method of Exercise of Rights" and "The Offer-Payment for Shares." The
Rights are non-transferable. Only the shares issued pursuant to an exercise of
Rights, and not the Rights, will be listed on the NYSE.
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
----- ----
<S> <C>
Record Date............................. , 1997
Subscription Period..................... through , 1997
Expiration Date......................... , 1997
Pricing Date............................ , 1997
Confirmation to Participants............ , 1997
Final Settlement for Shares............. , 1997
</TABLE>
3
<PAGE>
STEPS TO SUBSCRIBE
Complete, sign and date the enclosed Subscription Certificate. Write a check
or money order for $ for each Share subscribed for through the
Primary Subscription and Over-Subscription Privilege. Mail the Subscription
Certificate and payment in the enclosed envelope to The Bank of New York.
Alternatively, follow the instructions for the enclosed notice of guaranteed
delivery. If shares are held by your broker or other nominee, contact your
broker or other nominee.
INFORMATION REGARDING THE FUND
The Fund has been engaged in business as a closed-end diversified management
investment company since January 13, 1987. The Fund's investment objective is
to seek a total investment return, comprised of current income and capital
appreciation, through investment principally in Convertible Securities (defined
in "Investment Objective and Policies--Convertible Securities") and use of
certain other investment techniques. No assurance can be given that the Fund's
investment objective will be achieved. See "Investment Objective and Policies."
The Fund's outstanding common stock, par value $.01 per share (the "Common
Stock"), is listed and traded on the NYSE under the symbol CVT. The average
weekly trading volume of the Common Stock on the NYSE during the 12 month
period ended December 31, 1996 was approximately 210,817 shares. As of December
31, 1996, the net assets of the Fund were approximately $271.3 million.
INFORMATION REGARDING THE INVESTMENT ADVISER
The Fund's investment adviser, TCW Funds Management, Inc. ("Investment
Adviser"), has served as investment adviser to the Fund since its inception.
The Investment Adviser is a wholly-owned subsidiary of The TCW Group, Inc.
(formerly, TCW Management Company), whose direct and indirect subsidiaries
provide a variety of trust, investment management and investment advisory
services and had, as of December 31, 1996, over $53 billion of assets under
management and committed to management, of which approximately $1.5 billion
were represented by investments in Convertible Securities. The Fund pays the
Investment Adviser a monthly fee computed at the annual rate of 0.75 % of the
first $ 100 million of the Fund's average net assets, and 0.50% of the Fund's
average net assets in excess of $100 million. The investment advisory fee is
higher than that paid by most other investment companies. See "Investment
Advisory and Other Services--Fees and Expenses." Since the Investment Adviser's
fees are based on the Fund's average net assets, the Investment Adviser will
benefit from the Offer. In addition, a director who is an "interested person"
of the Fund could benefit indirectly from the Offer because of his interest in
the Investment Adviser. See "The Offer--Purposes of the Offer."
SPECIAL CONSIDERATIONS AND RISK FACTORS
The following summarizes certain matters that should be considered, among
others, in connection with the Offer.
<TABLE>
<C> <S>
Dilution............................ As a result of the terms of the Offer,
shareholders who do not fully exercise
their Rights should expect that they
will, at the completion of the Offer, own
a smaller proportional interest in the
Fund than would otherwise be the case.
Such shareholders would also forego the
opportunity to purchase shares of the
Fund at a discount from market price if
such market price remains above net asset
value at the end of the offering period.
Discount From Net Asset Value ...... The Fund's shareholders may dispose of
their Shares on the NYSE or other markets
on which the Shares may trade, but since
the Fund is a closed-end fund, the Fund's
shareholders do not
</TABLE>
4
<PAGE>
<TABLE>
<C> <S>
have the right to redeem their Shares at
net asset value. The market price for
shares of closed-end investment companies
varies from the net asset value and such
shares frequently trade at a discount
from net asset value. The Fund's shares
have traded in the market at, above and
below net asset value since the
commencement of Fund's operations. During
the past three years, the Fund's shares
have generally traded in the market at a
premium above net asset value.
Anti-Takeover Provisions............ Certain provisions of the Fund's Articles
of Incorporation may be regarded as
"anti-takeover" provisions. These
provisions require the affirmative vote
or consent of the holders of at least
two-thirds of the outstanding shares of
the Fund for a merger or consolidation of
the Fund with an open-end investment
company, a merger or consolidation of the
Fund with a closed-end investment company
with different voting requirements,
dissolution of the Fund, a sale of all or
substantially all of the assets of the
Fund or an amendment to the Fund's
Articles of Incorporation making the
Common Stock a redeemable security or
reducing the two-thirds vote required by
the Articles of Incorporation. See
"Description of Common Stock--Anti-
Takeover Provisions of the Articles of
Incorporation."
Investments......................... Many Convertible Securities which the
Fund purchases are unrated or rated BB or
lower by Standard & Poor's Corporation or
Ba or lower by Moody's Investor's
Service, Inc., which ratings are
considered by the rating agencies to be
speculative. Bonds with a rating of BB/Ba
or lower are commonly referred to as
"junk bonds." See "Investment Objective
and Policies--Risks of Lower Rated
Securities." Prices of Convertible
Securities generally fluctuate in
response to changes in interest rates as
well as to changes in the prices of the
underlying common stocks. The Fund may
invest up to 15% of its net assets in
illiquid unregistered convertible
securities and is not subject to any
percentage limitation on investment in
unregistered convertible securities and
is not subject to any percentage
limitation on investment in unregistered
convertible securities which are
determined to be liquid. At December 31,
1996, approximately 40% of the Fund's net
assets were invested in restricted
securities of which about 3% were deemed
to be illiquid. See "Investment
Objectives and Policies--Unregistered
Convertible Securities." The Fund intends
to employ from time to time certain
investment techniques which involve
additional risks. These investment
techniques include options, short sales
against the box, forward commitments,
lending of portfolio securities, foreign
securities and foreign issuers,
repurchase agreements, and stock index
futures. Each of these investment
techniques and the risks thereof are
described under the caption "Investment
Objective and Policies" or in the
Statement of Additional Information.
</TABLE>
5
<PAGE>
<TABLE>
<C> <S>
Distributions....................... Since July, 1988, the Fund has made
quarterly distributions of $0.21 per
share. These distributions have required
payments substantially in excess of the
Fund's current net investment income. The
portion, if any, of a distribution which
equals the Fund's current net investment
income should be considered a dividend.
The remainder constitutes a payment out of
the Fund's net realized capital gains for
each period to the extent available; any
excess is paid from paid-in capital. See
"Distributions; Dividend Reinvestment
Plan."
</TABLE>
6
<PAGE>
FINANCIAL HIGHLIGHTS
The information below for the period March 5, 1987 through December 31, 1987
and for the fiscal years ended December 31, 1988 through 1996 has been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
included in the Statement of Additional Information. The following information
should be read in conjunction with the financial statements and related notes
thereto included in the Statement of Additional Information.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988
---- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share,
Beginning of Period....... $ $7.47 $ 8.79 $ 8.36 $ 8.09 $ 6.85 $ 8.36 $ 7.99 $ 7.76
--- -------- -------- -------- -------- -------- -------- -------- --------
Income from Operations:
Net Investment Income..... 0.37 0.38 0.40 0.41 0.43 0.46 0.50 0.55
Impact to Capital for
Shares Issued ........... -- -- -- (0.01) (0.01) -- -- -- --
Net Realized and
Unrealized Gain (Loss)
on Securities............ 1.36 (0.86) 1.25 0.71 1.65 (1.13) 0.71 0.44
--- -------- -------- -------- -------- -------- -------- -------- --------
Total from Investment
Operations ............ 1.73 (0.48) 1.64 1.11 2.08 (0.67) 1.21 0.99
Less Distributions:
Dividends from Net
Investment Income ....... (0.37) (0.38) (0.40) (0.41) (0.43) (0.46) (0.50) (0.55)
Distribution from Net
Realized Gains .......... (0.33) (0.30) (0.81) (0.07) -- -- (0.06) --
Distribution in Excess of
Net Realized Gains....... (0.14) (0.16) -- -- -- -- -- --
Return of Capital......... -- -- -- -- (0.36) (0.41) (0.38) (0.28) (0.21)
--- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions..... (0.84) (0.84) (1.21) (0.84) (0.84) (0.84) (0.84) (0.76)
--- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value Per Share,
End of Period............. $ $ 8.36 $ 7.47 $ 8.79 $ 8.36 $ 8.09 $ 6.85 $ 8.36 $ 7.99
=== ======== ======== ======== ======== ======== ======== ======== ========
Total Investment Return
(4)....................... % 33.6 % (7.43)% 13.77 % 15.90 % 41.38 % (3.78)% 20.23 % 24.79 %
Net Asset Value Total
Return (5)................ % 24.0 % (5.70)% 16.12 % 13.35 % 31.20 % (8.25)% 15.97 % 13.24 %
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands)............ $ $264,608 $234,686 $273,230 $215,208 $172,331 $144,593 $175,732 $167,797
Ratio of Expenses to
Average Net Assets........ % 0.81 % 0.79 % 0.80 % 0.88 % 0.94 % 0.94 % 0.95 % 0.94 %
Ratio of Net Investment
Income to Average Net
Assets.................... % 4.60 % 4.66 % 4.48 % 5.04 % 5.68 % 5.93 % 5.90 % 6.66 %
Portfolio Turnover Rate.... % 108.98 % 110.04 % 173.79 % 139.39 % 114.13 % 99.53 % 84.17 % 70.62 %
<CAPTION>
MARCH 5, 1987
(COMMENCEMENT)
TO DECEMBER
31, 1987
--------------
<S> <C>
Net Asset Value Per Share,
Beginning of Period....... $ 9.30 (3)
---------
Income from Operations:
Net Investment Income..... 0.46
Impact to Capital for
Shares Issued ........... (0.03)
Net Realized and
Unrealized Gain (Loss)
on Securities............ $ (1.53)
---------
Total from Investment
Operations ............ (1.10)
Less Distributions:
Dividends from Net
Investment Income ....... (0.44)
Distribution from Net
Realized Gains .......... --
Distribution in Excess of
Net Realized Gains....... --
Return of Capital......... --
---------
Total Distributions..... (0.44)
---------
Net Asset Value Per Share,
End of Period............. $ 7.76
=========
Total Investment Return
(4)....................... (32.61)%(1)
Net Asset Value Total
Return (5)................ (13.49)%(1)
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands)............ $ 162,989
Ratio of Expenses to
Average Net Assets........ 0.83 %(2)
Ratio of Net Investment
Income to Average Net
Assets.................... 6.12 %(2)
Portfolio Turnover Rate.... 76.91 %(1)
</TABLE>
- -------
(1) For the period March 5, 1987 (commencement) to December 31, 1987 and not
indicative of a full year's operating results.
(2) Annualized.
(3) Net of underwriting discount of $.70.
(4) Based on market value per share, adjusted for reinvestment of
distributions.
(5) Based on net asset value per share, adjusted for reinvestment of
distributions.
7
<PAGE>
THE OFFER
TERMS OF THE OFFER
The Fund is issuing to Record Date Shareholders Rights to subscribe for the
Shares. Each Record Date Shareholder is being issued one non-transferable
Right for each share of Common Stock owned on the Record Date. The Rights
entitle the holder to acquire through the Primary Subscription at the
Subscription Price one Share for each five Rights held. No Rights will be
issued for fractional shares. Rights may be exercised at any time during the
Subscription Period, which commences on the date of this Prospectus and ends
at 5:00 p.m., New York City time, on , 1997.
In addition, any Record Date Shareholder who fully exercises all Rights
initially issued to him (other than those Rights which cannot be exercised
because they represent the right to acquire less than one Share) is entitled
to subscribe for Shares which were not otherwise subscribed for by others
through the Primary Subscription. For purposes of determining the maximum
number of Shares a Record Date Shareholder may acquire pursuant to the Offer,
broker-dealers whose shares are held of record by Nominee or by any other
depository or nominee will be deemed to be the holders of the Rights that are
issued to Nominee or such other depository or nominee on their behalf. Shares
acquired pursuant to the Over-Subscription Privilege are subject to allotment,
which is more fully discussed below under "Over-Subscription Privilege."
Rights will be evidenced by Subscription Certificates. The number of Rights
issued to each holder will be stated on the Subscription Certificate delivered
to such holder. The method by which Rights may be exercised and Shares paid
for is set forth below in "Method of Exercise of Rights" and "Payment for
Shares." A Rights holder will have no right to rescind a purchase after the
Subscription Agent has received the holder's Subscription Certificate or
notice of guaranteed delivery. See "Payment for Shares" below. Shares issued
pursuant to an exercise of Rights will be listed on the NYSE.
The Rights are non-transferable. Only the underlying Shares, and not the
Rights, will be admitted for trading on the NYSE. Since fractional Shares will
not be issued, Rights holders who receive, or who are left with, fewer than
five Rights will be unable to exercise such Rights and will not be entitled to
receive any cash in lieu of such fractional Shares. The Fund will not offer or
sell any Shares which are not subscribed through the Primary Subscription or
the Over-Subscription Privilege.
PURPOSES OF THE OFFER
The Board of Directors of the Fund has determined that the Offer is in the
best interests of the Fund and its shareholders. The Offer will increase the
assets of the Fund available for investment thereby permitting the Fund to be
in a better position more fully to take advantage of investment opportunities
that may arise. The larger number of outstanding shares of Common Stock after
the Offer should help create a more efficient and active market for the Common
Stock and help reduce the effect on market price of individual transactions.
In addition, increasing the size of the Fund might assist in lowering the
Fund's expenses as a percentage of net assets. The Offer also seeks to reward
the long-term shareholder by giving existing shareholders the right to
purchase additional shares at a price that may be below market without
incurring any commission charge. There can be no assurance that the Fund will
achieve any of the foregoing objectives or benefits through the Offer.
The purpose of setting the determination of the Subscription Price
subsequent to the Expiration Date is to insure that the Offer will attract the
maximum participation of shareholders with the minimum dilution to non-
participating shareholders.
The Investment Adviser will benefit from the Offer because the Investment
Adviser's fee is based on the average net assets of the Fund. See "Investment
Advisory and Other Services--Fees and Expenses." It is not possible to state
precisely the amount of additional compensation the Investment Adviser will
receive as a result of the Offer because the proceeds of the Offer will be
invested in additional portfolio securities which will fluctuate in value.
However, assuming that all Rights are exercised and the Fund receives the
maximum proceeds
8
<PAGE>
of the Offer, the annual compensation to be received by the Investment Adviser
would be increased by approximately %. Three of the Fund's eight directors
who voted to authorize the Offer are "interested persons" of the Fund and of
the Investment Adviser within the meaning of the 1940 Act. One of these
Directors, Mr. Ernest O. Ellison, could benefit indirectly from the Offer
because of his indirect ownership interest in the Investment Adviser. See
"Management of the Fund."
The Fund may, in the future and at its discretion, choose to make additional
rights offerings from time to time for a number of shares and on terms which
may or may not be similar to the Offer. Any such future rights offering will
be made in accordance with the Investment Company Act of 1940, as amended
("1940 Act"). If all the Shares are subscribed for in this Offering, the Fund
will have a total of remaining authorized but unissued shares of
Common Stock available for issuance without shareholder approval.
OVER-SUBSCRIPTION PRIVILEGE
If some Record Date Shareholders do not exercise all of the Rights initially
issued to them, any Shares for which subscriptions have not been received from
Record Date Shareholders will be offered, by means of the Over-Subscription
Privilege, to the Record Date Shareholders who have exercised all the Rights
initially issued to them (other than those Rights which cannot be exercised
because they represent the right to acquire less than one Share) and who wish
to acquire more than the number of Shares for which the Rights issued to them
are exercisable. Record Date Shareholders who exercise all the Rights
initially issued to them (other than those Rights which cannot be exercised
because they represent the right to acquire less than one Share) will have the
opportunity to indicate on the Subscription Certificate how many Shares they
are willing to acquire pursuant to the Over-Subscription Privilege. If
sufficient Shares remain after the Primary Subscriptions have been exercised,
all over-subscriptions will be honored in full. If sufficient Shares are not
available to honor all over-subscriptions, the available Shares will be
allocated among those who oversubscribe based on the number of Rights
originally issued to them by the Fund. The percentage of remaining Shares each
over-subscribing shareholder may acquire will be rounded up or down to result
in delivery of whole Shares. The allocation process may involve a series of
allocations in order to assure that the total number of Shares available for
over-subscriptions is distributed on a pro rata basis.
THE SUBSCRIPTION PRICE
The Subscription Price for the Shares to be issued pursuant to the Rights
will be the greater of (1) net asset value per Share at the close of business
on , 1997 (the "Pricing Date"); and (2) 90% of the average of the
closing sale prices of a share of the Fund's Common Stock at the close of
business on , 1997 and the four preceding business days.
The Fund announced the Offer before the start of trading on the NYSE on
, 1997. The net asset values per share of Common Stock at the close
of business on , 1997 (the day of the announcement) and ,
1997 were $ and $ , respectively, and the last reported sale prices of
a share of the Fund's Common Stock on the NYSE on , 1997 (the day
of the announcement) and , 1997 were $ and $ , respectively.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York City time, on the Expiration
Date. Rights will expire on the Expiration Date and thereafter may not be
exercised. Since the Expiration Date is prior to the Pricing Date, Record Date
Shareholders who decide to acquire Shares on Primary Subscription or pursuant
to the Over-Subscription Privilege will not know, when they make such
decision, the purchase price for such Shares.
SUBSCRIPTION AGENT
The Subscription Agent is The Bank of New York, Church Street Station, New
York, New York. The Subscription Agent will receive from the Fund a fee
estimated to be $ for the processing of the
9
<PAGE>
exercise of Rights and reimbursement for all out-of-pocket expenses related to
the Offer. The Subscription Agent is also the Fund's dividend disbursing
agent, transfer agent and registrar.
INFORMATION AGENT
Any questions or requests for assistance concerning the method of
subscribing for Shares or for additional copies of this Prospectus or
Subscription Certificates or notices of guaranteed delivery may be directed to
the Information Agent at its telephone number and address listed below:
CORPORATE INVESTOR COMMUNICATIONS, INC.
111 COMMERCE ROAD CARLSTADT,
NEW JERSEY 07072-2586
Toll Free--1-800-242-4410
The Information Agent will receive a fee estimated to be $9,500 and
reimbursement for all out-of-pocket expenses related to the Offer.
METHOD OF EXERCISE OF RIGHTS
Rights may be exercised by filling in and signing the reverse side of the
Subscription Certificate and mailing it in the envelope provided, or otherwise
delivering the completed and signed Subscription Certificate to the
Subscription Agent, together with payment for the Shares as described below
under "Payment for Shares." Rights may also be exercised through a Rights
holder's broker, or other nominee if such shareholder's shares of Common Stock
are held in such broker's or nominee's name. Such brokers or nominees may
charge a servicing fee for exercising such Rights. Fractional Shares will not
be issued, and Rights holders who receive, or who are left with, fewer than
five Rights will not be able to exercise such Rights.
Completed Subscription Certificates must be received by the Subscription
Agent prior to 5:00 p.m., New York City time, on the Expiration Date (unless
payment is effected by means of a notice of guaranteed delivery as described
below under "Payment for Shares"). The Subscription Certificate and payment
should be delivered to the offices of the Subscription Agent by one of the
methods described below:
(1) By mail:
The Bank of New York
Tender and Exchange Department
P.O. Box 11248
Church Street Station
New York, New York 10286-1248
(2) By Hand, Express Mail or Overnight Courier:
The Bank of New York
Tender and Exchange Department
101 Barclay Street
Receive & Delivery Window-Street Level
New York, New York 10286
PAYMENT FOR SHARES
Holders of Rights who acquire Shares on Primary Subscription or pursuant to
the Over-Subscription Privilege may choose between the following methods of
payment.
(1) A subscription will be accepted by the Subscription Agent if, prior to
5:00 p.m., New York City time, on the Expiration Date, the Subscription Agent
has received a completed and executed notice of guaranteed
10
<PAGE>
delivery by facsimile (telecopy) or otherwise from a bank, a trust company or
a NYSE member, guaranteeing delivery of (i) payment of the full Subscription
Price for the Shares subscribed for on Primary Subscription and any additional
Shares subscribed for pursuant to the Over-Subscription Privilege, and (ii) a
properly completed and executed Subscription Certificate. The Subscription
Agent will not honor a notice of guaranteed delivery if a properly completed
and executed Subscription Certificate and full payment is not received by the
Subscription Agent by the close of business on the third Business Day after
the Expiration Date. The notice of guaranteed delivery may be delivered to the
Subscription Agent in the same manner as Subscription Certificates at the
addresses set forth above, or may be transmitted to the Subscription Agent
together with a completed Subscription Certificate by facsimile transmission
(telecopy number (212) 815-6213; confirm by telephone (805) 507-9357.
(2) Alternatively, a holder of Rights can send the Subscription Certificate
together with payment in the form of a check for the Shares acquired on
Primary Subscription and additional Shares subscribed for pursuant to the
Over-Subscription Privilege to the Subscription Agent based on an assumed
purchase price of $ Share. To be accepted, such payment, together with the
executed Subscription Certificate, must be received by the Subscription Agent
at its Tender and Exchange Department, P.O. Box 11248, Church Street Station,
New York, New York 10286-1248 or its Tender and Exchange Department, 101
Barclay Street, Receive and Deliver Window-Street Level, New York, New York
10286 prior to 5:00 p.m., New York City time, on the Expiration Date. The
Subscription Agent will deposit all stock purchase checks received by it prior
to the final due date into a segregated interest-bearing account (which
interest will accrue to the benefit of the Fund) pending proration and
distribution of Shares.
A PAYMENT PURSUANT TO THIS METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY
ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE UNITED STATES, MUST BE PAYABLE
TO TCW CONVERTIBLE SECURITIES FUND, INC., AND MUST ACCOMPANY AN EXECUTED
SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED. THE
SUBSCRIPTION AGENT WILL NOT ACCEPT CASH AS A MEANS OF PAYMENT FOR SHARES.
Within five Business Days following the Pricing Date (the "Confirmation
Date"), a confirmation will be sent by the Subscription Agent to each holder
of Rights (or, if the Fund's shares are held by Nominee or any other
depository or nominee, to Nominee or such other depository or nominee),
showing (1) the number of Shares acquired pursuant to the Primary
Subscription, (2) the number of Shares, if any, acquired pursuant to the Over-
Subscription Privilege, (3) the per Share and total purchase price for the
Shares, and (4) any additional amount payable by such holder to the Fund or
any excess to be refunded by the Fund to such holder, in each case based on
the Subscription Price as determined on the Pricing Date. If any such
shareholder exercises his right to acquire Shares pursuant to the Over-
Subscription Privilege, any such excess payment which would otherwise be
refunded to him will be applied by the Fund toward payment for Shares acquired
pursuant to exercise of the Over-Subscription Privilege. Any payment required
from a holder of Rights must be received by the Subscription Agent within ten
Business Days after the Confirmation Date. Any excess payment to be refunded
by the Fund to a holder of Rights, or to be paid to a holder of Rights as a
result of exercises by Record Date Stockholders of their Over-Subscription
Privileges will be mailed by the Subscription Agent to him within fifteen
Business Days after the Confirmation Date. All payments by a holder of Rights
must be in United States dollars by money order or check drawn on a bank
located in the United States of America and payable to TCW Convertible
Securities Fund, Inc.
Whichever of the two methods described above is used, issuance and delivery
of certificates for the Shares purchased are subject to collection of any
checks or money orders and actual payment pursuant to any notice of guaranteed
delivery.
A Rights holder will have no right to rescind a purchase after the
Subscription Agent has received payment, either by means of a notice of
guaranteed delivery or a check.
11
<PAGE>
If a holder of Rights who acquires Shares pursuant to the Primary
Subscription or the Over-Subscription Privilege does not make payment of any
amounts due, the Fund reserves the right to take any or all of the following
actions: (1) find other purchasers for such subscribed-for and unpaid-for
Shares; (2) apply any payment actually received by it toward the purchase of
the greatest whole number of Shares which could be acquired by such holder
upon exercise of the Primary Subscription and/or the Over-Subscription
Privilege, and/or (3) exercise any and all other rights or remedies to which
it may be entitled, including, without limitation, the right to set off
against payments actually received by it with respect to such subscribed
Shares and to enforce the relevant guaranty of payment.
Holders who hold shares of Common Stock for the account of others, such as
brokers, trustees or depositaries for securities, should notify the respective
beneficial owners of such shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the record holder of such Rights
should complete Subscription Certificates and submit them to the Subscription
Agent with the proper payment. In addition, beneficial owners of Common Stock
or Rights held through such a holder should contact the holder and request the
holder to effect transactions in accordance with the beneficial owner's
instructions.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES OR
PAYMENTS TO THE FUND.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL
CHECKS MAY TAKE SEVERAL BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY,
OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY
ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determination
will be final and binding. The Fund in its sole discretion may waive any
defect or irregularity, or Permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as the
Fund determines in its sole discretion. Neither the Fund nor the Subscription
Agent will be under any duty to give notification of any defect or
irregularity in connection with the submission of Subscription Certificates or
incur any liability for failure to give such notification.
NOTICE OF NET ASSET VALUE DECLINE
The Fund has undertaken, as required by the Securities and Exchange
Commission's registration form, to suspend the Offer until it amends this
Prospectus if subsequent to , 1997, the effective date of the
Fund's registration statement relating to the Offering, and prior to the
Expiration Date, the Fund's net asset value declines more than 10% from its
net asset value as of , 1997. In such event, the Fund will notify
shareholders of any such decline and permit them to cancel their exercise of
Rights. With this exception, a shareholder will have no right to rescind an
exercise of Rights after the Subscription Agent receives a Subscription
Certificate or notice of guaranteed delivery.
PURCHASE AND SALE OF RIGHTS
The Rights are non-transferable and, therefore, may not be purchased or
sold. The Rights will not be admitted to trading on the NYSE. However, the
Shares to be issued pursuant to the Rights will be listed and admitted to
trading, along with the existing outstanding shares of Common Stock, on the
NYSE.
12
<PAGE>
DELIVERY OF STOCK CERTIFICATES
Participants in the Fund's Dividend Reinvestment Plan (the "Plan") will have
their Shares acquired on Primary Subscription and pursuant to the Over-
Subscription Privilege credited to their shareholder distribution reinvestment
accounts in the Plan, unless they request the issuance of stock certificates
for the Shares so acquired. Shareholders whose Shares are held of record by
Nominee or by any other depository or nominee on their behalf or their broker-
dealers' behalf will have their Shares acquired on Primary Subscription and
pursuant to the Over-Subscription Privilege credited to the account of Nominee
or such other depository or nominee. With respect to all other shareholders,
stock certificates for all Shares acquired on Primary Subscription and
pursuant to the Over-Subscription Privilege will be mailed within fifteen
business days after the Confirmation Date and after payment for the Shares
subscribed for has cleared.
CERTAIN FOREIGN SHAREHOLDERS
The Fund has been advised by outside legal counsel that this rights offering
has been qualified or is believed to be exempt from qualification only under
the federal laws of the United States and the laws of each of the States in
the United States. Residents of other jurisdictions may not purchase the
Shares of Common Stock offered hereby unless they certify that their purchases
of such Shares are effected in accordance with the applicable laws of such
jurisdictions.
FEDERAL INCOME TAX CONSEQUENCES
For Federal income tax purposes, neither the receipt nor the exercise of the
Rights will result in taxable income to holders of Common Stock, and no loss
or deduction will be allowed if Rights expire without being exercised.
A shareholder's holding period for a Share acquired upon exercise of a Right
begins on the date of exercise. In the absence of a special election under
Section 307 of the Internal Revenue Code of 1986 by the shareholder, the
shareholder's basis for determining gain or loss upon the sale of a Share
acquired upon exercise of a Right will be equal to the Subscription Price. A
shareholder's gain or loss recognized upon a sale of that Share will be
capital gain or loss if the Share was held as a capital asset at the time of
sale and will be long-term capital gain or loss if it was held, at the time of
sale, for more than one year.
The foregoing discussion is for general information only and is based upon
existing laws, regulations and judicial and administrative pronouncements.
Shareholders are advised to consult their own tax advisers with regard to the
Federal income tax consequences of exercising any Rights, as well as the tax
consequences arising under the laws of any state, foreign country or other
jurisdiction.
DILUTION
As a result of the terms of the Offer, shareholders who do not fully
exercise their Rights should expect that they will, at the completion of the
Offer, own a smaller proportional interest in the Fund than would otherwise be
the case. Such shareholders would also forego the opportunity to purchase
shares of the Fund at a discount from market price if such market price
remains above net asset value at the end of the offering period.
13
<PAGE>
SPECIAL CONSIDERATIONS AND RISK FACTORS
MARKET PRICE PREMIUM OR DISCOUNT FROM NET ASSET VALUE
Shares of the Fund are listed and traded on the NYSE. Since the Fund is a
closed-end investment company, shareholders do not have the right to redeem
shares at net asset value. The market price for shares of closed-end
investment companies generally varies from per share net asset value and such
shares frequently trade at a discount from net asset value. Shares of the Fund
have traded at, above and below net asset value since the commencement of
operations. Prior to 1990, the Fund's shares generally traded at a discount
from the net asset value. During the past three years, the Fund's shares have
generally traded at a premium above net asset value. See "Share Price Data."
To the extent that shares trade at a premium above net asset value, a
reduction in such premium or a change from a premium to a discount would
adversely affect an investor's return.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Fund's Articles of Incorporation may be regarded
as "anti-takeover" provisions. These provisions require the affirmative vote
or consent of the holders of at least two-thirds of the outstanding shares of
the Fund for a merger or consolidation of the Fund with an open-end investment
company, a merger or consolidation of the Fund with a closed-end investment
company with different voting requirements, dissolution of the Fund, a sale of
all or substantially all of the assets of the Fund or an amendment to the
Fund's Articles of Incorporation making the Common Stock a redeemable security
or reducing the two-thirds vote required by the Articles of Incorporation. See
"Description of Common Stock--Anti-Takeover Provisions of the Articles of
Incorporation."
INVESTMENTS
Many Convertible Securities which the Fund purchases are unrated or rated BB
or lower by S&P or Ba or lower by Moody's, which ratings are considered by the
rating agencies to BE SPECULATIVE. Bonds with a rating of BB/Ba or lower are
commonly referred to as "junk bonds." See "Investment Objective and Policies--
Risks of Lower Rated Securities." Prices of Convertible Securities generally
fluctuate in response to changes in interest rates as well as to changes in
the prices of the underlying common stocks. The Fund intends to employ from
time to time certain investment techniques which involve additional risks.
These investment techniques include options, short sales against the box,
forward commitments, lending of portfolio securities, foreign securities and
foreign issuers, repurchase agreements, and stock index futures. Each of these
investment techniques and the risks thereof are described under the separate
subheadings under the caption "Investment Objective and Policies" or in the
Statement of Additional Information.
DISTRIBUTIONS
Commencing with the distribution paid in July, 1988, the Fund has made
quarterly distributions of $0.21 per share. These distributions have required
payments substantially in excess of the Fund's current net investment income.
The portion, if any, of a distribution which equals the Fund's current net
investment income should be considered a dividend. The remainder constitutes a
payment out of the Fund's net realized capital gains for each period to the
extent available; any excess will be from paid-in capital. See "Distributions;
Dividend Reinvestment Plan."
USE OF PROCEEDS
The net proceeds of the Offer, assuming all Shares offered hereby are sold,
are estimated to be approximately $ , based upon an assumed
Subscription Price of $ and after deducting expenses payable by the Fund
estimated at approximately $250,000. If less than all of the Shares offered
are sold, the proceeds from the Offer would be reduced accordingly, but there
would be no material reduction in the expenses of the Offer. The Fund will
invest the net proceeds of the Offer in accordance with its investment
objective and policies. The Investment Adviser anticipates that such
investment would not take more than three months from the Expiration Date.
14
<PAGE>
DESCRIPTION OF COMMON STOCK
GENERAL
The Fund, which was incorporated under the laws of the State of Maryland on
January 13, 1987, is authorized to issue 50,000,000 shares of Common Stock,
par value $.01 per share. The shares of Common Stock have no preemptive,
conversion, exchange or redemption rights. Each share has equal voting,
dividend, distribution and liquidation rights. The shares outstanding are
fully paid and non-assessable. Shareholders are entitled to one vote per
share. All voting rights for the election of directors are non-cumulative.
The following chart shows the number of shares of Common Stock authorized
and outstanding as of December 31, 1996:
<TABLE>
<CAPTION>
SHARES HELD
SHARES BY THE FUND SHARES
TITLE OF CLASS AUTHORIZED FOR ITS ACCOUNT OUTSTANDING
-------------- ---------- --------------- -----------
<S> <C> <C> <C>
Common Stock $.01 par value.......... 50,000,000 0 31,894,249
</TABLE>
SHARE PRICE DATA
The Fund's shares are listed and traded on the New York Stock Exchange (the
"NYSE"). The following table sets forth for the quarters indicated the high
and low sale prices on the NYSE and the average weekly volume of trading in
such shares for the quarter. Also set forth are the related net asset values
per share of Common Stock, as calculated for such day or for the preceding
Friday business day by TCW Funds Management, Inc. (the "Investment Adviser"),
and the premium (or discount) to net asset value represented by such market
prices.
<TABLE>
<CAPTION>
PREMIUM
MARKET NET ASSET VALUE (OR
PRICE RELATED TO DISCOUNT) AVERAGE
----------- --------------- ------------- WEEKLY
QUARTER HIGH LOW HIGH LOW HIGH LOW TRADING
ENDED PRICE PRICE PRICE PRICE PRICE PRICE VOLUME
------- ----- ----- ------ ------ ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
03/31/94................ 9.625 9.125 8.91 8.80 8.02 % 5.11 % 226,275
06/30/94................ 9.375 9.000 8.25 8.07 13.64 % 11.52 % 189,262
09/30/94................ 9.375 9.000 8.13 8.27 15.31 % 8.83 % 144,953
12/31/94................ 8.625 7.750 7.99 7.47 7.95 % 3.75 % 184,415
03/31/95................ 8.375 8.000 7.79 7.48 7.51 % 6.95 % 150,628
06/30/95................ 8.625 8.250 8.04 7.80 7.28 % 5.77 % 147,013
09/30/95................ 8.625 8.250 8.66 8.23 (0.40)% 0.24 % 153,318
12/31/95................ 9.375 8.500 8.36 8.34 12.14 % 1.92 % 207,465
03/31/96................ 9.500 9.000 8.70 8.65 9.20 % 4.05 % 180,070
06/30/96................ 9.000 8.375 8.99 8.52 0.11 % (1.70)% 307,323
09/30/96................ 9.375 8.625 8.82 8.13 6.29 % 6.09 % 193,607
12/31/96................ 9.750 9.125 8.86 8.51 10.05 % 7.23 % 162,269
</TABLE>
The Fund's shares have traded in the market above, at and below net asset
value since the commencement of the Fund's operations. Prior to 1990, shares
of the Fund's Common Stock generally traded at a discount from the net asset
value; however, in the last three calendar years, the Fund's shares have
generally traded in the the market at a premium above net asset value.
For the net asset value per share and the reported sales price of a share of
the Fund's Common Stock on the NYSE as of a recent date, see "The Offer--The
Subscription Price."
REPURCHASE OF SHARES
The Fund's shareholders do not have the right to present their shares for
redemption by the Fund. The Fund, however, may repurchase its shares in the
open market from time to time, although nothing herein shall be
15
<PAGE>
considered a commitment to repurchase such shares. Any such repurchases shall
be subject to the Maryland General Corporation Law and to limitations imposed
by the Investment Company Act of 1940 (the "1940 Act"). Subject to the Fund's
investment restriction with respect to borrowings, the Fund may incur debt in
an amount not exceeding 5% of total assets to finance share repurchase
transactions. See "Investment Objective and Policies--Investment
Restrictions." Shares repurchased by the Fund will be held as treasury shares
until reissued.
The Fund does not expect to consider the repurchase of any of its shares
except at a price below net asset value. Consequently, so long as shares of
the Fund trade at a premium above net asset offer is contemplated. If the Fund
should in the future repurchase any shares at a price below their net asset
value, the net asset value of those shares that remain outstanding will be
increased, although the market price of those outstanding shares will not
necessarily be affected, either positively or negatively. The principal
factors expected to be considered by the Board of Directors in determining
whether any repurchase, compared to alternative investments, is in the best
interests of the Fund and its shareholders is the anticipated effect on net
asset value per share and the resulting effect on the Fund's expense ratio. If
the Fund should borrow to finance share repurchase transactions, any gain in
the value of the Fund's investments during the term of the borrowing that
exceeds the interest paid on the amount borrowed would cause the net asset
value of the Fund's shares to increase more rapidly than would otherwise be
the case. Conversely, any decline in the value of the Fund's investments would
cause the net asset value of the Fund's shares to decrease more rapidly than
would otherwise be the case. The Fund has never repurchased any of its
outstanding shares and does not presently contemplate making any share
repurchases nor incurring debt to finance any share repurchases.
ANTI-TAKEOVER PROVISIONS OF THE ARTICLES OF INCORPORATION
The Fund has provisions in its Articles of Incorporation that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund, to cause it to engage in certain transactions or to modify its
structure. The affirmative vote or consent of the holders of at least two-
thirds of the outstanding shares of the Fund is required to authorize any of
the following actions: (1) merger or consolidation of the Fund with an open-
end investment company; (2) merger or consolidation with a closed-end
investment company unless such company's charter has the same voting
requirements; (3) dissolution of the Fund; (4) sale of all or substantially
all of the assets of the Fund; or (5) amendment to the Articles of
Incorporation of the Fund which makes the Common Stock a redeemable security
(as such term is defined in the 1940 Act) or which reduces the two-thirds vote
required to authorize the actions in (1) through (5) hereof.
Reference is made to the Articles of Incorporation of the Fund, on file with
the Securities and Exchange Commission (the "SEC"), for the full text of these
provisions. These provisions could have the effect of depriving shareholders
of an opportunity to sell their shares at a premium over prevailing market
prices by discouraging a third party from seeking to obtain control of the
Fund in a tender offer or similar transaction.
The Board of Directors has determined that the two-thirds voting
requirements described above, which are greater than the minimum requirements
under Maryland law or the 1940 Act, are in the best interests of the Fund and
its shareholders generally.
POSSIBLE FUTURE CONVERSION TO OPEN-END INVESTMENT COMPANY
If shares of the Fund's Common Stock have traded on the principal securities
exchange where listed at an average discount from net asset value of more than
10%, determined on the basis of the discount as of the end of the last trading
day in each week during the period of 12 calendar weeks preceding December 31
in any year, the Fund will submit to its shareholders at the next succeeding
annual meeting of shareholders a proposal, to the extent consistent with the
1940 Act, to amend the Fund's Articles of Incorporation to provide that, upon
the adoption of such amendment by the holders of two-thirds of the Fund's
outstanding shares of Common Stock, the Fund will convert from a closed-end to
an open-end investment company. If the Fund converted to an open-end
investment company, it would be able to continuously issue and offer for sale
shares of its Common Stock.
16
<PAGE>
Also, each share of the Fund's Common Stock could be presented to the Fund at
the option of the holder thereof for redemption at net asset value per share
and the Fund could be required to liquidate portfolio securities to meet
requests for redemption. In addition, shares of the Fund would no longer be
listed on the NYSE.
As described above, the Fund may repurchase its shares in the open market
from time to time. The Fund cannot predict whether any such repurchases would
increase or decrease the discount from net asset value. To the extent that any
such repurchase decreased the discount to below 10% during the measurement
period, the Fund would not be required to submit to shareholders a proposal to
convert the Fund to an open end investment company at the next annual meeting
of shareholders.
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The investment objective of the Fund is to seek total investment return
comprised of current income and capital appreciation through investment
principally in Convertible Securities (defined in "Convertible Securities"
below) and use of certain other investment techniques. The Fund is designed
primarily for long-term investment and not as a trading vehicle. There can be
no assurance that the Fund's objective will be achieved.
The Fund's investment objective and fundamental policies may be changed only
with the approval of the holders of a majority of the Fund's outstanding
voting securities. A "majority of the Fund's outstanding voting securities,"
when used in this Prospectus, means the lesser of (1) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
present in person or represented by proxy, or (2) more than 50% of the
outstanding shares.
The Fund has adopted a fundamental policy that under normal market
conditions it will invest at least 65% of its total assets in Convertible
Securities. Securities obtained upon the conversion of convertible securities
may be retained during periods when market conditions are unfavorable for
their disposition. Securities received upon conversion also may be retained in
the Fund's portfolio to permit orderly disposition or to establish long-term
holding periods for Federal income tax purposes during years in which such
gains are accorded favorable tax treatment. For temporary periods of not
greater than two months after conversion, such securities will be considered
to be convertible securities for purposes of computing whether 65% of the
Fund's total assets are invested in Convertible Securities. The Fund would
convert a Convertible Security which it holds when necessary to permit orderly
disposition of the investment when a Convertible Security reaches maturity or
has been called for redemption. Conversion could also occur to facilitate a
sale of the position or if the dividend rate on the underlying common stock
increased above the yield on the Convertible Security.
The remainder of the Fund's total assets may be invested in other
securities, including nonconvertible equity and investment grade debt
securities, options (as described below), securities issued or guaranteed by
the United States Government, its agencies and instrumentalities ("Government
Securities"), repurchase agreements (as described below), and money market
securities (as described below). Investment grade debt securities are those
rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB or
higher by Standard & Poor's Corporation ("S&P"). Debt securities rated Baa by
Moody's are considered medium grade obligations with speculative
characteristics. Government Securities may be supported by any of the
following: (1) the full faith and credit of the U.S. Government; (2) the right
of the issuer to borrow an amount limited to a specific line of credit from
the U.S. Government; (3) discretionary authority of the U.S. Government agency
or instrumentality; or (4) the credit of the instrumentality. Such agencies or
instrumentalities include, but are not limited to, the Federal National
Mortgage Association, the Government National Mortgage Association, and the
Federal Home Loan Mortgage Corporation.
The Fund may invest in certain "hybrid securities" consisting of debt
obligations with an investment return coupled to the performance of a common
stock index, such as the Standard & Poor's 500 Composite Stock Price Index or
the Standard & Poor's Pharmaceutical Index. Such hybrid securities are usually
zero coupon obligations
17
<PAGE>
payable at maturity at the higher of (1) face value or (2) face value
multiplied by the value of the specified index at maturity and divided by a
specified amount which may be 110% to 120% of the value of the index at the
date of issue. These hybrid securities are purchased by the Fund only if the
debt obligation is at least investment grade. In addition to the credit risk
of the issuer, the investment is subject to loss of value in the event the
index declines. The Fund does not intend to invest more than 5% of its total
assets in such hybrid securities.
In selecting Convertible Securities for the Fund, the following factors,
among others, are considered by the Investment Adviser: (1) the Investment
Adviser's own evaluations of the creditworthiness of the issuer of the
securities; (2) the interest or dividend income generated by the securities;
(3) the potential for capital appreciation of the securities and the
underlying common stock; (4) the prices of the securities relative to the
underlying common stocks; (5) the prices of the securities relative to other
comparable securities; (6) whether the securities are entitled to the benefits
of sinking funds or other protective conditions; (7) diversification of the
Fund's portfolio as to issuers; and (8) whether the securities are rated by
S&P and/or Moody's and, if so, the ratings assigned.
When business or financial conditions warrant, the Fund may take a temporary
defensive position by investing without limit in (1) Government Securities;
(2) money market securities such as certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of banks having total assets
of more than $5 billion and which are members of the Federal Deposit Insurance
Corporation, and commercial paper rated Prime 1 by Moody's or A-l by S&P or,
if not rated, issued by companies which have an outstanding debt issue rated
Aa or higher by Moody's or AA or higher by S&P; (3) other debt securities
rated Aa or higher by Moody's or AA or higher by S&P; and (4) repurchase
agreements as described below.
CONVERTIBLE SECURITIES
A Convertible Security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula.
A Convertible Security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the Convertible
Security matures or is redeemed, converted or exchanged. Before conversion,
Convertible Securities have characteristics similar to non-convertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible Securities rank senior to common stock in a corporation's
capital structure and, therefore, generally entail less risk than the
corporation's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the Convertible Security
sells above its value as a fixed income security.
The value of a Convertible Security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege), and
its "conversion value" (the security's worth, at market value, if converted
into the underlying common stock).
The investment value of a Convertible Security is influenced by changes in
interest rates, with investment value declining as interest rates increase and
increasing as interest rates decline. The credit standing of the issuer and
other factors may also have an effect on the Convertible Security's investment
value. The conversion value of a Convertible Security is determined by the
market price of the underlying common stock. If the conversion value is low
relative to the investment value, the price of the Convertible Security is
governed principally by its investment value. To the extent the market price
of the underlying common stock approaches or exceeds the conversion price, the
price of the Convertible Security will be increasingly influenced by its
conversion value. In addition, a Convertible Security generally will sell at a
premium over its conversion value determined by the extent to which investors
place value on the right to acquire the underlying common stock while holding
a fixed income security.
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<PAGE>
A Convertible Security may be subject to redemption at the option of the
issuer at a price established in the Convertible Security's governing
instrument. If a Convertible Security held by the Fund is called for
redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party. Any of these actions could have an adverse effect on the Fund's ability
to achieve its investment objective. The Fund has from time to time acquired
privately negotiated securities issued by a major brokerage firm and
consisting of notes with detachable warrants to purchase shares of publicly-
traded common stock. These investments are designed to permit the Fund to have
an interest in common stocks of companies which are considered attractive by
the Investment Adviser but which do not have outstanding Convertible
Securities. The combination of notes and warrants produces investment
characteristics similar to those of conventional convertible securities. These
instruments are normally unsecured obligations, and thus subject to the credit
risks of the issuing brokerage firm. In addition, they are normally
unregistered securities subject to the risks described below under
"Unregistered Convertible Securities." The Investment Adviser may acquire
similar "synthetic" or "derivative" instruments or combinations of instruments
that it believes possess properties comparable to those of standard
convertible securities and are consistent with the Fund's objectives. In
deciding whether and on what terms to acquire any such instruments, the
Investment Adviser weighs the risks against the expected total returns and
considers substantially the same factors described above with respect to the
evaluation of convertible securities generally. Synthetic convertible
securities are not included as Convertible Securities in determining whether
65% of the Fund's total assets are invested in Convertible Securities.
UNREGISTERED CONVERTIBLE SECURITIES
The Fund may invest up to 15% of its total assets in illiquid unregistered
Convertible Securities, and is not subject to any percentage limitation on
investments in unregistered convertible securities which are determined to be
liquid. Unregistered securities are securities that have been sold in the
United States without registration under the Securities Act of 1933 and are
thus subject to restrictions on resale. Unregistered securities generally may
be resold only in a privately negotiated transaction with a limited number of
purchasers or in a public offering registered under the Securities Act of
1933. Considerable delay could be encountered in either event. These
difficulties and delays could result in the Fund's inability to realize a
favorable price upon disposition of unregistered securities, and in some cases
might make disposition of such unregistered securities at the time desired by
the Fund impossible. In those instances where the Fund determines to have
unregistered securities held by it registered prior to sale and the Fund does
not have a contractual commitment from the issuer or seller to pay the costs
of such registration, the gross proceeds from the sale of the securities would
be reduced by the registration costs and underwriting discounts in the event
of a public offering. When unregistered Convertible Securities are converted
into common stock and the common stock is publicly traded (as is typically the
case), such common stock normally may be resold beginning two years following
the acquisition of the unregistered Convertible Securities, subject to the
volume limitations and certain other conditions of Rule 144 under the
Securities Act of 1933. Beginning three years after the acquisition of the
unregistered Convertible Securities, the common stock received upon conversion
ordinarily may be resold without restriction. The Fund may not invest more
than 15% of its total assets (determined at the time of investment) in
illiquid securities, including repurchase agreements with maturities in excess
of seven days.
Rule 144A has been adopted by the SEC to provide a "safe harbor" for the
resale of certain unregistered securities among qualified institutional
investors without registration under the Securities Act of 1933. In its
release announcing the adoption of Rule 144A, the SEC indicated that a
principal purpose for the Rule is to achieve a more liquid and efficient
resale market for unregistered securities. Unregistered securities eligible
for resale pursuant to Rule 144A which the Board of Directors or the
Investment Adviser has determined under Board-approved guidelines to be liquid
are excluded from the 15% limitation on the Fund's investments in restricted
and other illiquid securities. At December 31, 1996, 38.4% of the Fund's net
assets were invested in restricted securities determined to be liquid and 3.0%
of the Fund's net assets were invested in restricted securities considered to
be illiquid.
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<PAGE>
RISKS OF LOWER-RATED SECURITIES
Convertible Securities are generally not investment grade, that is, not
rated within the four highest categories by S&P or Moody's. See Appendix A for
a description of these ratings. To the extent that Convertible Securities or
other debt securities acquired by the Fund are rated lower than investment
grade or are not rated, there is a greater risk as to the timely repayment of
the principal of, and timely payment of interest or dividends on, such
securities. The Fund will purchase Convertible Securities and other debt
securities rated BB or lower by S&P or Ba or lower by Moody's, which ratings
are considered by the rating agencies to be speculative with respect to the
issuer's continuing ability to meet principal and interest payments. Debt
securities rated BB or lower by S&P or Ba or lower by Moody's are commonly
referred to as "junk bonds." Decisions to purchase and sell these securities
are based on the Investment Adviser's evaluation of their investment potential
and risks and not on the ratings assigned by credit agencies. Because
investment in lower-rated securities involves greater investment risk, the
Fund's performance may depend to a significant degree on the Investment
Adviser's investment analysis, including its analysis of the equity
characteristics of the underlying common stocks. The market for lower-rated
debt securities is relatively new and its growth has paralleled a long
economic expansion. Past experience may not, therefore, provide an accurate
indication of future performance of this market, particularly during periods
of economic recession. Lower-rated securities may be more susceptible to real
or perceived adverse economic and competitive industry conditions than
investment grade securities. A projection of an economic downturn, for
example, could cause a decline in prices of lower-rated securities because the
advent of a recession could lessen the ability of a highly leveraged company
to make principal and interest payments on its senior securities. In addition,
the secondary trading market for lower-rated securities may be less liquid
than the market for higher grade securities. Judgment plays a greater role in
valuing lower-rated debt securities than higher-rated securities for which
more external sources of quotations and last-sale information are available
because there is less reliable objective data available. If market quotations
are not readily available for any of the Fund's lower-rated or other
securities, such securities are valued by a method that the Fund's Board of
Directors believes accurately reflects fair value.
Prices of lower-rated fixed income securities may decline rapidly in the
event a significant number of holders decide to sell. Changes in expectations
regarding an issuer, an industry or lower-rated securities generally could
reduce market liquidity for such securities and make their sale by the Fund
more difficult, at least in the absence of price concessions. An economic
downturn or an increase in interest rates could severely disrupt the market
for high yield bonds and adversely affect the value of outstanding bonds and
the ability of the issuers to repay principal and interest, meet projected
business goals and obtain additional financing. Where it deems it appropriate
and in the best interests of the Fund shareholders, the Fund may incur
additional expenses to seek recovery on a debt security on which the issuer
has defaulted and to pursue litigation to protect the interests of security
holders of its portfolio companies.
While credit ratings are only one factor the Investment Adviser reviews in
evaluating lower-rated debt securities, certain risks are associated with
using credit ratings. Credit rating agencies may fail to timely change the
credit ratings to reflect subsequent events; however, the Investment Adviser
continuously monitors the issuers of lower-rated debt securities in its
portfolio in an attempt to determine if the issuers will have sufficient cash
flow and profits to meet required principal and interest payments. Achievement
of the Fund's investment objective may be more dependent upon the Investment
Adviser's credit analysis than is the case for higher quality debt securities.
Credit ratings for individual securities may change from time to time and the
Fund may retain a portfolio security whose rating has been changed.
Convertible Securities in which the Fund invests include convertible debt
instruments not producing immediate cash income, such as zero-coupon
convertible securities, when their effective yield premiums or conversion
privileges over comparable instruments producing cash income make these
investments attractive. Prices of non-cash-paying instruments may be more
sensitive to changes in the issuer's financial condition, fluctuations in
interest rates and market demand/supply imbalances than cash-paying securities
with similar credit ratings, and thus may be more speculative. In addition,
the non-cash interest income accrued on such instruments is income for federal
income tax purposes and thus required to be included in distributions to
shareholders
20
<PAGE>
(without providing the corresponding cash flow with which to pay such
distributions which must be made from cash assets or by liquidation of
portfolio securities).
It is an operating policy of the Fund not to purchase Convertible Securities
rated below B by both Moody's and S&P or non-rated securities considered by
the Investment Adviser to be of comparable quality. In the event, however,
that a rating of a Convertible Security owned by the Fund is lowered to C, Cl
or D by S&P or to C by Moody's, such security may be retained and the Fund may
add to its position. The issuers of securities so rated are financially
troubled, in default or in bankruptcy or reorganization. Debt obligations of
such companies usually sell at a deep discount from the face value of the
instrument. Unless the company's financial condition improves, such securities
may lose value or become worthless.
As of December 31, 1996, the average percentage of the Fund's assets
invested in fixed income securities (or preferred stocks) within the various
rating categories (based on the S&P ratings if the securities are rated by
S&P, otherwise based on Moody's ratings), and the nonrated debt securities,
determined on a dollar weighted average, were as follows:
<TABLE>
<S> <C>
AAA/Aaa................................................................ 0.0%
AA/Aa.................................................................. 5.5%
A/A.................................................................... 16.3%
BBB/Baa................................................................ 16.1%
BB/Ba.................................................................. 21.2%
B/B.................................................................... 36.5%
CCC/Caa................................................................ 1.0%
CC/Ca.................................................................. 0%
D...................................................................... 0%
Nonrated............................................................... 0%
Common Stocks/Warrants................................................. 1.2%
Cash and Equivalents................................................... 2.2%
Total Net Assets..................................................... 100%
</TABLE>
FOREIGN SECURITIES AND FOREIGN ISSUERS
The Fund may invest in Eurodollar Convertible Securities. Eurodollar
Convertible Securities are fixed income securities of a U.S. issuer or a
foreign issuer that are issued in U.S. dollars outside the United States and
are convertible into or exchangeable for equity securities of the same or a
different issuer. Interest and dividends on Eurodollar securities are payable
in U.S. dollars outside of the United States. The Fund may invest without
limitation in Eurodollar Convertible Securities that are convertible into or
exchangeable for foreign equity securities listed, or represented by ADRs
listed, on the NYSE or the American Stock Exchange or convertible into or
exchangeable for publicly traded common stock of U.S. companies. Also, the
Fund may invest up to 15% of its total assets, taken at market value, in
Eurodollar Convertible Securities that are convertible into or exchangeable
for foreign equity securities which are not listed, or represented by ADRs
listed, on the NYSE or American Stock Exchange. Investments in securities of
foreign issuers may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies are not subject to as stringent accounting, auditing and
financial reporting standards and requirements as those applicable to U.S.
companies. Securities of some foreign companies may be less liquid or more
volatile than securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the United States. Investments
in foreign securities may also be subject to other risks different from those
affecting U.S. investments, including local political or economic
developments, expropriation or nationalization of assets and imposition of
withholding taxes on dividend or interest payments.
21
<PAGE>
INVESTMENT PRACTICES
LENDING OF PORTFOLIO SECURITIES
The Fund may lend securities in its portfolio representing up to 25% of its
total assets, taken at market value, to securities firms and financial
institutions and receive collateral in cash or Government Securities which is
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. The Fund anticipates that all or
substantially all securities loaned, if any, will be loaned to Bear, Stearns &
Co. Inc. or Bear, Stearns Securities Corp., which are affiliated with the
Fund's custodian. The purpose of such loans, generally, is to permit the
borrower to use such securities for delivery to purchasers when the borrower
or its customers have entered into short sales. The total yield on the Fund's
portfolio will be increased by loans of its portfolio securities because the
Fund will receive fees for such loans. Such loans are terminable at any time.
Voting rights may pass with the loaned securities, but if a material event
were to occur affecting an investment or loan, the Fund would call the loan in
order to exercise voting rights. The risks in lending portfolio securities, as
with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower
fail financially. In determining whether the Fund will lend securities to a
particular borrower, the Fund will consider all relevant facts and
circumstances, including the creditworthiness of the borrower.
OTHER INVESTMENTS AND INVESTMENT PRACTICES
The Fund may from time to time, (1) write (sell) covered call options on
common stocks that it owns or has an immediate right to acquire through
conversion or exchange of other securities; or (2) purchase put options on
such common stocks. The Fund may from time to time make short sales of
securities it owns or has a right to acquire through conversion or exchange of
other securities it owns. The Fund may enter into forward commitments for the
purchase of securities which may include purchases on a "when issued" or a
"delayed delivery" basis. The Fund may enter into "repurchase agreements"
pertaining to Government Securities with or "primary dealers" (as designated
by the Federal Reserve Bank of New York) in such securities or United States
national banks. The Fund may purchase stock index futures contracts in
anticipatory hedge transactions to reduce the risk of not participating in the
stock market when the Fund is less than fully invested. Additional information
regarding such investments and investment practices and the risks related
thereto is set forth in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Adviser is responsible for placing orders for the purchase
and sale of portfolio securities and negotiating the price of such
transactions. Most transactions made by the Fund are with dealers acting as
principals for their own accounts without a stated commission, although the
prices of the securities usually include a profit to the dealers. Broker-
dealers are selected for their professional capability and the overall value
and quality of their execution services. The Investment Adviser is authorized
to pay higher commissions to brokerage firms providing investment and research
information if the Investment Adviser deems such commissions reasonable in
relation to the overall services provided. The Investment Adviser may also use
information received to manage the assets of other advisory accounts. The Fund
does not pay any mark-up over the market price of securities acquired in
principal transactions with dealers.
PORTFOLIO TURNOVER
The Fund purchases securities primarily for investment rather than short-
term trading. However, changes are made in the portfolio whenever it appears
advisable. The Fund's annual portfolio turnover rate is shown in the table of
"Financial Highlights." Greater portfolio activity increases the Fund's
transaction costs, which may include brokerage commissions.
22
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which, like
its investment objectives, cannot be changed without approval by a majority
(as defined in the Investment Company Act) vote of the fund's shareholders.
These restrictions are listed in the Statement of Additional Information.
MANAGEMENT OF THE FUND
A board of eight directors is responsible for overseeing the Fund's affairs.
The Investment Adviser, which is headquartered at 865 South Figueroa Street,
Suite 1800, Los Angeles, California 90017, selects "Investments for the Fund,
provides administrative services and manages the Fund's business. The
Investment Adviser is a wholly-owned subsidiary of the TCW Group, Inc., whose
direct and indirect subsidiaries, including Trust Company of the West and TCW
Asset Management Company, have managed convertible securities portfolios for
institutional investors since 1976. Robert A. Day, who is chairman of the TCW
Group, Inc. may be deemed to be a control person of the Investment Adviser by
virtue of the aggregate ownership by Mr. Day and his family of more than 25%
of the outstanding voting stock of the TCW Group, Inc.
PORTFOLIO MANAGEMENT
Robert M. Hanisee and Kevin A. Hunter, Senior Vice Presidents of the Fund,
have been primarily responsible for the day-to-day management of the Fund's
entire portfolio since April, 1995 and were primarily responsible for the day-
to-day management of approximately 50% of the Fund's assets since March, 1992.
Each has served as an officer of the Investment Adviser for more than five
years.
ADVISORY AGREEMENT
Under the Investment Advisory Agreement dated February 17, 1987, the Fund
pays the Investment Adviser a monthly fee computed on the total net assets of
the Fund at 1/12 of the annualized rate of reimburses the Investment Adviser
for the cost (up to $25,000 per year) of providing accounting services to the
Fund. For the last fiscal year, advisory fees and accounting reimbursement
equaled % of the Fund's average net assets.
The Fund also pays for shareholder service agent fees, custodian fees, legal
and audit fees, directors' fees, reports to shareholders and proxy statements,
and all other expenses incurred in the operation of the Fund, except those
assumed by the Investment Adviser. For the last fiscal year, the Fund's total
operating expenses were % of average net assets.
DETERMINATION OF NET ASSET VALUE
The Fund calculates and makes available for weekly publication the net asset
value of its shares. Net asset value per share is determined by dividing the
value of the Fund's assets (including interest and dividends accrued but not
collected), less its liabilities (including accrued expenses), by the number
of outstanding shares. Each listed security and each security traded on the
National Association of Securities Dealers Automated Quotations National
Market System is valued at the last sale price or the mean of the reported
closing bid and asked prices if there are no sales in the trading period
immediately preceding the time of determination. Other securities which are
traded on the over-the-counter market are valued at the mean of the latest
available bid and asked prices. Securities for which quotations are not
readily available, unregistered securities and other assets are valued at fair
value as determined in good faith by, or under the direction of, the Board of
Directors. Notwithstanding the foregoing, short-term debt securities with
maturities of 60 days or less are valued at amortized cost.
23
<PAGE>
DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
DISTRIBUTION POLICY
Commencing with the distribution paid in July, 1988, the Fund's policy has
been to make quarterly distributions of $0.21 per share to shareholders of
record at the end of each calendar quarter. This distribution policy requires
payments substantially in excess of the Fund's current net investment income.
Only the portion, if any, of a distribution which equals the Fund's current
net investment income should be considered a dividend. The remainder
constitutes a payment out of the Fund's net realized capital gains for each
period to the extent available; any excess will be from paid-in capital. A
notice accompanies each quarterly distribution to identify the estimated
source of the distribution. See "Taxation" for information concerning the
federal income tax treatment of distributions by the Fund to its shareholders.
For years in which the Fund distributes amounts in excess of its net
investment income and net realized capital gains, such distributions will
decrease the Fund's total assets and, therefore, have the likely effect of
increasing the Fund's expense ratio. In addition, in order to make such
distributions, the Fund may have to sell a portion of its investment portfolio
at a time when independent investment judgment might not dictate such action.
Such sales, if they involve assets held for less than three months, could also
adversely affect the Fund's status as a regulated investment company since, in
order for the Fund to qualify as a regulated investment company, for each
taxable year, less than 30% of the Fund's gross income must be derived from
gains realized on the sale or other disposition of stocks or securities held
for less than three months.
After expiration or offset of the Fund's capital loss carryovers, described
under "Taxation," the Fund's distributions for the third and/or fourth
quarters of a calendar year may, but need not, include net long-term capital
gains realized during the year. The Fund may retain for reinvestment and pay
federal income taxes on the excess of its net realized long-term capital gains
over its net realized short-term capital losses, if any, although the Fund
reserves the authority to distribute such excess in any year. The Fund's
distribution policy is subject to change and may be affected by future events,
including changes in tax or legal requirements.
DIVIDEND REINVESTMENT PLAN
Shareholders of record (other than brokers or nominees of banks and other
financial institutions) are eligible to participate in the Dividend
Reinvestment Plan (the "Plan"), pursuant to which dividends and any payment
out of the Fund's net realized capital gains for the year and paid-in capital
distributed to shareholders will be paid in or reinvested in additional shares
of the Fund (the "Dividend Shares"). The Bank of New York (the "Agent"),
Dividend Reinvestment Department, P.O. Box 1958, Newark, New Jersey 07101-9774
acts as agent for participants under the Plan.
A shareholder may join the Plan by signing and returning an authorization
form which may be obtained from the Agent. A shareholder may elect to withdraw
from the Plan at any time by written notice to the Agent and thereby elect to
receive cash in lieu of Dividend Shares. There is no penalty for withdrawal
from the Plan and shareholders who have previously withdrawn from the Plan may
rejoin it at any time. The Federal income tax consequences of participating in
the Plan are described below under "Taxation."
Commencing not more than five business days before the dividend payment
date, purchases of the Fund's shares may be made by the Agent, on behalf of
the participants in the Plan, from time to time to satisfy dividend rein
vestments under the Plan. Such purchases by the Agent may be made when the
price plus estimated commissions of the Fund's Common Stock on the NYSE is
lower than the Fund's most recently calculated net asset value per share. If
the Agent determines on the dividend payment date that the shares purchased as
of such date are insufficient to satisfy the dividend reinvestment
requirements, the Agent, on behalf of the participants in the Plan, will
obtain the necessary additional shares as follows. To the extent that
outstanding shares are not available at a cost of less than per share net
asset value, the Agent, on behalf of the participants in the Plan, will
24
<PAGE>
accept payment of the dividend, or the remaining portion thereof, in
authorized but unissued shares of the Fund on the dividend payment date. Such
shares will be issued at a per share price equal to the higher of (1) the net
asset value per share on the payment date, or (2) 95% of the closing market
price per share on the payment date. If the closing sale or offer price, plus
estimated commissions, of the Common Stock on the NYSE on the payment date is
less than the Fund's net asset value per share on such day, then the Agent
will purchase additional outstanding shares on the NYSE or elsewhere. There
are no brokerage charges with respect to shares issued directly by the Fund to
satisfy the dividend reinvestment requirements. However, each participant will
pay a pro rata share of brokerage commissions incurred with respect to the
Agent's open market purchases of shares. In each case, the cost per share of
shares purchased for each shareholder's account will be the average cost,
including brokerage commissions, of any shares purchased in the open market
plus the cost of any shares issued by the Fund.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus
commissions of the Fund's shares is above the net asset value, participants in
the Plan will receive shares of the Fund at a discount of up to 5% from the
current market value. However, if the market price plus commissions is below
the net asset value, participants will receive distributions in shares at
prices below the net asset value. Also, since the Fund does not redeem its
shares, the price on resale may be more or less than the net asset value.
In the case of foreign participants whose dividends are subject to United
States income tax withholding and in the case of any participants subject to
31% federal backup withholding, the Agent will reinvest dividends after
deduction of the amount required to be withheld.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by
the participants.
TAXATION
GENERAL
The Fund has qualified, and intends to qualify, each year as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986
(the "Code"). In order to qualify as a regulated investment company for any
taxable year, the Fund must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and
gains from the sale or other disposition of stock or securities or foreign
currencies or other income derived with respect to its business of investing
in such stock, securities or currencies; (2) derive less than 30% of its gross
income from the sale or other disposition of stock or securities held for less
than three months ("Three-Month Gain Rule"); and (3) distribute at least 90%
of its investment company taxable income (net investment income and the excess
of net short-term capital gain over net long-term capital loss) for the
taxable year.
The Fund must also diversify its holdings so that, at the close of each
quarter of its taxable year, (1) at least 50% of the value of its total assets
consists of cash, cash items, Government Securities, and the securities of
other regulated investment companies and other securities limited generally
with respect to any one issuer to not more than 5% of the total assets of the
Fund and not more than 10% of the outstanding voting securities of such
issuer, and (2) not more than 25% of the value of its total assets is invested
in the securities (other than Government Securities or the securities of other
regulated investment companies) of any one issuer, or in two or more issuers
which the Fund controls and which are engaged in the same or similar trades or
business (the "Asset Diversification Test").
The foregoing requirements of the Code may limit the Fund's ability to write
call options, to acquire put options on stocks, to effect short sales, to sell
securities subject to a forward commitment prior to the settlement date and to
purchase stock index futures contracts.
25
<PAGE>
As a regulated investment company, the Fund is not subject to Federal income
tax on its investment company taxable income and net capital gains (any net
long-term capital gains in excess of the sum of net short-term capital losses
and capital loss carryovers from prior years), if any, that it distributes to
its shareholders. The Fund intends to distribute annually to its shareholders
all of its investment company taxable income and net capital gains. The Fund
is subject to a nondeductible 4% excise tax measured with respect to certain
undistributed amounts of ordinary income and capital gain net income. The Fund
intends to distribute sufficient amounts to avoid liability for the excise
tax.
Distributions of investment company taxable income generally are taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are invested in additional shares of the Fund's stock.
A capital gain distribution, whether paid in cash or reinvested in shares,
is taxable to shareholders as long-term capital gain, regardless of the length
of time a shareholder has held his shares or whether such gain was realized by
the Fund before the shareholder acquired such shares and was reflected in the
price paid for the shares. In the event a distribution constitutes a return of
capital, a shareholder reduces the tax cost basis for his stock by the amount
of the nontaxable distribution. If such distribution exceeds the shareholder's
tax cost basis, the excess is treated as a capital gain.
The Fund sends written statements and notices to shareholders regarding the
tax status of all dividends and distributions made during each calendar year.
Net realized capital gains during any year are a part of current earnings
and profits, even if there are capital loss carryovers from prior years. So
long as the Fund has unexpired capital loss carryovers, the portion of any
distributions to shareholders in excess of the Fund's net investment income,
but not in excess of the Fund's net realized capital gains for the year, is
deemed to be paid from the current year's earnings and profits, and thus is
taxable to shareholders as additional dividend income, and any remainder is
treated as a return of capital. See "Distributions; Dividend Reinvestment
Plan" for a discussion of the Fund's current distribution policy.
To the extent the Fund is able to realize capital losses in any year to
offset that year's realized capital gains, thereby minimizing or eliminating
the portion of distributions on the Common Stock which is taxable as
additional dividend income to shareholders, the Fund will not be able to
utilize its capital loss carryovers. In addition, the capital loss carryovers
will be of benefit to the Fund only to the extent that in any year net
realized capital gains exceed total distributions to shareholders over and
above distributions paid out of net investment income.
Shareholders who reinvest either distributions of investment company taxable
income or capital gain distributions in additional shares of the Fund's stock
will be treated as receiving distributions of an amount equal to the fair
market value, determined as of the payment date, of the shares received if the
shares are purchased from the Fund. Such value may exceed the amount of the
cash distribution that would have been paid. If outstanding shares are
purchased in the open market, the taxable distribution will equal the cash
distribution that would have been paid. In either event, the cost basis in the
shares received will equal the amount recognized as a taxable distribution.
A portion of the distributions of investment company taxable income paid by
the Fund is eligible for the 70% dividends received deduction allowed to
certain corporations. The eligible portion generally equals the proportion
that dividends from U.S. corporations bear to the Fund's gross income,
provided that the Fund designates such proportion as being eligible for the
deduction in the statement provided annually to shareholders. However, a
dividend received by the Fund is not treated as an "eligible dividend" if (1)
it has been received with respect to any share of stock that the Fund has held
for 45 days (90 days in the case of certain preferred stock) or less
(excluding any day more than 45 days (or 90 days in the case of certain
preferred stock) after the date on which the stock becomes ex-dividend); or
(2) to the extent that the Fund is under an obligation (pursuant to a short
sale or otherwise) to make related payments with respect to positions in
substantially similar or related
26
<PAGE>
property. The dividends received deduction is not available for capital gain
dividends. The Fund sends written notice to shareholders regarding the tax
status of all distributions made during each calendar year.
DISQUALIFICATION AS A REGULATED INVESTMENT COMPANY
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income will be subject to tax at regular corporate
rates without any deduction for distributions to shareholders, and such
distributions will be taxable as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits.
BACKUP WITHHOLDING
The Fund generally will be required to withhold tax at the rate of 31% with
respect to distributions of investment company taxable income and capital gain
distributions payable to a non corporate shareholder if the shareholder fails
to provide a correct taxpayer identification number or is otherwise subject to
backup withholding.
FOREIGN WITHHOLDING TAXES
To the extent that the Fund invests in Eurodollar Convertible Securities,
dividends and interest received by the Fund on such securities may be subject
to foreign withholding taxes. The Fund will be entitled to claim a deduction
for such foreign withholding taxes for U.S. Federal income tax purposes.
However, any such taxes will reduce the income available for distribution to
the Fund's shareholders.
OTHER TAXATION
Distributions to shareholders who are nonresident aliens may be subject to a
30% United States withholding tax under provisions of the Code applicable to
foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Nonresident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
The foregoing is only a brief summary of the Federal tax laws applicable to
investors in the Fund. Investors may also be subject to state and local taxes.
Investors should consult their own tax advisers regarding specific questions
as to Federal, state or local taxes.
CUSTODIAN, TRANSFER AGENT, DIVIDEND-PAYING AGENT AND REGISTRAR
The custodian of the assets of the Fund is Custodial Trust Company, 28 West
State Street, Trenton, New Jersey 08608. Rules adopted under the Investment
Company Act of 1940 permit the Fund to maintain its foreign securities in the
custody of certain eligible foreign banks and securities depositories.
Pursuant to these rules, any foreign securities in the Fund's portfolio may be
held by foreign sub-custodians and securities depositories approved by the
directors of the Fund in accordance with the regulations of the SEC.
The transfer agent, dividend disbursing agent and registrar for the Fund's
shares is The Bank of New York, Church Street Station, New York, New York.
27
<PAGE>
AUDITORS
Deloitte & Touche LLP, 1000 Wilshire Boulevard, Los Angeles, California
90017, independent auditors, has performed annual audits of the Fund's
financial statements since 1987.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the Fund
by O'Melveny & Myers, LLP, Los Angeles, California. A Directors of the Company
is of counsel is of counsel to, and a retired partner of that firm. O'Melveny
& Myers also provides legal services to The TCW Group, Inc. and its
subsidiaries, including the Investment Adviser. A former partner of the firm
is a member of the Board of Directors of The TCW Group, Inc. and Trust Company
of the West.
REPORTS TO SHAREHOLDERS
The Fund sends unaudited semi-annual and audited annual reports to its
stockholders, including a list of investments held.
EXPERTS
The Statement of Assets and Liabilities of the Fund, including the Schedule
of Investments as of December 31, 1996, and the related Statement of
Operations for the year then ended, the Statement of Changes in Net Assets for
the years ended December 31, 1995 and December 31, 1996 and the Financial
Highlights for the period March 5, 1987 (commencement) to December 31, 1987
and the years ended thereafter included or incorporated by reference herein,
have been audited by Deloitte and Touche LLP, independent auditors, as
indicated in their report with respect thereto, and are included in reliance
upon such report and upon the authority of such firm as experts in accounting
and auditing.
FURTHER INFORMATION
This Prospectus does not contain all of the information included in the
Registration Statement filed with the Securities and Exchange Commission under
the Securities Act and the Act, with respect to the Fund's Shares offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The Registration
Statement, including exhibits filed therewith, may be examined at the office
of the Securities and Exchange Commission in Washington, D.C.
Statements contained in this Prospectus as to the contents of any contract
or other document referred to are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, of which this Prospectus
forms a part, each such statement being qualified in all respects by such
reference.
28
<PAGE>
DESCRIPTION OF RATINGS
APPENDIX
Description of Standard & Poor's Corporation ("S&P") and Moody's Investors
Service, Inc. ("Moody's") senior securities ratings.
MOODY'S:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risk appear somewhat larger than in the Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa--Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Fixed income securities which are rated Aaa, Aa, A and Baa are considered
investment grade.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
S&P:
AAA--Debt rated AAA has the higher rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
A-1
<PAGE>
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Fixed income securities rated AAA, AA, A and BBB are considered investment
grade.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest any repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest repayment of principal. In the event of
adverse business financial, or economic conditions, it is not likely to have
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC--The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C--The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
PREFERRED STOCK RATINGS:
Both Moody's and S&P use the same designations for corporate bonds as they
do for preferred stock except in the case of Moody's preferred stock ratings
the initial letter rating is not capitalized. While the descriptions are
tailored for preferred stocks the relative quality distinctions are comparable
to those described above for corporate bonds.
A-2
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR THE INVESTMENT ADVISER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Fee Table.................................................................. 2
Prospectus Summary......................................................... 3
Financial Highlights....................................................... 7
The Offer.................................................................. 8
Special Considerations and Risk Factors.................................... 14
Use of Proceeds............................................................ 14
Description of Common Stock................................................ 15
Investment Objective and Policies.......................................... 17
Investment Practices....................................................... 22
Management of the Fund..................................................... 23
Determination of Net Asset Value........................................... 23
Distributions; Dividend Reinvestment Plan.................................. 24
Taxation................................................................... 25
Custodian, Transfer Agent, Dividend-Paying Agent and Registrar............. 27
Auditors................................................................... 28
Legal Matters.............................................................. 28
Reports to Shareholders.................................................... 28
Experts.................................................................... 28
Further Information........................................................ 28
Appendix A................................................................. A-1
</TABLE>
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SHARES OF
COMMON STOCK
ISSUABLE UPON EXERCISE
OF RIGHTS TO SUBSCRIBE
FOR SUCH SHARES OF
COMMON STOCK
TCW CONVERTIBLE
SECURITIES FUND, INC.
--------
PROSPECTUS
, 1997
--------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART B--STATEMENT OF ADDITIONAL INFORMATION
TCW CONVERTIBLE SECURITIES FUND, INC.
, 1997
This Statement of Additional Information is not a Prospectus but contains
information in additional to that set forth in the Prospectus dated
1997 and should be read in conjunction with the Prospectus. A Prospectus may
be obtained without charge by calling (800) 386-3829 or writing the Fund at
865 South Figueroa Street, Suite 1800, Los Angeles, California 90017.
<TABLE>
<S> <C>
Investment Policies........................................................ B-2
Options.................................................................. B-2
Short Sales Against the Box.............................................. B-3
Forward Commitments...................................................... B-3
Repurchase Agreements.................................................... B-4
Stock Index Futures...................................................... B-4
Investment Restrictions.................................................. B-6
Management of the Fund..................................................... B-8
Directors and Officers................................................... B-8
Investment Advisory and Other Services .................................... B-11
Investment Adviser ...................................................... B-11
Investment Advisory Management Agreement ................................ B-11
Fees and Expenses ....................................................... B-11
Portfolio Transactions and Brokerage ...................................... B-12
General ................................................................. B-12
Portfolio Turnover ...................................................... B-13
Taxation................................................................... B-14
Futures and Hedging Transactions ........................................ B-14
Principal Shareholders of the Fund ........................................ B-14
Financial Statements ...................................................... C-1
</TABLE>
<PAGE>
INVESTMENT POLICIES
The following supplements information set forth under the captions
"Investment Objectives and Policies" and "Investment Practices" in the
Prospectus. Readers must also refer to the Prospectus.
OPTIONS
The Fund may from time to time, and to the extent described below, (1) write
(sell) covered call options on common stocks that it owns or has an immediate
right to acquire through conversion or exchange of other securities; or (2)
purchase put options on such common stocks. The Fund may also enter
transactions with respect to such options. All options written or purchased by
the Fund must be listed on a national securities exchange. The requirements
for qualification as a "regulated investment company" may limit the degree to
which the Fund may utilize option strategies. See "Taxation."
Many currently traded Convertible Securities are convertible into common
stocks against which listed call options may be written. A call option gives
the purchaser the right to buy, and the writer has the obligation to sell, the
underlying security at the option exercise price during the option period. The
Fund may only write "covered" call options, that is, options on common stock
that it holds in its portfolio or that it has an immediate right to acquire
through conversion or exchange of securities held in its portfolio. The Fund
may write call options on up to 25% of its total assets, taken at market
value, determined as of the date the options are written.
The Fund will write covered call options in order to receive premiums which
it is paid for writing options. Such premiums represent a gain to the Fund if
the option expires unexercised. Such gain may offset possible declines in the
market values of the common stocks or Convertible Securities held in its
portfolio. If, for example, the market price of a common stock underlying a
Convertible Security held by the Fund declines and the Convertible Security
also declines in value, such decline will be offset in part (or wholly) by the
receipt of the premium for writing the call options on such stock. However, if
the market price of the underlying common stock increases and the Convertible
Security held by the Fund also increases in value, such increase may be offset
in part (or wholly) by a loss resulting from the need to buy back at higher
prices the covered call options written by the Fund or through the lost
opportunity for any participation in the capital appreciation of the
underlying security above the exercise price.
In addition to writing covered call options, the Fund may invest up to 2% of
its total assets, taken at market value, determined as of the date the options
are written, in the purchase of put options on common stock that it owns or
may acquire through the conversion or exchange of other securities that it
owns. A put option gives the holder the right to sell the underlying security
at the option exercise price at any time during the option period. Any losses
realized by the Fund in connection with its purchase of put options will be
limited to the premiums paid by the Fund for the purchase of such options plus
any transaction costs.
The Fund intends to purchase put options on particular securities in order
to protect against a decline in the market value of the underlying security
below the exercise price less the premium paid for the option. The authority
to purchase put options will allow the Fund to protect the unrealized gain in
an appreciated security in its portfolio without actually selling the
security. In addition, the Fund will continue to receive interest or dividend
income on the security. The Fund may sell a put option which it has previously
purchased prior to the sale of the securities underlying such option. Such
sales will result in a net gain or loss depending on whether the amount
received on the sale is more or less than the premium and other transaction
costs paid for the put option that is sold. Such gain or loss may be wholly or
partially offset by a change in the value of the underlying security which the
Fund owns or has the right to acquire.
B-2
<PAGE>
SHORT SALES AGAINST THE BOX
The Fund may from time to time make short sales of securities it owns or has
the right to acquire through conversion or exchange of other securities it
owns. A short sale is "against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain at no added cost securities
identical to those sold short. In a short sale, the Fund does not immediately
deliver the securities sold and does not receive the proceeds from the sale.
The Fund is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. The Fund may not make short sales or maintain a short position if to do
so would cause more than 25% of the Fund's total assets, taken at market
value, to be held as collateral for such sales.
To secure its obligation to deliver the securities sold short, the Fund will
deposit in escrow in a separate account with its custodian an equal amount of
the securities sold short or securities convertible into or exchangeable for
such securities. The Fund may close out a short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund may want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short. However, the
Fund will not purchase and deliver new securities to satisfy its short order
if such purchase and sale would cause the Fund to violate the Three-Month Gain
Rule. See "Taxation."
The Fund may make a short sale in order to hedge against market risks when
the Investment Adviser believes that the price of a security may decline,
causing a decline in the value of a security owned by the Fund or a security
convertible into or exchangeable for such security, or when the Fund does not
want to sell the security it owns, because, among other reasons, it wishes to
defer recognition of gain or loss for Federal income tax purposes. In such
case, any future losses in the Fund's long position should be reduced by a
gain in the short position. Conversely, any gain in the long position should
be reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount the Fund owns, either directly or indirectly, and, in
the case where the Fund owns Convertible Securities, changes in the investment
values or conversion premiums. Additionally, the Fund may use short sales when
it is determined that a Convertible Security can be bought at a small
conversion premium and has a yield advantage relative to the underlying common
stock sold short. The potential risk in this strategy is the possible loss of
any premium over conversion value in the Convertible Security at the time of
purchase. The purpose of this strategy is to produce income from the yield
advantage and to provide the potential for a gain should the conversion
premium increase.
FORWARD COMMITMENTS
The Fund may enter into forward commitments for the purchase of securities.
Such transactions may include purchases on a "when issued" or a "delayed
delivery" basis. In some cases, a forward commitment may be conditioned upon
the occurrence of a subsequent event, such as approval and consummation of a
merger, corporate reorganization or debt restructuring (i.e., a "when, as and
if issued" trade). When such transactions are negotiated, the price is fixed
at the time of the commitment, with payment and delivery taking place in the
future, frequently a month or more after the date of the commitment. While the
Fund will only enter into a forward commitment with the intention of actually
acquiring the security, the Fund may sell the security before the settlement
date if it is deemed advisable. However, the Fund will not make such a sale if
it would cause the Fund to violate the Three-Month Gain Rule. See "Taxation."
Securities issued in connection with mergers, corporate reorganizations or
debt restructuring may involve special risks arising from greater use of
leverage in the capital structure of issuers. Such securities will not be
purchased by the Fund, however, unless they satisfy the investment criteria
described above. See "Investment Objective and Policies--General."
Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrue to the Fund prior to the
settlement date. At the time the Fund enters into a forward commitment, it
will record the transaction and thereafter reflect the value, each day, of the
security purchased in
B-3
<PAGE>
determining its net asset value. Any unrealized appreciation or depreciation
reflected in such valuation of a "when, as and if issued" security would be
canceled in the event that the required condition did not occur and the trade
was canceled.
The Fund maintains a segregated account (which will be marked to market
daily) of cash or liquid portfolio securities (which may have maturities that
are longer than the term of the forward commitment) with the Fund's custodian
in an aggregate amount equal to the amount of its forward commitments as long
as the obligation to purchase continues. In entering into forward commitments,
the Fund relies on the other party to complete the transaction; should the
other party fail to do so, the Fund might lose a purchase opportunity that
could be more advantageous than alternative opportunities at the time of the
failure.
REPURCHASE AGREEMENTS
The Fund may enter into "repurchase agreements" pertaining to Government
Securities with member banks of the Federal Reserve System or "primary
dealers" (as designated by the Federal Reserve Bank of New York) in such
securities. A repurchase agreement arises when the Fund purchases a security
and simultaneously agrees to resell it to the seller at an agreed upon future
date. The resale price is greater than the purchase price, reflecting an
agreed upon market rate of return which is effective for the period of time
the Fund's money is invested in the repurchase agreement and which is not
related to the coupon rate on the purchased security. Such agreements permit
the Fund to earn interest on temporarily available cash. The Fund requires the
seller to maintain the value of the securities, marked to market daily, at not
less than the repurchase price. If the seller defaults on its repurchase
obligation, the Fund could suffer delays, collection expenses and losses to
the extent that the proceeds from the sale of the collateral are less than the
repurchase price. The Fund will not invest more than 5% of its total assets,
taken at market value, in repurchase agreements maturing in more than seven
days. The Investment Adviser will consider all relevant facts and
circumstances, including the creditworthiness of the other party, in
determining whether to cause the Fund to enter into a repurchase agreement.
STOCK INDEX FUTURES
The Fund may purchase stock index futures contracts ("futures") in
anticipatory hedge transactions to reduce the risk of not participating in the
stock market when the Fund is less than fully invested. Such purchases would
be made when the Investment Adviser anticipates that the purchase of stock
index futures with a portion of its assets is desirable as a temporary
substitute for being fully invested in Convertible Securities. The Fund will
not engage in futures transactions for purposes of speculation. Thus, the Fund
would not purchase stock index futures contracts with aggregate settlement
prices in excess of the value of the cash, U.S. government securities and
other liquid portfolio securities held by the Fund. The requirements for
qualification as a "regulated investment company" may limit the degree to
which the Fund may purchase futures contracts. See "Taxation."
A stock index assigns relative value to the common stocks included in the
index (for example, the Standard & Poor's 500 Composite Stock Price Index),
and the stock index fluctuates with changes in the market value of such
stocks. When the Fund buys a future, it agrees to pay or receive an amount of
cash equal to a specified dollar amount times the difference between the stock
index value at the close of the last trading date of the future and the price
at which the future is purchased. No physical delivery of the stocks included
in the index underlying the future is made. As it purchases Convertible
Securities, the Fund may close out a future before its settlement date by
effecting an offsetting transaction. A futures purchase is closed out by
effecting a sale of a futures contract of the same type with the same
settlement date. If the offsetting sales price exceeds the purchase price, the
Fund realizes a gain, whereas if the purchase price exceeds the offsetting
sale price, the Fund realizes a loss.
B-4
<PAGE>
In purchasing stock index futures contracts the Fund will comply with rules
and interpretations of the Commodity Futures Trading Commission ("CFTC"),
under which the Fund is excluded from regulation as a "commodity pool
operator." CFTC regulations allow unlimited use of futures for "bona fide
hedging" purposes, as defined in CFTC regulations, and limit the aggregate
initial margin on non-hedging futures to 5% of the fair market value of the
Fund's total assets. The extent to which the Fund may engage in futures
transactions may also be limited by the Internal Revenue Code's requirements
for qualification as a regulated investment company. See "Taxation."
The risk of loss in trading futures contracts in speculative strategies can
be substantial. Because the futures portfolio strategies of the Fund are
engaged in only for hedging purposes, however, the Investment Adviser does not
believe that the Fund is subject to the same degree of risk sometimes
associated with futures transactions. Nevertheless, utilization of futures
transactions by the Fund does involve certain risk.
There can be no assurance that hedging transactions will be successful, as
they will depend upon the Investment Adviser's ability to predict changes in
general stock market conditions and the future direction of stock prices and
interest rates. There is imperfect correlation (or no correlation) between the
price movements of the futures contracts and price movements of the
Convertible Securities that the Fund intends to purchase. To compensate for
the imperfect correlation of movements of prices of a stock index future and
the Convertible Securities being hedged, the Fund will purchase stock index
futures contracts in a lesser dollar amount than the dollar amount of the
Convertible Securities that the Fund intends to purchase because the
historical volatility of the price of Convertible Securities is less than the
historical volatility of the stock index. Nevertheless, the price of the stock
index future may move less than the price of the Convertible Securities that
are subject to the anticipatory hedge resulting in the hedge not being fully
effective or the value of futures contracts may decline while the value of the
Convertible Securities that the Fund intends to purchase may increase. The
latter situation may occur if both stock market prices and interest rates
decline during the period the Fund owns stock index futures. The price of
stock index futures may not correlate perfectly with movement in the stock
index, due to certain market distortions. This might result from decisions by
a significant number of market participants holding stock index futures
positions to close out their futures contracts through offsetting transactions
rather than to make additional margin deposits. Also, increased participation
by speculators in the futures market may cause temporary price distortions.
Due to the possibility of such price distortion in the futures markets and
because of the imperfect correlation between movements in the stock index
futures, a correct forecast of general market trends by the Investment Adviser
may not result in a fully successful hedging transaction over a short time
frame. Thus if the Investment Adviser's predictions are incorrect, the Fund
would have been better off if no hedge had been made. Hedging transactions
through the use of stock index futures requires skills different from those
needed to select portfolio securities. The Fund has not invested in stock
index futures during the past five years.
Futures positions may be closed out only on an exchange or board of trade
which provides a market for such futures. Although the Fund intends to
purchase futures which have an active market, there is no assurance that a
liquid market will exist for any particular contract or at any particular
time. Thus, it may not be possible to close a futures position in anticipation
of adverse price movements.
The settlement procedure in connection with the Fund's entry into a futures
transaction requires the deposit of cash or Government Securities,
constituting initial margin, in a special segregated account with the Fund's
Custodian in the name and for the benefit of the Fund's futures commission
merchant ("FCM"). Subsequent payments, called maintenance margin, are made to
and from the FCM (a process known as "marking to market") on a daily basis as
the value of the long and short positions in the futures contract fluctuates.
The Fund, on a daily basis, will monitor amounts of maintenance margin due
to it and will promptly demand payment and transfer those amounts from its FCM
to its custodian (for the general or segregated custodial account, as
appropriate).
B-5
<PAGE>
Initial margin held by the custodian will continue to be regarded as the
Fund's assets, unless and until such amounts are owed to such FCM. In the
event of insolvency of an FCM, amounts held by the custodian in the segregated
account for the benefit of the FCM and by the FCM for the benefit of the Fund
may become subject to Federal bankruptcy laws and bankruptcy regulations of
the CFTC, which provide for pro rata distribution to customers of the FCM of
all customer property.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies which may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities. For purposes of the investment percentage limitations set
forth below and other percentage limitations set forth in this Prospectus: (i)
all percentage limitations apply immediately after a purchase or initial
investment, and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets
does not require elimination of any security from the Fund.
The Fund will not:
1. Purchase the securities of any issuer (other than the Government
Securities), if immediately thereafter the Fund with respect to 75% of its
total assets would (a) have more than 5% of its total assets invested in the
securities of such issuer, or (b) own more than 10% of the outstanding voting
securities of such issuer.
2. Invest 25% or more of its total assets in securities of issuers
conducting their principal business activities in the same industry; provided
that there is no limitation with respect to investments in Government
Securities.
3. Make loans of money to other persons (except the Fund may invest in
repurchase agreements and in unregistered Convertible Securities as provided
in (11) below); provided that for purposes of this restriction the acquisition
of a portion of an issue of publicly distributed Convertible Securities and
other debt securities and investment in Government Securities, short-term
commercial paper, certificates of deposit, and bankers' acceptances shall not
be deemed to be the making of a loan; and provided further that the Fund may
lend portfolio securities representing up to 25% of its total assets, taken at
market value, to securities firms and financial institutions if it receives
collateral in cash or Government Securities required to be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities.
4. Engage in underwriting of securities of other issuers, except that
portfolio securities, including unregistered securities, may be acquired under
circumstances where, if sold, the Fund might be deemed to be an underwriter
under the Securities Act of 1933.
5. Borrow money or issue senior securities (as defined in the 1940 Act),
except that the Fund may borrow in amounts not exceeding 5% of the value of
its total assets (not including the amount borrowed) for temporary or
emergency purposes or for the purpose of financing repurchase of its shares.
For the purpose of this investment restriction, collateral or escrow
arrangements with respect to margin for futures contracts are not deemed to be
a pledge of assets and neither such arrangements nor the purchase of futures
contracts are deemed to be the issuance of a senior security.
6. Purchase or sell commodities or commodity contracts, including futures
contracts or options on futures contracts in a contract market or other
futures market, except that the Fund may purchase stock index futures
contracts as described under "Investment Objective and Policies--Stock Index
Futures."
7. Purchase or sell real estate or real estate mortgage loans; provided that
the Fund may invest in securities secured by real estate or interests therein
or issued by companies that invest in real estate or interests therein.
8. Purchase securities on margin, except for short-term credits as may be
necessary for the clearance of transactions.
B-6
<PAGE>
9. Make short sales of securities or maintain a short position except as
described under "Investment Objective and Policies--Short Sales Against the
Box."
10. Purchase or sell (write) call options except as described under
"Investment Objective and Policies--Options."
11. Invest more than 15% of its total assets taken at market value, in
unregistered Convertible Securities, including any unregistered common stock
acquired upon conversion or exchange of unregistered Convertible Securities,
excluding, however, restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933 which the Board of Directors, or the
Fund's Investment Adviser has determined under Board-approved guidelines, are
liquid.
B-7
<PAGE>
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
A board of eight directors is responsible for overseeing the Fund's affairs.
The Fund has an executive committee, consisting of Ernest O. Ellison,
Chairman, Norman Barker, Jr. and Coleman W. Morton, which may act for the
Board of Directors between meetings, except where Board action is required by
law. The directors and officers of the Fund, their business addresses and
their principal occupations for the last five years are set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS OFFICE DURING PAST 5 YEARS
---------------- ------ --------------------
<C> <C> <S>
Ernest O. Ellison*.......... President and Director Vice Chairman of the
865 S. Figueroa Street Board and Chief
Los Angeles, CA 90017 Investment Officer, The
TCW Group, Inc.
(formerly TCW Management
Company) and Trust
Company of the West. For
more than 10 years prior
to May 1992, Mr. Ellison
served in various
executive positions with
the Fund's Adviser and
its affiliates.
Norman Barker, Jr........... Director Former Chairman of the
707 Wilshire Blvd. Board, First Interstate
Los Angeles, CA 90017 Bank of California and
former Vice Chairman of
the Board, First
Interstate Bancorp;
Director, American
Health Properties, Inc.,
ICN Pharmaceuticals,
Inc., Pacific American
Income Shares, Inc. and
TCW Galileo Funds, Inc.;
Chairman of the Board,
Fidelity Federal Bank
Richard W. Call............. Director President, The Seaver
800 Wilshire Blvd. Institute (a private
Los Angeles, CA 90017 foundation); Director,
TCW Galileo Funds, Inc.
Edmund W. Clarke............ Director Retired; formerly Chief
865 S. Figueroa St. Investment Officer,
Los Angeles, CA 90017 Transamerica Investment
Services.
Coleman W. Morton........... Director Private investor;
865 S. Figueroa St. formerly Member of the
Los Angeles, CA 90017 Advisory Board and
President and Director,
The Investment Company
of America
Charles A. Parker........... Director Formerly, Executive Vice
865 S. Figueroa St. President and Director,
Los Angeles, CA 90017 The Continental
Corporation; formerly
Chairman and Chief
Executive Officer,
Continental Asset
Management Corporation;
Director, Underwriters
Reinsurance Co.
Lawrence J. Sheehan*........ Director Of Counsel to, and
1999 Avenue of the Stars Partner (1968 to 1994)
Suite 700 of the law firm of
Los Angeles, CA 90067 O'Melveny & Myers, legal
counsel to the Fund and
the Investment Adviser;
Director, Source
Capital, Inc. FPA
Capital Fund, Inc., FPA
New Income Fund, Inc.
and FPA Perennial Fund,
Inc.
Robert G. Sims*............. Director Private Investor;
865 S. Figueroa St. Director, The TCW Group,
Los Angeles, CA 90017 Inc.; formerly Director,
Daily Systems, Inc.
(Computer Aided
Engineering Systems).
</TABLE>
- -------
* Directors who are or may be deemed to be "interested persons" of the Fund as
defined in the 1940 Act. Mr. Ellison is an officer of the Fund and a
shareholder and director of The TCW Group, Inc., the parent corporation of
the Investment Adviser. Mr. Sims is a director of the Fund and is a
shareholder of and has served as a director of the parent corporation during
the past two years. Mr. Sheehan is Of Counsel to, and a former partner of,
legal counsel to the Fund and the Investment Adviser.
B-8
<PAGE>
The following table illustrates the compensation paid to the Fund's
independent directors (the "Independent Directors") by the Fund for the fiscal
year ended December 31, 1996.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
NAME OF INDEPENDENT DIRECTORS FROM THE FUND
----------------------------- ----------------------
<S> <C>
Norman Barker, Jr..................................... $12,000
Richard W. Call....................................... 12,000
Edmund W. Clarke...................................... 10,500
Coleman W. Morton..................................... 10,500
Charles A. Parker..................................... 10,500
</TABLE>
The following table illustrates the compensation paid to fund's Independent
Directors for the calendar year ended December 31, 1996 by the TCW Galileo
Funds, Inc. in the case of Messrs. Barker and Call, as well as from the Fund.
The TCW Galileo Funds, Inc. is included solely because the Fund's Investment
Adviser also serves as its adviser.
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION
FROM THE
FOR SERVICE AS TCW GALILEO
DIRECTOR AND COMMITTEE FUNDS, INC.
NAME OF INDEPENDENT DIRECTOR MEMBER OF THE FUND AND THE FUND
---------------------------- ---------------------- ------------
<S> <C> <C>
Norman Barker, Jr. ...................... $12,000 $51,000
Richard W. Call.......................... 12,000 51,000
</TABLE>
B-9
<PAGE>
The following information relates to the executive officers of the Fund who
are not directors of the Fund. The business address of each is 865 South
Figueroa Street, Los Angeles, California 90017. Several of such officers own
common stock of The TCW Group, Inc. the parent corporation of the Investment
Adviser.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS OFFICE PAST 5 YEARS
---------------- ------ ---------------------------
<C> <C> <S>
Thomas E. Larkin, Jr. .. Vice Chairman Vice Chairman, TCW Asset
Management Company; President
and Director, Trust Company
of the West; Chairman, TCW
Funds Management, Inc.;
Executive Vice President, TCW
Group, Inc.; President and
Director, TCW Galileo Funds,
Inc.; President and Trustee,
TCW/DW Funds
Ronald E. Robison....... Senior Vice Managing Director, TCW Asset
President and Chief Management Company, Trust
Operating Officer Company of the West and TCW
Funds Management, Inc.; Chief
Operating Officer, TCW Funds
Management, Inc.
Robert M. Hanisee....... Senior Vice President Managing Director and Co-
Director of Research, TCW
Asset Management Company and
Trust Company of the West;
Managing Director, TCW Funds
Management, Inc. (1990-
present); formerly,
President, Seidler Amdec
Securities, Inc.
Kevin A. Hunter......... Senior Vice President Managing Director, TCW Asset
Management Company, Trust
Company of the West and TCW
Funds Management, Inc.
Michael E. Cahill....... General Counsel and Managing Director, General
Assistant Secretary Counsel and Secretary, TCW
Asset Management Company,
Trust Company of the West,
TCW Funds Management, Inc.
and The TCW Group, Inc.;
Director, TCW Asset
Management Company; Former
Senior Vice President and
General Counsel, Act III
Communications
Philip K. Holl.......... Secretary Vice President, Associate
General Counsel and Assistant
Secretary, Trust Company of
the West, TCW Asset
Management Company and TCW
Funds Management, Inc.;
Secretary, TCW Galileo Funds,
Inc.; Former Vice
President/Legal Affairs, the
Reserve Group of Mutual funds
prior to June, 1994.
Hilary G.D. Lord........ Assistant Secretary Managing Director, Chief
Compliance Officer and
Assistant Secretary, Trust
Company of the West, TCW
Asset Management Company, and
TCW Funds Management, Inc.;
Senior Vice President and
Assistant Secretary, TCW
Galileo Funds, Inc.
</TABLE>
B-10
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The Investment Adviser also serves as investment adviser to a number of
investment compares registered under the 1940 Act and to foreign investment
companies. The registered investment companies to which the Investment Adviser
provides investment advisory services: TCW Galileo Funds, Inc. (including the
following portfolios: TCW Galileo Convertible Securities Fund; TCW Galileo
Core Equity Fund; TCW Small Cap Growth Fund; TCW Mid-Cap Growth Fund; TCW
Galileo Earnings Momentum Fund; TCW Core Fixed Income Fund; TCW Galileo High
Yield Bond Fund; TCW Galileo Money Market Fund; TCW Galileo Asia Pacific
Equity Fund; TCW Galileo Emerging Markets Fund; TCW Galileo Latin America
Growth Fund; TCW Galileo Long-Term Mortgage Backed Securities Fund and TCW
Galileo Mortgage Backed Securities Fund); TCW/DW Core Equity Fund; TCW/DW
Small Cap Growth Fund; TCW/DW Mid-Cap Equity Trust; TCW/DW Total Return Trust;
TCW/DW Income and Growth Fund; TCW/DW Balanced Fund; TCW/DW Global Telecom
Trust, TCW/DW Strategic Income Trust; TCW/DW Latin American Growth Fund;
TCW/DW Emerging Markets Opportunities Trust; TCW/DW North American Government
Income Trust; TCW/DW Term Trust 2000; TCW/DW Term Trust 2002; TCW/DW Term
Trust 2003; Endeavor Series Trust (Money Market Portfolio and Asset Allocation
Portfolio); The Sierra Trust Fund (Corporate Income Fund); The Sierra Variable
Trust (Corporate Income Fund); and The Enterprise Group of Funds, Inc.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
The Fund and the Investment Adviser have entered into an Investment Advisory
and Management Agreement (the "Advisory Agreement") which was last approved by
the shareholders of the Fund on May 22, 1996 and by the Board of Directors of
the Fund, including a majority of the directors who were not interested
persons of the Fund, at a meeting of the Board of Directors held on February
21, 1996. The Fund has retained the Investment Adviser to manage the
investment of the Fund's assets, to place orders for the purchase and sale of
the Funds portfolio securities and to administer day-to-day operations,
subject to control by the Board of Directors of the Fund. The Investment
Adviser is responsible for obtaining and evaluating economic, statistical, and
financial data and for formulating and implementing investment programs in
furtherance of the Fund's investment objective and policies.
The Investment Adviser furnishes to the Fund office space at such place as
may be agreed upon from time to time and all office facilities, business
equipment, supplies, utilities and telephone service necessary for managing
the affairs and investments and keeping the general accounts and records of
the Fund (exclusive of the necessary records of any transfer agent, registrar,
dividend disbursing or reinvesting agent or custodian) and arranges for
officers or employees of Investment Adviser to serve, without compensation
from the Fund, as officers, directors or employees of the Fund if desired and
reasonably required by the Fund.
The Advisory Agreement may be continued from year to year if such
continuance is specifically approved at least annually by (1) the Board of
Directors of the Fund or by the vote of a majority of the outstanding voting
securities of the Fund, and (2) the vote of a majority of the directors who
are not "interested persons of the Fund or the Investment Adviser, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated without penalty at any time on 60 days'
written notice, by vote of a majority of the Board of Directors of the Fund or
by vote of a majority of the outstanding voting securities of the Fund, or on
90 days' written notice by the Investment Adviser. The Advisory Agreement
terminates automatically in the event of assignment.
FEES AND EXPENSES
As compensation for services rendered, facilities provided and expenses
borne, the Investment Adviser is paid a monthly fee computed at an annual rate
of 0.75% of the first $100,000,000 of the Fund's average net assets, and .50%
of the Fund's average net assets in excess of $100,000,000. Average net assets
are determined by taking the average of the weekly determinations of net asset
value for each week which ends during the month. In addition the Fund
reimburses the Investment Adviser for the costs (up to a maximum of $25,000
per
B-11
<PAGE>
year) of providing accounting services to the Fund, including maintaining the
Fund's financial books and records, calculating its weekly net asset value,
and preparing its financial statements. For the years ended December 1994,
1995 and 1996, the Investment Adviser received advisory fees of $1,538,821,
$1,523,587 and $ , respectively. For each of those same years, the
Investment Adviser received reimbursement for accounting services of $25,000.
Except for expenses specifically assumed by the Investment Adviser under the
Advisory Agreement, the Fund bears all expenses incurred in its operations.
Such Fund expenses include the fee of the Investment Adviser; compensation and
expenses of directors of the Fund who are not affiliated persons of the
Investment Adviser as defined in the 1940 Act; registration, filing and other
fees in connection with filings with regulatory authorities; fees and expenses
of listing and maintaining the listing of the Fund's shares on any national
securities exchange; fees and expenses of independent auditors; the expenses
of printing and mailing proxy statements and shareholder reports; custodian
and transfer and dividend disbursing agent charges; brokerage commissions and
securities transaction costs incurred by the Fund; taxes and corporate fees;
legal fees incurred in connection with the affairs of the Fund; the fees of
any trade association of which the Fund is a member; the cost of stock
certificates representing shares of the Fund; the organizational and offering
expenses of the Fund, whether or not advanced by the Investment Adviser;
expenses of shareholder and director meetings; premiums for the fidelity bond
and any errors and omissions insurance maintained by the Fund; interest and
taxes; and any other ordinary or extraordinary expenses incurred by the Fund
in the course of its business.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is responsible for the placement of the Fund's portfolio
transactions and the allocation of the brokerage. Total brokerage commissions
paid by the Fund during 1994, 1995 and 1996 were $112,795, $67,967 and
$ , respectively. During the fiscal year ended December 31, 1996,
$ in brokerage commissions were paid on transactions with the value of
$ to brokers selected primarily on the basis of research and other
services provided to the Investment Adviser and affiliated companies.
In selecting broker-dealers the Investment Adviser seeks to obtain the best
execution, taking into account such factors as price (including the applicable
dealer spread or commission, if any), size of order, difficulty of execution
and operational facilities of the firm involved and the firm's risk in
positioning a large order. Brokerage services include the ability to most
effectively execute large orders without adversely impacting markets and
positioning securities in order to enable the Investment Adviser to effect
orderly sales for clients. Accordingly, transactions will not always be
executed at the lowest available commission. In addition, the Investment
Adviser may effect transactions which cause the client to pay a commission in
excess of a commission which another broker-dealer would have charged if the
Investment Adviser first determines that such commission is reasonable in
relation to the value of the brokerage and research services provided by the
broker-dealer.
Research services include such items as reports on industries and companies,
economic analyses and review of business conditions, portfolio strategy,
analytic computer software, account performance services, computer terminals
and various trading and/or quotation equipment. They also include advice from
broker dealers as to the value of securities, availability of securities,
availability of buyers, and availability of sellers. In addition, they include
recommendations as to purchase and sale of individual securities and timing of
said transactions.
Fixed income securities are generally purchased from the issuer or a primary
market maker acting as principal on a net basis with no brokerage commission
paid by the client. Such securities, as well as equity securities, may also be
purchased from underwriters at prices which include underwriting fees.
The Investment Adviser maintains an internal allocation procedure to
identify those broker-dealers who have provided it with research services and
endeavors to place sufficient transactions with them to ensure the continued
receipt of research services the Investment Adviser believes are useful.
B-12
<PAGE>
The Directors of Research for the Investment Adviser, after close
consultation with senior management, portfolio managers and research analysts
have the responsibility for determining those broker-dealers with whom
business should be placed. The Directors evaluate such broker-dealers to
consider any additions or deletions to the list of monitored and consulting
analysts. Allocation guidelines are established to provide direction to the
Trading Department. Additional allocations also may be authorized for specific
broker dealers depending upon the timeliness and accuracy of their research
input. The head of the Equity Trading Department, with the approval of senior
management, determines the commission rates paid to broker dealers. The
Investment Adviser follows client directions on placing transactions with
specific broker-dealers to some extent and such transactions may be effected
at rates or terms specified or approved by the client.
Sometimes the Investment Adviser receives products or services which are
used for both research services and other purposes, such as corporate
administration or marketing. The Investment Adviser makes a good faith effort
to determine the relative proportions of such products or services which may
be attributed to research services. The portion attributable to research
services may be paid through client brokerage commissions and the non-research
services portion will be paid in cash by the Investment Adviser.
Research services furnished by broker-dealers may be used in services for
any or all of the clients of the Investment Adviser, as well as clients of
affiliated companies, and may be used in connection with accounts other than
those which pay commissions to the broker-dealers providing the research
services.
Usually in the placement of unregistered securities, the issuer or other
seller of the securities pays all costs of the placement including the fee of
any broker-dealer involved. The Fund attempts to make all of its investments
in unregistered securities on this basis. The Fund may pay commissions or
underwriting discounts in connection with its sale of unregistered securities
in privately negotiated transactions or in underwritten public offerings.
When the Fund and one or more of the other advisory accounts managed by the
Investment Adviser or its affiliates seek to acquire, or to sell, the same
security at the same time, available investments or opportunities for sales
will be allocated in a manner the Investment Adviser believes to be equitable.
In some cases, this procedure may affect adversely the price paid or received
by the Fund or the size of the position purchased or sold by the Fund.
PORTFOLIO TURNOVER
The Fund does not engage in substantial short-term trading. The Fund's
portfolio turnover rates (the lesser of the value of securities purchased or
securities sold, divided by the average value of securities owned during the
year) for the years ended December 31, 1994, 1995 and 1996, were 110.04%,
108.98% and 125.72%, respectively. For purposes of this calculation,
securities, including options, with a maturity or expiration date at the time
of purchase of one year or less are excluded. The annual turnover rate may
vary greatly from year to year and may exceed 100%, which is higher than that
of many other investment companies. A 100% turnover rate occurs for example,
if all the Fund's portfolio securities are replaced during one year. Such high
portfolio activity (over 100% turnover rate) increases the Fund's transaction
costs, including brokerage commissions.
B-13
<PAGE>
TAXATION
FUTURES AND HEDGING TRANSACTIONS
The stock index futures contracts which the Fund may purchase are "section
1256 contracts" under the Code. With respect to section 1256 contracts closed
out by the Fund, any realized gain or loss will be treated as long-term
capital gain or loss to the extent of 60% thereof and short-term capital gain
or loss to the extent of 40% thereof (hereinafter "60/40 gain or loss"). Open
section 1256 contracts held by the Fund on December 31 of any tax year will be
required to be treated as sold at market value on such day for Federal income
tax purposes (i.e, "marked-to-market"). Gain or loss recognized under this
marked-to-market rule is 60/40 gain or loss.
The short sale of, or the acquisition of a put option on, (1) stock or
securities held by the Fund or (2) stock or securities which are
"substantially identical" to stock or securities held by the Fund, may reduce
the holding period of such stock or securities for purposes of determining
short-term and long-term gains and losses and for purposes of the Three-Month
Gain Rule. Where preferred stock or bonds are convertible into common stock of
the same corporation, the relative values, price changes and other
circumstances may be such as to cause the bonds or preferred stock and the
common stock to be treated as "substantially identical" for this purpose.
Short sales and purchases of put options may increase the amount of short-term
capital gain realized by the Fund which is taxable as ordinary income when
distributed to shareholders.
Certain of the hedging transactions undertaken by the Fund (i.e., the
writing of covered call options, the acquisition of put options on its stocks
and short sales) may constitute "straddles" for Federal income tax purposes.
The Code generally provides with respect to straddles (1) "loss deferral"
rules which may postpone recognition for tax purposes of losses from certain
closing purchase transactions or other dispositions of a position in a
straddle to the extent of unrealized gains in the offsetting position, (2)
"wash sale" rules which may postpone recognition for tax purposes of losses
when a position forming part of a straddle is sold and a new offsetting
position is acquired within a prescribed period, and (3) "short sale" rules
which may terminate the holding period of securities owned by the Fund when
offsetting positions are established and which may convert certain losses from
short-term to long-term. Because only a few regulations implementing the
straddle rules have been promulgated, the tax consequences of certain hedging
transactions to the Fund are not entirely clear. Straddle transactions may
increase the amount of short-term capital gain realized by the Fund which is
taxable as ordinary income when distributed to shareholders.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as
compared to a fund that does not engage in such hedging transactions.
The extent to which the Fund may engage in short sales against the box and
transactions in options and stock index futures contracts may be limited by
the Three-Month Gain Rule and the Asset Diversification Test.
PRINCIPAL SHAREHOLDERS OF THE FUND
On December 31, 1996, Cede & Co., Box 20, Bowling Green Station, New York,
New York 10004, held 27,477,665 shares (86.15%) of the Fund as nominee for the
beneficial owners.
On December 31, 1996, all officers and directors of the Fund, as a group,
owned less than 1% of the outstanding shares of common stock.
B-14
<PAGE>
PART C--OTHER INFORMATION
ITEM 24 FINANCIAL STATEMENTS AND EXHIBITS
1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INCLUDED IN INCLUDED IN INCLUDED IN
PART A PART B PART C
----------- ------------- -----------
<S> <C> <C> <C>
Independent Auditors' Report......... [To be Filed]
Schedule of Investments at December
31, 1996............................
Statement of Assets and Liabilities
at December 31, 1996................
Statement of Operations For the Year
Ended December 31, 1996.............
Statements of Changes in Net Assets
For the Years Ended December 31,
1995 and 1996.......................
Notes to Financial Statements........
Financial Highlights For the Period
From March 5, 1987 (Commencement) to
December 31, 1987 and For the Years
Ended December 31, 1988, 1989, 1990,
1991, 1992, 1993, 1994, 1995 and
1996................................
Consent of Independent Auditors......
</TABLE>
2. EXHIBITS
<TABLE>
<C> <S>
a. Articles of Incorporation filed as Exhibit 1 to the Fund's initial
Registration Statement on Form N-2 are incorporated herein by
reference.
b. Bylaws filed as Exhibit 2 to the Fund's initial Registration Statement
on Form N-2 are incorporated herein by reference.
bb. Article VIII of Bylaws filed as Exhibit 2(A) to Amendment No. 2 to the
Fund's initial Registration Statement on Form N-2 incorporated herein
by reference.
d. Specimen Common Stock Certificates filed as Exhibit 4 to the Fund's
initial Registration Statement on Form N-2 is incorporated herein by
reference.
dd. Subscription Certificates is filed as page C-6 of this Part C.
ddd. Notice of Guaranteed Delivery is filed as page C-9 of this Part C.
e. Dividend Reinvestment Plan Terms and Conditions filed as Appendix C to
the Prospectus, dated February 26, 1987, filed as part of Amendment
No. 4 to the Fund's Registration Statement on Form N-2 are
incorporated herein by reference.
g. Investment Advisory and Management Agreement, dated as of February 17,
1987, between the Fund and TCW Funds Management, Inc. filed as Exhibit
6 to Amendment No. 2 to the Fund's initial Registration Statement on
Form N-2 is incorporated herein by reference.
j. Custody Agreement, dated as of February 17, 1987, between the Fund and
Custodial Trust Company filed as Exhibit 9 to Amendment No. 2 to the
Fund's Registration Statement on Form N-2 is incorporated herein by
reference.
jj. Amendment No. 1 to Custody Agreement, dated as of July 1, 1991,
between the Fund and Custodial Trust Company filed as Exhibit 9.2 to
Amendment No. 10 to the Fund's Registration Statement on Form N-2 is
incorporated herein by reference.
l. Opinion and Consent of Counsel is filed as page C-11 of this Part C.
n. Consent of Deloitte & Touche LLP (to be filed).
o. Powers of Attorney.
p. Initial Capitalization Agreement, dated as of February 17, 1987, filed
as Exhibit 14 to Amendment No. 2 to the Fund's Registration Statement
on Form N-2 is incorporated herein by reference.
</TABLE>
Exhibits c, f, h, i, k, m and q have been omitted because the conditions
requiring their filing do not exist.
C-1
<PAGE>
ITEM 25 MARKETING ARRANGEMENTS
Inapplicable.
ITEM 26 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Inapplicable.
ITEM 27 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
None.
ITEM 28 NUMBER OF HOLDERS OF SECURITIES
As of February 3, 1997:
<TABLE>
<CAPTION>
(2)
(1) NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
Common Stock, $.01 par value............................... 3,277
</TABLE>
ITEM 29 INDEMNIFICATION
Article VIII of the Bylaws of the Registrant provides as follows:
(a) Subject to the exceptions and limitations contained in paragraph (b)
below:
(i) every person who is, or has been, a director or officer of the
Corporation shall be indemnified by the Corporation to the fullest extent
permitted by law against all liability and against all expenses reasonably
incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue
of his being or having been a director or officer and against all amounts
paid or incurred by him in the settlement thereof;
(ii) the words 'claim,' 'action,' 'suit,' or 'proceeding' shall apply to
all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened; and the words 'liability' and
'expense' shall include, without limitation, attorneys' fees, costs,
judgements, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a director or officer:
(i) against any liability to the Corporation or the shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of this office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interest of the Corporation; and
(iii) in the event of a settlement of other disposition not involving a
final adjudication as provided in paragraph (b)(ii) resulting in a payment
by a director or officer, unless there has been a determination that such
director or officer did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office:
(A) by the court or other body approving the settlement or other
disposition,
or
(B) based upon a review of readily available facts (as opposed to a
full trial-type inquiry) by (x) vote of a majority of the Non-
Interested Directors acting on the matter (provided that a majority of
the Non-Interested Directors then in office act on the matter) or (y)
written opinion of independent legal counsel.
C-2
<PAGE>
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Corporation, shall be severable, shall not affect
any other rights to which any director or officer may now or hereafter be
entitled, shall continue as to a person who has ceased to be such director or
officer and shall inure to the benefit of the heirs, executors, administrators
and assigns of such a person. Nothing contained herein shall affect any rights
to indemnification to which personnel of the Corporation other than directors
and officers may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Article VIII may be advanced by the Corporation prior to final disposition
thereof upon receipt of an undertaking by or on behalf of the recipient to
repay such amount if it is ultimately determined that he is not entitled to
indemnification under this Article VIII provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Corporation shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Non-Interested Directors acting on the matter
(provided that a majority of the Non-Interested Directors act on the
matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in this Article VIII, a "Non-Interested Director' is one who is not
(i) an "Interested Person' (within the meaning of that term under the
Investment Company Act of 1940, as amended) of the Corporation (including
anyone who has been exempted from being an "Interested Person' by any rule,
regulation or order of the Commission), or (ii) involved in the claim, action,
suit or proceeding."
Directors and officers of the Fund are named as insured under a directors'
and officers' errors and omissions insurance policy.
ITEM 30 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
In addition to the Fund, the Investment Adviser serves as investment adviser
or subadviser to a number of open and closed-end management investment
companies that are registered under the 1940 Act and to a number of foreign
investment companies. The list required by this Item 30 of officers and
directors of the Adviser, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by the
Adviser and such officers and directors during the past two years, is
incorporated by reference to Form ADV (SEC File No. 801-29075) filed by the
Adviser pursuant to the Advisers Act.
C-3
<PAGE>
ITEM 31 LOCATION OF ACCOUNTS AND RECORDS
Unless otherwise stated below, the accounts, books and other documents
required to be maintained by Section 31(a) of the Investment Company Act of
1940 and the Rules promulgated thereunder are maintained in the physical
possession of David K. Sandie, Treasurer of the Registrant, TCW Convertible
Securities Fund, Inc., 865 South Figueroa Street, Los Angeles, California
90017.
<TABLE>
<CAPTION>
LOCATION OF
RULE REQUIRED RECORD
---- ---------------
<S> <C>
31a-1(b)(2)(c).............................. TCW Funds Management, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
31a-1(b)(2)(d).............................. The Bank of New York
Church Street Station
New York, NY 10286-1533
31a-1(b)(4)-(6)............................. TCW Funds Management, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
31a-1(b)(9)-(11)............................ TCW Funds Management, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
</TABLE>
ITEM 32 MANAGEMENT SERVICES
There is no management-related service contract under which services are
provided to the Registrant which is not discussed in Part A of this form.
ITEM 33 UNDERTAKINGS
The Registrant undertakes to suspend offering of its shares of Common Stock
until it amends its prospectus if, subsequent to the effective date of this
Registration Statement and prior to the expiration date of the Offering, the
net asset value declines more than 10% from its net asset value as of the
effective date of this Registration Statement.
Insofar as indemnification for liabilities under the Securities Act of 1933,
as amended, may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the provisions described in Item 3 or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, then Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
C-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and Investment
Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, there
unto duly authorized, in the City of Los Angeles, and the State of California,
on the 4th day of February, 1997.
TCW CONVERTIBLE SECURITIES FUND,
INC.
/s/ Ronald E. Robison
By: _________________________________
Ronald E. Robison
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ernest O. Ellison* President and Director February 4, 1997
____________________________________ (Chief Executive Officer)
Ernest O. Ellison
/s/ David K. Sandie Treasurer (Principal February 4, 1997
____________________________________ Financial Officer and
David K. Sandie Principal Accounting
Officer)
/s/ Norman Barker, Jr.* Director February 4, 1997
____________________________________
Norman Barker, Jr.
/s/ Richard W. Call* Director February 4, 1997
____________________________________
Richard W. Call
/s/ Edmund W. Clarke* Director February 4, 1997
____________________________________
Edmund W. Clarke
/s/ Coleman W. Morton* Director February 4, 1997
____________________________________
Coleman W. Morton
/s/ Charles A. Parker* Director February 4, 1997
____________________________________
Charles A. Parker
/s/ Lawrence J. Sheehan* Director February 4, 1997
____________________________________
Lawrence J. Sheehan
/s/ Robert G. Sims* Director February 4, 1997
____________________________________
Robert G. Sims
By: /s/ Ronald E. Robison February 4, 1997
----------------------------
Ronald E. Robison
Attorney-in-Fact
</TABLE>
C-5
<PAGE>
EXHIBIT dd
SUBSCRIPTION CERTIFICATE NUMBER: _________
NUMBER OF RIGHTS: _________
SUBSCRIPTION CERTIFICATE
TCW CONVERTIBLE SECURITIES FUND, INC.
SUBSCRIPTION RIGHT FOR SHARES OF COMMON STOCK
This Subscription Certificate represents the number of Rights set forth in
the upper right hand corner of this Form. The Holder is entitled to acquire one
(1) Share of the Common Stock of the TCW Convertible Securities Fund, Inc. (the
"Fund") for each five (5) Rights held.
To subscribe for Shares of Common Stock, the Holder must present to the
Subscription Agent, prior to 5:00 p.m., New York City time, on the Expiration
Date, either (i) a notice of guaranteed delivery attached hereto, guaranteeing
delivery of (a) payment for the subscription Shares (under both Primary
Subscription and the Over-Subscription Privilege) and (b) a properly completed
and executed copy of this Subscription Certificate; or (ii) a properly
completed and executed copy of this Subscription Certificate, together with a
money order or check drawn on a bank located in the United States of America
and payable to TCW Convertible Securities Fund, Inc. for an amount equal to the
number of Shares subscribed for multiplied by $ . Subscribers will be
subsequently notified as to the number of Shares subscribed (under both Primary
Subscription and the Over-Subscription Privilege) and the total amount owed
based on the Subscription Price as set on the Pricing Date. See page 13 of the
Prospectus. Payment for any balance will be due five (5) business days after
the Confirmation Date.
If an outstanding balance as described above is not received within the five
(5) business day period, the Fund reserves the right to (i) find other
purchasers for the subscribed-for and unpaid-for Shares; (ii) apply any payment
actually received by it toward the purchase of the greatest whole number of
Shares which could be acquired by such holder upon exercise of the Primary
Subscription and/or Over-Subscription Privilege; and/or (iii) exercise any and
all other rights and/or remedies to which it may be entitled, including,
without limitation, the right to set-off against payments actually received by
it with respect to such subscribed Shares and to enforce the relevant guaranty
of payment.
REGISTERED OWNER TCW CONVERTIBLE SECURITIES FUND, INC.
THE BANK OF NEW YORK
as Subscription Agent
By: _________________________________
THIS CERTIFICATE IS NON-TRANSFERABLE
THIS RIGHTS OFFERING HAS BEEN QUALIFIED OR IS BELIEVED TO BE EXEMPT FROM
QUALIFICATION ONLY UNDER THE FEDERAL LAWS OF THE UNITED STATES AND THE LAWS OF
EACH OF THE STATES IN THE UNITED STATES. RESIDENTS OF OTHER JURISDICTIONS MAY
NOT PURCHASE THE SHARES OF COMMON STOCK OFFERED HEREBY UNLESS THEY CERTIFY THAT
THEIR PURCHASES OF SUCH SHARES ARE EFFECTED IN ACCORDANCE WITH THE APPLICABLE
LAWS OF SUCH JURISDICTIONS.
C-6
<PAGE>
TO: The Bank of New York
Subscription Agent
Tender and Exchange Department
P.O. Box 11248
Church Street Station
New York, New York 10286-1248
THIS CERTIFICATE MAY NOT BE TRANSFERRED
THE REGISTERED OWNER OF THIS SUBSCRIPTION CERTIFICATE IS ENTITLED TO THE
NUMBER OF RIGHTS SHOWN IN THE UPPER RIGHT HAND CORNER OF THE OTHER SIDE OF
THIS FORM AND TO SUBSCRIBE FOR ADDITIONAL SHARES OF COMMON STOCK OF TCW
CONVERTIBLE SECURITIES FUND, INC. UPON THE TERMS AND CONDITIONS SPECIFIED
IN THE PROSPECTUS RELATING THERETO, WHICH ARE INCORPORATED HEREIN BY
REFERENCE, AND IS ALSO AFFORDED THE OVER-SUBSCRIPTION PRIVILEGE DESCRIBED
IN THE PROSPECTUS.
PLEASE FILL IN ALL APPLICABLE INFORMATION:
1. (A) Number of Shares Subscripted for in Primary Subscription (not to exceed
the ratio of one (1) Share for every five (5) Rights held): ______
(B) Number of Shares subscribed for under the Over-Subscription Privilege
(not to exceed the ratio of one (1) share for every five (5) rights
held): ______
(C) Total of (A) and (B) above ______
2. Method of Payment: Check (A) and (B):
(A) Notice of Guaranteed Delivery of Payment ______
or
(B) Multiply number of Shares on Line 1(C) by $ (and enclose money order
or check in this amount payable to "TCW Convertible Securities Fund,
Inc.")**
- --------
** The Purchase Price of $ used herein is assumed and may be more or less
than the actual Subscription Price. See pages and of the
Prospectus.
I hereby irrevocably subscribe for the number of Shares indicated above upon
the terms and conditions specified in the Prospectus relating hereto. Receipt
of the Prospectus is hereby acknowledged.
Signature of Subscriber: _______________________________________________________
(Joint owners should each sign. If signing as executor, administrator,
attorney, trustee, or guardian, give title as such. If a corporation, sign in
full corporate name by authorized officer. If a partnership, sign in the name
of authorized person.)
C-7
<PAGE>
TO BE EXECUTED ONLY BY NON-UNITED STATES RESIDENTS:
I hereby certify that the foregoing purchase of Common Stock has been
effected in accordance with the applicable laws of the jurisdiction in which I
reside.
Dated: __________________, 1997
_____________________________________
_____________________________________
C-8
<PAGE>
EXHIBIT ddd
NOTICE OF GUARANTEED DELIVERY FOR SHARES OF COMMON STOCK
OF TCW CONVERTIBLE SECURITIES FUND, INC. SUBSCRIBED
FOR UNDER PRIMARY SUBSCRIPTION AND THE
OVER-SUBSCRIPTION PRIVILEGE
As set forth on pages 12, 13, 14 and 15 of the Prospectus under "Payment for
Shares," this form or one substantially equivalent hereto may be used as a
means of effecting subscription and payment for all Shares of the Fund's Common
Stock subscribed for under the Primary Subscription and the Over-Subscription
Privilege. Such form may be delivered by hand or sent by facsimile
transmission, overnight courier or mail to the Subscription Agent.
The Subscription Agent is:
THE BANK OF NEW YORK
Attention: Tender and Exchange Department
<TABLE>
<S> <C> <C>
By Mail: By Facsimile: By Hand, Express Mail or
P.O. Box 11248 (Telecopier): Overnight Courier:
Church Street Station (212) 815-6213 101 Barclay Street
New York, New York Confirm by Telephone Receive & Delivery Window
10286-1248 (800) 507-9357 New York, New York 10286
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS
VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT
CONSTITUTE A VALID DELIVERY
The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate the guarantee and the number of Shares
subscribed for (under both the Primary Subscription and the Over-Subscription
Privilege) to the Subscription Agent and must deliver this Notice of Guaranteed
Delivery of Payment, guaranteeing delivery of (i) payment in full for all
Subscribed Shares and (ii) a properly completed and signed copy of the
Subscription Agreement, to the Subscription Agent prior to 5:00 p.m., New York
City time, on the Expiration Date. Failure to do so will result in a forfeiture
of the Rights.
C-9
<PAGE>
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a bank or
trust company, (i) guarantees delivery to the Subscription Agent by the close
of business (5:00 p.m., New York City time) on , 1997 of (A) a
properly completed and executed Subscription Certificate, and (B) payment of
the full Subscription Price for Shares subscribed for on Primary Subscription
and pursuant to the Over-Subscription Privilege, as subscription for such
Shares is indicated herein or in the Subscription Certificate.
<TABLE>
<C> <S>
------------------------------------------- ---------------------------------------------
NUMBER OF SHARES ON PRIMARY NUMBER OF SHARES ON OVER-
SUBSCRIPTION SUBSCRIPTION PRIVILEGE
------------------------------------------- ---------------------------------------------
Name of Firm Authorized Signature
------------------------------------------- ---------------------------------------------
Address Title
------------------------------------------- Name: ________________________________________
Zip Code (Please Type or Print)
------------------------------------------- ---------------------------------------------
Telephone Number Date
</TABLE>
C-10
<PAGE>
TCW FUNDS MANAGEMENT, INC.
865 S. FIGUEROA STREET, SUITE 1800
LOS ANGELES, CALIFORNIA 90017
(213) 244-0000 TELEPHONE
(213) 244-0645 FACSIMILE
February 3, 1997
TCW Convertible Securities Fund, Inc.
865 South Figueroa Street
Los Angeles, California 90017
Gentlemen:
At your request, I have examined the Registration Statement on Form N-2 , to
be filed by you with the Commission in connection with the registration under
the Securities Act of 1933, as amended, of 6,378,850 shares of your Common
Stock, $.01 par value (the "Shares"). I am familiar with the proceedings taken
and proposed to be taken by you in connection with the authorization, issuance
and sale of the Shares.
Based upon my examination and upon my knowledge of your corporate activities,
it is my opinion that, subject to such proceedings as now contemplated being
duly taken and completed by you prior to the issuance of the Shares and subject
to the issuance of an appropriate order by the Commission declaring the
Registration Statement, as amended, effective, the Shares upon issuance for
sale as set forth in the Registration Statement, as amended, will constitute
validly issued, fully paid and nonassessable shares of your Common Stock.
I consent to the filing of this opinion as an exhibit to the Registration
Statement. I am a member of the Bar of Maryland.
Respectfully submitted,
/s/ Philip K. Holl
Philip K. Holl
C-11
<PAGE>
EXHIBIT o
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ernest O. Ellison, Ronald E. Robison, Philip K.
Holl and Marie M. Bender, and each of them, his true and lawful attorneys-in-
fact and agents with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing in as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
May 22, 1996
/s/ Ernest O. Ellison
_____________________________________
Ernest O. Ellison
C-12
<PAGE>
EXHIBIT o
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ernest O. Ellison, Ronald E. Robison, Philip K.
Holl and Marie M. Bender, and each of them, his true and lawful attorneys-in-
fact and agents with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing in as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
May 22, 1996
/s/ Norman Barker, Jr.
_____________________________________
Norman Barker, Jr.
C-13
<PAGE>
EXHIBIT o
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ernest O. Ellison, Ronald E. Robison, Philip K.
Holl and Marie M. Bender, and each of them, his true and lawful attorneys-in-
fact and agents with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing in as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
May 22, 1996
/s/ Richard W. Call
_____________________________________
Richard W. Call
C-14
<PAGE>
EXHIBIT o
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ernest O. Ellison, Ronald E. Robison, Philip K.
Holl and Marie M. Bender, and each of them, his true and lawful attorneys-in-
fact and agents with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing in as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
May 22, 1996
/s/ Edmund W. Clarke
_____________________________________
Edmund W. Clarke
C-15
<PAGE>
EXHIBIT o
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ernest O. Ellison, Ronald E. Robison, Philip K.
Holl and Marie M. Bender, and each of them, his true and lawful attorneys-in-
fact and agents with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing in as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
May 22, 1996
/s/ Coleman W. Morton
_____________________________________
Coleman W. Morton
C-16
<PAGE>
EXHIBIT o
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ernest O. Ellison, Ronald E. Robison, Philip K.
Holl and Marie M. Bender, and each of them, his true and lawful attorneys-in-
fact and agents with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing in as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
May 22, 1996
/s/ Charles A. Parker
_____________________________________
Charles A. Parker
C-17
<PAGE>
EXHIBIT o
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ernest O. Ellison, Ronald E. Robison, Philip K.
Holl and Marie M. Bender, and each of them, his true and lawful attorneys-in-
fact and agents with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing in as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
May 22, 1996
/s/ Lawrence J. Sheehan
_____________________________________
Lawrence J. Sheehan
C-18
<PAGE>
EXHIBIT o
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ernest O. Ellison, Ronald E. Robison, Philip K.
Holl and Marie M. Bender, and each of them, his true and lawful attorneys-in-
fact and agents with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing in as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
May 22, 1996
/s/ Robert G. Sims
_____________________________________
Robert G. Sims
C-19
<PAGE>
EXHIBIT o
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ernest O. Ellison, Ronald E. Robison, Philip K.
Holl and Marie M. Bender, and each of them, his true and lawful attorneys-in-
fact and agents with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing in as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
May 22, 1996
/s/ David K. Sandie
_____________________________________
David K. Sandie
C-20
