TCW CONVERTIBLE SECURITIES FUND INC, N-30D, 1998-02-13

TCW CONVERTIBLE SECURITIES FUND INC
N-30D, 1998-02-13

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[LOGO OF TCW(R)] TCW CONVERTIBLE
SECURITIES FUND, INC.

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DIRECTORS AND OFFICERS
Ernest O. Ellison Coleman W. Morton
President and Director Director
John C. Argue Charles A. Parker
Director Director
Norman Barker, Jr. Lawrence J. Sheehan
Director Director
Richard W. Call Robert G. Sims
Director Director

Ronald E. Robison David K. Sandie
Senior Vice President and Principal Accounting
Chief Operating Officer Officer, Treasurer and
Robert M. Hanisee Assistant Secretary
Senior Vice President Philip K. Holl
Kevin A. Hunter Secretary
Senior Vice President Marie M. Bender
Thomas E. Larkin, Jr. Assistant Secretary
Senior Vice President Michael E. Cahill
Hilary G.D. Lord General Counsel and
Senior Vice President Assistant Secretary
and Assistant Secretary Peter C. DiBona
Assistant Treasurer
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SHAREHOLDER INFORMATION
INVESTMENT ADVISER
TCW Funds Management, Inc.
865 South Figueroa Street
Los Angeles, California 90017

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TRANSFER AGENT, DIVIDEND REINVESTMENT
AND DISBURSING AGENT AND REGISTRAR
The Bank of New York
Church Street Station
P.O. Box #11002
New York, New York 10277-0770

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CUSTODIAN
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540

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INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017

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LEGAL COUNSEL
O'Melveny & Myers LLP
400 S. Hope Street
Los Angeles, California 90071

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TCW CONVERTIBLE
SECURITIES FUND, INC.
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ANNUAL REPORT
DECEMBER 31, 1997

[LOGO OF TWC(R)]

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TCW CONVERTIBLE SECURITIES FUND, INC.
The President's Letter
[LOGO OF TCW]
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DEAR SHAREHOLDER:

1997 was a superb year for the domestic financial markets, but ended in
turmoil. The Asian crisis caused considerable consternation among U.S.
investors. As a result, stock prices corrected in October and there has been
an increase in stock market volatility. Despite the gyrations of the fourth
quarter, the S&P500 recorded its third straight year of greater than 20%
returns. In addition, the end of 1997 marked the best ten-year period on
record for returns on the Dow Jones average. Bonds also joined the party with
both high grade and high yield issues generating returns well in excess of
their coupons. Convertibles performed well in this environment, with most
convertible indices generating returns of 17% to 19%.

PERFORMANCE OF THE FUND'S SHARES

During 1997, the Fund's shareholders realized a total return of 13.0% (with
dividends reinvested). This included four regular quarterly distributions of
$0.21 per share and an additional year-end distribution of $0.03 per share for
a total of $0.87 per share. Of this amount, $0.37 per share was classified as
ordinary income and $0.50 per share was classified as long-term capital gain
for federal tax purposes. The market value of the Fund's shares was $9.375 at
the beginning of the year and ended 1997 at $9.625. The per share market value
of $9.625 represented a premium of 4.51% to the Fund's net asset value ("NAV")
of $9.21. The contraction of the Fund's premium over NAV from 10.2% to 4.5%
during 1997 caused the return to shareholders of 13.0% to be below the return
on NAV which was 19.1%.

THE CONVERTIBLE MARKET

The convertible market remains a dynamic and rewarding area for investment.
Although convertibles have lagged the spectacular performance of the S&P 500
during the last three years, over the long term convertibles continue to
capture a significant portion of the upside of stocks while providing lower
volatility and significant protection of capital. With the market in the midst
of a period of tremendous uncertainty, it is likely that returns will be lower
in 1998 than they have been during the past three years. With their relatively
higher yield, participation with equities on the upside and defensive
qualities, convertible securities should be positioned to provide very
competitive returns compared to equities going forward.

The new issue market posted a record year for dollar volume in 1997. During
the year, a total of 140 issues with a net value of $28.0 billion came to
market. New issuance exceeded redemptions and led to a small increase in the
total size of the U.S. convertible market to approximately $137 billion. New
issue terms varied considerably during the year. While many issues were priced
attractively, terms became aggressive during the middle of the year. The most
dramatic change was an increase in conversion premiums to a range of 30%-70%.
In 1997, 22 issues with a market value of $7.4 billion were issued with high
conversion premiums. We did not find many of these issues attractive and
participated in only a limited number of them. For the high premium issues
which we did purchase, the bond value combined with an attractive stock have
the potential to lead to annualized mid-teens returns on the upside with very
low downside risk.

The other positive trend in new issue terms, which is positive, is the
continued shortening of maturities. The average convertible issued during 1997
had a 6.8 year maturity and was issued at a 26.3% premium over bond value.
With interest rates declining, these short maturity bonds will provide
substantial downside protection should the underlying stocks decline.

TABLE 1
NEW ISSUE CONVERTIBLE BONDS
MATURITY/PREMIUM TO INVESTMENT VALUE

<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Maturity (Years)*............... 15.0 10.3 9.2 9.4 8.2 7.2 7.0 6.8
% Premium to Investment Value........... 98.7 33.6 26.9 27.8 23.9 24.4 31.3 26.3
</TABLE>
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*New Issue Convertible Bonds
Source: Salomon Smith Barney

1
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TCW CONVERTIBLE SECURITIES FUND, INC.
The President's Letter (continued)
[LOGO OF TCW]
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FUND PERFORMANCE AND STRATEGY

The Fund's underlying investment performance in 1997 exceeded that of the
convertible benchmarks. While the Fund's performance was lower than that of
the S&P 500, it was very competitive with that of the NASDAQ.

TABLE 2
FUND PERFORMANCE

<TABLE>
<CAPTION>
1997
------
<S> <C>
TCW Convertible Securities Fund, Inc. ................................... 19.1%*
First Boston Convertible Securities Index................................ 16.9%
Lipper average of convertible mutual funds............................... 17.6%*
Standard & Poors 500..................................................... 33.4%
NASDAQ................................................................... 21.6%
</TABLE>
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*Returns are net of management fees and expenses.

Most of the incremental relative performance of the Fund was generated
during the turbulent fourth quarter. While the convertible benchmarks declined
between 1.4% and 2.8% the Fund generated a positive return. The performance
was, in part, due to the Fund's lower exposure to technology and energy. These
industries are heavily weighted in the convertible universe and were down
significantly.

TABLE 3
INDUSTRY PERFORMANCE*

<TABLE>
<CAPTION>
Total Returns
4Q97
-------------
<S> <C>
Oil & Gas Products................................................ (5.6%)
Integrated Oil - Domestic......................................... (3.9%)
Integrated Oil - Foreign.......................................... (5.4%)
Oil Services...................................................... (5.6%)
Computer Hardware................................................. (0.9%)
Electronics - Semiconductors...................................... (7.2%)
Electronics - Instrumentation..................................... (12.0%)
</TABLE>
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*Source: Merrill Lynch

The Fund began the year most heavily weighted in the consumer staples and
capital goods sector. The Fund was relatively under weighted in the consumer
cyclical, basic industry and credit sensitive sectors. Within the consumer
staples sector, the largest industry weightings are in media, health care,
business services and retail. We believe that in a moderating economy, these
industries should show very good relative growth. While retail might be
expected to slow in a moderating economy, the consumer appears to be in good
shape and continues to spend. In the capital goods sector, weightings were
reduced somewhat during the year. More importantly, the Fund's commitment to
technology decreased as the year progressed. As holdings in technology were
sold, the Fund added investments in telecommunications. The basic industrial
sector continues to be under weighted. Most industries in this sector have low
unit growth and little pricing flexibility. Furthermore, many Asian companies
in this sector may flood their respective markets with low cost products
increasing already intense competition. The weighting in the credit sensitive
sector declined as the Fund liquidated some of its holdings in REITs and the
insurance industry.

TABLE 4
SECTOR ALLOCATION*

<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
------------ ------------
<S> <C> <C>
Consumer Staples...................................... 48.9% 56.1%
Capital Goods......................................... 33.3% 26.3%
Consumer Cyclicals.................................... 1.1% 1.2%
Basic Industries...................................... 5.6% 7.2%
Credit Sensitive...................................... 13.0% 6.6%
</TABLE>
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*As a percentage of net assets.

During 1997, the Fund benefitted from holdings in a diverse group of securi-
ties. The best performing industry was cable. After three years of under-per-
formance, the group performed spectacularly. Holdings in Telecommunications
Inc., U.S. West Media, Cox Communications and Time Warner all did well. In ad-
dition to cable, the Fund realized significant profits on several technology
holdings such as Altera, Analog Devices and Quantum Corp. The Fund's holding
in Cisco Systems also

2
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appreciated significantly during the year. Other holdings which added
significant performance included Sepracor, SFX Broadcasting, Home Depot,
Hexcel and Staples. The excellent performance of these securities offset some
disappointments. In particular, significant holdings in Motorola, U.S. Filter,
Thermo Electron, Xilinx and Safeguard Scientific under performed. However, we
believe that after a year's hiatus, all of these holdings should do well in
1998.

The Fund's strategy continues to emphasize companies which can show good
earnings growth in a moderately growing economy. It is expected that the Fund
will continue to invest in media, health care, technology, telecommunications
and business and financial services where growth prospects appear promising.
There still appears to be little reason to invest in most basic industries
with the exception of energy. During the last three to four months, many
energy stocks have declined significantly and now appear attractive. In
addition, with current market volatility high and the tremendous uncertainty
created by the Asian economic crisis, the Fund remains committed to selling
most convertibles as they become equity equivalents and reinvesting the
proceeds in convertibles which have good downside protection via short
maturities or relatively high yields.

ECONOMIC/MARKET OUTLOOK

Intermediate and long term interest rates fell significantly in 1997 and
continue to do so in 1998. The Asian crisis should lower worldwide GDP growth
in 1998 and lead to lower prices for many basic industrial goods and imported
products. This should take some pressure off of inflation and lead to lower
interest rates. Several prognosticators are now forecasting that thirty-year
U.S. Treasury rates will fall to 5.0% by year-end 1998. While this may be
optimistic, at least one cut in the Fed Funds rate seems likely and long term
yields could fall to a range of 5.25%-5.50% by the second half of 1998.
TABLE 5
U.S. TREASURY SECURITIES YIELD

<TABLE>
<CAPTION>
3 mo 1 yr 3 yr 5 yr 10 yr 30 yr
---- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
12/31/96................................ 5.18% 5.49% 6.02% 6.21% 6.42% 6.64%
12/31/97................................ 5.35% 5.49% 5.67% 5.71% 5.74% 5.92%
Change in
Basis Points........................... 0.17 0.00 (0.35) (0.50) (0.68) (0.72)
</TABLE>

In 1997, the U.S. enjoyed strong real growth led by a capital spending boom,
rising real incomes and strong corporate profitability. With unemployment at
4.6%, rising pressure on inflation might be expected, but surprisingly
inflation was at its lowest level in three decades and interest rates fell.
While it is expected that problems in Asia will reduce U.S. real growth by
between 0.5% and 0.75%, the U.S. economy should still grow between 2%-3%. Thus
far, the problems in Asia have affected price levels and interest rates rather
than U.S. economic growth. In all likelihood, the impact of the Asian turmoil
on economic growth should be felt during the first half of 1998.

While a massive international effort is underway to try to contain the
crisis, there can be no assurance that the worst is over. A sovereign debt
default or an adjustment of the Hong Kong peg could have serious repercussions
and further depress worldwide equity markets. Perhaps the biggest impact of
the Asian crisis on the U.S. will be to pressure profitability of U.S.
corporations. A flood of low-priced imports could enter U.S. markets in 1998.
The combination of slower revenue growth due to a moderating economy, import
competition and higher wage rates could pressure profit margins thus leading
to earnings disappointments. The critical question for investors is whether
higher P/E ratios due to lower inflation and interest rates will offset the
deterioration in corporate profit growth.

3
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TCW CONVERTIBLE SECURITIES FUND, INC.
The President's Letter (continued)
[LOGO OF TCW]
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While it is impossible to predict the outcome of the turmoil in Asia, it is
clear the environment for equities has become more uncertain. During the next
few months, world equity markets are likely to remain volatile. The U.S. equity
market seems to have entered a period of adjustment. While lower interest rates
may mute the impact of lower earnings on stock prices, it seems that a fourth
year of equity returns above 20% is unlikely. Our best guess is that returns
will regress toward the long term mean of 10% with risk to the downside if the
Asian crisis is not contained or corporate earnings growth turns negative. In
this type of an environment, convertibles should provide competitive returns
relative to equities with significant downside protection.

RIGHTS OFFERING

The Fund launched a rights offering earlier this year. The offering was fully
subscribed and the Fund received the proceeds of approximately $51.6 million in
mid-May. These proceeds were invested promptly on behalf of the Funds
investors. This proved to be fortuitous because the market has risen
substantially since the proceeds were invested. Investors were able to purchase
new shares at $8.09. These shares were worth $9.625 at December 31, 1997 and
taking into account the quarterly dividends of $0.21 per share and the
additional $0.03 distribution at year end, the return to investors has been
27.7% on these newly issued shares (including dividend reinvestment).

DIVIDEND REINVESTMENT PLAN

Shareholders who wish to add to their investment may do so through the
Dividend Reinvestment Plan. Under the Plan, your dividend is used to purchase
shares on the open market whenever shares and the related sales commission are
selling below the per share Net Asset Value. If the market price, including
commission on the share, is selling above the Net Asset Value, you will receive
shares at a price equal to the higher of the Net Asset Value per share on the
payment date or 95% of the closing market price.

To enroll in the Plan, if your shares are registered in your name, write to
the Bank of New York, Church Street Station, P. O. Box #11002, New York, New
York, 10277-0770, or call their toll free number (800) 524-4458. If your shares
are held by a brokerage firm, please call your broker. If, however, you need
assistance please call our investor relations department at (800) 386-3829. As
always, we would be pleased to accommodate your investment needs.

Sincerely,
/s/ Ernest O. Ellison
Ernest O. Ellison
President and Director

February 3, 1998

4
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TCW CONVERTIBLE SECURITIES FUND, INC.
Schedule of Investments
December 31, 1997
[LOGO OF TCW]
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<TABLE>
<CAPTION>
Number of
Shares or
Principal
Amount Value
--------- -----
<C> <S> <C>
CONSUMER STAPLES (56.1% OF NET ASSETS)
DRUGS AND HOSPITAL SUPPLY (2.4%)
$5,465,000 Sandoz Capital BVI, Ltd., (Switzerland), 2%, due
10/06/02........................................... $ 8,375,113*
-----------
ENTERTAINMENT, LEISURE AND MEDIA (11.9%)
$1,500,000 Activision, Inc., 6.75%, due 01/01/05............... 1,597,500*
84,100 Evergreen Media Corp., $3.00 Convertible Preferred.. 6,622,875*
9,300 Golden Books Family Entertainment, Inc., $4.375
Convertible Preferred.............................. 492,900
52,500 Golden Books Family Entertainment, Inc., $4.375
Convertible Preferred.............................. 2,782,500*
209,500 Houston Industries, Inc., Exchangeable Time Warner,
$3.215 Convertible Preferred....................... 11,954,594
166,700 Merrill Lynch & Company, Inc., Exchangeable Cox
Communications, Inc., $1.3725 Convertible
Preferred.......................................... 5,646,963
48,100 TCI Pacific Communications, Inc., $5.00 Convertible
Preferred.......................................... 7,918,463
85,400 U.S. West, Inc., Exchangeable U.S. West Media Group,
$2.25 Convertible Preferred........................ 5,268,113
-----------
Total Entertainment, Leisure and Media.............. 42,283,908
-----------
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares or
Principal
Amount Value
--------- -----
<C> <S> <C>
FOODS, HOTELS AND RESTAURANTS (3.1%)
69,200 Apple South, Inc., $3.50
Convertible Preferred.............................. $ 3,758,425*
63,500 Host Marriott Financial Trust,
$3.375 Convertible Preferred....................... 3,810,000*
$3,530,000 Signature Resort, 5.75%, due 01/15/07............... 3,596,188
-----------
Total Foods, Hotels and Restaurants................. 11,164,613
-----------
HEALTHCARE (15.5%)
$6,205,000 Alternative Living Services, Inc., 5.25%, due
12/15/02........................................... 7,228,825
$1,920,000 Alternative Living Services, Inc.,
7%, due 06/01/04................................... 2,822,400*
$4,625,000 Assisted Living Concepts, Inc.,
6%, due 11/01/02................................... 5,018,125
$9,595,000 Athena Neurosciences, Inc.,
Exchangeable Elan Corp. PLC (Ireland), 4.75%, due
11/15/04........................................... 9,606,994*
$3,720,000 Atria Communities, Inc., 5%, due 10/15/02........... 3,775,800*
77,400 Laboratory Corp. of America Holdings, $4.25
Convertible Preferred.............................. 3,579,750
$3,020,000 Morgan Stanley Group, Inc., Exchangeable Johnson &
Johnson, 2%, due 03/29/02.......................... 3,608,900
$3,910,000 OccuSystems, Inc., 6%, due 12/15/01................. 5,469,113*
$6,380,000 Omnicare, Inc., 5%, due 12/01/07.................... 6,419,875*
</TABLE>

* Restricted security. (See Note 8)

See accompanying Notes to Financial Statements.

5
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TCW CONVERTIBLE SECURITIES FUND, INC.
Schedule of Investments (continued)
December 31, 1997
[LOGO OF TCW]
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<TABLE>
<CAPTION>
Number of
Shares or
Principal
Amount Value
--------- -----
<C> <S> <C>
$ 510,000 Quintiles Transnational Corp., 4.25%, due
05/31/00......................................... $ 573,750
$ 2,880,000 Quintiles Transnational Corp., 4.25%, due
05/31/00......................................... 3,240,000*
$ 2,815,000 Sunrise Assisted Living, Inc., 5.5%, due 06/15/02. 3,701,725*
-----------
Total Healthcare.................................. 55,045,257
-----------
RETAIL (8.2%)
$12,250,000 Costco Companies, Inc., 0%,
due 08/19/17..................................... 7,304,063*
$ 6,665,000 Home Depot, Inc., 3.25%, due 10/01/01............. 8,931,100
65,400 Kmart Corp., $3.875 Convertible Preferred......... 3,376,275
$ 7,085,000 Staples, Inc., 4.5%, due 10/01/00................. 9,369,913*
-----------
Total Retail...................................... 28,981,351
-----------
RETAIL FOOD AND DRUG (1.9%)
$ 6,250,000 Rite Aid Corp, 5.25%, due 09/15/02................ 6,750,000*
-----------
SERVICES--BUSINESS (13.1%)
$ 8,935,000 Cendant Corp., 4.75%, due 03/01/03................ 11,928,225
$ 4,925,000 Corestaff, Inc., 2.94%, due 08/15/04.............. 4,106,219
$ 1,200,000 CUC International, Inc., 3%, due 02/15/02......... 1,504,500
$ 1,000,000 CUC International, Inc., Reg S, 3%, due 02/15/02.. 1,253,750
$ 8,845,000 CUC International, Inc., 3%, due 02/15/02......... 11,089,419*
$ 4,955,000 Omnicon Group, Inc., 4.25%, due 01/03/07.......... 6,788,350*
$ 3,150,000 Personnel Group of America, Inc., 5.75%, due
07/01/04......................................... 3,587,063*
$ 3,295,000 SmarTalk Teleservices, Inc., 5.75%, due 09/15/04.. 3,521,531*
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares or
Principal
Amount Value
--------- -----
<C> <S> <C>
56,200 Snyder Communications, Inc., $1.6778 Convertible
Preferred......................................... $ 1,910,800
10,000 Vanstar Corp., $3.375 Convertible Preferred........ 368,750
15,000 Vanstar Corp., $3.375 Convertible Preferred........ 553,125*
------------
Total Services--Business........................... 46,611,732
------------
TOTAL CONSUMER STAPLES (Cost: $166,342,771)........ 199,211,974
------------
CONSUMER CYCLICALS
(COST: $3,965,000) (1.2%)
AUTOMOTIVE (1.2%)
$3,965,000 Tower Automotive, Inc., 5%, due 08/01/04........... 4,123,600*
------------
CAPITAL GOODS (26.3%)
AEROSPACE AND CONGLOMERATES (3.4%)
$3,215,000 Morgan Stanley Group, Inc., Exchangeable Boeing
Company, 0%, due 09/30/00......................... 3,600,800
$3,145,000 Hexcel Corp., 7%, due 08/01/03..................... 5,157,800
$1,875,000 Titan Corp., 8.25%, due 11/01/03................... 3,363,281
------------
Total Aerospace and Conglomerates.................. 12,121,881
------------
ELECTRICAL INSTRUMENTS AND COMMUNICATION EQUIPMENT
(4.2%)
$4,790,000 Premiere Technologies, Inc., 5.75%, due 07/01/04... 4,999,563*
$1,630,000 Tel-Save Holdings, Inc., 4.5%, due 09/15/02........ 1,572,950*
$8,600,000 Tel-Save Holdings, Inc., 5%, due 12/15/04.......... 8,159,250*
------------
Total Electrical Instruments and Communication
Equipment......................................... 14,731,763
------------
</TABLE>

* Restricted security. (See Note 8)
See accompanying Notes to Financial Statements.

6
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TCW CONVERTIBLE SECURITIES FUND, INC.
Schedule of Investments (continued)
December 31, 1997
[LOGO OF TCW]
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<TABLE>
<CAPTION>
Number of
Shares or
Principal
Amount Value
--------- -----
<C> <S> <C>
ELECTRONICS--SEMICONDUCTORS AND INSTRUMENTS (0.9%)
$ 3,000,000 Adaptec, Inc., 4.75%, due 02/04/04................. $ 3,090,000*
-----------
INFORMATION PROCESSING (5.0%)
72,100 Morgan Stanley Group, Inc., Exchangeable Cisco
Systems, Inc., $4.00 Convertible Preferred........ 6,633,200
$ 6,585,000 Safeguard Scientifics, Inc., 6%, due 02/01/06...... 7,416,356*
$ 3,575,000 Wind River Systems, Inc., 5%, due 08/01/02......... 3,811,844*
-----------
Total Information Processing....................... 17,861,400
-----------
OFFICE EQUIPMENT & SUPPLIES (1.0%)
$ 3,740,000 Xerox Corp., 2.875%, due 07/01/02.................. 3,665,200
-----------
POLLUTION CONTROL (8.5%)
$ 8,050,000 Thermo Electron Corp., 4.25%, due 01/01/03......... 10,143,000*
$11,645,000 United States Filter Corp., 4.5%, due 12/15/01..... 12,052,575
$ 7,245,000 USA Waste Systems, Inc., 4%, due 02/01/02.......... 7,933,275
-----------
Total Pollution Control............................ 30,128,850
-----------
TELECOMMUNICATION EQUIPMENT (3.3%)
$15,265,000 Motorola, Inc., 0%, due 09/27/13................... 11,620,481
-----------
TOTAL CAPITAL GOODS (Cost: $85,224,953)............ 93,219,575
-----------
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares or
Principal
Amount Value
--------- -----
<C> <S> <C>
BASIC INDUSTRIES (7.2%)
ENERGY AND OIL SERVICES (5.0%)
$6,560,000 Baker Hughes, Inc., 0%, due 05/05/08................ $ 5,608,800
$1,535,000 Diamond Offshore Drill, 3.75%, due 02/15/07......... 2,076,088
79,300 EVI, Inc., $2.50 Convertible Preferred.............. 3,657,713*
$3,040,000 Loews Corp., Exchangeable Diamond Offshore Drill,
3.125%, due 09/15/07............................... 2,941,200
61,400 Unocal Corp., $3.125 Convertible Preferred.......... 3,469,100
-----------
Total Energy and Oil Services....................... 17,752,901
-----------
OIL AND GAS-INTERNATIONAL (0.7%)
31,100 Occidental Petroleum Corp., Exchangeable Canadian
Occidental Petroleum, $3.00 Convertible Preferred
(Canada)........................................... 2,581,300
-----------
PAPER AND PACKAGING (0.8%)
$3,030,000 Metsa-Serla OYJ, (Finland), 4.375%, due 10/15/02.... 2,772,450*
-----------
TRANSPORTATION (0.7%)
$2,345,000 Halter Marine Group, Inc., 4.5%, due 09/15/04....... 2,532,600*
-----------
TOTAL BASIC INDUSTRIES (Cost: $24,979,264).......... 25,639,251
-----------
</TABLE>

* Restricted security. (See Note 8)
See accompanying Notes to Financial Statements.

7
<PAGE>

<TABLE>
<CAPTION>
Principal
Amount Value
----------- -----
<C> <S> <C>
REPURCHASE AGREEMENTS (6.0%)
$ 118,831 Stock Loan Repurchase, Bear Stearns & Co., Inc.,
dated 12/31/97, 3.375%, due 01/02/98
(collateralized by $125,000 U.S. Treasury Bill,
valued at $123,855).............................. $ 118,831
$ 4,863,670 Stock Loan Repurchase, Bear Stearns & Co., Inc.,
dated 12/31/97, 6.875%, due 01/02/98
(collateralized by $5,000,000 U.S. Treasury Bill,
valued at $4,964,800)............................ 4,863,670
$16,454,887 Cash Repurchase Agreement, Bear Stearns & Co.,
Inc., dated 12/31/97, 6.25%, due 01/02/98
(collateralized by $16,935,000 U.S. Treasury
Bill, valued at $16,786,555)..................... 16,454,887
------------
TOTAL REPURCHASE AGREEMENTS (COST: $21,437,388)... 21,437,388
------------
TOTAL INVESTMENTS (103.4%) (COST: $321,122,585)... 367,035,532
------------
EXCESS OF LIABILITIES OVER OTHER ASSETS (-3.4%)... (11,974,261)
------------
NET ASSETS (100%)................................. $355,061,271
============
</TABLE>

* Restricted security. (See Note 8)
See accompanying Notes to Financial Statements.

8
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- --------------------------------------------------------------------------------
TCW CONVERTIBLE SECURITIES FUND, INC.
Statement of Assets and Liabilities
December 31, 1997
[LOGO OF TCW]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at Value (Cost $321,122,585) (Note 1).............. $367,035,532
Interest and Dividends Receivable.............................. 2,761,813
------------
Total Assets................................................. 369,797,345
------------
LIABILITIES:
Payable upon Return of Securities Loaned (Note 5).............. 4,982,501
Distributions Payable.......................................... 9,254,707
Accrued Investment Advisory and Service Fees (Note 3).......... 335,323
Accounts Payable............................................... 163,543
------------
Total Liabilities............................................ 14,736,074
------------
NET ASSETS....................................................... $355,061,271
============
Net Assets were comprised of:
Common Stock, par value $0.01 per share, (50,000,000 shares
authorized, 38,561,279 shares issued and outstanding)......... $ 385,613
Paid-in Capital................................................ 342,125,181
Distribution of Paid-in Capital (Note 1)....................... (34,179,879)
Net Unrealized Appreciation of Investments..................... 45,912,947
Undistributed Net Realized Gains on Investments................ 817,409
------------
NET ASSETS....................................................... $355,061,271
============
NET ASSET VALUE PER SHARE........................................ $ 9.21
============
</TABLE>

See accompanying Notes to Financial Statements.

9
<PAGE>

- --------------------------------------------------------------------------------
TCW CONVERTIBLE SECURITIES FUND, INC.
Statement of Operations
Year Ended December 31, 1997
[LOGO OF TCW]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Note 1) (including security lending fees of $54,242).... $10,209,331
Dividends (Note 1)................................................ 4,805,938
-----------
Total Investment Income......................................... 15,015,269
-----------
EXPENSES:
Investment Advisory Fees (Note 3)................................. 1,853,979
Custodian Fees.................................................... 119,271
Transfer Agent Fees............................................... 85,000
Directors' Fees and Expenses (Note 6)............................. 75,000
Proxy Costs....................................................... 65,000
Printing and Distribution Costs................................... 50,000
Listing Fees...................................................... 33,478
Audit and Tax Service Fees........................................ 30,000
Accounting and Other Service Fees (Note 3)........................ 25,000
Insurance Costs................................................... 14,741
Business Tax Fees................................................. 10,585
Legal Fees (Note 6)............................................... 5,840
Miscellaneous..................................................... 2,562
-----------
Total Expenses.................................................. 2,370,456
-----------
Net Investment Income........................................... 12,644,813
-----------
NET REALIZED GAINS AND CHANGE IN UNREALIZED APPRECIATION
OF INVESTMENTS:
Net Realized Gains on Investments................................. 19,760,433
Change in Unrealized Appreciation of Investments.................. 29,491,278
-----------
Net Realized Gains and Change in Unrealized
Appreciation of Investments.................................... 49,251,711
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................... $61,896,524
===========
</TABLE>

See accompanying Notes to Financial Statements.

10
<PAGE>

- --------------------------------------------------------------------------------
TCW CONVERTIBLE SECURITIES FUND, INC.
Statements of Changes in Net Assets
[LOGO OF TCW]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net Investment Income.................... $ 12,644,813 $ 11,278,914
Net Realized Gains on Investments........ 19,760,433 24,933,292
Change in Unrealized Appreciation
(Depreciation) of Investments........... 29,491,278 (382,158)
------------ ------------
Increase in Net Assets Resulting from
Operations............................ 61,896,524 35,830,048
------------ ------------
Distributions to Shareholders:
From Net Investment Income............... (12,644,813) (11,278,914)
From Net Realized Gains on Investments... (19,482,548) (19,904,764)
------------ ------------
Total Distributions to Shareholders.... (32,127,361) (31,183,678)
------------ ------------
Capital Share Transactions:
Shares Issued through Exercise of Common
Stock Subscription Rights (6,396,283)
(Note 9)................................ 51,583,087 --
Shares Issued in Reinvestment of
Dividends (270,747 for the year ended
December 31, 1997 and 233,869 for the
year ended December 31, 1996)........... 2,442,324 2,012,418
------------ ------------
Total Increase in Net Assets........... 83,794,574 6,658,788
NET ASSETS:
Beginning of Year.......................... 271,266,697 264,607,909
------------ ------------
End of Year................................ $355,061,271 $271,266,697
============ ============
</TABLE>

See accompanying Notes to Financial Statements.

11
<PAGE>

- -------------------------------------------------------------------------------
TCW CONVERTIBLE SECURITIES FUND, INC.
Notes to Financial Statements
[LOGO OF TCW]
- -------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:

TCW Convertible Securities Fund, Inc. (the "Fund") was incorporated in Mary-
land on January 13, 1987 as a diversified, closed-end management investment
company and is registered under the Investment Company Act of 1940, as amend-
ed. The Fund commenced operations on March 5, 1987. The Fund's investment ob-
jective is to seek a total investment return, comprised of current income and
capital appreciation through investment principally in convertible securities.

The preparation of the accompanying financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates.

The following is a summary of the significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.

SECURITY VALUATION: Securities traded on national exchanges are valued at the
last reported sales price or the mean of the current bid and asked prices if
there are no sales in the trading period immediately preceding the time of de-
termination. Other securities which are traded on the over-the-counter market
are valued at the mean of the current bid and asked prices. Short-term debt
securities with maturities of 60 days or less at the time of purchase are val-
ued at amortized cost. Securities for which quotations are not readily avail-
able and unregistered securities are valued at fair value as determined in
good faith by, or under the direction of, the Board of Directors.

SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions are
recorded on the trade date. Dividend income is recorded on the ex-dividend
date, while interest income is recorded on the accrual basis. Original issue
discount is accreted as interest income using a constant yield to maturity.
Discounts on securities purchased are recognized as interest income at the
time the security is sold using a constant yield to maturity. Premiums on
securities purchased are not amortized. Realized and unrealized gains and
losses on investments are recorded on the basis of identified cost.

DISTRIBUTIONS: The Fund's Board of Directors has adopted a policy under which
it has declared quarterly dividends of $0.21 per share. Payments to
shareholders under the distribution policy are reflected in the financial
statements in the following order; first from net investment income and,
depending upon the results achieved each year, secondly from net realized
capital gains, thirdly as a distribution in excess of net investment income or
capital gains which may become taxable to shareholders in the subsequent year
and, lastly, as a return of capital which is not taxable to shareholders.

Income and capital gain distributions are determined in accordance with in-
come tax regulations which may differ from generally accepted accounting prin-
ciples. These differences are primarily due to differing treatments for losses
deferred due to wash sales and spillover distributions. Permanent book and tax
basis differences relating to shareholder distributions will result in reclas-
sifications to paid in capital and may affect net investment income per share.

REPURCHASE AGREEMENT: The Fund may invest in repurchase agreements secured by
U.S. Government Securities. A repurchase agreement arises when the Fund pur-
chases a security and simultaneously agrees to resell it to the seller at an
agreed upon future date. 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 de-
lays, collection expenses and losses to the extent that the proceeds from the
sale of the collateral are less than the repurchase price.

12
<PAGE>

- -------------------------------------------------------------------------------
TCW CONVERTIBLE SECURITIES FUND, INC.
Notes to Financial Statements (continued)
[LOGO OF TCW]
- -------------------------------------------------------------------------------

NOTE 2--FEDERAL INCOME TAXES:

It is the policy of the Fund to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and distribute all
of its net taxable income, including any net realized gains on investments, to
its shareholders. Therefore, no federal income tax provision is required.

During the year ended December 31, 1997, the Fund realized on a tax basis net
realized gains of $19,760,433 on security transactions.

As of December 31, 1997, net unrealized appreciation (depreciation) for fed-
eral income tax purposes is comprised of the following components:

<TABLE>
<S> <C>
Appreciated securities............................................ $ 47,337,137
Depreciated securities............................................ (1,424,190)
------------
Net unrealized appreciation....................................... $ 45,912,947
============
Cost of securities for federal income tax purposes................ $321,122,585
============
</TABLE>

NOTE 3--INVESTMENT ADVISORY AND SERVICE FEES:

TCW Funds Management, Inc. is the Investment Adviser of the Fund and also
furnishes the Fund with accounting and other services and office space. As
compensation for the services rendered, facilities provided, and expenses
borne, the Adviser is paid a monthly fee by the Fund 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. In addition,
the Fund reimburses the Adviser for the costs of providing accounting services
to the Fund (up to a maximum of $25,000 per year).

NOTE 4--PURCHASES AND SALES OF SECURITIES:

For the year ended December 31, 1997, purchases and sales or maturities of
investment securities (excluding short-term investments) aggregated
$442,842,376 and $423,664,595, respectively. There were no purchases or sales
of U.S. Government securities for the year ended December 31, 1997.

NOTE 5--SECURITY LENDING:

During the year ended December 31, 1997, the Fund lent securities to a broker.
The broker provided collateral, which must be maintained at not less than
100% of the value of the loaned securities, to secure the obligation. At
December 31, 1997, the cash received from the borrowing broker was invested in
overnight repurchase agreements issued by the borrowing broker which, in turn,
were collateralized by U.S. Treasury securities valued at $5,088,655, or 102%,
of the value of the loaned securities.

NOTE 6--DIRECTORS' AND LEGAL FEES:

Directors who are not affiliated with the Investment Adviser received, as a
group, aggregate fees and expenses of $75,000 from the Fund for the period
ended December 31, 1997. Legal fees totaled $5,840 of which $1,703 were paid
to O'Melveny & Myers, of which an individual who is of counsel, serves as a
director of the Fund. Certain officers and/or directors of the Fund are also
officers and/or directors of the Investment Adviser.

NOTE 7--REPORT OF ANNUAL MEETING OF SHAREHOLDERS:

The Annual Meeting of Shareholders of the Fund was held on July 16, 1997. At
the meeting, the following matters were submitted to a shareholder vote and
approved by a vote of a majority of the Fund's outstanding voting securities:
(i) the election of Ernest O. Ellison, John C. Argue, Norman Barker, Jr.,
Richard W. Call, Coleman W. Morton, Charles A. Parker, Lawrence J. Sheehan and
Robert G. Sims as Directors to serve until the next annual meeting of the
Fund's shareholders and until their successors are elected and qualify (each
Director received 31,212,605 affirmative votes; votes opposed 319,388 and
votes withheld 337,401); (ii) Renewal of the Investment Advisory and Management
Agreement for another annual period (votes for: 30,947,323; votes against
383,620 and abstentions 538,451); and (iii) the ratification of the

13
<PAGE>

- --------------------------------------------------------------------------------
TCW CONVERTIBLE SECURITIES FUND, INC.
Notes to Financial Statements (continued)
[LOGO OF TCW]
- --------------------------------------------------------------------------------
selection of Deloitte & Touche LLP as independent auditors of the Fund for the
fiscal year ending December 31, 1997 (votes for: 31,262,618; votes against
185,364 and abstentions 421,412). 38,437,491 shares were outstanding on the
record date for this meeting and 31,869,394 shares entitled to vote were pres-
ent in person or by proxy at the meeting.

NOTE 8--RESTRICTED SECURITIES:

The following restricted securities held by the Fund at December 31, 1997 were
valued both at the date of acquisition and December 31, 1997, in accordance
with the Security Valuation policy of the Fund described in Note 1. The
restricted securities were purchased in private placement transactions without
registration under the Securities Act of 1933. Such securities generally may be
sold only in a privately negotiated transaction with a limited number of
purchasers, in a public offering registered under the Securities Act of 1933
(the "1933 Act") or in accordance with Rule 144A under the 1933 Act. The Fund
may classify a Rule 144A security as liquid if it can be reasonably expected
that the Fund would be able to dispose of the security within seven days in the
ordinary course of business at approximately its carrying value. Rule 144A
securities for which such a determination is not made and other restricted
securities are deemed illiquid and are subject to an aggregate limitation of no
more than 15% of the Fund's investment portfolio. The Fund will bear any costs
incurred in connection with the disposition of restricted securities. The total
value of restricted securities at December 31, 1997 is $163,225,110, which
represents 46% of net assets.

14
<PAGE>

NOTE 8--RESTRICTED SECURITIES (CONTINUED)

<TABLE>
<CAPTION>
Number of
Shares or
Principal Date of
Amount Acquisition Cost
--------- ----------- ----------
<C> <S> <C> <C>
$ 1,500,000 Activision, Inc., 6.75%, due 01/01/05..... 12/16/97 $1,500,000
$ 3,000,000 Adaptec, Inc., 4.75%, due 02/04/04........ 01/28/97 3,006,250
$ 1,920,000 Alternative Living Services, Inc., 7%, due
06/01/04................................. 05/14/97 1,920,000
69,200 Apple South, Inc., $3.50 Convertible
Preferred................................ 03/06/97 3,541,000
$ 9,595,000 Athena
Neurosciences, Inc., Exchangeable Elan
Corp. PLC (Ireland), 4.75%, due 11/15/04. 11/05/97 9,595,000
$ 3,720,000 Atria Communities, Inc., 5%, due
10/15/02................................. 10/10/97 3,720,000
$12,250,000 Costo Companies, Inc.,
0%, due
08/19/17................................. 08/14/97 6,198,499
$ 8,845,000 CUC International, Inc., 3%, due 02/15/02. 02/05/97 8,850,874
84,100 Evergreen Media Corp., $3.00 Convertible
Preferred................................ 06/11/97 4,298,750
79,300 EVI, Inc.,
$2.50 Convertible
Preferred................................ 10/29/97 3,925,875
52,500 Golden Books Family Entertainment, Inc.,
$4.375 Convertible Preferred............. 08/14/96 2,656,238
</TABLE>

<TABLE>
<CAPTION>
Number of
Shares or
Principal Date of
Amount Acquisition Cost
--------- ----------- ----------
<C> <S> <C> <C>
$2,345,000 Halter Marine
Group, Inc.,
4.5%, due
09/15/04.................................. 09/10/97 $2,345,000
63,500 Host Marriott Financial Trust, $3.375
Convertible Preferred..................... 11/25/96 3,248,625
$3,030,000 Metsa-Serla OYJ, (Finland), 4.375%, due
10/15/02.................................. 10/09/97 3,041,336
$3,910,000 OccuSystems, Inc., 6%, due 12/15/01........ 12/19/96 3,899,332
$6,380,000 Omnicare, Inc., 5%, due 12/01/07........... 12/04/97 6,380,000
$4,955,000 Omnicom Group, Inc., 4.25%, due 01/03/07... 08/18/96 5,004,075
$3,150,000 Personnel Group of America, Inc., 5.75%,
due 07/01/04.............................. 06/17/97 3,164,875
$4,790,000 Premiere Technologies, Inc., 5.75%, due
07/01/04 06/25/97 4,797,700
$2,880,000 Quintiles Transnational Corp., 4.25%, due
05/31/00.................................. 04/23/96 2,855,555
$6,250,000 Rite Aid Corp., 5.25%, due 09/15/02........ 09/04/97 6,250,000
$6,585,000 Safeguard Scientifics, Inc.,6%, due
02/01/06.................................. 01/06/97 6,340,594
$5,465,000 Sandoz Capital BVI, Ltd., (Switzerland),
2%, due 10/06/02.......................... 09/28/95 5,880,539
$3,295,000 SmarTalk Teleservices, Inc., 5.75%, due
09/15/04.................................. 09/12/97 3,295,000
</TABLE>

15
<PAGE>

<TABLE>
<CAPTION>
Number of
Shares or
Principal Date of
Amount Acquisition Cost
--------- ----------- ----------
<C> <S> <C> <C>
$7,085,000 Staples, Inc., 4.5%, due 10/01/00.......... 09/12/95 $7,332,303
$2,815,000 Sunrise Assisted Living, Inc., 5.5%, due
06/15/02.................................. 06/03/97 2,828,181
$1,630,000 Tel-Save Holdings, Inc., 4.5%, due
09/15/02.................................. 09/30/97 1,678,615
$8,600,000 Tel-Save Holdings, Inc., 5%, due 12/15/04 . 12/05/97 8,600,000
$8,050,000 Thermo Electron Corp., 4.25%, due 01/01/03. 11/28/95 8,607,361
$3,965,000 Tower Automotive, Inc., 5%, due 08/01/04... 07/24/97 3,965,000
15,000 Vanstar Corp., $3.375 Convertible
Preferred................................. 09/27/96 639,372
$3,575,000 Wind River Systems,Inc., 5%, due 08/01/02.. 07/23/97 3,575,000
</TABLE>

NOTE 9--COMMON STOCK SUBSCRIPTION RIGHTS:

Non-transferable rights to subscribe to shares of the Fund's common stock were
issued to shareholders of record on March 21, 1997. The rights entitled the
shareholders to acquire one share of newly issued common stock for each five
rights held. At the termination of the subscription period on April 23, 1997,
6,396,283 shares of common stock were subscribed at a price of $8.09 per share
as of April 23, 1997. Proceeds from the subscriptions totaled $51,583,087, net
of issuance costs.

16
<PAGE>

- -------------------------------------------------------------------------------
TCW CONVERTIBLE SECURITIES FUND, INC.
Financial Highlights
[LOGO OF TCW]
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Per
Share, Beginning of
Year................... $ 8.51 $ 8.36 $ 7.47 $ 8.79 $ 8.36 $ 8.09 $ 6.85 $ 8.36 $ 7.99 $ 7.76
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from Operations:
Net Investment Income... 0.35 0.36 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) (0.01) -- -- -- --
Net Realized and
Unrealized Gains
(Losses) on
Securities............. 1.23 0.77 1.36 (0.86) 1.25 0.71 1.65 (1.13) 0.71 0.44
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from Investment
Operations.......... 1.57 1.13 1.73 (0.48) 1.64 1.11 2.08 (0.67) 1.21 0.99
Less Distributions:
Distributions from
Net Investment Income.. (0.35) (0.36) (0.37) (0.38) (0.40) (0.41) (0.43) (0.46) (0.50) (0.55)
Distributions from
Net Realized Gains..... (0.52) (0.62) (0.33) (0.30) (0.81) (0.07) -- -- (0.06) --
Distributions 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.. (0.87) (0.98) (0.84) (0.84) (1.21) (0.84) (0.84) (0.84) (0.84) (0.76)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value Per
Share, End of Year..... $ 9.21 $ 8.51 $ 8.36 $ 7.47 $ 8.79 $ 8.36 $ 8.09 $ 6.85 $ 8.36 $ 7.99
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total Investment
Return (1)............. 12.98% 11.75% 33.6% (7.43)% 13.77% 15.90% 41.38% (3.78)% 20.23% 24.79%
Net Asset Value Total
Return (2)............. 19.10% 13.94% 24.0% (5.70)% 16.12% 13.35% 31.20% (8.25)% 15.97% 13.24%
RATIOS/SUPPLEMENTAL
DATA:
Net Assets, End of Year
(in thousands)......... $355,061 $271,267 $264,608 $234,686 $273,230 $215,208 $172,331 $144,593 $175,732 $167,797
Ratio of Expenses to
Average Net Assets..... 0.74% 0.77% 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................. 3.95% 4.12% 4.60% 4.66% 4.48% 5.04% 5.68% 5.93% 5.90% 6.66%
Portfolio Turnover Rate. 132.99% 125.72% 108.98% 110.04% 173.79% 139.39% 114.13% 99.53% 84.17% 70.62%
Average Commission Rate
Paid by the Fund (3)... $ 0.06 $ 0.06 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

(1) Based on market value per share, adjusted for reinvestment of
distributions.
(2) Based on net asset value per share, adjusted for reinvestment of
distributions.
(3) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period
to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rate structures may
differ.

See accompanying Notes to Financial Statements.

17
<PAGE>

- -------------------------------------------------------------------------------
TCW CONVERTIBLE SECURITIES FUND, INC.
Independent Auditors' Report
[LOGO OF TCW]
- -------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TCW CONVERTIBLE SECURITIES FUND,
INC.:

We have audited the accompanying statement of assets and liabilities of TCW
Convertible Securities Fund, Inc., (the "Fund") including the schedule of
investments, as of December 31, 1997, and the related statement of operations
for the year then ended, the statement of changes in net assets for the two
years in the period then ended, and the financial highlights for each of the
ten years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based upon our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997 by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
the Fund as of December 31, 1997 and the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

February 10, 1998
Los Angeles, California

18
<PAGE>

[LOGO OF TCW(R)]

<PAGE>

<ARTICLE> 6

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 321,122,585
<INVESTMENTS-AT-VALUE> 367,035,532
<RECEIVABLES> 2,761,813
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 369,797,345
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,736,074
<TOTAL-LIABILITIES> 14,736,074
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 342,510,794
<SHARES-COMMON-STOCK> 38,561,279
<SHARES-COMMON-PRIOR> 31,894,249
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (34,179,879)
<ACCUMULATED-NET-GAINS> 817,409
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,912,947
<NET-ASSETS> 355,061,271
<DIVIDEND-INCOME> 4,805,938
<INTEREST-INCOME> 10,209,331
<OTHER-INCOME> 0
<EXPENSES-NET> 2,370,456
<NET-INVESTMENT-INCOME> 12,644,813
<REALIZED-GAINS-CURRENT> 19,760,433
<APPREC-INCREASE-CURRENT> 29,491,278
<NET-CHANGE-FROM-OPS> 61,896,524
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12,644,813
<DISTRIBUTIONS-OF-GAINS> 19,482,548
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,396,283
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 270,747
<NET-CHANGE-IN-ASSETS> 83,794,574
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 539,524
<OVERDISTRIB-NII-PRIOR> 34,179,879
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,853,979
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,370,456
<AVERAGE-NET-ASSETS> 324,530,000
<PER-SHARE-NAV-BEGIN> 8.51
<PER-SHARE-NII> .35
<PER-SHARE-GAIN-APPREC> 1.22
<PER-SHARE-DIVIDEND> .35
<PER-SHARE-DISTRIBUTIONS> .52
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.21
<EXPENSE-RATIO> .74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>