<PAGE>
As Filed with the Securities and Exchange Commission
on March 29, 1996
Registration No. 33-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_] Pre-Effective Amendment No.__ [_] Post-Effective Amendment No. ___
TCW GALILEO FUNDS, INC.
----------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
865 SOUTH FIGUEROA STREET, SUITE 1800, LOS ANGELES, CALIFORNIA 90017
--------------------------------------------------------------------
(Address of Principal Executive Offices)
(213) 244-0000
---------------------------------------------
(Registrant's Area Code and Telephone Number)
PHILIP K. HOLL
SECRETARY
865 SOUTH FIGUEROA STREET, SUITE 1800, LOS ANGELES, CALIFORNIA 90017
(Name and Address of Agent for Service)
______________________________
It is proposed that this filing will become effective fifty days after filing
pursuant to paragraph (a) of Rule 488.
______________________________
AN INDEFINITE AMOUNT OF THE REGISTRANT'S SECURITIES HAS BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY
ACT OF 1940. IN RELIANCE UPON SUCH RULE, NO FILING FEE IS BEING PAID AT THIS
TIME.
<PAGE>
CROSS REFERENCE SHEET
AS REQUIRED BY RULE 481(A)
<TABLE>
<CAPTION>
INFORMATION STATEMENT/PROSPECTUS
PART A CAPTIONS
- ------ -----------------------------------
<S> <C>
1. Beginning of Registration
Statement and Outside Front
Cover Page of Prospectus............. Cross Reference Sheet and Cover
Page
2. Beginning and Outside Back
Cover Page of Prospectus............. Table of Contents
3. Synopsis and Risk Factors............ Summary; Risk Factors; The Company;
The Plan of Exchange; Tax
Consequences; Comparison of
the Partnership and the New Fund
4. Information About the Transaction.... Summary; Risk Factors; The Plan of
Exchange; Advantages to
Shareholders; Tax Consequences;
Securities to be Issued; Comparison
of the Partnership and the New
Fund; Capitalization
5. Information About the Registrant.... The Company; Regulatory Matters
6. Information About the Company
Being Acquired...................... Comparison of the Partnership and
the New Fund
7. Voting Information.................. Inapplicable
8. Interests of Certain Persons
and Experts......................... The Plan of Exchange
9. Additional Information.............. Inapplicable
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTIONS
- ------ -----------------------------------
<S> <C>
10. Cover Page........................... Cover Page
11. Table of Contents.................... Table of Contents
12. Additional Information About
the Registrant....................... The Exchange
13. Additional Information About
the Company Being Acquired........... Inapplicable
14. 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.
ii
<PAGE>
TCW MID-CAP GROWTH STOCKS LIMITED PARTNERSHIP
TCW GALILEO FUNDS, INC.
THE GALILEO FUNDS
865 SOUTH FIGUEROA STREET, SUITE 1800
LOS ANGELES, CALIFORNIA 90017
(800) FUND TCW OR (213) 244-0000
-------------------------------------
INFORMATION STATEMENT/PROSPECTUS
-------------------------------------
Information Regarding Conversion to Investment Company
This Information Statement/Prospectus is furnished to the
limited partners (the "Limited Partners") of the limited partnership
listed above (the "Partnership") in connection with the conversion of
the Partnership to mutual fund form. It is provided in preliminary
form to Limited Partners of record as of April 1, 1996 (and will be
provided to any investors that become Limited Partners prior to the
conversion). Pursuant to the Limited Partnership Agreement for the
Partnership (the "Limited Partnership Agreement"), at least 60 days'
advance written notice of any such conversion must be provided to
Limited Partners. This Information Statement/Prospectus constitutes
such notice. While no further Limited Partner consent or approval for
the conversion is required, any Limited Partners who do not wish to
participate in the conversion of the Partnership may have their
Partnership Units (as defined in the Limited Partnership Agreements)
redeemed before the conversion is effected.
TCW Galileo Funds, Inc. (the "Company") is a no-load, open-
end investment company -- a mutual fund -- that offers a variety of
portfolios. Each portfolio is referred to as a "Fund" and functions in
effect as a separate mutual fund. Currently, the Company offers eleven
Funds and proposes to add an additional Fund named the Mid-Cap Growth
Fund with an investment objective (the "New Fund") corresponding to
the Partnership. The Company has created a separate class of its
Common Stock, $0.001 par value per share, for each Fund. The
Partnership conversion will be accomplished by the Partnership
conveying to the Company all of its assets and liabilities, in
exchange for shares relating to the New Fund (the "Exchange"). Once
the Exchange is completed, the Partnership will distribute the New
Fund shares received in the Exchange to its Limited Partners on a pro
rata basis and then dissolve.
iii
<PAGE>
TCW Asset Management Company ("TAMCO"), as general partner of the
Partnership, believes the Exchange is in the best interests of the Limited
Partners. As shareholders of an open-end, registered mutual fund, former
Limited Partners will have added flexibility and liquidity because of their
ability to purchase and redeem shares each business day, instead of only once a
month. They will also be able to switch their investments easily among the
Funds and will receive simplified tax reports (Form 1099's for dividends instead
of the complex Form K-1's).
Attached to this Information Statement/Prospectus as Appendix A is the
Prospectus relating to the Company and the Funds (the "Prospectus"). The
Prospectus is incorporated in this Information Statement/Prospectus by
reference. This Information Statement/Prospectus sets forth information about
the Exchange and the Fund that Limited Partners should consider in deciding
whether or not to participate in the conversion process. It should be retained
for later reference. A separate Statement of Additional Information with
respect to the Exchange, dated as of the date of this Information
Statement/Prospectus, has been filed with the Securities and Exchange Commission
and is incorporated by reference in this Information Statement/Prospectus. This
Statement of Additional Information can be obtained without charge by calling
the Shareholder Relations Department at the Company at (800) FUND TCW or (213)
244-0000 (collect) or by writing the Shareholder Relations Department at the
Company at the above address.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
________________, 1996
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................... 1
RISK FACTORS.............................................. 2
THE COMPANY............................................... 2
THE PLAN OF EXCHANGE...................................... 3
ADVANTAGES TO SHAREHOLDERS................................ 4
TAX CONSEQUENCES.......................................... 4
SECURITIES TO BE ISSUED................................... 5
COMPARISON OF THE PARTNERSHIP AND THE NEW FUND............ 6
FINANCIAL INFORMATION..................................... 11
EXPENSES OF THE EXCHANGE.................................. 11
INITIAL APPROVALS......................................... 12
REGULATORY MATTERS........................................ 12
CAPITALIZATION............................................ 12
GENERAL PARTNER NOTES..................................... 12
LEGAL MATTERS RELATING TO THE CONVERSIONS................. 12
</TABLE>
Appendix A - Prospectus
Appendix B - Agreement and Plan of Exchange
Appendix C - Tax Opinion
Appendix D - Partnership Financial Information and Pro Forma Fund Information
v
<PAGE>
SUMMARY
The following Summary is qualified by reference to the more detailed
information contained elsewhere in this Information Statement/Prospectus.
EXCHANGE. TCW Asset Management Company ("TAMCO"), is the general partner
of the TCW Mid-Cap Growth Stocks Limited Partnership (the "Partnership"), and
intends to convert the Partnership into mutual fund form. This conversion will
occur pursuant to the Limited Partnership Agreement for the Partnership, which
authorizes TAMCO to effect a conversion upon at least 60 days' notice to its
limited partners (the "Limited Partners").
The conversion of the Partnership will be accomplished by a transfer of
Partnership assets and liabilities to a mutual fund with substantially the same
investment objective, in exchange for shares of the fund (the "Exchange"). The
Partnership will then distribute the mutual fund shares to its Limited Partners
and dissolve. See "The Plan of Exchange."
THE COMPANY. TCW Galileo Funds, Inc. (the "Company") is a no-load, open-
end investment company formed under Maryland law. It began operations on March
1, 1993 and currently offers a variety of portfolios, or funds, known as the
Galileo Funds (the "Funds"). The Company currently offers eleven Funds and
proposes to offer a new Fund (the "New Fund") corresponding to the Partnership
in terms of its investment objective and policies. The investment adviser for
each of the Funds is TCW Funds Management, Inc., an affiliate of TAMCO. See
"The Company."
TAX MATTERS. The New Fund intends to meet the necessary requirements under
the tax laws to avoid income taxation at the Fund level. This means that the
New Fund will have essentially the same tax attributes as the Partnership. The
conversion will be tax-free to Limited Partners. See "Tax Consequences" and
"Comparison of the Partnership and the Fund -- Tax Matters."
ADVISORY FEES. Generally, the New Fund will have the same advisory fees as
those paid by the Limited Partners who are expected to participate in the
Exchange. The advisory fees for the New Fund are higher than the fees for most
registered investment companies but less than the fees for certain other
comparable investment companies. See "Comparison of the Partnership and the New
Fund -- Advisory Fees."
ADVANTAGES. TAMCO believes the conversion will be in the best interests
of the Limited Partners. The primary advantages include: increased liquidity
and flexibility through daily rather than monthly purchases and redemptions; the
flexibility to switch investments between Funds; and simplified tax reporting
and investor accounting. See "Advantages to Shareholders."
TIMING. TAMCO and the Company presently intend to complete the Exchange on
June 3, 1996. The Exchange could, however, be delayed for regulatory or other
reasons. TAMCO will provide additional information as to the timing of the
Exchange, as it becomes available. Limited Partners who do not want to
participate in the Exchange may have their Partnership Units redeemed prior to
the conversion. See "The Plan of Exchange."
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RISK FACTORS
Because the basic investment strategy of the New Fund is substantially the
same as that of the Partnership, an investment in the New Fund involves
investment risks that are similar to those associated with an investment in the
Partnership.
However, the New Fund is subject to certain investment restrictions that
are required by applicable laws and regulations and intended to reduce risks for
investors. These restrictions may also have the effect of preventing the New
Fund from pursuing investment opportunities otherwise available to the
Partnership.
Participants in the Partnership can pay a lower advisory fee to TAMCO by
increasing their investment in one or more partnerships managed by TAMCO above
certain thresholds. This will not be possible in the New Fund, where one fee
prevails, regardless of the size of the investment in one or more Funds.
However, TAMCO intends to give certain large Partnership investors the
opportunity to withdraw before the Exchange and participate in a similar new
partnership with high investment minimums and the possibility of reduced fees
for large investors. See "Comparison of the Partnership and the New Fund --
Advisory Fees."
Taxable Partnership investors who redeem their Partnership Units rather
than participate in the Exchange will have the normal tax consequences of
withdrawal from a limited partnership. In addition, the conversion could cause
taxable Partnership investors who are not calendar year taxpayers to pay taxes
on Partnership income before they otherwise would have. See "Tax Consequences"
below.
THE COMPANY
The Company is a no-load, open-end investment company organized under
Maryland law as a "series mutual fund." It commenced operations on March 1,
1993 and offers a variety of Funds known as the Galileo Funds, each of which is,
in effect, an open-end mutual fund. The Company currently offers eleven Funds
and proposes to add the New Fund with a substantially similar investment
objective and policies corresponding to the Partnership. The Company's shares
of Common Stock, $0.001 par value per share (the "Shares"), are issued in
series, with each series relating to a single Fund. For the Partnership, the
New Fund will function as a successor investment vehicle. The investment
advisor to the Company is TCW Funds Management, Inc. (the "Adviser"), an
affiliate of TAMCO.
Attached to this Information Statement/Prospectus, and incorporated by
reference, is the Prospectus describing the Company and the Funds. The related
Statement of Additional Information for the Exchange, which is also incorporated
by reference, as well as the Statement of Additional Information for the Funds
can be obtained without charge by calling the Shareholder Relations Department
of the Company (800) FUND TCW or at (213) 244-0000 collect or by writing to:
Shareholder Relations Department, TCW Funds, Inc., 865 South Figueroa, Los
Angeles, California 90017. Limited Partners should carefully review the
Prospectus and the Statement of Additional Information in conjunction with this
Information Statement/Prospectus.
2
<PAGE>
THE PLAN OF EXCHANGE
The conversion of the Partnership will take place pursuant to an
Agreement and Plan of Exchange (the "Plan"). The following summary of the
important terms and conditions of the Plan is qualified by reference to the
Plan, a copy of which is attached to this Information Statement/Prospectus as
Appendix B.
The Plan provides that the Partnership will convey all of its assets
(including securities and cash) and balance sheet liabilities to the Company in
exchange for Shares of the New Fund (the "Exchange"). The Shares delivered to
the Partnership in the Exchange will have an aggregate net asset value equal to
the net asset value of the assets acquired. Those Shares will be distributed on
a pro rata basis to the Partnership's Partners of record on the effective date
of the Exchange. The Partnership will be liquidated and dissolved as soon as
possible after the distribution of Shares to its Partners. The number of Shares
each Partner will receive will be determined by dividing the aggregate net asset
value of that Partner's Units by $10, which will be the initial net asset value
per share of the Shares.
The Exchange will not be effective until certain conditions are
satisfied, including the receipt of an exemptive order from the Securities and
Exchange Commission (the "SEC") permitting the Exchange and an opinion of
counsel with respect to the tax consequences of the Exchange. See "Tax
Consequences" below. The exemptive order is required under the Investment
Company Act of 1940 (the "1940 Act") to permit the Company to acquire securities
from the Partnership, which is technically an affiliate of the Company. The tax
opinion is attached as Appendix C.
TAMCO currently expects the Exchange to take place on Monday, June 3,
1996, based on May 31, 1996 net asset values. If there are delays for regulatory
or other reasons, TAMCO will notify you promptly as soon as the completion of
the Exchange can be rescheduled.
Limited Partners who do not wish to participate in the Exchange may
have their Partnership interests redeemed in accordance with the normal monthly
redemption procedures on any regular redemption date before the Exchange is
effective and on the day the Exchange takes place. To have their Partnership
interests redeemed, Limited Partners must normally submit a redemption request
at least 15 days before the intended redemption date. Limited Partners should
refer to their Partnership Offering Memorandum under "Redemption of Units" and
Limited Partnership Agreement (Section 18.1) for more details concerning
redemption.
Upon consummation of the Exchange and the distribution of New Fund
Shares to the Partners who participate in the conversion, the only shareholders
of the New Fund will be the Adviser (see "Initial Approval" below) and such
Partners. Thereafter, additional Shares of each New Fund will be available for
purchase by former Partners, as well as other investors, at the net asset value
on each "Business Day," defined as any day the New York Stock Exchange is open
for business. Shareholders in each New Fund will be able to have their Shares
redeemed at net asset value on each Business Day. See the Prospectus under
"Redemption and Exchange of Shares."
3
<PAGE>
ADVANTAGES TO SHAREHOLDERS
As shareholders of a no-load, open-end, registered investment company,
the former Limited Partners will have added liquidity and flexibility because of
their ability to purchase and redeem Shares each business day, as opposed to
only once per month. New Fund investors will also have the advantage of being
able to shift investments easily among the Funds. See the Prospectus under
"Purchase of Shares" and "Redemption and Exchange of Shares." Also, the Company
may add other portfolios in the future, which could expand the investment
flexibility available to Company shareholders. There are no current plans for
such additions.
Limited Partners who are expected to participate in the Exchange will
pay the same advisory fees in the New Fund. See "Comparison of the Partnership
and the New Fund --Advisory Fees."
In addition, the Form 1099 tax reporting forms that the Fund will
issue to their shareholders are considerably simpler than the complex Form K-1's
issued by the Partnerships. The 1099's will also be issued earlier in the year
than the K-1's.
TAX CONSEQUENCES
The Exchange is conditioned upon the receipt from O'Melveny & Myers,
counsel to the Company and the Partnership, of an opinion to the effect that the
Exchange will have the following tax consequences to the Company and the
Partnership: (i) no gain or loss will be recognized by the Partnership on the
transfer of its assets to the Company in exchange for New Fund Shares (Code
Section 351(a)); (ii) no gain or loss will be recognized by the New Fund upon
receipt of the Partnership's assets in exchange for New Fund Shares (Code
Section 1032(a)); (iii) the aggregate basis to the New Fund of the transferred
assets will be the same as the aggregate basis of the securities held by the
Partnership immediately prior to the Exchange (Code Section 362(a)); (iv) the
basis of Shares received by the Partnership will be equal to the basis of the
assets exchanged for them reduced by the liabilities of the Partnership assumed
by the New Fund (Code Sections 358(a) and (d)); (v) the holding period of the
assets received by the New Fund will, in each instance, be the same as the
holding period of the assets in the hands of the Partnership immediately prior
to the Exchange (Code Section 1223(2)); and (vi) the holding period of the
Shares to be received by the Partnership will include the period during which
the Partnership assets exchanged therefor were held provided the assets
exchanged were capital assets or property described in the Code (Code Section
1223(1)), which means a portion of the gain or loss recognized upon the
redemption of any Share within 12 months of the date of the Exchange may be
short-term gain or loss.
The opinion of counsel for the Exchange is included in Appendix C.
This opinion is based upon certain facts, representations, and assumptions, and
it is not binding on the Internal Revenue Service or the courts if challenged.
Moreover, the conclusions expressed in the opinion is based on current law and
authorities, both of which are subject to change, even retroactively.
If any of the securities transferred by the Partnership to the Company
in the Exchange are debt securities purchased by the Partnership at a discount,
such transfer would result in
4
<PAGE>
the recognition of income to the Partnership in an amount equal to the accrued
market discount with respect to such securities at the time of the Exchange. It
is not expected that any of the securities so transferred will have any accrued
market discount or, if they do, that it will be more than minimal.
The Exchange will have the following income tax consequences to
Limited Partners: (i) a Limited Partner's basis for its Shares will be equal to
the Limited Partner's adjusted basis of its former Partnership Units minus the
amount of cash, if any, it received or is deemed to have received (a partner
will be deemed to have received cash equal to its allocable share of Partnership
liabilities assumed by the Fund pursuant to the liquidation of its Partnership
interest (Code Section 732(b)); (ii) a Limited Partner's holding period with
respect to its Shares will include the Partnership's holding period of such
Shares (Code Section 735(b)) (see clause (vi) in the preceding paragraph); and
(iii) the distribution of the Shares from the Partnership to a Limited Partner,
which will be in liquidation of its Partnership Units, will not cause taxable
gain or loss to be recognized by the Limited Partner, except for gain equal to
the amount by which any cash actually distributed or deemed to be distributed (a
partner will be deemed to have received a cash distribution equal to its
allocable share of Partnership liabilities assumed by the Fund) exceeds the
Limited Partner's basis in his Partnership Units (Code Section 731(a)). TAMCO
does not expect that any Limited Partner will receive cash in excess of its
basis in Partnership Units.
Each Limited Partner must include in taxable income for its tax year
its share of Partnership income for any Partnership tax year that ends with or
within the Limited Partner's tax year. Consequently, because the Partnership's
current tax year will end when the Partnership terminates, if a taxable Limited
Partner is not a calendar year taxpayer, the conversion could cause such a
Limited Partner to pay taxes on Partnership income sooner than it otherwise
would have.
Limited Partners should consult their advisers regarding the tax
consequences of the Exchange to them, including state, local and, if applicable,
foreign tax consequences.
Taxable Limited Partners who choose to have Partnership Units redeemed
before the Exchange will be subject to the normal tax consequences of
withdrawing from a limited partnership. As these consequences will vary
depending on each Limited Partner's particular circumstances, taxable Limited
Partners should consult their advisers concerning the tax effects of withdrawing
from a Partnership.
SECURITIES TO BE ISSUED
The Company issues a separate series of Shares with respect to each
Fund. The Shares for the New Fund are of one class and will have equal rights
as to dividends and in liquidation in respect of that Fund. The Shares have no
preemptive, subscription or conversion rights. New Fund Shares issued in the
Exchange will be fully paid and non-assessable. The Company has 24,000,000,000
Shares authorized. See the Prospectus under "General Information --
Organization, Shares and Voting Rights." The Shares delivered in the Exchange
will have the same net asset value as the net assets being transferred in the
Exchange.
5
<PAGE>
COMPARISON OF THE PARTNERSHIP AND THE NEW FUND
GENERAL
As mentioned above, the investment objective and policies of the New
Fund are designed to be substantially similar to the investment objective and
policies of the Partnership. However, for various reasons (including differences
in structure, and the different applicable regulatory systems), there are some
differences between the Partnership and the New Fund. The following paragraphs
summarize the material similarities and differences. For a more complete
comparison of the Partnership and the New Fund, Limited Partners should refer to
the Limited Partnership Agreement and Partnership Offering Memorandum and to the
material with respect to the New Fund set forth in the Prospectus and related
Statement of Additional Information. In addition, Limited Partners may obtain
copies of the Company's Articles of Incorporation and Bylaws by submitting a
written request to Michael E. Cahill, General Counsel, TCW Galileo Funds, Inc.,
865 South Figueroa Street, Suite 1800, Los Angeles, California 90017.
TAX STATUS
Like the Partnership, the New Fund will not be subject to federal
income taxes if it complies with the relevant tax laws and regulations. Limited
Partners participating in the conversion will essentially be trading one pass-
through entity for another.
The Partnership is not subject to federal income taxes at the
Partnership level. However, the Partners in the Partnership must take into
account their distributive share of Partnership items of income, gain, loss,
deduction or credit, regardless of whether or not cash distributions are made
with respect to such items. Pursuant to the Partnership Agreement, a Partner's
distributive share of such items may include special allocations of taxable gain
and loss to eliminate differentials between the book gain or loss allocated to
each Partner and the taxable gain or loss so allocated.
Similarly, the New Fund will not pay any federal income taxes, so long
as it qualifies for treatment as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). To do
so, the New Fund must, among other things, distribute its net investment income
and net realized capital gains in accordance with the Internal Revenue Code
requirements. The New Fund will elect to be treated as a regulated investment
company and intends to meet the necessary requirements on an ongoing basis.
Dividends derived from the New Fund's taxable net investment income and
distributions of the New Fund's net short-term capital gains (including short-
term gains from investment in tax-exempt obligations) are taxable to
shareholders as ordinary income for federal income tax purposes. Distributions
of long-term capital gains are taxable to shareholders as long-term capital
gains. Any dividend or capital gains distribution received by a shareholder of
the New Fund will have the effect of reducing the net asset value of the
shareholder's Shares by the exact amount of such dividend or distribution. If
the net asset value of the Shares should be reduced below a shareholder's cost
as a result of the payment of dividends or capital gains distributions, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable at either ordinary or capital gains rates.
6
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Any Limited Partners that are foreign taxpayers should consult their
tax advisers with respect to the consequences of becoming a shareholder in the
Company. With respect to mutual fund share dividends, investment companies
generally must pay withholding taxes on behalf of foreign shareholders at a 30%
rate unless a lower tax treaty rate applies. These taxes may not apply under
certain circumstances or may be subject to reduction under applicable tax
treaties, and foreign shareholders may be entitled to tax credits or deductions
with respect to these withholding taxes in other countries in which they pay
taxes.
For additional information regarding the tax consequences of an
investment in the New Fund, see the Prospectus under "Dividends, Distributions
and Taxes".
DISTRIBUTIONS
Both the Partnership and the New Fund distribute virtually all of
their net income and gains, and both Partnership distributions and Fund
dividends are automatically reinvested, unless investors specify otherwise.
However, the frequency of New Fund dividends may differ from the frequency of
Partnership distributions. The Partnership makes distributions of net interest
and dividend income at least semi-annually and quarterly at the election of the
Limited Partners. Any net gains are distributed at least annually.
Distributions are automatically reinvested in additional Partnership Units
unless Limited Partners elect to receive distributions of net income and gains,
or just net income.
Dividends from the net investment income of the New Fund will be
declared and paid at least annually. Distributions of any net long-term capital
gains and any net short-term capital gains will also be made at least annually.
New Fund dividends and distributions will also be automatically reinvested in
additional New Fund Shares unless investors elect to receive cash dividends and
distributions.
As with the Partnership, shareholders in the New Fund will be taxed on
New Fund dividends and distributions, regardless of whether or not they are
reinvested. See the Prospectus under "Dividends, Distributions and Taxes."
PURCHASES AND REDEMPTIONS
As mentioned above, Limited Partners can acquire new Partnership
Units, or have their Units redeemed, only once a month. Shareholders of the New
Fund will be able to acquire additional Shares, or have their Shares redeemed or
exchanged, on any business day. The Company will offer an exchange privilege
from any Fund into any other Fund subject to state securities law requirements.
ADVISORY FEES
The Partnership has General Partner management fees that vary
depending on the value of the Limited Partner's pro rata share of total net
asset value of a Partnership (such Limited Partner's "attributable value" or
"AV"). Such a "tiered" fee structure is not possible in registered investment
companies on a shareholder-by-shareholder basis. Accordingly, all of the
shareholders of the New Fund will in effect pay the same fee, regardless of the
amount
7
<PAGE>
invested by each shareholder in one or more Funds. The following chart compares
the fees of the Partnership with those of the New Fund:
Fund Fees
(% of Net
Partnership Fees (% of AV or NAV) Asset Value)
--------------------------------- ------------
(m = million)
1.00% on first $2m of AV 1.00%
.80% on AV over $2m
As of March 1, 1996, there were three Limited Partners in the
Partnership that were charged a fee below the maximum. TAMCO currently expects
to provide these Limited Partners with an opportunity to withdraw, receive an
in-kind distribution of assets and contribute those assets to a similar new
partnership (the "New Partnership") that has a high investment minimum and the
possibility of lower fees based on the size of the investment. Consequently,
the Limited Partners that are expected to participate in the Exchange will pay
the same advisory fees in the New Fund as they paid in the Partnership. In
addition, there may be a very small number of other limited partners who would
encounter regulatory, tax, contractual or other difficulties if they invested in
a registered investment company. Some of these Limited Partners may be allowed
to withdraw and participate in the New Partnership even if they do not satisfy
the relevant minimum investment requirement.
The advisory fee for the New Fund is higher than the fees for most
registered investment companies but less than the fees for certain other
comparable registered investment companies.
EXPENSES
Because New Fund operating expenses will initially be higher than the
corresponding Partnership operating expenses, the Adviser has agreed to reduce
its advisory fees, or pay certain New Fund expenses, to the extent necessary to
limit New Fund total expenses (including advisory fees) for calendar 1996 to
1.200% of the average net asset value of the New Fund. There can be no
assurance that the New Fund will achieve, or maintain, an asset size sufficient
to cause its actual expense percentage to be lower than the expense limit when
the limit expires. If this does not occur, and if the Adviser does not agree to
an extension of the expense limit, New Fund expenses may increase effective
January 1, 1997.
New Fund organizational expenses, up to a maximum of $50,000, will be
paid by the New Fund and amortized over five years. The amount of such annual
amortization will be included in the calculation of New Fund expenses subject to
the expense limit described above. See the Prospectus under "Management of the
Funds -- Advisory Agreement."
RIGHTS OF HOLDERS
The rights of Limited Partners in its Partnership are governed by the
Limited Partnership Agreement (the "Limited Partnership Agreement") and by the
California Revised Limited Partnership Act. Generally, Limited Partners are not
permitted to participate in Partnership
8
<PAGE>
management and have very limited voting rights. Limited Partner meetings are
not required but may be called by the General Partner or by Limited Partners
holding more than 10% of the outstanding Partnership Units. For further details
as to the Partnership, see the Limited Partnership Agreement (Section 11) and
Offering Memorandum.
Limited Partners who participate in the Exchange will become
shareholders of a Maryland corporation. As such, they will have the rights
granted under the Articles of Incorporation of the Company and Maryland
corporate law. See "Securities To Be Issued" above and the Prospectus under
"General Information -- Organization, Shares and Voting Rights."
ERISA
Limited Partners subject to the Employee Retirement Income Security
Act of 1974 ("ERISA") will have the same responsibilities with respect to an
investment in the New Fund as they do with respect to their investment in the
Partnership.
TRANSFERABILITY
The Shares will be more liquid than Partnership Units. Partnership
Units may be transferred only under limited circumstances. Shares in the Fund
will not be transferable, but will be redeemable on each business day. New Fund
shareholders may also readily switch assets among the Funds.
REPORTS
The New Fund will deliver to its shareholders annual and semi-annual
reports substantially similar to those distributed by the Partnership (except
for minor differences dictated by regulatory or other considerations).
ADVISORY RELATIONSHIPS AND MANAGEMENT
The conversion will not substantially affect day-to-day portfolio
management. Although the Adviser is a different corporate entity from TAMCO,
they are affiliated companies (as described below), and the same personnel that
manage the Partnership's investments will manage the New Fund's investments. In
addition, various TAMCO and Adviser officers are officers of the Company. In
terms of overall management, however, the New Fund is somewhat different because
of its corporate structure and applicable investment company regulations. The
principal difference is the presence in the Company of a Board of Directors,
with a majority of directors not related to the Adviser or TAMCO.
The rights and duties of TAMCO as General Partner and investment
manager of the Partnership are set forth in the Limited Partnership Agreement
(see, especially, Sections 9 and 17). Generally speaking, TAMCO is exclusively
responsible for the management of the Partnership and has full authority to
manage the affairs of the Partnership within the framework established by the
Limited Partnership Agreement. TAMCO may not be removed except for willful
misconduct or similar infractions having a material adverse effect on the
Partnership, and with the vote of two-thirds of the Units. TAMCO may not
withdraw voluntarily.
9
<PAGE>
The overall control of the Company and the New Fund is vested in its
Board of Directors. A majority of the directors are not "interested persons"
within the meaning of the 1940 Act. Among other things, this means they are not
affiliated with the Adviser, any of its affiliates or any broker-dealer firm.
The Board of Directors as a whole, and the disinterested directors in
particular, have a variety of statutory and regulatory duties and obligations,
especially in connection with the Advisory Agreement. See the Statement of
Additional Information for the Funds for a description of the officers and
directors of the Company. The Board of Directors delegates certain day-to-day
responsibilities to its officers, each of whom is also an officer of the Adviser
or one of its affiliated companies. The Company also engages its Adviser
through an Advisory Agreement granting the Adviser broad powers to manage the
investment affairs of the New Fund, subject to the general oversight and
particular statutory responsibilities of the Board of Directors. See the
Prospectus under "Management of the Funds" for information concerning the
Adviser. The Advisory Agreement, which was initially approved by the Board of
Directors including a majority of those who are not "interested persons" as
defined in the 1940 Act on December 14, 1992, may be continued from year to year
if approved at least annually by vote of the Board of Directors or the holders
of a majority of the Shares and by a majority of the disinterested directors.
The Advisory Agreement was continued by the Board of Directors, including a
majority who are not "interested persons," on February 15, 1996. The addendum
adding the New Fund was approved by the Board of Directors, including a majority
of those who are not "interested persons," on February 15, 1996. The Advisory
Agreement may be terminated on 60 days' notice by the Company's Board of
Directors or by the holders of a majority of the Shares. The Adviser may also
terminate the Advisory Agreement on 60 days' notice. The Advisory Agreement may
not be assigned. See the Prospectus under "Management of the Funds" for
additional information concerning the Advisory Agreement.
The Adviser and TAMCO are wholly-owned subsidiaries of The TCW Group,
Inc. which is the parent holding company of Trust Company of the West ("TCW").
INVESTMENT RESTRICTIONS
The New Fund's investment restrictions reflect the addition of some
restrictions not applicable to the Partnership. Also, the New Fund's investment
restrictions have been made more uniform than the varied Partnership
restrictions. For example, the New Fund cannot (i) concentrate more than 25% of
its total assets in the securities of any one industry (except U.S. Government
securities, (ii) issue senior securities as defined in the 1940 Act, (iii)
invest more than 5% of its net assets in warrants, and (iv) invest in oil, gas
and other mineral leases. For a comparison of the Partnership's restrictions
with the corresponding New Fund's restrictions, see the Partnership's Offering
Memorandum under "Investment Restrictions".
ADDITIONAL INVESTMENT STRATEGIES
Although the basic investment strategy of the New Fund is
substantially similar to that of the Partnership, the New Fund is authorized to
employ certain secondary investment strategies not available to the Partnership.
For example, the New Fund may borrow up to 30% of the value of its total assets.
For a description of the investment strategies and techniques available to the
New Fund, and the risks associated with those strategies and techniques, see the
Prospectus under "Investment Objectives and Policies," "Risk Considerations" and
10
<PAGE>
Appendix A and the Statement of Additional Information for the Funds under
"Investment Practices" and "Risk Factors."
FINANCIAL INFORMATION
Appendix D contains recent historical financial and portfolio
information with respect to the Partnership, as well as certain pro forma
financial information with respect to the New Fund.
EXPENSES OF THE EXCHANGE
The expenses of the Exchange will be borne by TAMCO. As described
above, certain organizational expenses relating to the formation and
registration of the New Fund will be paid by the New Fund and amortized over
five years. The amount of such annual amortization will, however, be included
in the calculation of New Fund expenses subject to the expense limitations
described above under "Comparison of the Partnership and the New Fund --
Expenses."
INITIAL APPROVALS
The New Fund will issue a nominal number of Shares to the Adviser.
The Adviser will vote those Shares for the approval of the Advisory Agreement
and the Addendum relating to the New Fund.
REGULATORY MATTERS
The Company and the Funds are, and the New Fund will be, subject to
the informational requirements of the Securities Exchange Act of 1934 and the
1940 Act. In accordance with those laws and the related regulations, the
Company and the Funds must comply with a variety of requirements, in addition to
those referred to above with respect to the Board of Directors. Those
requirements include various investment restrictions and diversification rules
(the Partnership has current restrictions and practices that are substantially
consistent with the 1940 Act), annual prospectus updates, shareholder approval
of any changes in the Advisory Agreement, and other requirements related to
fidelity bonds, custodial and depositary arrangements, transfer agent
arrangements, liquidity, and other matters. In addition, upon the commencement
of its investment operations, the Company will file reports, proxy statements
and other information with the Securities and Exchange Commission. Reports,
proxy statements and other information filed by the Company may be inspected and
copied at the public reference facilities of the Commission in Washington, D.C.
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
materials can be obtained at prescribed rates upon request to the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549.
11
<PAGE>
CAPITALIZATION
The following table shows (1) the capitalization (adjusted net assets)
of the Partnership as of February 29, 1996 (adjusted by Partnership Unit
redemptions and purchases on March 1, 1996), (2) the capitalization of the New
Fund immediately before the Exchange ("initial" net assets), and (3) the pro
forma combined capitalization of the Partnership and New Fund on a pro forma
basis (using February 29, 1996 Partnership adjusted net asset values) after
giving effect to the proposed Exchange at net asset value:
<TABLE>
<CAPTION>
Pro Forma
Partnership Partnership Initial Pro Forma Pro Forma Fund Net
Partnership Units Net Asset Fund Net Combined Fund Shares Asset
Net Assets Outstanding Value/Unit Assets/1)/ NetAssets Outstanding Value/Share
------------ ----------- ----------- ----------- ---------- ----------- -----------
(000's) (000's) (000's)
<S> <C> <C> <C> <C> <C> <C> <C>
Mid-Cap Growth $43,112 251,125.6 $171.68 - $43,112 4,311,223.5 $10
</TABLE>
____________________
1) Initial net assets of the New Fund will consist of one share of common stock
issued at $10 per share.
GENERAL PARTNER NOTES
As General Partner of the Partnership, TAMCO is required by applicable
tax law to maintain an investment in the Partnership. This investment is 1.00%
of the net asset value of the Partnership. TAMCO has acquired its general
partner interests in exchange for a promissory note. In connection with the
Exchange, TAMCO will pay off the note, and receive its pro rata portion of
Shares issued in the Exchange, on the same basis as the Limited Partners.
LEGAL MATTERS RELATING TO THE CONVERSIONS
O'Melveny & Myers, Los Angeles, is acting as counsel for the
Partnership and the Company.
O'Melveny & Myers should not be deemed to represent the Limited
Partners or the shareholders of the New Fund in connection with the Exchange and
related transactions.
12
<PAGE>
APPENDIX A
PROSPECTUS
<PAGE>
TCW GALILEO FUNDS, INC.
865 South Figueroa Street, Suite 1800
Los Angeles, California 90017
(800) FUND TCW or (213) 244-0000
THE GALILEO FUNDS
TCW Galileo Funds, Inc. (the "Company") is an open-end management
investment company that currently offers a selection of no-load mutual funds
known as the Galileo Funds. There are no sales charges or exchange or
redemption fees. Each Galileo Fund has a distinct investment objective. There
is no guarantee of the performance of a Galileo Fund or that its objective can
be attained. This Prospectus describes the twelve investment portfolios
currently offered by the Company:
TCW GALILEO ASIA PACIFIC EQUITY FUND, a non-diversified portfolio, seeks
long-term capital appreciation, primarily by investing in equity securities of
companies in the Asia Pacific region.
TCW GALILEO CORE EQUITY FUND, a non-diversified portfolio, seeks
preservation of capital and the best possible long-term return, consistent with
a reasonable level of risk.
TCW GALILEO EARNINGS MOMENTUM FUND, a non-diversified portfolio, seeks
capital appreciation through investment primarily in publicly-traded equity
securities of companies experiencing or expected to experience accelerating
earnings growth.
TCW GALILEO EMERGING MARKETS FUND, a non-diversified portfolio, seeks long-
term capital appreciation, primarily by investing in emerging equity securities
of companies in emerging market countries around the world.
TCW GALILEO HIGH GRADE FIXED INCOME FUND, a diversified portfolio, seeks
capital appreciation and income through investment principally in high grade
fixed income instruments.
TCW GALILEO HIGH YIELD BOND FUND, a diversified portfolio, seeks high
current income through investment principally in high yield fixed income
securities, commonly known as junk bonds. SUCH SECURITIES ARE REGARDED BY THE
RATING AGENCIES AS PREDOMINANTLY SPECULATIVE WITH RESPECT TO THE ISSUER'S
CONTINUING ABILITY TO MEET PRINCIPAL AND INTEREST PAYMENTS AND ENTAIL GREATER
RISKS, INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN HIGHER RATED SECURITIES.
INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING.
TCW GALILEO LATIN AMERICA EQUITY FUND, a non-diversified portfolio, seeks
long-term capital appreciation, primarily by investing in Latin American equity
securities.
TCW GALILEO LONG-TERM MORTGAGE BACKED SECURITIES FUND, a diversified
portfolio, seeks capital appreciation and current income by investing primarily
in long-term mortgage-backed securities.
TCW GALILEO MID-CAP GROWTH FUND, a non-diversified portfolio, seeks long-
term capital appreciation, primarily by investing in publicly-traded equity
securities of medium capitalization companies.
TCW GALILEO MONEY MARKET FUND, a diversified portfolio, seeks current
income, preservation of capital and liquidity by investing in short-term money
market securities. AN INVESTMENT IN TCW GALILEO MONEY MARKET FUND IS NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT
THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
TCW GALILEO MORTGAGE BACKED SECURITIES FUND, a diversified portfolio, seeks
current income and capital appreciation by investing primarily in short-term
mortgage-backed securities.
TCW GALILEO SMALL CAP GROWTH FUND, a non-diversified portfolio, seeks long-
term capital appreciation, primarily by investing in publicly traded equity
securities of smaller capitalization companies.
An investment in a Galileo Fund involves various risks, including the risk
of loss of your capital.
This Prospectus contains the information you should know about each Galileo
Fund before investing. Investors should retain it for future reference. A
Statement of Additional Information for the Galileo Funds dated as of the date
of this Prospectus has been filed with the Securities and Exchange Commission.
The Statement of Additional Information is incorporated by reference and is
available without charge upon request from the Company's Shareholder Relations
Department at the above address or by calling the Company at the telephone
numbers shown above.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
May 20, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY..................................................................... 1
EXPENSES OF THE FUNDS....................................................... 5
MANAGEMENT DISCUSSION....................................................... 18
INVESTMENT OBJECTIVES AND POLICIES.......................................... 28
TCW Galileo Money Market Fund........................................... 28
TCW Galileo High Grade Fixed Income Fund................................ 29
TCW Galileo High Yield Bond Fund........................................ 32
TCW Galileo Long-Term Mortgage Backed Securities Fund and TCW Galileo
Mortgage Backed Securities Fund....................................... 34
TCW Galileo Core Equity Fund............................................ 36
TCW Galileo Small Cap Growth Fund....................................... 37
TCW Galileo Earnings Momentum Fund...................................... 38
TCW Galileo Mid-Cap Growth Fund......................................... 39
TCW Galileo Asia Pacific Equity Fund.................................... 40
TCW Galileo Emerging Markets Fund....................................... 42
TCW Galileo Latin America Equity Fund................................... 45
General................................................................. 47
Money Market Instruments........................................... 47
Additional Fundamental Policies.................................... 48
Other Investment Policies.......................................... 48
Portfolio Turnover................................................. 49
RISK CONSIDERATIONS......................................................... 49
General................................................................. 50
Repurchase Agreements................................................... 50
Reverse Repurchase Agreements and Mortgage Dollar Rolls................. 50
Fixed Income Securities................................................. 51
Foreign Securities...................................................... 51
Foreign Currency Risks.................................................. 53
Options................................................................. 53
Risks Associated With Lower Rated Securities............................ 55
Risks Associated With Mortgage-Backed Securities........................ 57
Risks Associated With Emerging Market Countries......................... 59
Non-Diversified Status.................................................. 60
MANAGEMENT OF THE FUNDS..................................................... 61
Investment Adviser...................................................... 61
Sub-Investment Advisers................................................. 61
Portfolio Management.................................................... 61
Advisory and Sub-Advisory Agreements.................................... 65
PURCHASE OF SHARES.......................................................... 67
Minimums................................................................ 67
Purchases Made By Wire or Check......................................... 67
Exchange-in-Kind Feature................................................ 67
Purchase and Settlement................................................. 68
Distributor............................................................. 68
SHAREHOLDER ACCOUNT SERVICES................................................ 71
General................................................................. 71
Check Writing Privilege................................................. 71
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
REDEMPTION AND EXCHANGE OF SHARES................................................. 72
Redemptions and Exchanges..................................................... 72
Systematic Withdrawal Plan.................................................... 73
Receiving Your Proceeds....................................................... 73
Shareholder Inquiries......................................................... 73
OTHER CONDITIONS RELATING TO SHARES............................................... 74
Account Balance............................................................... 74
Excessive Trading and Exchange Limitations.................................... 74
Nonpayment.................................................................... 75
Non-U.S. Bank Checks.......................................................... 75
Redemptions in Excess of $250,000............................................. 75
Signature Guarantees.......................................................... 75
Telephone Exchange and Redemption............................................. 76
Other Conditions.............................................................. 76
NET ASSET VALUE................................................................... 76
DIVIDENDS, DISTRIBUTIONS AND TAXES................................................ 78
Dividends and Distributions................................................... 78
Taxes......................................................................... 79
PERFORMANCE INFORMATION........................................................... 81
GENERAL INFORMATION............................................................... 83
Organization, Shares and Voting Rights........................................ 83
Transfer Agent and Custodians................................................. 84
Independent Auditors.......................................................... 84
Legal Counsel................................................................. 84
Reports to Shareholders....................................................... 84
APPENDIX.......................................................................... A-1
Strategies Available to All Bond Funds and Equity Funds....................... A-1
Strategies Available to All Bond Funds and Equity Funds
(except Mid-Cap Growth).................................................. A-1
Strategies Available to High Grade Fixed Income, Long-Term Mortgage
Backed Securities, Mortgage Backed Securities, Money Market and the
Equity Funds............................................................. A-3
Strategies Available to High Grade Fixed Income, Long-Term Mortgage
Backed Securities, Mortgage Backed Securities, Money Market and
Latin America Equity..................................................... A-3
Strategies Available to High Grade Fixed Income, Long-Term Mortgage
Backed Securities and Mortgage Backed Securities......................... A-4
Strategies Available to Long-Term Mortgage Backed Securities and
Mortgage Backed Securities............................................... A-7
Strategies Available to the Equity Funds (except Earnings Momentum and
Mid-Cap Growth) and High Grade Fixed Income.............................. A-8
Strategies Available to the Equity Funds and High Yield Bond.................. A-9
Strategies Available to Mid-Cap Growth, Latin America Equity and
Emerging Markets......................................................... A-9
Strategies Available to Latin America Equity and Emerging Markets............. A-10
Strategies Available to Asia Pacific Equity, Latin America Equity and
Emerging Markets......................................................... A-11
Pro Forma Portfolio Composition of High Yield Bond Fund....................... A-12
Emerging Market Country Designation........................................... A-13
Description of S&P and Moody's Ratings........................................ A-13
</TABLE>
ii
<PAGE>
SUMMARY
The Company is an open-end management investment company offering investors a
selection of twelve no-load mutual funds in the TCW Galileo Funds (each, "a
Fund" collectively, "the Funds").
INVESTMENT OBJECTIVES Each Fund has a distinct investment objective and
investment policies. There can be no assurance that any Fund's investment
objective will be achieved.
INVESTMENT ADVISER TCW Funds Management, Inc. ("Adviser") serves as the
investment adviser of each Fund. As of December 31, 1995, the Adviser and its
affiliated companies had more than $52 billion under management or committed for
management in various fiduciary and advisory capacities. See "Management of the
Funds - Investment Adviser."
SUB-ADVISERS TCW Asia Limited ("TCW Asia") has been retained by the
Adviser to provide investment advice and assist in the management of Asia
Pacific Equity and Emerging Markets and TCW London International, Limited ("TCW
London") has been retained by the Adviser to provide investment advice and
assist in the management of Emerging Markets (collectively, TCW Asia and TCW
London are hereinafter referred to as the "Sub-Advisers"). The Sub-Advisers
also serve as advisers to separate accounts of institutional investors.
EXPENSES OF THE FUND Each Fund pays its operating expenses and an investment
advisory fee. The investment advisory fee is based on the value of the average
daily net assets of each Fund at the following maximum annual rates: Money
Market -- 0.25%; High Yield Bond -- 0.75%; High Grade Fixed Income -- 0.40%;
Long-Term Mortgage Backed Securities -- 0.50%; Mortgage Backed Securities --
0.50%; Core Equity -- 0.75%; Small Cap Growth --1.00%; Earnings Momentum --
1.00%; Mid-Cap Growth --1.00%; Asia Pacific Equity -- 1.00%, Emerging Markets --
1.00%; and Latin America Equity -- 1.00%. The Sub-Advisers are paid an annual
fee at a rate of 1.00% of the assets for which the Sub-Adviser renders
investment advisory services. The investment advisory fee payable with respect
to High Yield Bond, Core Equity, Asia Pacific Equity, Emerging Markets, Latin
America Equity and Earnings Momentum is higher than the fee for most investment
companies, but is comparable to funds with similar investment objectives. With
respect to Money Market and Mid-Cap Growth, the Adviser has agreed to reduce its
fee from the Fund, or to pay the operating expenses of the Fund, to the extent
necessary to limit the annual ordinary operating expenses (including
amortization of organizational expenses) of the Fund (other than brokerage fees
and commissions, interest, taxes and certain extraordinary expenses), as a
percentage of average net value, to 0.40% for Money Market and 1.20% for Mid-Cap
Growth until December 31, 1996. See "Management of the Funds - Advisory
Agreement."
1
<PAGE>
REDEMPTION AND Investors may exchange shares of one Fund for shares of
EXCHANGES another Fund subject to certain restrictions on the
number of exchanges in any 15-day period. Shares may be
redeemed or exchanged at their net asset value next
determined after receipt by DST Systems, Inc., the Fund's
transfer agent, of a written or telephonic redemption or
exchange request. See "Redemption and Exchange of Shares"
and "Other Conditions Relating to Shares - Excessive
Trading and Exchange Limitations." Exchanges and
redemptions may produce taxable gain or loss for
shareholders. See "Dividends, Distributions and Taxes."
RISK CONSIDERATIONS The investments of each Fund entail the normal credit,
interest rate, market, financial and similar risks
associated with fixed income and equity investments.
BECAUSE PRICES OF EQUITY AND FIXED INCOME SECURITIES
FLUCTUATE FROM DAY-TO-DAY, THE VALUE OF AN INVESTMENT IN
A FUND WILL VARY BASED UPON THE FUND'S PERFORMANCE AND
MAY GO DOWN AS WELL AS UP. FOR EQUITY SECURITIES, MARKET
RISK IS THE POSSIBILITY OF CHANGES IN PRICE CAUSED BY
STOCK MARKET PRICE CHANGES; FOR FIXED INCOME SECURITIES,
MARKET RISK IS THE POSSIBILITY THAT PRICES WILL FALL
BECAUSE OF CHANGING INTEREST RATES. IN GENERAL, PRICES OF
FIXED INCOME SECURITIES (INCLUDING U.S. GOVERNMENT
SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS) VARY
INVERSELY WITH CHANGES IN INTEREST RATES. IF INTEREST
RATES RISE, PRICES OF FIXED INCOME SECURITIES FALL; IF
INTEREST RATES FALL, PRICES OF FIXED INCOME SECURITIES
GENERALLY RISE. IN ADDITION, FOR A GIVEN CHANGE IN
INTEREST RATES, LONGER-MATURITY FIXED INCOME SECURITIES
FLUCTUATE MORE IN PRICE (GAINING OR LOSING MORE IN VALUE)
THAN SHORTER-MATURITY FIXED INCOME SECURITIES. DURING
PERIODS OF DECLINING INTEREST RATES, IT IS LIKELY THAT
HIGH YIELDING MORTGAGE SECURITIES, INCLUDING
COLLATERALIZED MORTGAGE OBLIGATIONS, WILL BE REDEEMED DUE
TO REFINANCINGS AND A FUND WILL BE UNLIKELY TO REPLACE
SUCH SECURITIES WITH SECURITIES HAVING AS GREAT A YIELD.
THERE IS NO GUARANTEE OF SUCCESSFUL PERFORMANCE OR THAT
AN INVESTMENT IN A FUND WILL ACHIEVE A POSITIVE RETURN.
High Yield Bond invests in high yield fixed income
securities, commonly known as junk bonds, which are
regarded by the rating agencies as speculative with
respect to the issuer's continuing ability to meet
principal and interest payments. High Yield Bond
emphasizes investments in securities which the Adviser
considers to be at the lower-risk end of the high yield
bond spectrum. These are securities issued by companies
considered by the Adviser to have stable to improving
business prospects. Some of the companies issuing these
securities are in the growth stage of development and
have reasonable prospects for improved debt ratings. Such
issuers generally have shorter operating histories and
lower revenues and entail
2
<PAGE>
greater risk than issuers of investment grade securities.
See "Investment Objectives and Policies - TCW Galileo
High Yield Bond Fund" and "Risk Considerations - Risks
Associated with Lower Rated Securities."
Small Cap Growth invests primarily in common stocks and
other equity securities of lesser known, smaller
capitalization domestic and foreign companies.
Investments in such companies may be more volatile than
investments in larger, more established companies. In
addition, the Fund may invest in lower rated or unrated
convertible securities. See "Investment Objectives and
Policies - TCW Galileo Small Cap Growth Fund," and "Risk
Considerations - Risks Associated with Lower Rated
Securities."
The Asia Pacific Equity, Emerging Markets and Latin
America Equity Funds can have extreme share price
volatility and should be considered only as a long-term
investment due to their investment in securities of
emerging market countries. See "Risk Considerations -
Risks Associated with Emerging Market Countries at page
59.
The Asia Pacific Equity, Core Equity, Small Cap Growth,
Earnings Momentum, Mid-Cap Growth, Latin America,
Emerging Markets and High Grade Fixed Income Funds may
invest in foreign securities. Investment in foreign
securities involves certain risks including exchange rate
fluctuations, international and regional political and
economic developments and the possible imposition of
exchange controls or other restrictions applicable to
such investments. See "Risk Considerations - Foreign
Securities."
The Asia Pacific Equity, Core Equity, Earnings Momentum,
Emerging Markets, Latin America, Small Cap Growth and Mid
Cap Growth Funds ("Equity Funds") are non-diversified
investment companies and, consequently, a relatively high
percentage of their respective assets generally may be
invested in a limited number of issuers. However, these
Funds will still be subject to certain tax-related
diversification requirements. See "Risk Considerations -
Non-Diversified Status."
In addition, certain of the Funds may from time to time
use other investment techniques or invest in specialized
securities that entail particular risks. These techniques
include the following: when issued and delayed delivery
securities, options and futures for hedging purposes (all
Funds except Mid-Cap Growth); inverse floater classes of
collateralized mortgage obligations (Long-Term Mortgage
Backed Securities and Mortgage Backed Securities);
mortgage dollar rolls and interest-only stripped mortgage
securities (High Grade Fixed Income, Long-Term Mortgage
Backed Securities and Mortgage Backed
3
<PAGE>
Securities); and repurchase agreements and reverse
repurchase agreements (High Grade Fixed Income, Long-Term
Mortgage Backed Securities, Mortgage Backed Securities,
and the Equity Funds). High Grade Fixed Income and Core
Equity may also have some foreign currency exposure.
INVESTMENTS BY LONG-TERM MORTGAGE BACKED SECURITIES AND
MORTGAGE BACKED SECURITIES IN INVERSE FLOATER CLASSES OF
COLLATERALIZED MORTGAGE OBLIGATIONS AND INVESTMENTS BY
HIGH GRADE FIXED INCOME, LONG-TERM MORTGAGE BACKED
SECURITIES AND MORTGAGE BACKED SECURITIES IN INTEREST-
ONLY STRIPPED MORTGAGE SECURITIES ARE HIGHLY SENSITIVE TO
CHANGES IN INTEREST AND PREPAYMENT RATES AND EXHIBIT
GREATER PRICE VOLATILITY THAN OTHER COLLATERALIZED
MORTGAGE OBLIGATIONS. SUCH PRICE VOLATILITY CAN ADVERSELY
AFFECT A FUND'S SHARE PRICE. In addition, investments by
these Funds in mortgage dollar rolls and reverse
repurchase agreements involve leverage which entails
certain additional risks. See "Risk Considerations -
Risks Associated with Mortgage-Backed Securities".
4
<PAGE>
EXPENSES OF THE FUNDS
The Funds are 100% no-load; you pay no fees to purchase, or exchange, shares
nor any ongoing marketing (12b-1) expenses.
The following table illustrates all expenses and fees that a shareholder of
each Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended October 31, 1995. Expenses are expressed as a percent of each
Fund's average net assets. More information about these expenses may be found
under "Management of the Funds."
TCW GALILEO FUNDS, INC.
SHAREHOLDER TRANSACTION EXPENSES FOR ALL FUNDS
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
<TABLE>
<CAPTION>
LONG-TERM
TERM
MONEY HIGH HIGH MORTGAGE MORTGAGE MID-CAP
MARKET YIELD GRADE BACKED BACKED GROWTH
------ ----- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
Management Fees (After expense
reimbursements) .19% .75% .40% .50% .50% .82%
Rule 12b-1 Fees None None None None None None
Other Expenses .21% .13% .32% .19% .13% .38%
---- ---- ---- ---- ---- ------
TOTAL FUND OPERATING EXPENSES .40* .88% .72% .69% .63% 1.20%*
<CAPTION>
CORE SMALL EARNINGS ASIA EMERGING LATIN
EQUITY CAP MOMENTUM PACIFIC MARKETS AMERICA
------ ----- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses
Management Fees (After expense
reimbursements) .75% 1.00% 1.00% 1.00% 1.00% 1.00%
Rule 12b-1 Fees None None None None None None
Other Expenses .10% .24% .24% .51% .55% .58%
---- ---- ---- ---- ---- ------
TOTAL FUND OPERATING EXPENSES 0.85% 1.24% 1.24% 1.51% 1.55% 1.58%
</TABLE>
* (after expense reimbursements, see footnote next page for expense ratios had
there been no reimbursement)
5
<PAGE>
EXAMPLE
An investor would pay the following expenses* on a $1,000 investment,
assuming (a) 5% annual return and (b) redemption at the end of each time period:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market $ 4 $13 $23 $ 52
High Yield Bond 9 29 50 111
High Grade 7 24 41 92
Long-Term Mortgage Backed 7 23 39 88
Mortgage Backed 6 21 36 81
Core Equity 9 28 48 108
Small Cap Growth 13 41 70 154
Mid-Cap Growth 13 39 -- --
Earnings Momentum 13 41 70 154
Asia Pacific 16 49 86 187
Emerging Markets 16 50 87 190
Latin America 16 51 89 193
=====================================================================================
</TABLE>
*This table is designed to assist investors in understanding the various direct
and indirect costs and expenses that investors in each Fund will bear. The
example has been calculated using actual expenses except for Money Market where
expenses are assumed to be the expense limit. Without an expense limit, total
expenses for Money Market would have been 0.46% and Mid-Cap Growth are estimated
at 1.38%. In connection with the example, note that $1,000 is less than the
Funds' minimum investment requirements and that there are no redemption or
exchange fees of any kind. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED SOLELY
FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
6
<PAGE>
FINANCIAL HIGHLIGHTS
(INTRODUCTION)
------------
The following information for the periods ended December 31, 1993 and
October 31, 1994 and fiscal year ended October 31, 1995 has been audited by the
Company's independent auditors, Deloitte & Touche LLP, and should be read in
conjunction with the financial statements and related notes thereto included in
the Statement of Additional Information which may be obtained, without charge,
by calling the telephone number or writing to the address appearing on the cover
of this Prospectus.
<TABLE>
<CAPTION>
HIGH YIELD
--------------------------------------------------------------
YEAR ENDED TEN MONTHS ENDED MARCH 1, 1993
OCTOBER 31, 1995 OCTOBER 31, 1994 (INCEPTION) TO
DECEMBER 31, 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 9.43 $ 10.12 $ 10.00
------- ------- -------
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.92 0.73 0.74
- --------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments 0.39 (0.77) 0.27
------- ------- -------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.31 (0.04) 1.01
------- ------- -------
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------------------
Distributions from Net Investment Income (1.00) (0.65) (0.74)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from Realized Gains - - (0.15)
------- ------- -------
- --------------------------------------------------------------------------------------------------------------------------
Distributions in Excess of Realized Gains - - -
------- ------- -------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL (1.00) (0.65) (0.89)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 9.74 $ 9.43 $ 10.12
======= ======= =======
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 14.65% (0.34)%(3) 10.47%(3)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $92,652 $90,577 $73,737
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets(2) 0.87% 0.79%(1) 0.79%(1)
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets 9.60% 9.18%(1) 8.60%(1)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 36.32% 34.01%(3) 47.60%(3)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 0.79% of net assets through
December 31, 1994 as disclosed in Note 4 of the Notes to Financial
Statements. Had such action not been taken, total annualized operating
expenses for the period March 1, 1993 (commencement of operations) through
December 31, 1993 would have been 0.96% of average net assets, for the ten
months ended October 31, 1994 total annualized operating expenses would
have been 0.91% of average net assets, and for the fiscal year ended
October 31, 1995, total annualized operating expenses would have been 0.88%
of average net assets.
(3) For periods through October 31, 1994 and December 31, 1993 respectively,
and not indicative of a full year's operating results.
7
<PAGE>
<TABLE>
<CAPTION>
HIGH GRADE
--------------------------------------------------------------
YEAR ENDED TEN MONTHS ENDED MARCH 1, 1993
OCTOBER 31, 1995 OCTOBER 31, 1994 (INCEPTION) TO
DECEMBER 31, 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 8.94 $ 10.04 $ 10.00
------- --------- -------
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.58 0.44 0.45
- --------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments 0.62 (1.16)(4) 0.19
------- --------- -------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.20 (0.72) 0.64
------- --------- -------
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------------------
Distributions from Net Investment Income (0.53) (0.38) (0.45)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from Realized Gains - - (0.14)
- --------------------------------------------------------------------------------------------------------------------------
Distributions in Excess of Realized Gains - - (0.01)
------- --------- -------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL (0.53) (0.38) (0.60)
------- --------- -------
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 9.61 $ 8.94 $ 10.04
======= ========= =======
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 13.92% (7.24)%(3) 6.54%(3)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $36,236 $ 50,153 $33,328
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets(2) 0.68% 0.50%(1) 0.50%(1)
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets 6.38% 6.11%(1) 5.24%(1)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 223.78% 208.63%(3) 149.96%(3)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 0.50% of net assets through
December 31, 1994 as disclosed in Note 4 of the Notes to Financial
Statements. Had such action not been taken, total annualized operating
expenses for the period March 1, 1993 (commencement of operations) through
December 31, 1993 would have been 0.89% of average net assets, for the ten
months ended October 31, 1994 total annualized operating expenses would
have been 0.68%, and for the fiscal year ended October 31, 1995, total
annualized operating expenses would have been 0.72% of average net assets.
(3) For periods through October 31, 1994 and December 31, 1993 respectively,
and not indicative of a full year's operating results.
(4) Includes net realized losses on foreign currency
transactions/translations.
8
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM MORTGAGE BACKED
---------------------------------------------------------------
YEAR ENDED TEN MONTHS ENDED JUNE 17, 1993
OCTOBER 31, 1995 OCTOBER 31, 1994 (INCEPTION) TO
DECEMBER 31, 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value per Share, Beginning of Period $ 8.95 $ 10.07 $ 10.00
------- ------- -------
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.72 0.63 0.28
- --------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments 0.71 (1.26) 0.07
------- ------- -------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.43 (0.63) 0.35
------- ------- -------
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------------------
Distributions from Net Investment Income (0.82) (0.49) (0.28)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from Realized Gains - - -
- --------------------------------------------------------------------------------------------------------------------------
Distributions in Excess of Realized Gains - - -
-------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL (0.82) (0.49) (0.28)
------- ------- -------
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 9.56 $ 8.95 $ 10.07
======= ======= =======
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 16.84% (6.39)%(3) 3.51%(3)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $80,159 $66,632 $25,215
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets(2) 0.68% 0.65%(1) 0.65%(1)
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets 7.88% 8.03%(1) 5.37%(1)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 23.76% 36.71%(3) 44.47%(3)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 0.65% of net assets through
December 31, 1994 as disclosed in Note 4 of the Notes to Financial
Statements. Had such action not been taken, total annualized operating
expenses for the period June 17, 1993 (commencement of operations) through
December 31, 1993 would have been 1.13% of average net assets, for the ten
months ended October 31, 1994 total annualized operating expenses would
have been 0.78% of average net assets, and for the fiscal year ended
October 31, 1995, total annualized operating expenses would have been 0.69%
of average net assets.
(3) For periods through October 31, 1994 and December 31, 1993 respectively,
and not indicative of a full year's operating results.
9
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE BACKED
---------------------------------------------------------------
YEAR ENDED TEN MONTHS ENDED JUNE 17, 1993
OCTOBER 31, 1995 OCTOBER 31, 1994 (INCEPTION) TO
DECEMBER 31, 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value per Share, Beginning of Period $ 9.41 $ 9.86 $ 10.00
------- ---------- --------
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.67 0.42 0.50
- --------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments 0.25 (0.48) (0.12)
------- ---------- --------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.92 (0.06) 0.38
------- ---------- --------
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------------------
Distributions from Net Investment Income (0.71) (0.39) (0.50)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from Realized Gains - - (0.02)
- --------------------------------------------------------------------------------------------------------------------------
Distributions in Excess of Net Investment Income (0.04) - -
- --------------------------------------------------------------------------------------------------------------------------
TOTAL (0.75) (0.39) (0.52)
------- ---------- --------
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 9.58 $ 9.41 $ 9.86
======= ========== ========
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 10.16% (0.61)%(3) 3.89%(3)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $81,366 $ 134,948 $147,666
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets(2) 0.61% 0.55%(1) 0.55%(1)
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets 7.13% 5.18%(1) 5.98%(1)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 37.83% 65.54% (3) 70.44%(3)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 0.55% of net assets through
December 31, 1994 as disclosed in Note 4 of the Notes to Financial
Statements. Had such action not been taken, total annualized operating
expenses for the period March 1, 1993 (commencement of operations) through
December 31, 1993 would have been 0.70% of average net assets, for the ten
months ended October 31, 1994 total annualized operating expenses would
have been 0.62% of average net assets, and for the fiscal year ended
October 31, 1995, total annualized operating expenses would have been 0.63%
of average net assets.
(3) For periods through October 31, 1994 and December 31, 1993 respectively,
and not indicative of a full year's operating results.
10
<PAGE>
<TABLE>
<CAPTION>
CORE EQUITY
---------------------------------------------------------------
YEAR ENDED TEN MONTHS ENDED MARCH 1, 1993
OCTOBER 31, 1995 OCTOBER 31, 1994 (INCEPTION) TO
DECEMBER 31, 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF $ 11.57 $ 11.81 $ 10.00
PERIOD -------- -------- --------
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Net Investment Income 0.06 0.04 0.03
- -----------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on 2.11 (0.28) 1.81
Investments -------- -------- --------
- -----------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.17 (0.24) 1.84
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------------
Distributions from Net Investment Income (0.05) - (0.03)
- -----------------------------------------------------------------------------------------------------------------
Distributions from Realized Gains - - -
- -----------------------------------------------------------------------------------------------------------------
Distributions in Excess of Realized Gains - - -
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------------
TOTAL (0.05) - (0.03)
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 13.69 $ 11.57 $ 11.81
======== ======== ========
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 18.85% (2.03)%(3) 18.41%(3)
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $197,721 $136,122 $ 55,885
- -----------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 0.85% 0.91%(1) 1.00%(1)(2)
- -----------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net 0.48% 0.44%(1) 0.55%(1)
Assets
- -----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 53.77% 23.53%(3) 29.67%(3)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) The Adviser has voluntarily agreed to reduce its fee from each Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 1.00% of net assets through
December 31, 1994 as disclosed in Note 4 to Financial Statements. Had such
action not been taken, total annualized operating expenses for the period
March 1, 1993 (commencement of operations) through December 31, 1993 would
have been 1.09% of average net assets.
(3) For periods through October 31, 1994 and December 31, 1993 respectively,
and not indicative of a full year's operating results.
11
<PAGE>
<TABLE>
<CAPTION>
LATIN AMERICA
---------------------------------------------------------------
YEAR ENDED TEN MONTHS ENDED MARCH 1, 1993
OCTOBER 31, 1995 OCTOBER 31, 1994 (INCEPTION) TO
DECEMBER 31, 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF $ 14.99 $ 15.81 $ 10.00
PERIOD -------- -------- --------
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Net Investment Income 0.06 0.01 0.08
- -----------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on (5.92) (0.13) 6.35
Investments -------- -------- --------
- -----------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (5.86) (0.12) 6.43
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------------
Distributions from Net Investment Income - - (0.08)
- -----------------------------------------------------------------------------------------------------------------
Distributions from Realized Gains - - (1.21)
- -----------------------------------------------------------------------------------------------------------------
Distributions in Excess of Realized Gains (1.21) - (0.03)
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------------
TOTAL (1.21) - (1.32)
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 7.92 $ 14.99 $ 15.11
======== ======== ========
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN (40.95)% (0.79)%(3) 64.27%(3)
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $ 38,942 $122,610 $ 89,910
- -----------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.58% 1.36%(1) 1.50%(1)(2)
- -----------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net 0.59% 0.11%(1) 0.77%(1)
Assets
- -----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 75.62% 143.65%(3) 120.06%(3)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 1.50% of net assets through
December 31, 1994 as disclosed in Note 4 of the Notes to Financial
Statements. Had such action not been taken, total annualized operating
expenses for the period March 1, 1993 (commencement of operations) through
December 31, 1993 would have been 1.52% of average net assets.
(3) For period through October 31, 1994 and December 31, 1993 respectively, not
indicative of a full year's operating results.
12
<PAGE>
<TABLE>
<CAPTION>
ASIA PACIFIC EQUITY
----------------------------------------
YEAR ENDED MARCH 1, 1994
OCTOBER 31, 1995 (INCEPTION) TO
OCTOBER 31, 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF $ 10.19 $ 10.00
PERIOD ------- --------
- ---------------------------------------------------------------------------------------
INCOME LOSS FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.06 0.03
- ---------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on (1.19)(4) .16(4)
Investments
- ---------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (1.13) 0.19
------- --------
- ---------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------
Distributions from Net Investment Income (0.01) -
- ---------------------------------------------------------------------------------------
Distributions from Realized Gains (0.38) -
- ---------------------------------------------------------------------------------------
Distributions in Excess of Realized Gains - -
-------
- ---------------------------------------------------------------------------------------
TOTAL (0.39) -
------- --------
- ---------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 8.67 $ 10.19
======= ========
- ---------------------------------------------------------------------------------------
TOTAL RETURN (10.98%) 1.90%(3)
- ---------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $46,709 $ 54,019
- ---------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.47%(2) 1.40%(1)(2)
- ---------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average 0.74% 0.45%(1)
Net Assets (1)
- ---------------------------------------------------------------------------------------
Portfolio Turnover Rate(3) 102.01% 46.75%(3)
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 1.40% of net assets through
December 31, 1994 as disclosed in Note 4 of the Notes to Financial
Statements. Had such action not been taken, total annualized operating
expenses for the period March 1, 1994 (commencement of operations) through
October 31, 1994 would have been 1.60% of average net assets and for the
fiscal year ended October 31, 1995, total annualized operating expenses
would have been 1.51% of average net assets.
(3) For period through October 31, 1994 and not indicative of a full year's
operating results.
(4) Includes net realized and unrealized gain (loss) on foreign currency
transactions/translations.
13
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP GROWTH
--------------------------------------
YEAR ENDED MARCH 1, 1994
OCTOBER 31, 1995 (INCEPTION) TO
OCTOBER 31, 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF $ 9.39 $ 10.00
PERIOD ------- --------
- --------------------------------------------------------------------------------------
INCOME LOSS FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------
Net Investment Income (Loss) (0.07) (0.04)
- --------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on 4.72 (0.57)
Investments ------- --------
- --------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.65 (0.61)
------- --------
- --------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------
Distributions from Net Investment Income - -
- --------------------------------------------------------------------------------------
Distributions from Realized Gains (0.51) -
- --------------------------------------------------------------------------------------
Distributions in Excess of Realized Gains - -
-------
- --------------------------------------------------------------------------------------
TOTAL (0.51) -
------- --------
- --------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 13.53 $ 9.39
======= ========
- --------------------------------------------------------------------------------------
TOTAL RETURN 49.89% (6.10)%(3)
- --------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $66,056 $ 51,089
- --------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.21%(2) 1.09%(1)(2)
- --------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average (0.61)% (0.59)%(1)
Net Assets
- --------------------------------------------------------------------------------------
Portfolio Turnover Rate 89.73% 88.63%(3)
- --------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 1.09% of net assets through
December 31, 1994 as disclosed in Note 4 of the Notes to Financial
Statements. Had such action not been taken, total annualized operating
expenses for the period March 1, 1994 (commencement of operations) though
October 31, 1994 would have been 1.39% of average net assets and for the
fiscal year ended October 31, 1995, total annualized operating expenses
would have been 1.24% of average net assets.
(3) For periods through October 31, 1994 and not indicative of a full year's
operating results.
(4) Includes net realized and unrealized gain (loss) on foreign currency
transactions/translations.
14
<PAGE>
<TABLE>
<CAPTION>
EMERGING MARKETS
--------------------------------------
YEAR ENDED MARCH 1, 1994
OCTOBER 31, 1995 (INCEPTION) TO
OCTOBER 31, 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF $ 9.73 $ 10.00
PERIOD --------- -------
- ------------------------------------------------------------------------------------
INCOME LOSS FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.04 (0.01)
- ------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on (2.58)(3) (0.26)(3)
Investments ---------
- ------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (2.54) (0.27)
--------- -------
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------
Distributions from Net Investment Income - -
- ------------------------------------------------------------------------------------
Distributions from Realized Gains - -
- ------------------------------------------------------------------------------------
Distributions in Excess of Realized Gains - -
---------
- ------------------------------------------------------------------------------------
TOTAL (2.54) (0.27)
--------- -------
- ------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 7.19 $ 9.73
========= =======
- ------------------------------------------------------------------------------------
TOTAL RETURN (26.11)% (2.70)%(2)
- ------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $ 51,873 $70,212
- ------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.55% 1.70%(1)
- ------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average 0.54% (0.09)%(1)
Net Assets
- ------------------------------------------------------------------------------------
Portfolio Turnover Rate 74.24% 61.28%(2)
- ------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) For period through October 31, 1994 and not indicative of a full year's
operating results.
(3) Includes net realized and unrealized gain (loss) on foreign currency
transactions/translations.
15
<PAGE>
<TABLE>
<CAPTION>
EARNINGS MOMENTUM
------------------
YEAR ENDED
OCTOBER 31, 1995
- ------------------------------------------------------------------
<S> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF $ 10.00
PERIOD -------
- -----------------------------------------------------------------
INCOME LOSS FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------
Net Investment Income (Loss) (0.03)
- -----------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on 1.51
Investments -------
- -----------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.48
-------
- -----------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------
Distributions from Net Investment Income -
- -----------------------------------------------------------------
Distributions from Realized Gains -
- -----------------------------------------------------------------
Distributions in Excess of Net Investment (0.01)
Income -------
- -----------------------------------------------------------------
TOTAL (0.01)
-------
- -----------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 11.47
=======
- -----------------------------------------------------------------
TOTAL RETURN 14.76%
- -----------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------
Net Assets, End of Period (in thousands) $63,411
- -----------------------------------------------------------------
Ratio of Expenses to Average Net Assets(1) 1.14%
- -----------------------------------------------------------------
Ratio of Net Investment Income to Average (0.28%)
Net Assets
- -----------------------------------------------------------------
Portfolio Turnover Rate 85.91%
- -----------------------------------------------------------------
</TABLE>
(1) The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 1.14% of net assets as
disclosed in Note 4 of the Notes to Financial Statements. Had such action
not been taken, total annualized operating expenses for the period November
1, 1994 (commencement of operations) through October 31, 1995 would have
been 1.24% of average net assets.
16
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the TCW Galileo Money Market Fund (formerly
the TCW Investment Funds, Inc. Money Market Portfolio "MMP") has been audited by
Deloitte & Touche LLP, independent auditors for MMP, and should be read in
conjunction with the MMP financial statements and related notes thereto included
in the Statement of Additional Information which may be obtained, without
charge, by calling the telephone number or writing to the address appearing on
the cover of this Prospectus. On May 23, 1994, all the assets and liabilities
of MMP were contributed to TCW Galileo Funds, Inc. in exchange for shares in the
TCW Galileo Money Market Fund which was formed as the successor fund to MMP.
Year Ended December 31
<TABLE>
<CAPTION>
Year Ended Ten Months 1993 1992 1991 1990 1989 July 14, 1988
October Ended October (Inception) to
31, 1995 31, 1994 to December
31, 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.0549 0.0304 0.0293 0.0381 0.0620 0.0800 0.0882 0.0379
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.549) (0.0304) (0.0293) (0.0381) (0.0620) (0.0800) (0.0882) (0.0379)
------- ---------- -------- -------- -------- -------- -------- ----------
NET ASSET VALUE PER SHARE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ========== ======== ======== ======== ======== ======== =========
Total Return 5.67% 3.04%/3/ 2.97% 3.92% 6.35% 8.18% 9.22% 7.68%/3/
Ratios/Supplemental Data
Net Assets, End of Period $86,302 $ 124,392 $ 81,204 $183,465 $140,987 $167,572 $ 88,620 $ 63,703
(in thousands)
Ratio of Expenses to Average 0.40% 0.40% /1/ 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%/1/
Net Assets/2/
Ratio of Net Investment 5.49% 3.65%/1/ 2.93% 3.81% 6.20% 8.00% 8.82% 8.08%/1/
Income to Average Net Assets
</TABLE>
______________________
1 Annualized
2 The Adviser has voluntarily agreed to reduce its fee, or to pay the
operating expenses of the Fund, to the extent necessary to limit the annual
ordinary operating expenses of the Fund to 0.40% of net assets as disclosed
in Note 4 of the Notes to Financial Statements. Had such action not been
taken, total annualized operating expenses as a percentage of average net
assets would have been 0.46% for the fiscal year ended October 31, 1995,
0.68% for the ten months ended October 31, 1994, 0.52%, 0.49%, 0.47% 0.51%
and 0.71% for the years ended December 31, 1993 through 1989, respectively,
and 0.47% for the period July 14, 1988 (commencement of operations) through
December 31, 1988.
3. For periods through October 31, 1994 and December 31, 1988 respectively,
and not indicative of a full year's operating results.
17
<PAGE>
MANAGEMENT DISCUSSION
Accompanying the management discussion is a graphical analysis of the change
in value of a $250,000 investment (minimum initial shareholder investment) in
each Fund, except Money Market, compared to the change in value of an investment
of the same amount using the applicable broad-based index.
TCW GALILEO HIGH GRADE FIXED INCOME FUND - 1995 RESULTS
From November 1, 1994 through October 31, 1995, the return totaled 13.9%.
The return on the Salomon Brothers Broad Index during the same period was 15.7%.
The Fund's performance during this period is partially attributable to the
lingering effects of the selloff in the bond market in 1994 combined with the
Fund's shorter duration versus its benchmark index during the early months of
1995. In response to declining economic growth, the Fund's duration was
lengthened during the first quarter of 1995, increasing the Fund's overall
sensitivity to expected further interest rate declines. The Fund's duration,
which stood at 4.5 years in November 1994, ended the year at 5.5 years in
October 1995.
Following four years of economic expansion, real growth is struggling to
maintain the 2.5% pace deemed acceptable by the Federal Reserve. The Fed's
hesitancy to implement monetary stimulus while inflation is moderating, the
appreciating dollar and improving productivity may impede growth in 1996.
Consequently, we have lowered our estimate for average GDP growth in 1996 from
3.0% to 2.5% but are counting on further reductions in interest rates to support
growth. Intermediate and long-term interest rates remain 3.0% to 4.0% above
inflation, incorporating a high risk premium from a historical perspective. We
believe this risk premium will slowly be reduced as economic growth remains
moderate and inflation remains benign.
18
<PAGE>
GALILEO HIGH GRADE FIXED INCOME
[GRAPH APPEARS HERE]
18A
<PAGE>
TCW GALILEO HIGH YIELD BOND FUND - 1995 RESULTS
The Fund earned a total return of 14.7% for the period November 1, 1994 to
October 31, 1995. The Fund's return was lower than that of the Salomon Brothers
High Yield Cash Pay Index which was 16.8% for the period. This underperformance
was due in large part to the fact that the Salomon Brothers High Yield Cash Pay
Index maintains a heavier weighting of interest rate sensitive double-B rated
issues than the Fund and, accordingly, fared better during this period of
rapidly declining interest rates. During this period for fixed income
investments, the Fund did not keep pace with the Lehman Brothers
Government/Corporate Bond Index which returned 16.2%. However, since its
inception, the Fund's return has comfortably exceeded this proxy for the
investment grade bond market as shown in the accompanying graph.
19
<PAGE>
[TCW GALILEO HIGH YIELD]
[GRAPH APPEARS HERE]
19A
<PAGE>
TCW GALILEO MORTGAGE BACKED SECURITIES FUND - 1995 RESULTS
A strong rally in the fixed income market over the last twelve months led to
solid performance gains in the mortgage-backed securities sector overall.
Between the beginning of November 1994 and end of October 1995, ten year
treasury yields fell over 188 basis points from 7.90% to 6.20%. The yield on
the thirty year treasury declined by over 170 basis points to 6.33%. This
interest rate rally provided stimulus to the housing sector and led to a
refinancing boomlet during the spring and summer months of 1995. Prepayment
rates have fallen recently due to the seasonal slowdown in housing that is
typically seen in the fall and winter months of each year. Liquidity conditions
within the mortgage sector have improved substantially since last year, due
initially to diminished supply, and more recently to an increase in investor
demand and trading activity. The issuance of new CMOs is still at a mere
fraction of the peak volume seen two and three years ago, although secondary
trading has increased. Derivatives, particularly the inverse floaters held in
the Fund, have also performed well this past year due to falling interest rates
and increasing prepayment rates. Our investment strategy continues to emphasize
call protection and securities priced at a discount or par, to reduce exposure
to variables which can adversely impact portfolio performance, while increasing
exposure to those that can improve performance.
20
<PAGE>
[GALILEO MORTGAGE BACKED SECURITIES]
[GRAPH APPEARS HERE]
20A
<PAGE>
TCW GALILEO LONG-TERM MORTGAGE BACKED SECURITIES FUND - 1995 RESULTS
A strong rally in the fixed income market over the last twelve months led to
solid performance gains in the mortgage-backed securities sector overall.
Between the beginning of November 1994 and end of October 1995, ten year
treasury yields fell over 188 basis points from 7.90% to 6.20%. The yield on
the thirty year treasury declined by over 170 basis points to 6.33%. This
interest rate rally provided stimulus to the housing sector and led to a
refinancing boomlet during the spring and summer months of 1995. Prepayment
rates have fallen recently due to the seasonal slowdown in housing that is
typically seen in the fall and winter months of each year. Liquidity conditions
within the mortgage sector have improved substantially since last year, due
initially to diminished supply, and more recently to an increase in investor
demand and trading activity. The issuance of new CMOs is still at a mere
fraction of the peak volume seen two and three years ago, although secondary
trading has increased. Derivatives, particularly the inverse floaters held in
the Fund, have also performed well this past year due to falling interest rates
and increasing prepayment rates. Our investment strategy continues to emphasize
call protection and securities priced at a discount or par, to reduce exposure
to variables which can adversely impact portfolio performance, while increasing
exposure to those that can improve performance.
21
<PAGE>
[GALILEO LONG TERM MBS]
[GRAPH APPEARS HERE]
21A
<PAGE>
TCW GALILEO CORE EQUITY FUND - 1995 RESULTS
The total return for the Fund during the period from November 1, 1994
through October 31, 1995 was 18.9%, which compares with a total return of 26.4%
for the Standard & Poor's 500 Stock Index over the same period. A substantial
portion of the shortfall in performance relative to the benchmark occurred in
the Fund's first fiscal quarter as it liquidated several positions in Latin
American equities in the aftermath of the Mexican Peso devaluation. The Fund no
longer has any holdings in these markets. Also, in September and October of
1995, the information and communications technology sectors, in which the fund
is heavily weighted, underwent a period of profit taking following a sharp run-
up for many of these shares earlier in the year. The Fund continued to pursue
its strategy of achieving long-term growth of capital by investing in reasonably
valued companies whose earnings growth prospects for the next several years
appear particularly robust. In this regard we continue to have high conviction
in the long-term growth prospects for the technology sector. Also, the Fund has
substantial positions in many revitalized American industrial companies,
particularly those that have a large and growing presence in foreign markets.
We believe the U.S. economy has successfully achieved a soft landing and will
expand at a moderate non-inflationary pace 1996. This should enable our
portfolio companies to achieve significant profit increases and perhaps some
moderate expansion in valuations as long as the general level of interest rates
continues on a downward path.
22
<PAGE>
[GALILEO CONCENTRATED CORE]
[GRAPH APPEARS HERE]
22A
<PAGE>
TCW GALILEO SMALL CAP GROWTH FUND - 1995 RESULTS
The market rewarded the Fund's holdings of high growth small cap companies
with substantially higher valuations in 1995. After what appeared to be
unsustainably strong performance through the first half of fiscal year 1995,
results were even stronger in the second half. Total return for the period
November 1, 1994 through October 31,1995 was 49.9%. This compares to 17.90% for
the Russell 2000 and 21.0% for the NASDAQ Industrials.
Technology stocks, particularly semiconductors, have received much publicity
for recording significant appreciation this year. The Fund's above-average
results were obviously helped by technology, but we also enjoyed strong
performance in business services, leisure, financial services, restaurants, and
health care. Although we made a number of changes in the Fund over the last six
months, there was very little change in the weightings of broad industry
sectors. Industries were we increased the Fund's weightings were business
services, computer software and services, and retail. Groups that we reduced
were electrical equipment, semiconductors, consumer durables and energy. In
view of the strength in technology it is noteworthy that the Fund's weighting in
technology remained at approximately 30% of the portfolio. Although we are very
positive on the outlook for technology stocks, profit taking offset appreciation
and kept the group from becoming a larger proportion of the Fund. Our sector
decisions continue to be driven by company specific events.
23
<PAGE>
[GALILEO SMALL CAP GROWTH]
[GRAPH APPEARS HERE]
23A
<PAGE>
TCW GALILEO EARNINGS MOMENTUM FUND - 1995 RESULTS
The Galileo Earnings Momentum Fund experienced solid gains in the fiscal
year ended October 31, 1995. Despite a slow start in the first quarter the Fund
gained 19.6%. The combination of slowing economic growth, falling interest rates
and strong corporate profit growth pushed the overall stock market to a new all-
time high. The rebound of the dollar, together with improved prospects for
reducing the budget deficit also contributed to the market's strength. Small
capitalization stocks in which the Fund is concentrated tended to underperform
the large cap averages.
Even with the weakness that technology stocks experienced in the final 10
weeks of the fiscal year, this was one of the Fund's best performing industry
groups in 1995. Other groups that performed well were pollution control,
healthcare and business services. Being underweighted in financials held back
the fund's relative performance during the fiscal year. On October 31 the
largest industry groups were healthcare, computer software and services, and
telecommunications.
Since the investment strategy of the Galileo Earnings Momentum Fund is
bottom up, investment decisions are not based on the outlook for the overall
economy or for specific industry groups. However, by focusing on companies that
are expected by the Fund manager to have improving fundamentals and accelerating
earnings, the Fund tends to be underweighted in industries that will be
negatively impacted by changing economic conditions.
24
<PAGE>
[GALILEO EARNINGS MOMENTUM]
[GRAPH APPEARS HERE]
24A
<PAGE>
TCW GALILEO ASIA PACIFIC EQUITY FUND - 1995 RESULTS
The total return earned by the Fund the period ended October 31, 1995 was
negative 10.98%. This compares to a negative 9.28% return by the MSCI Combined
Far East Free ex-Japan Index for the same period.
The Fund's slight underperformance relative to the MSCI Combined Far East
Free ex-Japan index is primarily attributable to a restructuring of the
portfolio in order to focus on more defensive blue chip names, with strong cash
flows and sustainable earnings growth while moving away from asset based
companies. During the restructuring process, which took place over the first
quarter of 1995, the Fund's performance slipped relative to the benchmark. The
success of the restructuring has since been demonstrated by the Fund's ability
to nearly close the performance gap and we anticipate that the current portfolio
structure will allow the Fund to outperform the benchmark in the coming year.
25
<PAGE>
[GALILEO ASIA PACIFIC FUND]
[GRAPH APPEARS HERE]
25A
<PAGE>
TCW GALILEO EMERGING MARKETS FUND - 1995 RESULTS
The total return earned by the Fund during the fiscal year ended October 31,
1995 was negative 26.11%. This compares to a negative 23.50% return by the
International Finance Corporation (IFC) Composite Investable Index for the same
period.
The Fund's slight underperformance relative to its benchmark is primarily
attributable to the portfolio's underweighting in South Africa. South Africa,
which outperformed most emerging markets during the twelve month period, was
added to the IFC Composite Index earlier this year at a near 24% weighting.
Given the South Africa market's relatively low liquidity, investment managers
(including TCW) were precluded from building up exposure to anywhere near a
neutral weighting of 24% to 25%. Furthermore, the Fund has been overweight in
the Latin America markets as we anticipate looser monetary conditions in 1996.
26
<PAGE>
[GALILEO EMERGING MARKETS EQUITIES]
[GRAPH APPEARS HERE]
26A
<PAGE>
TCW GALILEO LATIN AMERICA EQUITY FUND - 1995 RESULTS
The total return earned by the Fund during the fiscal year ended October 31,
1995 was -40.95%. This compares to a -37.40% return by the International
Finance Corporation (IFC) Latin America Investable Index for the same period.
The Fund's slight underperformance relative to the IFC index is primarily
attributable to the Fund's defensive cash position in early calendar year 1995.
Because the Fund is open-ended, a large cash position was held in late February
and March 1995 in the aftermath of the Mexican peso devaluation. When Latin
American stock markets rebounded sharply in the beginning of the second quarter,
the Fund's performance was hampered while the cash position was being
reinvested.
27
<PAGE>
[GALILEO LATIN AMERICA AMERICA EQUITIES]
[GRAPH APPEARS HERE]
27A
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
This Prospectus describes the following Funds offered by the Company: one
money market fund -- TCW Galileo Money Market Fund ("Money Market"); four fixed
income funds --TCW Galileo High Yield Bond Fund, TCW Galileo High Grade Fixed
Income Fund, TCW Galileo Long-Term Mortgage Backed Securities Fund and TCW
Galileo Mortgage Backed Securities Fund (collectively, the "Bond Funds"); three
equity funds -- TCW Galileo Core Equity Fund, TCW Galileo Small Cap Growth Fund
and TCW Earnings Momentum Fund; and three international equity funds -- TCW
Galileo Asia Pacific Equity Fund, TCW Galileo Emerging Markets Fund and TCW
Galileo Latin America Equity Fund (together, the "Equity Funds"). Each of the
Bond Funds and Money Market is a diversified portfolio, while each of the Equity
Funds is non-diversified.
Additional information about investment strategies that one or more of the
Funds may employ and investment policies mentioned below appear in the Appendix
to this Prospectus and in the Statement of Additional Information. A
description of the rating systems of Moody's Investors Services, Inc.
("Moody's") and Standard & Poor's Corporation ("S&P") is also contained in the
Statement of Additional Information.
The investment objective of each Fund is a fundamental policy. Fundamental
policies of a Fund may not be changed without the approval of a majority of the
outstanding shares of that Fund. Any investment involves risk, and there can be
no assurance that a Fund will achieve its investment objective. The Funds'
investment strategies, unless otherwise specified, are not fundamental policies
and may be changed without shareholder approval. Shareholders will be notified
of any change in such strategies as required by law. Fundamental policies with
respect to the Funds are described under this caption "Investment Objectives and
Policies" and in the Statement of Additional Information. For purposes of the
investment percentage limitations set forth in the following pages: (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.
TCW GALILEO MONEY MARKET FUND
TCW Galileo Money Market Fund seeks current income, preservation of capital
and liquidity through investment in short-term money market securities. While
there can be no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment policies described below. The
investment objective and policies of the Fund and the limitations described
below can be changed only by action of the shareholders.
The Fund seeks to maintain a constant net asset value of $1.00 per share by
investing in a diversified portfolio of money market instruments with remaining
maturities
28
<PAGE>
of one year or less or whose implied maturities are one year or less. Certain
variable rate and floating rate instruments are deemed to have an implied
maturity equal to the period remaining until the next adjustment of the interest
rate. See "Investment Restrictions" in the Statement of Additional Information.
The average maturity of the Fund's investments on a dollar-weighted basis will
be 90 days or less. If the Board believes that the extent of any deviation from
a $1.00 amortized cost price per share may result in material dilution or other
unfair results to new or existing shareholders, it will take such steps as it
considers appropriate to eliminate or reduce these consequences to the extent
reasonably practicable. Such steps may include selling portfolio securities
prior to maturity; shortening the average maturity of the portfolio; withholding
or reducing dividends; redeeming shares in kind; or utilizing a net asset value
per share determined by using available market quotations.
The principal types of instruments in which the Fund may invest are: (a)
securities issued or guaranteed as to principal and interest by the United
States Government or by its agencies or instrumentalities; (b) certificates of
deposit, bankers' acceptances and other obligations issued or guaranteed by the
50 largest bank holding companies in the United States, in terms of total
assets, and their subsidiaries; (c) United States dollar denominated obligations
("Eurodollar obligations") of the 50 largest United States bank holding
companies, in terms of total assets, their subsidiaries and their London
branches or of the International Bank for Reconstruction and Development (also
known as the World Bank); (d) commercial paper and other short-term obligations
of, and variable amount master demand notes and variable rate notes issued by,
United States corporations rated A-1 by S&P, Prime-1 by Moody's or if not rated,
issued by companies which have an outstanding debt issue which will be
determined by the Adviser to be of comparable quality under procedures
established by the Board of Directors. In general, the Fund will determine the
credit quality of such companies based on information provided by the Adviser,
which information will include ratings given to outstanding securities of such
companies by recognized rating agencies. These ratings are described in
Appendix A to this Prospectus -- Description of S&P and Moody's Ratings; and (e)
repurchase agreements collateralized by securities issued or guaranteed by the
United States Government or its agencies or instrumentalities.
TCW GALILEO HIGH GRADE FIXED INCOME FUND
TCW Galileo High Grade Fixed Income Fund seeks to provide above-average
total return from capital appreciation and income through investment principally
in high credit quality fixed income instruments, including U.S. government
bonds, corporate bonds, mortgage-backed securities and asset-backed securities.
The Fund invests in high quality securities and applies a controlled risk
approach to the management of those securities. It is a fundamental policy of
the Fund to invest at least 65% of its total assets in fixed income securities
rated A or higher by Moody's and S&P.
29
<PAGE>
Fixed income securities appropriate for the Fund may include obligations
issued or guaranteed by the United States government, its agencies or
instrumentalities ("U.S. Government Securities"), bonds, notes, mortgages,
debentures, equipment trust certificates, participation certificates, non-
convertible preferred stock, mortgage-backed securities, asset-backed debt
securities, dollar and non-dollar-denominated instruments issued by foreign
governments and corporate and other high-grade securities bearing fixed or
variable stated rates. The Fund is not limited as to the maturities of the debt
securities in which it invests. The Fund anticipates that the majority of the
securities it purchases will have remaining lives to stated maturity of 0 to 30
years. The average maturity is likely to vary from time to time. Securities in
the Fund's portfolio are typically high grade securities (securities rated A or
better by Moody's or S&P) that will generate less income than securities rated
below A; high grade securities, however, generally have less credit risk and are
more readily marketable than securities rated below A.
The controlled risk approach involves techniques intended to control the
principal risk components of the fixed income markets. These components include
fluctuations in the overall level of interest rates, the shape of the yield
curve, relative performance of the various market sectors, and security
selection within a given sector. However, there can be no assurance that this
approach will be successful.
The Fund attempts to monitor exposure to changes in the overall level of
interest rates using a statistic called "duration," which measures approximately
the volatility of a bond's price for a given change in interest rates. The
duration of a bond is the present-value-weighted average time to receipt of all
of the bond's cash-flows, including both coupons and principal. The Fund seeks
to control the risks associated with changes in interest rates by managing the
difference in the weighted average duration of all of the portfolio securities
in the Fund compared to the market's duration.
The Fund attempts to monitor the risk related to the variability in the
movement of rates at various points along the yield curve (which can be thought
of as the relationship between short-term and long-term interest rates at any
given point in time) by forecasting movements between long-term and short-term
interest rates using a number of proprietary indicators. The Fund seeks to
control the risk associated with changes in the shape of the market's yield
curve by structuring the maturity schedule for the Fund's portfolio securities
based on the Adviser's prediction of changes in the market's yield curve based
on the Adviser's review of macroeconomic factors.
The three major sectors of the U.S. taxable bond market -- U.S. Government
Securities, corporate bonds and mortgage-backed securities -- often react
differently to changes in the level of interest rates. The Adviser uses spread
analyses on a historical basis and a sector basis in conjunction with
macroeconomic research to identify opportunities and trends in the area of
sector selection. The Adviser partitions each of the three sectors into sub-
sectors, and bonds of similar durations in each sub-sector will be
30
<PAGE>
monitored and analyzed for value. The Fund begins individual security selection
once duration, variance and sector parameters are established. The Fund's
investment approach emphasizes liquidity and value relative to other securities.
Control of security selection will be achieved using both credit analysis (based
on internal and external sources) and a review of redemption and call features.
The Fund may invest up to 20% of its total assets in securities rated below
A by Moody's and S&P, but will hold no more than 5% of its total assets in
securities rated below investment grade. Within this 5% limit, the Fund may
invest in unrated securities if the Adviser makes an independent judgment that
the credit characteristics of the issuers of such securities and/or the
protection afforded by the terms of the securities limit the risk to the Fund to
a level comparable to that of rated securities in which the Fund may invest. For
purposes of this limitation, U.S. Government Securities are not considered to be
unrated securities. The Adviser will dispose of a portfolio security if all
ratings assigned to that security drop below investment grade ratings and the
Adviser determines that the credit characteristics of the security no longer
qualify it for treatment as investment grade. These dispositions will be made in
a manner intended to minimize disruptions in the Fund's portfolio. Securities
rated below investment grade are regarded by the rating agencies as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments.
The Fund may also invest up to 20% of its total assets in securities issued
by foreign governments which are investment grade-rated or equivalent and which
are denominated in foreign currencies. In conjunction with making these
investments, the Fund may attempt to hedge the currency risk of such securities
by purchasing foreign currency futures contracts (and options on such contracts)
and foreign currency forward contacts with respect to such foreign currencies.
To mitigate the effects of foreign currency exchange rate fluctuations on the
Fund's portfolio, the Fund will also limit its investment in securities
denominated in any single foreign currency to not more than 5% of its total
assets.
The Fund may enter into repurchase agreements and purchase and sell
securities on a when issued, forward commitment or when, as and if issued basis.
The Fund may also engage in interest rate hedging transactions by investing in
or writing options on U.S. Government Securities and, subject to certain
limitations, entering into interest rate futures contracts and options on such
contracts. The Fund may invest in collateralized mortgage obligations ("CMOs").
The Fund may also invest in stripped mortgage securities (including interest-
only securities) which are highly sensitive to changes in interest and
prepayment rates and exhibit great price volatility than other CMOs. The Fund
also may enter into reverse repurchase agreements for temporary borrowing
purposes and may borrow money through the use of mortgage dollar rolls as part
of its investment strategy. See "Risk Considerations - Reverse Repurchase
Agreements and Mortgage Dollar Rolls" and "Risk Considerations - Risk Associated
with Mortgage Backed Securities". See the Appendix to
31
<PAGE>
this Prospectus and the Statement of Additional Information for a greater
discussion of these investment practices and types of securities.
TCW GALILEO HIGH YIELD BOND FUND
TCW Galileo High Yield Bond Fund seeks to provide high current income
consistent with reasonable risk through investment in a professionally managed,
diversified portfolio consisting principally of high yield bonds, commonly known
as "junk" bonds, and other high yield fixed income securities. Such securities
are regarded by the rating agencies as predominantly speculative with respect to
the issuer's continuing ability to meet principal and interest payments. As a
secondary objective, the Fund seeks capital appreciation, but only when
consistent with its primary objective. See "Risk Considerations - Risks
Associated With Lower Rated Securities."
Under normal market conditions and as a fundamental policy, the Fund invests
at least 65% of its total assets in high yield bonds, but emphasizes investments
in securities which the Adviser considers to be at the lower-risk end of the
high yield bond spectrum. These represent securities issued by companies
considered by the Adviser to have stable to improving business prospects. The
more volatile parts of the high yield market, such as zero coupon bonds and
payment-in-kind securities, will be underweighted in relation to the market
averages. The Fund will not invest in securities of bankrupt companies, except
that the Fund may increase its holdings of certain portfolio securities after
the issuer of the securities declares bankruptcy or defaults on a security. If
a company is emerging from bankruptcy, the Fund may purchase the company's
securities on a "when, as and if" issued basis, which means that the Fund will
only hold the securities if the company does indeed come out of bankruptcy. See
the Appendix to this Prospectus for the composition of the Fund's portfolio by
rating category as of February 29, 1996. The Fund expects to purchase
investments in "emerging credit" companies. These are companies considered by
the Adviser to be in the growth stage of development and to have reasonable
prospects for improved operating results and debt ratings. Such issuers
generally have shorter operating histories and lower revenues and entail greater
risk than issuers of investment grade securities. Investments are also made in
securities of selected companies that have undergone leveraged buyouts or
recapitalizations.
Fixed income securities appropriate for the Fund may include both
convertible and nonconvertible debt securities and convertible and non-
convertible preferred stocks. The Fund will not purchase common stocks or
warrants or options to acquire common stocks, except when attached to or
included in a unit with fixed income securities which otherwise would be
attractive to the Fund, or upon conversion of a convertible security or exercise
of a warrant or option. Common stock retained by the Fund upon any such
conversion or exercise may be retained in the Fund's portfolio to permit orderly
disposition.
32
<PAGE>
The Fund's approach emphasizes consistent and high current income rather
than the possibly greater but more uncertain profits which could be earned
through short-term trading or through attempting to anticipate events such as
the rescue of ailing or bankrupt companies. The Fund attempts to reduce the
risks involved in investment in lower rated securities through diversification
of the portfolio and by analysis of each issuer, of each issuer's ability to
make timely payments of principal and interest, and of broad economic trends and
corporate developments.
Representatives of the Adviser, or of the Adviser's affiliates, may serve on
the board of directors of the companies whose securities are held by the Fund or
on creditors' committees with respect to certain investments made by the Fund.
While participation by representatives of the Adviser on certain boards may
enhance the Fund's ability to manage its investments, it may also have the
effect of impairing the ability of the Fund to sell the related securities when,
and upon the terms, it might otherwise desire. Similarly, a member of a
creditors' committee may owe certain obligations generally to all creditors
similarly situated that the committee represents and may be subject to various
trading or confidentiality restrictions. The Adviser will attempt to balance
the advantages and disadvantages of service on boards and creditors' committees
when deciding whether and how to exercise its voting or contractual rights, but
changes in circumstances could produce adverse consequences in particular
situations.
The higher yields sought by the Fund are generally obtainable from investing
in securities rated below investment grade by recognized rating services. The
Fund invests principally in fixed income securities rated Ba1 or lower by
Moody's or BB+ or lower by S&P, but may purchase securities rated as low as Caa
by Moody's or CCC by S&P. As a matter of operating policy, the Fund does not
purchase securities rated both below B3 by Moody's and below B- by S&P. The
Fund is not limited as to the maturities of the debt securities in which it
invests. Although many high yield, lower rated securities have been issued with
maturities of approximately 10 to 15 years, the maturities of securities
purchased by the Fund may be more or less than that at the time of purchase.
The Fund anticipates that the majority of the securities it purchases will have
remaining lives to stated maturity of 3 to 10 years. The average maturity is
likely to vary from time to time.
The Fund may invest in unrated securities if it concludes that the credit
characteristics of the issuers of such securities and/or the protection afforded
by the terms of the securities limit the risk to the Fund to a level comparable
to that of rated securities in which the Fund may invest. In addition, the Fund
may enter into forward commitments, futures contracts and options on futures
contracts and purchase and sell securities on a when issued or a when, as and if
issued basis as set forth above. It also may purchase securities issued or
guaranteed by Canadian companies, provided that the principal of and interest on
such securities is payable in United States dollars. See the Appendix to this
Prospectus and the Statement of Additional Information for a greater discussion
of these investment practices and types of securities.
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TCW GALILEO LONG-TERM MORTGAGE BACKED SECURITIES FUND AND TCW GALILEO MORTGAGE
BACKED SECURITIES FUND
The TCW Galileo Long-Term Mortgage Backed Securities Fund seeks current
income and capital appreciation by investing in a portfolio that may include the
full range of maturities and types of mortgage-backed securities guaranteed by,
or secured by collateral that is guaranteed by, the United States government,
its agencies, instrumentalities or its sponsored corporations (collectively, the
"Federal Agencies"), and in privately issued mortgage-backed securities rated Aa
or higher by Moody's or AA or higher by S&P. The TCW Galileo Mortgage Backed
Securities Fund seeks current income and capital appreciation by investing in a
portfolio consisting of relatively short-term mortgage-backed securities
guaranteed by, or secured by collateral that is guaranteed by, Federal Agencies,
and in private issued mortgage-backed securities rated Aa or higher by Moody's
or AA or higher by S&P. The primary distinction between the two Funds is the
weighted-average life of their portfolios. The Adviser, under normal market
conditions, seeks to construct a portfolio with a weighted-average duration with
respect to fixed rate obligations and a weighted average reset frequency with
respect to floating rate obligations of no more than eight years for Long-Term
Mortgage Backed Securities and no more than two years for Mortgage Backed
Securities. Weighted average duration is the average duration of the fixed rate
securities in the portfolio weighted by market value. Duration measures a
security's price sensitivity to instantaneous changes in interest rates and is
measured in years. A one year duration generally mean's a security's price will
increase (decrease) one percent for every one percent decrease in (increase) in
interest rates. Prices for non-U.S. Treasury securities will also be affected by
other factors including, but not limited to, changes in credit quality, supply
and demand, prepayments and yield curve fluctuations. Weighted average reset
frequency is the average time to the next coupon reset date of the floating rate
securities in the portfolio weighted by market value. It is a fundamental
policy of Mortgage Backed Securities to invest at least 65% of its assets in
mortgage-backed securities guaranteed by, or secured by collateral which is
guaranteed by, Federal Agencies. With respect to Long-Term Mortgage Backed
Securities, it is a fundamental policy of the Fund to invest at least 65% of its
assets in mortgage-backed securities which are guaranteed by, or secured by
collateral which is guaranteed by, Federal Agencies and which have a dollar
weighted average life of ten years or more. Federal Agencies typically will
include, but are not limited to, the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home
Loan Mortgage Corporation ("FHLMC"). Due to prepayments of mortgage-backed
securities, the average life of a mortgage-backed security may be shorter than
its maturity. Under normal market conditions, the longer weighted average life
of the Long-Term Mortgage Backed Securities portfolio will cause its yield to be
higher and its net asset value to be less stable and more volatile than that of
Mortgage Backed Securities.
Mortgage-backed securities include (a) obligations issued or guaranteed by
Federal Agencies, such as GNMA, FNMA and FHLMC (securities issued by GNMA, but
not those issued by FNMA or FHLMC, are backed by the "full faith and credit" of
the United States);
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(b) collateralized mortgage obligations ("CMOs"), including real estate mortgage
investment conduits, issued by United States or foreign private issuers that
represent an interest in or are collateralized by mortgage-backed securities
issued or guaranteed by Federal Agencies; and (c) obligations issued by United
States or foreign private issuers that represent an interest in or are
collateralized by whole mortgage loans or mortgage-backed securities without a
government guarantee but usually having some form of private credit enhancement.
See "Risk Considerations - CMOs" at page 58 for a discussion of the risks
associated with investing in CMOs.
Each Fund may invest in both fixed rate and adjustable rate mortgage
securities ("ARMs"), which are pass-through mortgage securities collateralized
by mortgages with adjustable rather than fixed rates. ARMs eligible for
inclusion in a mortgage pool generally provide for a fixed initial mortgage
interest rate for either the first three, six, twelve or thirteen, twenty-four,
thirty-six or longer scheduled monthly payments. Thereafter, the interest rates
are subject to periodic adjustment based on changes to a designated benchmark.
ARMs will reset off of a variety of short-term indices including, but not
limited to, LIBOR (London Interbank Offered Rate), 90-day United States Treasury
Bills and the 11th District Cost of Funds index ("COFI"). Fixed rate
investments may be of varying maturities. At different times during the
interest rate cycle, the Funds may emphasize investments in floating rate or
fixed rate securities or may diversify in investments which reset off of each of
the indices or focus investments in securities which reset off of one index.
Part of each Fund's investment strategy involves the purchase of inverse
floaters which are considered to be a derivative instrument. Inverse floaters
constitute a class of CMOs with a coupon rate that moves opposite to that of a
designated index, such as LIBOR or COFI. Any rise in the index rate causes a
decline in the coupon rate on an inverse floater while any drop in the index
rate causes an increase in the coupon rate of the inverse floater. Inverse
floaters exhibit greater price volatility than other mortgage-backed securities.
See the Appendix to this Prospectus for a greater discussion of inverse floaters
and "Risk Considerations - Inverse Floaters" in this Prospectus.
Each Fund may invest in other securities, including mortgage-backed
securities which are not guaranteed, or secured by collateral which is not
guaranteed, by Federal Agencies. In addition, each Fund may invest in mortgage
dollar rolls, asset-backed securities and debt securities rated Aa or higher by
Moody's or AA or higher by S&P, measured at time of purchase or initial
investment, or which have received a similar rating by any other nationally
recognized rating system. See "Risk Considerations - Reverse Repurchase
Agreements and Mortgage Dollar Rolls." Each Fund also may invest in stripped
mortgage securities (including interest-only securities), enter into repurchase
agreements and purchase and sell securities on a when issued, forward commitment
or a when, as and if issued basis. Each Fund also may enter into reverse
repurchase agreements for temporary borrowing purposes and may borrow money
through the use of mortgage dollar rolls as part of its investment strategy.
See the Appendix to this
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Prospectus and the Statement of Additional Information for a greater discussion
of these investment practices and types of securities.
After purchase by a Fund, a security may cease to be rated or its rating may
be reduced below the minimum required for purchase by the Funds. Neither event
will require a sale of such security by a Fund. However, the Adviser will
consider such event in its determination of whether a Fund should continue to
hold such security.
TCW GALILEO CORE EQUITY FUND
TCW Galileo Core Equity Fund seeks preservation of capital and the best
possible return, consistent with a reasonable level of risk. Capital
appreciation takes precedence over current income, and the focus is on long-term
results rather than short-term trading. The Fund strives to accomplish its
investment objectives while at the same time managing risks through the
selection of a diversified list of common stocks. The Fund is managed in a
focused fashion, typically with 30-50 individual securities in the portfolio at
any point in time. Most of these stocks will generally be highly liquid and
issued by companies with at least $1 billion of market capitalization. The Fund
expects to hold most of its securities over a one to two year period or longer.
Except for investments made for temporary defensive purposes, it is a
fundamental policy of the Fund to invest at least 65% of its total assets in
common stock or common stock surrogates, such as convertible preferred stock or
convertible debentures, of large capitalization companies. Under normal
circumstances, it is expected that the Fund will be fully invested in common
stock or common stock surrogates.
In implementing its investment policy, the Fund may purchase and sell
convertible securities, including Eurodollar convertible securities and equity
securities of foreign companies. See "Risk Considerations - Foreign
Securities." The Fund expects foreign securities to comprise less than 25% of
its total assets, except under unusual circumstances. In addition, the Fund may
invest in "Depositary Instruments," defined as American Depositary Receipts
(ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs)
and similar types of securities convertible into securities of foreign issuers.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company evidencing ownership of the underlying
foreign securities. GDRs are typically issued by a foreign bank or trust
company which evidence ownership of the underlying foreign securities. EDRs are
European receipts evidencing a similar arrangement. Generally, ADRs, in
registered form, are designed for use in the United States securities markets
and EDRs and GDRs in bearer form, are designed for use in European and other
foreign securities markets, respectively. Other investment practices that may
be used by the Fund include entering into foreign currency transactions,
investing in futures contracts, options on futures contracts and nonconvertible
preferred stock, purchasing and writing call and put options, and purchasing and
selling
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securities on a when issued, forward commitment or a when, as and if issued
basis. See the Appendix to this Prospectus and the Statement of Additional
Information for a greater discussion of these investment practices and types of
securities.
TCW GALILEO SMALL CAP GROWTH FUND
The investment objective of TCW Galileo Small Cap Growth Fund is to seek
capital appreciation through investment primarily in publicly-traded equity
securities of smaller capitalization companies, including common and preferred
stocks. The Fund may also invest in fixed income securities (including
convertible securities), warrants and foreign securities. Other investment
practices that may be used by the Fund include writing covered put and call
options, purchasing put and call options and purchasing and selling on a when
issued, forward commitment or a when, as and if issued basis.
Under normal circumstances the Fund will invest at least 75% of its total
assets in common stocks and securities convertible into common stock of
companies with market capitalizations at the time of acquisition (calculated by
multiplying the number of outstanding shares of a company by the current market
price) of less than $1 billion. With regard to minimum capitalization,
generally no more than 35% of the Fund's total assets will be invested in
securities of companies with market capitalization of less than $200 million
determined as of the time of acquisition of such securities. Investing in
lesser-known, smaller capitalization companies may involve greater risk of
volatility of the Fund's net asset value than is customarily associated with
larger, more established companies. With regard to larger capitalization
companies, under ordinary circumstances the Fund may invest up to 25% of its
total assets in equity securities of companies with a market capitalization of
more than $1 billion at the time of purchase as long as investments are
consistent with the Fund's objective of capital appreciation.
The Fund's investments in securities of foreign companies will be limited to
no more than 25% of the value of its total assets at the time of purchase (other
than securities of Canadian issuers registered under the Securities Exchange Act
of 1934 or ADRs, on which there is no such limit). In addition, the Fund's
investments in unlisted foreign securities which are not readily tradable are
also subject to the Fund's overall policy limiting its investments in illiquid
securities to 15% or less of its net assets. Foreign securities investments may
be affected by changes in currency rates or exchange control regulations,
changes in governmental administration or economic or monetary policy (in the
United States and abroad) or changes in circumstances in dealings between
nations. Costs may be incurred in connection with conversions between various
currencies held by the Fund. See "Risk Considerations - Foreign Securities" at
page 51.
The Fund may also invest in convertible and fixed income securities which
are rated below investment grade. In doing so, the Adviser will take into
account certain special considerations in assessing the risks associated with
such investments. Such lower rated convertible and fixed income securities are
commonly known as "junk" bonds. The prices of lower rated securities have been
found to be more sensitive to changes in prevailing
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interest rates than higher rated investments, and are likely to be more
sensitive to adverse economic changes or individual corporate developments. See
page 55 of this Prospectus for a greater discussion of the risks associated with
lower rated securities and the Appendix to the Prospectus for a discussion of
ratings of fixed income securities.
The Adviser invests the Fund's assets by pursuing its small cap growth
investment philosophy. That philosophy consists of fundamental company-by-
company analysis used in conjunction with technical and quantitative market
analysis to screen potential investments and to continuously monitor securities
in the Fund's portfolio. Under normal circumstances it its expected that the
Fund's portfolio will contain securities of approximately 75 separate issuers.
Dividend income is not a consideration in the selection of stocks for purchase
by the Fund.
TCW GALILEO EARNINGS MOMENTUM FUND
TCW Galileo Earnings Momentum Fund seeks capital appreciation and total
return by investing in the publicly traded equity securities of companies
experiencing or, in the opinion of the Adviser, expected to experience
accelerating earnings growth. The Fund strives to attain its objective by
investing primarily in common stocks but may also invest in convertible
securities, warrants, options and foreign securities. Under normal
circumstances the Fund will not invest more than 15% of its net assets in
convertible securities and will not invest more than 5% of its net assets, at
anytime, in warrants valued at the lower of cost or market. The Fund's
investments in securities of foreign companies will be limited to no more than
15% of the value of its total assets at the time of purchase. The foreign
securities in which the Fund may invest in will usually be ADRs, EDRs, GDRs and
similar types of securities convertible into foreign issuers. See page 36 of
this Prospectus for a further discussion of these types of securities. Other
investment practices that may be used by the Fund include writing covered put
and call options and purchasing put and call options.
The Adviser will employ a "bottom-up" decision making process to identify
industries or companies that are experiencing or, in its opinion, expected to
experience an acceleration in earnings growth. Earnings acceleration in a
company or industry is typically triggered by a change that causes fundamentals
to improve. The change could be broad based such as one driven by general
economic, political or demographic trends. Alternatively, the change could be
industry or company specific, resulting from new products or technology,
changing consumer attitudes, competitive advantages, restructuring or changes in
the way a company is operated or valued. Because of these diverse factors,
earnings acceleration can occur in companies on a wide range of market
capitalizations. Earnings acceleration or growth, by itself, does not guarantee
that a company's stock will increase in value and there can be no assurance that
the Fund will be able to achieve its investment objective.
In addition, to general money market investments as described below under
"Investment Objectives and Policies-General-Money Market Instruments", the Fund
may
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invest for temporary or defensive purposes in non-convertible debt securities,
non-convertible preferred stock, debt of foreign governments or other issuers
and real estate investment trust shares. Defensive or temporary investment in
such securities will be limited to not more than 10% of the Fund's net assets.
The Earnings Momentum Fund may invest in non-investment grade convertible
and non-convertible debt securities. Debt obligations rated lower than A by
Moody's or S&P tend to have speculative characteristics or are speculative, and
generally involve more risk of loss of principal and income than higher-rated
securities. Also, their yields and market value tend to fluctuate more than
higher quality securities. The greater risks and fluctuations in yield and
value occur because investors generally perceive issuers of lower-rated
securities to be less creditworthy. For a further discussion of the risks
associated with lower rated securities, see page 55 of this Prospectus.
TCW GALILEO MID-CAP GROWTH FUND
TCW Mid-Cap Growth Fund seeks long term growth of capital by investing at
least 65% of total assets under normal circumstances in publicly-traded equity
securities issued by medium-sized companies whose market capitalizations, at
time of acquisition, are in the $300 million to $2 billion range and that, in
the opinion of the Adviser, exhibit superior earnings growth prospects and
attractive stock market valuations. The equity securities in which Mid-Cap
Growth may invest include common and preferred stocks and convertible
securities.
The Adviser intends to follow a "bottom-up" investment philosophy in
investing the Fund's assets. The "bottom-up" investment process is
characterized by the Adviser's proprietary research process which is to be used
in the selection of investments. Quantitative and qualitative criteria will also
be used to screen the more than 1,000 medium-sized companies within the $300
million to $2 billion market capital range thereby providing the Adviser with a
list of potential investment securities. This list of securities is then
subjected to fundamental analysis. The Adviser will consider certain criteria
which include, among other things, a demonstrated record of consistent earnings
growth or the potential to grow earnings; an ability to earn an attractive
return on equity; the Adviser's expectation that earnings will exceed Wall
Street research analysts earnings estimates (i.e., potential for earnings
surprises); a price/earnings rates which is less than the Adviser's internally
estimated three-year earnings growth rate; a large and growing market share; a
strong balance sheet; significant ownership interest by management and a strong
management team. Under normal market conditions, the Fund intends to hold a
portfolio containing approximately 40 to 60 issues. Subject to the Fund's
investment objective, the Adviser may modify the foregoing criteria and analysis
without notice.
The Fund may invest up to 25% of its total assets, measured at time of
acquisition, in foreign securities. The foreign securities in which the Fund
may invest in will usually be
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ADRs, EDRs, GDRs and similar types of securities convertible into foreign
issuers. See page 36 of this Prospectus for a further discussion of these types
of securities. The Fund's investments in unlisted foreign securities are
subject to the Fund's overall policy limiting its investments in illiquid
securities to 15% or less of its net assets.
The Fund may invest up to 35% of its total assets in investment grade fixed-
income securities consisting of securities issued or guaranteed by the United
States government, its agencies or instrumentalities, corporate debt securities
and money market securities. In addition, the Fund may purchase and sell
securities on a when issued, forward commitment or a when, as and if issued
basis. See the Appendix to this Prospectus and the Statement of Additional
Information for a greater discussion of these investment practices.
The Fund may also invest up to 5% of its total assets in non-investment
grade convertible and non-convertible debt securities. Debt obligations rated
lower than A by Moody's or S&P tend to have speculative characteristics or are
speculative, and generally involve more risk of loss of principal and income
than higher-rated securities. Also, their yields and market value tend to
fluctuate more than higher quality securities. The greater risks and
fluctuations in yield and value occur because investors generally perceive
issuers of lower-rated securities to be less creditworthy. For a further
discussion of the risks associated with lower rated securities, see page 55 of
this Prospectus.
In addition, the Fund may lend its portfolio securities to brokers, dealers
and financial institutions, subject to applicable regulatory requirements. Any
such securities loans will be limited to 10% of the Fund's total assets. See
the Appendix to this Prospectus for a further discussion of this investment
practice.
The Fund will not invest in options and futures contracts.
TCW GALILEO ASIA PACIFIC EQUITY FUND
The investment objective of TCW Galileo Asia Pacific Equity Fund is to seek
long-term capital appreciation, by investing primarily in equity securities of
companies in the Asia Pacific Region ("Asia Pacific Countries"). In pursuing
its investment objective, the Fund may also invest in debt securities. Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in equity securities of Asia Pacific companies, or securities convertible into
such equity securities.
Currently, Asia Pacific Countries having a securities market in which it is
feasible for the Fund to invest include Hong Kong, Singapore, Thailand,
Malaysia, South Korea, the Philippines, Indonesia, Taiwan, India, Pakistan, Sri
Lanka, China, Bangladesh, and Korea. There is no present intention to invest in
Japan, Australia and New Zealand. At some point in the future it may also be
feasible for the Fund to invest in Vietnam, Laos, Cambodia, Burma, Papua New
Guinea, Solomon Islands, Taiwan, and Russia Far East.
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A company will be considered an Asia Pacific company if (i) it is organized
in, or its stock is primarily traded in an Asia Pacific country; or (ii) it
derives at least 50% of its gross revenues or net profits from goods produced or
sold, investments made, or services performed in Asia Pacific Countries or it
has at least 50% of its assets situated in Asia Pacific Countries. The Fund's
equity securities will consist predominantly of common stocks of Asia Pacific
Countries, including forms of equity securities deemed to be the Asia Pacific
Country equivalent of U.S. common stocks (such as securities with voting
classes, non-voting classes and multiple voting rights classes). To a lesser
degree, the portfolio will consist of convertible securities, warrants and
preferred stock, of established companies listed on a recognized securities
exchange or actively traded in an over-the-counter market. Such securities may
be in the form of ADRs, EDRs, GDRs or other depository instruments. In
addition, the Fund may acquire the equity securities of wholly-owned
subsidiaries in order to facilitate investing in the securities of foreign
issuers.
The Fund's assets will be allocated among the Asia Pacific Countries in
accordance with the Adviser's judgment as to where the best investment
opportunities exist. However, except when the Fund has adopted a defensive
position, it will generally vary investments on a geographic basis by investing
its assets among at least three Asia Pacific Countries. For defensive purposes,
such as during times of international political or economic uncertainty, most or
all of the Fund's investments may be in securities issued or guaranteed by the
United States Government or its agencies or instrumentalities or in cash or
short-term obligations including, but not limited to: bankers' acceptances,
commercial paper, repurchase agreements and other money market instruments.
The Adviser will employ a "top-down" investment selection strategy. This
strategy starts with an examination of the key macroeconomic variables of the
major Asia Pacific Countries, including GDP growth, money supply growth,
inflation, interest rates, trade account position and the business cycle, in
order to rate the countries according to the investment potential. These
variables are then considered in conjunction with certain stock market
variables, such as earnings growth potential, dividend yield and price earnings
ratios for each relevant country. After adjusting for total market
capitalization, an appropriate weighting for each country is determined. A
determination of sector weighting in each relevant country is the second stage
in this "top-down" investment process. This determination will be made using a
matrix which divides the markets into economic and industrial sectors, with the
Adviser determining the appropriate weightings for each sector. Finally,
individual companies within particular sectors will be chosen for investment by
the Fund.
The Adviser will consider factors such as price/earnings ratios, rates or
earnings growth, quality of earnings, dividend payout/ratios, quality of
management, new products and/or new markets, cash flows. and balance sheet
strength in its evaluation of individual companies. Often this information is
supplemented by company visits. In addition to yielding information about
particular companies, such visits will allow the Adviser to assess
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the investment climate of particular countries. An additional key aspect of
this strategy will be an analysis of political, social and cultural factors in
each individual Asia Pacific Country. This type of assessment will be used to
supplement the decision-making process at all levels of the "top-down"
investment strategy, including determination of country weightings, sector
weightings, and stock selection.
Where the Fund desires but is unable to effect direct purchases of
securities in certain industries or in certain Asia Pacific Countries because
such investments are not permitted or because required authorizations from such
countries' governments have not been sought or granted, the Fund may (subject to
certain limits that may be imposed by the Investment Company Act of 1940 (the
"1940 Act")) invest in the equity securities of U.S. or foreign investment
companies that invest all or substantially all of their assets in securities in
such industries or in such country. The advisory fees payable with respect to
investment in investment companies will be an expense of the Fund in addition to
the fees paid to the Adviser. In addition, the Fund anticipates that, to the
extent it invests in debt securities, the debt securities it purchases are
likely to be unrated or to be rated below investment grade. See "Risk
Considerations - Risks Associated With Lower Rated Securities."
In connection with making its investments in Asia Pacific countries, the
Fund may attempt to hedge the currency risk of such securities by purchasing
foreign currency futures contracts (and options on such contracts) and foreign
currency forward contracts with respect to such foreign currencies.
TCW GALILEO EMERGING MARKETS FUND
The investment objective of TCW Galileo Emerging Markets Fund is to seek
long-term capital appreciation by investing primarily in the publicly-traded
equity securities of companies in emerging market countries around the world
("Emerging Market Countries"). An Emerging Market Country means a country
considered by the Adviser to have a developing economy or market and considered
an emerging or developing country by the International Bank of Reconstruction
and Development (the "World Bank"), as well as Hong Kong and Singapore. See
"Risk Considerations - Foreign Securities" and the Appendix to the Prospectus.
The Fund's investment objective is based on the Adviser's belief that many
Emerging Market Countries will experience higher levels of domestic growth than
developed countries and that the securities markets of the Emerging Market
Countries offer the potential for higher returns than those of developed country
markets. There can be no assurance, however, that the Fund's objective will be
achieved.
The Emerging Market Countries that currently have a securities market in
which it is feasible for the Fund to invest consist primarily of (a) the Latin
American countries of
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Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela, (b) the East
Asian Countries of Korea, the Philippines, Taiwan and China, (c) the South Asian
Countries of Hong Kong, India, Indonesia, Malaysia, Pakistan, Singapore, Sri
Lanka and Thailand, and (d) the following countries of Europe, the Mideast and
Africa: the Czech Republic, Greece, Hungary, Israel, Jordan, Morroco, Nigeria,
Poland, Portugal, South Africa, Turkey and Zimbabwe. As the markets for
securities in other countries develop, the Adviser may determine that it is
feasible for the Fund to invest in securities traded in such other countries. A
company will normally be considered an Emerging Market Company if (i) it is
organized in, or its stock is primarily traded in an Emerging Market country or
(ii) it derives at least 50% of its gross revenues or net profits from goods
produced or sold, investments made, or services performed in Emerging Market
Countries or it has at least 50% of its assets situated in an Emerging Market
Countries.
The Fund's assets will be allocated among the Emerging Market Countries in
accordance with the Adviser's judgment as to where the best investment
opportunities exist. However, except when the Fund has adopted a defensive
position, it will generally diversify investments on a geographic basis by
investing its assets among at least five Emerging Market Countries. For
defensive purposes, such as during times of international political or economic
uncertainty, most or all of the Fund's investments may be in securities issued
or guaranteed by the United States Government or its agencies or
instrumentalities or in cash or short-term obligations including, but not
limited to: bankers' acceptances, commercial paper, repurchase agreements and
other money market instruments.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in Emerging Market Company equity-related securities. The Fund may
invest up to 35% of its total assets in debt securities of governmental and
corporate issuers in the Emerging Market Countries. These instruments may be
denominated in U.S. dollars or local currencies, and may include bonds, notes
and debentures of any maturity. The Fund anticipates that most of the debt
securities it purchases will be unrated or will be rated below investment grade.
See "Risk Considerations - Risks Associated With Lower Rated Securities." New
forms of investments, and investment techniques, are likely to be developed in
the Emerging Market Countries in the future. The Fund may take advantage of any
such developments to the extent consistent with the Fund's investment objective
and restrictions.
The Fund's equity-related investments will consist predominantly of common
stocks (or common stock equivalents in Emerging Market Countries). The issuers
of such securities will be primarily companies listed on a recognized securities
exchange or actively traded on an over-the-counter market. To a lesser extent,
the Fund may invest in preferred stock (which may be the only equity securities
available in some countries) and in securities that may be converted into or
exchanged for common stock. Such securities may be in the form of ADRs, EDRs,
GDRs or other depository instruments. Convertible securities entitle the holder
to convert them into another security at a specified price or
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formula. Convertible securities may be in the form of bonds, debentures, notes,
preferred stock or similar instruments. Warrants give the holder the right to
acquire the underlying securities from the issuer or specified terms. The Fund
may also lend its portfolio securities to brokers, dealers and other financial
institutions. In addition, the Fund may acquire the equity securities of
wholly-owned subsidiaries in order to facilitate investing in the securities of
foreign issuers.
In allocating investments among Emerging Market Countries, the Adviser
attempts to integrate an assessment of how the global environment affects a
particular country, with an analysis of internal political, market and economic
factors. Among the country economic variables examined are: level of economic
activity or GDP growth, level and direction of local inflation, level and
direction of interest rates, monetary policy and money supply growth, current
account balances and financing requirements, and the pace and degree of
privatization. Based on these analyses, the Adviser estimates the overall
earnings growth rate (in local currency and in U.S. dollars) of the corporate
sector within each country. Market valuation levels are examined and compared
with historical levels and the levels of other Emerging Market Countries that
have gone through similar stages of economic development. These analyses and
estimates form the basis for a calculation of the expected return for each
market, which is a key element of country allocation. The next step in the
investment decision process is industry analysis within sectors, which includes
assessing the effects of such developments as privatization programs,
infrastructure investments, consumer trends and government regulation on
particular industry sectors. The Adviser attempts to identify the sectors that
would benefit from structural changes. The Adviser also considers the possible
impact of short-term cyclical factors, such as business and political cycles, on
particular industries. These analyses produce industry weightings for each
market.
In selecting Emerging Market Companies for investment, the Adviser takes
into account a variety of factors, including price/earnings ratio, earnings
growth, quality of management, availability of new products and markets, current
and historical stock prices, sales growth and country factors affecting
particular companies. Occasionally, the Adviser will identify and invest in an
attractive company or sector within an Emerging Market Country, even though that
country's expected overall return is undesirable.
Where the Fund desires but is unable to effect direct investments in certain
industries or in one or more Emerging Market Countries because such investments
are not permitted or because required government authorizations have not been
sought or granted, the Fund may invest in the equity securities of U.S. or
foreign investment companies that invest all or substantially all of their
assets in such industries or in one or more such countries. The advisory fees
payable with respect to investment in investment companies will be an expense of
the Fund in addition to the fees paid to the Adviser.
In connection with making its investments in Emerging Markets countries, the
Fund may attempt to hedge the currency risk of such securities by purchasing
foreign currency
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futures contracts (and options on such contracts) and foreign currency forward
contracts with respect to such foreign currencies.
TCW GALILEO LATIN AMERICA EQUITY FUND
TCW Galileo Latin America Equity Fund seeks long-term capital appreciation.
The Fund seeks to achieve this objective by investing under normal circumstances
and as a fundamental policy at least 65% of its total assets in Latin American
equity securities (as described below). The Fund may also invest up to 35% of
its total assets in Latin American debt and convertible securities, provided
that this limit does not apply to money market investments used for defensive or
temporary purposes. Normally, the Fund does not expect to have more than 10% of
its total assets invested in non-money market debt securities. See the
Statement of Additional Information -- "Risk Considerations - Emerging Markets
and Latin American Equity - Risks Associated with Latin American Securities."
The Fund's assets will be allocated among the countries in Latin America in
accordance with the Adviser's judgment as to where the best investment
opportunities exist. Currently, except when the Fund has adopted a defensive
position, it will invest its assets among at least three Latin American
countries at all times. For defensive purposes, such as during times of
international political or economic uncertainty, most or all of the Fund's
investments may be in securities issued or guaranteed by the United States
Government or its agencies or instrumentalities or in cash or short-term
obligations including, but not limited to: bankers' acceptances, commercial
paper, repurchase agreements and other money market instruments.
For purposes of this Prospectus, unless otherwise indicated, the Fund
defines Latin America to consist of the following countries: Argentina, the
Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica,
Dominican Republic, Ecuador, El Salvador, French Guiana, Guatemala, Guyana,
Haiti, Honduras, Jamaica, Mexico, the Netherlands Antilles, Nicaragua, Panama,
Paraguay, Peru, Suriname, Trinidad and Tobago, Uruguay and Venezuela.
In selecting countries in which to invest, the Adviser considers economic
and political conditions and trends, foreign exchange inflows, debt-service
ratios, investment and repatriation restrictions, exchange rate fluctuations,
inflation rates, tax considerations, the degree of development in a country's
capital markets and other factors. Certain Latin American countries require
governmental approval prior to direct equity investments by foreign persons such
as the Fund. If considered likely to help the Fund in achieving its investment
objective, the Fund may seek authorization to effect direct equity investments
in such countries from their respective governments.
The Fund defines Latin American securities to be (a) debt or equity
securities of companies organized in a country in Latin America or for which the
principal trading market (the exchange or over-the-counter market in which the
largest portion of the shares of the
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company's securities are traded) is located in Latin America, (b) debt
securities issued or guaranteed by the government of a country in Latin America,
its agencies or instrumentalities, or the central bank of such country, (c) debt
securities denominated in a Latin American currency issued by companies to
finance operations in Latin America, (d) securities of companies that derive at
least 50% of their gross revenues or net profits from either goods produced or
services performed in Latin America or sales made in Latin America, and (e)
equity securities in the form of Depositary Instruments listed on securities
exchanges or traded in other regulated markets in the United States issued by
companies which meet the requirements set forth in clauses (a) and (d). Where
the Fund desires but is unable to effect direct investments in certain
industries or in a certain Latin American country because such investments are
not permitted or because required authorization from such country's government
has not been sought or granted, the Fund may, subject to applicable legal
limits, invest in the equity securities of U.S. or foreign investment companies
that invest all or substantially all of their assets in Latin American
securities in such industries or in such country. To the extent these
investments meet any of the requirements set forth in clauses (a), (d) or (e)
above, the Fund may use them for purposes of complying with the Fund's
fundamental investment policy. In addition, the Fund may acquire the equity
securities of wholly-owned subsidiaries in order to facilitate investing in the
securities of Latin America issuers.
Latin American equity securities in which the Fund invests consist
predominantly of common stock and preferred stock of established companies
listed on a recognized securities exchange or traded in other regulated markets,
although the Fund may also invest in convertible securities (subject to the 35%
limit on debt and convertible investments described above) and warrants. The
Fund may invest in debt securities of Latin American governmental and corporate
issuers. They may be denominated in U.S. dollars, a Latin American currency or,
in the case of some corporate debt, other currencies. The Fund may also invest
in convertible securities (including debt securities, preferred stock or other
instruments). There is no limitation other than the overall 35% limitation
described above on the percentage of the Fund's assets which may be invested in
convertible securities and debt securities, including debt and convertible
securities that are below investment grade. Normally, however, the Fund does
not expect that more than 10% of its total assets would be invested in Latin
American debt securities. The Fund anticipates that most of the debt securities
it purchases will be unrated or will be rated below investment grade. See "Risk
Considerations - Risks Associated With Lower Rated Securities." In selecting
equity and convertible debt securities, industries and companies for investment,
the Adviser considers market valuation, liquidity, market capitalization, a
company's existing and expected future financial position, relative competitive
position in the domestic and export markets, technology, recent developments and
profitability, together with overall growth prospects. Other considerations
include management expertise, government regulation and costs of labor and raw
materials.
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In addition to general money market investments as described below under
"Investment Objectives and Policies - General - Money Market Instruments," the
Fund may invest for temporary or defensive purposes in Latin American money
market instruments, including short-term Latin American government obligations
and repurchase agreements with maturities of seven calendar days or less and
collateralized by Latin American government obligations. Defensive or temporary
investments in money market instruments are not subject to the 35% general limit
on debt and convertible securities.
Some Latin American securities held by the Fund may be denominated in,
payable in, or exchangeable for, the currencies of Latin American countries or
other currencies. The Fund may attempt to hedge the currency risk of portfolio
securities denominated in a foreign currency by purchasing foreign currency
futures contracts (and options on such contracts) and foreign currency forward
contracts with respect to such foreign currency. The Fund may engage in hedging
transactions through the purchase and sale of securities on a when issued,
forward commitment or a when, as and if issued basis and may enter into reverse
repurchase agreements for temporary borrowing purposes. It may also purchase
and write call and put options and lend its portfolio securities to brokers,
dealers and financial institutions. In addition, the Fund may invest in other
investment companies, including closed end investment companies commonly known
as country funds, when the Adviser believes that such investments are the sole,
or the most practical, means of investing in certain Latin American securities
markets or in certain industries within those markets. As a shareholder in an
investment company, the Fund would bear its ratable share of that investment
company's expenses, including its advisory and administration fees. At the same
time, the Fund would continue to pay its own management and advisory fees and
other expenses. See the Appendix to this Prospectus and the Statement of
Additional Information for a greater discussion of these investment practices.
GENERAL
MONEY MARKET INSTRUMENTS. The Bond Funds and the Equity Funds may invest
in money market instruments (a) for defensive purposes, when other permitted
investments are unattractive, (b) to provide a reserve for anticipated
obligations of the Fund, or (c) for other temporary purposes pending investment
in other permitted investments. These instruments may include certificates of
deposit, Eurodollar certificates of deposit, commercial paper, bankers
acceptances and U.S. Government Securities. Funds which invest in foreign
currency denominated securities may choose to invest in money market instruments
denominated in foreign currencies. Subject to certain limits that may be
imposed by the 1940 Act, the Bond Funds and the Equity Funds may also invest in
money market mutual funds unaffiliated with the Adviser. Under normal market
conditions, no Fund other than Money Market will invest more than 35% of its
total assets in money market instruments.
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ADDITIONAL FUNDAMENTAL POLICIES. In addition to the fundamental investment
policies identified above, the Funds have established the following limitations
as fundamental policies:
(a) Generally, no Fund will borrow money. Each Fund may, however, borrow
temporarily from banks to facilitate redemption requests. In addition,
certain Funds may enter into reverse repurchase agreements, mortgage dollar
rolls and futures contracts. The total amount borrowed by a Fund
(including, for this purpose, reverse repurchase agreements and mortgage
dollar rolls) at any time will not exceed 30% (or, in the case of Money
Market, 10%) of the value of the Fund's total assets (including the amount
borrowed) valued at market less liabilities (not including the amount
borrowed) at the time the borrowing is made.
(b) No Fund will issue senior securities, except that certain Funds may enter
into reverse repurchase agreements, purchase securities issued on a when-
issued or delayed delivery basis, purchase futures and options thereon, and
borrow money under the circumstances identified above.
(c) No Fund may make loans of cash except by purchasing qualified debt
obligations or entering into repurchase agreements.
Investors should read the Appendix to this Prospectus and Statement of
Additional Information for a more complete discussion of the fundamental and
other investment policies applicable to the Funds.
The amount of money a Fund may borrow is restricted by the 1940 Act so that,
immediately after a borrowing, the Fund has an asset coverage of at least 300%
of the amount borrowed. Asset coverage means total assets, including
borrowings, less liabilities, excluding borrowings. If the Fund's asset
coverage falls below this requirement due to market fluctuations, redemptions or
other reasons, the Fund must reduce its bank debt as necessary within three
business days. To do this, the Fund may have to sell a portion of its
investments at a disadvantageous time. The amount of any borrowing will also be
limited by the applicable Federal Reserve Board's margin limitations.
OTHER INVESTMENT POLICIES. As a matter of operating policy, no Fund will:
(a) invest more than 15% (or, in the case of Money Market, 10%) of the value of
its net assets in illiquid securities, including repurchase agreements with
maturities greater than seven calendar days, certain futures contracts and
options for which a liquid secondary market does not exist, over-the-counter
options, variable rate demand notes with a demand period of more than seven
days, and foreign securities not traded on a recognized domestic or foreign
exchange or developed over-the-counter market and for which a liquid secondary
market does not exist, (b) purchase securities when money borrowed exceeds 5%
(or, in
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the case of Money Market, 10%) of the Fund's total assets, (c) enter into
futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, except this limit will not apply to bona fide hedging
transactions, (d) purchase the securities of any issuer (other than U.S.
Government Securities) if as a result more than 5% of the value of the Fund's
total assets would be invested in the securities of the issuer (the "5%
Limitation"), except that up to 25% of the value of any Bond Fund's total assets
may be invested without regard to the 5% Limitation and that the 5% Limitation
shall not apply to the Equity Funds or (e) purchase more than 10% of the voting
securities of any one issuer (the "10% Limitation"), except that up to 25% of
the value of the Fund's assets may be invested without regard to the 10%
Limitation and that the 10% Limitation does not apply to the Equity Funds.
PORTFOLIO TURNOVER. The Funds will not trade in securities with the
intention of generating short-term profits but, when circumstances warrant,
securities may be sold without regard to the length of time held. In
particular, because Latin American markets can be especially volatile, Latin
America Equity may at times hold securities only briefly. The portfolio turnover
rate for each of the Funds for the fiscal year ended October 31, 1995 was: High
Grade - 223.78%, High Yield - 36.32%, Long-Term Mortgage Backed - 23.76%,
Mortgage Backed - 37.83%, Core Equity - 53.77%, Small Cap Growth - 89.73%,
Earnings Momentum 85.91%, Latin America - 75.62%, Asia Pacific Equity - 102.01%
and Emerging Markets - 74.24%. The portfolio turnover rate for Mid-Cap Growth
is expected not to exceed 150%. A high rate of portfolio turnover (100% or
more) involves correspondingly greater brokerage commission expenses for the
Equity Funds, which will be borne directly by each Fund and indirectly by each
Fund's shareholders. High portfolio turnover may also result in the realization
of substantial net capital gains; to the extent net capital gains are realized,
any distributions derived from such gains on securities held for less than one
year are taxable at ordinary income tax rates for federal income tax purposes.
RISK CONSIDERATIONS
The following risk considerations relate to investment practices undertaken
by some or all of the Funds. GENERALLY, SINCE SHARES OF A FUND REPRESENT AN
INVESTMENT IN SECURITIES WITH FLUCTUATING MARKET PRICES, SHAREHOLDERS SHOULD
UNDERSTAND THAT THE VALUE OF THEIR FUND SHARES WILL VARY AS THE VALUE OF EACH
FUND'S PORTFOLIO SECURITIES INCREASES OR DECREASES. THEREFORE, THE VALUE OF AN
INVESTMENT IN A FUND COULD GO DOWN AS WELL AS UP. THERE IS NO GUARANTEE OF
SUCCESSFUL PERFORMANCE, THAT A FUND'S OBJECTIVE CAN BE ACHIEVED OR THAT AN
INVESTMENT IN A FUND WILL ACHIEVE A POSITIVE RETURN. EACH FUND SHOULD BE
CONSIDERED AS A MEANS OF DIVERSIFYING AN INVESTMENT PORTFOLIO AND IS NOT IN
ITSELF A BALANCED INVESTMENT PROGRAM.
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Prospective investors should consider the following risks.
GENERAL
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's performance or
financial position can depress the value of the issuer's securities. The
liquidity in a market for a particular security will affect its value and may be
affected by factors relating to the issuer, as well as the depth of the market
for that security. Other market risks that can affect value include a market's
current attitudes about type of security, market reactions to political or
economic events, and tax and regulatory effects (including lack of adequate
regulations for a market or particular type of instrument). Market restrictions
on trading volume can also affect price and liquidity.
Certain risks exist because of the composition and investment horizon of a
particular portfolio of securities. Prices of many securities tend to be more
volatile in the short-term and lack of diversification in a portfolio can also
increase volatility. A security that is leveraged, whether explicitly or
implicitly, will also tend to be more volatile in that both gains and losses are
intensified by the magnifying effects of leverage. Certain instruments (such as
inverse floaters) behave similarly to leveraged instruments. Generally, such
securities contain formulas requiring recalculation of their interest rates in a
manner that multiplies the change in a market rate.
REPURCHASE AGREEMENTS
In the event of a default or bankruptcy by a selling financial institution
under a repurchase agreement, a Fund will seek to sell the underlying security
serving as collateral. However, this could involve certain costs or delays, and,
to the extent that proceeds from any sale were less than the repurchase price,
the Fund could suffer a loss. Each Fund follows procedures designed to minimize
the risks associated with repurchase agreements, including effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions and specifying the required value of the collateral underlying the
agreement. Repurchase agreements entered into in Latin America by Latin America
Equity and Emerging Markets may involve additional risks. See Appendix A -
"Strategies Available to High Grade Fixed Income, Long-Term Mortgage Backed
Securities, Mortgage Backed Securities, Money Market and the Equity Funds."
REVERSE REPURCHASE AGREEMENTS AND MORTGAGE DOLLAR ROLLS
Reverse repurchase agreements and mortgage dollar rolls involve the risk
that the market value of the securities a Fund is obligated to repurchase under
the agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or mortgage dollar roll files
for bankruptcy or becomes insolvent, the Fund's use of proceeds of the agreement
may be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to
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repurchase the securities. Reverse repurchase agreements and mortgage dollar
rolls are speculative techniques involving leverage, and are considered
borrowings by the Fund. Under the requirements of the 1940 Act, the Fund is
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. None of the Funds authorized to
utilize these instruments expects to engage in reverse repurchase agreements or
mortgage dollar rolls (together with other borrowings of the Fund) with respect
to greater than 30% of the Fund's total assets.
FIXED INCOME SECURITIES
Fixed Income securities are subject to various risks. The two primary (but
not exclusive) risks affecting fixed income instruments are "credit risk" and
"interest rate risk." These risks can affect a security's price volatility to
varying degrees, depending upon the nature of the instrument. In addition, the
depth and liquidity of the market for an individual or class of fixed income
security can also affect its price and, hence, the market value of a Fund.
"Credit risk" refers to the likelihood that an issuer will default in the
payment of principal and/or interest on an instrument. Financial strength and
solvency of an issuer are the primary factors influencing credit risk. In
addition, lack of or inadequacy of collateral or credit enhancements for a fixed
income security may affect its credit risk. Credit risk of a security may
change over its life and securities which are rated by rating agencies are often
reviewed and may be subject to downgrade.
"Interest rate risk" refers to the risks associated with market changes in
interest rates. Interest rate changes may affect the value of a fixed income
security directly (especially in the case of fixed rate securities) and directly
(especially in the case of adjustable rate securities). In general, rises in
interest rates will negatively impact the price of fixed rate securities and
falling interest rates will have a positive effect on price. The degree to
which a security's price will change as a result of changes in interest rates is
measured by its "duration." For example, the price of a bond with a 5 year
duration would be expected under normal market conditions to decrease 5% for
every 1% increase in interest rates. Generally, securities with longer
maturities have a greater duration and thus are subject to greater price
volatility from changes in interest rates. Adjustable rate instruments also
react to interest rate changes in a similar manner although generally to a
lesser degree (depending, however, on the characteristics of the re-set terms,
including the index chosen, frequency of reset and reset caps or floors, among
other things).
FOREIGN SECURITIES
The Equity Funds are each permitted to invest in securities issued by
foreign governments or companies, High Grade Fixed Income may invest in
securities issued by foreign governments and High Yield Bond may purchase
securities issued or guaranteed
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by Canadian companies. Although the Adviser believes that investments in
foreign securities may offer significant potential for capital appreciation and
provide diversification, such securities also involve certain special risks,
including the following: political or economic instability; the
unpredictability of international trade patterns; the possibility of foreign
governmental actions such as expropriation, nationalization or confiscatory
taxation; the imposition or modification of foreign currency or foreign
investment controls; the imposition of withholding taxes on dividends, interest
and gains; price volatility; and fluctuations in currency exchange rates. As
compared to United States companies, foreign issuers generally disclose less
financial and other information publicly and are subject to less stringent and
less uniform accounting, auditing and financial reporting standards. Foreign
countries typically impose less thorough regulations on brokers, dealers, stock
exchanges, insiders and listed companies than does the United States, and
foreign securities markets may be less liquid and more volatile than domestic
markets. Foreign custodial and brokerage costs are generally higher than in the
United States. In addition, security trading practices abroad may offer less
protection to investors such as the Funds. Settlement of transactions in some
foreign markets may be delayed or may be less frequent than in the U.S., which
could affect the liquidity of each Fund's portfolio. Also, it may be more
difficult to obtain and enforce legal judgments against foreign corporate
issuers than against domestic issuers and it may be impossible to obtain and
enforce judgments against foreign governmental issues. Additional
considerations relating to Emerging Market Country securities are described
under "Risk Considerations - Risks Associated with Emerging Market Countries" at
page 59.
The risks of foreign securities may be intensified in the case of
investments in Emerging Market Countries or countries with limited or developing
capital markets. Security prices in Latin American and southeast Asian markets
can be significantly more volatile than in the more developed nations of the
world, reflecting the greater uncertainties of investing in less established
markets and economies. In particular, countries in these regions may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, prohibitions of repatriation of
assets, and may have less protection of property rights than more developed
countries. The economies of Southeast Asian and Latin American countries may be
predominantly based on only a few industries, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Local securities markets may trade a
small number of securities and may be unable to respond effectively to increases
in trading volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. Securities of issuers located in these
regions may have limited marketability and may be subject to more abrupt or
erratic price movements.
In recent years, there have been improvements in some Latin American
economies, however, others continue to experience economic problems including
high inflation rates and high interest rates. The emergence of Latin American
economies and securities markets will require economic and fiscal discipline, as
well as stable political and social conditions. Recovery may also be influenced
by international economic conditions,
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particularly those in the United States, by world prices for oil and other
commodities, and international trade agreements such as the North American Free
Trade Agreement.
Although certain countries and markets in the southeast Asian region have
experienced rapid growth, political and social uncertainties exist for many of
the developing Southeast Asian countries. Most southeast Asian countries are
heavily export oriented and, accordingly, are dependent upon international
trade. In addition, the governments of many of such countries, such as
Indonesia, have a heavy role in regulating and supervising the economy. The
existence of overburdened infrastructure and obsolete financial systems also
present risks in certain countries, as do environmental problems. Archaic legal
systems in certain developing southeast Asian countries also may have an adverse
impact on the Funds.
FOREIGN CURRENCY RISKS
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and some of the Funds hold various foreign
currencies from time to time, the value of the net assets of those Funds as
measured in United States dollars will be affected favorably or unfavorably by
changes in exchange rates. Generally, currency exchange transactions will be
conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
currency exchange market. The cost of currency exchange transactions will
generally be the difference between the bid and offer spot rate of the currency
being purchased or sold. In order to protect against uncertainty in the level
of future foreign currency exchange rates, the Equity Funds and High Grade Fixed
Income are authorized to enter into certain foreign currency forward contracts.
With respect to Emerging Markets, High Grade Fixed Income and Latin America
Equity, the forward currency market for the purchase or sale of U.S. dollars in
most Latin American countries, including Mexico, is not highly developed, and in
certain Latin American countries, there may be no such market. If a devaluation
of a Latin American currency is generally anticipated, the Fund may not be able
to contract to sell the currency at an exchange rate more advantageous than that
which would prevail after the anticipated amount of devaluation, particularly as
regards forward contracts for local Latin American currencies in view of the
relatively small, inactive or even non-existent market for these contracts. In
the event the Funds hold securities denominated in a currency that suffers a
devaluation, the Funds' net asset values will suffer corresponding reductions.
In this regard, on December 22, 1994, the Mexican government determined to allow
the Mexican peso to trade freely against the U.S. dollar rather than within a
controlled band, which action resulted in a significant devaluation of the
Mexican peso against the dollar.
OPTIONS
The successful use of options depends on the ability of the Adviser to
forecast interest rate and market movements correctly. For example, if a Fund
were to write a call option based on the Adviser's expectation that the price of
the underlying security would
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fall, but the price were to rise instead, the Fund could be required to sell the
security upon exercise at a price below the current market price. Similarly, if
a Fund were to write a put option based on the Adviser's expectation that the
price of the underlying security would rise, but the price were to fall instead,
the Fund could be required to purchase the security upon exercise at a price
higher than the current market price.
When it purchases an option, a Fund runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the
Fund exercises the option or enters into a closing transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the Fund
will lose part or all of its investment in the option. This contrasts with an
investment by the Fund in the underlying security, since the Fund will not lose
any of its investment in such security if the price does not change.
The effective use of options also depends on a Fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so.
Although the Fund will take an option position only if the Adviser believes
there is a liquid secondary market for the option, there is no assurance that
the Fund will be able to effect closing transactions at any particular time or
at an acceptable price.
If a secondary trading market in options were to become unavailable, a Fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A market may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if
unusual events - such as volume in excess of trading or clearing capability -
were to interrupt its normal operations.
A market may at times find it necessary to impose restrictions on particular
types of options transactions, such as opening transactions. For example, if an
underlying security ceases to meet qualifications imposed by the market or the
Options Clearing Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening transactions in
existing series may be prohibited. If an options market were to become
unavailable, a Fund which holds an option would be able to realize profits or
limit losses only by exercising the option, and a Fund which acted as option
writer would remain obligated under the option until expiration or exercise.
Special risks are presented by internationally-traded options of the type
the Equity Funds and High Grade Fixed Income may acquire. Because of time
differences between the United States and the various foreign countries, and
because different holidays are observed in different countries, foreign options
markets may be open for trading during hours or on days when U.S. markets are
closed. As a result, option premiums may not reflect the current prices of the
underlying interest in the United States.
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RISKS ASSOCIATED WITH LOWER RATED SECURITIES
The High Yield Bond portfolio consists primarily of below investment grade
corporate securities that are commonly known as junk bonds. In addition, High
Yield Bond, Core Equity, Earnings Momentum, Small Cap Growth, Mid-Cap Growth and
Latin America Equity may invest in convertible securities and Earnings Momentum,
Emerging Markets, Latin America Equity Small Cap Growth and Mid-Cap Growth may
invest in debt instruments rated below investment grade. Lower rated securities
are traded in markets that may be relatively less liquid and subject to greater
changes in liquidity than the markets for higher rated securities.
High yield securities can be classified into two categories: (a) securities
issued without an investment grade rating and (b) securities whose credit
ratings have been downgraded below investment grade because of declining
investment fundamentals. The first category includes securities issued by
"emerging credit" companies and companies which have experienced a leveraged
buyout or recapitalization. Although the small and medium size companies that
constitute emerging credit issuers typically have significant operating
histories, these companies generally do not have strong enough operating results
to secure investment grade ratings from the rating agencies. In addition, in
recent years there has been a substantial volume of high yield securities issued
by companies that have converted from public to private ownership through
leveraged buyout transactions and by companies that have restructured their
balance sheets through leveraged recapitalizations. High yield securities
issued in these situations are used primarily to pay existing stockholders for
their shares or to finance special dividend distributions to shareholders. The
indebtedness incurred in connection with these transactions is often substantial
and, as a result, often produces highly leveraged capital structures which
present special risks for the holders of such securities. Also, the market
price of such securities may be more volatile to the extent that expected
benefits from the restructuring do not materialize. The second category of high
yield securities consists of securities of former investment grade companies
that have experienced poor operating performance due to such factors as cyclical
downtrends in their industry, poor management or increased foreign competition.
Generally, lower-rated debt securities provide a higher yield than higher
rated debt securities of similar maturity but are subject to greater risk of
loss of principal and interest ("credit risk") than higher rated securities of
similar maturity. They are generally considered to be subject to greater risk
than securities with higher ratings particularly in the event of a deterioration
of general economic conditions. The lower ratings of the high yield securities
which the Fund will purchase reflect a greater possibility that the financial
condition of the issuers, or adverse changes in general economic conditions, or
both, may impair the ability of the issuers to make payments of principal and
interest. The market value of a single high yield fixed income security may
fluctuate more than the market value of higher rated securities, since changes
in the creditworthiness of lower rated issuers and
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in market perceptions of the issuers' creditworthiness tend to occur more
frequently and in a more pronounced manner than in the case of higher rated
issuers. High yield fixed income securities also tend to reflect individual
corporate developments to a greater extent than higher rated securities. The
securities in which the Fund invests are frequently subordinated to senior
indebtedness. See Appendix A to this Prospectus for information about High
Yield Bond's pro forma portfolio composition.
Since the high yield bond market is relatively new, its growth has
paralleled a long economic expansion, and it has not weathered a recession in
its present size and form. An economic downturn or increase in interest rates
may result in a higher incidence of high yield bond defaults and is likely to
have a negative effect on the high yield bond market and on the value of the
high yield bonds in the Fund's portfolio, as well as on the ability of the
bonds' issuers to repay principal and interest.
The economy and interest rates affect high yield securities differently from
other securities. The prices of high yield bonds have been found to be less
sensitive to interest rate changes than higher-rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond owned by the Fund defaults, the Fund may
incur additional expenses to seek recovery. In addition, periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of high yield bonds and the Fund's asset value. Furthermore, the
market prices of high yield bonds structured as zero coupon or pay-in-kind
securities are affected to a greater extent by interest rate changes and thereby
tend to be more volatile than securities which pay interest periodically and in
cash.
To the extent there is a limited retail secondary market for particular high
yield bonds, these bonds may be thinly-traded and the Adviser's ability to
accurately value high yield bonds and the Fund's assets may be more difficult
because there is less reliable, objective data available. In addition, the
Fund's ability to acquire or dispose of the bonds may be negatively-impacted.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds, especially
in a thinly-traded market. To the extent the Fund owns or may acquire illiquid
or restricted high yield bonds, these securities may involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties. See "Net Asset Value."
Special tax considerations are associated with investing in lower rated debt
securities structured as zero coupon or pay-in-kind securities. The Fund
accrues income on these securities prior to the receipt of cash payments. The
Fund must distribute
56
<PAGE>
substantially all of its income to its shareholders to qualify for pass-through
treatment under the tax laws and may, therefore, have to dispose of its
portfolio securities to satisfy distribution requirements.
Underwriting and dealer spreads associated with the purchase of high yield
bonds are typically higher than those associated with the purchase of high grade
bonds.
RISKS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES
CREDIT AND MARKET RISKS OF MORTGAGE-BACKED SECURITIES. The investments by
High Grade Fixed Income, Long-Term Mortgage Backed Securities and Mortgage
Backed Securities in fixed rate and floating rate mortgage-backed securities
will entail normal credit risks (i.e., the risk of non-payment of interest and
principal) and market risks (i.e., the risk that interest rates and other
factors will cause the value of the instrument to decline). Many issuers or
servicers of mortgage-backed securities guarantee timely payment of interest and
principal on the securities, whether or not payments are made when due on the
underlying mortgages. This kind of guarantee generally increases the quality of
a security, but does not mean that the security's market value and yield will
not change. Like bond investments, the value of fixed rate mortgage-backed
securities will tend to rise when interest rates fall, and fall when rates rise.
Floating rate mortgage-backed securities will generally tend to have minimal
changes in price when interest rates rise or fall. The value of all mortgage-
backed securities may also change because of changes in the market's perception
of the creditworthiness of the organization that issued or guarantees them. In
addition, the mortgage-backed securities market in general may be adversely
affected by changes in governmental legislation or regulation. Fluctuations in
the market value of mortgage-backed securities after their acquisition usually
do not affect cash income from such securities but are reflected in each Fund's
net asset value. The liquidity of mortgage-backed securities varies by type of
security; at certain times a Fund may encounter difficulty in disposing of
investments. Other factors that could affect the value of a mortgage-backed
security include, among other things, the types and amounts of insurance which a
mortgagor carries, the amount of time the mortgage loan has been outstanding,
the loan-to-value ratio of each mortgage and the amount of overcollateralization
of a mortgage pool.
PREPAYMENT AND REDEMPTION RISK OF MORTGAGE-BACKED SECURITIES. Mortgage-
backed securities reflect an interest in monthly payments made by the borrowers
who receive the underlying mortgage loans. Although the underlying mortgage
loans are for specified periods of time, such as 20 or 30 years, the borrowers
can, and typically do, pay them off sooner. In such an event, the mortgage-
backed security which represents an interest in such underlying mortgage loan
will be prepaid. A borrower is more likely to prepay a mortgage which bears a
relatively high rate of interest. This means that in times of declining
interest rates, a portion of the Fund's higher yielding securities are likely to
be redeemed and the Fund will probably be unable to replace them with securities
having as great a yield. Prepayments can result in lower yields to
shareholders. The increased likelihood of prepayment when interest rates
decline also limits market price appreciation
57
<PAGE>
of mortgage-backed securities. In addition, a mortgage-backed security may be
subject to redemption at the option of the issuer. If a mortgage-backed
security held by a Fund is called for redemption, the Fund will be required to
permit the issuer to redeem the security, which could have an adverse effect on
the Fund's ability to achieve its investment objective.
CMOS. There are certain risks associated specifically with CMOs. CMOs
issued by private entities are not obligations issued or guaranteed by the
United States Government, its agencies or instrumentalities and are not
guaranteed by any government agency, although the securities underlying a CMO
may be subject to a guarantee. Therefore, if the collateral securing the CMO,
as well as any third party credit support or guarantees, is insufficient to make
payment, the holder could sustain a loss. In addition, the average life of CMOs
is determined using mathematical models that incorporate prepayment assumptions
and other factors that involve estimates of future economic and market
conditions. These estimates may vary from actual future results, particularly
during periods of extreme market volatility. Further, under certain market
conditions, such as those that occurred in 1994, the average weighted life of
certain CMOs may not accurately reflect the price volatility of such securities.
For example, in periods of supply and demand imbalances in the market for such
securities and/or in periods of sharp interest rate movements, the prices of
CMOs may fluctuate to a greater extent that would be expected from interest rate
movements alone.
STRIPPED MORTGAGE SECURITIES. PART OF THE INVESTMENT STRATEGY OF HIGH GRADE
FIXED INCOME, LONG-TERM MORTGAGE BACKED SECURITIES AND MORTGAGE BACKED
SECURITIES INVOLVES INTEREST-ONLY STRIPPED MORTGAGE SECURITIES. THESE
INVESTMENTS ARE HIGHLY SENSITIVE TO CHANGES IN INTEREST AND PREPAYMENT RATES AND
TEND TO BE LESS LIQUID THAN OTHER CMOS. IN ADDITION, INTEREST-ONLY STRIPPED
MORTGAGE SECURITIES AND INVERSE FLOATERS TEND TO BE LESS LIQUID THAN OTHER CMOS.
INVERSE FLOATERS. LONG TERM MORTGAGE BACKED AND MORTGAGE BACKED SECURITIES
INVEST IN INVERSE FLOATERS, A CLASS OF CMOS WITH A COUPON RATE THAT MOVES
INVERSELY TO A DESIGNATED INDEX SUCH AS LIBOR OR COFI. ANY RISE IN THE INDEX
RATE (AS A CONSEQUENCE OF AN INCREASE IN INTEREST RATES) CAUSES A DROP IN THE
COUPON RATE OF AN INVERSE FLOATER WHILE ANY DROP IN THE INDEX RATE CAUSES AN
INCREASE IN THE COUPON OF AN INVERSE FLOATER. INVERSE FLOATERS EXHIBIT GREATER
PRICE VOLATILITY AND TEND TO BE LESS LIQUID THAN THE MAJORITY OF MORTGAGE PASS-
THROUGH SECURITIES OR CMOS.
ADJUSTABLE RATE MORTGAGES. ARMs contain maximum and minimum rates beyond
which the mortgage interest rate may not vary over the lifetime of the security.
In addition, certain ARMs provide for additional limitations on the maximum
amount by which the mortgage interest rate may adjust for any single adjustment
period. Alternatively, certain ARMs contain limitations on changes in the
required monthly payment. In the event that a monthly payment is not sufficient
to pay the interest accruing on an ARM, any such excess interest is added to the
principal balance of the mortgage loan, which is repaid through future monthly
payments. If the monthly payment for such an instrument exceeds
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<PAGE>
the sum of the interest accrued at the applicable mortgage interest rate and the
principal payment required at such point to amortize the outstanding principal
balance over the remaining term of the loan, the excess is utilized to reduce
the then outstanding principal balance of the ARM.
ASSET-BACKED SECURITIES. Certain asset-backed securities do not have the
benefit of the same security interest in the related collateral as do mortgage-
backed securities. Credit card receivables are generally unsecured, and the
debtors are entitled to the protection of a number of state and federal consumer
credit laws, many of which give such debtors the right to set off certain
amounts owed on the credit cards, thereby reducing the balance due. In
addition, some issuers of automobile receivables permit the servicers to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related automobile
receivables.
RISKS ASSOCIATED WITH EMERGING MARKET COUNTRIES
Investors should recognize that investing in securities of Emerging Market
Countries through investment in the Asia Pacific Equity, Emerging Markets and
Latin America Funds involves certain risks, and considerations, including those
set forth below, which are not typically associated with investing in the United
States or other developed countries.
The securities markets of emerging market countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the United States and other developed nations. The limited size of
many emerging securities markets and limited trading volume in issuers compared
to volume of trading in U.S. securities or securities of issuers in other
developed countries could cause prices to be erratic for reasons apart from
factors that affect the quality of the securities. For example, limited market
size may cause prices to be unduly influenced by traders who control large
positions. Adverse publicity and investors' perceptions, whether or not based
on fundamental analysis, may decrease the value and liquidity of portfolio
securities, especially in these markets.
In addition, emerging market countries' exchanges' and broker-dealers are
generally subject to less government and exchange regulation than their
counterparts in developed countries. Brokerage commissions, dealer concessions,
custodial expenses and other transaction costs may be higher on emerging markets
than in developed countries. As a result, Funds investing in emerging market
countries have operating expenses that are expected to be higher than other
funds investing in more established market regions.
Many of the emerging market countries may be subject to greater degree of
economic, political and social instability than is the case in the United
States, Canada, Australia, New Zealand, Japan and Western European and certain
Asian countries. Such instability may result from, among other things, (i)
popular unrest associated with demands for improved political, economic and
social conditions, and (ii) internal insurgencies. Such
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<PAGE>
social, political and economic instability could disrupt the financial markets
in which the Asia Pacific Equity, Emerging Markets and Latin America Equity
Funds invest and adversely affect the value of a Fund's assets.
In certain emerging market countries governments participate to a
significant degree, through ownership or regulation, in their respective
economies. Action by these governments could have a significant adverse effect
on market prices of securities and payment of dividends. In addition, most
emerging market countries have experienced substantial, and in some periods
extremely high, rates of inflation. Inflation and rapid fluctuation in
inflation rates have had and may continue to have very negative effects on the
economies and securities markets of certain emerging market countries.
Many of the currencies of emerging market countries have experienced
devaluations relative to the U.S. dollar, and major devaluations have
historically occurred in certain countries. Any devaluations in the currencies
in which portfolio securities are denominated will have a detrimental impact on
Funds investing in emerging market countries.
NON-DIVERSIFIED STATUS
Each Equity Fund, is classified as a non-diversified investment company
under the 1940 Act, and as such is not limited by the 1940 Act in the proportion
of its assets that it may invest in the obligations of a single issuer.
However, each Equity Fund intends to conduct its operations so as to qualify as
a "regulated investment company" under Subchapter M of the Internal Revenue
Code. See "Dividends, Distributions and Taxes." In order to qualify, among
other requirements, each Equity Fund will limit its investments so that at the
close of each quarter of the taxable year, (a) not more than 25% of the market
value of the Fund's total assets will be invested in the securities of a single
issuer (other than U.S. Government Securities or the shares of other qualified
regulated investment companies) or in the securities of two or more issuers
(other than U.S. Government Securities or the shares of other qualified
regulated investment companies) which the Fund controls and which are engaged in
the same or similar trades or businesses or related trades or businesses and (b)
with respect to 50% of the market value of its total assets not more than 5%
will be invested in the securities of a single issuer (other than U.S.
Government Securities or the shares of other qualified regulated investment
companies) and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. To the extent that a relatively high percentage
of an Equity Fund's assets may be invested in the obligations of a limited
number of issuers, the Fund's portfolio securities may be more susceptible to
any single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment portfolio. The limitations described in
this paragraph are not fundamental policies and may be revised to the extent
applicable federal income tax requirements are revised.
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<PAGE>
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
TCW Funds Management, Inc., the Adviser to the Funds, is a registered
investment adviser under the Investment Advisers Act of 1940 ("Advisers Act")
and is headquartered at 865 South Figueroa Street, Suite 1800, Los Angeles,
California 90017. The Adviser was organized in 1987 as a wholly-owned subsidiary
of The TCW Group, Inc. (formerly TCW Management Company), whose subsidiaries,
including Trust Company of the West and TCW Asset Management Company ("TAMCO"),
provide a variety of trust, investment management and investment advisory
services. As of December 31, 1995, the Adviser and its affiliated companies had
over $52 billion under management or committed for management. Robert A. Day
may be deemed to be a control person of the Adviser by virtue of the aggregate
ownership of Mr. Day and his family of more than 25% of the outstanding voting
stock of The TCW Group, Inc.
SUB-INVESTMENT ADVISERS
TCW Asia Limited, Sub-Adviser to Asia Pacific Equity and Emerging Markets,
is a registered investment adviser under the Advisers Act and is headquartered
at One Pacific Place, 88 Queensway, Hong Kong. TCW London International,
Limited, Sub-Adviser to Emerging Markets, is a registered investment adviser
under the Advisers Act and is headquartered at 27 Albemarle Street, London,
England WIX 3FA. The Sub-Advisers are wholly-owned subsidiaries of The TCW
Group, Inc. See "Investment Adviser" above.
PORTFOLIO MANAGEMENT
Listed below are the individuals who have been primarily responsible for the
day-to-day management of the investment portfolio of the Funds, including a
summary of each person's business experience during the past five years:
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
FUND MANAGER(S) DURING LAST FIVE YEARS(1)
- ------------- -------------------- --------------------------------------------
<S> <C> <C>
HIGH YIELD Mark L. Attanasio Group Managing Director, the Adviser
since April 1995. From April 1991 to March
1995 he was Co-Chief Executive Officer
and Chief Portfolio Strategist of Crescent
Capital Corporation, Los Angeles and prior
to April 1991 a Managing Director of Drexel
Burnham Lambert.
Melissa V. Weiler Managing Director, the Adviser since April
1995. From February 1992 to March 1995
she was a Vice President and Portfolio
Manager of Crescent Capital Corporation,
Los Angeles and prior to February 1992,
she was a Senior Investment Analyst and
Workout Specialist for First Capital
Holdings Corporation.
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
FUND MANAGER(S) DURING LAST FIVE YEARS(1)
- ------------- -------------------- --------------------------------------------
<S> <C> <C>
HIGH GRADE James M. Goldberg Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of
the West; Vice President, several open-
end and closed-end investment companies
which are managed by Dean Witter Services
Company Inc., a wholly-owned subsidiary
of Dean Witter InterCapital Inc. (the
"TCW/DW Funds") since May 1992.
LONG-TERM MORTGAGE BACKED Philip A. Barach Group Managing Director, the Adviser,
AND MORTGAGE BACKED TCW Asset Management Company and
Trust Company of the West; Vice
President, several TCW/DW Funds since
September 1992.
Jeffrey E. Gundlach Group Managing Director, the Adviser,
TCW Asset Management Company and
Trust Company of the West; Vice
President, several TCW/DW Funds since
September 1992.
Frederick H. Horton Managing Director and Deputy Chief
Investment Officer - Domestic Fixed
Income, the Adviser, TCW Asset
Management Company and Trust
Company of the West; Senior Portfolio
Manager for Dewey Square Investors from
June 1992 through September 1993;
before June, 1992 Head of Mortgage
Strategies and Senior Portfolio Manager for
Putnam Companies; Vice President several
TCW/DW Funds since December 1994.
CORE EQUITY Stefan D. Abrams Managing Director, the Adviser since
March 1993; Managing Director and
Director of Equity Strategy, TCW Asset
Management Company and Trust
Company of the West since November
1992; Managing Director, Kidder,
Peabody & Co. from September 1989 to
October 1992.
Robert M. Hanisee Managing Director, the Adviser since May
1992; Managing Director, Trust Company
of the West and TCW Asset Management
Company since April 1990; Senior Vice
President, TCW Convertible Securities
Fund, Inc. since June 1992; Vice President
of TCW/DW Core Equity Trust since March
1992; President, Seidler Amdec Securities
(Broker) from January 1981 to April 1990.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
FUND MANAGER(S) DURING LAST FIVE YEARS(1)
- ------------- -------------------- --------------------------------------------
<S> <C> <C>
LATIN AMERICA Shannon M. Callan Senior Vice President, Prior to rejoining
the Adviser in 1994, portfolio manager for
Moore Capital, an offshore hedge fund.
Prior to 1993 portfolio manager/analyst for
TCW Asset Management Company.
Michael P. Reilly Senior Vice President, the Adviser, TCW
Asset Management Company and Trust
Company of the West. Prior to June, 1992,
Vice President of Security Pacific Bank;
Vice President of several TCW/DW Funds
since December 1994.
EMERGING MARKETS Shaun C.K. Chan Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West since January 1993;
Vice President, several TCW/DW Funds
since February 1994; Investment Manager
and Director, Wardley Investment Services
(Hong Kong) Limited and Wardley
Securities Limited from October 1986 to
January 1992.
Michael P. Reilly See above.
ASIA PACIFIC EQUITY Shaun C.K. Chan See above.
SMALL CAP GROWTH Charles Larsen Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West.
Douglas S. Foreman Group Managing Director, the Adviser,
TCW Asset Management Company and
Trust Company of the West since May
1994. Previously he was a portfolio
manager with Putnam Investments.
EARNING MOMENTUM Charles Larsen See above.
MID-CAP GROWTH Douglas S. Foreman See above.
Christopher J. Ainley Managing Director, the Adviser, TCW
Asset Management Company and Trust
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
FUND MANAGER(S) DURING LAST FIVE YEARS(1)
- ------------- -------------------- --------------------------------------------
<S> <C> <C>
Company of the West. Prior to joining
TCW in 1994 he was a portfolio manager
with Putnam Investments.
</TABLE>
- ------------------
(1) Positions with The TCW Group, Inc. and its affiliates may have changed over
time.
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<PAGE>
ADVISORY AND SUB-ADVISORY AGREEMENTS
The Company and the Adviser have entered into an Investment Advisory and
Management Agreement (the "Advisory Agreement"), under the terms of which the
Company has employed the Adviser to manage the investment of its assets, to
place orders for the purchase and sale of its portfolio securities, to
administer its day-to-day operations, and to be responsible for overall
management of the Company's business affairs, subject to control by the Board of
Directors of the Company. Under the Advisory Agreement, the Funds pay to the
Adviser as compensation for the services rendered, facilities furnished, and
expenses paid by it the following fees:
<TABLE>
<CAPTION>
ANNUAL MANAGEMENT FEE
FUND (AS PERCENT OF NET ASSET VALUE)
---- -------------------------------
<S> <C>
Money Market .25%
High Yield Bond .75%
High Grade .40%
Long-Term Mortgage Backed .50%
Mortgage Backed .50%
Core Equity .75%
Small Cap Growth 1.00%
Earnings Momentum 1.00%
Mid-Cap Growth 1.00%
Asia Pacific Equity 1.00%
Emerging Markets 1.00%
Latin America 1.00%
</TABLE>
Under the Advisory Agreement, each Bond Fund and Equity Fund also reimburses
the Adviser for the cost of providing accounting services to the Fund, which
include maintaining its financial books and records, calculating its daily net
asset value, and preparing its financial statements in an amount not exceeding
$35,000 for any fiscal year (subject to the expense limit described below).
Under the Advisory Agreement, Money Market reimburses the Adviser for the Fund's
accounting services, but in an amount not exceeding 0.10% of the Fund's average
daily net assets.
The Advisory Agreement also provides that each Fund (except Money Market)
will reimburse the Adviser for a portion of the Fund's organizational expenses.
Such organizational expenses will be amortized by each Fund over five years.
The Adviser has retained, at its sole expense, TCW Asia to provide
investment advisory services for Asia Pacific Equity and Emerging Markets and
TCW London to provide such services with respect to Emerging Markets. Under the
Sub-Advisory Agreements the Sub-Advisers provide the Funds with investment
advice and portfolio
65
<PAGE>
management subject to the overall supervision of the Adviser. For these
services the Sub-Advisers receive an annual fee at a rate of 1.00% of the Fund's
net assets for which the Sub-Adviser renders investment advisory services. The
Amended and Restated Sub-Advisory Agreements were approved by the shareholders
of Asia Pacific Equity and Emerging Markets at a Special Meeting of Shareholders
held November 1, 1995.
The Advisory Agreement and Sub-Advisory Agreements provide that the Adviser
and Sub-Advisers, respectively, shall not be liable for any error of judgement
or mistake of law or for any loss suffered by a Fund in connection with the
matters to which the agreements relate, except a loss resulting from willful
misfeasance, bad faith, gross negligence on the part of the Adviser or Sub-
Advisers in the performance of their duties or from reckless disregard by them
of their duties under each respective agreement.
Except for expenses specifically assumed by the Adviser under the Advisory
Agreement, each Fund bears all expenses incurred in its operations. In addition
to the Adviser's fee, such expenses include directors' fees and expenses,
registration, filing and other fees payable to regulatory authorities, brokerage
fees and commissions and securities transactions costs, auditing and legal
expenses, custodian and transfer and dividend disbursing agent fees, expenses of
printing and mailing shareholder reports, certain insurance and fidelity bond
premiums, interest, taxes, expenses of shareholder and director meetings, and
any other ordinary or extraordinary expense incurred by the Fund in the course
of its business. For the period ended October 31, 1995, the expenses paid by
the Funds, as a percentage of their average daily net assets were: Money Market
- -0.40% (after expense reimbursement); High Yield Bond - 0.87% (after expense
reimbursement); High Grade Fixed Income - 0.68% (after expense reimbursement);
Long-Term Mortgage Backed - 0.68% (after expense reimbursement); Mortgage Backed
- - 0.61% (after expense reimbursement); Core Equity - 0.85%; Small Cap Growth -
1.21% (after expense reimbursement); Earnings Momentum - 1.14% (after expense
reimbursement); Asia Pacific - 1.47% (after expense reimbursement); Latin
America - 1.58%; and Emerging Markets - 1.55%. With respect to Money Market and
Mid-Cap Growth; the Adviser has agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit the
ordinary annual operating expenses of the Fund to 0.40% and 1.20%, respectively,
of the average net asset value (including amortization of organizational
expenses) of Money Market and Mid-Cap Growth (other than brokerage fees and
commissions, interest, taxes and certain extraordinary expenses), until December
31, 1996.
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<PAGE>
PURCHASE OF SHARES
MINIMUMS
Each Bond Fund and each Equity Fund requires a minimum of $250,000 for
initial investments and $25,000 for additional investments. Money Market
requires a minimum of $100,000 for initial investments and $1,000 for additional
investments. The minimum subsequent investment amounts may be waived at the
discretion of the Company. The minimum investment can be attained by
aggregating accounts of related or affiliated investors. In addition, the
minimum investment amounts do not apply to employees of the Adviser or its
affiliates or to investors who have at least $1,000,000 under management with
the Adviser or its affiliates. Each Fund has the right to increase its minimum
investment amounts following 30 days' written notice to its shareholders.
PURCHASES MADE BY WIRE OR CHECK
Purchases may be made by wire or by check. Initial purchases must be
accompanied by a New Account Form. Checks should be in U.S. dollars and made
payable to the Fund in which you are investing. Third party checks, except
those payable to an existing shareholder, will normally not be accepted. When
share purchases are made by check, redemption proceeds of such share purchases
will not be transmitted until the check used for investment has cleared which
may take up to fifteen days. No purchase will be made in a Fund until the
moneys received by the Fund have been converted into federal funds. Federal
funds wires are effective upon receipt. Other bank wires are ordinarily
converted to federal funds one Business Day (i.e., any weekday exclusive of days
the New York Stock Exchange is closed for trading) after receipt. Money
transmitted by a check drawn on a member of the Federal Reserve System is
usually converted to federal funds one Business Day following receipt. Checks
drawn on banks that are not members of the Federal Reserve System may take
longer to be converted and invested. INVESTMENT BY FEDERAL FUNDS WIRE IS
STRONGLY SUGGESTED.
The Funds receive the right to suspend the offering of shares from time to
time and to reject any purchase order for any reason.
EXCHANGE-IN-KIND FEATURE
In the discretion of the Adviser, the Funds may accept, in lieu of cash,
portfolio securities in exchange for shares of a Fund. Such portfolio
securities will be accepted only if they may be held as investments consistent
with the investment policies of the Funds. The amount of shares issued in
exchange will be determined by valuing the portfolio securities accepted in the
same manner as the Funds value other securities held in their portfolios.
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<PAGE>
PURCHASE AND SETTLEMENT
Shares of each Fund may be purchased by sending a completed New Account Form
and payment to DST Systems, Inc., the Funds' Transfer Agent. Federal funds
received by the Transfer Agent at or before 4:00 p.m. (Eastern time) (12:00 p.m.
Eastern Time for the Money Market Fund) on a Business Day will be invested that
same day. Federal funds received by the Transfer Agent after 4:00 p.m. (Eastern
time) (12:00 p.m. Eastern time for the Money Market Fund) will be invested on
the following Business Day. Shares are sold on a continuous basis without a
sales charge at the net asset value per share next determined after receipt of a
purchase order. See "Net Asset Value."
DISTRIBUTOR
TCW Brokerage Services (the "Distributor"), an affiliate of the Adviser,
serves as a non-exclusive distributor for shares of the Fund. The principal
executive office of the Distributor is located at 865 South Figueroa Street,
Suite 1800 Los Angeles, California 90017.
TO OPEN A NEW ACCOUNT:
---------------------
$250,000 minimum for all Bond Funds and
Equity Funds and $100,000 minimum for Money Market,
unless waived as set forth above
BY WIRE. Wire funds pursuant to the instructions set forth below for all
Funds except the Money Market Fund. Initial purchases must be
accompanied by a New Account Form which should be mailed to the
appropriate address listed below under "By Check".
United Missouri Bank, n.a.
ABA No. 101000695
DST Sytems, Inc./AC 9870371553
FBO TCW Galileo ______________ Fund
(Name on the Fund Account) _____________________
Federal funds wires for the Money Market Fund only, should be sent
pursuant to the instructions set forth below. Then, complete the
New Account Form and mail to the appropriate address listed below
under "By Check". For same day credit to the Money Market Fund,
Federal funds wires must be received by the Transfer Agent at or
before 12:00 p.m. Eastern time on a Business Day.
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<PAGE>
United Missouri Bank, n.a.
ABA No. 101000695
DST Sytems, Inc./AC 9870371170
FBO TCW Galileo Money Market Fund
(Name on the Fund Account) _____________________
BY CHECK. Send your New Account Form and check payable to the Fund in
which you are investing:
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<PAGE>
REGULAR MAIL:
TCW Galileo _______________ Fund
DST Sytems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
EXPRESS, REGISTERED OR CERTIFIED MAIL:
TCW Galileo ________________ Fund
DST Sytems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
BY EXCHANGE. Call the Transfer Agent at (800) 248-4486. The new account will
have the same registration as the account from which you are
exchanging.
TO MAKE ADDITIONAL PURCHASES:
-----------------------------
($25,000 minimum for Bond Funds and
Equity Funds and $1,000 for Money Market)
BY WIRE. Follow the wire instructions set forth above under "To Open a New
Account" and include your account number on the wire advice to
avoid delays in crediting your investment.
BY MAIL. Make the check payable to the Fund in which you are investing and
indicate your account number on your check to avoid delays in
crediting your investment. Mail it to the Transfer Agent at the
address set forth below with the stub from a statement confirming
a prior transaction or a note stating that you want to purchase
shares in that Fund and giving the Transfer Agent the account
number :
TCW Galileo _____________ Fund
DST Sytems, Inc.
P.O. Box 419940
Kansas City, MO 64173-0298
BY EXCHANGE. Call the Transfer Agent at (800) 248-4486.
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If you need help completing the New Account Form, please call the Transfer
Agent at (800) 248-4486, the Shareholder Relations Department at TCW Galileo
Funds, Inc. at (800) FUND TCW (800-386-3829) or your investment representative
at TCW Galileo Funds, Inc.
SHAREHOLDER ACCOUNT SERVICES
GENERAL
When you make an initial investment in a Fund, a shareholder account is
opened in accordance with the instructions set forth in your New Account Form.
Purchase and redemption transactions will be reflected in confirmation
statements mailed to you by the Transfer Agent. All transactions into or out of
a Fund are entered in your account and are recorded in full and fractional
shares. Share certificates will not be issued.
CHECK WRITING PRIVILEGE
Money Market will, upon request, provide a shareholder with forms of checks
which may be drawn on the shareholder's Money Market account. These checks may
be drawn in amounts of $1,000 or more, may be made payable to the order of any
person and may be cashed or deposited, but not certified. There is no charge
for this service and no limit to the number of checks that may be written. When
a check is presented for payment, a sufficient number of full and fractional
shares will be redeemed at the next determined net asset value to pay the check.
This enables a redeeming shareholder to continue earning daily income through
the day before the check is presented for payment. Checks in amounts exceeding
the value of the shareholder's account at the time the check is presented for
payment or requiring redemption of shares purchased by check for which good
funds have not been collected will not be honored.
A shareholder wishing to use this method of redemption should telephone the
Shareholder Relations Department at (800) FUND TCW (800-386-3829) or your
investment representative at TCW Galileo Funds, Inc. This service is subject to
the rules and regulations of United Missouri Bank of Kansas City, N.A. and
Missouri Law. All notices with respect to checks are to be given to DST
Systems, Inc. Stop payment instructions may be given by calling DST Systems,
Inc. at 800-248-4486. The Fund reserves the right to impose conditions on or to
terminate this service at any time with respect to a particular shareholder or
all shareholders of the Fund in general. Since income is earned daily, it is
not possible for a shareholder to determine in advance the precise balance in
his account so as to write a check for the redemption of the entire account.
See "Redemption and Exchange of Shares."
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REDEMPTION AND EXCHANGE OF SHARES
REDEMPTIONS AND EXCHANGES
The following are the procedures you may follow to exchange or redeem
your shares.
TO REDEEM OR EXCHANGE YOUR SHARES:
----------------------------------
BY PHONE. Call the Transfer Agent at (800) 248-4486. If you find the
phones busy during unusually volatile markets, please consider
placing your order by express mail or by telegram if you have
authorized telephone services. For the Funds' exchange policy,
see "Other Conditions Relating to Shares -Excessive Trading
and Exchange Limitations." You cannot make redemptions or
exchanges by phone unless you have completed the "Telephone
Privileges" portion of the New Account Form. Telephone
redemption requests must be for a minimum of $1,000.
BY MAIL. Indicate the account name(s) and numbers, Fund name(s) and the
exchange or redemption amount. For exchanges, mail to the
attention of the Fund you are exchanging from and indicate the
Fund(s) you are exchanging to. We require the signature of all
owners exactly as registered, and possibly a signature
guarantee (see "Other Conditions Relating to Shares -Signature
Guarantees").
NOTE: Redemptions from retirement accounts, including IRAs,
must be in writing. For employer-sponsored retirement
accounts, call the Transfer Agent at (800) 248-4486, the
Shareholder Relations Department at (800) FUND TCW (800-386-
3829) or your plan administrator for instructions.
MAILING ADDRESSES:
REGULAR MAIL EXPRESS, REGISTERED OR
CERTIFIED MAIL
TCW Galileo Funds, Inc. TCW Galileo Funds, Inc.
DST Systems, Inc. DST Systems, Inc.
P.O. Box 419951 1004 Baltimore, 2nd Floor
Kansas City, MO 64141-6951 Kansas City, MO 64105-2005
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SYSTEMATIC WITHDRAWAL PLAN
You may establish a Systematic Withdrawal Plan if your shares in a Fund,
when valued at the net asset value at the time of the establishment of the
Systematic Withdrawal Plan, equal $10,000 or more. Shareholders who elect to
establish a Systematic Withdrawal Plan may receive a monthly, quarterly,
semiannual or annual check in a stated amount on the 1st or 15th day of the
month. Systematic Withdrawal Plans are subject to a minimum annual withdrawal
of $500. Fund shares will be redeemed as necessary to meet withdrawal payments.
Withdrawals may result in a gain or loss for tax purposes, may involve the use
of principal and may eventually deplete all of the shares in the account. A
Systematic Withdrawal Plan may be terminated by a shareholder on 30 days'
written notice or by the Company at any time.
RECEIVING YOUR PROCEEDS
Generally, redemption proceeds for the Funds will be mailed to the address
you designated on your New Account Form or wired to your bank. The Fund
ordinarily will make payment for all shares redeemed within seven days after
receipt by the Transfer Agent of a redemption request in proper form. However,
the right of redemption may be suspended or the date of payment postponed (i)
during periods when the New York Stock Exchange is closed for other than
weekends or holidays or when trading on such exchange is restricted as
determined by the Securities and Exchange Commission by rule or regulation; (ii)
during periods in which an emergency, as determined by the Securities and
Exchange Commission, exists which causes disposal of, or valuation of the net
asset value of, a Fund's portfolio securities to be unreasonable or
impracticable; or (iii) for such other periods as the Securities and Exchange
Commission may permit. If you have purchased shares by check and subsequently
submit a redemption request, the redemption proceeds will not be transmitted to
you until the check used for investment has cleared, which may take up to
fifteen days. This restriction does not apply to shares purchased by wire
payment. Redemptions are effected at the net asset value per share next
determined after the redemption request is received in good order.
SHAREHOLDER INQUIRIES
Written shareholder inquiries may be directed either to TCW Galileo Funds,
Inc., DST Systems, Inc., P.O. Box 419951, 1004 Baltimore, 2nd Floor, Kansas
City, Missouri 64105-2005 or to TCW Galileo Funds, Inc., Attn: Shareholder
Relations Department, 865 South Figueroa Street, Suite 1800, Los Angeles, CA
90017. Shareholders may also call the Transfer Agent at (800) 248-4486, the
Shareholder Relations Department of the Company at (800) FUND TCW (800-386-
3829), or their investment representative.
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OTHER CONDITIONS RELATING TO SHARES
ACCOUNT BALANCE
If your account with a Bond Fund or Equity Fund drops below $25,000 as a
result of redemptions and/or exchanges for six months or more, the Fund has the
right to close your account, after giving 60 days' written notice, unless you
make additional investments to bring your account value to $25,000 or more. If
your account with Money Market drops below $10,000 as a result of redemptions
and/or exchanges, the Fund has the right to close your account, after giving 30
days' written notice, unless you make additional investments to bring your
account value to $10,000 or more.
EXCESSIVE TRADING AND EXCHANGE LIMITATIONS
The exchange privilege is available only to shareholders residing in a state
in which shares of the Fund being acquired may legally be sold.
To protect each Fund's performance and to minimize Fund costs, each Fund
restricts excessive trading. Shareholders are limited to one exchange of shares
in the same Fund during any 15-day period. This includes exchanges in and out
of the same Fund. Shareholders who frequently exchange substantial assets from
one Fund to another may be restricted from making additional investments. Any
such restriction will be made on a prospective basis only, upon notice to the
shareholder not later than ten days following such shareholder's most recent
exchange.
The exchange privilege may be terminated or revised at any time by the
Company upon such notice as may be required by applicable regulatory agencies
(presently 60 days prior written notice for termination or material revision),
provided that the exchange privilege may be terminated or materially revised
without notice at times (a) when the New York Stock Exchange is closed for other
than customary weekends and holidays, (b) when trading on the New York Stock
Exchange is restricted, (c) when an emergency exists as a result of which
disposal by a Fund of securities owned by it is not reasonably practicable or it
is not reasonably practicable for the Fund fairly to determine the value of its
net assets, (d) during any other period when the Securities and Exchange
Commission by order so permits (provided that applicable rules and regulations
of the Securities and Exchange Commission shall govern as to whether the
conditions prescribed in (b) or (c) exist) or (e) if a Fund would be unable to
invest amounts effectively in accordance with the investment objective, policies
and restrictions.
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NONPAYMENT
If your check or wire does not clear, you will be responsible for any loss
the Funds incur. You may be prohibited or restricted from making future
purchases in any of the Funds.
NON-U.S. BANK CHECKS
Checks drawn on foreign banks must be in U.S. dollars and have the routing
number of the U.S. bank indicated on the check.
REDEMPTIONS IN EXCESS OF $250,000
Redemption proceeds are normally paid in cash. However, if you redeem more
than $250,000, or 1% of a Fund's net assets, in any 90-day period, the Fund may
in its discretion: (a) pay the difference between the redemption amount and the
lesser of these two figures with securities of the Fund or (b) delay the
transmission of your proceeds for up to five business days after your request is
received.
SIGNATURE GUARANTEES
A signature guarantee is designed to protect you and the Funds by verifying
your signature. You will need one to:
(a) Establish or change certain services after the account is opened, such
-----
as sending us written instructions asking us to wire redemption proceeds
or changing the bank account to which proceeds are wired.
(b) Redeem shares in a Fund within 60 days after the Transfer Agent has
received a request to change the address or bank of record.
(c) Redeem shares when (i) proceeds are being mailed to an address other
than the address of record, (ii) proceeds are made payable to other than
the registered owner(s), or (iii) proceeds are being sent to a bank
account or an address not listed on your New Account Form.
(d) Transfer shares to another owner.
These requirements may be waived or modified in certain instances.
A signature guarantee may be obtained from a commercial bank, trust company,
savings and loan association, federal savings bank, a member firm of a national
securities exchange or from an Eligible Guarantor Institution as defined in
rules promulgated by the Securities and Exchange Commission.
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If a corporation, partnership, trust or fiduciary requests redemption, the
Transfer Agent may require written evidence of authority acceptable to the
Transfer Agent before it accepts the redemption request.
TELEPHONE EXCHANGES AND REDEMPTIONS
By establishing these services, you authorize us to: (a) redeem or exchange
shares from your account based on any instructions reasonably believed by us to
be genuine and (b) honor any written instructions for a redemption or exchange
without a signature guarantee. Shareholders who elect the telephone exchange
and redemption option bear the risk of any loss, damages, expense or cost
arising from their election of the telephone exchange and redemption option,
including risk of unauthorized use, provided the Transfer Agent and the Funds
employ reasonable procedures to confirm that telephone instructions are genuine.
These services may be modified or withdrawn without notice. The Transfer Agent
employs procedures considered by it to be reasonable to confirm that
instructions communicated by telephone are genuine, including requiring account
registration verification from the caller and recording telephone instructions.
If reasonable procedures are not employed, the Transfer Agent and the Funds may
be responsible for losses due to unauthorized or fraudulent instructions.
OTHER CONDITIONS
Each Fund and its agents reserve the right to: (a) reject any purchase or
exchange prior to receipt of the confirmation statement; (b) reject any purchase
or exchange and cancel any purchase due to nonpayment; (c) waive or lower the
investment minimums; (d) waive or lower the telephone redemption minimum; and
(e) modify the conditions of purchase at any time.
NET ASSET VALUE
The net asset value (the current market value of a Fund share) of each
Fund's shares is determined after the close of business on the New York Stock
Exchange (currently 4:00 p.m., Eastern Time) or, on days when the New York Stock
Exchange closes prior to 4:00 p.m. Eastern Time at such earlier time, each
Business Day (i.e., any weekday exclusive of days the NYSE is closed for
trading). The NYSE is currently scheduled to be closed on New Year's Day,
Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day, and on the preceding Friday or subsequent Monday
when one of these holidays falls on a Saturday or Sunday, respectively. In
addition, the net asset value of a Fund will not be calculated on any weekday
when there is no activity in the Fund's shares.
In the calculation of net asset value: (a) an equity portfolio security
listed or traded on the New York or American Stock Exchange or other domestic or
foreign stock exchange is valued at its latest sale price on that exchange (if
there were no sales that day, the
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security is valued at the latest bid price), and (b) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest bid price prior to the time of valuation. When market
quotations are not readily available, including circumstances under which it is
determined by the Adviser that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the Company's Board of Directors (valuation of securities for
which market quotations are not readily available may also be based upon current
market prices of securities which are comparable in coupon, rating and maturity
or an appropriate matrix utilizing similar factors). For valuation purposes,
quotations of foreign portfolio securities, other assets and liabilities and
forward contracts quoted in foreign currencies will be valued in U.S. dollars
based on the prevailing exchange rates on that day. Dividends receivable are
accrued as of the ex-dividend date or as of the time that the relevant ex-
dividend date and amounts become known.
Certain of the Funds' portfolio securities may be valued by an outside
pricing service approved by the Company's Board of Directors. If these market
quotations are not available or are not reflective of a security's market value
and for other types of securities (such as those in the Latin America Equity
portfolio), the pricing service utilizes a matrix and/or research and
evaluations by its staff in determining what it believes is the fair value of
the portfolio securities valued by such pricing service. Securities for which
neither reliable market quotations nor reliable pricing service data are
available (as may sometimes be the case for Latin American securities) will be
valued in accordance with procedures approved by the Company's Board of
Directors.
Short-term debt securities with remaining maturities of 60 days or less at
the time of purchase are valued at amortized cost, unless the Board of Directors
determines that cost does not reflect the securities' fair value, in which case
these securities will be valued at their fair value as determined by the Board
of Directors. Other short-term debt securities will be valued on a marked-to-
market basis until such time as they reach a remaining maturity of 60 days,
whereupon they will be valued at amortized value using their value on the 61st
day unless the Board of Directors determines this value does not reflect the
securities' fair value, in which case these securities will be valued at their
fair value as determined by the Board of Directors. Listed options are valued
at the latest sale price on the exchange on which they are listed unless no
sales of such options have taken place that day, in which case they will be
valued at their latest bid price. Unlisted options are also valued at their
latest bid price. Futures are valued at the latest sale price on the
commodities exchange on which they trade unless the Board of Directors
determines that this price does not reflect their market value, in which case
they will be valued at their fair value as determined by the Board of Directors.
All other securities and other assets are valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Board of Directors.
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The fair value of Money Market's investments will be determined by using the
amortized cost method of valuation unless, due to special circumstances, the use
of such a method with respect to any security or securities would result in a
valuation which does not approximate fair market value. The amortized cost
method of valuation involves the valuing of securities at a price on a given
date and thereafter assuming a constant accretion of a discount or amortization
of a premium to maturity regardless of the impact of fluctuating interest rates
on the market value of the security.
While this method provides certainty in valuation, it may result in periods
in which value as determined by amortized cost is higher or lower than the price
the Fund would receive if it sold the security. During such periods, the yield
to investors in Money Market may differ somewhat from that obtained in a similar
fund which uses available market quotations to value all of its portfolio
securities.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The amount of dividends of net investment income (i.e., all income other
than long-and short-term capital gains) and distributions of net realized long-
and short-term capital gains payable to shareholders will be determined
separately for each Fund. Dividends from the net investment income of the Bond
Funds will be declared and paid monthly. Dividends from the net investment
income of the Equity Funds will be declared and paid annually. Dividends from
net investment income of Money Market will be declared each Business Day for the
Fund as of 4:00 p.m., Eastern Time. If payment for shares in Money Market is
received in and reinvested into Federal Funds by such time, the shares are
entitled to the dividend declared that day. Distributions of any net long-term
and net short-term capital gains earned by a Fund will be distributed no less
frequently than annually. Each Bond Fund's final distributions for each calendar
year will include any remaining net investment income and net realized short-
term capital gains deemed, for federal income tax purposes, undistributed during
the year, as well as all net long-term capital gains realized during the year.
All dividends with respect to the Equity Funds and the Bond Funds will be paid
to the shareholders of record on the day before the last Business Day of the
period in which the dividend is declared. Dividends and distributions paid by a
Fund will be automatically reinvested (at the current net asset value on the
last Business Day of the period in which the dividend was declared) in
additional shares of that Fund for your account unless you instruct the Fund on
the New Account Form or later in writing to pay dividends and/or distributions
in cash.
If for any fiscal year, a Fund's total distributions exceed net investment
income and net realized capital gains, the excess distributions generally will
be treated as a tax-free return of capital (up to the amount of the
shareholder's tax basis in his or her shares). The
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amount treated as a tax-free return of capital will reduce a shareholder's
adjusted basis in his or her shares. If, however, in addition to distributing
all of its net investment income, a Fund were to distribute net realized gains
which could have been offset by a capital loss carryover, such distributions
would be taxable as ordinary dividend income to shareholders and the Fund would
lose the benefit of the carryover. Pursuant to the requirements of the 1940 Act
and other applicable laws, a notice will accompany each distribution with
respect to the estimated sources of the distribution.
In the event that a Bond Fund distributes an amount in excess of its net
investment income and net realized capital gains, such distributions may have
the effect of decreasing the Fund's total assets, which may increase the expense
ratio.
TAXES
Each Fund is treated as a separate entity for federal income tax purposes,
and the amounts of net investment income and capital gains subject to tax are
determined separately for each Fund rather than on a Company-wide basis.
Each Fund has elected to be taxed as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") and
intends to maintain its qualification thereunder. By so qualifying and by
distributing all of its net investment income and net realized capital gains
within the time periods specified in the Internal Revenue Code, each Fund would
not be required to pay any federal income tax. Each Fund may be subject to
nominal, if any, state and local taxes.
Dividends derived from a Fund's taxable net investment income and
distributions of a Fund's net short-term capital gains (including short-term
gains from investment in tax-exempt obligations) are taxable to shareholders as
ordinary income for federal income tax purposes, regardless of how long
shareholders have held their Fund shares and whether such dividends or
distributions are received in cash or reinvested in additional shares.
Distributions of long-term capital gains are taxable to shareholders as long-
term capital gains, regardless of how long a shareholder has held its Fund
shares and whether such distributions are received in cash or reinvested in
additional shares. Dividends and distributions paid by the Bond Funds and
distributions of capital gains paid by the Equity Funds do not qualify for the
dividends received deduction for corporations. As a general rule, dividends paid
by the Equity Funds, to the extent derived from dividends attributable to stock
of certain types of U.S. corporations, will, provided certain conditions are
met, qualify for the 70% dividends received deduction for corporations.
Dividends and distributions may also be subject to state or local taxes.
Any dividend or capital gains distribution received by a shareholder of a
Fund will have the effect of reducing the net asset value of the shareholder's
stock in that Fund by the exact amount of such dividend or distribution. If the
net asset value of the shares
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should be reduced below a shareholder's cost as a result of the payment of
dividends or capital gains distributions, such payment or distribution would be
in part a return of the shareholder's investment to the extent of such reduction
below the shareholder's cost, but nonetheless would be fully taxable at either
ordinary or capital gains rates. Therefore, an investor should consider the
implications of purchasing Fund shares immediately prior to a dividend or
distribution record date.
Gains or losses on a Fund's transactions in certain listed options on
securities and on futures and options on futures traded on U.S. exchanges
generally will be treated as 60% long-term capital gain or loss and 40% short-
term capital gain or loss. When a Fund engages in options and futures
transactions, various tax regulations applicable to the Fund may have the effect
of causing the Fund to recognize a gain or loss for tax purposes before that
gain or loss is realized, or to defer recognition of a realized loss for tax
purposes. Recognition of an unrealized loss for tax purposes may result in a
lesser amount of the Fund's realized net gains being available for distribution.
Income or gain from a Fund's investments in foreign securities may be
subject to foreign withholding or other taxes. So long as more than 50% of Asia
Pacific Equity, Emerging Markets and Latin America Equity's assets at the close
of any taxable year consist of debt or equity securities of foreign
corporations, the Fund may elect to treat any such foreign income taxes paid by
it as paid directly by its shareholders. At the present time, the Funds do not
anticipate that they will make this election; however, if in any year the Funds
make the election, they will so notify shareholders in writing and advise
shareholders of the amount of foreign income taxes, if any, to be treated as
paid by the shareholders. If the Funds make the election, each shareholder will
be required to include in income its proportionate share of the amount of
foreign income taxes paid by the Funds and will be entitled to claim either a
credit (which is subject to certain limitations), or, if the shareholder
itemizes deductions, a deduction for its share of the foreign income taxes in
computing federal income tax liability.
Certain of the Equity Funds may purchase the securities of certain foreign
investment funds or trusts called passive foreign investment companies. Capital
gains on the sale of such holdings will be deemed to be ordinary income
regardless of how long a Fund holds its investment. In addition, a Fund may be
subject to income tax and an interest charge on certain dividends and capital
gains earned from these investments, regardless of whether such income and gains
were distributed to the Fund's shareholders.
As a general rule, a shareholder's gain or loss on a sale or redemption of
Fund shares will be a long-term capital gain or loss if the shareholder has held
his or her Fund shares for more than one-year and will be a short-term capital
gain or loss if he or she has held his or her Fund shares for one year or less;
provided that if a shareholder receives a capital gain dividend with respect to
any share and if such share has been held by the shareholder for six months or
less, then any loss on the sale or exchange of such share
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shall, to the extent of the capital gain dividend, be treated as a long-term
capital loss. An exchange of shares is treated for federal income tax purposes
as a redemption of shares given in exchange by the shareholder.
Dividends to shareholders who are non-resident aliens may be subject to a
30% United States withholding tax under provisions of the Internal Revenue Code
applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty law.
Non-resident shareholders should consult their own tax advisers.
Shareholders are notified annually of the federal tax status of dividends
and any distributions. To avoid being subject to a 31% federal backup
withholding on dividends, distributions and redemption payments, shareholders
must furnish the Fund with their correct taxpayer identification number.
Shareholders should consult their own tax advisers with respect to the
applicability of state, local, estate and gift taxes and non-U.S. taxes to their
investment in a Fund.
PERFORMANCE INFORMATION
From time to time, a Bond Fund may publish its 30-day "yield." The yield of
a Bond Fund refers to the income generated by an investment in the Fund over the
30-day period identified in the publication, and is computed by dividing the net
investment income per share earned by the Fund during the period of computation
by the maximum public offering price per share on the last day of the period.
The income is "annualized" by assuming that the amount of income is generated
each month over a one-year period and is compounded semiannually. The
annualized income is then shown as a percentage of the maximum public offering
price. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in a Bond Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
yield is generally a function of the kind and quality of the instruments held in
a portfolio, portfolio maturity, operating expenses and market conditions.
From time to time, an Equity Fund or Bond Fund may quote its "total return"
in publications. The total return of a Fund is based on historical earnings and
is not intended to indicate future performance. The "average annual total
return" of a Fund refers to a figure reflecting the average annualized
percentage increase (or decrease) in the value of an initial investment in the
Fund of $1,000 over the life of the Fund. Average annual total return reflects
all income earned by the Fund, any appreciation or depreciation of the Fund's
assets, and all expenses incurred by the Fund for the period. It also assumes
reinvestment of all dividends and distributions paid by the Fund. In addition
to the
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foregoing, a Fund may publish its total return over different periods of time by
means of aggregate average, and year-by-year or other types of total return
figures.
From time to time Money Market may advertise its "yield" and "effective
yield." Both yield figures are based on historical earnings and are not
intended to indicate future performance. The "yield" of Money Market refers to
the income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by an investment in the Fund is assumed
to be reinvested. The "effective yield" will be slightly higher than the
"yield" because of the compounding effect of this assumed reinvestment. For the
seven days ended January 31, 1996, the yield and effective yield of Money Market
were 5.19% and 5.33%, respectively. Past performance is no guarantee of future
results.
Comparative performance information may be used from time to time in
publishing information about the Company's shares, including data from Lipper
Analytical Services, Inc., CDA Technologies, Inc. or similar independent
services which monitor the performance of mutual funds or with other appropriate
indexes of investment securities. The performance information may also include
evaluations of the Funds published by nationally recognized ranking services and
by financial publications that are nationally recognized, such as Business Week,
Forbes, Fortune, Institutional Investor, Money and The Wall Street Journal. A
Fund may compare its performance to other investments or relevant indexes
including, but not limited to, the following: High Yield Bond -- First Boston
High Yield Index and Salomon Brothers High Yield Cash Pay Index; High Yield Bond
and High Grade Fixed Income -- Lehman Brothers Government/Corporate Bond Index;
High Grade Fixed Income and Long-Term Mortgage Backed Securities -- Salomon
Brothers Broad Investment Grade Index; Long-Term Mortgage Backed Securities --
Lehman Brothers Mortgage-Backed Securities Index; Mortgage Backed Securities --
Salomon Brothers Three Month Treasury Bill Benchmark and Salomon Brothers One
Year U.S. Treasury Bill Index; Core Equity -- Standard & Poor's 500; Small Cap
Growth - National Association of Securities Dealers Automated Quotations System,
Lipper Small Company Gross Average and the Russell 2000; Asia Pacific Equity -
Morgan Stanley Combined Far East Ex Japan Free Investable Index; Emerging
Markets - International Finance Corporation Emerging Markets Composite Global
Total Return Index; Latin America Equity -- Baring Securities Emerging Markets
Index, International Finance Corporation Latin America Investable Index, and
Morgan Stanley Capital International Latin America Index; Earnings Momentum -
Standard & Poor's 500, Standard & Poor's Midcap 400, and the Russell 2000; Mid-
Cap Growth - Standard & Poor's Midcap 400, Russell Midcap Index, and Wilshire
Midcap Index; and Money Market -- Donoghue's Money Fund Average(TM), and the
average yields reported by the Bank Rate Monitor for money market deposit
accounts offered by the 50 leading banks and thrift institutions in the top five
standard metropolitan statistical areas.
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GENERAL INFORMATION
ORGANIZATION, SHARES AND VOTING RIGHTS
The Company was incorporated as a Maryland corporation on September 15, 1992
and is registered with the Securities and Exchange Commission as an open-end,
management investment company. The Company has acknowledged that the name "TCW"
is owned by The TCW Group, Inc. (formerly TCW Management Company) ("TCW"), the
parent of the Adviser. The Company has agreed to change its name and the name
of the Funds at the request of TCW if any advisory agreement into which TCW or
any of its affiliates and the Company may enter is terminated.
As of the date of this Prospectus, the Funds are the only series of the
Company's shares that have been authorized by the Board of Directors. Shares of
each Fund are of a single class with each share representing an equal
proportionate share in the assets, liabilities, income and expenses of the Fund
and having the same rights as any other share of the Fund. All shares issued
will be fully paid and nonassessable and will have no preemptive or conversion
rights. Each share has one vote and fractional shares have fractional votes. As
a Maryland corporation, the Company is not required to hold an annual
shareholder meeting in any year in which the selection of directors is not
required to be acted on under the 1940 Act. Shareholder approval will be sought
only for certain changes in the operation of the Funds and for the election of
directors under certain circumstances. Directors may be removed by a majority of
all votes entitled to be cast by shareholders at a meeting. A special meeting
of the shareholders will be called to elect or remove directors if requested by
the holders of ten percent of the Company's outstanding shares. All
shareholders of the Funds will vote together with all other shareholders of the
Funds and with all shareholders of all other funds that the Company may form in
the future on all matters affecting the Company, including the election or
removal of directors. For matters where the interests of separate Funds are not
identical, the matter will be voted on separately by each affected Fund. For
matters affecting only one Fund, only the shareholders of that Fund will be
entitled to vote thereon. Voting is not cumulative. Upon request in writing by
ten or more shareholders who have been shareholders of record for at least six
months and hold at least the lesser of shares having a net asset value of
$25,000 or one percent of all outstanding shares, the Company will provide the
requesting shareholders either access to the names and addresses of all
shareholders of record or information as to the approximate number of
shareholders of record and the approximate cost of mailing any proposed
communication to them. If the Company elects the latter procedure, and the
requesting shareholders tender material for mailing together with the reasonable
expenses of the mailing, the Company will either mail the material as requested
or submit the material to the Securities and Exchange Commission for a
determination that the mailing of the material would be inappropriate. As of
February 29, 1996, Mellon Bank, N.A. as trustee for MAC & Co. owned 31.57% of
the outstanding shares of Mortgage Backed Securities; Ministers and Missionaries
Benefit Board of the Baptist Church and
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Princeton University Investment Co. owned 44.64% and 38.14% respectively, of the
outstanding shares of Latin America Equity; Catholic Health Corporation owned
28.73% of the outstanding shares of Long-Term Mortgage Backed Securities; and
Saxon & Co. FBO PNC owned 45.69% of Money Market. As a result of these
holdings, each of these entities may be considered a "control person" with
respect to the Fund in which it invests.
TRANSFER AGENT AND CUSTODIAN
DST Sytems, Inc., P.O. Box 419951, Kansas City, MO 64141-6951, serves as
transfer agent for the Fund. The BNY Western Trust Company, 700 South Flower
Street, Suite 200, Los Angeles, California 90017, serves as custodian for the
Fund. Chemical Bank, 4 New York Plaza, New York, New York 10004; Morgan
Guaranty Trust Company, 60 Wall Street, New York, New York 10260; and The Bank
of New York, 90 Washington Street, New York, New York 10286 act as limited
custodians under the terms of certain repurchase and futures agreements.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 1000 Wilshire Boulevard, Los Angeles, California
90017, serves as the Company's independent certified public accountants.
LEGAL COUNSEL
O'Melveny & Myers, 400 South Hope Street, Los Angeles, California 90071,
serves as legal counsel to the Company. O'Melveny & Myers also serves as legal
counsel to the Adviser and its affiliates.
REPORTS TO SHAREHOLDERS
The fiscal year of the Company ends on October 31 of each year. The Company
will send to the shareholders of each Fund on a semiannual basis financial
statements for the Fund that identify the securities held by the Fund and that
contain other information. An annual report, containing audited financial
statements for each Fund, will be sent to shareholders of the Fund each year.
In an effort to reduce expenses, the Company intends to consolidate mailings of
annual and semi annual report to households having multiple accounts with the
same address of record. One copy of each report will be furnished to that
address. Additional reports may be requested by notifying the Company.
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APPENDIX
In attempting to achieve its investment objective or objectives, a Fund may
employ, among others, one or more of the strategies or securities set forth
below. Detailed information concerning these strategies, their related risks
and other strategies employed by the Funds is contained elsewhere in this
Prospectus and the Statement of Additional Information. The Funds may, in
addition, invest in other instruments (including derivative investments) or use
other investment strategies that are developed or become available in the future
and that are consistent with their objectives and restrictions.
STRATEGIES AVAILABLE TO ALL BOND FUNDS AND EQUITY FUNDS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, any Bond Fund or Equity Fund
may purchase securities on a when-issued or delayed delivery basis and may
purchase or sell securities on a forward commitment basis. When such
transactions are negotiated, the price is fixed at the time of the commitment,
but delivery and payment can take place a month or more after the date of the
commitment. The securities so purchased or sold are subject to market
fluctuation, and no interest or dividends accrue to the purchaser prior to the
settlement date. While a Fund will only purchase securities on a when-issued,
delayed delivery or forward commitment basis with the intention of acquiring the
securities, the Fund may sell the securities before the settlement date, if it
is deemed advisable. At the time a Fund makes the commitment to purchase or
sell securities on a when-issued, delayed delivery or forward commitment basis,
the Fund will record the transaction and thereafter reflect the value, each day,
of such security purchased or, if a sale, the proceeds to be received, in
determining its net asset value. At the time of delivery of the securities, the
value may be more or less than the purchase or sale price. An increase in the
percentage of a Fund's assets committed to the purchase of securities on a when-
issued or delayed delivery basis may increase the volatility of the Fund's net
asset value. The Adviser does not believe that any Fund's net asset value or
income will be adversely affected by its purchase of securities on such basis.
STRATEGIES AVAILABLE TO ALL BOND FUNDS AND EQUITY FUNDS (EXCEPT MID-CAP GROWTH)
OPTIONS. The Bond Funds and the Equity Funds (except Mid-Cap Growth) may
write covered call and put options, so long as the aggregate value of the
securities underlying the calls or obligations underlying the puts determined as
of the date the options or puts are sold does not exceed 25% of the Fund's total
assets. In addition, the Bond Funds and the Equity Funds may purchase put and
call options, so long as the aggregate premiums paid on all such options which
are held by the Fund at any time do not exceed 20% of the Fund's total assets.
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The Bond Funds and the Equity Funds authorized to engage in options trading
expect to deal only in options that are listed on U.S. or foreign securities
exchanges or are written in over-the-counter transactions ("OTC Options").
Listed options are issued or guaranteed by the exchange on which they trade or
by a clearing corporation such as the Options Clearing Corporation ("OCC").
Ownership of a listed call option would give a Fund the right to buy from the
OCC (in the U.S.) or other clearing corporation or exchange the underlying
security or currency covered by the option at the stated exercise price (the
price per unit of the underlying security or currency) by filing an exercise
notice prior to the expiration date of the option. Ownership of a listed put
option would give a Fund the right to sell the underlying security or currency
to the OCC (in the U.S.) or other clearing corporation or exchange at the stated
exercise price. OTC Options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with a Fund.
With respect to OTC Options, such variables as expiration date, exercise price
and premium will be agreed upon between a Fund and the transacting dealer,
without the intermediation of a third party such as the OCC.
As a writer of covered put options, a Fund incurs an obligation to buy the
security (or currency) underlying the option from the purchaser of the put at
the option's exercise price at any time during the option period, at the
purchaser's election (certain listed and OTC put options written by a Fund will
be exercisable by the purchaser only on a specific date). A Fund will write
covered put options for three purposes: (a) to receive the premiums paid by
purchasers; (b) when the Adviser wishes to purchase the security underlying the
option (or a security denominated in the currency underlying the option) at a
price lower than its current market price, in which case it will write the
covered put at an exercise price reflecting the lower purchase price sought; and
(c) to close out a long put option position.
The Bond Funds and the Equity Funds (except Mid-Cap Growth) are permitted to
write covered call options on portfolio securities and, with respect to the
Equity Funds (except Earnings Momentum and Mid-Cap Growth) and High Grade Fixed
Income, on the U.S. dollar and foreign currencies, in order to hedge against the
decline in the value of a security or currency in which such security is
denominated and to close out long call option positions. As a writer of a call
option, a Fund has the obligation, upon notice of exercise of the option, to
deliver the security or amount of currency underlying the option (certain listed
and OTC call options written by a Fund will be exercisable by the purchaser only
on a specific date). The Bond Funds and the Equity Funds may write covered call
options for purposes similar to those relating to covered put options.
The permitted Equity Funds and High Grade Fixed Income may also purchase and
write options on currencies for hedging purposes. Each Fund may purchase listed
and OTC call and put options. A Fund may purchase call options to close out a
covered call position or to protect against an increase in the price of a
security it anticipates purchasing or, in the case of call options on a foreign
currency, to hedge against an adverse exchange rate change of the currency in
which the security it anticipates purchasing is denominated
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vis-a-vis the currency in which the exercise price is denominated. A Fund may
purchase put options on securities which it holds in its portfolio only to
protect itself against a decline in the value of the security. A Fund may also
purchase put options to close out written put positions in a manner similar to
call option closing purchase transactions.
STRATEGIES AVAILABLE TO HIGH GRADE FIXED INCOME, LONG-TERM MORTGAGE BACKED
SECURITIES, MORTGAGE BACKED SECURITIES, MONEY MARKET AND THE EQUITY FUNDS
REPURCHASE AGREEMENTS. Repurchase agreements, which may be viewed as a type
of secured lending by a Fund, typically involve the acquisition by a Fund of
debt securities from a selling financial institution such as a bank, savings and
loan association or broker-dealer. The repurchase agreements will provide that
the Fund will sell back to the institution, and that the institution will
repurchase, the underlying security ("collateral") at a specified price and at a
fixed time in the future, usually not more than seven days from the date of
purchase. The collateral will be maintained in a segregated account and, with
respect to United States repurchase agreements, will be marked to market daily
to ensure that the full value of the collateral, as specified in the repurchase
agreement, does not decrease below the repurchase price plus accrued interest.
If such a decrease occurs, additional collateral will be requested and, when
received, added to the account to maintain full collateralization. The Fund
will accrue interest from the institution until the date the repurchase occurs.
Although this date is deemed by each Fund to be the maturity date of a
repurchase agreement, the maturities of the collateral securities are not
subject to any limits and may exceed one year. Repurchase agreements maturing
in more than seven days will be considered illiquid for purposes of the
restriction on each Fund's investment in illiquid and restricted securities.
Latin American repurchase agreements entered into by Latin America Equity are
governed by local regulations and business practices that are different than
those prevailing in the United States. For example, Mexican repurchase
agreements are not marked to market during the term of the agreement and do not
require the counterparty to add to the underlying securities if their value
declines. Foreign repurchase agreements also entail currency risk.
STRATEGIES AVAILABLE TO HIGH GRADE FIXED INCOME, LONG-TERM MORTGAGE BACKED
SECURITIES, MORTGAGE BACKED SECURITIES, MONEY MARKET AND LATIN AMERICA EQUITY
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve sales
by a Fund of portfolio securities concurrently with an agreement by the Fund to
repurchase the same securities at a later date at a fixed price. Generally, the
effect of such a transaction is that the Fund can recover all or most of the
cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
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STRATEGIES AVAILABLE TO HIGH GRADE FIXED INCOME, LONG-TERM MORTGAGE BACKED
SECURITIES AND MORTGAGE BACKED SECURITIES
GUARANTEED MORTGAGE-PASS THROUGH SECURITIES. High Grade Fixed Income, Long-
Term Mortgage Backed Securities and Mortgage Backed Securities may invest in
mortgage pass-through securities representing participation interests in pools
of residential mortgage loans purchased from individual lenders by a Federal
Agency or originated by private lenders and guaranteed, to the extent provided
in such securities, by a Federal Agency. Such securities, which are ownership
interests in the underlying mortgage loans, differ from conventional debt
securities, which provide for periodic payment of interest in fixed amounts
(usually semiannually) and principal payments at maturity or on specified call
dates. Mortgage pass-through securities provide for monthly payments (not
necessarily in fixed amounts) that are a "pass-through" of the monthly interest
and principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans, net of any fees paid to the guarantor of
such securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which the Funds may
invest include those issued or guaranteed by GNMA, FNMA and FHLMC. GNMA
certificates are direct obligations of the U.S. Government and, as such, are
backed by the "full faith and credit" of the United States. FNMA is a federally
chartered, privately owned corporation and FHLMC is a corporate instrumentality
of the United States. FNMA and FHLMC certificates are not backed by the full
faith and credit of the United States but the issuing agency or instrumentality
has the right to borrow, to meet its obligations, from an existing line of
credit with the U.S. Treasury. The U.S. Treasury has no legal obligation to
provide such line of credit and may choose not to do so.
Certificates for these types of mortgage-backed securities evidence an
interest in a specific pool of mortgages. These certificates are, in most
cases, "modified pass-through" instruments, wherein the issuing agency
guarantees the payment of principal and interest on mortgages underlying the
certificates, whether or not such amounts are collected by the issuer on the
underlying mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES.
CMOs are debt obligations collateralized by mortgage loans or mortgage pass-
through securities. Typically, CMOs are collateralized by GNMA, FNMA or FHLMC
certificates, but also may be collateralized by whole loans or private mortgage
pass-through securities (such collateral is collectively hereinafter referred to
as "Mortgage Assets"). Multiclass pass-through securities are equity interests
in a trust composed of Mortgage Assets. Payments of principal of and interest on
the Mortgage Assets, and any reinvestment income thereon, provide the funds to
pay debt service on the CMOs or make scheduled distributions on the multiclass
pass-through securities. CMOs may be issued by Federal Agencies, or by private
originators of, or investors in, mortgage loans, including savings
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and loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. The issuer of a series of CMOs
may elect to be treated as a Real Estate Mortgage Investment Conduit ("REMIC").
REMICs include governmental and/or private entities that issue a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to CMOs
in that they issue multiple classes of securities, but unlike CMOs, which are
required to be structured as debt securities, REMICs may be structured as
indirect ownership interests in the underlying assets of the REMICs themselves.
However, there are no effects on a Fund from investing in CMOs issued by
entities that have elected to be treated as REMICs, and all future references to
CMOs shall also be deemed to include REMIC.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis. Certain CMOs may have variable or floating
interest rates and others may be Stripped Mortgage Securities.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of a CMO series in a number of different ways. Generally,
the purpose of the allocation of the cash flow of a CMO to the various classes
is to obtain a more predictable cash flow to certain of the individual tranches
than exists with the underlying collateral of the CMO. As a general rule, the
more predictable the cash flow is on a CMO tranche, the lower the anticipated
yield will be on that tranche at the time of issuance relative to prevailing
market yields on other mortgage-backed securities. As part of the process of
creating more predictable cash flows on most of the tranches in a series of
CMOs, one or more tranches generally must be created that absorb most of the
volatility in the cash flows on the underlying mortgage loans. The yields on
these tranches are generally higher than prevailing market yields on mortgage-
backed securities with similar maturities. As a result of the uncertainty of
the cash flows of these tranches, the market prices of and yield on these
tranches generally are more volatile. The Funds will not invest in CMO and
REMIC residuals.
PRIVATE MORTGAGE PASS-THROUGH SECURITIES. Private mortgage pass-through
securities are structured similarly to the GNMA, FNMA and FHLMC mortgage pass-
through securities and are issued by United States and foreign private issuers
such as originators of and investors in mortgage loans, including savings and
loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. These securities usually are
backed by a pool of conventional fixed rate or adjustable rate mortgage loans.
Since private mortgage pass-through securities typically are not guaranteed by
an entity having the credit status of GNMA, FNMA and FHLMC, such securities
generally are structured with one or more types of credit enhancement.
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Mortgage-backed securities are often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors on underlying assets to make payments, those securities may
contain elements of credit support, which fall into two categories: (i)
liquidity protection and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments on the underlying pool occurs in
a timely fashion. Protection against losses resulting from default ensures
ultimate payment of the obligations on at least a portion of the assets in the
pool. This protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The degree of credit support provided for each issue is generally
based on historical information respecting the level of credit risk associated
with the underlying assets. Delinquencies or losses in excess of those
anticipated could adversely affect the return on an investment in a security.
The Funds will not pay any fees for credit support, although the existence of
credit support may increase the price of a security.
STRIPPED MORTGAGE SECURITIES. Stripped Mortgage Securities may be issued by
Federal Agencies, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
Mortgage Securities not issued by Federal Agencies will be treated by the Funds
as illiquid securities so long as the staff of the Securities and Exchange
Commission maintains its position that such securities are illiquid.
Stripped Mortgage Securities usually are structured with two classes that
receive different proportions of the interest and principal distribution on a
pool of mortgage assets. A common type of Stripped Mortgage Security will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive
all of the interest (the interest-only or "IO" class), while the other class
will receive all of the principal (the principal-only or "PO" class). PO
classes generate income through the accretion of the deep discount at which such
securities are purchased, and, while PO classes do not receive periodic payments
of interest, they receive monthly payments associated with scheduled
amortization and principal prepayment from the mortgage assets underlying the PO
class. The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on such security's yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities.
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A Fund may purchase Stripped Mortgage Securities for income, or for hedging
purposes to protect the Fund's portfolio against interest rate fluctuations.
For example, since an IO class will tend to increase in value as interest rates
rise, it may be utilized to hedge against a decrease in value of other fixed-
income securities in a rising interest rate environment.
MORTGAGE DOLLAR ROLLS. The Funds may enter into mortgage dollar rolls with
a bank or a broker-dealer. A mortgage dollar roll is a transaction in which a
Fund sells mortgage-related securities for immediate settlement and
simultaneously purchases the same type of securities for forward settlement at a
discount. While the Fund begins accruing interest on the newly purchased
securities from the purchase or trade date, it is able to invest the proceeds
from the sale of its previously owned securities, which will be used to pay for
the new securities, in money market investments until the future settlement
date. The use of mortgage dollar rolls is a speculative technique involving
leverage, and is considered to be a form of borrowing by the Fund.
ASSET-BACKED SECURITIES. Asset-backed securities have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. Various types of
assets, primarily automobile and credit card receivables, are securitized in
pass-through structures similar to mortgage pass-through structures. In
general, the collateral supporting asset-backed securities is of shorter
maturity than mortgage loans and is likely to experience substantial
prepayments. As with mortgage-related securities, asset-backed securities are
often backed by a pool of assets representing the obligations of a number of
different parties and use similar credit enhancement techniques. The cash flow
generated by the underlying assets is applied to make required payments on the
securities and to pay related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed or mortgage-backed
securities depends on, among other things, the characteristics of the underlying
assets, the coupon rates on the securities, prevailing interest rates, the
amount of administrative expenses and the actual prepayment experience on the
underlying assets. High Grade Fixed Income, Long-Term Mortgage Backed
Securities and Mortgage Backed Securities, following revisions to this
Prospectus, may each invest in any such instruments or variations as may be
developed, to the extent consistent with its investment objectives and policies
and applicable regulatory requirements.
STRATEGIES AVAILABLE TO LONG-TERM MORTGAGE BACKED SECURITIES AND MORTGAGE BACKED
SECURITIES
INVERSE FLOATERS. Inverse floaters constitute a class of CMOs with a coupon
rate that moves inversely to a designated index, such as LIBOR or COFI. Inverse
floaters have coupon rates that typically change at a multiple of the changes of
the relevant index rate. Any rise in the index rate (as a consequence of an
increase in interest rates) causes a drop in the coupon rate on an inverse
floater while any drop in the index rate causes an
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increase in the coupon rate of an inverse floater. In some circumstances, the
coupon on an inverse floater could decrease to zero. In addition, like most
other fixed-income securities, the value of inverse floaters will decrease as
interest rates increase and their average lives will extend. Inverse floaters
exhibit greater price volatility than the majority of mortgage-backed
securities. In addition, some inverse floaters display extreme sensitivity to
changes in prepayments. As a result, the yield to maturity of an inverse
floater is sensitive not only to changes in interest rates but also to changes
in prepayment rates on the related underlying mortgage assets. As described
above, inverse floaters may be used alone or in tandem with interest-only
stripped mortgage instruments. The Adviser believes that, notwithstanding the
fact that inverse floaters exhibit price volatility, the use of inverse floaters
as a component of the Fund's overall portfolio, in light of the Fund's
anticipated portfolio composition in the aggregate, is compatible with the
Fund's objective.
STRATEGIES AVAILABLE TO THE EQUITY FUNDS (EXCEPT EARNINGS MOMENTUM AND MID-CAP
GROWTH) AND HIGH GRADE FIXED INCOME
FORWARD CURRENCY TRANSACTIONS. The Equity Funds (except Earnings Momentum
and Mid-Cap Growth) and High Grade Fixed Income may enter into forward currency
transactions. A foreign currency forward contract involves an obligation to
purchase or sell a specific currency at an agreed future date, at a price set at
the time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders. A Fund may enter into foreign
currency forward contracts in order to protect against the risk that the U.S.
dollar value of the Fund's dividends, interest and net realized capital gains in
local currency will decline to the extent of any devaluation of the currency
during the intervals between (a) (i) the time the Fund becomes entitled to
receive or receives dividends, interest and realized gains or (ii) the time an
investor gives notice of a requested redemption of a certain amount and (b) the
time such amount(s) are converted into U.S. dollars for remittance out of the
particular country or countries.
At the maturity of a forward contract, a Fund may either accept or make
delivery of the currency specified in the contract or, prior to maturity, enter
into a closing purchase transaction involving the purchase or sale of an
offsetting contract. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract.
The cost to a Fund of engaging in forward currency transactions may vary
with factors such as the length of the contract period and the market conditions
then prevailing. Because forward currency transactions are usually conducted on
a principal basis, no fees or commissions are involved, although the price
charged in the transaction includes a dealer's markup. The use of forward
currency contracts does not eliminate fluctuations in the underlying prices of
the securities, but it does establish a rate of exchange that can be achieved in
the future. In addition, although forward currency contracts limit the risk of
loss
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due to a devaluation of the foreign currency in relation to the U.S. dollar,
they also limit any potential gain if that foreign currency appreciates with
respect to the U.S. dollar.
STRATEGIES AVAILABLE TO THE EQUITY FUNDS AND HIGH YIELD BOND
CONVERTIBLE SECURITIES. The Equity Funds and High Yield Bond Fund may
invest in convertible securities, bonds, debenture, notes, preferred stocks or
other securities 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. Convertible securities rank senior to
common stocks in a corporation's capital structure and, therefore, entail less
risk than the corporation's common stock. The value of a convertible security
is a function of its "investment value" (its value as if it did not have a
conversion privilege), and its "conversion value" (the securities worth if it
were to be exchanged for the underlying security, at market value, pursuant to
its conversion privilege).
To the extent that a convertible securities investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income securities
(the credit standing of the issuer and other factors may also have an effect on
the convertible security's value). If the conversion value exceeds the
investment value, the price of the convertible security will rise above its
investment value and, in addition, may sell at some premium over its conversion
value. (This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
STRATEGIES AVAILABLE TO MID-CAP GROWTH, LATIN AMERICA EQUITY AND EMERGING
MARKETS
Lending of Portfolio Securities. The Latin America, Emerging Markets and
Mid-Cap Growth Funds may, consistent with applicable regulatory requirements,
lend their portfolio securities to brokers, dealers and other financial
institutions, provided such loans are callable at any time by the Funds (subject
to the notice provisions described below), and are at all times secured by cash,
bank letters of credit, other money market instruments rated A-1, P-1 or the
equivalent or securities of the United States Government (or its agencies or
instrumentalities), which are maintained in a segregated account and that are
equal to at least the market value, determined daily, of the loaned securities.
The advantage of such loans is that the Funds continue to receive the income on
the loaned securities while at the same time earning interest on the cash
amounts deposited as collateral, which will be invested in short-term
obligations. A Fund will not lend more than 25% of the value of its total
assets (10% with respect to Mid-Cap Growth). A loan may be terminated by the
borrower on one business day's notice, or by a Fund on two business
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<PAGE>
day's notice. If the borrower fails to deliver the loaned securities within two
days after receipt of notice, the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over collateral. As with any extension of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower fail financially. However, loans of portfolio securities will only be
made to firms deemed by the Adviser to be creditworthy. Upon termination of the
loan, the borrower is required to return the securities to the Funds. Any gain
or loss in the market place during the loan period would inure to the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will call the loaned securities, to be delivered within one
day after notice, to permit the Fund to vote the securities if the matters
involved would have a material effect on the Fund's investment in such loaned
securities. A Fund will pay reasonable finder's, administrative and custodian
fees in connection with a loan of securities.
STRATEGIES AVAILABLE TO LATIN AMERICA EQUITY AND EMERGING MARKETS
LATIN AMERICAN PRIVATIZATIONS. The governments of some Latin American
countries, to varying degrees, have been engaged in programs of selling part or
all of their stakes in government-owned or government-controlled enterprises
("privatizations"). The Adviser believes that privatizations may offer
investors opportunities for significant capital appreciation and intends to
invest assets of Latin America Equity and Emerging Markets in privatizations in
appropriate circumstances. In certain Latin American countries, the ability of
foreign persons, such as the Funds, to participate in privatizations may be
limited by local law, or the terms on which the Fund may be permitted to
participate may be less advantageous than those for local investors. There can
be no assurance that privatization programs will continue or be successful.
DEBT-TO-EQUITY CONVERSIONS. Debt-to-equity conversion programs are
sponsored in varying degrees by certain Latin American countries and permit
investors to use external debt of a country to make equity investments in local
companies. Many conversion programs relate primarily to investments in
transportation, communication, utilities and similar infrastructure-related
areas. The terms of the programs vary from country to country, but include
significant restrictions on the application of the proceeds received in the
conversion and on the repatriation of investment profits and capital. In
inviting conversion applications by holders of eligible debt, a government will
usually specify a minimum discount from par value that it will accept for
conversion. The Adviser believes that Latin American debt-to-equity conversion
programs may offer investors opportunities to invest in otherwise restricted
Latin American equity securities with a potential for significant capital
appreciation and, to a limited extent, intends to invest assets of the Fund
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in such programs in appropriate circumstances. Normally, such investments will
be in connection with privatizations. There can be no assurance that debt-to-
equity conversion programs will continue or be successful or that the Funds will
be able to convert all or any of its Latin American debt portfolio into equity
investments.
LATIN AMERICA DEBT SECURITIES. The Latin America Fund may invest up to 35%
of its total assets in Latin American debt securities, together with convertible
securities. Emerging Markets may also invest in these securities. The Funds'
debt securities may be issued by governmental and corporate issuers, and may be
denominated in U.S. dollars, local Latin American currencies, or in the case of
certain corporate issuers, other currencies. The principal purpose of such
investments will be to enable the Funds' to participate in debt-to-equity
conversion programs in connection with privatization transactions sponsored by
certain Latin American countries, but the Funds' may also make such investments
in order to participate in corporate reorganizations or for other purposes. The
portion of the Funds' assets invested in Latin American debt securities may vary
within the 35% applicable limit applicable to debt and convertible investments,
but is not normally expected to exceed 10% of the Funds' total assets. Latin
American debt securities that the Fund may acquire include bonds, notes and
debentures of any maturity of Latin American governments, obligations of such
governments' agencies, instrumentalities and central banks and of banks and
other companies issuing securities that qualify as Latin American securities as
defined in the Prospectus.
STRATEGIES AVAILABLE TO ASIA PACIFIC EQUITY, LATIN AMERICA EQUITY AND EMERGING
MARKETS
INVESTMENT IN OTHER INVESTMENT VEHICLES. Investment in other investment
companies or similar investment vehicles may be the sole or most practical means
by which a Fund can participate in certain Latin American, Asian and other
emerging securities markets or invest in particular industries within those
markets. Some of these investment vehicles may be closed-end investment
companies which may trade at a discount from their net asset value. Such
investments may involve the payment of substantial premiums above the value of
such issuers' portfolio securities, and are subject to limitations under the
1940 Act (see below) and market availability. There can be no assurance that
vehicles or funds for investing in certain Latin American, Asian and other
emerging markets countries will be available for investment, particularly in the
early stages of the Fund's operations. In addition, special tax considerations
may apply. The Funds do not intend to invest in such vehicles or funds unless,
in the judgment of the Adviser, the potential benefits of such investment
justify the payment of any applicable premium or sales charges. As a
shareholder in an investment company, the Funds would bear their ratable share
of that investment company's expenses, including its advisory and administration
fees. At the same time the Fund would continue to pay their own management and
advisory fees and other expenses. Under the 1940 Act, the Funds generally may
invest up to 10% of its total assets in the aggregate in shares of other
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investment companies and up to 3% of its total assets in any one investment
company, as long as that investment does not represent more than 5% of the
voting stock of the acquired investment company at the time such shares are
purchased.
INVESTMENT FOR THE PURPOSE OF ACQUIRING CONTROL. The Asia Pacific Equity,
Latin America Equity and Emerging Markets Funds may acquire the securities of
wholly-owned subsidiaries in order to facilitate investing in the securities of
certain foreign issuers. The tax laws of certain countries impose a capital
gains tax on profits derived from securities dispositions. Certain of these
countries have double taxation treaties whereby residents of one country are
exempt from taxation on their investments in the securities of issuers in
another country. The Funds intend to establish wholly-owned subsidiaries in
certain foreign countries to take advantage of these double taxation treaties in
order to avoid the imposition of various taxes, including capital gains taxes.
PRO FORMA PORTFOLIO COMPOSITION OF HIGH YIELD BOND FUND
The table below reflects the composition by quality rating of High Yield
Bond's portfolio as of February 29, 1996. Other assets may include cash and
cash equivalents and equity securities. The allocations in the table are not
necessarily representative of the composition of the Fund's portfolio at other
times. Portfolio composition is likely to change over time.
COMPOSITION OF THE HIGH YIELD BOND FUND'S
BOND PORTFOLIO BY RATING CATEGORY
AS A PERCENTAGE OF TOTAL ASSETS ON FEBRUARY 29, 1996
<TABLE>
<CAPTION>
RATINGS CATEGORY: MOODY'S S&P
---------------- ------- ---
<S> <C> <C>
Aaa/AAA 0% 0%
Baa/BBB 0 0
Ba/BB 32.2 44.1
B/B 64.6 50.7
Caa/CCC 1.0 0.4
D/D 0 0
NR/NR 2.2 4.8
---- ----
TOTAL 100% 100%
</TABLE>
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EMERGING MARKET COUNTRY DESIGNATION
Presently, there are approximately 130 countries considered to be
Emerging Market Countries by the World Bank, approximately 40 of which currently
have established securities markets. The following is a list of countries not
included within the World Bank definition of an Emerging Market Country:
Saudi Arabia Belgium
Ireland Austria
Spain France
Israel United Arab Emirates
Hong Kong Germany
Singapore Denmark
New Zealand United States
Australia Sweden
The United Kingdom Finland
Italy Norway
The Netherlands Japan
Kuwait Switzerland
Canada
DESCRIPTION OF S&P AND MOODY'S RATINGS
S&P
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
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.
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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 and 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 and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the 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
that 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
categories.
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<PAGE>
MOODY'S
Aaa - Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt-
edge." 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 risks appear somewhat larger than in 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 other 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.
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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.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the issue 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.
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<PAGE>
GRAPHICS APPENDIX
Performance graph on page 18 compares the performance of the Galileo High Grade
Fixed Income Fund since inception (1/1/1990) to that of the Salomon Brothers
Broad Based Bond Index based on an initial $250,000 investment. At October 31,
1995, investment in the Galileo High Grade Fixed Income Fund would be $340,036
and a comparative investment in the Salomon Brothers Broad Based Bond Index
would be valued at $418,299.
Performance graph on page 19 compares the performance of the Galileo High Yield
Fund since inception (2/1/1989) to that of the Salomon Brothers High Yield Cash
Pay Index based on an initial $250,000 investment. At October 31, 1995, an
investment in the Galileo High Yield Bond Fund would be $512,023 and a
comparative investment in the Salomon Brothers High Yield Cash Pay Index would
be valued at $505,517.
Performance graph on page 20 compares the performance of the Galileo Mortgage
Backed Securities Fund since inception (2/1/1990) to the Salomon Brothers One
Year U.S. Treasury Bill Index based on an initial $250,000 investment. At
October 31, 1995, an investment in the Galileo Mortgage Backed Securities Fund
would be $368,171 and a comparative investment in the Salomon 1 Year Treasury
Bill Index would be valued at $352,107.
Performance graph on page 21 compares the performance of the Galileo Long-Term
Mortgage Backed Securities Fund since inception (6/17/1993) to that of the
Lehman Brothers Mortgage-Backed Securities Index based on an initial $250,000
investment. At October 31, 1995, an investment in the Galileo Long-Term Mortgage
Backed Securities Fund be $283,065 and a comparative investment in the Lehman
Brothers Mortgage-Backed Securities Index would be valued at $285,806.
Performance graph on page 22 compares the performance of the Galileo Core Equity
Fund since inception (7/1/1991) to that of the S&P 500 Index based on an initial
$250,000 investment. At October 31, 1995, an investment in the Galileo Core
Equity Fund would be $457,796 and a comparative investment in the S&P 500 would
be valued at $443,043.
Performance graph on page 23 compares the performance of the Galileo Small Cap
Growth Fund since inception (12/1/1989) to that of the Russell 2000 Index based
on an initial $250,000 investment. At October 31, 1995, an investment in the
Galileo Small Cap Growth Fund would be $694,994 and a comparative investment in
the Russell 2000 would be valued at $487,989.
Performance graph on page 24 compares the performance of the Galileo Earnings
Momentum Fund since inception (5/1/1993) to that of the Russell 2000 Index based
on an initial $250,000 investment. At October 31, 1995, an investment in the
Galileo Earnings Momentum Fund would be $369,466 and a comparative investment in
the Russell 2000 would be valued at $369,574.
Performance graph on page 25 compares the performance of the Galileo Asia
Pacific Fund since inception (4/1/1993) to that of the Morgan Stanley Combined
Far East Ex Japan Free Investable Index based on an initial investment of
$250,000. At October 31, 1995, an investment in the Galileo Asia Pacific Equity
Fund would be $391,034 and a comparative investment in the MSCI Far East Japan
Free Index would be valued at $382,022.
Performance graph on page 26 compares the performance of the Galileo Emerging
Markets Fund since inception (6/1/1993) to the International Finance Corporation
("IFC") Emerging Markets Composite Investable Index based on an initial
investment of $250,000. At October 31, 1995, an investment in the Galileo
Emerging Markets Fund would be $273,575 and a comparative investment in the IFC
Emerging Markets Composite Investable Index would be $315,009.
Performance graph on page 27 compares the performance of the Galileo Latin
America Equities Fund since inception (7/1/1991) to the IFC Latin America
Investable Index based on an initial investment of $250,000. At October
31, 1995, an investment in the Galileo Latin America Equity Fund would be
$326,543 and a comparative investment in the IFC Latin American Investable Index
would be $432,699.
<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF EXCHANGE
<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF EXCHANGE
------------------------------
AGREEMENT AND PLAN OF EXCHANGE, dated ____ __, 1996 (the "Agreement"),
among TCW Asset Management Company, a California corporation ("TAMCO"), TCW
Galileo Funds, Inc., a Maryland corporation, (the "Company"), TCW Funds
Management, Inc. (the "Adviser"), a California corporation, and TCW Mid-Cap
Growth Stocks Limited Partnership, a California limited partnership, (the
"Partnership").
RECITALS
1. TAMCO is the General Partner of the Partnership. The Partnership is an
open-end, private investment fund.
2. The Company is a no-load, open-end investment company organized as a
"series mutual fund." It issues a separate class of shares of its Common Stock,
par value $.001 per share, for each of its funds. The Company proposes to
include a new fund, TCW Galileo Mid-Cap Growth Fund (the "Fund") with an
investment objective and policies similar to that of the Partnership.
3. TAMCO, as the General Partner of the Partnership, and the Board of
Directors of the Company have determined that it is in the best interests of the
Partnership and the Company, respectively, that substantially all of the assets
of the Partnership be acquired by the Fund pursuant to this Agreement and in
accordance with applicable law.
4. The Partnership and the Company desire to enter into a Plan of
Exchange.
5. The Adviser, as the investment adviser to the Fund and TAMCO, as the
general partner of the Partnership, have agreed to certain terms and conditions
set forth below.
In consideration of the covenants and agreements contained in this
Agreement, the parties agree as follows:
PLAN OF EXCHANGE
The exchange will be comprised of the acquisition by the Fund of sub
stantially all of the properties and assets of the Partnership in exchange for
shares of Company Common Stock relating to the Fund (the "Fund Shares"), and the
subsequent distribution to the general partner (the "General Partner") and the
limited partners of the Partnership (the "Limited Partners" and, together with
the General Partner, the "Partners"), of all of the Fund Shares received in
exchange for their units of Partnership interest ("Units"), all upon and subject
to the terms set forth in this Agreement. Upon
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the Partnership's distribution of its Fund Shares, each Partner in the
Partnership will be entitled to receive that portion of such shares that the
number of Partnership Units owned by such Partner prior to the exchange bears to
the total number of the Partnership's outstanding Units. Any assets retained by
the Partnership in excess of amounts needed to pay or provide for accrued
expenses will be distributed to its Partners of record as of the Exchange Date
(as defined in Section 6 below). After the distribution of any such excess
amounts, and the Fund Shares, the Partnership will be completely liquidated and
dissolved.
AGREEMENT
In consideration of the following covenants and agreements, the
Partnership, the Company, TAMCO and the Adviser agree as follows:
1. Representations and Warranties of the Partnership. The Partnership
-------------------------------------------------
represents and warrants to and agrees with the Company that:
(a) The Partnership is a limited partnership duly formed and validly
existing under the laws of the State of California and has power to own all of
its properties and assets and to carry out this Agreement.
(b) The General Partner has approved this Agreement and the transactions
contemplated by it hereunder, including the dissolution of the Partnership.
(c) The Partnership's financial statements included in the Registration
Statements (as defined below) fairly present the Partnership's financial
position and results of operations for the periods covered thereby in conformity
with generally accepted accounting principles applied on a consistent basis.
(d) Except as disclosed in the most recent financial statements of the
Partnership included in the Registration Statements, and as incurred in the
ordinary course of the Partnership's business since the date of those financial
statements, the Partnership has no known liabilities of a material amount,
contingent or otherwise, and there are no material legal, administrative or
other proceedings pending or, to the knowledge of TAMCO, threatened against the
Partnership.
(e) At both the Valuation Time (as defined in Section 3(d) below) and the
Exchange Date (if different), the Partnership will have full right, power and
authority to sell, assign, transfer and deliver the assets and properties to be
transferred by it under this Agreement. Upon such transfer, the Fund will
acquire those assets subject to no encumbrances, liens or security interests and
without any transfer restrictions (other than encumbrances, liens, security
interests or restrictions created by the Fund).
(f) The Partnership has filed or will file all federal and state tax
returns which, to the knowledge of TAMCO, are required to be filed by the
Partnership
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and has paid or will pay all federal and state taxes shown to be due on said
returns or on any assessments received by the Partnership. No tax deficiency or
liability of the Partnership has been asserted, and no question with respect
thereto has been raised, by the Internal Revenue Service or by any state or
local tax authority, for taxes in excess of those already paid.
(g) To the best of the Partnership's knowledge, no consent, approval,
authorization, or order of any court or governmental authority is required for
the consummation by the Partnership of the transactions contemplated by this
Agreement, except such as may be required under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the Investment Company Act of 1940, as amended (the "1940 Act"), or
state securities or blue sky laws (which term includes the laws of the District
of Columbia and of Puerto Rico).
(h) All of the issued and outstanding Partnership Interests have been
offered for sale and sold in conformity with all applicable federal and state
securities laws.
(i) The Registration Statements filed with respect to the exchange
transaction, and the registration of the Company and its shares under the
applicable federal securities laws (collectively, the "Registration Statements")
on the effective date of the Registration Statements and through the Exchange
Date (as defined in Section 6 below), insofar as they relate to the Partnership,
(i) will comply in all material respects with the applicable provisions of the
1933 Act, the 1934 Act, and the 1940 Act, and the related rules and regulations
and (ii) will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(j) There are no material contracts outstanding to which the Partnership is
a party, other than those disclosed to the Company.
2. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to and agrees with the Partnership that:
(a) The Company is a corporation duly formed and validly existing under the
laws of the State of Maryland and has power to carry on its business as it is
now being conducted and to carry out this Agreement.
(b) The Company has filed the Registration Statements with the SEC.
(c) At the Exchange Date, all Fund Shares to be issued to the Partnership
will have been duly authorized and, when issued and delivered pursuant to this
Agreement, will be legally and validly issued and will be fully paid and
nonassessable; and no shareholder of the Company will have any preemptive right
of subscription or purchase with respect to any Fund Shares.
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(d) To the best of the Company's knowledge, no consent, approval,
authorization, or order of any governmental authority is required for the
consummation by the Company of the transactions contemplated by this Agreement,
except such as may be required under the 1933 Act, the 1934 Act, and the 1940
Act, or state securities or blue sky laws.
(e) The issuance of Fund Shares pursuant to this Agreement will be in
compliance with all applicable federal and state securities laws.
(f) The Registration Statements, on their effective date and through the
Exchange Date, insofar as they do not relate to the Partnerships, (i) will
comply in all material respects with the provisions of the 1933 Act, the 1934
Act, and the 1940 Act, and the rules and regulations thereunder and (ii) will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
3. Transfer of Assets.
-------------------
(a) Subject to the terms and conditions contained in this Agreement, the
Company, on behalf of the Fund, agrees to acquire from the Partnership, and the
Partnership agrees to transfer to the Fund, on the Exchange Date all of the
securities and cash of the Partnership (subject to the retention by the
Partnership of assets sufficient, in the judgment of TAMCO, as General Partner,
to pay the Partnership's accrued expenses and any assets which the Fund is not
permitted, or which it has reasonably determined to be unsuitable for it, to
acquire) in exchange for the number of the Shares in the corresponding Fund
determined in accordance with Section 4 below. As soon as practicable after the
Exchange Date, the Partnership will distribute all the Fund Shares received by
it to its Partners in exchange for their Units. Any assets retained by the
Partnership, after paying or providing for the payment of all of its
liabilities, shall be distributed by the Partnership or its agent to its
Partners of record as of the Exchange Date.
(b) The Partnership will pay or cause to be paid to the Company for the
account of the Fund any interest or dividends received on or after the Exchange
Date with respect to securities transferred to the Company under this Agreement.
The Partnership will transfer to the Fund any distributions, rights, stock
dividends or other securities received by the Partnership after the Exchange
Date as distributions on or with respect to the securities transferred, which
shall be deemed included in assets transferred to the Fund on the Exchange Date
and shall not be separately valued unless the securities in respect of which
such distribution is made shall have gone "ex" such distribution prior to the
Valuation Time. Notwithstanding the foregoing, the Fund shall not be entitled
to receive any interest or dividends or other distributions on securities not
transferred to it under this Agreement.
(c) The Company, on behalf of the Fund, shall assume all current
liabilities reflected on the most recent balance sheet of the Partnership
included in the Registration Statements or subsequently incurred by the
Partnership in the
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ordinary course of business, including all contractual commitments or
obligations of that Partnership (but excluding accrued expenses subject to the
retention referred to in Section 3(a) above).
(d) The Valuation Time shall be 4:00 p.m., Los Angeles time, on the last
business day of the month during which the conditions of Sections 7, 8 and 9 are
satisfied (the "Valuation Date"), or such other date and time as may be mutually
agreed upon in writing by the each Partnership and the Company (the "Valuation
Time").
4. Shares Issued in Exchange for Assets and Valuation.
--------------------------------------------------
(a) Full Fund Shares and, to the extent necessary, a fractional Fund Share
of an aggregate net asset value equal to the value of the assets the Partnership
acquired shall be issued by the Company in exchange for such assets of the
Partnership. Value in all cases shall be determined as of the Valuation Time.
The value of the assets of the Partnership to be acquired by the Fund and the
net asset value per share of the Shares of the Fund shall be determined in
accordance with the procedures for determining the value of the Fund's assets
described in the Prospectus that forms part of the Registration Statement under
the caption "Net Asset Value". The Company shall issue the Fund Shares to the
Partnership and the Partnership will receive an aggregate number of Fund Shares
equal to the total net asset value of the outstanding Units in the Partnership
on the Exchange Date, divided by $10, which will be the initial net asset value
of the Fund Shares. In lieu of delivering certificates for Fund Shares, the
Company shall credit the Fund Shares to the Partnership's account on the stock
record books of the Company and shall deliver a confirmation of that credit to
the Partnership. The Partnership shall then deliver written instructions to the
Company's transfer agent to set up accounts for its Limited Partners on the
stock record books of the Company.
(b) TAMCO has acquired its interest in the Partnership in return for a
promissory note (the "Notes"), all as more fully described in the Partnership's
Offering Memorandum and Limited Partnership Agreement. As part of the exchange
contemplated by this Agreement, TAMCO will repay each Note, and the Partnership
will deliver its cancelled TAMCO Note to TAMCO. Consequently, TAMCO will
receive shares in the Fund in the exchange and will be free to hold those shares
or have them redeemed at any time.
5. Limited Partners Notice. The Partnership has provided to its Limited
-----------------------
Partners an Information Statement/Prospectus dated ________ __, 1996 with
respect to the transactions contemplated hereby, as contemplated by Section 19.3
of its Limited Partnership Agreement. The Partnership will also provide to its
Limited Partners a copy of the Information Statement/Prospectus included in one
of the Registration Statements and will provide such supplementary notices or
materials as TAMCO and the Company consider to be desirable.
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6. Delivery of Assets; Exchange Date. With respect to the exchange
---------------------------------
transaction, delivery of Partnership assets to be transferred and Fund Shares to
be issued shall be made as of the Valuation Time, or such other date and time
agreed to by the Partnership and the Company. The date and time upon which such
delivery is to take place is referred to in this Agreement as the "Exchange
Date." The Partnership assets to be transferred shall be delivered on the
Exchange Date to the Company's custodian or relevant subcustodian (in either
case, the "Custodian"), as directed by the Company prior to the Exchange Date,
for the account of the Fund, with all securities not in bearer form duly
endorsed, or accompanied by duly endorsed separate assignments or stock powers,
in proper form for transfer, with signatures guaranteed, and with all necessary
state stock transfer stamps, if any, sufficient to transfer good and marketable
title thereto (including all accrued interest and dividends and rights
pertaining thereto) to the Custodian for the account of the Fund free and clear
of all liens, encumbrances, rights, restrictions and claims. All cash delivered
by the Partnership shall be in the form of currency and immediately available
funds payable to the order of the corresponding Fund.
7. The Company's Conditions Precedent. The obligations of the Company
----------------------------------
under this Agreement with respect to the Partnership shall be subject to the
following conditions:
(a) That the Partnership shall have furnished to the Company a statement of
the Partnership's net assets, including a list of securities owned by the
Partnership with their respective tax costs and values determined as provided in
Section 4 above, all as of the Valuation Time.
(b) That as of the Valuation Time and as of the Exchange Date all
representations and warranties of the Partnership made in this Agreement are
true and correct as if made at and as of each such date, and the Partnership has
complied with all the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to such dates.
8. The Partnership's Conditions Precedent. The obligations of the
--------------------------------------
Partnership under this Agreement shall be subject to the condition that as of
the relevant Valuation Time and as of the relevant Exchange Date all
representations and warranties of the Company made in this Agreement are true
and correct as if made at and as of each such date, and that the Company has
complied with all of the agreements and satisfied all the conditions on its part
to be performed or satisfied at or prior to such dates.
9. The Company's and the Partnership's Conditions Precedent.
--------------------------------------------------------
(a) With respect to the exchange transaction described in this Agreement,
the obligations of both the Company and the Partnership under this Agreement
shall be subject to the following conditions:
(i) That there shall not be any material litigation pending with respect to
the exchange.
B-6
<PAGE>
(ii) That the Registration Statements shall have become effective under the
1940 Act and 1933 Act, and no stop order suspending such effectiveness shall
have been issued and no proceedings of that purpose shall have been instituted
or, to the knowledge of the Partnership shall be contemplated by the SEC.
(iii) The SEC shall have issued an order under Section 17(b) of the Act
permitting the exchange.
(iv) The Company and the Partnership shall have received an opinion of
counsel substantially to the following effects with respect to the exchange:
(A) no gain or loss will be recognized by the Partnership on the transfer of its
portfolio securities to the Fund in exchange for Shares; (B) no gain or loss
will be recognized by the Fund upon receipt of the Partnership's portfolio
securities in exchange for Shares; (C) the basis to the Fund of the transferred
portfolio securities will be the same as the basis of the securities held by the
Partnership immediately prior to the Exchange; (D) the basis of Shares received
by the Partnership will be equal to the basis of the assets exchanged for them
reduced by the liabilities assumed by the Fund; (E) the holding period of the
portfolio securities received by the Fund will be the same as the holding period
of the securities in the hands of the Partnership immediately prior to the
Exchange; and (F) the holding period of the Shares received by the Partnership
will include the period during which the Partnership assets exchanged therefor
were held.
(v) The Company and the Partnership shall have received any state
securities law orders or clearances that counsel for the Company and the
Partnership consider necessary in connection with the exchange and related
transactions.
10. Obligations of TAMCO. TAMCO agrees with the Partnership and the
--------------------
Company as follows:
(a) Expenses. Whether or not the exchange transaction is consummated,
--------
TAMCO agrees to pay all expenses incurred (including but not limited to printing
expenses, brokerage commissions, mailing costs and fees and disbursements of
counsel and accountants) by the Partnership and the Company in connection with
the exchanges. These expenses do not include certain organization costs
relating to the formation of the Company, which will be borne by the Company and
amortized over five years, as more fully described in the Registration
Statements.
(b) Indemnification. TAMCO will indemnify and hold harmless the Company
---------------
against any and all expenses, losses, claims, damages and liabilities at any
time imposed upon or reasonably incurred by it in connection with, arising out
of or resulting from any claim, action, suit or proceeding in which it may be
involved or threatened by reason of (i) any additional taxes owing or claimed to
be owing by the Company, the Fund, the Partnership or any Limited Partners as a
B-7
<PAGE>
result of the transaction contemplated by this Agreement or (ii) any untrue
statement or alleged untrue statement of a material fact relating to the
Partnership and contained in the Registration Statements, or any amendment or
supplement thereto, as of their respective dates, or arising out of or based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein relating to the
Partnership and not misleading, including without limitation any amounts paid by
the Company in a reasonable compromise or settlement of any such claim, action,
suit or proceeding or threatened claim, action suit or proceeding made with the
consent of TAMCO. The Company will notify TAMCO in writing within 10 days of the
receipt by the Company of any notice of legal process of any suit brought
against or claim made against the Company or any separate series thereof as to
any matters covered by this Section 10(b). TAMCO shall be entitled to
participate at its expense in the defense of any claim, suit, action or
proceeding covered by this Section 10(b), or, if it so elects, to assume at its
expense by counsel satisfactory to the Fund the defense of any such claim, suit,
action or proceeding at its own expense. TAMCO's indemnification obligations
under this Section 10(b) shall constitute a guarantee of payment so that TAMCO
will pay in the first instance any expenses, losses, claims, damages and
liabilities required to be paid by it under this Section 10(b) without the
necessity of the Company first paying the same.
11. Certain Agreements of the Adviser. Immediately before the consummation
---------------------------------
of the initial exchange, the Company will issue to the Adviser a nominal number
of Shares in the Fund. The Adviser, as sole shareholder of the Fund, will then
approve the Investment Advisory Agreement between the Company and the Adviser,
as supplemented by the Addendum to Investment Advisory Agreement relating to the
Funds.
12. Broker or Finder's Fee. The Partnership and the Company each represent
----------------------
that there is no person who has dealt with it and who by reason of such dealings
is entitled to any finder's or other similar fee or commission arising out of
the transactions contemplated by this Agreement.
13. Termination of Agreement. This Agreement may be terminated entirely,
------------------------
at any time prior to the Exchange Date by mutual consent of TAMCO as the general
partner of the Partnership and the Board of Directors of the Company, evidenced
by appropriate resolutions. In such an event, this Agreement shall become void
and have no effect as to the terminated exchange(s), without any liability on
the part of any party to it or the directors, officers or shareholders of the
Company, the Limited Partners or the directors, officers or shareholder of TAMCO
as the general partner of the Partnership in respect of this Agreement, except
the obligation of TAMCO to pay expenses.
14. Waiver. At any time prior to the Exchange Date, TAMCO as the general
------
partner of the Partnership or the Board of Directors of the Company may (a)
extend the time for the performance of any of the obligations or other acts of
the other; (b) waive any inaccuracy in the representations of the other; and (c)
waive compliance by the
B-8
<PAGE>
other with any of the agreements or conditions set forth herein. Any such
extension or waiver must be in writing.
15. No Survival of Representations. None of the representations and
------------------------------
warranties in this Agreement shall survive the Exchange Date.
16. Agreement Entire; Governing Law. Except as provided herein, this
-------------------------------
Agreement supersedes all previous correspondence or oral communications among
the parties regarding the exchange, constitutes the only understanding with
respect to the exchange, may not change except by an agreement signed by each
party and shall be construed in accordance with and governed by the laws of the
State of California; provided, however, that the due authorization, execution
-------- -------
and delivery of this Agreement with respect to any party shall be construed in
accordance with and governed by the laws of the jurisdiction of formation,
organization or incorporation of that party.
17. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which, when executed and delivered, shall be deemed to be
an original.
IN WITNESS WHEREOF, the Partnership, the Company, the Adviser and TAMCO has
caused this Agreement and Plan of Reorganization to be executed and attested on
its behalf by its duly authorized representatives and its seal, if any, to be
affixed hereto, all as of the ___ day of ____, 1996.
TCW MID-CAP GROWTH STOCKS LIMITED
PARTNERSHIP
BY: TCW ASSET MANAGEMENT COMPANY
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
B-9
<PAGE>
TCW GALILEO FUNDS, INC.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TCW ASSET MANAGEMENT COMPANY
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
TCW FUNDS MANAGEMENT, INC.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
B-10
<PAGE>
APPENDIX C
TAX OPINION
<PAGE>
[LETTERHEAD OF O'MELVENY & MYERS]
March
29th
1 9 9 6
849,017-999
LA3-729214.V1
TCW Asset Management Company,
as general partner of
TCW Mid-Cap Growth Stocks
Limited Partnership
865 South Figueroa Street
Suite 1800
Los Angeles, California 90017
Gentlemen:
You have requested our opinion concerning certain of the Federal
income tax consequences of the transfer to a mutual fund of the assets of TCW
Mid-Cap Growth Stocks Limited Partnership, a California limited partnership (the
"Partnership"), of which you are general partner. In connection with this
opinion, we have examined such documents and matters of law and fact as we have
considered appropriate, including the Information Statement/Prospectus relating
to the conversion (the "Statement") and the Information Statement/Prospectus
relating to TCW Galileo Mid-Cap Growth Stocks Fund (the "Fund"), (the
"Prospectus"), and have relied upon certain assumptions described below and upon
certain representations made by you. Various parties involved in the transfer
and related transactions, including specifically the Partnership, the Fund, TCW
Funds Management, Inc. (the "Adviser") and TCW Funds, Inc. (the "Company"), are
described in the Statement and Prospectus, and such descriptions are
incorporated herein by reference.
The facts relating to the transfer of the assets of the Partnership to
the Fund and the subsequent operation of the Fund, as we understand them and
upon which we base our opinion, are as follows:
a. In order to accommodate any Limited Partners who do not wish to
participate in the Fund and whose Partnership units represent less than 50% of
the profits and capital interests in the Partnership (the "Redeeming Limited
Partners"), the Redeeming Limited Partners will be permitted to transfer to a
new limited partnership ("NewP") their units in the Partnership in exchange for
limited partnership interests in NewP.
<PAGE>
TCW Asset Management Company - March 29, 1996 - Page 2
b. The Partnership will distribute to NewP its proportionate share of
the Partnership's assets in liquidation of NewP's units in the Partnership, such
that the mix of securities distributed to NewP will be identical to the mix of
securities retained by the Partnership.
c. The Adviser will transfer approximately $10 of cash to the Fund
in exchange for approximately 1 share of Fund stock.
d. At approximately the same time, the Partnership will transfer all
or substantially all of its assets (including cash) to the Fund in exchange for
the number of shares of Fund stock which, at a fair market value of
approximately $10 per share, will have a value equal to the net fair market
value of the Partnership assets transferred. In addition, the Fund will assume
all of the Partnership's current liabilities reflected on the Partnership's
balance sheet as of December 31, 1995 or subsequently incurred by the
Partnership in the ordinary course of business. The Partnership will retain
only enough assets to satisfy the estimated amount of its liabilities that will
not be assumed by the Fund, if any.
e. The Partnership will make a distribution of the Fund stock to its
partners in proportion to their respective Partnership interests and in
liquidation of such interests.
f. Immediately following the consummation of the transfer, all of the
issued and outstanding Fund stock will be held by former Limited Partners of the
Partnership and by the Adviser.
g. Commencing on or shortly after the date of the transfer, the Fund
will offer its stock for sale to the public. Any new funds obtained by the Fund
through the sale of its stock will be invested in accordance with substantially
the same investment strategies previously pursued by the Partnership, such that
the mix of securities held by the Fund will be substantially similar to the mix
of securities held by the Partnership immediately prior to the transfer.
h. The Fund will stand ready to redeem its stock at all times,
provided that such right of redemption may be suspended consistent with the
rules and regulations of the Securities and Exchange Commission.
In rendering this opinion, we have relied on certain representations
given by you in a certificate dated as of the date hereof. You further state in
the certificate that in rendering this opinion we may assume the following:
<PAGE>
TCW Asset Management Company - March 29, 1996 - Page 3
a. None of the Limited Partners has entered into any binding
agreement for the sale or redemption of its shares of Fund stock.
b. There is no plan or intention on the part of any of the Limited
Partners to sell or request the redemption of any of the shares of Fund stock to
be issued in the transfer.
c. None of the assets of the Partnership is a market discount bond
within the meaning of Code Section 1278.
Applicable Law and Analysis
---------------------------
The Company will be a regulated investment company as defined in
Section 851 because it (1) will meet the required investment diversification
requirements of Section 851(b) and (2) will register under the Investment
Company Act of 1940 as a management company. Fund stock will represent a
beneficial interest in a portfolio of assets segregated from all other assets of
the Company that will be preferred over all other Company stock with respect to
such portfolio. Thus, pursuant to Section 851(h) of the Code the Fund will be a
separate corporation for tax purposes, including Section 351 of the Code.
Section 351(a) of the Code provides "No gain or loss shall be
recognized if property is transferred to a corporation by one or more persons
solely in exchange for stock in such corporation and immediately after the
exchange such person or persons are in control (as defined in section 368(c)) of
the corporation." Under Section 351(e) of the Code, however, nonrecognition
treatment does not apply to the transfer of property to an investment company.
Section 1.351-1(c)(1) of the Regulations provides that a transfer of property
will be considered a transfer to an investment company if (1) the transfer
results in the diversification of the transferor's interest, and (2) the
transferee is, among other things, a regulated investment company. Section
1.351-1(c)(5) of the Regulations states that a transfer of property generally
will not be treated as resulting in diversification if there are two or more
transferors of identical assets. Section 1.351-1(c)(5) further states that a
transfer of nonidentical assets will be ignored for these purposes if, in the
aggregate, it constitutes an insignificant portion of the total value of assets
transferred. Example 1 of Section 1.351-1(c)(6) provides that a transfer of
nonidentical assets equal to approximately 1 percent of the aggregate amount
transferred will be disregarded as insignificant.
Immediately after the transfer to the Fund, the former Limited
Partners and the Adviser will own all of the outstanding shares of the Fund.
Thus, the control requirement of Section 351(a) of the Code will be met. A sale
of shares to the public by the Fund should not affect this analysis. The Fund's
<PAGE>
TCW Asset Management Company - March 29, 1996 - Page 4
organizational documents and prospectus will define the rights of its
shareholders, including any public purchasers, prior to the consummation of the
transfer. If the public offering is viewed as integral to the transfer of the
Units, then the public purchasers should be considered as transferors for the
purposes of Section 351(a). Rev. Rul. 78-294, 1978-2 C.B. 141. The control
requirement would be met because the transferors -- the Limited Partners, the
Adviser and the public purchasers -- would hold all of the Fund's outstanding
stock. If the public offering is not viewed as integral to the transfer of the
Units, then any sale of Fund stock should be treated as a transaction separate
and apart from the transfers by the Limited Partners and the Adviser. In this
situation, the only transferors would be the Limited Partners and the Adviser,
who would own all of the outstanding stock of the Fund immediately after the
transfers. Thus, the offering of shares to the public by the Fund should not
violate the control requirement of Section 351(a)./1/
Diversification as defined in Section 1.351-1(c)(5) of the Regulations
should not result either from the initial investment of cash by the Adviser or
from the later sale of shares by the Fund to the public. The initial
contribution to the Fund of cash by the Adviser should not result in
diversification because the amount of cash contributed by the Adviser will be
insignificant compared to the value of the assets transferred by the Limited
Partners. The cash contributed by the Adviser, approximately $10, is well
within the 1 percent safe-harbor established by Example 1 of Section 1.351-
1(c)(6) of the Regulations. Thus, the contribution of cash by the Adviser will
be disregarded for the purposes of determining whether the transfer results in
diversification.
Diversification also should not result from the possible sale by the
Fund of additional stock to the public. There does not appear to be any final
published authority dealing directly with facts similar to the transfer./2/ The
transfer, however, does not fall within the range of transactions targeted
- ------------------------
/1/ To the same effect, see Prop. Reg. (S) 1.351-1(a)(3), published in the
Federal Register August 10, 1995.
/2/ While recognizing that private letter rulings may not be used or cited as
precedent under Section 6110(j)(3) of the Code, we take note of the fact that
the Internal Revenue Service has ruled favorably on these issues in Private
Letter Rulings issued in February 1993 to TCW High Grade Fixed Income Limited
Partnership, TCW High Yield Limited Partnership, TCW Latin America Equity
Limited Partnership, TCW Private Equity Limited Partnership, and TCW Specialized
Cash Management Limited Partnership, and since that time has continued to rule
favorably in Private Letter Rulings issued to other persons similarly situated
to the Partnership.
<PAGE>
TCW Asset Management Company - March 29, 1996 - Page 5
by Section 351(e) of the Code. The purpose of Section 351(e) is to prohibit the
economic diversification of a person's interest through the use of
nonrecognition transactions. Rev. Rul. 88-19, 1988-1 C.B. 114. The transfer
does not result in the economic diversification of the Limited Partners'
interests and, therefore, should not violate Section 351(e).
Each Limited Partner currently holds an interest in a diversified
portfolio of securities. Following the transfer of the Partnership's assets,
each of the Limited Partners will continue to hold an interest in a diversified
portfolio. On a sale of stock to the public, the Fund would receive cash.
Pursuant to the prospectus regarding the transfer of the assets, the Fund would
be required to invest these moneys in securities substantially similar to those
previously held by the Partnership. Thus, each of the Limited Partners would
continue to hold an undivided interest in a diversified portfolio of securities.
This distinguishes the Fund from situations in which a public offering was used
to change the mix of investments and resulted in diversification. See Rev. Rul.
---
87-9, 1987-1 C.B. 134. The transfer, therefore, will not result in the economic
diversification of the Limited Partners' interests and thus should not implicate
Section 351(e)./3/
Conclusion
----------
Based on the aforementioned facts, representations, assumptions, and
applicable statutes, regulations, rulings, and court decisions as of the date
hereof, it is our opinion that the transfer of the Partnership assets to the
Fund as described above will satisfy the requirements of Section 351 of the
Code, and that the federal income tax consequences of the transfer will include
the following:
a. Under Section 351 of the Code, no gain or loss will be recognized
by the Partnership on the transfer of its assets to the Fund in exchange for
stock of the Fund.
b. Under Section 1032 of the Code, no gain or loss will be recognized
by the Fund on the receipt of the Partnership's assets in exchange for stock of
the Fund.
c. Under Section 362 of the Code, the aggregate basis of the assets
in the hands of the Fund will equal their aggregate basis in the hands of the
Partnership.
- ------------------
/3/ To the same effect, see Prop. Reg. (S) 1.351(c)(6) (published in the
Federal Register August 10, 1995), which provides in part that "a transfer
of assets will not be treated as resulting in a diversification of the
transferors' interests if each transferor transfers a diversified portfolio
of assets."
<PAGE>
TCW Asset Management Company - March 29, 1996 - Page 6
d. Under Section 358 of the Code, the basis of the stock of the Fund
to be received by the Partnership will be equal to the basis of the assets
exchanged therefor reduced by the liabilities of the Partnership assumed by the
Fund.
e. Under Section 1223(2) of the Code, the holding period of the
assets transferred to the Fund by the Partnership will, in each instance, be the
same as the holding period of those assets in the hands of the Partnership.
f. Under Section 1223(1) of the Code, the holding period of the Fund
stock to be received by the Partnership in exchange for the Partnership's assets
will include the period during which the Partnership's assets exchanged therefor
were held provided the assets exchanged were capital assets or property
described in Section 1231 of the Code.
This opinion is based on current authorities and on facts,
representations and assumptions as of the date of this opinion. It is subject
to change in the event of a change in the applicable law, in the interpretation
of such law by the courts or by the Internal Revenue Service or in any of the
facts and assumptions upon which it is based. There is no assurance that
legislative or administrative changes or court decisions may not be forthcoming
which would significantly modify the statements and opinions expressed herein.
Any such changes may or may not be retroactive with respect to transactions
prior to the date of such changes. This opinion represents only counsel's best
legal judgment, and has no binding effect or official status of any kind, so
that no assurance can be given that the positions set forth above will be
sustained by a court, if contested.
This opinion is furnished by us as counsel to the Partnership, and is
solely for your benefit and the benefit of the Limited Partners whose units are
redeemed pursuant to the Statement and may not be relied upon by any other
person without our express, prior, written consent.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Tax
Consequences" in the Registration Statement and the Information
Statement/Prospectus which forms a part hereof.
Respectfully submitted,
/s/ O'Melveny & Myers
<PAGE>
APPENDIX D
PARTNERSHIP FINANCIAL INFORMATION AND PRO FORMA FUND INFORMATION
<PAGE>
APPENDIX D
PARTNERSHIP FINANCIAL INFORMATION
PRO FORMA FUND INFORMATION
TABLE OF CONTENTS
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
TCW Mid-Cap Growth Stocks Limited Partnership
Independent Auditors' Report.......................... D-2
Statement of Assets and Liabilities
as of December 31, 1995............................. D-3
Statement of Operations for the Year Ended
December 31, 1995................................... D-4
Statement of Changes in Net Assets for
the Period November 1, 1994 (Inception) to
December 31, 1994 and Year Ended December 31, 1995.. D-5
Schedule of Investments as of December 31, 1995....... D-6
Notes to Financial Statements......................... D-9
Financial Highlights.................................. D-11
TCW Galileo Mid-Cap Growth Fund Pro Forma
Financial Statements................................ D-12
</TABLE>
D-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of TCW Mid-Cap Growth Stocks Limited Partnership:
We have audited the accompanying statement of assets and liabilities of TCW Mid-
Cap Growth Stocks Limited Partnership (a California Limited Partnership),
including the schedule of investments, as of December 31, 1995 and the related
statements of operations for the year then ended and of changes in net assets
and the financial highlights for the year ended December 31, 1995 and for the
period November 1, 1994 (inception) to December 31, 1994. These financial
statements and financial highlights are the responsibility of the Partnership'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, 1995 by correspondence with the custodian. An audit 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 TCW
Mid-Cap Growth Stocks Limited Partnership (a California Limited Partnership) as
of December 31, 1995 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 5, 1996
Los Angeles, California
D-2
<PAGE>
TCW MID-CAP GROWTH STOCKS LIMITED PARTNERSHIP
(A California Limited Partnership)
Dollar Amounts in Thousands
(Except per Unit Amount)
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------
<TABLE>
<CAPTION>
December 31, 1995
-----------------
Cost Value
------- --------
<S> <C> <C>
ASSETS
Investments:
Equity Securities:
Consumer Staples $ 12,822 $17,149
Capital Goods 8,565 13,188
Credit Sensitive 1,759 2,244
--------- -------
Total Equity Securities 23,146 32,581
Short-term Investments 3,038 3,038
--------- -------
Total Investments $ 26,184 35,619
=========
Other:
Note Receivable from General Partner 247
Deferred Organizational Cost 11
Dividends Receivable 5
Interest Receivable 4
-------
Total Assets 35,886
-------
LIABILITIES
Contributions Received in Advance 1,800
Distributions Payable 61
Management Fees Payable 25
Accounting and Tax Service Fees Payable 16
Other 1
-------
Total Liabilities 1,903
-------
NET ASSETS $33,983
-------
Units Outstanding 206,868.98
----------
Net Asset Value per Unit $ 164.27
==========
</TABLE>
See accompanying Notes to Financial Statements.
D-3
<PAGE>
STATEMENT OF OPERATIONS
- -----------------------
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
-----------------
<S> <C>
INVESTMENT INCOME
Income:
Dividends $ 82
Interest 11
-------
Total Income 93
-------
Expenses:
Management Fees 162
Accounting and Tax Service Fees 13
Amortization of Deferred Organization Costs 3
Other 2
-------
Total Expenses 180
-------
Net Investment (Loss) (87)
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain on Investment Transactions:
Proceeds from the Sale of Investments 9,220
Cost of Investments Sold (9,204)
-------
Net Realized Gain on Investments
During the Year 16
-------
Change in Unrealized Appreciation on Investments:
Appreciation at Beginning of Year 170
Appreciation at End of Year 9,435
-------
Change in Unrealized Appreciation on
Investments During the Year 9,265
-------
Net Realized and Unrealized Gain on Investments 9,281
-------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $9,194
======
</TABLE>
See accompanying Notes to Financial Statements.
D-4
<PAGE>
TCW MID-CAP GROWTH STOCKS LIMITED PARTNERSHIP
(A California Limited Partnership)
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<CAPTION>
November 1, 1994
Year Ended (Inception) to
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
FROM OPERATIONS
Net Investment (Loss) $ (87) $ (3)
Net Realized Gain (Loss) on Investments 16 (22)
Change in Unrealized Appreciation on Investments 9,265 170
------- ------
Increase in Net Assets Resulting from Operations 9,194 145
------- ------
FROM DISTRIBUTIONS
Distributions of Net Realized Gains (61) -
------- ------
FROM CAPITAL TRANSACTIONS
Capital Contributed 20,818 5,495
Capital Withdrawn (1,608) -
------- ------
Increase in Net Assets Resulting
from Capital Transactions 19,210 5,495
------- ------
TOTAL INCREASE IN NET ASSETS 28,343 5,640
NET ASSETS AT BEGINNING OF PERIOD 5,640 -
------- ------
NET ASSETS AT END OF PERIOD $33,983 $5,640
======= ======
</TABLE>
See accompanying Notes to Financial Statements.
D-5
<PAGE>
SCHEDULE OF INVESTMENTS
- -----------------------
<TABLE>
<CAPTION>
Number of
Shares EQUITY SECURITIES Cost Value
- --------- ----------------- ------------ ------------
<S> <C> <C> <C>
CONSUMER STAPLES (50.5% of Net Assets)
Beverages, Distilleries and Restaurants (2.6%)
16,900 Boston Chicken, Inc. $ 446,317 $ 542,912 *
15,400 Starbucks Corp. 339,275 323,400 *
----------- -----------
Total Beverages, Distilleries and Restaurants 785,592 866,312
----------- -----------
Foods, Tobaccos and Hotels (2.5%)
10,300 HFS, Inc. 362,438 842,025 *
----------- -----------
Healthcare (15.8%)
13,200 American Oncology Resources, Inc. 442,722 641,850 *
11,400 Biogen, Inc. 559,510 701,100 *
13,000 Health Management Association, Inc., Class A 269,644 339,625 *
20,700 Healthsource, Inc. 492,545 745,200 *
17,700 Medaphis Corp. 497,837 654,900 *
15,300 Medpartners Mullikin, Inc. 350,832 504,900 *
6,200 Oxford Health Plans, Inc. 331,990 458,025 *
15,750 Phycor, Inc. 467,898 796,367 *
7,000 Thermo Cardiosystems, Inc. 225,945 540,750 *
----------- -----------
Total Healthcare 3,638,923 5,382,717
----------- -----------
Leisure, Entertainment, Photo and Media (8.1%)
8,000 Cablevision Systems Corp. 436,904 434,000 *
15,800 Clear Channel Communications, Inc. 483,799 697,175 *
7,100 Electronic Arts, Inc. 163,100 185,488 *
11,440 Gaylord Entertainment Company, Class A 267,160 317,460
16,400 Infinity Broadcasting Corp., Class A 460,618 610,900 *
14,700 Oakley, Inc. 464,298 499,800 *
----------- -----------
Total Leisure, Entertainment, Photo and Media 2,275,879 2,744,823
----------- -----------
Retail (11.0%)
23,200 Bed, Bath & Beyond, Inc. 735,200 900,462 *
14,950 C U C International, Inc. 421,731 510,169 *
12,500 Just For Feet, Inc. 331,319 446,875 *
24,300 Officemax, Inc. 382,029 543,712 *
20,850 Petsmart, Inc. 554,696 646,350 *
28,700 Sunglass Hut International, Inc. 688,882 681,625 *
----------- -----------
Total Retail 3,113,857 3,729,193
----------- -----------
</TABLE>
* Non-income producing.
See accompanying Notes to Financial Statements.
D-6
<PAGE>
TCW MID-CAP GROWTH STOCKS LIMITED PARTNERSHIP
(A California Limited Partnership)
December 31, 1995
<TABLE>
<CAPTION>
Number of
Shares EQUITY SECURITIES Cost Value
- --------- ----------------- ------------ ------------
<S> <C> <C> <C>
Services-Business (10.5%)
15,400 Alternative Resources Corp. $ 410,270 $ 465,850 *
29,750 Corporate Express, Inc. 567,080 896,219 *
12,100 Medic Computer Systems, Inc. 541,150 732,050 *
13,100 Paychex, Inc. 482,412 653,363
7,800 Robert Half International, Inc. 191,893 326,625 *
36,100 Westwood One, Inc. 452,447 509,912 *
----------- -----------
Total Services-Business 2,645,252 3,584,019
----------- -----------
TOTAL CONSUMER STAPLES 12,821,941 17,149,089
----------- -----------
CAPITAL GOODS (38.8%)
Electrical Equipment ( 1.0%)
16,200 Baldor Electric Company 333,009 326,025
----------- -----------
Electronics-Semiconductors and Instruments (4.7%)
12,500 Altera Corp. 460,156 621,875 *
25,800 Maxim Integrated Products, Inc. 604,935 993,300 *
----------- -----------
Total Electronics-Semiconductors and Instruments 1,065,091 1,615,175
----------- -----------
Electronics-Telecommunications (10.5%)
16,400 Ascend Communications, Inc. 412,598 1,330,450 *
9,600 Cascade Communications Corp. 362,287 818,400 *
18,600 Premisys Communications, Inc. 480,848 1,041,600 *
4,300 U. S. Robotics, Inc. 314,700 377,325 *
----------- -----------
Total Electronics-Telecommunications 1,570,433 3,567,775
----------- -----------
Information Processing (20.6%)
11,900 America Online, Inc. 246,281 446,250 *
7,000 Baan Company, N.V. 210,914 316,750 *
9,000 Broderbund Software, Inc. 451,660 546,750 *
13,500 Cerner Corp. 385,599 276,750 *
17,900 Discreet Logic, Inc. 501,500 447,500 *
10,800 DST Systems, Inc. 253,942 307,800 *
11,700 Informix Corp. 209,699 351,000 *
11,800 Inso Corp. 379,265 501,500 *
25,500 Netmanage, Inc. 581,162 592,875 *
6,700 Netscape Communications Corp. 405,625 931,300 *
16,800 Peoplesoft, Inc. 366,282 722,400 *
13,300 Remedy Corp. 487,357 788,025 *
13,900 Security Dynamics Technologies, Inc. 568,406 757,550 *
----------- -----------
Total Information Processing 5,047,692 6,986,450
----------- -----------
</TABLE>
* Non-income producing.
See accompanying Notes to Financial Statements.
D-7
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
Number of
Shares EQUITY SECURITIES Cost Value
- --------- ----------------- ------------ ------------
<S> <C> <C> <C>
Office Equipment & Supplies (2.0%)
14,900 Viking Office Products, Inc. $ 548,300 $ 692,850 *
----------- -----------
TOTAL CAPITAL GOODS 8,564,525 13,188,275
----------- -----------
CREDIT SENSITIVE (6.6%)
Banks, Financial Services and Building (3.5%)
14,600 Credit Acceptance Corp. 355,322 302,950 *
18,700 Gartner Group, Inc. 393,975 895,263 *
----------- -----------
Total Banks, Financial Services and Building 749,297 1,198,213
----------- -----------
Insurance (2.2%)
11,300 Gallagher (Arthur J.) & Co. 382,418 420,925
6,900 Progressive Corp. 270,881 337,237
----------- -----------
Total Insurance 653,299 758,162
----------- -----------
Utilities-Telephone (0.9%)
14,200 Vanguard Cellular Systems, Inc. 356,765 287,550 *
----------- -----------
TOTAL CREDIT SENSITIVE 1,759,361 2,243,925
----------- -----------
TOTAL EQUITY SECURITIES (95.9%) 23,145,827 32,581,289
----------- -----------
<CAPTION>
Principal
Amount SHORT-TERM INVESTMENTS (8.9%)
------------ -----------------------------
<S> <C> <C>
$3,038,295 TCW Galileo Money Market Fund, 5.4%, due 01/02/96 3,038,295 3,038,295
----------- -----------
TOTAL INVESTMENTS (104.8%) $26,184,122 35,619,584
===========
EXCESS OF LIABILITIES OVER
OTHER ASSETS (-4.8%) (1,636,981)
-----------
NET ASSETS (100%) $33,982,603
===========
</TABLE>
* Non-income producing.
See accompanying Notes to Financial Statements.
D-8
<PAGE>
TCW MID-CAP GROWTH STOCKS LIMITED PARTNERSHIP
(A California Limited Partnership)
December 31, 1995
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
NOTE 1 - ORGANIZATION
TCW Mid-Cap Growth Stocks Limited Partnership (the "Fund") is an open-end
California Limited Partnership formed on November 1, 1994 for the purpose of
providing long-term growth of capital through investment principally in
publicly-traded equity securities of medium capitalization companies.
The Limited Partnership Agreement (the "Agreement"), dated November 1, 1994, was
entered into with TCW Asset Management Company, a California corporation and
registered investment adviser under the Investment Advisers Act of 1940, as
General Partner, and the Limited Partners. The Fund will continue in full force
until December 31, 2043, unless extended or terminated earlier in accordance
with the provisions of the Agreement. The General Partner makes all investment
decisions and has exclusive responsibility for management of the Fund.
Contributions to and withdrawals from the Fund are at the unit value determined
as of each month-end Valuation Date (see Note 2).
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted by the Fund are summarized as
follows:
Basis of Presentation: The financial statements of the Fund are prepared in
accordance with generally accepted accounting principles. Disclosures in the
Notes to Financial Statements and Financial Highlights have been provided to
conform more closely to the disclosure requirements of investment companies
registered under the Investment Company Act of 1940. This presentation, while
not typical of financial statement disclosures provided by partnerships in
general, is intended by the General Partner to provide additional comparability
of the operating results of the Fund to registered investment companies with
similar operations.
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.
Principles of Accounting: The Fund uses the accrual method of accounting for
financial reporting purposes. Security transactions are reported on the trade
date basis. Dividend income is recorded on the ex-dividend date. Realized and
unrealized gains and losses on investments are recorded on the basis of specific
identification.
Security Valuations: Securities traded on national exchanges are valued at the
last reported sales price on the last business day of each calendar month
("Valuation Date") or, if there has been no sale that day, at the last reported
bid price, using prices as of the close of trading on the exchange. Securities
traded on the over-the-counter market are valued at the most recent bid price as
supplied by recognized quotation services or by broker-dealers. Any securities
for which market quotations are not readily available are valued as determined
in good faith by the General Partner of the Fund.
Income Taxes: The Fund, as a Partnership, is exempt from federal and state
income taxes and, consequently, no income tax provision has been made in the
accompanying financial statements.
Short-term Investments: Short-term investments, primarily overnight investments
of excess cash in money market funds which will be used to purchase additional
securities or pay partner distributions, are recorded at cost which approximates
market value.
Unit Value: The unit value is computed by dividing the net assets of the Fund
by the number of units outstanding as of the Valuation Date.
D-9
<PAGE>
December 31, 1995
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
Distributions: After deduction of management fees and expenses, all cash
receipts of the Fund, other than the proceeds from the sale of securities, are
distributed quarterly upon request, or at least semi-annually. Net realized
gains generated from the sale of securities are distributed annually.
Deferred Organization Costs: Organization costs totaling $13,867 are being
deferred and amortized on a straight-line basis over a five year period from the
date the Fund commenced investment operations.
NOTE 3 - NOTE RECEIVABLE FROM GENERAL PARTNER
Pursuant to the Agreement, the General Partner has purchased an interest in the
Fund by execution and delivery to the Fund of a $247,047 note which matures
December 31, 2043. The note calls for quarterly interest payments at a per
annum rate equal to the Applicable Federal Rate under Section 1274(d) of the
Internal Revenue Code. The weighted average interest rate at December 31, 1995
was 7.07% and the related interest totaling $10,921 is included in interest
income as reported in the Statement of Operations.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities, excluding short-term investments,
aggregated $26,953,923 and $9,220,417, respectively, for the year ended December
31, 1995.
NOTE 5 - MANAGEMENT FEES AND OTHER EXPENSES
As compensation for its services, the General Partner receives a monthly
management fee with respect to each Limited Partner equal to 1/12 of (a) 1% per
annum of such Limited Partner's pro rata share of the Fund's net asset value
adjusted for any redemptions and capital contributions on the immediately
succeeding business day (the Limited Partner's "Attributable Value") if such
Attributable Value is $2 million or less, or (b) .80% per annum of Attributable
Value if such Attributable Value is more than $2 million.
The Fund pays all expenses incurred in connection with the operations of the
Fund, including fees and expenses for outside contracted services, such as legal
and accounting fees, insurance costs, brokerage commissions and security
transaction costs, the expenses of printing and mailing reports to Limited
Partners, custodian and transfer and distribution agent charges, expenses of any
meetings of the partners, interest and taxes, and any other ordinary or
extraordinary expenses incurred by the Fund in the course of its operations.
The Fund may reimburse the General Partner or its affiliates for the reasonable
costs of providing tax and accounting services to the Fund, including
maintaining the Fund's financial books and records, calculating net asset value
and preparing its financial statements. Until the Fund had attained a total of
at least $10,000,000 in net assets, the General Partner bore routine legal, tax,
accounting and insurance costs of the Fund to the extent those costs exceeded
0.50% of the Fund's net asset value annually, prorated for the relevant
valuation period. The General Partner's reimbursement for such excess costs for
the year ended December 31, 1995 and the period November 1, 1994 through
December 31, 1994 were $48 and $4,700, respectively.
NOTE 6 - SUBSEQUENT EVENT (UNAUDITED)
On February 21, 1996, the General Partner approved the proposed exchange of
limited partnership interests of the Fund for shares of a new mutual fund to be
registered under the Investment Company Act of 1940, as amended. Pending final
approval from the Securities and Exchange Commission, the new TCW Fund will be
called the TCW Galileo Mid-Cap Growth Fund, a series of TCW Galileo Funds, Inc.,
and will commence operations on or about June 1, 1996.
D-10
<PAGE>
TCW MID-CAP GROWTH STOCKS LIMITED PARTNERSHIP
(A California Limited Partnership)
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
November 1, 1994
Year Ended (Inception) to
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period $102.42 $ 100.00
------- --------
Income from Investment Operations:
Net Investment (Loss) (0.68) (0.05)
Net Realized and Unrealized
Gain on Investments 63.01 2.47
------- --------
Total from Investment Operations 62.33 2.42
------- --------
Less Distributions:
Distributions of Net Realized Gains (0.48) -
------- --------
Net Asset Value, End of Period $164.27 $ 102.42
======= ========
Total Return (1) 60.66% 2.42% (2)
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $33,983 $ 5,640
Ratio of Expenses to Average Net Assets 1.06% 1.31% (3) (4)
Ratio of Net Investment (Loss) to Average Net Assets (0.50)% (0.31)% (3)
Portfolio Turnover Rate 54.86% 13.37% (2)
</TABLE>
(1) This return represents the Fund's time weighted rate of return using
monthly valuations.
(2) For the period November 1, 1994 (Inception) to December 31, 1994 and not
indicative of a full year's operations.
(3) Annualized.
(4) Had the General Partner not absorbed a portion of the operating expenses as
described in Note 5, the ratio of expenses to average net assets would have
been 1.85% for the period November 1, 1994 (Inception) to December 31,
1994.
D-11
<PAGE>
TCW GALILEO MID-CAP GROWTH FUND
(FORMERLY TCW MID-CAP GROWTH STOCKS LIMITED PARTNERSHIP)
PRO FORMA FINANCIAL STATEMENTS
The following pro forma financial statements are presented in accordance with
the Securities and Exchange Commission ("SEC") rules and regulations to show the
pro forma effect of the proposed Agreement and Plan of Exchange (the
"Exchange"). The financial highlights have not been presented because they
would be substantially identical to the related historical Partnership
information. In accordance with the terms of Exchange, investors in the TCW
Mid-Cap Growth Stocks Limited Partnership, an open-end California limited
partnership (the "Partnership"), may exchange their units in the Partnership for
shares of the TCW Galileo Mid-Cap Growth Fund (the "Fund"), an open-end
investment company formed under Maryland law. On the effective date of the
Exchange, the Fund will redeem the Partnership units and will receive a pro rata
distribution in kind of the Partnership's net assets attributable to the units
redeemed. As a result, the Fund will own the same assets that the participating
Limited Partners indirectly held through the Partnership. Limited Partners who
do not want to participate in the conversion may choose to have their Units
redeemed.
The pro forma information is based on assumptions and includes adjustments as
explained in the Notes to Pro Forma Financial Statements. The Pro Forma
Statement of Assets and Liabilities and Statement of Changes in Net Assets are
based on the assumption that the Exchange was consummated on December 31, 1995.
The Pro Forma Statement of Operations reflects the assumed results for the year
ended December 31, 1995, as if the Exchange had been consummated on January 1,
1995. The Pro Forma Statement of Operations is not necessarily indicative of
the financial results that would have occurred had the Exchange been effective
as of January 1, 1995, and should not be viewed as indicative of operations in
future periods. The pro forma financial statements should be read in
conjunction with the notes thereto and other financial information included in
this filing incorporated by reference herein.
D-12
<PAGE>
TCW GALILEO MID-CAP GROWTH FUND
(Formerly TCW Mid-Cap Growth Stocks Limited Partnership)
Pro Forma Statement of Assets and Liabilities
(Unaudited)
Dollar Amounts in Thousands
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------
Pro Forma Adjustments
Historical ------------------------ Pro Forma
Partnership Debit Credit Fund
------------ ------------ --------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Equity Securities $32,581 - $6,084(A) $26,497
Short-Term Investments 3,038 247(B) 576(A)
- - 11(D) 2,698
------- ---- ------ -------
Total Investments 35,619 247 6,671 29,195
Other:
Note Receivable From General Partner 247 - 247(B) -
Deferred Organization Costs 11 11(D) 11(D) 11
Interest Receivable 4 - - 4
Dividends Receivable 5 - - 5
------- ---- ------ -------
Total Assets 35,886 258 6,929 29,215
------- ---- ------ -------
LIABILITIES
Contributions Received in Advance 1,800 - - 1,800
Payable for Open Trades 61 - - 61
Distributions Payable 25 - - 25
Audit and Tax Service Fees Payable 16 - - 16
Other 1 - - 1
------- ---- ------ -------
Total Liabilities 1,903 0 0 1,903
------- ---- ------ -------
NET ASSETS $33,983 $258 $6,929 $27,312
======= ==== ====== =======
</TABLE>
See accompanying Notes to Pro Forma Financial Statements.
<PAGE>
TCW GALILEO MID-CAP GROWTH FUND
(Formerly TCW Mid-Cap Growth Stocks Limited Partnership)
Pro Forma Statement of Operations
(Unaudited)
Dollar Amounts in Thousands
<TABLE>
<CAPTION>
Year Ended December 31, 1995
--------------------------------------------------------------
Pro Forma Adjustments
Historical --------------------------- Pro Forma
Partnership Debit Credit Fund
-------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 82 $ 15(A) - $ 67
Interest 11 2 (A) - 9
------ ------ ----- ------
Total Investment Income 93 17 - 76
------ ------ ----- ------
EXPENSES
Management Fees 162 - 8 (C) 154
Audit and Tax Service Fees 13 2 (G) - 15
Custodian Fees 1 9 (G) - 10
Printing and Distribution Costs - 1 (G) - 1
Legal Fees - 2 (G) - 2
Amortization of Deferred Organization Costs 3 2 (D) 3 (D) 2
Accounting Service Fees - 35 (F) - 35
Transfer Agent Fees - 18 (G) - 18
Directors' Fees and Expenses - 10 (G) - 10
Insurance Expense - 3 (G) - 3
Other 1 4 (G) - 5
------ ------ ----- ------
Total Expenses 180 86 11 255 (E)
------ ------ ----- ------
NET INVESTMENT LOSS (87) 103 11 (179)
------ ------ ----- ------
NET REALIZED LOSS AND CHANGE IN
UNREALIZED DEPRECIATION
OF INVESTMENTS
Net Realized Gain on Investments 16 3 (A) - 13
Change in Unrealized Appreciation
of Investments 9,265 1,733 (A) - 7,532
------ ------ ----- ------
Net Realized and Unrealized Gain
on Investments 9,281 1,736 - 7,545
------ ------ ----- ------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $9,194 $1,839 $ 11 $7,366
====== ====== ===== ======
</TABLE>
See accompanying Notes to Pro Forma Financial Statements.
<PAGE>
TCW GALILEO MID-CAP GROWTH FUND
(Formerly TCW Mid-Cap Growth Stocks Limited Partnership)
Pro Forma Statement of Changes in Net Assets
(Unaudited)
Dollar Amounts in Thousands
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------------------------------------
Pro Forma Adjustments
Historical ---------------------------- Pro Forma
Partnership Debit Credit Fund
------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net Investment Loss ($87) $ 11 $ 103 ($179)
Net Realized Gain on
Investments 16 - 3 13
Change in Unrealized Appreciation of Investments 9,265 - 1,733 7,532
------- ----- ------ -------
Increase in Net assets Resulting from Operations 9,194 11 1,839 7,366
------- ----- ------ -------
FROM DISTRIBUTIONS
Distributions of Realized Gains (61) 11 (A) - (50)
------- ----- ------ -------
FROM CAPITAL TRANSACTIONS
Capital Contributions 20,818 - 4,061 (A) 16,757
Capital Withdrawals (1,608) 314 (A) - (1,294)
------- ----- ------ -------
Increase in Net Assets Resulting
from Capital Transactions 19,210 314 4,061 15,463
------- ----- ------ -------
TOTAL INCREASE IN NET ASSETS 28,343 336 5,900 22,779
NET ASSETS AT BEGINNING OF PERIOD 5,640 - 1,107 (A) 4,533
------- ----- ------ -------
NET ASSETS AT END OF PERIOD $33,983 $ 336 $7,007 $27,312
======= ===== ====== =======
</TABLE>
See accompanying Notes to Pro Forma Financial Statements.
<PAGE>
TCW GALILEO MID-CAP GROWTH FUND
(FORMERLY TCW MID-CAP GROWTH STOCKS LIMITED PARTNERSHIP)
NOTES TO PRO FORMA FINANCIAL STATEMENTS
A) The TCW Galileo Mid-Cap Growth Fund (the "Fund") will have one management
fee structure for all shareholders rather than the tiered fee structure
available in the existing partnership, which allows certain limited partners
to pay a lower management fee based upon their Attributable Value (see Note
5 of Notes to Financial Statements of the TCW Mid-Cap Growth Stocks Limited
Partnership). As a result, management has anticipated that those limited
partners with limited partnership interests currently totaling $2,000,000 or
less will exchange their limited partnership units for shares of the Fund.
Accordingly, the pro forma financial statements have been adjusted in order
to reduce, on a pro rata basis, the related net assets and earnings of the
Fund to reflect the impact of those limited partners who are not anticipated
to exchange their limited partnership units for shares of the Fund.
B) The Note Receivable from General Partner will be collected in cash from the
General Partner prior to the conversion.
C) Adjustment of management fees reflects the reduction of net assets relating
to those limited partners who are not anticipated to exchange their limited
partnership units for shares of the Fund.
D) Assumes write-off of organization costs associated with historical limited
partnership and incurrence of $11,000 of organization costs to form the Fund
which are to be deferred and amortized on a straight-line basis over five
years.
E) During the first twelve months following commencement of operations, the
investment adviser has agreed to reduce its fee, or pay the operating
expenses of the Fund, to the extent necessary to limit the annual operating
expenses of the Fund to 1.20% of average net assets. Reimbursement of such
expenses has not been reflected in the accompanying Pro Forma Statement of
Operations and would have been approximately $25,000 for the year ended
December 31, 1995.
F) Investment adviser will be reimbursed for providing accounting services to
the Fund at an estimated annual cost not to exceed $35,000.
G) Anticipated incremental expenses, or expense reductions, associated with the
operation of the TCW Galileo Mid-Cap Growth Fund.
<PAGE>
PART B - STATEMENT OF ADDITIONAL INFORMATION
________ __, 1996
Acquisition of the assets and liabilities of
TCW MID-CAP GROWTH STOCKS LIMITED PARTNERSHIP
865 South Figueroa Street, Suite 1800
Los Angeles, California 90017
Telephone: (213) 244-0000
By and in exchange for the shares of
TCW GALILEO FUNDS, INC.
865 South Figueroa Street, Suite 1800
Los Angeles, California 90017
Telephone: (800) FUND TCW or (213) 244-0000
THE GALILEO FUNDS
This Statement of Additional Information (the "Statement") relates to the
proposed transfer of all the assets and balance sheet liabilities of TCW Mid-Cap
Growth Stocks Limited Partnership (the "Partnership") to TCW Galileo Funds, Inc.
(the "Company"), a series investment company comprised of eleven portfolios
known as the Galileo Funds (the "Funds"). The Partnership will convey all of
its assets and balance sheet liabilities to the Company in exchange for shares
of a Fund. This Statement is not a prospectus and is meant to be read in
conjunction with the Information Statement/Prospectus dated ________ __, 1996
that the Statement accompanies. A copy of the Information Statement/Prospectus
may be obtained without charge by calling the Shareholder Relations Department
of the Company at (800) FUND TCW or collect at (213) 244-0000 or by writing to
Shareholder Relations Department, TCW Galileo Funds, Inc., 865 South Figueroa
Street, Los Angeles, California 90017.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Exchange....................................... B-3
Financial Statements............................... B-3
</TABLE>
<PAGE>
THE EXCHANGE
The limited partners of the Partnership (the "Limited Partners") are
being advised of an Agreement and Plan of Exchange (the "Plan"). Under the
Plan, all of the assets of the Partnership will be acquired by the Company and
the balance sheet liabilities of the Partnership will be assumed by the Company
in exchange for shares of a newly organized Fund within the Company. The
Company, an open-end management investment company organized as a Maryland
corporation, has not yet commenced the offering of the Fund's shares to the
public.
For detailed information about the Plan and the proposed exchange,
Limited Partners should refer to the Information Statement/Prospectus. For
further information about the Company and each Fund, Limited Partners should
refer to the Company's Prospectus and Statement of Additional Information, each
dated _______ __, 1996 that are attached to the Information Statement/Prospectus
as Appendix A and which are incorporated by reference into this Statement.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Included in Part A
------------------
<S> <C>
TCW Earnings Momentum Limited Partnership
Independent Auditors' Report.................... X
Statement of Assets and Liabilities as
of December 31, 1995.......................... X
Statement of Operations for the Year
Ended December 31, 1995....................... X
Statement of Changes in Net Assets for
the Period November 1, 1991
(Inception) to December 31, 1994
and Year Ended December 31, 1995.............. X
Schedule of Investments as of December 31, 1995. X
Notes to Financial Statements................... X
Financial Highlights............................ X
TCW Galileo Mid-Cap Growth Fund
Pro Forma Financial Statements................ X
</TABLE>
<PAGE>
PART C - OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Under Article Eighth, Section 9 of the Company's Articles of
Incorporation, directors and officers of the Company will be indemnified, and
will be advanced expenses, to the fullest extent permitted by Maryland law, but
not in violation of Section 17(i) of the Investment Company Act of 1940. Such
indemnification rights are also limited by Article 9.01 of the Company's Bylaws.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions or otherwise, the
Company 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 of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in a successful defense of any action, suit or proceeding
or payment pursuant to any insurance policy) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
ITEM 16. EXHIBITS.
**1.1 Registrant's Articles of Incorporation were filed as Exhibit 1.1 to
Registrant's Registration Statement on Form N-1A dated September
22, 1992, and are incorporated herein by reference.
*1.2 Registrant's Articles Supplementary were filed as Exhibit 1.2 to
Registrant's Post-Effective Amendment No. 3 to Registration
Statement on Form N-1A dated November 26, 1993 and are incorporated
herein by reference.
*1.3 Registrant's Articles Supplementary were filed as Exhibit 1.3 to
Registrants Post-Effective Amendment No. 5 on Form N-1A dated March
23, 1994 and are incorporated herein by reference.
- ------------
** Previously filed.
C-1
<PAGE>
*1.4 Registrant's Articles Supplementary were filed as Exhibit 1.4 to
Registrant's Post-Effective Amendment No.7 on Form N-1A dated August
19, 1994 and are incorporated herein by reference.
*1.5 Registrant's Articles Supplementary were filed as Exhibit 1.5 to
Registrant's Post-Effective Amendment No.11 on Form N-1A filed April
21, 1995 and are incorporated herein by reference.
*2.1 Registrant's Bylaws were filed as Exhibit 2.1 to Registrant's
Registration Statement on Form N-1A dated September 22, 1992, and are
incorporated herein by reference.
4.1 Form of Agreement and Plan of Exchange relating to the Exchanges
(included as Appendix B to Part A).
*6.1 Form of Investment Advisory and Management Agreement was filed as
Exhibit 5.1 to Registrant's Pre-Effective Amendment No. 5 to
Registration Statement on Form N-1A dated February 17, 1993, and is
incorporated herein by reference.
*6.2 Form of Addendum to Investment Advisory and Management Agreement was
filed as Exhibit 5.2 to Registrant's Post-Effective Amendment No. 5 to
Registration Statement on Form N-1A dated November 26, 1993 and is
incorporated herein by reference.
*6.3 Form of Second Addendum to Investment Advisory and Management
Agreement was filed as Exhibit 5.3 to Registrant's Post-Effective
Amendment No. 5 to Registration Statement on Form N-1A dated March 23,
1994 and is incorporated herein by reference.
*6.4 Form of Third Addendum to Investment Advisory and Management Agreement
was filed as Exhibit 5.4 to Registrant's Post-Effective Amendment No.
7 to Registration Statement on Form N-1A dated August 19, 1994 and is
incorporated by reference.
6.5 Form of Sub-Advisory Agreements were filed as Exhibit 5.5 to
Registration's Post-Effective Amendment No. 12 on Form N1-A filed
December 21, 1995 and is incorporated herein by reference.
6.6 Form of Fourth Addendum to Investmen Advisory and Management Agreement
was filed as Exhibit 5.6 to Registrant's Post-Effective Amendment No.
14 on Form N-1A filed March 5, 1996 and is incorporated herein by
reference.
C-2
<PAGE>
*7.1 Form of Distribution Agreement was filed as Exhibit 6.1 to
Registrant's Pre-Effective Amendment No. 3 to Registration Statement
on Form N-1A dated December 10, 1992, and is incorporated herein by
reference.
9.1 Form of Custody Agreement between Registrant and The Bank of New York
Trust Company of California with proposed Fee Schedule was filed as
Exhibit 8.1 to Registrant's Pre-Effective Amendment No. 5 to
Registration Statement on Form N-1A dated February 17, 1993, and is
incorporated herein by reference.
11.1 Opinion and Consent of Counsel as to legality of shares being
registered.
12.1 Opinion of O'Melveny & Myers as to tax matters relating to the
Exchange (included as Appendix C to Part A).
*13.1 Form of Transfer Agency Agreement between Registrant and Supervised
Service Company, Inc. was filed as Exhibit 9.1 to Registrant's Pre-
Effective Amendment No. 5 to Registration Statement on Form N-1A dated
February 17, 1993, and is incorporated herein by reference.
14.1 Consent of Deloitte & Touche LLP.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
a part of this Registration Statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act, the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to
the Registration Statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act,
each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.
- --------------
* Previously filed.
C-3
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant in the City of Los Angeles, and State of
California, on the 29th day of March, 1996.
TCW GALILEO FUNDS, INC.
By: _______________________________
Philip K. Holl
Secretary
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------ ------------------------------ --------------
<S> <C> <C>
* Chairman and Director March 29, 1996
- ------------------------
Marc I. Stern
* President and Director March 29, 1996
- ------------------------ (Principal Executive Officer)
Thomas E. Larkin, Jr.
* Director March 29, 1996
- ------------------------
John C. Argue
* Director March 29, 1996
- ------------------------
Norman Barker, Jr.
* Director March 29, 1996
- ------------------------
Richard W. Call
* Senior Vice President and March 29, 1996
- ------------------------ Treasurer (Principal
David K. Sandie Financial and Accounting
Officer)
</TABLE>
*By
--------------------
Philip K. Holl
Attorney-In-Fact
C-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
-------- ----------- ----------
<S> <C> <C>
EX-5 Opinion of Counsel
EX-23 Consent of Independent Accountant
EX-24 Powers of Attorney of Messrs. Argue,
Barker, Call, Larkin, Sandie and Stern filed
pursuant to Rule 483 of Regulation C
</TABLE>
C-5
<PAGE>
TCW FUNDS MANAGEMENT, INC.
865 South Figueroa Street, Suite 1800
Los Angeles, California 90017
(213) 244-0000 Telephone
PHILIP K. HOLL
VICE PRESIDENT
ASSOCIATE LEGAL COUNSEL
March 28, 1996
TCW Galileo Funds, Inc.
865 South Figueroa Street
Los Angeles, California 90017
Dear Sirs:
In connection with its organization and the conveyance of substantially all
of the assets of TCW Mid-Cap Growth Stocks Limited Partnership ("Partnership")
to the TCW Galileo Funds, Inc. ("Company") for the benefit of its TCW Mid-Cap
Growth Fund ("Fund") in exchange for the issuance of shares of the Fund's common
stock ($.001 par value per share) ("Shares") pursuant to an Agreement and Plan
of Exchange ("Plan") among the Company, TCW Asset Management Company, TCW Funds
Management, Inc. and the Partnership. I have examined such matters as I have
deemed necessary, and I am of the opinion:
(i) The Company is a corporation duly organized and existing under the laws
of the State of Maryland;
(ii) When the Shares are issued in accordance with the terms of the Plan,
the Shares will, to the extent of the number of Shares of the Company
authorized to be issued by the Company in accordance with its Charter,
be legally and validly issued, fully paid and nonassessable.
I hereby consent to the use of this opinion as an exhibit to the Company's
Registration Statement filed with the Securities and Exchange Commission.
I am a member of the Bar of the State of Maryland.
Very truly yours,
/s/ Philip K. Holl
------------------
Philip K. Holl
PKH/rp
C-6
<PAGE>
[Letterhead of Deloitte & Touche LLP]
CONSENT OF INDEPENDENT AUDITORS
TCW GALILEO FUNDS, INC.:
We consent to (a) the use in this N-14 to Registration Statement of our report
on the financial statements of the TCW Mid-Cap Growth Stocks Limited Partnership
as of and for the periods ended December 31, 1995 dated February 5, 1996,
appearing in Part B, the Statement of Additional Information of such
Registration Statement, (b) the reference to us under the heading "Financial
Highlights" in the Prospectus, which is a part of such Registration Statement,
and (c) the reference to us under the heading "General Information" in such
Prospectus.
DELOITTE & TOUCHE LLP
March 29, 1996
Los Angeles, California
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Michael Cahill, Philip Holl and Paul Webber, and each of them, his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to TCW Galileo Funds, Inc. and any amendment
or supplements thereto, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Marc I. Stern
- -----------------
February 1, 1995
C-8
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Michael Cahill, Philip Holl and Paul Webber, and each of them, his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to TCW Galileo Funds, Inc. and any amendment
or supplements thereto, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Thomas E. Larkin, Jr.
- -------------------------
February 1, 1995
C-9
<PAGE>
EXHIBIT 24.3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Michael Cahill, Philip Holl and Paul Webber, and each of them, his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to TCW Galileo Funds, Inc. and any amendment
or supplements thereto, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ John C. Argue
- -----------------
February 1, 1995
C-10
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Michael Cahill, Philip Holl and Paul Webber, and each of them, his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to TCW Galileo Funds, Inc. and any amendment
or supplements thereto, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Norman Barker, Jr.
- ----------------------
February 1, 1995
C-11
<PAGE>
EXHIBIT 24.5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Michael Cahill, Philip Holl and Paul Webber, and each of them, his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to TCW Galileo Funds, Inc. and any amendment
or supplements thereto, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Richard W. Call
- -------------------
February 1, 1995
C-12
<PAGE>
EXHIBIT 24.6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Michael Cahill, Philip Holl and Paul Webber, and each of them, his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to TCW Galileo Funds, Inc. and any amendment
or supplements thereto, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ David K. Sandie
- -------------------
February 1, 1995
C-13
