<PAGE>
As filed with the Securities and Exchange Commission
on February 24, 1997
Registration No. 33-52272
811-7170
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. 17 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 20 [X]
TCW GALILEO FUNDS, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
865 SOUTH FIGUEROA STREET, SUITE 1800
LOS ANGELES, CALIFORNIA 90017
Registrant's Telephone Number, including Area Code: (213) 244-0000
PHILIP K. HOLL, ESQ.
SECRETARY
865 SOUTH FIGUEROA STREET, SUITE 1800, LOS ANGELES, CA 90017
(Name and Address of Agent for Service)
__________________________________________
It is proposed that this filing will become effective
(check appropriate box)
X immediately upon filing pursuant to paragraph (b)
----
____ on (date) pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(1)
____ on (date) pursuant to paragraph (a)(i)
____ 75 days after filing pursuant to paragraph (a)(2)
____ on (date) pursuant to paragraph (a)(2) of Rule 485
Registrant has registered an indefinite number of shares under the Securities
Act of 1933, pursuant to Rule 24f-2 under the Investment Company Act of 1940,
and filed a Rule 24f-2 Notice for its last fiscal year on December 11, 1996.
<PAGE>
---------------------------
Cross-Reference Sheet Required by Rule 495
<TABLE>
<CAPTION>
CAPTION IN PROSPECTUS
FORM N-1A ITEM NUMBER AND CAPTION OR PAGE REFERENCE
- - --------------------------------- ---------------------
PART A
- - ------
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Summary; Expenses of the Funds
3. Condensed Financial Information....... Financial Highlights
4. General Description of Registrant..... Investment Objectives and Policies;
Risk Considerations; Performance
Information; General Information;
Appendix
5. Management of the Fund................ Management of the Funds; Investment
Objectives and Policies; General
Information
6. Capital Stock and Other Securities.... Redemption and Exchange of Shares;
Dividends, Distributions and Taxes;
General Information; Back Cover
7. Purchase of Securities Being
Offered............................... Purchase of Shares; Shareholder
Account Services; Other Conditions
Relating to Shares; Net Asset Value
8. Redemption or Repurchase.............. Redemption and Exchange of Shares;
Shareholder Account Services; Other
Conditions Relating to Shares; Net
Asset Value
9. Legal Proceedings..................... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPTION IN STATEMENT
OF ADDITIONAL INFORMATION
PART B OR PAGE REFERENCE
- - ------ -------------------------
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Table of Contents
12. General Information and History....... General Information
13. Investment Objectives and Policies.... Investment Practices; Investment
Restrictions
14. Management of the Registrant.......... Directors and Officers of the
Company
15. Control Persons and Principal
Holders of Securities................. General Information
16. Investment Advisory and Other
Services.............................. Investment Advisory and Sub-
Advisory Agreements
17. Brokerage Allocation and Other
Practices............................. Risk Factors
18. Capital Stock and Other Securities.... +General Information -Organization,
Shares and Voting Rights
19. Purchase, Redemption and Pricing of
Securities Being Offered.............. Determination of Net Asset Value;
How to Buy and Redeem Shares; How
to Exchange Shares
20. Tax Status............................ Distributions and Taxes
21. Underwriters.......................... /1/
22. Calculation of Performance Data....... Investment Results
23. Financial Statements.................. Financial Statements
</TABLE>
PART C
- - ------
Information required to be included in Part C is set forth under the appropriate
item in Part C of this Registration Statement.
- - --------------------
/1/ Not Applicable
<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 a no-load open-end management
investment company that consists of thirteen mutual funds known as the Galileo
Funds, each of which has different investment objectives and policies. There is
no guarantee of the performance of a Galileo Fund or that its objective can be
attained.
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 CONVERTIBLE SECURITIES FUND, a non-diversified portfolio, seeks
high total return from current income and capital appreciation through
investment principally in convertible securities which are rated below
investment grade (such securities are commonly known as "junk bonds").
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 CORE FIXED INCOME FUND, a diversified portfolio, seeks income
and capital appreciation through investment principally in high grade fixed
income instruments.
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
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.
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 that in the opinion of the
Adviser, exhibit superior earnings growth prospects and attractive stock market
valuations.
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.
THE SECURITIES THAT THE HIGH YIELD BOND AND CONVERTIBLE SECURITIES FUNDS
INVEST IN 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.
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.
- - --------------------------------------------------------------------------------
February 24, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY................................................................................. 1
EXPENSES OF THE FUNDS................................................................... 4
MANAGEMENT DISCUSSION................................................................... 18
INVESTMENT OBJECTIVES AND POLICIES...................................................... 29
TCW Galileo Money Market Fund...................................................... 29
TCW Galileo Core Fixed Income Fund................................................. 30
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 Convertible Securities Fund............................................ 36
TCW Galileo Core Equity Fund....................................................... 38
TCW Galileo Earnings Momentum Fund................................................. 39
TCW Galileo Mid-Cap Growth Fund.................................................... 40
TCW Galileo Small Cap Growth Fund.................................................. 42
TCW Galileo Asia Pacific Equity Fund............................................... 43
TCW Galileo Emerging Markets Fund.................................................. 45
TCW Galileo Latin America Equity Fund.............................................. 47
General............................................................................ 50
Money Market Instruments...................................................... 50
Additional Fundamental Policies............................................... 50
Other Investment Policies..................................................... 51
Portfolio Turnover............................................................ 52
RISK CONSIDERATIONS..................................................................... 52
General............................................................................ 52
Repurchase Agreements.............................................................. 53
Reverse Repurchase Agreements and Mortgage Dollar Rolls............................ 53
Fixed Income Securities............................................................ 53
Foreign Securities................................................................. 54
Foreign Currency Risks............................................................. 56
Futures............................................................................ 56
Options............................................................................ 57
Risks Associated With Lower Rated Securities....................................... 58
Risks Associated With Mortgage-Backed Securities................................... 60
Risks Associated With Emerging Market Countries.................................... 62
Non-Diversified Status............................................................. 63
MANAGEMENT OF THE FUNDS................................................................. 64
Investment Adviser................................................................. 64
Sub-Investment Advisers............................................................ 64
Portfolio Managers................................................................. 65
Advisory and Sub-Advisory Agreements............................................... 68
PURCHASE OF SHARES...................................................................... 70
Minimums........................................................................... 70
Purchases Made By Wire or Check.................................................... 70
Purchase and Settlement............................................................ 71
Distributor........................................................................ 72
SHAREHOLDER ACCOUNT SERVICES............................................................ 72
General............................................................................ 72
Check Writing Privilege............................................................ 72
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
REDEMPTION AND EXCHANGE OF SHARES....................................................... 73
Redemptions and Exchanges.......................................................... 73
Systematic Withdrawal Plan......................................................... 74
Receiving Your Proceeds............................................................ 74
Shareholder Inquiries.............................................................. 74
OTHER CONDITIONS RELATING TO SHARES..................................................... 75
Account Balance.................................................................... 75
Excessive Trading and Exchange Limitations......................................... 75
Nonpayment......................................................................... 75
Redemptions in Excess of $250,000.................................................. 76
Signature Guarantees............................................................... 76
Telephone Exchanges and Redemption................................................. 76
Other Conditions................................................................... 77
NET ASSET VALUE......................................................................... 77
DIVIDENDS, DISTRIBUTIONS AND TAXES...................................................... 79
Dividends and Distributions........................................................ 79
Taxes.............................................................................. 80
PERFORMANCE INFORMATION................................................................. 82
GENERAL INFORMATION..................................................................... 83
Organization, Shares and Voting Rights............................................. 83
Code of Ethics..................................................................... 84
Transfer Agent and Custodians...................................................... 84
Independent Auditors............................................................... 85
Legal Counsel...................................................................... 85
Reports to Shareholders............................................................ 85
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-2
Strategies Available to Core Fixed Income, Long-Term Mortgage-Backed
Securities, Mortgage-Backed Securities, Money Market and Latin America
Equity........................................................................ A-3
Strategies Available to Core 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 Core Fixed Income............................................. A-8
Strategies Available to the Equity Funds and High Yield Bond....................... A-9
Strategies Available to Convertible Securities..................................... A-9
Strategies Available to Convertible Securities, Mid-Cap Growth, 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-12
Description of S&P and Moody's Ratings............................................. A-13
</TABLE>
ii
<PAGE>
SUMMARY
The Company is an open-end management investment company which consists of
thirteen 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,
1996, the Adviser and its affiliated companies had over
$50 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%; Core Fixed Income --
0.40%; Long-Term Mortgage-Backed Securities -- 0.50%;
Mortgage-Backed Securities -- 0.50%; Convertible
Securities -- 0.75%; 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. With respect to Money
Market and Convertible Securities, the Adviser has
agreed to reduce its investment advisory fee, or to pay
the operating expenses of the Funds, to the extent
necessary to limit their annual ordinary operating
expenses (including amortization of organizational
expenses but not brokerage fees and commissions,
interest, taxes and certain extraordinary expenses), as
a percentage of average net value, to 0.40% for Money
Market and 0.95% for Convertible Securities until
December 31, 1997. With respect to Core Fixed Income,
the Adviser has agreed to reduce its investment
advisory fee to 0.35% of the Fund's average daily net
assets until October 31, 1997. 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 and Convertible Securities invest in
high yield/high risk 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. Such issuers generally have greater risk of
default than issuers of investment grade securities.
See "Investment Objectives and Policies -- TCW Galileo
High Yield Bond Fund", "Investment Objectives and
Policies -- TCW Galileo Convertible Securities Fund"
and "Risk Considerations -- Risks Associated with Lower
Rated Securities."
2
<PAGE>
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. See
"Investment Objectives and Policies -- TCW Galileo
Small Cap Growth Fund".
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
62.
All the Funds (except Money Market, Long-Term Mortgage-
Backed Securities and Mortgage-Backed Securities) 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 applicableto
such investments. See "Risk Considerations -- Foreign
Securities."
The Asia Pacific Equity, Convertible Securities, Core
Equity, Earnings Momentum, Emerging Markets, Latin
America, Mid-Cap Growth and Small Cap Growth Funds
("Equity Funds") are non-diversified investment
companies and, consequently, a relatively high
percentage of their respective assets 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
which may entail leverage and interest-only stripped
mortgage securities (Core Fixed Income, Long-Term
Mortgage-Backed Securities and Mortgage-Backed
Securities); repurchase agreements (all Funds); and
reverse repurchase agreements which involve leverage
(Core Fixed Income, Long-Term Mortgage-Backed
Securities, Mortgage-Backed Securities, Money Market
and Latin American Equity). INVESTMENTS BY LONG-TERM
MORTGAGE-BACKED SECURITIES AND MORTGAGE-BACKED
SECURITIES IN INVERSE FLOATER CLASSES OF COLLATERALIZED
MORTGAGE OBLIGATIONS AND INVESTMENTS BY CORE 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. See "Risk Considerations -- Risks
Associated with Mortgage-Backed Securities".
3
<PAGE>
EXPENSES OF THE FUNDS
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, 1996. 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."
SHAREHOLDER TRANSACTION EXPENSES FOR ALL FUNDS
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Contingent Deferred Sales Load None
Redemption Fees None
Exchange Fees None
<TABLE>
<CAPTION>
LONG-
TERM
CORE MORT- MORT-
MONEY HIGH FIXED GAGE GAGE MID-CAP CONVERTIBLE
MARKET YIELD INCOME BACKED BACKED GROWTH SECURITIES
------ ----- ------ ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
Management Fees (After expense
reimbursements) .21% .75% .40% .50% .50% .93% .62%
Rule 12b-1 Fees None None None None None None None
Other Expenses .19% .15% .36% .18% .19% .27% .33%
---- ---- ---- ---- ---- ----- ----
TOTAL FUND OPERATING EXPENSES .40%* .90% .76% .68% .69% 1.20%* .95%*
</TABLE>
<TABLE>
<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 .75% 1.00% 1.00% 1.00% 1.00% 1.00%
Rule 12b-1 Fees None None None None None None
Other Expenses .07% .14% .13% .43% .41% .44%
---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES 0.82% 1.14% 1.13% 1.43% 1.41% 1.44%
</TABLE>
* (after expense reimbursements, see footnote next page for expense ratios had
there been no reimbursement)
4
<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
Core Fixed Income 8 25 43 97
High Yield Bond 9 30 51 114
Long-Term Mortgage-Backed 7 22 39 87
Mortgage-Backed 7 23 39 88
Convertible Securities 10 31 -- --
Core Equity 9 27 47 104
Earnings Momentum 12 37 64 142
Mid-Cap Growth 13 39 68 150
Small Cap Growth 12 37 65 143
Asia Pacific 15 47 81 177
Emerging Markets 15 46 80 174
Latin America 15 47 81 178
</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,
Convertible Securities and Mid-Cap Growth where expenses are assumed to be the
expense limit. Without an expense limit, total expenses for Money Market would
have been 0.44% for the fiscal year ended October 31, 1996, total expenses for
Mid-Cap Growth would have been 1.27% for the fiscal year ended October 31, 1996
and Convertible Securities are estimated at 1.08%, and the annual investment
advisory fee for Money Market, Convertible Securities and Mid-Cap Growth would
be 0.25%, 0.75% and 1.00% respectively, of each Fund's average daily net assets.
For the period November 1, 1996 through October 31, 1997, the Adviser has agreed
to reduce its investment advisory fee from Core Fixed Income to 0.35% of its
average daily net assets. Without this reduction, the investment advisory fee
for Core Fixed Income would be 0.40% of its average daily net assets. 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.
5
<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 and 1996, 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
----------------------------------------------------------------
TEN MONTHS MARCH 1, 1993
YEAR ENDED YEAR ENDED ENDED (INCEPTION) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
1996 1995 1994 1993
----------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 9.74 $ 9.43 $ 10.12 $ 10.00
-------- ------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net Investment Income 0.89 0.92 0.73 0.74
Net Realized and Unrealized Gain (Loss) on
Investments 0.03 0.39 (0.77) 0.27
-------- ------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.92 1.31 (0.04) 1.01
-------- ------- -------- --------
LESS DISTRIBUTIONS
- - ------------------
Distributions from Net Investment Income (0.89) (1.00) (0.65) (0.74)
Distributions from Realized Gains - - - (0.15)
-------- -------
Distributions in Excess of Realized Gains - - - -
-------- ------- -------- --------
TOTAL (0.89) (1.00) (0.65) (0.89)
-------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 9.77 $ 9.74 $ 9.43 $ 10.12
======== ======= ======== ========
_____________________________
TOTAL RETURN 9.92% 14.65% (0.34)%(3) 10.47%(3)
- - ------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (in thousands) $183,815 $92,652 $ 90,577 $ 73,737
Ratio of Expenses to Average Net Assets 0.90% 0.87%(2) 0.79%(1)(2) 0.79%(1)(2)
Ratio of Net Investment Income to Average
Net Assets 9.21% 9.60% 9.18%(1) 8.60%(1)
Portfolio Turnover Rate 82.56% 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.
6
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
CORE FIXED INCOME
------------------------------------------------------------------------------
MARCH 1,
TEN MONTHS 1993
YEAR ENDED YEAR ENDED ENDED (INCEPTION) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER
1996 1995 1994 31, 1993
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 9.61 $ 8.94 $ 10.04 $ 10.00
------- ------- --------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- - ----------------------------------------
Net Investment Income 0.55 0.58 0.44 0.45
Net Realized and Unrealized Gain (Loss)
on Investments (0.16) 0.62 (1.16)(4) 0.19
------- ------- --------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.39 1.20 (0.72) 0.64
------- ------- --------- --------
LESS DISTRIBUTIONS
- - ------------------
Distributions from Net Investment Income (0.55) (0.53) (0.38) (0.45)
Distributions from Realized Gains - - - (0.14)
Distributions in Excess of Realized Gains - - - (0.01)
------- ------- --------- --------
TOTAL (0.55) (0.53) (0.38) (0.60)
------- ------- --------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 9.45 $ 9.61 $ 8.94 $ 10.04
======= ======= ========= ========
_____________________________
TOTAL RETURN 4.26% 13.92% (7.24)%(3) 6.54%(3)
- - ------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (in thousands) $25,006 $36,236 $ 50,153 $ 33,328
Ratio of Expenses to Average Net Assets 0.76% 0.68%(2) 0.50%(1)(2) 0.50%(1)(2)
Ratio of Net Investment Income to Average
Net Assets 5.85% 6.38% 6.11%(1) 5.24%(1)
Portfolio Turnover Rate 238.73% 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.
7
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
LONG-TERM MORTGAGE-BACKED
-----------------------------------------------------------------------------
TEN MONTHS JUNE 17, 1993
YEAR ENDED YEAR ENDED ENDED (INCEPTION) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Net Asset Value per Share, Beginning of $ 9.56 $ 8.95 $ 10.07 $ 10.00
Period -------- ------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- - ----------------------------------------
Net Investment Income 0.68 0.72 0.63 0.28
Net Realized and Unrealized Gain (Loss) on
Investments 0.02 0.71 (1.26) 0.07
-------- ------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.70 1.43 (0.63) 0.35
-------- ------- -------- --------
LESS DISTRIBUTIONS
- - ------------------
Distributions from Net Investment Income (0.68) (0.82) (0.49) (0.28)
Distributions from Realized Gains - - - -
Distributions in Excess of Net Investment Income (0.02) - - -
TOTAL (0.70) (0.82) (0.49) (0.28)
-------- ------- -------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 9.56 $ 9.56 $ 8.95 $ 10.07
======== ======= ======== ========
_____________________________
TOTAL RETURN 7.69% 16.84% (6.39)%(3) 3.51%(3)
- - ------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (in thousands) $112,260 $80,159 $ 66,632 $ 25,215
Ratio of Expenses to Average Net Assets 0.68% 0.68%(2) 0.65%(1)(2) 0.65%(1)(2)
Ratio of Net Investment Income to Average
Net Assets 7.15% 7.88% 8.03%(1) 5.37%(1)
Portfolio Turnover Rate 39.28% 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.
8
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
MORTGAGE-BACKED
-----------------------------------------------------------------------------
TEN MONTHS JUNE 17, 1993
YEAR ENDED YEAR ENDED ENDED (INCEPTION) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Net Asset Value per Share, Beginning of Period $ 9.58 $ 9.41 $ 9.86 $ 10.00
------- ------- ---------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- - ----------------------------------------
Net Investment Income 0.51 0.67 0.42 0.50
Net Realized and Unrealized Gain (Loss) on
Investments 0.22 0.25 (0.48) (0.12)
------- ------- ---------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.73 0.92 (0.06) 0.38
------- ------- ---------- --------
LESS DISTRIBUTIONS
- - ------------------
Distributions from Net Investment Income (0.46) (0.71) (0.39) (0.50)
Distributions from Realized Gains - - - (0.02)
Distributions in Excess of Net Investment Income (0.18) (0.04) - -
------- -------
TOTAL (0.64) (0.75) (0.39) (0.52)
------- ------- ---------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 9.67 $ 9.58 $ 9.41 $ 9.86
======= ======= ========== ========
_____________________________
TOTAL RETURN 7.86% 10.16% (0.61)%(3) 3.89%(3)
- - ------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (in thousands) $61,835 $81,366 $ 134,948 $147,666
Ratio of Expenses to Average Net Assets 0.69% 0.61%(2) 0.55%(1)(2) 0.55%(1)(2)
Ratio of Net Investment Income to Average Net
Assets 5.34% 7.13% 5.18%(1) 5.98%(1)
Portfolio Turnover Rate 54.10% 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.
9
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================================
CORE EQUITY
--------------------------------------------------------------------------------
TEN MONTHS MARCH 1, 1993
YEAR ENDED YEAR ENDED ENDED (INCEPTION) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
1996 1995 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 13.69 $ 11.57 $ 11.81 $ 10.00
-------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- - ----------------------------------------
Net Investment Income 0.11 0.06 0.04 0.03
Net Realized and Unrealized Gain (Loss) on
Investments 2.18 2.11 (0.28) 1.81
-------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 2.29 2.17 (0.24) 1.84
-------- -------- -------- --------
LESS DISTRIBUTIONS
- - ------------------
Distributions from Net Investment Income (0.05) (0.05) - (0.03)
Distributions from Realized Gains - - - -
Distributions in Excess of Realized Gains - - - -
-------- -------- -------- --------
TOTAL (0.05) (0.05) - (0.03)
-------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 15.93 $ 13.69 $ 11.57 $ 11.81
======== ======== ======== ========
_____________________________
TOTAL RETURN 16.79% 18.85% (2.03)%(3) 18.41%(3)
- - ------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (in thousands) $231,302 $197,721 $136,122 $ 55,885
Ratio of Expenses to Average Net Assets 0.82% 0.85% 0.91%(1) 1.00%(1)(2)
Ratio of Net Investment Income to Average Net
Assets 0.18% 0.48% 0.44%(1) 0.55%(1)
Portfolio Turnover Rate 39.58% 53.77% 23.53%(3) 29.67%(3)
Average Commission Rate Paid by the Fund(4) $ 0.06 n/a n/a n/a
=================================================================================================================================
</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.
(4) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security trades
on which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
10
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================================
LATIN AMERICA
-----------------------------------------------------------------------------
TEN MONTHS MARCH 1, 1993
YEAR ENDED YEAR ENDED ENDED (INCEPTION) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
1996 1995 1994 1993
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 7.92 $ 14.99 $ 15.11 $ 10.00
------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- - ----------------------------------------
Net Investment Income 0.11 0.06 0.01 0.08
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency 2.03 (5.92) (0.13) 6.35
------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 2.14 (5.86) (0.12) 6.43
------- -------- -------- --------
LESS DISTRIBUTIONS
- - ------------------
Distributions from Net Investment Income (0.05) - - (0.08)
Distributions from Realized Gains - - - (1.21)
Distributions in Excess of Realized Gains - (1.21) - (0.03)
------- -------- -------- --------
TOTAL (0.05) (1.21) - (1.32)
------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 10.01 $ 7.92 $ 14.99 $ 15.11
======= ======== ======== ========
_____________________________
TOTAL RETURN 27.08% (40.95)% (0.79)%(3) 64.27%(3)
- - ------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (in thousands) $68,323 $ 38,942 $122,610 $ 89,910
Ratio of Expenses to Average Net Assets 1.44% 1.58% 1.36%(1) 1.50%(1)(2)
Ratio of Net Investment Income to Average Net Assets 1.12% 0.59% 0.11%(1) 0.77%(1)
Portfolio Turnover Rate 44.32% 75.62% 143.65%(3) 120.06%(3)
Average Commission Rate Paid by the Fund (4) $ 0.00 n/a n/a n/a
=================================================================================================================================
</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.
(4) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security trades
on which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
11
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================================
ASIA PACIFIC EQUITY
-------------------------------------------------------------------------------
MARCH 1, 1994
YEAR ENDED YEAR ENDED (INCEPTION) TO
OCTOBER 31, 1996 OCTOBER 31, 1995 OCTOBER 31, 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 8.67 $ 10.19 $ 10.00
------- ------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- - ----------------------------------------
Net Investment Income (Loss) 0.06 0.06 0.03
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency 0.93 (1.19) .16
-------
TOTAL FROM INVESTMENT OPERATIONS 0.99 (1.13) 0.19
------- ------- --------
LESS DISTRIBUTIONS
- - ------------------
Distributions from Net Investment Income (0.05) (0.01) -
Distributions from Realized Gains - (0.16) -
Distributions in Excess of Realized Gains - (0.22) -
------- -------
TOTAL (0.05) (0.39) -
------- ------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 9.61 $ 8.67 $ 10.19
======= ======= ========
_____________________________
TOTAL RETURN 11.36% (10.98%) 1.90%(3)
- - ------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (in thousands) $48,266 $46,709 $ 54,019
Ratio of Expenses to Average Net Assets 1.43% 1.47%(2) 1.40%(1)(2)
Ratio of Net Investment Income to Average
Net Assets 0.66% 0.74% 0.45%(1)
Portfolio Turnover Rate 84.81% 102.01% 46.75%(3)
Average Commission Rate Paid by the
Fund(4) $ 0.01 n/a n/a
=================================================================================================================================
</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) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security trades
on which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
12
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================
SMALL CAP GROWTH
------------------------------------------------------------------
MARCH 1, 1994
(INCEPTION) TO
YEAR ENDED YEAR ENDED OCTOBER 31, 1994
OCTOBER 31, 1996 OCTOBER 31, 1995
------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 13.53 $ 9.39 $ 10.00
-------- ------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- - ----------------------------------------
Net Investment Income (Loss) (0.13) (0.07) (0.04)
Net Realized and Unrealized Gain (Loss) on
Investments 4.08 4.72 (0.57)
-------- ------- --------
TOTAL FROM INVESTMENT OPERATIONS 3.95 4.65 (0.61)
-------- ------- --------
LESS DISTRIBUTIONS
- - ------------------
Distributions from Net Investment Income (0.01) - -
Distributions from Realized Gains (0.30) (0.51) -
Distributions in Excess of Realized Gains - - -
-------- -------
TOTAL (0.31) (0.51) -
-------- ------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 17.17 $ 13.53 $ 9.39
======== ======= ========
_____________________________
TOTAL RETURN 29.73% 49.89% (6.10)%(3)
- - ------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (in thousands) $132,444 $66,056 $ 51,089
Ratio of Expenses to Average Net Assets 1.14% 1.21%(2) 1.09%(1)(2)
Ratio of Net Investment Income to Average
Net Assets (0.76)% (0.61)% (0.59)%(1)
Portfolio Turnover Rate 45.43% 89.73% 88.63%(3)
Average Commission Rate Paid by the
Fund(4) $ 0.06 n/a n/a
================================================================================================================
</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) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security trades
on which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
13
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
EMERGING MARKETS
----------------------------------------------------------
MARCH 1, 1994
YEAR ENDED YEAR ENDED (INCEPTION) TO
OCTOBER 31, 1996 OCTOBER 31, 1995 OCTOBER 31, 1994
----------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF $ 7.19 $ 9.73 $ 10.00
PERIOD ------- -------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- - ----------------------------------------
Net Investment Income (Loss) 0.07 0.04 (0.01)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency 0.94 (2.58) (0.26)
------- -------- -------
TOTAL FROM INVESTMENT OPERATIONS 1.01 (2.54) (0.27)
------- -------- -------
LESS DISTRIBUTIONS
- - ------------------
Distributions from Net Investment Income (0.02) - -
Distributions from Realized Gains - - -
Distributions in Excess of Realized Gains - - -
------- --------
TOTAL (0.02) (2.54) (0.27)
------- -------- -------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 8.18 $ 7.19 $ 9.73
======= ======== =======
_____________________________
TOTAL RETURN 14.14% (26.11)% (2.70)%(2)
- - ------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (in thousands) $57,639 $ 51,873 $70,212
Ratio of Expenses to Average Net Assets 1.41% 1.55% 1.70%(1)
Ratio of Net Investment Income to Average 0.82% 0.54% (0.09)%(1)
Net Assets
Portfolio Turnover Rate 83.76% 74.24% 61.28%(2)
Average Commission Rate Paid by the
Fund(3) $ 0.00 n/a n/a
==========================================================================================================
</TABLE>
(1) Annualized.
(2) For period through October 31, 1994 and not indicative of a full year's
operating results.
(3) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security trades
on which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
14
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================
EARNINGS MOMENTUM
---------------------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
---------------------------------------------
<S> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 11.47 $ 10.00
------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- - ----------------------------------------
Net Investment Income (Loss) (0.11) (0.03)
Net Realized and Unrealized Gain (Loss) on Investments 1.72 1.51
------- -------
TOTAL FROM INVESTMENT OPERATIONS 1.61 1.48
------- -------
LESS DISTRIBUTIONS
- - ------------------
Distributions from Net Investment Income - -
Distributions from Realized Gains (0.07) -
Distributions in Excess of Net Investment Income - (0.01)
------- -------
TOTAL (0.07) (0.01)
------- -------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 13.01 $ 11.47
======= =======
_____________________________
TOTAL RETURN 13.99% 14.76%
- - ------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (in thousands) $77,994 $63,411
Ratio of Expenses to Average Net Assets 1.13% 1.14%(1)
Ratio of Net Investment Income to Average
Net Assets (0.82)% (0.28%)
Portfolio Turnover Rate 99.03% 85.91%
Average Commission Rate Paid by the
Fund(2) $ 0.06 n/a
=============================================================================================
</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.
(2) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security trades
on which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
15
<PAGE>
<TABLE>
<CAPTION>
==========================================================================
MID-CAP GROWTH
------------------------------
JUNE 3, 1996
(COMMENCEMENT OF
OPERATIONS) THROUGH
OCTOBER 31, 1996
------------------------------
<S> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 10.00
--------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- - ----------------------------------------
Net Investment Income (Loss) (0.03)
Net Realized and Unrealized Gain (Loss) on
Investments (0.78)
--------
TOTAL FROM INVESTMENT OPERATIONS (0.81)
--------
LESS DISTRIBUTIONS
- - ------------------
Distributions from Net Investment Income -
Distributions from Realized Gains -
Distributions in Excess of Net Investment Income -
--------
TOTAL -
--------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 9.19
========
_____________________________
TOTAL RETURN (8.10)%(1)
- - ------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (in thousands) $ 92,430
Ratio of Expenses to Average Net Assets 1.20%(2)(3)
Ratio of Net Investment Income to Average (0.80)%(2)
Net Assets
Portfolio Turnover Rate 19.19%(1)
Average Commission Rate Paid by the
Fund(4) $ 0.06
==========================================================================
</TABLE>
(1) For the period June 3, 1996 (Commencemnt of operations) through October 31,
1996 and not indicative of a full year's operating results.
(2) Annualized.
(3) 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 1.20% 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 June 3, 1996 (commencement of
operations) through October 31, 1996 would have been 1.27% of average net
assets.
(4) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security trades
on which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
16
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the TCW Galileo Money Market Fund has been
audited by Deloitte & Touche LLP, independent auditors for MMP, 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>
Year Ended December 31
Year Year Ten 1993 1992 1991 1990 1989 July 14,
Ended Ended Months 1988
October October Ended (Inception)
31, 1996 31, 1995 October to December
31, 1994 31, 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
- - ----------------------
OPERATIONS
- - ----------
Net Investment Income 0.0509 0.0549 0.0304 0.0293 0.0381 0.0620 0.0800 0.0882 0.0379
LESS DISTRIBUTIONS
- - ------------------
Dividends from Net
Investment Income (0.0509) (0.0549) (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 $ 1.00
======== ======= ========== ======== ======== ======== ======== ======== ========
Total Return 5.21% 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
(in thousands) $233,671 $86,302 $124,392 $ 81,204 $183,465 $140,987 $167,572 $ 88,620 $ 63,703
Ratio of Expenses to Average
Net Assets/2/ 0.40% 0.40% 0.40%/1/ 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%/1/
Ratio of Net Investment
Income to Average Net Assets 5.04% 5.49% 3.65%/1/ 2.93% 3.81% 6.20% 8.00% 8.82% 8.08%/1/
</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
total annualized operating expenses as a percentage of average net assets would
have been 0.44% for the fiscal year ended October 31, 1996, 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 CORE FIXED INCOME FUND - 1996 RESULTS
From November 1, 1995 through October 31, 1996, the Fund returned 4.26%.
The return on the Salomon Brothers Broad Index during the same period was 5.88%.
The Fund's performance during this period is partially attributable to the
Fund's longer duration versus its benchmark index during the bond market's
decline in the first quarter of 1996. The Federal government shutdown, which
began in late 1995 and continued through early 1996, delayed the release of
vital economic data causing investors to rely on anecdotal evidence pointing to
a weak economy. When economic statistics began to flow again in mid-February,
it became evident that inventories were significantly reduced and consumer
savings had been partially rebuilt. This data left the impression that the
trough in economic performance had occurred and that recovery was imminent.
Throughout the second and third quarters, however, economic data continued
to send confusing signals to the market regarding the true degree of strength or
weakness underlying domestic economic growth. Weaker economic data, combined
with the Federal Reserve's failure to tighten interest rates, precipitated
better bond market conditions during the third quarter. The Fund's duration,
which stood at 5.5 years in November 1995, was shortened to 4.25 years by May
1996 and subsequently lengthened to 5.0 years by October 1996.
[TCW GALILEO CORE FIXED INCOME FUND GRAPH APPEARS HERE]
18
<PAGE>
TCW GALILEO HIGH YIELD BOND FUND - 1996 RESULTS
The Fund earned a total return of 9.9% for the period November 1, 1995 to
October 31, 1996. The return on the Salomon Brothers High Yield Cash Pay Index
during the same period was 10.6%. The Fund's underperformance was largely
attributable to the fact that the portfolio maintained a heavier weighting in
defensive sectors during a time in which cyclical industry groups outperformed.
The high yield bond market has continued to be an attractive asset class as the
Fund has outperformed the Lehman Brothers Government/Corporate Bond Index which
returned 5.4% for the 12 months ended October 31, 1996.
We continue to pursue a high yield investment approach which is designed to
preserve principal while providing superior risk-adjusted returns by
concentrating on strong fundamental credits in the upper-tier of the high yield
market.
[TCW GALILEO HIGH YIELD BOND FUND GRAPH APPEARS HERE]
19
<PAGE>
TCW GALILEO MORTGAGE-BACKED SECURITIES FUND - 1996 RESULTS
Over the course of the fiscal year ending October 31, 1996, interest rates
on most U.S. treasuries with maturities longer than two years increased. The
yield on three and five year treasuries rose by 18 and 27 basis points
respectively, while 10 and 30 year treasury yields were up over 30 basis points.
In contrast, rates on treasury bills declined. Three month bill rates fell 35
basis points during the year and the yield on the one year treasury fell 14
basis points. Mortgages generally perform well in this kind of interest rate
environment, and this year was no exception. Strong technical trends consisting
of limited supply, strong investor demand and declining prepayment volatility
helped the mortgage sector outperform treasuries and high grade corporates.
Furthermore tight spreads in other fixed income sectors enhanced the relative
value of mortgage securities. CMO issuance remained well below the volume seen
three or four years ago, and derivatives performed well. Our investment
strategy continues to emphasize call protection and securities priced below par
to increase the portfolio's exposure to variables that can enhance performance
throughout the business cycle.
[TCW GALILEO MORTGAGE-BACKED SECURITIES FUND GRAPH APPEARS HERE]
20
<PAGE>
TCW GALILEO LONG-TERM MORTGAGE-BACKED SECURITIES FUND - 1996 RESULTS
Over the course of the fiscal year ending October 31, 1996, interest rates
on most U.S. treasuries with maturities longer than two years increased. The
yield on three and five year treasuries rose by 18 and 27 basis points
respectively, while 10 and 30 year treasury yields were up over 30 basis points.
In contrast, rates on treasury bills declined. Three month bill rates fell 35
basis points during the year and the yield on the one year treasury fell 14
basis points. Mortgages generally perform well in this kind of interest rate
environment, and this year was no exception. Strong technical trends consisting
of limited supply, strong investor demand and declining prepayment volatility
helped the mortgage sector outperform treasuries and high grade corporates.
Furthermore tight spreads in other fixed income sectors enhanced the relative
value of mortgage securities. CMO issuance remained well below the volume seen
three or four years ago, and derivatives performed well. Out investment
strategy continues to emphasize call protection and securities priced below par
to increase the portfolio's exposure to variables that can enhance performance
throughout the business cycle.
[TCW GALILEO LONG-TERM MORTGAGE-BACKED SECURITIES FUND GRAPH APPEARS HERE]
21
<PAGE>
TCW GALILEO CORE EQUITY FUND - 1996 RESULTS
The total return for the Fund during the period from November 1, 1995
through October 31, 1996 was 16.79%, which compares with a total return of
24.09% for the Standard & Poor's 500 Stock Index over the same period. All of
the shortfall in performance relative to the benchmark occurred in the Fund's
first fiscal quarter, when there was widespread investor concern the U.S.
economy was heading into a recession. During that period bond yields declined
sharply, which had the effect of increasing the valuations of many stable-
demand, consumer-oriented companies and utilities, which collectively account
for a large percentage weighting in the Index but which the Fund was greatly
underweighted. Accordingly, while achieving positive returns in its first fiscal
quarter ended January 1996, the Fund fell 8.5 percentage points behind the
Index. As signs of renewed economic strength appeared in late winter, bond
yields began to rise, and the Fund's large positions in revitalized American
manufacturing companies, electronic and telecommunications companies, airlines
and aerospace companies, among others, rose sharply, and the Fund's relative
performance improved over the balance of the fiscal year. The Fund continues 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. We continue to have high conviction in the
long-term growth prospects for the technology sector, and we maintain
substantial positions in airlines, aerospace and many revitalized American
industrial companies, particularly those that have a large and growing presence
in foreign markets. Although we anticipate growth in the U.S. economy will
moderate next year, we expect profit gains for the companies in our portfolio
will still be robust and well above average in view of their continued cost
cutting efforts, probable further improvement in overseas markets, and in some
cases the positive impact of new product introductions.
[TCW GALILEO CORE EQUITY FUND GRAPH APPEARS HERE]
22
<PAGE>
TCW GALILEO EARNINGS MOMENTUM FUND - 1996 RESULTS
The Fund recorded strong absolute performance in 1996, gaining 14.0% for the
year ended October 31. We are disappointed to have lagged the Russell 2000,
however, which rose 16.6% during the same period. Outstanding results in the
first half of the year, when the Fund gained over 30% and easily outpaced the
Russell 2000, were cut in half by losses in the second six months of 1996. We
remain optimistic that the Fund is positioned to perform well during the next
year.
Top-performing sectors during the year were retail, restaurants, non-rail
transportation and banks/financial services/building products. Technology
holdings were disappointing, with the semiconductor/electronic instrument sector
showing a double-digit decline for the year and the telecom sector also
declining slightly.
We made a number of changes in industry weightings during the past twelve
months. These changes do not reflect top-down or macroeconomic decisions in the
portfolio: our sector allocations continue to be driven by bottom-up, company-
by-company investing decisions. During the year, consumer staples rose to over
42% of the portfolio and replaced capital goods as the broad industry sector
with the heaviest weighting. The increase in consumer staples primarily
reflected a higher level of investment in the business services sector, while a
decline in the capital goods weighting was mostly owing to a reduction in the
semiconductor/electronic instruments sector. Health care, a part of consumer
staples, was the largest single sector holding in the Fund at year-end.
[TCW GALILEO EARNINGS MOMENTUM FUND GRAPH APPEARS HERE]
23
<PAGE>
TCW GALILEO MID-CAP GROWTH FUND - 1996 RESULTS
The Fund outperformed its relative benchmark for the fiscal year ended
October 31, 1996 achieving an annualized return of 25.46% versus 17.35% for the
S&P Mid-Cap 400 Index.
With the realization that the fourth quarter of 1995's economic slow down
was merely a helpful inventory correction, mid-cap stocks surpassed even the S&P
500's robust gain in the first five months of 1996. The market decline in June
and July was prompted by (1) fear of a more restrictive monetary policy in
response to the perceived excess strength in certain segments of the economy;
(2) earnings disappointments announced by several top tier technology companies;
and (3) the potential for further mutual fund redemptions to exacerbate the
stock market decline. In August and September, markets have rallied as near
term economic data suggests sustained modest growth low inflation environment.
It continues to be our belief that the economy is not in any immediate danger of
overheating. We believe the threat of rising inflation is remote given massive
global excess capacity, fiscal downsizing and privatizations, a rising dollar,
restrained money supply growth and top heavy consumer balance sheets. We
believe the probabilities favor a continued moderation of growth in the fourth
quarter of 1996 and extension of the business cycle well into 1997 and perhaps
beyond.
[TCW GALILEO MID-CAP GROWTH FUND GRAPH APPEARS HERE]
24
<PAGE>
TCW GALILEO SMALL CAP GROWTH FUND - 1996 RESULTS
In spite of a very disappointing second half, the year 1996 was the second
year in a row of strong performance in the TCW Galileo Small Cap Growth Fund.
Outstanding results during the first six months of the year were somewhat offset
by losses in the second six months of 1996. Total return for the period
November 1, 1995 through October 31, 1996 was 29.7%. This compares with 16.6%
for the Russell 2000 and 14.4% for the NASDAQ Industrials.
Technology was not as dominant in fueling the 1996 gain as it had been in
1995, although the telecommunication sector in technology did post strong
results. Performance was primarily driven by gains in business services,
pollution control, and leisure/entertainment/photo/media, while disappointing
results in the electrical equipment and beverages/distribution/restaurant areas
held the Fund back somewhat.
Although we made a number of changes in the Fund over the past twelve
months, there was relatively little change in the weightings of broad industry
sectors. Consumer staples rose to represent over half of the portfolio, almost
entirely the result of added investments in business services. Health care, a
part of consumer staples, remains the largest sector holding in the Fund.
Holdings in capital goods declined slightly during the year, as decreases in
information and semiconductors/instruments more than offset an increase in our
telecommunication holdings. Our sector decisions continue to be driven by
bottom-up, company-by-company investment decisions.
[TCW GALILEO SMALL CAP GROWTH FUND GRAPH APPEARS HERE]
25
<PAGE>
TCW GALILEO ASIA PACIFIC EQUITY FUND - 1996 RESULTS
The total return earned by the Fund during the period ended October 31, 1996
was 11.4%. This compares favorably to the 6.2% return of the Morgan Stanley
Combined Far East Free ex-Japan Index for the same period.
The Fund outperformed the MSCI Combined Far East Free ex-Japan Index due to
a judicious asset allocation strategy when the Asian equity markets delivered
mixed performances. The Fund benefitted from maintaining an overweight position
in its two largest holdings, Hong Kong and Malaysia, which delivered robust
performances of 27.5% and 22.8%, respectively, during the twelve months ended
October 31, 1996. Within Hong Kong, the Fund emphasized red-chips --Hong Kong
listed companies backed by government controlled entities in Mainland China --
which strongly outperformed in the third quarter. Furthermore, the Fund
benefitted from an underweight position in the two weakest performing markets in
the region, Thailand and Korea, which posted losses of 29.3% and 29.2%,
respectively. These markets have been hurt by declining export growth and
widening current account deficits.
[TCW GALILEO ASIA PACIFIC EQUITY FUND GRAPH APPEARS HERE]
26
<PAGE>
TCW GALILEO EMERGING MARKETS FUND - 1996 RESULTS
The total return earned by the Fund during the period ended October 31,
1996, was 14.1%. This compares favorably to the positive 10.5% return of the
International Finance Corporation (IFC) Composite Investable Index for the same
period.
As an asset class, the Emerging Markets generally performed well during the
period, buoyed by strong capital inflows as easing global liquidity and
strengthening market fundamentals renewed foreign investor interest early in the
year. Continued improvements of economic fundamentals, coupled with a benign
interest rate environment, provided further impetus to the markets during the
remainder of the period. The Fund's outperformance relative to the
International Finance Corporation (IFC) Composite Investable Index is
attributable to strong performance by the Fund's largest holdings including
Malaysia, Brazil, and Mexico, which rose 23.2%, 26.8%, and 22.1%, respectively.
The Fund also benefitted from increased exposure to several emerging European
markets including Russia, Hungary, Poland, and Czech Republic, which experience
strong rallies during the period. In addition, the Fund virtually eliminated
its exposure to South African equities prior to a decline of 12.4% between March
and October 31.
[TCW GALILEO EMERGING MARKETS FUND GRAPH APPEARS HERE]
27
<PAGE>
TCW GALILEO LATIN AMERICA EQUITY FUND - 1996 RESULTS
The total return earned by the Fund during the period ended October 31,
1996, was 27.1%. This compares favorably to the 19.5% return of the
International Finance Corporation (IFC) Latin America Investable Index for the
same period.
The Fund's outperformance relative to the International Finance Corporation
(IFC) Latin America Investable Index is primarily due to the Fund's overweight
position in Brazilian equities, which rose 26.8% during the period. Moreover,
the Fund's Brazil stock portfolio outperformed the IFC Brazil index with roughly
two-thirds of its Brazil investments concentrated in state-owned companies.
State-owned companies were some of the top performers during the period, due to
continued progress on the reduction of the Federal government's role in the
telecommunications, electricity, and petroleum sectors. The Fund's
outperformance is also attributable to its strong position in Mexican equities,
which rose 22.1% during the period, as investors were encouraged by positive
economic data, indicating a stronger than expected economic recovery.
[TCW GALILEO LATIN AMERICA EQUITY FUND GRAPH APPEARS HERE]
28
<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 Core Fixed Income Fund, TCW Galileo High Yield Bond
Fund, TCW Galileo Long-Term Mortgage-Backed Securities Fund and TCW Galileo
Mortgage-Backed Securities Fund (collectively, the "Bond Funds"); five equity
funds -- TCW Galileo Convertible Securities Fund, TCW Galileo Core Equity Fund,
TCW Earnings Momentum Fund, TCW Galileo Mid-Cap Growth Fund, TCW Galileo Small
Cap Growth 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
Appendix to this Prospectus.
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.
29
<PAGE>
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 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 Fund will purchase only those instruments that meet the following
applicable quality requirements. The Fund will not purchase a security (other
than a security issued or guaranteed as to principal and interest by the United
States Government, its agencies or instrumentalities) unless the security or the
issuer with respect to comparable securities (i) is rated by at least two
nationally recognized statistical rating organizations ("NRSROs") such as S&P or
Moody's in one of the two highest rating categories for short-term debt
obligations, (ii) is rated in one of the two highest categories for short-term
debt by the only NRSRO that has issued a rating, or (iii) if not so rated, the
security is determined by the Adviser to be a comparable quality. As a matter
of operating policy, the Fund will not purchase commercial and other short-term
obligations of United States corporations unless the instrument is rated A-1 by
S&P, P-1 by Moody's or, if not rated, determined to be of comparable quality by
the Adviser.
TCW GALILEO CORE FIXED INCOME FUND
TCW Galileo Core Fixed Income Fund seeks to provide above-average total
return from income and capital appreciation 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 under normal circumstances.
Fixed income securities that the Fund may invest in include obligations
issued or guaranteed by the United States government, its agencies or
instrumentalities ("U.S. Government Securities"), bonds, notes, 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 corporations and
governments and other securities bearing fixed or variable interest rates. The
Fund is not limited as to the maturities of the debt securities in which it
invests
30
<PAGE>
and the Fund's average maturity is likely to vary from time to time. Securities
in the Fund's portfolio are generally 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
security selection within a given sector, relative performance of the various
market sectors, the shape of the yield curve and fluctuations in the overall
level of interest rates. The Adviser also utilizes active asset allocation in
an effort to obtain incremental returns. 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 will not invest more than 15% of its total assets in securities
rated below investment grade. 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 and
generally involve more risk of loss of principal and income than investment
grade securities. Also their yields and market value tend to fluctuate more
than higher-rated 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 greater discussion of the risks
associated with high yield lower rated securities. See Page 58 of this
Prospectus.
The Fund may also invest up to 20% of its total assets in securities issued
by foreign governments or companies which are investment grade-rated or
equivalent and which may be denominated in foreign currencies. In conjunction
with making these investments, the Fund may attempt to hedge the currency risk
of such securities by purchasing or selling 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.
31
<PAGE>
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. Subject to certain
limitations, the Fund may enter into repurchase agreements, futures contracts or
options on such contracts to attempt to protect against possible changes in the
market value of securities held in or to be purchased by the Fund resulting from
interest rate or market fluctuations, to protect unrealized gains in the value
of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage its effective maturity or duration, or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. 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 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
32
<PAGE>
come out of bankruptcy. 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.
See the Appendix to this Prospectus for the composition of the Fund's portfolio
by rating category as of October 31, 1996.
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.
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.
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The Fund may invest in unrated securities if the Adviser determines 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 repurchase agreements, 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. The Fund may invest in securities of foreign companies. The Fund will not
invest more than 10% of the value of its total assets, measured at the time of
purchase, in Eurodollar securities which are fixed income securities of a U.S.
or foreign issuer that are issued in U.S. dollars outside the United States.
This 10% limit shall not apply to securities issued or guaranteed by Canadian
companies, provided the interest and principal on such securities is payable in
U.S. dollars. The Fund will not invest more than 5% of the value of its total
assets, measured at the time of purchase, in non-dollar denominated foreign
securities. 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 changed circumstances in dealings between nations. For a discussion of the
risks of foreign securities, see "Risk Considerations - Foreign Securities". In
addition, 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 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 maturity 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 means a security's price will
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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
maturity of the Long-Term Mortgage-Backed Securities portfolio will cause its
yield to be higher but 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); (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 - Collateralized Mortgage Obligations" at
page 61 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.
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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 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 CONVERTIBLE SECURITIES FUND
TCW Galileo Convertible Securities Fund seeks high total return from
current income and capital appreciation through investment principally in
convertible securities. It is a fundamental policy of the Fund that, under
normal market conditions or unless the Fund has adopted a temporary defensive
position, it will invest at least 65% of its total assets in convertible
securities. Securities obtained upon the conversion of convertible securities
may be retained during periods when market conditions are unfavorable for their
disposition. Securities received upon conversion may also be retained by the
Fund to permit orderly disposition or to establish long-term holding periods for
federal income tax purposes in which such gains are accorded favorable tax
treatment. The Fund will convert a convertible security which it holds when
necessary to permit orderly disposition of the investment when a convertible
security reaches maturity or has been called for redemption. Conversion could
also occur to facilitate a sale of the position or if the dividend rate on the
underlying common increased above the yield on the convertible security.
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The Fund will invest in convertible securities which the Adviser believes
are attractive based upon both the terms of the security and the fundamental
outlook for the underlying equity. Under normal market conditions, the Fund
will invest in a portfolio of generally more than 60 securities. The Fund will
not invest in convertible securities that are rated lower than B- or B3 by
either S&P or Moody's, respectively, or if not rated, determined to be of
comparable quality by the Adviser. The Fund will not invest in securities that
are in default as to payment of principal. See Appendix A to this Prospectus
for a description of S&P and Moody's ratings. The Fund may invest, without
limitation in United States dollar denominated ("Eurodollar") convertible
securities that are convertible into or exchangeable for foreign equity
securities listed or represented by American Depository Receipts ("ADRs") listed
on the New York or American Stock Exchanges or that are convertible into or
exchangeable for publicly traded common stock of U.S. companies. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying foreign securities. Eurodollar convertible
securities are fixed income securities of a U.S. or foreign issuer that are
issued in U.S. dollars outside the United States and are convertible into or
exchangeable for equity securities of the same or a different issuer. Interest
and dividends on Eurodollar securities are payable in U.S. dollars outside of
the United States. The Fund may not invest more than 15% of its net assets in
Eurodollar convertible securities that are convertible into or exchangeable for
foreign equity securities which are not listed, or represented by ADRs listed on
the New York or American Stock Exchanges. The Fund's investment in convertible
securities convertible into or exchangeable into unlisted foreign securities is
subject to the Fund's overall policy of limiting its investment in illiquid
securities to 15% or less of its net assets. The Fund will generally sell
convertible securities after they have appreciated substantially since these
securities generally reflect much of the volatility of the underlying common
stock and have diminished downside protection. See the Appendix to the
Prospectus and the Statement of Additional Information for a greater discussion
of convertible securities.
In selecting convertible securities for the Fund, the following factors,
among others, will be considered by the Adviser: (a) the Adviser's own
evaluations of the creditworthiness of the issuers of the securities; (b) the
interest or dividend income generated by the securities; (c) the potential for
capital appreciation of the securities and the underlying common stocks; (d) the
protection against price declines relative to the underlying common stocks; (e)
the prices of the securities relative to other comparable securities; (f)
whether the securities are entitled to the benefits of sinking funds or other
protective conditions; (g) diversification of the Fund's portfolio as to
issuers; and (h) whether the securities are rated by Moody's and/or S&P and, if
so, the ratings assigned.
Convertible securities are generally not investment grade, that is, not
rated within the four highest categories by S&P and Moody's. To the extent that
the convertible securities acquired by the Fund are rated lower than investment
grade, there is greater risk as to the repayment of the principal of, and
payment of interest or dividends on, such securities. The Fund expects that
many convertible securities which it purchases will be rated BB or lower by S&P
or Ba or lower by Moody's, which ratings are considered by the ratings agencies
to be speculative. See "Risk Considerations - Risks Associated With Lower Rated
Securities."
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The Fund may invest in certain "hybrid securities" consisting of investment
grade debt obligations with an investment return coupled to the performance of a
common stock index such as the Standard & Poor's 500 Composite Stock Price
Index. Such hybrid securities are usually zero-coupon obligations payable at
maturity at the higher of (1) face value or (2) face value multiplied by the
value of the specified index at maturity and divided by a specified amount which
may be 110% to 120% of the value of the index at the date of issue. In addition
to the credit risk of the issuer, the investment is subject to loss of value in
the event the index declines. The Fund does not intend to invest more than 5%
of its total assets in such hybrid securities.
The Fund may invest up to 35% of its total assets in nonconvertible equity
and investment grade fixed income securities. The nonconvertible investment
grade securities that the Fund may invest in will consist of securities issued
or guaranteed by the United States government, its agencies or
instrumentalities, corporate debt securities and money market securities. After
purchase, a security may have its rating reduced below investment grade. Such
event will not require the sale of the security by the Fund. However, the
Adviser will consider such event in its determination of whether the Fund should
continue to hold such security. In addition, the Fund may enter into repurchase
agreements, purchase and sell securities on a when issued, forward commitment or
a when, as and if issued basis, purchase and write call and put options and,
from time to time, make short sales of securities it owns or has the right to
acquire through conversion or exchange of other securities it owns ("short sales
against the box"). The Fund will not make short sales or maintain a short
position if to do so would cause more than 25% of the Fund's total assets to be
held as collateral for such sales. 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 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 objective 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 30-55 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.
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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 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 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 39 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.
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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 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 58 of this Prospectus.
TCW GALILEO MID-CAP GROWTH FUND
TCW Mid-Cap Growth Fund seeks long term capital appreciation by investing
at least 65% of total assets under normal circumstances in publicly-traded
equity securities issued by medium-sized companies as defined by S&P. The
Adviser will generally focus on those companies whose market capitalizations, at
time of acquisition, are in the $300 million to $5 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 $5 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
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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 ADRs, EDRs, GDRs and similar types of securities
convertible into foreign issuers. See page 39 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. After purchase, a security may have its
rating reduced below investment grade. Such event will not require the sale of
the security by the Fund. However, the Adviser will consider such event in its
determination of whether the Fund should continue to hold such security. See
page 58 of this Prospectus for a discussion of the risks associated with lower
rated 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 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 58 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.
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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 investment grade fixed income 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 65% 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 35% 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 54.
The Fund may also invest in convertible 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 securities are commonly known as "junk" bonds. The
prices of lower rated securities have been found to be more sensitive to changes
in prevailing interest rates than higher rated investments, and are likely to be
more sensitive to adverse economic changes or individual corporate developments.
See page 58 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.
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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 is expected that the
Fund's portfolio will contain securities in excess of 100 issuers. Dividend
income is not a consideration in the selection of stocks for purchase by the
Fund.
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"). The Fund may
also invest in debt securities which are likely to be unrated or to be rated
below investment grade. 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.
The Asia Pacific Countries that the Fund currently intends to invest in
include Hong Kong, Singapore, Thailand, Malaysia, South Korea, the Philippines,
Indonesia, Taiwan, India, Pakistan, Sri Lanka, China and Bangladesh. The Fund
will not invest in Japan, Australia and New Zealand.
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.
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The Adviser's investment process incorporates both a "top-down" and
"bottom-up" analysis of the Asia Pacific Countries. The "top-down" analysis
starts with an evaluation of the global environment, including OECD economic
growth rates, global liquidity trends, trading patterns and trade agreements
and, in some cases, commodity prices and global political developments. Within
this global context, the next step entails further macroeconomic analysis of the
Asia Pacific Countries, with a focus on such factors as GDP growth, capital
flows, inflation, money supply growth, interest rates and foreign exchange
rates.
The Adviser complements this "top-down" view via "bottom-up" analysis.
Country allocation is driven by expected stock market returns which are derived
from estimating earnings growth in dollars and a future change in a country's
market multiple. The key factors used by the Adviser in assessing the potential
for an expansion (rerating) or contraction (derating) of a stock market's
earnings multiple are liquidity, historical valuations, the sustainability of
economic growth and political environment. As part of the portfolio management
process, countries are ranked according to their expected returns and then
country weightings are made within prescribed country weighting ranges. The
country weighting ranges incorporate the size of a country's market
capitalization, the capitalization relative to GDP size, and daily trading
volume. A country's political regime and legal framework for the treatment of
foreign investors are also taken into consideration.
The next stage in the Adviser's investment process is industry analysis.
The objective is to identify sectors which are seen as drivers of economic
growth. Certain long term developments such as privatization programs,
infrastructure investments, increasing consumerism, and deregulation of capital
markets tend to generate attractive areas of investment in developing countries.
The Adviser's strategy is to identify those sectors that would benefit from
these structural changes and overweight them in sector allocation.
The Adviser next screens companies based on certain quantitative factors
such as earnings growth potential, as well as price to earnings, price to cash
flow and enterprise value to EBITDA ratios in order to evaluate both company and
sector relative value. The Adviser does not adopt a strategy of only buying
stocks with low price/earnings ratios. Instead, a stock is examined in its
totality, incorporating the quantitative data as well as making certain
qualitative judgements.
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.
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In connection with making its investments in Asia Pacific countries, the
Fund may attempt to hedge the currency risk of such securities by purchasing or
selling 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, Israel 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 the Fund intends to currently invest in
include (a) the Latin American countries of Argentina, Brazil, Chile, Colombia,
Mexico, Peru and Venezuela, (b) the East Asian Countries of South 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: Botswana, Czech
Republic, Egypt, Ghana, Greece, Hungary, Israel, Jordan, Kenya, Morocco,
Namibia, Nigeria, Poland, Portugal, Russia, Slovak Republic, South Africa,
Turkey, Zambia 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.
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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 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 on 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. The Adviser utilizes both a "top-down view" and a "bottom-up
analysis". 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.
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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
or selling foreign currency 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.
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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 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.
The investment decision process is centered on identifying countries, or
sectors within countries, with superior upside potential due to strong earnings
growth and improved valuation. For each market and industry sector, an
expectation is formulated for earnings growth in U.S. dollar terms as well as an
expected change in valuation.
In general, earnings growth estimates involve both a "top-down" and
"bottom-up" analysis. Economic growth, and hence earnings growth, in Latin
America is highly correlated with global trends in interest rates, commodity
prices, and OECD growth. At the individual country level, issues such as
currency valuations, privatizations, and the stability of political regimes can
have a profound impact on the business outlook. The Adviser utilizes a broad
range of resources in formulating its down economic view including its internal
research, in-country visits with government officials, business leaders, and
private sector consultants; and multilateral agencies such as the World Bank,
IMF, and IADB.
Next, company earnings models are built in order to provide forecasts of
both real and nominal growth. The expected change in local currency is also
incorporated into the forecast thereby enabling portfolio managers to
differentiate between underlying earnings growth and earnings growth in dollar
terms derived from currency movement.
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While identifying earnings growth is key, superior returns typically are
achieved when a market or sector not only exhibits growth but is also
undervalued. The Adviser looks for declining interest rates, a reduction in
country risk, or low evaluation measures (P/E, P/CF, and P/BV ratios) relative
to a stock market's historical levels in order to identify situations where
valuations are likely to improve. In addition, the Adviser strives to
understand government policies regarding privatizations and public sector
tariffs which can dramatically impact the valuation of industries such as
telecommunications and utilities. When possible, companies are compared
throughout the region on the basis of firm value/capacity as a cross-check for
valuation. From the expected earnings growth and expected change in valuation,
an expected return for a country or sector can be calculated.
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 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 or selling 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
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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 temporary 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 and, unless a temporary defensive position is established, no Fund
other than Money Market will invest more than 35% of its total assets in money
market instruments.
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.
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(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 days
(not including Sundays and holidays). 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 the case of Money Market, 10%) of the Fund's total assets, (c) enter
into futures contracts or purchase related options thereon (other than bonafide
hedging transactions) if, immediately thereafter, the amount of initial margin
and premiums for unexpired futures contracts and options on futures contracts
exceeds 5% of the Fund's liquidation value after taking into account unrealized
profits and losses on such futures contracts, provided, however, that in the
case of an option that is in-the-money [the exercise price of the call (put)
option is less (more) than the market price of the underlying security] at the
time of purchase, the in-the-money amount may be excluded in calculating the 5%,
(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.
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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. The portfolio
turnover rates for each of the Funds for the fiscal years ended October 31, 1995
and 1996 were respectively, Core Fixed Income - 223.78% and 238.73%, High Yield
- - - 36.32% and 82.56%, Long-Term Mortgage-Backed - 23.76% and 39.28%, Mortgage-
Backed - 37.83% and 54.10%, Core Equity -53.77% and 39.58%, Earnings Momentum
85.91% and 99.03%, Small Cap Growth -89.73% and 45.43%, Asia Pacific Equity -
102.01% and 84.81%, Emerging Markets -74.24% and 83.76% and Latin America -
75.62% and 44.32%. The portfolio turnover rate for Mid-Cap Growth for the
period June 3, 1996 through October 31, 1996 was 19.19%. The portfolio turnover
rate for Convertible Securities is expected not to exceed 125%. 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.
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.
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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 All Bond Funds and 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 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.
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"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 and Core Fixed Income are each permitted to invest in
securities issued by foreign governments or companies and Convertible Securities
and High Yield Bond may invest in securities issues by foreign 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
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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 62.
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, 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.
55
<PAGE>
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 Core Fixed
Income are authorized to enter into certain foreign currency forward contracts.
With respect to Emerging Markets, Core 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.
FUTURES
There are certain risks inherent in the use of futures contracts and
options on futures contracts. Successful use of futures contracts by a Fund is
subject to the ability of the Adviser to correctly predict movements in the
direction of interest rates or changes in market conditions. In addition, there
can be no assurance that there will be a correlation between price movements in
the underlying securities, currencies or index and the price movements in the
securities which are the subject of hedge. Positions in futures contracts and
options on futures contracts may be closed out only on the exchange or board of
trade on which they were entered into, and there can be no assurance that an
active market will exist for a particular contract or option at any particular
time. If a Fund has hedged against the possibility of an increase in interest
rates or a decrease in the value of portfolio securities and interest rates fall
or the value of portfolio securities increase instead, a Fund will lose part or
all of the benefit of the increased value of securities that it has hedged
because it will have offsetting losses in its futures positions. In addition,
in such situations, if a Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it is
disadvantageous to do so. These sales of securities may, but will not
necessarily, be at increased prices that reflect the decline in interest rates.
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<PAGE>
While utilization of futures contracts and options of futures contracts may be
advantageous to a Fund, if the Fund is not successful in employing such
instruments in managing its investments, the Fund's performance will be worse
than if the Fund not make such investment in futures contracts and options on
futures contracts.
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 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.
57
<PAGE>
Special risks are presented by internationally-traded options of the type
the Equity Funds and Core 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.
RISKS ASSOCIATED WITH LOWER RATED SECURITIES
The Convertible Securities and High Yield Bond portfolios consist primarily
of below investment grade corporate securities that are commonly known as junk
bonds. In addition, the Equity Funds may invest in convertible securities and
Asia Pacific Equity, Core Fixed Income, Earnings Momentum, Emerging Markets,
Latin America Equity 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/high risk 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/high risk
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/high risk 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/high risk 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.
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<PAGE>
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/high risk
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 lower-rated fixed income
security may fluctuate more than the market value of higher rated securities,
since changes in the creditworthiness of lower rated issuers and 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/high risk 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.
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/high risk 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/high risk 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/high risk 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
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<PAGE>
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.
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 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 lower rated
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
Core 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.
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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 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.
COLLATERALIZED MORTGAGE OBLIGATIONS. 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 CORE
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 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
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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 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.
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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 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.
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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.
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, 1996, the Adviser and its affiliated companies had
over $50 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.
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PORTFOLIO MANAGERS
Listed below are the individuals who have been primarily responsible for
the day-to-day portfolio management 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.
Mark D. Senkpiel Senior Vice President, the Adviser since
January 1996. Previously, he was an
Investment Director of Allstate Insurance
Company.
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.
CORE FIXED INCOME Mark L. Attanasio See above.
Philip A. Barach Group Managing Director, the Adviser,
TCW Asset Management Company and
Trust Company of the West; Vice
President, several TCW/DW Funds since
September 1992.
Walter J. Blasberg Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West since June 1995.
Prior to its acquisition by TCW, he was
President and Chief Executive Officer of
Continental Asset Management.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
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, 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.
LONG-TERM MORTGAGE-BACKED Philip A. Barach See above.
AND MORTGAGE-BACKED
Jeffrey E. Gundlach See above.
Frederick Horton See above
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.
LATIN AMERICA Shannon M. Callan Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West. 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.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Michael P. Reilly Managing Director, 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.
Managing Director, the Adviser, TCW
Terence F. Mahony Asset Management Company and Trust
Company of the West since April 1996.
Previously he was Chief Investment Officer
for Global Emerging Markets at HSBC
Asset Management (September 1993 to
April 1996) and prior thereto was a Director
at Baring Asset Management.
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 Christopher J. Ainley Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West. Prior to joining
TCW in 1994 he was a portfolio manager
with Putnam Investments.
Douglas S. Foreman See above.
CONVERTIBLE SECURITIES Robert M. Hanisee See above.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Kevin A. Hunter Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West.
</TABLE>
__________________
(1) Positions with The TCW Group, Inc. and its affiliates may have changed over
time.
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. The Adviser also pays all costs of marketing the
Funds, including sales personnel compensation, from its investment advisory fees
and other resources available to it. 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%
Core Fixed Income .40%
Long-Term Mortgage-Backed .50%
Mortgage-Backed .50%
High Yield Bond .75%
Convertible Securities .75%
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.
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<PAGE>
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 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 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 investment advisory 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, 1996, 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 -
0.90%; Core Fixed Income -0.76%; Long-Term Mortgage-Backed - 0.68%; Mortgage-
Backed - 0.69%; Core Equity -0.82%; Mid-Cap Growth - 1.20% (after expense
reimbursement); Small Cap Growth -1.14%; Earnings Momentum - 1.13%; Asia Pacific
- - - 1.43%; Emerging Markets - 1.41%; and Latin America - 1.44%. With respect to
Convertible Securities and Money Market, the Adviser has agreed to reduce its
investment advisory fee, or to pay the operating expenses for the Fund, to the
extent necessary to limit the Fund's ordinary annual operating expenses
(including amortization of organizational expenses but excluding brokerage fees
and commissions, interest, taxes and certain extraordinary expenses) to 0.95%
and 0.40%, respectively, of their average net value, until December 31, 1997.
With respect to Core Fixed Income, the Adviser has agreed to reduce its
investment advisory fee to 0.35% of the Fund's average daily net assets until
October 31, 1997.
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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, including checks drawn on foreign
banks, must be in U.S. dollars and made payable to the Fund in which you are
investing. Checks drawn on foreign banks must have the routing number of the
U.S. bank indicated on the check. 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 reserve the right to suspend the offering of shares from time to
time and to reject any purchase order for any reason.
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 Systems, Inc./AC 9870371553
FBO TCW Galileo ______________ Fund
(Name on the Fund Account) _____________________
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<PAGE>
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.
United Missouri Bank, n.a.
ABA No. 101000695
DST Systems, 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 to the address listed below. If you
are adding to your account, include a note specifying the
Fund name, your account number, and the name(s) your account
is registered in.
REGULAR MAIL:
TCW Galileo _______________ Fund
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
EXPRESS, REGISTERED OR CERTIFIED MAIL:
TCW Galileo ________________ Fund
DST Systems, 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.
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.
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
71
<PAGE>
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.
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
72
<PAGE>
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."
REDEMPTION AND EXCHANGE OF SHARES
REDEMPTIONS AND EXCHANGES
The following are the procedures you may follow to exchange or redeem
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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<PAGE>
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. To receive the net asset value for a specific day, a telephone
redemption request or a written redemption request in proper form must be
received by the Transfer Agent before the close of the New York Stock Exchange
on that day. See "Redemption and Exchange of Shares - Redemptions and
Exchanges."
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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<PAGE>
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.
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.
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<PAGE>
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.
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
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<PAGE>
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 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.
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<PAGE>
Certain of the Funds' portfolio securities may be valued by an outside
pricing service approved by the Company's Board of Directors. The pricing
service utilizes a matrix system incorporating security quality, maturity and
coupon as the evaluation model parameters and/or research and evaluations by its
staff, including review of broker-dealer market price quotations, in determining
what it believes is the fair value of the portfolio securities valued by such
pricing service.
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.
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.
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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 (except Convertible Securities) will be declared and
paid annually. Dividends from the net investment income of Convertible
Securities will be declared and paid quarterly. 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 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.
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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 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
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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 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.
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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 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. The Funds' total return calculation will be calculated from the
inception date of their predecessor limited partnerships, if applicable.
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"
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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 October 31, 1996, the yield and effective
yield of Money Market were 5.01% and 5.13%, 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. The
Funds may also compare their performance to that of recognized broad-based
securities markets indices including the Standard & Poor's 500 Stock Index, the
Russell 2000 Stock Index, or more narrowly-based indices which reflect the
market sectors in which a Fund invests.
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.
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
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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.
CODE OF ETHICS
The Adviser is subject to a Code of Ethics with respect to investment
transactions in which the Adviser's officers, directors and certain other
persons have a beneficial interest to avoid any actual or potential conflict or
abuse of their fiduciary position. The Code of Ethics contains several
restrictions and procedures designed to eliminate conflicts of interest
including: (a) pre-clearance of personal investment transactions to ensure that
personal transactions by employees are not being conducted at the same time as
the Adviser's clients; (b) quarterly reporting of personal securities
transactions; (c) a prohibition against personally acquiring securities in an
initial public offering, entering into uncovered short sales and writing
uncovered options; (d) a seven day "black out period" prior or subsequent to a
Fund transaction during which portfolio managers are prohibited from making
certain transactions in securities which are being purchased or sold by a client
of such manager; (e) a prohibition, with respect to certain investment
personnel, from profiting in the purchase and sale, or sale and purchase, of the
same (or equivalent) securities within 60 calendar days; and (f) a prohibition
against acquiring any security which is subject to firm wide or, if applicable,
a department restriction of the Adviser. The Code of Ethics provides that
exemptive relief may be given from certain of its requirements, upon
application. The Adviser's Code of Ethics complies with regulatory requirements
and, insofar as it relates to persons associated with registered investment
companies, the Report of the Advisory Group on Personal Investing of the
Investment Company Institute.
TRANSFER AGENT AND CUSTODIANS
DST Systems, 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. Chase Manhattan 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.
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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 LLP, 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
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. Should a counter party to a Mexican repurchase agreement become
insolvent during the term of the repurchase agreement, the Fund could suffer
upon a loss the sale of the securities subject to the agreement if their value
declined. Foreign repurchase agreements also entail currency risk.
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
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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.
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
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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 Core 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 Core 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 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 CORE 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 CORE FIXED INCOME, LONG-TERM MORTGAGE-BACKED SECURITIES
AND MORTGAGE-BACKED SECURITIES
GUARANTEED MORTGAGE-PASS THROUGH SECURITIES. Core 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 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
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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. Core Fixed Income, Long-Term Mortgage-Backed Securities and
Mortgage-Backed Securities 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 CORE FIXED INCOME
FORWARD CURRENCY TRANSACTIONS. The Equity Funds (except Earnings Momentum
and Mid-Cap Growth) and Core 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, debentures, 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 CONVERTIBLE SECURITIES
SHORT SALES AGAINST THE BOX. The Convertible Securities Fund may from time
to time make short sales of securities it owns or has the right to acquire
through conversion or exchange of other securities it owns. A short sale is
"against the box" to the extent that the Fund contempraneously owns or has the
right to obtain at no added cost securities identical to those sold short. In a
short sale, the Fund does not immediately deliver the securities sold and does
not receive the proceeds from the sale. The Fund is said to have a short
position in the securities sold until it delivers the securities sold, at which
time it receives the proceeds of the sale. When a short sale transaction is
closed out by delivery of the securities, any gain or loss on the transaction is
taxable as a short term capital gain or loss.
To secure its obligation to deliver the securities sold short, the Fund
will deposit in a separate escrow account with its custodian an equal amount of
the securities sold short or securities convertible into or exchangeable for
such securities. The Fund may close out
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a short position by purchasing and delivering an equal amount of the securities
sold short, rather than by delivering securities already held by the Fund,
because the Fund may want to continue to receive interest and dividend payments
on securities in its portfolio that are convertible into the securities sold
short. However, the Fund will not purchase and deliver new securities to
satisfy its short order if such purchase and sale would cause the Fund to
violate any test imposed by the Internal Revenue Code as to regulated investment
companies.
The Fund may make a short sale in order to hedge against market risks when
the Adviser believes that the price of a security may decline, causing a decline
in the value of a security owned by the Fund or a security convertible into or
exchangeable for such security. However, to the extent that in a generally
rising market the Fund maintains short positions in securities rising with the
market, the net asset value of the Fund would be expected to increase to a
lesser extent than the net asset value of an investment company that does not
engage in short sales. The Fund may also make a short sale when it does not
want to sell the security it owns, because, among other reasons, it wishes to
defer recognition of gain or loss for Federal income tax purposes. In such
case, any future losses in the Fund's long position should be reduced by a gain
in the short position. The extent to which such gains or losses are reduced
will depend upon the amount of the security sold short relative to the amount
the Fund owns, either directly or indirectly, and, in the case where the Fund
owns convertible securities, changes in the investment value or conversion
premiums. Additionally, the Fund may use short sales when it is determined that
a convertible security can be bought at a small conversion premium and has a
yield advantage relative to the underlying common stock sold short. The
potential risk in this strategy is the possible loss of any premium over
conversion value in the convertible security at the time of purchase. The
purpose of this strategy is to produce income from the yield advantage and to
provide the potential for a gain should the conversion premium increase.
STRATEGIES AVAILABLE TO CONVERTIBLE SECURITIES, MID-CAP GROWTH, LATIN AMERICA
EQUITY AND EMERGING MARKETS
LENDING OF PORTFOLIO SECURITIES. The Latin America, Emerging Markets,
Convertible Securities 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
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a Fund on two business 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 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
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
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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 category of High
Yield Bond's portfolio on October 31, 1996 as a percentage of total assets.
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.
<TABLE>
<CAPTION>
RATINGS CATEGORY: MOODY'S S&P
---------------- ------- ---
<S> <C> <C>
Aaa/AAA 0% 0%
Baa/BBB 0.9 0
Ba/BB 22.9 30.7
B/B 66.2 60.9
Caa/CCC 1.3 0.7
Ca/CC 0.5 0.5
D/D 0 0
NR/NR 8.2 7.2
---- ----
TOTAL 100% 100%
</TABLE>
EMERGING MARKET COUNTRY DESIGNATION
Presently, there are approximately 170 countries considered to be Emerging
Market Countries by the International Finance Corporation, a member of the World
Bank Group, 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:
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Belgium Luxembourg
Ireland Austria
Spain France
Israel Iceland
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.
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.
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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.
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
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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.
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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GRAPHICS APPENDIX
Performance graph on page 18 compares the performance of the Galileo Core Fixed
Income Fund since inception of predecessor limited partnership (January 1, 1990)
through October 31, 1996 to that of the Salomon Brothers Broad Based Bond Index
using a minimum initial investment of $250,000. At October 31, 1995 and 1996,
the value of an investment in the Fund would have been $390,036 and $406,649
compared to $418,299 and $442,913, respectively, for an investment in the index.
The Fund's average annualized total return is 4.3% (1 year), 3.2% (3 years),
6.3% (5 years) and 7.4% (since inception).
Performance graph on page 19 compares the performance of the Galileo High Yield
Fund since inception of predecessor limited partnership (February 1, 1989)
through October 31, 1996 to that of the Salomon Brothers High Yield Cash Pay
Index and Lehman Brothers Government Corporate Bond Index using a minimum
initial investment of $250,000. At October 31, 1995 and 1996, the value of an
investment in the Fund would have been $512,023 and $562,805 compared to
$505,517 and $558,977, respectively, for an investment in the index. The
Fund's average annualized total return is 9.9% (1 year), 8.6% (3 years), 11.2%
(5 years) and 11.1% (since inception).
Performance graph on page 20 compares the performance of the Galileo Mortgage-
Backed Securities Fund since of inception of predecessor limited partnership
(February 1, 1990) through October 31, 1996 to that of the Salomon Brothers One
Year U.S. Treasury Bill Index using a minimum initial investment of $250,000.
At October 31, 1995 and 1996, the value of an investment in the Fund would have
been $368,171 and $397,172 compared to $352,107 and $373,334, respectively, for
an investment in the index. The Fund's average annualized total return is 7.9%
(1 year), 5.9% (3 years), 6.0% (5 years) and 7.1% (since inception).
Performance graph on page 21 compares the performance of the Galileo Long-Term
Mortgage-Backed Securities Fund since inception of predecessor limited
partnership (June 18, 1993) through October 31, 1996 to that of the Lehman
Brothers Mortgage-Backed Securities Index using a minimum initial investment of
$250,000. At October 31, 1995 and 1996, the value of an investment in the Fund
would have been $283,065 and $304,814 compared to $285,806 and $305,596,
respectively, for an investment in the index. The Fund's average annualized
total return is 7.7% (1 year), 5.8% (3 years) and 6.1% (since inception).
Performance graph on page 22 compares the performance of the Galileo Core Equity
Fund since inception of predecessor limited partnership (July 1, 1991) through
October 31, 1996 to that of the S&P 500 Index using a minimum initial investment
of $250,000. At October 31, 1995 and 1996, the value of an investment in the
Fund would have been $457,796 and $534,639 compared to $443,043 and $549,783,
respectively, for an investment in the index. The Fund's average annualized
total return is 16.8% (1 year), 11.5% (3 years), 14.4% (5 years) and 15.3%
(since inception).
Performance graph on page 23 compares the performance of the Galileo Earnings
Momentum Fund since inception of predecessor limited partnership (May 1, 1993)
through October 31, 1996 to that of the Russell 2000 Index using a minimum
initial investment of $250,000. At October 31, 1995 and 1996, the value of an
investment in the Fund would have been $369,466 and $402,953 compared to
$369,574 and $398,406, respectively, for an investment in the index. The Fund's
average annualized total return is 14.0% (1 year), 10.0% (3 years) and 14.2%
(since inception).
Performance graph on page 24 compares the performance of the Galileo Mid-Cap
Growth Fund since inception of predecessor limited partnership (November 1,
1994) through October 31, 1996 to that of the S&P 400 Mid Cap Index using a
minimum initial investment of $250,000. At October 31, 1996, the value of an
investment in the Fund would have been $479,777 compared to $355,581 for an
investment in the index. The Fund's average annualized total return is 25.5% (1
year) and 38.5% (since inception).
Performance graph on page 25 compares the performance of the Galileo Small Cap
Growth Fund since inception of predecessor limited partnership (December 1,
1989) through October 31, 1996 to that of the Russell 2000 Index using a minimum
initial investment of $250,000. At October 31, 1995 and 1996 the value of an
investment in the Fund would have been $694,994 and $901,671 compared to
$487,989 and $569,047, respectively, for an investment in the index. The Fund's
average annualized total return is 29.7% (1 year), 21.0% (3 years), 19.1% (5
years) and 20.4% (since inception).
Performance graph on page 26 compares the performance of the Galileo Asia
Pacific Fund since inception of predecessor limited partnership (April 1, 1993)
through October 31, 1996 to that of the Morgan Stanley Combined Far East Ex
Japan Free Investable Index using a minimum initial investment of $250,000. At
October 31, 1995 and 1996, the value of an investment in the Fund would have
been $391,034 and $435,478 compared to $382,022 and $405,823, respectively, for
an investment in the index. The Fund's average annualized total return is 11.4%
(1 year), 4.2% (3 years) and 16.8% (since inception).
Performance graph on page 27 compares the performance of the Galileo Emerging
Markets Fund since inception of predecessor limited partnership (June 1, 1993)
through October 31, 1996 to that of the International Finance Corporation
("IFC") Emerging Markets Composite Global Total Return Index using a minimum
initial investment of $250,000. At October 31, 1995 and 1996, the value of an
investment in the Fund would have been $273,575 and $312,254 compared to
$315,009 and $348,051, respectively, for an investment in the index. The Fund's
average annualized total return is 14.1% (1 year), (0.9)% (3 years) and 6.7%
(since inception).
Performance graph on page 28 compares the performance of the Galileo Latin
America Equities Fund since inception of predecessor limited partnership (July
1, 1991) through October 31, 1996 to that of the IFC Latin America Investable
Index using a minimum initial investment of $250,000. At October 31, 1995 and
1996, the value of an investment in the Fund would have been $326,543 and
$414,966 compared to $432,699 and $518,776, respectively, for an investment in
the index. The Fund's average annualized total return is 27.1% (1 year), (2.1)%
(3 years), 7.7% (5 years) and 10.0% (since inception).
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<PAGE>
PART B
TCW GALILEO FUNDS, INC.
865 SOUTH FIGUEROA STREET, SUITE 1800
LOS ANGELES, CALIFORNIA 90017
(800) FUND TCW
THE GALILEO FUNDS
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 24, 1997
_________________________________
This Statement of Additional Information is not a prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus dated the same date which describes TCW Galileo Money Market Fund,
TCW Galileo High Yield Bond Fund, TCW Galileo Core Fixed Income Fund, TCW
Galileo Long-Term Mortgage-Backed Securities Fund, TCW Galileo Mortgage-Backed
Securities Fund, TCW Galileo Convertible Securities Fund, TCW Galileo Core
Equity Fund, TCW Galileo Small Cap Growth Fund, TCW Earnings Momentum Fund, TCW
Mid-Cap Growth Fund, TCW Galileo Asia Pacific Equity Fund, TCW Galileo Emerging
Markets Fund and TCW Galileo Latin America Equity Fund. This Statement of
Additional Information should be read in conjunction with the Prospectus. A
Prospectus may be obtained without charge by writing TCW Galileo Funds, Inc.,
Attention: Shareholder Relations Department, 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017 or by calling the Company's Shareholder
Relations Department at (800) FUND TCW. This Statement of Additional
Information, although not in itself a prospectus, is incorporated by reference
into the Prospectus in its entirety.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
GENERAL INFORMATION............................................... B-3
INVESTMENT PRACTICES.............................................. B-4
(See the Appendix to the Prospectus)
RISK FACTORS...................................................... B-15
(See "Risk Considerations" in the Prospectus)
INVESTMENT RESTRICTIONS........................................... B-21
DIRECTORS AND OFFICERS OF THE COMPANY............................. B-26
INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS................... B-30
DETERMINATION OF NET ASSET VALUE.................................. B-33
(See "Net Asset Value" in the Prospectus)
HOW TO BUY AND REDEEM SHARES...................................... B-33
(See "Purchase of Shares" and "Redemption
and Exchange of Shares" in the Prospectus)
HOW TO EXCHANGE SHARES............................................ B-33
(See "Redemption and Exchange of Shares" in the Prospectus)
EXCHANGES-IN-KIND................................................. B-34
DISTRIBUTIONS AND TAXES........................................... B-34
(See "Dividends, Distributions and Taxes" in the Prospectus)
INVESTMENT RESULTS................................................ B-37
(See "Performance Information" in the Prospectus)
FINANCIAL STATEMENTS.............................................. B-40
</TABLE>
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<PAGE>
GENERAL INFORMATION
TCW Galileo Funds, Inc. (the "Company") is an open-end management investment
company that was incorporated on September 15, 1992 as a Maryland corporation.
It currently offers shares of common stock in thirteen no load mutual funds
known as the Galileo Funds.
As of January 31, 1997, the following shareholders owned of record 5% or
more (but less than 25%) of the outstanding shares of the following Funds: CORE
FIXED INCOME -- Wells Fargo Bank, Trustee FBO Freedom Comm. Inc. Retirement Plan
(9.29%), Northern Trust, Trustee, Leavey Foundation Trust (18.44%), Mead
Foundation (13.41%), Barbara Pruitt Trust (5.22%) and Marlene Foskett Trust
(5.21%); HIGH YIELD BOND -- Collins Management Trust (5.12%); LONG-TERM
MORTGAGE-BACKED SECURITIES -- Catholic Health Corporation Retirement Plan
(10.82%), Catholic Health Corporation Health Services Self Protected Fund
(9.37%), Hep & Co. (6.73%), USNB, Custodian, Sierra Health Foundation (5.58%),
Mac & Co. GCMF 8563392, Mellon Bank, NA (10.98%), Mac & Co. FSPF 8631262, Mellon
Bank, NA (10.18%), and Bost & Co., CWCF 0012002 (14.07%); MORTGAGE-BACKED
SECURITIES -- St. Vincents Medical Center Foundation (10.73%), United Negro
College Fund (5.32%), and Catholic Health Corporation Investment Fund (14.95%);
ASIA PACIFIC EQUITY -- Hawaii Electricians Pension Fund (16.60%), Sobrato 1979
Revocable Trust (5.88%), Three-M Operating Subsidiary Ltd. (10.42%), and Lamb
Partners (7.04%); EMERGING MARKETS -- Bentley College (6.95%), Duke Endowment
Trust (16.23%), Bankers Trust Co. TTEE FBO Cravath Swaine & Moore Ret. Pl.
(5.47%), Northern Trust, Trustee Leavey Foundation Trust (5.82%), and Mac & Co.
861-520, Mellon Bank, NA (16.23%); CORE EQUITY -- Duke Endowment Trust (12.49%),
Egleston Children's Hospital (5.17%), and Santa Barbara Foundation (5.37%);
SMALL CAP GROWTH -- TCW Capital Investment Corp (6.26%), Mac & Co. GCMF 8563402,
Mellon Bank, NA (6.02%), and Mac & Co. FSPF 8631272, Mellon Bank, NA (5.57%);
EARNINGS MOMENTUM -- Duke Endowment Trust (17.59%), Three-M Operating Subsidiary
Ltd. (5.07%), and TCW Capital Investment Corp. (10.17%); CONVERTIBLE SECURITIES
- - -- The Seaver Institute (5.17%), Buck Foundation (6.60%), William & Charlene
Nored (11.07%), Transition Zone Horticultural Institute (6.38%), B.F. Foundation
(13.19%) and The Rose Hills Foundation (6.46%); and MONEY MARKET -- The TCW
Group Inc. (10.75%), and Sanwa Bank California (9.64%). All communications to
these shareholders can be addressed to TCW Funds Management, Inc, 865 South
Figueroa Street, 18th Floor, Los Angeles, California, 90017, Attention:
Shareholder Relations Department.
As of January 31, 1997, Mac & Co. 504-952, Mellon Bank N.A. owned 27.86% of
the outstanding shares of Mortgage-Backed Securities; Ministers and Missionaries
Benefit Board of the Baptist Church and Princeton University Investment Co.
owned 47.32% and 39.99%, respectively, of the outstanding shares of Latin
America Equity; Genesee County Employees Retirement System owned 27.50% of the
outstanding shares of High Yield Bond; and Saxon & Co. FBO PNC owned 39.27% of
Money Market. As a result of these holdings, each of these entities may be
considered a "control person" as defined in the Investment Company Act of 1940
with respect to the Fund in which it invests. All communications to these
shareholders can be addressed to TCW Funds Management, Inc., 865 South Figueroa
Street, 18th Floor, Los Angeles, California 90017, Attention: Shareholder
Relations Department.
B-3
<PAGE>
INVESTMENT PRACTICES
STRATEGIES AVAILABLE TO ALL FUNDS
MONEY MARKET INSTRUMENTS. All Funds may invest in money market instruments,
although the Bond Funds and Equity Funds may do so for defensive or temporary
purposes only. These instruments are limited to:
U.S. Government Securities. Obligations issued or guaranteed as to
--------------------------
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as
the Federal Home Loan Bank), including Treasury bills, notes and bonds;
Bank Obligations.
----------------
(Bond Funds and Equity Funds) Obligations (including certificates
of deposit, bankers' acceptances, commercial paper (see below) and
other debt obligations of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more, and
instruments secured by such obligations, not including obligations of
foreign branches of domestic banks except as permitted below.
(Money Market) U.S. dollar denominated instruments issued or
guaranteed by the 50 largest bank holding companies in the United
States, in terms of total assets, their subsidiaries and their London
branches. Such bank obligations may be general obligations of the
parent bank holding company or may be limited to the issuing entity by
the terms of the specific obligation or by government regulation;
Eurodollar Certificates of Deposit. (Bond Funds and Equity Funds)
----------------------------------
Eurodollar certificates of deposit issued by foreign branches of domestic
banks having total assets of $1 billion or more (investments in Eurodollar
certificates may be affected by changes in currency rates or exchange
control regulations, or changes in governmental administration or economic
or monetary policy in the United States and abroad);
Obligations of Savings Institutions. (Bond Funds and Equity Funds)
-----------------------------------
Certificates of deposit of savings banks and savings and loan associations,
having total assets of $1 billion or more (investments in savings
institutions above $100,000 in principal amount are not protected by federal
deposit insurance);
Fully Insured Certificates of Deposit. (Bond Funds and Equity Funds)
-------------------------------------
Certificates of deposit of banks and savings institutions, having total
assets of less
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<PAGE>
than $1 billion, if the principal amount of the obligation is insured by the
Bank Insurance Fund or the Savings Association Insurance Fund (each of which
is administered by the Federal Deposit Insurance Corporation), limited to
$100,000 principal amount per certificate and to 15% or less of the Fund's
total assets in all such obligations and in all illiquid assets, in the
aggregate;
Commercial Paper. The Bond Funds and the Equity Funds may purchase
----------------
commercial paper rated within the two highest grades by Standard & Poor's
Corporation ("S&P") or the highest grade by Moody's Investors Service, Inc.
("Moody's") or, if not rated, issued by a company having an outstanding debt
issue rated at least AAA by S&P's or Aaa by Moody's. Money Market may
purchase commercial paper rated the highest grade by S&P or Moody's, or, if
not rated, issued by a company which has an outstanding debt issue which the
Adviser determines to be of comparable quality;
World Bank Securities. (Money Market) Obligations of the
---------------------
International Bank for Reconstruction and Development, also known as the
World Bank (these obligations are supported by subscribed but unpaid
commitments of member countries, and there is no assurance that these
commitments will be undertaken or complied with in the future.
Money Market Mutual Funds. (Bond Funds and Equity Funds) Shares of
-------------------------
United States money market investment companies not affiliated with the
Adviser, subject to applicable legal restrictions and the Adviser's
determination that such investments are beneficial to the relevant Fund and
appropriate in view of such considerations as yield (taking into account the
advisory fees and expenses of the money market fund), quality and liquidity.
STRATEGIES AVAILABLE TO ALL BOND FUNDS AND EQUITY FUNDS
WHEN, AS AND IF ISSUED SECURITIES. The Bond Funds and the Equity Funds may
purchase securities on a "when, as and if issued" basis under which the issuance
of the security depends upon the occurrence of a subsequent event, such as
approval of a merger, corporate reorganization, leveraged buyout or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the Fund until the Adviser determines that
issuance of the security is probable. At such time, the Fund will record the
transaction and, in determining its net asset value, will reflect the value of
the security daily. At such time, the Fund will also establish a segregated
account with its custodian bank in which it will continuously maintain cash or
U.S. Government Securities or other liquid portfolio securities equal in value
to recognized commitments for such securities. Settlement of the trade will
occur within five Business Days (as defined in the Prospectus under "Purchase of
Shares") of the occurrence of the subsequent event. Once
B-5
<PAGE>
a segregated account has been established, if the anticipated event does not
occur and the securities are not issued, the Fund will have lost an investment
opportunity. Each Fund may purchase securities on such basis without limit. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
its net asset value. The Adviser does not believe that the net asset value of
the Fund will be adversely affected by its purchase of securities on such basis.
Each Fund may also sell securities on a "when, as and if issued" basis provided
that the issuance of the security will result automatically from the exchange or
conversion of a security owned by the Fund at the time of the sale.
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
purchase and write (sell) call and put options as described in the Prospectus
Appendix, including options listed on U.S. or foreign securities exchanges or
written in over-the-counter transactions ("OTC Options").
Exchange-listed options are issued by the Options Clearing Corporation
("OCC") (in the U.S.) or other clearing corporation or exchange which assures
that all transactions in such options are properly executed. OTC Options are
purchased from or sold (written) to dealers or financial institutions which have
entered into direct agreements with a Fund. With 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. If the transacting dealer fails to make or take delivery of the
securities or amount of foreign currency underlying an option it has written, in
accordance with the terms of that option, a Fund would lose the premium paid for
the option as well as any anticipated benefit of the transaction. Each Fund
will engage in OTC Option transactions only with brokers or financial
institutions deemed creditworthy by the Fund's management.
COVERED CALL WRITING. The Bond Funds and the Equity Funds (except Mid-Cap
Growth) are permitted to write covered call options on securities and (for the
Equity Funds, except Mid-Cap Growth, and Core Fixed Income) on the U.S. Dollar
and foreign currencies. Generally, a call option is "covered" if a Fund owns,
or has the right to acquire, without additional cash consideration (or for
additional cash consideration held for the Fund by its custodian in a segregated
account) the underlying security (currency) subject to the option except that in
the case of call options on U.S. Treasury bills, a Fund might own U.S. Treasury
bills of a different series from those underlying the call option, but with a
principal amount and value corresponding to the exercise price and a maturity
date no later than that of the security (currency) deliverable under the call
option. A call option is also covered if a Fund holds a call on the same
security as the underlying security (currency) of the written option, where the
exercise price of the call used for coverage is equal to or
B-6
<PAGE>
less than the exercise price of the call written or greater than the exercise
price of the call written if the marked to market difference is maintained by a
Fund in cash, U.S. Government Securities or other liquid portfolio securities
which a Fund holds in a segregated account maintained with its custodian.
The writer of an option receives from the purchaser, in return for a call it
has written, a "premium"; i.e., the price of the option. Receipt of these
premiums may better enable a Fund to earn a higher level of current income than
it would earn from holding the underlying securities (currencies) alone.
Moreover, the premium received will offset a portion of the potential loss
incurred by the Fund if the securities (currencies) underlying the option are
ultimately sold (exchanged) by the Fund at a loss. Furthermore, a premium
received on a call written on a foreign currency will ameliorate any potential
loss of value on the portfolio security due to a decline in the value of the
currency.
However, during the option period, the covered call writer has, in return
for the premium on the option, given up the opportunity for capital appreciation
above the exercise price should the market price of the underlying security (or
the exchange rate of the currency in which it is denominated) increase, but has
retained the risk of loss should the price of the underlying security (or the
exchange rate of the currency in which it is denominated) decline. The premium
received will fluctuate with varying economic market conditions. If the market
value of the portfolio securities (or the currencies in which they are
denominated) upon which call options have been written increases, a Fund may
receive a lower total return from the portion of its portfolio upon which calls
have been written than it would have had such calls not been written.
As regards listed options and certain OTC Options, during the option period,
a Fund may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC Options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option, to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable a Fund to write another call option on the
underlying security (currency) with either a different exercise price or
expiration date or both. A Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the amount of the premium received
on the call option is more or less than the cost of effecting the closing
B-7
<PAGE>
purchase transaction. Any loss incurred in a closing purchase transaction may
be wholly or partially offset by unrealized appreciation in the market value of
the underlying security (currency). Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part or exceeded by a
decline in the market value of the underlying security (currency).
If a call option expires unexercised, a Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however,
may be offset by depreciation in the market value of the underlying security
(currency) during the option period. If a call option is exercised, a Fund
realizes a gain or loss from the sale of the underlying security (currency)
equal to the difference between the purchase price of the underlying security
(currency) and the proceeds of the sale of the security (currency) plus the
premium received on the option less the commission paid.
COVERED PUT WRITING. As a writer of a covered put option, a Fund incurs an
obligation to buy the security 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 put is "covered"
if, at all times, the Fund maintains, in a segregated account maintained on its
behalf at the Fund's custodian, cash, U.S. Government Securities or other liquid
portfolio securities in an amount equal to at least the exercise price of the
option, at all times during the option period. Similarly, a short put position
could be covered by the Fund by its purchase of a put option on the same
security (currency) as the underlying security of the written option, where the
exercise price of the purchased option is equal to or more than the exercise
price of the put written or less than the exercise price of the put written if
the marked to market difference is maintained by the Fund in cash, U.S.
Government Securities or other liquid portfolio securities which the Fund holds
in a segregated account maintained at its custodian. In writing puts, a Fund
assumes the risk of loss should the market value of the underlying security
(currency) decline below the exercise price of the option (any loss being
decreased by the receipt of the premium on the option written). In the case of
listed options, during the option period, the Fund may be required, at any time,
to make payment of the exercise price against delivery of the underlying
security (currency). The operation of and limitations on covered put options in
other respects are substantially identical to those of call options.
The Funds will write put options for three purposes: (a) to receive the
income derived from the premiums paid by purchasers; (b) when the Adviser wishes
to purchase the security (or a security denominated in the currency underlying
the option) 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 potential gain on a covered put option is limited to the
premium received on the option (less the commissions paid on the transaction)
while the potential loss equals the differences between the exercise price of
the option and the current market price of the underlying securities
(currencies) when the put is exercised, offset by the premium received (less the
commissions paid on the transaction).
B-8
<PAGE>
PURCHASING CALL AND PUT OPTIONS. A Fund may purchase a call option in order
to close out a covered call position (see "Covered Call Writing" above), to
protect against an increase in price of a security it anticipates purchasing or,
in the case of a call option on foreign currency, to hedge against an adverse
exchange rate move of the currency in which the security it anticipates
purchasing is denominated vis-a-vis the currency in which the exercise price is
denominated. The purchase of the call option to effect a closing transaction on
a call written over-the-counter may be a listed or an OTC Option. In either
case, the call purchased is likely to be on the same securities (currencies) and
have the same terms as the written option. If purchased over-the-counter, the
option would generally be acquired from the dealer or financial institution
which purchased the call written by the Fund.
A Fund may purchase put options on securities or currencies which it holds
in its portfolio to protect itself against a decline in the value of the
security and to close out written put option positions. If the value of the
underlying security or currency were to fall below the exercise price of the put
purchased in an amount greater than the premium paid for the option, the Fund
would incur no additional loss. In addition, a Fund may sell a put option which
it has previously purchased prior to the sale of the securities (currencies)
underlying such option. Such a sale would result in a net gain or loss
depending whether the amount received on the sale is more or less than the
premium and other transaction costs paid on the put option which is sold. Such
gain or loss could be offset in whole or in part by a change in the market value
of the underlying security (currency). If a put option purchased by a Fund
expired without being sold or exercised, the premium would be lost.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and
options representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if a Fund holds a long position in Treasury bills
with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, a Fund will hold
the Treasury bills in a segregated account with its custodian, so that they will
be treated as being covered.
B-9
<PAGE>
OPTIONS ON FOREIGN CURRENCIES. The Equity Funds (except Mid-Cap Growth)
and Core Fixed Income may purchase and write options on foreign currencies for
purposes similar to those involved with investing in foreign currency forward
contracts. See the Appendix to the Prospectus. For example, in order to
protect against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, a Fund may purchase put options on an amount
of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the foreign
currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar
value of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, a Fund may purchase call options on foreign currencies in
which securities it anticipates purchasing are denominated to secure a set U.S.
dollar price for such securities and protect against a decline in the value of
the U.S. dollar against such foreign currency. Each of these Funds may also
purchase call and put options to close out written option positions.
Each of these Funds may also write call options on foreign currency to
protect against potential declines in its portfolio securities which are
denominated in foreign currencies. If the U.S. dollar value of the portfolio
securities falls as a result of a decline in the exchange rate between the
foreign currency in which it is denominated and the U.S. dollar, then a loss to
a Fund occasioned by such value decline would be ameliorated by receipt of the
premium on the option sold. At the same time, however, the Fund gives up the
benefit of any rise in value of the relevant portfolio securities above the
exercise price of the option and, in fact, only receives a benefit from the
writing of the option to the extent that the value of the portfolio securities
falls below the price of the premium received. A Fund may also write options to
close out long call option positions. A put option on a foreign currency would
be written by the Fund for the same reason it would purchase a call option,
namely, to hedge against an increase in the U.S. dollar value of a foreign
security which a Fund anticipates purchasing. Here, the receipt of the premium
would offset, to the extent of the size of the premium, any increased cost to a
Fund resulting from an increase in the U.S. dollar value of the foreign
security. However, a Fund could not benefit from any decline in the cost of the
foreign security which is greater than the price of the premium received. A
Fund may also write options to close out long put and call option positions.
The markets in foreign currency options are relatively new and a Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Funds will not purchase
or write such options unless and until, in the opinion of the Adviser, the
market for them has developed sufficiently to ensure that the risks in
connection with such options are not greater than the risks in connection with
the underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. In addition,
options on foreign currencies are affected by all of those factors which
influence foreign exchange rates and investments generally.
B-10
<PAGE>
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $ l million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
FUTURES CONTRACTS. The Bond Funds and the Equity Funds (except Mid-Cap
Growth) may purchase and sell interest rate, currency, and index futures
contracts ("futures contracts"), on securities eligible for purchase by the
Fund. Subject to certain limitations, a Fund may enter into futures contracts or
options on such contracts to attempt to protect against possible changes in the
market value of securities held in or to be purchased by the Fund resulting from
interest rate or market fluctuations, to protect the Fund's unrealized gains in
the value of its portfolio securities, to facilitate the sale of such securities
for investment purposes, to manage its effective maturity or duration, or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities.
To the extent futures positions constitute "bona fide hedge" positions as
defined by the rules and regulations of the Commodity Futures Trading Commission
("CFTC"), there is no overall limitation on the percentage of a Fund's assets
which may be committed to futures contracts and options or futures contracts,
provided the aggregate value of such positions does not exceed the value of such
Fund's portfolio securities. With respect to futures positions that are not
"bona fide hedge" positions, no Fund may enter into futures contracts or related
options if, immediately thereafter, the amount of initial margin and premiums
for unexpired futures contracts and options on futures contracts exceeds 5% of
the Fund's liquidation value, after taking into account unrealized profits and
losses on such futures contracts, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
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<PAGE>
A Fund may purchase or sell interest rate futures for the purpose of hedging
some or all of the value of its portfolio securities against changes in
prevailing interest rates or to manage its duration or effective maturity. If
the Adviser anticipates that interest rates may rise and, concomitantly, the
price of certain of its portfolio securities may fall, the Fund may sell futures
contracts. If declining interest rates are anticipated, the Fund may purchase
futures contracts to protect against a potential increase in the price of
securities the Fund intends to purchase. Subsequently, appropriate securities
may be purchased by the Fund in an orderly fashion; as securities are purchased,
corresponding futures positions would be terminated by offsetting sales of
contracts. A Fund may purchase or sell futures on various currencies in which
its portfolio securities are denominated for the purpose of hedging against
anticipated changes in currency exchange rates. A Fund will enter into currency
futures contracts to "lock in" the value of a security purchased or sold in a
given currency vis-a-vis a different currency or to hedge against an adverse
currency exchange rate movement of a portfolio security's denominated currency
vis-a-vis a different currency. Foreign currency futures contracts would be
entered into for the same reason and under the same circumstances as foreign
currency forward contracts. See the Appendix to the Prospectus. The Adviser
will assess such factors as cost spreads, liquidity and transaction costs in
determining whether to utilize futures contracts or forward contracts in its
foreign currency transactions and hedging strategy.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a broker's client but is, rather, a good faith deposit on the futures
contract which will be returned to a Fund upon the proper termination of the
futures contract. The margin deposits are marked to market daily and the Fund
may be required to make subsequent deposits of cash or U.S. Government
Securities called "variation margin", with the Fund's futures contract clearing
broker, which are reflective of price fluctuations in the futures contract.
Initial margin requirements are established by the exchanges on which futures
contracts trade and may, from time to time, change. In addition, brokers may
establish margin deposit requirements in excess of those required by the
exchanges.
At any time prior to expiration of a futures contract, a Fund may elect to
close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
any variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or gain.
Although many futures contracts call for actual commitment or acceptance of
securities, the contracts usually are closed out before the settlement date
without making or taking delivery. A short futures position is usually closed
out by purchasing futures contracts for the same aggregate amount of the
underlying instruments and with the same
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delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and realize a gain. If the offsetting
purchase price exceeds the sales price, the seller would pay the difference and
would realize a loss. Similarly, a long futures position in usually closed out
by effecting a futures contract sale for the same aggregate amount of the
specific type of security (currency) and the same delivery date. If the
offsetting sales price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss. There is no assurance that a Fund will be able
to enter into a closing transactions.
OPTIONS ON FUTURES CONTRACTS. The Bond Funds and the Equity Funds (except
Mid-Cap Growth) may also purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position. An option on a
futures contract gives the purchaser the right (in return for the premium paid)
to assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put) at a specified exercise price
at any time during the term of the option.
Funds will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, a Fund wished to
protect against an increase in interest rates and the resulting negative impact
on the value of a portion of its fixed-income portfolio, it might write a call
option on an interest rate futures contract, the underlying security of which
correlates with the portion of the portfolio the Fund seeks to hedge. Any
premiums received in the writing of options on futures contracts may, of course,
provide a further hedge against losses resulting from price declines in portions
of a Fund's portfolio.
STRATEGIES AVAILABLE TO CONVERTIBLE SECURITIES, HIGH YIELD BOND AND THE EQUITY
FUNDS
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures,
notes, preferred stock or other securities that may be converted into or
exchanged for common stock or other equity securities of the same or a different
issuer. The Funds will not invest in convertible securities unless the
securities are rated at least "B" by Moody's or S&P or, if the securities are
unrated, the Adviser 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 a level comparable to that of securities that are rated at
least "B." Convertible securities provide a conversion right for a particular
period of time at a specified price or formula. A convertible security entitles
the holder to receive interest paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Before conversion, convertible securities have
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characteristics similar to nonconvertible debt securities in that they
ordinarily provide a stable stream of income with generally higher yields than
those of common stocks of the same or similar issuers. Therefore, they generally
entail less risk than the corporation's common stock, although the extent to
which such risk is reduced depends in large measure upon the proximity of its
price to its value as a nonconvertible fixed income security.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege), and
its "conversion value" (the security's worth, at market value, if converted into
the underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors may also have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. To the
extent the market price of the underlying common stock approaches or exceeds the
conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. In addition, a convertible security
generally will sell at a premium over its conversion value determined by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
Convertible Securities, High Yield Bond and Core Equity may also invest in
Eurodollar convertible securities, and Emerging Markets and Latin America Equity
may invest in Eurodollar convertible securities convertible into Latin American
securities. Eurodollar convertible securities are fixed income securities of a
U.S. issuer or a foreign issuer that are denominated in U.S. dollars and issued
outside the United States. They are convertible into or exchangeable for equity
securities of the same or a different issuer. Interest and dividends on
Eurodollar securities are payable in U.S. dollars outside of the United States.
Each of these Funds may also invest in convertible securities that are
convertible into or exchangeable for (a) foreign equity securities (Emerging
Markets and Latin American, in the case of Latin America Equity) listed, or
represented by "Depositary Instruments" (as defined in the Prospectus under
"Investment Objectives and Policies -TCW Galileo Core Equity Fund") listed, on
securities exchanges or traded in other regulated markets in the United States
or (b) publicly traded equity securities eligible for purchase by the Fund.
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RISK FACTORS
RATING CATEGORIES. A description of the rating categories as published by
Moody's and S&P is set forth in the Appendix to the Prospectus. Ratings assigned
by Moody's and/or S&P to securities acquired by a Fund reflect only the views of
those agencies as to the quality of the securities they have undertaken to rate.
Further explanations of the significance of ratings should be obtained from
Moody's and S&P. It should be emphasized, however, that ratings are relative and
subjective and are not absolute standards of quality. There is no assurance that
a rating assigned initially will not change. A Fund may retain a security whose
rating has changed or has become unrated.
RESTRICTED SECURITIES. Each Fund may invest in securities which are subject
to restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or which are
otherwise not readily marketable. These securities are generally referred to as
private placements or restricted securities. The Adviser, pursuant to procedures
adopted by the Board of Directors of the Company, will make a determination as
to the liquidity of each restricted security purchased by a Fund. If a
restricted security is determined to be "liquid," it will not be included within
the category "illiquid securities," which under each Bond Fund's and Equity
Fund's current policies may not exceed 15% of the Fund's net assets and which
under Money Market's current policies may not exceed 10% of the Fund's net
assets.
Limitations on the resale of restricted securities may have an adverse
effect on their marketability, and may prevent a Fund from disposing of them
promptly at reasonable prices. A Fund may have to bear the expense of
registering such securities for resale and the risk of substantial delays in
effecting such registration. The Securities and Exchange Commission has
recently adopted Rule 144A under the Securities Act, which permits each Fund to
sell restricted securities to qualified institutional buyers without limitation.
The Rule 144A marketplace of sellers and qualified institutional buyers is new
and still developing and may take a period of time to develop into a mature
liquid market. As such, the market for certain private placements purchased
pursuant to Rule 144A may be initially small or may, subsequent to purchase,
become illiquid. Furthermore, the Adviser may not possess all the information
concerning an issue of securities that it wishes to purchase in a private
placement to which it would normally have had access, had the registration
statement necessitated by a public offering been filed with the Securities and
Exchange Commission.
OPTIONS TRANSACTIONS. In addition to the risk considerations set forth in
the Prospectus under "Risk Considerations -- Options," options are subject to
the following risks.
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. Prior
to exercise or
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expiration, an option position can only be terminated by entering into a closing
purchase or sale transaction. If a covered call option writer is unable to
effect a closing purchase transaction or to purchase an offsetting OTC Option,
it cannot sell the underlying security until the option expires or the option is
exercised. Accordingly, a covered call option writer may not be able to sell an
underlying security at a time when it might otherwise be advantageous to do so.
A secured put option writer who is unable to effect a closing purchase
transaction or to purchase an offsetting OTC Option would continue to bear the
risk of decline in the market price of the underlying security until the option
expires or is exercised. In addition, a secured put writer would be unable to
utilize the amount held in cash or U.S. Government Securities or other high
grade short-term obligations as security for the put option for other investment
purposes until the exercise or expiration of the option.
As discussed in the Prospectus, a Fund's ability to close out its position
as a writer of an option is dependent upon the existence of a liquid secondary
market. There is no assurance that such a market will exist, particularly in
the case of OTC Options, as such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer.
However, the Fund may be able to purchase an offsetting option which does not
close out its position as a writer but constitutes an asset of equal value to
the obligation under the option written. If the Fund is not able to either
enter into a closing purchase transaction or purchase an offsetting position, it
will be required to maintain the securities subject to the call, or the
collateral underlying the put, even though it might not be advantageous to do
so, until a closing transaction can be entered into (or the option is exercised
or expires).
Among the possible reasons for the absence of a liquid secondary market on
an exchange are: (a) insufficient trading interest in certain options; (b)
restrictions on transactions imposed by an exchange; (c) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (d) interruption of the normal
operations on an exchange; (e) inadequacy of the facilities of an exchange or
the OCC or other relevant clearing corporation to handle current trading volume;
or (f) a decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
relevant clearing corporation as a result of trades on that exchange would
generally continue to be exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC
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Option purchased by a Fund, the Fund could experience a loss of all or part of
the value of the option. Transactions are entered into by a Fund only with
brokers or financial institutions deemed creditworthy by the Fund's management.
Each of the exchanges has established limitations governing the maximum
number of options on the same underlying security or futures contract (whether
or not covered) which may be written by a single investor, whether acting alone
or in concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written on one or more accounts or
through one or more brokers). An exchange may order the liquidation of
positions found to be in violation of these limits and it may impose other
sanctions or restrictions. These position limits may restrict the number of
listed options which a Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
The extent to which a Fund may enter into transactions involving options may
be limited by the Internal Revenue Code's requirements for qualification as a
regulated investment company and a Fund's intention to qualify as such (see
"Dividends, Distributions and Taxes" in the Prospectus).
FUTURES CONTRACTS AND RELATED OPTIONS. There are certain risks inherent in
the use of futures contracts and options on futures contracts. Successful us of
futures contracts by a Fund is subject to the ability of the Adviser to
correctly predict movements in the direction of interest rates or changes in
market conditions. In addition, there can be no assurance that there will be a
correlation between price movements in the underlying securities, currencies or
index and the price movements in the securities which are the subject of the
hedge.
Positions in futures contracts and options on futures contracts may be
closed out only on the exchange or board of trade on which they were entered
into, and there can be no assurance that an active market will exist for a
particular contract or option at any particular time. If a Fund has hedged
against the possibility of an increase in interest rates or a decrease in the
value of portfolio securities and interest rates fall or the value of portfolio
securities increase instead, a Fund will lose part or all of the benefit of the
increased value of securities that it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. These sales of
securities may, but will not necessarily be at increased prices that reflect the
decline in interest rates. While utilization of futures
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contracts and options on futures contracts may be advantageous to the Fund, if
the Fund is not successful in employing such instruments in managing the Fund's
investments, the Fund's performance will be worse than if the Fund did not make
such investments.
Each Fund will enter into transactions in futures contracts for hedging
purposes only, including without limitation, futures contracts that are "bona
fide hedges" as defined by the CFTC. In connection with the purchase of sale of
futures contracts, a Fund will be required to either (i) segregate sufficient
cash or other liquid assets to cover the outstanding position or (ii) cover the
futures contract by either owning the instruments underlying the futures
contracts or by holding a portfolio of securities with characteristics
substantially similar to the underlying index or stock index comprising the
futures contracts or by holding a separate offsetting option permitting it to
purchase or sell the same futures contract. A call option is "covered" if
written against securities owned by the Fund writing the option or if written
against related securities the Fund holds. A put option is "covered" if the
Fund writing the option maintains at all time cash, short-term Treasury
obligations or other liquid assets with a value equal to the option exercise
price in a segregated account with the Fund's custodian, or if it has bought and
holds a put on the same security (and on the same amount of securities) where
the exercise price of the put held by the Fund is equal to or greater than the
exercise price of the put written by the Fund.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then
it may prove impossible to liquidate a futures position until the daily limit
moves have ceased. In the event of adverse price movements, a Fund would
continue to be required to make daily cash payments of variation margin on open
futures positions. In such situations, if a Fund has insufficient cash, it may
have to sell portfolio securities to meet daily variation margin requirements at
a time when it may be disadvantageous to do so. In addition, a Fund may be
required to take or make delivery of the instruments underlying interest rate
futures contracts it holds at a time when it is disadvantageous to do so. The
inability to close out options and futures positions could also have an adverse
impact on a Fund's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage
commissions, clearing costs and other transaction costs may be higher on foreign
exchanges. Greater margin requirements may limit a Fund's ability to enter into
certain commodity transactions on foreign exchanges. Moreover, differences in
clearance and delivery requirements on foreign exchanges may occasion delays in
the settlement of a Fund's transactions effected on foreign exchanges.
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In the event of the bankruptcy of a broker through which a Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Similarly, in the event of the bankruptcy, of the writer of an OTC option
purchased by a Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by a Fund only with brokers
or financial institutions deemed creditworthy by the Adviser.
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which a Fund may invest. In the event a liquid
market does not exist, it may not be possible to close out a futures position,
and in the event of adverse price movements, a Fund would continue to be
required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures contracts
are traded may compel or prevent a Fund from closing out a contract which may
result in reduced gain or increased loss to the Fund. The absence of a liquid
market in futures contracts might cause a Fund to make or take delivery of the
underlying securities (currencies) at a time when it may be disadvantageous to
do so.
The extent to which a Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such (see "Dividends, Distributions and Taxes" in the
Prospectus).
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to a Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to a Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities (currencies).
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, a Fund will
not purchase or write options on foreign currency futures contracts unless and
until, in the Adviser's opinion, the market for such options has developed
sufficiently that the risks in connection with such options are not greater than
the risks in connection with transactions in the underlying foreign currency
futures contracts.
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PORTFOLIO TURNOVER
A portfolio turnover rate of 100% would occur if all of a Fund's securities
that are included in the computation of turnover were replaced once during a
period of one year. The portfolio turnover rate is calculated by dividing the
lesser of the value of purchases or sales of portfolio securities for the year
by the monthly average value of portfolio securities. Securities with remaining
maturities of one year or less at the date of acquisition are excluded from the
calculation.
Certain practices that may be employed by the Funds could result in high
portfolio turnover. For example, portfolio securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what the Adviser believes to be
a temporary disparity in the normal yield relationship between the two
securities. These yield disparities may occur for reasons not directly related
to the investment quality of particular issues or the general movement of
interest rates, such as changes in the overall demand for, or supply of, various
types of securities.
BROKERAGE PRACTICES
The Adviser is responsible for the placement of the Funds' portfolio
transactions and the negotiation of prices and commissions, if any, with respect
to such transactions. Fixed income and unlisted equity securities are generally
purchased from a primary market maker acting as principal on a net basis without
a stated commission but at prices generally reflecting a dealer spread. Listed
equity securities are normally purchased through brokers in transactions
executed on securities exchanges involving negotiated commissions. Both fixed
income and equity securities are also purchased in underwritten offerings at
fixed prices which include discounts to underwriters and/or concessions to
dealers. In placing a portfolio transaction, the Adviser seeks to obtain the
best execution for the Fund, taking into account such factors as price
(including the applicable dealer spread or commission, if any), size of order,
difficulty of execution and operational facilities of the firm involved and the
firm's risk in positioning a block of securities.
Consistent with its policy of securing best execution, in selecting broker-
dealers and negotiating any commissions or prices involved in Fund transactions,
the Adviser considers the range and quality of the professional services
provided by such firms. Brokerage services include the ability to most
effectively execute large orders without adversely impacting markets and
positioning securities in order to enable the Adviser to effect orderly
purchases or sales for a Fund. Accordingly, transactions will not always be
executed at the lowest available commission. In addition, the Adviser may
effect transactions which cause a Fund to pay a commission or net price in
excess of a commission or net price which another broker-dealer would have
charged if the Adviser first determines that such commission or net price is
reasonable in relation to the value of the brokerage and research services
provided by the broker-dealer to the Fund.
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Research services include such items as reports on industries and companies,
economic analyses and review of business conditions, portfolio strategy,
analytic computer software, account performance services, computer terminals and
various trading and/or quotation equipment. They also include advice from
broker-dealers as to the value of securities and availability of securities,
buyers, and sellers. In addition, they include recommendations as to purchase
and sale of individual securities and timing of transactions.
Fixed income securities are generally purchased from the issuer or a primary
market maker acting as principal on a net basis with no brokerage commission
paid by the client. Such securities, as well as equity securities, may also be
purchased from underwriters at prices which include underwriting fees.
The Adviser maintains an internal allocation procedure to identify those
broker-dealers who have provided it with research services and endeavors to
place sufficient transactions with them to ensure the continued receipt of
research services the Adviser believes are useful. When the Adviser receives
products or services that are used both for research and other purposes, it
makes a good faith allocation. While the non-research portion will be paid in
cash by the Adviser, the portion attributable to research may be paid through
brokerage commissions.
Research services furnished by broker-dealers may be used in providing
services for any or all of the clients of the Adviser, as well as clients of
affiliated companies, and may be used in connection with accounts other than
those which pay commissions to the broker-dealers providing the research
services.
For the fiscal period ended October 31, 1994, Core Equity, Small Cap Growth,
Asia Pacific Equity, Latin America Equity and Emerging Markets paid $235,387,
$244,413, $297,785, $1,174,489 and $365,789 in brokerage commissions,
respectively. For the fiscal years ended October 31, 1995 and 1996, Core
Equity, Small Cap Growth, Earnings Momentum, Asia Pacific Equity, Latin America
Equity and Emerging Markets paid $391,662 and $237,979, $205,604 and $345,369,
$280,024 and $399,530, $564,590 and $470,820, $423,996 and $195,703 and $414,350
and $353,334 in brokerage commissions, respectively. During the fiscal period
June 3, 1996 to October 31, 1996, Mid-Cap Growth paid $97,907 in brokerage
commissions.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 8 below have been adopted by
the Company with respect to the Funds as fundamental policies (except as
otherwise provided in 1). In addition, the restrictions numbered 11, 13, 16 and
17 have also been adopted by
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the Company as fundamental policies with respect to Money Market. A fundamental
policy affecting a particular Fund may not be changed without the vote of a
majority of the outstanding shares of the affected Fund. Investment restrictions
9 through 15 with respect to a Bond Fund or Equity Fund and 9, 10, 12 and 14
with respect to Money Market may be changed by vote of a majority of the
Company's Board of Directors at any time.
Investment policies adopted by the Company are:
1. No Fund will borrow money, except that (a) a Fund may borrow from banks for
temporary or emergency (not leveraging) purposes including the meeting of
redemption requests that might otherwise require the untimely disposition of
securities, (b) Core Fixed Income, Long-Term Mortgage-Backed Securities,
Mortgage-Backed Securities, Latin America Equity and Money Market may each
enter into reverse repurchase agreements, (c) Core Fixed Income, Long-Term
Mortgage-Backed Securities and Mortgage-Backed Securities may utilize
mortgage dollar rolls, and (d) each Fund other than Money Market may enter
into futures contracts for hedging purposes subject to the conditions set
forth in paragraph 8 below. 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. As an operating policy, whenever borrowings pursuant
to (a) exceed 5% (or, in the case of Money Market, 10%) of the value of a
Fund's total assets, the Fund will not purchase any securities.
2. No Fund will issue senior securities as defined in the 1940 Act, provided
that the Funds may (a) enter into repurchase agreements; (b) purchase
securities on a when-issued or delayed delivery basis; (c) purchase or sell
financial futures contracts or options thereon; and (d) borrow money in
accordance with the restrictions described in paragraph 1 above.
3. No Fund will underwrite securities of other companies, except insofar as the
Fund might be deemed to be an underwriter for purposes of the Securities Act
by virtue of disposing of portfolio securities.
4. No Fund will purchase any securities that would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in
the securities of any one particular industry or group of industries,
provided that this limitation shall not apply to any Fund's purchase of U.S.
Government Securities, and, in the case of Money Market, to the purchase of
obligations of domestic branches of United States banks. In determining
industry classifications for foreign issuers, each Fund will use reasonable
classifications that are not so broad that the primary economic
characteristic of the companies in a single class are materially different.
Each Fund will determine such classifications of foreign issuers based on
the issuer's principal or major business activities.
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5. No Fund will invest in real estate, real estate mortgage loans, residual
interests in REMICs, oil, gas and other mineral leases (including other
universal exploration or development programs), or real estate limited
partnerships, except that a Fund may purchase securities backed by real
estate or interests therein, or issued by companies, including real estate
investment trusts, which invest in real estate or interests therein, and
except that Core Fixed Income, Long-Term Mortgage-Backed Securities and
Mortgage-Backed Securities are not prohibited from investing in real estate
mortgage loans.
6. No Fund may make loans of cash except by purchasing qualified debt
obligations or entering into repurchase agreements.
7. Each Fund may effect short sales of securities or maintain a short position
only if the Fund at the time of sale either owns or has the right to acquire
at no additional cost securities equivalent in kind and amount to those
sold.
8. No Fund will invest in commodities or commodities contracts, except that
each Bond Fund or Equity Fund may 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 does not exceed 5% of the value of the Fund's total assets, after
taking into account unrealized gains and unrealized losses on such contracts
it has entered into, provided, however, that in the case of an option that
is in-the-money (the exercise price of the call (put) option is less (more)
than the market price of the underlying security) at the time of purchase,
the in-the-money amount may be excluded in calculating the 5%. The entry
into foreign currency forward contracts shall not be deemed to involve
investing in commodities.
9. No Fund will purchase securities on margin, except that a Fund may obtain
any short-term credits necessary for clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts and related
options will not be deemed to be a purchase of securities on margin.
10. No Fund will purchase the securities of an issuer for the purpose of
acquiring control or management thereof except that Asia Pacific Equity,
Emerging Markets and Latin America Equity may acquire the securities of
subsidiaries in order to facilitate investing in the securities of foreign
issuers.
11. No Fund will purchase illiquid securities or other securities that are not
readily marketable if more than 15% (or, in the case of Money Market, 10%)
of the net assets of the Fund would be invested in such securities, which
include:
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(a) repurchase agreements with maturities greater than seven calendar days;
(b) to the extent a liquid secondary market does not exist for the
instruments, futures contracts and options thereon; (c) over-the-counter
options; (d) variable rate demand notes with a demand period of more than
seven days; and (e) foreign securities not traded on a recognized domestic
or foreign exchange or developed over-the-counter market, to the extent a
liquid secondary market does not exist for such instruments.
12. No Fund will purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that each Fund may (a) purchase put and call
options if 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, and (b)
write covered put and call options if the aggregate value of the securities
underlying the calls, the obligations underlying the puts, or the futures
contracts underlying options on futures determined as of the date the
options are sold does not exceed 25% of the Fund's total assets.
13. No Fund (except the Equity Funds) will 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 for the Bond Funds up to 25% of
the value of the Fund's total assets may be invested without regard to the
5% Limitation. No Fund (except the Equity Funds) will 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. 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 in the securities of two or more issuers (other than U.S.
Government Securities) 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) and the Fund will not own more than 10% of the
outstanding voting securities of a single issuer.
14. No Fund (except Asia Pacific Equity and Emerging Markets) will invest more
than 5% of the value of the Fund's net assets in warrants (valued at the
lower of cost or market). In addition, no Fund (except Asia Pacific Equity
and Emerging Markets) will invest more than 2% of the value of the Fund's
net assets in warrants which are not listed on the New York Stock Exchange
or the American Stock Exchange. Warrants acquired by a Fund in units or
attached to securities may be deemed to be without value.
B-24
<PAGE>
15. Latin America Equity will invest no more than 35% of its total assets in
Latin American debt and convertible securities except for defensive or
temporary investments in money market instruments.
16. Money Market may not purchase securities of other investment companies if
immediately after such purchase the Fund will own (a) more than 3% of the
total outstanding voting stock of the acquired company, (b) securities
issued by the acquired company having an aggregate value in excess of 5% of
the value of the total assets of the Fund, or (c) securities issued by all
investment companies having an aggregate value in excess of 10% of the value
of the total assets of the Fund, except to the extent permitted by the
Investment Company Act of 1940 and any applicable rules or exemptive orders
issued thereunder.
17. Money Market may not purchase any security that matures more than one year
from the date of purchase or which has an implied maturity of more than one
year. For the purposes of satisfying this requirement, the maturity of a
portfolio instrument shall be deemed to be the period remaining until the
date noted on the face of the instrument as the date on which the principal
amount must be paid, or in the case of an instrument called for redemption,
the date on which the redemption payment must be made, except that:
a. An instrument that is issued or guaranteed by the United States
Government or any agency thereof which has a variable rate of interest
readjusted no less frequently than every 762 days shall be deemed to
have a maturity equal to the period remaining until the next
readjustment of the interest rate.
b. A variable rate instrument not subject to an interest rate cap, the
principal amount of which is scheduled on the face of the instrument to
be paid in 397 calendar days or less shall be deemed to have a maturity
equal to the period remaining until the next readjustment of the
interest rate.
c. A variable rate instrument that is subject to a demand feature shall be
deemed to have a maturity equal to the longer of the period remaining
until the next readjustment of the interest rate or the period remaining
until the principal amount can be recovered through demand.
d. A floating rate instrument that is subject to a demand feature shall be
deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
e. A repurchase agreement shall be deemed to have a maturity equal to the
period remaining until the date on which the repurchase of the
underlying
B-25
<PAGE>
securities is scheduled to occur, or where no date is specified, but the
agreement is subject to demand, the notice period applicable to a demand
for the repurchase of the securities.
f. A portfolio lending agreement shall be treated as having a maturity
equal to the period remaining until the date on which the loaned
securities are scheduled to be returned, or where no date is specified,
but the agreement is subject to demand, the notice period applicable to
a demand for the return of the loaned securities. Portfolio securities
may be loaned if collateral values are continuously maintained at no
less than 100% by "marking to market" daily. Money Market currently has
no intention of engaging in lending portfolio securities.
The Company may make commitments more restrictive than the restrictions
listed above with respect to a Fund so as to permit the sale of shares of the
Fund in certain states. Should the Company determine that any such delivery is
no longer in the best interests of the Fund and its shareholders, the Company
will revoke the commitment by terminating the sale of shares of the Fund in the
state involved. The percentage limitations contained in the restrictions listed
above apply, with the exception of (1) and (11), at the time of purchase or
initial investment and 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.
DIRECTORS AND OFFICERS OF THE COMPANY
A board of five directors is responsible for overseeing the Fund's affairs.
The Fund has an executive committee, consisting of Marc I. Stern, Chairman, John
C. Argue and Thomas E. Larkin, which may act for the Board of Directors between
meetings, except where Board action is required by law. The directors and
officers of the Fund, and their business addresses and their principal
occupations for the last five years are set forth below.
<TABLE>
<CAPTION>
Name and Address Principal Occupations and Other Affiliations
- - ---------------- --------------------------------------------
<S> <C>
Marc I. Stern* (52) President and Director, The TCW Group, Inc.
Chairman (formerly TCW Management Company) and
865 South Figueroa Street the Adviser since May 1992; Vice
Los Angeles, California 90017 Chairman, TCW Asset Management
Company; Chairman, TCW Americas
Development, Inc. since November
1990; Chairman; TCW Asia Ltd. and TCW
London International, Limited since
March 1993; Executive Vice President and
Director, Trust Company of the West since May
1993. Financial Consultant from June 1990 to
May 1992; Trustee, of
</TABLE>
B-26
<PAGE>
<TABLE>
<S> <C>
a group of 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 April 1995.
Thomas E. Larkin, Jr.* (57) President and Director, Trust Company
Director and President of the West; Vice Chairman and
865 South Figueroa Street Director, TCW Asset Management
Los Angeles, California 90017 Company; Executive Vice President
and Director, The TCW Group, Inc.;
Chairman of the Adviser; Member of
the Board of Trustees of the
University of Notre Dame; Director
of Orthopaedic Hospital of Los
Angeles; Senior Vice President, TCW
Convertible Securities Fund, Inc.;
President and Trustee, TCW/DW Funds
since March 1992.
John C. Argue (63) Of Counsel, Argue Pearson Harbison &
Director Myers (law firm); Director, Avery
801 South Flower Street Dennison Corporation (manufacturer of
Los Angeles, California 90017 self-adhesive products and office
supplies) and CalMat Company
(producer of aggregates, asphalt and
ready mixed concrete); Advisory
Director, LAACO Ltd. (owner and
operator of private clubs and real
estate); Director or trustee of
various business and not-for profit
corporations; Trustee of the
University of California, Occidental
College and Pomona College; Trustee,
TCW/DW Funds since March 1992.
Norman Barker, Jr. (74) Former Chairman of the Board, First
Director Interstate Bank of California and
707 Wilshire Blvd. former Vice Chairman of the Board,
Los Angeles, CA 90017 First Interstate Bancorp; Director,
American Health Properties, Inc.,
Pacific American Income Shares, Inc.,
SPI Pharmaceuticals, Inc., ICN
Pharmaceuticals, Inc. and Southern
California Edison Company; Director,
TCW Convertible Securities Fund, Inc.
Richard W. Call (72) President, The Seaver Institute (a
800 West 6th Street private foundation); Director, TCW
Los Angeles, CA 90017 Convertible Securities Fund, Inc.
</TABLE>
- - ----------------------
B-27
<PAGE>
* Directors who are or may be deemed to be "interested persons" of the Company
as defined in the 1940 Act. Mr. Stern and Mr. Larkin are both officers of
the Adviser.
COMPENSATION OF INDEPENDENT DIRECTORS
The Company pays each Independent Director an annual fee of $35,000 plus a
per meeting fee of $500 for meetings of the Board of Directors or Committees of
the Board of Directors attended by the Director prorated among the Funds. The
Company also reimburses such Directors for travel and other out-of-pocket
expenses incurred by them in connection with attending such meetings. Directors
and officers of the Company who are employed by the Adviser or an affiliated
company thereof receive no compensation nor expense reimbursement from the
Company.
The following table illustrates the compensation paid to the Company's
Independent Directors by the Company for the fiscal year ended October 31, 1996.
<TABLE>
<CAPTION>
Aggregate Compensation
Name of Independent Director From the Company
---------------------------- ----------------------
<S> <C>
John C. Argue............................................ $39,000
Norman Barker, Jr........................................ $39,000
Richard W. Call.......................................... $39,000
</TABLE>
The following table illustrates the total compensation paid to Company's
Independent Directors for the calendar year ended December 31, 1996 by the 14
TCW/DW Funds, in the case of Mr. Argue, and the TCW Convertible Securities Fund,
Inc. in the case of Messrs. Barker and Call, as well as from the Company. The
TCW/DW Funds and TCW Convertible Securities Funds, Inc. are included solely
because the Company's Adviser, TCW Funds Management, Inc., also serves as
investment adviser to those investment companies.
<TABLE>
<CAPTION>
Total Cash
Compensation from
For Service as the TCW Galileo
For Service as Director and Funds, Inc., 14
Trustee and Committee Member TCW/DW Funds,
Name of Committee Member of the TCW and the TCW
Independent of 14 Convertible Convertible
Director TCW/DW Funds Securities Securities Fund,
- - --------------------- ---------------- Fund, Inc. Inc.
----------------- ----------------
<S> <C> <C> <C>
John C. Argue $66,483 -- $105,483
Norman Barker, Jr. -- $12,000 51,000
Richard W. Call 12,000 51,000
</TABLE>
B-28
<PAGE>
The officers of the Company who are not also directors of the Company are:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name and Address with Company During Past 5 Years(1)
- - ---------------- ---------------- -------------------
<S> <C> <C>
Alvin R. Albe, Jr. (43)+ Senior Vice Executive Vice President, Finance
President and Administration, The TCW Group,
Inc., Trust Company of the West and
TCW Asset Management Company
since April 1991 and of the Adviser
since February 1992; formerly
President of Oakmont Corporation
(investment management services).
Michael E. Cahill Senior Vice Managing Director, General Counsel
(45)+ President, and Secretary, The TCW Group, Inc.,
General Trust Company of the West and TCW
Counsel Asset Management Company since
and Assistant September 1991 and of the Adviser
Secretary since March 1992; formerly General
Counsel and Senior Vice President of
Act III Communications (media and
entertainment business).
Ronald E. Robison Senior Vice Managing Director, Trust Company of
(58)+ President the West and TCW Asset
Management Company; Managing
Director and Chief Operating Officer,
the Adviser; Senior Vice President
and Chief Operating Officer, TCW
Convertible Securities Fund, Inc.
David K. Sandie (41)+ Senior Vice Managing Director, Chief Financial
President, Officer and Assistant Secretary, The
Principal TCW Group, Inc., Trust Company of
Accounting the West, TCW Asset Management
Officer and Company and the Adviser; Principal
Treasurer Accounting Officer, Treasurer and
Assistant Secretary, TCW Convertible
Securities Fund, Inc.
</TABLE>
B-29
<PAGE>
<TABLE>
<S> <C> <C>
Jeffrey Peterson (51)+ Senior Vice Managing Director, Trust Company of
President the West and TCW Asset Manage
ment Company since 1992; President,
TCW Brokerage Services since
January 1994; formerly Managing
Director, Kidder Peabody & Co.;
Director, The Presley Companies
(publicly-traded home builder).
Philip K. Holl (47)+ Secretary Vice President and Associate General
Counsel, Trust Company of the West,
TCW Asset Management Company
and the Adviser; Secretary to TCW
Convertible Securities Fund, Inc.,
formerly General Counsel and
Secretary to The Reserve Group of
Mutual Funds (New York).
</TABLE>
- - -----------------------
(1) Positions with The TCW Group, Inc. and its affiliates may have changed over
time.
+ Address is 865 South Figueroa Street, 18th Floor, Los Angeles, California
90017
In addition, Hilary G.D. Lord is Managing Director, Chief Compliance Officer
and Assistant Secretary of the Adviser. Marie M. Bender and Cathryn M. Taylor
are Senior Vice Presidents, Associate General Counsels and Assistant Secretaries
of the Adviser. Mohan V. Phansalkar is Vice President and Assistant Secretary
of the Adviser. The directors and officers of the Company collectively own less
than 1% of the outstanding shares of any Fund.
INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS
The Company and the Adviser are parties to an Investment Management and
Advisory Agreement ("Advisory Agreement"). Under the Advisory Agreement, the
Company retains 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. The Adviser is responsible for obtaining and evaluating economic,
statistical, and financial data and for formulating and implementing investment
programs in furtherance of the Company's investment objectives.
B-30
<PAGE>
The Adviser has retained, at its sole expense, two affiliated companies to
act as Sub-Adviser to certain of the Funds. TCW Asia Limited acts as a Sub-
Adviser to Asia Pacific Equity and Emerging Markets and TCW London
International, Limited is a Sub-Adviser to Emerging Markets (the "Sub-Adviser").
The Sub-Advisers provide their respective Fund with investment advice and
portfolio management subject to the overall supervision of the Adviser.
The Adviser furnishes to the Company office space at such places as are
agreed upon from time to time and all office facilities, business equipment,
supplies, utilities and telephone service necessary for managing the affairs and
investments and keeping the general accounts and records of the Company
(exclusive of the necessary records of any transfer agent, registrar, dividend
disbursing or reinvesting agent or custodian) and arranges for officers or
employees of the Adviser to serve, without compensation from the Company, as
officers, directors or employees of the Company if desired and reasonably
required by the Company.
As compensation for the services rendered, facilities furnished, and
expenses paid by the Adviser, it is paid monthly fees by the Funds computed at
the annual rates set forth in the Prospectus under "Management of the Funds --
Advisory and Sub-Advisory Agreements."
The fee allocable to each Fund is calculated daily by applying the annual
management fee percent for the Fund to the Fund's net asset value. The fee is
payable for each calendar month as soon as practicable after the end of that
month. In addition, each Bond Fund and Equity Fund reimburses the Adviser for
the costs of providing accounting services to the Fund, including maintaining
the Fund's 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 limited described below). Money Market
also 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. For the fiscal
period ended October 31, 1994 the total amounts, net of any expense
reimbursement were: Money Market - $46,568; High Yield Bond - $462,669; Core
Fixed Income -$104,626; Long-Term Mortgage-Backed - $164,317; Mortgage-Backed -
$633,297; Core Equity - $676,603; Small Cap Growth - $188,092; Asia Pacific
Equity - $282,692; Emerging Markets - $368,538; and Latin America Equity -
$976,475. The total amounts paid, net of any expense reimbursement, for the
fiscal years ended October 31, 1995 and 1996 were: Money Market - $304,000 and
$636,886; High Yield Bond - $708,000 and $962,968; Core Fixed Income - $143,000
and $162,166; Long-Term Mortgage-Backed Securities -$353,000 and $448,392;
Mortgage-Backed - $494,000 and $407,692; Core Equity -$1,214,000 and $1,584,110;
Small Cap Growth - $444,000 and $1,136,389; Earnings Momentum - $517,000 and
$776,853; Asia Pacific - $441,000 and $525,269; Emerging Markets - $555,000 and
$576,468; and Latin America Equity - $610,000 and $649,251. During the fiscal
period ended October 31, 1996, Mid-Cap Growth paid $352,611 in advisory
fees.
B-31
<PAGE>
Except for expenses specifically assumed by the Adviser under the Advisory
Agreement, each Fund bears all expenses incurred in its operations. Fund
expenses include the fee of the Adviser; compensation and expenses of directors
of the Company who are not officers or employees of the Adviser; registration,
filing and other fees in connection with filings with regulatory authorities;
fees and expenses of independent accountants; the expenses of printing and
mailing proxy statements and shareholder reports; custodian and transfer and
dividend disbursing agent charges; brokerage fees and commissions and securities
transaction costs; taxes and corporate fees; legal fees; the fees of any trade
association; the cost of stock certificates, if any, representing shares of the
Fund; the organizational and offering expenses, whether or not advanced by the
Adviser; expenses of shareholder and director meetings; premiums for the
fidelity bond and any errors and omissions insurance; interest and taxes; and
any other ordinary or extraordinary expenses incurred in the course of the
Fund's business.
The Advisory Agreement also provides that each Fund (except for Money
Market) will reimburse the Adviser for the Fund's organizational expenses, up to
a maximum amount of $50,000 per Fund. Such organizational expenses will be
amortized by each Fund over five years.
The Advisory Agreement was approved by each Fund's initial shareholder and
will continue in effect as to each Fund initially for two years and thereafter
from year to year if such continuance is specifically approved at least annually
by (a) the Board of Directors of the Company or by the vote of a majority of the
outstanding voting securities of the Fund, and (b) vote of a majority of the
directors who are not "interested persons" of the Company or the Adviser (the
Independent Directors), cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated without
penalty at any time on 60 days' written notice, by vote of a majority of the
Board of Directors of the Company or by vote of a majority of the outstanding
voting securities of the Fund. The Advisory Agreement terminates automatically
in the event of assignment.
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.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed the most restrictive
expense limitation applicable in the states where a Fund's shares are qualified
for sale, the compensation due the Adviser for such fiscal year shall be reduced
by the amount of such excess. Ordinary business expenses do not include (a)
interest and taxes, (b) brokerage commissions, (c) certain litigation and
indemnification expenses as described in the Advisory Agreement, and (d) other
extraordinary business expenses. The Advisory Agreement and Sub-Advisory
Agreements also provides that the Adviser and Sub-Advisers shall not be liable
to the Company for any actions or omissions if it acted in good faith without
gross negligence, willful misfeasance, bad faith, or from reckless disregard of
their duties.
B-32
<PAGE>
DETERMINATION OF NET ASSET VALUE
As discussed in the Prospectus, the Company will not calculate the net asset
value of the Funds on certain holidays and when there is no activity in a Fund's
shares. On those days, securities held by a Fund may nevertheless be actively
traded, and the value of the Fund's shares could be significantly affected.
A Fund determines its net asset value per share by subtracting its
liabilities (including accrued expenses and dividends payable) from its total
assets (the market value of the securities the Fund holds plus cash and other
assets, including income accrued but not yet received) and dividing the result
by the total number of shares outstanding.
HOW TO BUY AND REDEEM SHARES
Shares in a Fund may be purchased and redeemed in the manner described in
the Prospectus and in this Statement of Additional Information.
COMPUTATION OF PUBLIC OFFERING PRICES
The Funds offer their shares to the public on a continuous basis. The
public offering price per share of each Fund is equal to its net asset value per
share next computed after receipt of a purchase order. See "Determination of
Net Asset Value", above.
DISTRIBUTIONS IN KIND
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of a Fund to make a redemption
payment wholly in cash, the Fund may pay, in accordance with SEC rules, any
portion of a redemption in excess of the lesser of $250,000 or 1% of the Fund's
net assets by distribution in kind of portfolio securities in lieu of cash.
Shareholders receiving distributions in kind may incur brokerage commissions or
other costs when subsequently disposing of shares of those securities.
HOW TO EXCHANGE SHARES
A shareholder may exchange all or part of its shares of one Fund for shares
of another Fund (subject to receipt of any required state securities law
clearances with respect to certain Funds in the shareholder's state of
residence). An exchange of shares is treated for federal income tax purposes as
a redemption (sale) of shares given in exchange by the shareholder, and an
exchanging shareholder may, therefore, realize a taxable gain or loss in
connection with the exchange. See "Distributions and Taxes" below.
The exchange privilege enables a shareholder to acquire shares in a Fund
with different investment objectives or policies when the shareholder believes
that a shift between Funds is an appropriate investment decision.
B-33
<PAGE>
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
and the proceeds are immediately invested, at a price as described above, in
shares of the Fund being acquired. The Company reserves the right to reject any
exchange request.
As described in the Prospectus, the exchange privilege may be terminated or
revised by the Company.
EXCHANGES-IN-KIND
The Funds may, at the sole discretion of the Adviser, accept securities in
exchange for shares of a Fund. Securities which may be accepted in exchange for
shares of any Fund must (1) meet the investment objectives and policies of the
Fund; (2) be acquired for investment and not for resale; (3) be liquid
securities which are not restricted as to transfer either by law or liquidity of
market (determined by reference to liquidity policies established by the Board
of Directors); and (4) have a value which is readily ascertainable (and not
established only by evaluation procedures) as evidenced by, for example, a
listing on a recognized stock exchange.
DISTRIBUTIONS AND TAXES
Each of the Funds intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"). A Fund that is a regulated investment company and distributes to its
shareholders at least 90% of its taxable net investment income (including, for
this purpose, its net realized short-term capital gains) and 90% of its tax-
exempt interest income (reduced by certain expenses), will not be liable for
federal income taxes to the extent its taxable net investment income and its net
realized long-term and short-term capital gains, if any, are distributed to its
shareholders. However, a Fund will be taxed on that portion of taxable net
investment income and long-term and short-term capital gains that it retains.
Furthermore, a Fund will be subject to United States corporate income tax (and
possibly state or local income or franchise tax) with respect to such
distributed amounts in any year that it fails to qualify as a regulated
investment company or fails to meet the 90% distribution requirement.
To qualify as a regulated investment company, in addition to the 90%
distribution requirement described above, a Fund must (a) derive at least 90% of
its gross income from dividends, interest, certain payments with respect to
securities loans and gains from the sale or other disposition of stock or
securities or foreign currencies or other income (including but not limited to
gains from options, futures or forward contracts) derived with respect to its
business in investing in such stock, securities or currencies; (b) derive less
than 30% of its gross income from the sale or other disposition of stock or
securities or foreign currencies or options, futures or forward contracts (other
than with respect to foreign currencies, or options, futures or forward
contracts on foreign currencies, that are directly related to the Fund's
principal business of investing in stock or securities which are held less than
3 months); and (c) diversify its holdings so that at the end of each fiscal
B-34
<PAGE>
quarter, (i) at least 50% of the value of the Fund's assets is represented by
cash items, U.S. Government Securities and other securities, limited in respect
of any one issuer, to an amount not greater than 5% of the Fund's total assets
and 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its total assets is invested in the securities of any
one issuer (other than U.S. Government Securities) or in the securities of two
or more issuers (other than U.S. Government Securities) which the Fund controls
(i.e., holds at least 20% of the combined voting power) and which are engaged in
the same or similar trades or businesses or related trades or businesses. A
Fund's employment of the investment strategies described in this Statement of
Additional Information and in the Prospectus may be limited by these
requirements for qualification. Nevertheless, management of the Funds is
committed to operate the Funds in a manner so as to qualify each Fund as a
regulated investment company.
With respect to the Equity Funds that invest in foreign currency or forward
foreign exchange contracts and Core Fixed Income, gains from such foreign
currency and forward foreign exchange contracts relating to investments in
stocks, securities or foreign currencies are considered to be qualifying income
for purposes of the 90% gross income test described in clause (a) above,
provided such gains are directly related to the Fund's principal business of
investing in stock or securities. It is currently unclear, however, who will be
treated as the issuer of certain foreign currency instruments or how foreign
currency contracts will be valued for purposes of the asset diversification
requirements applicable to the Fund described in clause (c) above. Until such
time as these uncertainties are resolved, each Fund will utilize the more
conservative, or limited, definition or approach with respect to determining
permissible investments in its portfolio.
Investments in foreign currencies, forward contracts, options, futures
contracts and options thereon may subject a Fund to special provisions of the
Internal Revenue Code that may affect the character of gains and losses realized
by the Fund (i.e., may affect whether gains or losses are ordinary or capital),
may accelerate recognition of income to a Fund, and may defer Fund losses.
These rules also (a) could require a Fund to mark-to-market certain types of the
positions in its portfolio (i.e., treat them as if they had been closed out in a
fully taxable transaction) and (b) may cause the Fund to recognize income
without receiving cash with which to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for avoiding income
and excise taxes.
As a general rule, a Fund's gain or loss on a sale or exchange of an
investment will be a long-term capital gain or loss if the Fund has held the
investment for more than one year and will be a short-term capital gain or loss
if it has held the investment for one year or less. Furthermore, 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. For federal,
state and local income tax purposes, an exchange by a shareholder of shares in
one Fund or
B-35
<PAGE>
securities for shares in a Fund will be treated as a taxable sale for a purchase
price equal to the fair market value of the shares received.
Any loss realized on the disposition by a shareholder of its shares in a
Fund will be disallowed to the extent the shares disposed of are replaced with
other Fund shares, including replacement through the reinvesting of dividends
and capital gains distributions in the Fund, within a period (of 61 days)
beginning 30 days before and ending 30 days after the disposition of the shares.
In such a case, the basis of the shares acquired will be increased to reflect
the disallowed loss. Any loss realized by a shareholder on the sale of a Fund
share held by the shareholder for six months or less will be treated as a long-
term capital loss to the extent of any distributions of capital gain dividends
(as defined below) received by the shareholder with respect to such share.
While only the Equity Funds expect to realize a significant amount of net
long-term capital gains, any such realized gains will be distributed as
described in the Prospectus. See "Dividends, Distributions and Taxes" in the
Prospectus. Such distributions ("capital gain dividends"), if any, will be
taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held Fund shares, and will be designated as capital gain
dividends in a written notice mailed to the shareholder after the close of the
Fund's prior taxable year. A Fund may be subject to taxes in foreign countries
in which each invests. If such a Fund invests in an entity which is classified
as a "passive foreign investment company" ("PFIC") for U.S. tax purposes, the
application of certain technical tax provisions applying to such companies could
result in the imposition of federal income tax with respect to such investments
at the Fund level which could not be eliminated by distributions to the
shareholders of the Fund. It is not anticipated that any taxes at the Fund
level with respect to investments in PFICs will be significant.
Under the Internal Revenue Code, a nondeductible excise tax of 4% is
imposed on a Fund to the extent the Fund does not distribute by the end of any
calendar year at least 98% of its ordinary income for that calendar year and at
least 98% of the net amount of its capital gains (both long-term and short-term)
for the one-year period ending on October 31 of such calendar year (or December
31 if the Fund so elects), plus any undistributed amounts of taxable income for
prior years. For this purpose, however, any income or gain retained by the Fund
that is subject to corporate income tax will be considered to have been
distributed by year-end. Each Fund intends to meet these distribution
requirements to avoid the excise tax liability.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made to
shareholders of record in such a month are treated as paid and are taxable as of
December 31, provided that the Fund pays the dividend during January of the
following year.
B-36
<PAGE>
If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income, or fails to certify that it
has provided a correct taxpayer identification number and that it is not subject
to "backup withholding," then the shareholder may be subject to a 31% "backup
withholding" tax with respect to (a) taxable dividends and distributions and (b)
the proceeds of any redemptions of Fund shares. An individual's taxpayer
identification number is his social security number. The 31% "backup
withholding" tax is not an additional tax and may be credited against a
taxpayer's regular federal income tax liability.
Dividends to shareholders who are non-resident aliens may be subject to a
30% United States withholding tax under provisions of the Code applicable to
foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Non-resident
shareholders should consult their own tax advisers.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Internal Revenue Code and Treasury Regulations presently in
effect. For the complete provisions, reference should be made to the pertinent
Internal Revenue Code sections and the Treasury Regulations promulgated
thereunder. The Internal Revenue Code and these Regulations are subject to
change by legislative or administrative action.
Each shareholder will receive annual information from its Fund regarding
the tax status of Fund distributions. Shareholders are urged to consult their
attorneys or tax advisers with respect to the applicability of federal, state,
local, estate and gift taxes and non-U.S. taxes to their investment in the Fund.
INVESTMENT RESULTS
From time to time, the Company may quote the performance of a Fund in terms
of yield, actual distributions, total return or capital appreciation in reports
or other communications to shareholders or in other published material.
The Bond Funds may quote a 30-day yield figures which is calculated
according to a formula prescribed by the SEC. The formula can be expressed as
follows:
YIELD = 2[(a-b) + 1)/6/ - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
B-37
<PAGE>
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by one of the Bond Funds at a
discount or premium, the formula generally calls for amortization of the
discount or premium; the amortization schedule will be adjusted monthly to
reflect changes in the market values of the debt obligations.
The yield of Money Market is its net income expressed in annualized terms.
The SEC requires by rule that a yield quotation set forth in an advertisement
for a "money market" fund be computed by a standardized method based on a
historical seven calendar day period. The standardized yield is computed by
determining the net change (exclusive of realized gains and losses and
unrealized appreciation and depreciation) in the value of a hypothetical pre-
existing account having a balance of one share at the beginning of the period,
dividing the net change in account value by the value of the account at the
beginning of the base period return by 365/7. The determination of net change
in account value reflects the value of additional shares purchased with
dividends from the original share, dividends declared on both the original share
and such additional shares, and all fees that are charged to all shareholder
accounts, in proportion to the length of the base period and the Fund's average
account size. Money Market may also calculate its effective yield by
compounding the unannualized base period return (calculated as described above)
by adding 1 to the base period return, raising the sum to a power equal to 365
divided by 7, and subtracting one.
The yield quoted at any time represents the amount being earned on a
current basis for the indicated period and is a function of the types of
instruments in Money Market, their quality and length of maturity, and the
Fund's operating expenses. The length of maturity for the Fund is the average
dollar weighted maturity of the Fund. This means that the Fund has an average
maturity of a stated number of days for all of its issues. The calculation is
weighted by the relative value of the investment.
Each Bond Fund's and Equity Fund's total return may be calculated on an
"average annual total return" basis, and may also be calculated on an "aggregate
total return" basis, for various periods. Average annual total return reflects
the average annual percentage change in the value of an investment in a Fund
over the particular measuring period. Aggregate total return reflects the
cumulative percentage change in value over the measuring period. Average annual
total return figures provided for the Bond Funds and Equity Funds will be
computed according to a formula prescribed by the SEC. The formula for an
average annual total return can be expressed as follows:
P(1+T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
B-38
<PAGE>
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year (or other) periods or the
life of the Fund
The formula for calculating aggregate total return can be expressed as
follows:
Aggregate Total Return = [ ( ERV ) - 1 ]
---
P
The calculation of average annual total return and aggregate total return
assumes reinvestment of all income dividends and capital gain distributions on
the reinvestment dates during the period and includes all recurring fees charged
to all shareholder accounts.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period and reflects deduction of all nonrecurring charges
at the end of the measuring period covered by the computation. A Fund's net
investment income changes in response to fluctuations in interest rates and the
expenses of the Fund.
A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.
Investors should recognize that, because the Bond Funds will have a high
component of fixed-income securities, in periods of declining interest rates the
yields of the Bond Funds will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates yields will tend to be somewhat
lower. In addition, when interest rates are falling, the inflow of net new
money to the Bond Funds from the continuous sale of shares will likely be
invested in portfolio instruments producing lower yields than the balance of the
Bond Funds' securities, thereby reducing the current yields of the Bond Funds.
In periods of rising interest rates, the opposite can be expected to occur.
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
B-39
<PAGE>
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 Core Fixed Income -- Lehman Brothers
Government/Corporate Bond Index; Core 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; Convertible Securities --
First Boston Convertible Index, NASDAQ Composite and Standard & Poor's 500
w/income; Core Equity -- Standard & Poor's 500; Small Cap Growth - National
Association of Securities Dealers Automated Quotations System, Lipper Small
Company Gross Average and Russell 2000; 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 the Wilshire Midcap
Index; Asia Pacific Equity -Morgan Stanley Combined Far East ex Japan Free
Index; Emerging Markets -International Finance Corporation Emerging Markets
Composite Global Total Return Investable Index; Latin America Equity -- Baring
Securities Emerging Markets Index, International Finance Corporation Latin
America Investable Index, and Morgan Stanley Capital International Latin America
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.
FINANCIAL STATEMENTS
Set forth on the following pages are certain financial statements of the
Funds.
B-40
<PAGE>
TCW GALILEO FUNDS, INC.
ANNUAL REPORT
OCTOBER 31, 1995
<PAGE>
TCW GALILEO FUNDS, INC.
TABLE OF CONTENTS
- - -----------------
Letter to Shareholders..................................................... 3
Schedule of Investments:
TCW Galileo Money Market Fund............................................ 4
TCW Galileo High Grade Fixed Income Fund................................. 6
TCW Galileo High Yield Bond Fund......................................... 9
TCW Galileo Mortgage Backed Securities Fund.............................. 15
TCW Galileo Long-Term Mortgage Backed Securities Fund.................... 18
TCW Galileo Core Equity Fund............................................. 20
TCW Galileo Earnings Momentum Fund....................................... 23
TCW Galileo Smal1 Cap Growth Fund........................................ 29
TCW Galileo Asia Pacific Equity Fund..................................... 34
TCW Galileo Emerging Markets Fund........................................ 38
TCW Galileo Latin America Equity Fund.................................... 46
Statements of Assets and Liabilities....................................... 49
Statements of Operations................................................... 53
Statements of Changes in Net Assets........................................ 57
Notes to Financial Statements.............................................. 68
Financial Highlights....................................................... 75
Independent Auditors' Report............................................... 87
1
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK.
2
<PAGE>
TCW GALILEO FUNDS, INC.
TO OUR SHAREHOLDERS
- - -------------------
We are pleased to submit the October 31, 1995 Annual Report for the TCW Galileo
Funds. The Galileo Mutual Funds continue to provide our clients with targeted
investment strategies featuring daily liquidity, competitive management fees and
no front-end loads, 12b-1 or deferred sales charges. Additionally, the Funds are
supported by TCW's unique depth and breadth of portfolio management and
unparalleled personal services.
In fiscal 1995, we witnessed dramatic increases in the domestic stock and bond
markets. Equities were fueled by lower interest rates, slower economic growth
and strong corporate profits, while the fixed income market recovered sharply,
with interest rates declining in anticipation of a possible shift in Fed policy
from tightening to easing. Abroad, emerging markets continued to experience
turbulence as a result of the Mexican peso devaluation. For the coming fiscal
year, the Funds have been positioned to benefit from improving conditions in
emerging markets as well as from domestic economic growth at a moderate,
non-inflationary pace as the general level of interest rates continues to
decline. Below is a summary of each Fund's net asset value and returns through
October 31, 1995.
<TABLE>
<CAPTION>
Net Asset Value Total Return - Annualized
per Share As of October 31, 1995
--------------- -------------------------------------------------------------------------
Latest Twelve
October 31, Months Ended Latest Since Inception
1995 October 31, 1995 5 Years Inception Date
--------------- ---------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
TCW Galileo Money Market Fund $ 1.00 5.67% 4.65% 5.88% 07/14/88
TWC Galileo High Grade Fixed
Income Fund 9.61 13.92 8.39 /(1)/ 8.09 /(1)/ 01/01/90 /(2)/
TCW Galileo High Yield Bond Fund 9.74 14.65 15.47 /(1)/ 11.21 /(1)/ 02/01/89 /(2)/
TCW Galileo Mortgage Backed
Securities Fund 9.58 10.16 6.61 /(1)/ 6.96 /(1)/ 02/01/90 /(2)/
TCW Galileo Long-Term Mortgage
Backed Securities Fund 9.56 16.84 5.37 07/17/93
TCW Core Equity Fund 13.69 18.85 14.91 /(1)/ 07/01/91 /(2)/
TCW Galileo Earnings
Momentum Fund 11.47 14.76 14.34 /(1)/ 05/01/93 /(2)/
TCW Galileo Small Cap
Growth Fund 13.53 49.89 26.43 /(1)/ 18.86 /(1)/ 12/01/89 /(2)/
TCW Galileo Asia Pacific
Equity Fund 8.67 (10.98) 18.91 /(1)/ 04/01/93 /(2)/
TCW Galileo Emerging Markets
Equity Fund 7.19 (26.11) 3.80 /(1)/ 06/01/93 /(2)/
TCW Galileo Latin America
Equity Fund 7.92 (40.95) 6.36 /(1)/ 07/01/91 /(2)/
</TABLE>
/(1)/ Performance data includes the performance of the predecessor limited
partnership for periods before the TCW Galileo Funds' registration became
effective. The predecessor limited partnerships were not registered under
the Investment Company Act of 1940 ("1940 Act") and, therefore were not
subject to certain investment restrictions that are imposed by the 1940
Act. If the limited partnerships had been registered under the 1940 Act,
the limited partnership's performance may have been adversely affected.
/(2)/ Inception date of predecessor limited partnership.
TCW is committed to providing you with superior professional investment
management and distinctive personal service through the TCW Galileo Funds.
Please call your Account Representative or our Shareholder Relations Department
at (800) FUND TCW [(800) 386-3829] if you have any questions or would like
further information on the TCW Galileo Funds.
Very truly yours,
/s/ MARC I. STERN
- - ---------------------
Marc I. Stern
Chairman of the Board
December 19, 1995
3
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Money Market Fund
October 31,1995
SCHEDULE OF INVESTMENTS
- - -----------------------
<TABLE>
<CAPTION>
Principal
Amount INVESTMENTS Value
- - ----------- ----------- ------------
<C> <S> <C>
AGENCY FIXED INCOME SECURITIES (13.4% of Net Assets)
$ 1,000,000 Federal Farm Credit Bank, 5.95%, due 02/23/96 $ 981,158
5,000,000 Federal Farm Credit Bank, 6.1%, due 11/01/95 5,000,000
2,400,000 Federal Home Loan Bank, 5.35%, due 10/21/96 2,273,383
2,000,000 Federal Home Loan Mortgage Corp., 5.57%, due 01/02/96 1,980,815
1,315,000 Federal Home Loan Mortgage Corp., 5.85%, due 11/01/95 1,315,000
-----------
TOTAL AGENCY FIXED INCOME SECURITES (Cost: $11,550,356) 11,550,356
-----------
COMMERCIAL PAPER (69.4%)
2,000,000 American Express Credit Corp., 5.65%, due 12/11/95 1,987,444
2,000,000 Ameritech Corp., 5.51%, due 03/08/96 1,960,818
1,500,000 Ameritech Corp., 5.67%, due 12/22/95 1,487,951
2,500,000 Barclay's U.S. Funding Corp., 5.68%, due 01/12/96 2,471,600
2,000,000 BellSouth Telecommunications, Inc., 5.7%, due 11/07/95 1,998,100
2,000,000 Ciesco L.P., 5.55%, due 01/19/96 1,975,642
1,500,000 Ciesco L.P., 5.63%, due 11/02/95 1,499,765
3,000,000 CIT Group Holdings, Inc., 5.72%, due 11/06/95 2,997,617
3,000,000 Commercial Credit Company, 5.74%, due 11/22/95 2,989,955
2,000,000 Florida Power Corp.,5.73%, due 11/06/95 1,998,408
3,000,000 Ford Motor Credit Co., 5.61%, due 12/18/95 2,978,028
2,000,000 General Electric Capital Corp., 5.72%, due 11/14/95 1,995,869
1,000,000 Hartford Steam Boiler Inspection & Insurance Company,
5.75%, due 11/03/95 999,681
1,000,000 Hartford Steam Boiler Inspection & Insurance Company
5.71%, due 12/20/95 992,228
1,000,000 Illinois Tool Works, Inc., 5.74%, due 11/07/95 999,043
2,000,000 Intel Corp., 5.7%, due 11/10/95 1,997,150
2,415,000 Metlife Funding, Inc., 5.71%, due 11/17/95 2,408,871
2,000,000 Pacific Mutual Life Insurance Company, 5.675%, due 11/07/95 1,998,108
1,000,000 Pitney-Bowes Credit Corp., 5.66%, due 11/13/95 998,113
1,400,000 Pitney-Bowes Credit Corp, 5.75%, due 11/28/95 1,393,963
3,000,000 Prudential Funding Corp, 5.7%, due 11/13/95 2,994,300
1,000,000 Prudential Funding Corp,5.73%, due 11/13/95 998,090
2,000,000 SAFECO Credit Company, 5.66%, due 11/13/95 1,996,227
1,470,000 Sara Lee Corp., 5.71%, due 11/17/95 1,466,270
</TABLE>
See accompanying Notes to Financial Statements.
4
<PAGE>
TCW Galileo Money Market Fund
SCHEDULE OF INVESTMENTS (Continued)
- - -----------------------------------
<TABLE>
<CAPTION>
Principal
Amount INVESTMENTS Value
- - ----------- ----------- ------------
<C> <S> <C>
COMMERCIAL PAPER (Continued)
$ 1,000,000 Toyota Motor Credit Corp., 6.15%, due 12/29/95 $ 990,092
3,000,000 Toyota Motor Credit Corp., 6.4%, due 11/13/95 2,993,600
3,000,000 Transamerica Finance Corp., 5.72%, due 11/20/95 2,990,943
3,000,000 United Parcel Service of America, Inc., 5.71%, due 11/03/95 2,999,048
1,980,000 USAA Capital Corp., 5.73%, due 11/10/95 1,977,164
2,390,000 Walmart Stores, Inc., 5.65%, due 12/22/95 2,370,870
-----------
TOTAL COMMERCIAL PAPER (Cost: $59,904,958) 59,904,958
-----------
CORPORATE FIXED INCOME SECURITIES (17.3%)
1,720,000 American General Finance Corp., 5%, due 06/15/96 1,710,164
2,000,000 American General Finance Corp., 8.875%, due 03/15/96 2,020,321
1,500,000 Associates Corp. of North America, MTN, 4.94%, due 04/02/96 1,493,845
1,000,000 Associates Corp. of North America, MTN, 8.75%, due 04/04/96 1,009,920
2,500,000 Associates Corp. of North America, 4.5%, due 02/15/96 2,487,774
1,500,000 Bank of New York - Delaware, MTN, 6%, due 09/26/96 1,499,903
4,750,000 Smithkline Beecham Corp., MTN, 5.25%, 01/26/96 4,743,473
-----------
TOTAL CORPORATE FIXED INCOME SECURITIES (Cost: $14,965,400) 14,965,400
-----------
SHORT-TERM INVESTMENTS (Cost: $1,260) (0.0%)
--------------------------------------------
1,260 Bank of New York Depositary Reserve, 5%, due 11/01/95 1,260
-----------
TOTAL INVESTMENTS (Cost: $86,421,974) (100.1%) 86,421,974
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.1%) (119,680)
-----------
NET ASSETS (100%) $86,302,294
===========
</TABLE>
See accompanying Notes to Financial Statements.
5
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo High Grade Fixed Income Fund
October 31, 1995
SCHEDULE OF INVESTMENTS
- - -----------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- - ----------- ----------------------- ------------
<C> <S> <C>
ASSET-BACKED SECURITIES (4.1% of Net Assets)
$ 212,841 AFC Home Equity Loan Trust, Series 1993-2, Class A,
6%, due 01/20/13 $ 208,287
198,849 AFC Home Equity Loan Trust, Series 1992-4, Class A,
6.2%, due 09/15/07 197,397
501,436 Old Stone Credit Corp Home Equity Trust 1992-4A
6.55%, due 11/25/07 500,118
598,639 UCFC Home Equity Loans 1993-D, Class A-l,
5.45%, due 07/10/13 584,547
-----------
TOTAL ASSET-BACKED SECURITIES (Cost: $1,530,420) 1,490,349
-----------
FEDERAL AGENCY OBLIGATIONS
AGENCY PASS-THROUGHS (32.7%)
963,241 Federal National Mortgage Association,
Pool #190264, 8%, due 07/01/24 987,919
1,619,494 Federal National Mortgage Association,
Pool #290364, 8%, due 11/01/24 1,660,986
315,247 Federal National Mortgage Association,
Pool #304278, 8%, due 02/01/25 323,324
887,512 Federal National Mortgage Association,
Pool #307103, 8%, due 03/01/25 910,250
l,971,142 Government National Mortgage Association,
Pool #356363, 7%, due 06/15/23 1,959,434
29,142 Government National Mortgage Association,
Pool #346662, 7%, due 07/15/23 28,969
892,084 Government National Mortgage Association,
Pool #376466, 7%, due 04/15/24 886,785
969,377 Government National Mortgage Association,
Pool #780030, 7%, due 06/15/24 967,254
1,004,850 Government National Mortgage Association,
Pool #395887, 7.5%, due 10/15/25 1,018,978
1,000,000 Government National Mortgage Association,
Pool #414693, 7.5%, due 10/15/25 1,014,060
1,995,249 Government National Mortgage Association,
Pool #409862, 8.5%, due 06/15/25 2,078,171
-----------
TOTAL FEDERAL AGENCY OBLIGATIONS-
AGENCY PASS-THROUGHS (Cost: $11,554,891) 11,836,130
-----------
FINANCIAL (1.6%)
500,000 American General Finance Corp., 7.25%, due 05/15/05 518,750
60,000 Security Pacific Corp., 11.5%, due 11/15/00 72,525
-----------
TOTAL FINANCIAL (Cost: $577,629) 591,275
-----------
</TABLE>
See accompanying Notes to Financial Statements.
6
<PAGE>
TCW GALILEO HIGH GRADE FIXED INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
- - -----------------------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- - --------- ----------------------- ----------
<S> <C> <C>
INDUSTRIAL (11.1%)
$ 200,000 Carnival Cruise Lines, Inc., 7.2%, due 10/01/23 $ 198,000
200,000 General Motors Corp., 9.125%, due 07/15/01 224,750
1,000,000 General Motors Corp., 9.4%, due 07/15/21 1,241,250
1,000,000 International Paper Company, 8.125%, due 06/15/24 1,083,750
1,000,000 Northrop Grumman Corp., 9.375%, due 10/15/24 1,168,750
100,000 Whirlpool Corp., 9.1%, due 03/15/04 115,125
-----------
TOTAL INDUSTRIAL (Cost: $3,611,532) 4,031,625
-----------
RETAIL (4.0%)
1,000,000 May Department Stores Company, 8.375%, due 08/01/24 1,108,750
90,000 May Department Stores Company, 9.75%, due 02/15/21 116,437
200,000 J. C. Penney Company, Inc., 9.05%, due 03/01/01 224,250
-----------
TOTAL RETAIL (Cost: $1,297,652) 1,449,437
-----------
TRANSPORTATION (COST: $1,127,182) (3.4%)
1,150,000 United Air Lines, 9.56%, due 10/19/18 1,235,042
-----------
U.S. TREASURY OBLIGATIONS (37.0%)
710,000 United States Treasury Bonds, 8.125%, due 08/15/21 858,972
1,480,000 United States Treasury Bonds, 10.75%, due 08/15/05 1,983,052
750,000 United States Treasury Notes, 6.25%, due 08/31/00 765,075
1,200,000 United States Treasury Notes, 7.5%, due 05/15/02 1,303,464
5,435,000 United States Treasury Notes, 7.5%, due 02/15/05 5,992,794
2,385,000 United States Treasury Notes, 8.125%, due 02/15/98 2,508,686
-----------
TOTAL U. S. TREASURY OBLIGATIONS
(Cost: $13,076,142) 13,412,043
-----------
UTILITY - ELECTRIC & GAS (2.4%)
600,000 ANR Pipeline, 9.625%, due 11/01/21 750,000
90,000 Chugach Electric Association Services A, 9.14 %, due 03/15/22 101,700
-----------
TOTAL UTILITY - ELECTRIC & GAS
(Cost: $832,204) 851,700
-----------
TOTAL FIXED INCOME SECURITIES
(COST: $33,607,652) (96.3%) 34,897,601
-----------
</TABLE>
See accompanying Notes to Financial Statements.
7
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- - ------------- ----------------------- -----
<S> <C> <C>
SHORT-TERM INVESTMENTS (COST $1,046,659) (2.9%)
$1,046,659 Bank of New York Depositary Reserve, 5%, due 11/01/95 $ 1,046,659
-----------
TOTAL INVESTMENTS (COST: $34,654,311) (99.2%) 35,944,260
EXCESS OF OTHER ASSETS OVER LIABILITIES (0.8%) 291,670
-----------
NET ASSETS (100%) $36,235,930
===========
</TABLE>
See accompanying Notes to Financial Statements.
8
<PAGE>
TCW Galileo High Yield Bond Fund
SCHEDULE OF INVESTMENTS
- - -----------------------
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- - ------------ --------------------------------- -----------
<C> <S> <C>
CONSUMER STAPLES (12.6% OF NET ASSETS)
FOOD AND DRUG RETAILING (2.7%)
$ 125,000 Dominick's Finer Foods, 10.875%, due 05/01/05 $ 131,563
321,000 Homeland Stores, Inc., Series C, 12.25%, due 03/01/99 166,920
1,000,000 Penn Traffic Company, 10.25%, due 02/15/02 913,750
560,000 Ralphs Grocery Company, 10.45%, due 06/15/04 561,400
710,000 Ralphs Grocery Company, 11%, due 06/15/05 685,150
-----------
Total Food and Drug Retailing 2,458,783
-----------
HEALTHCARE AND HOSPITAL MANAGEMENT (4.2%)
940,000 Dade International, Inc., 13%, due 02/01/05 1,024,600
760,000 Integrated Health Services, Inc., 10.75%, due 07/15/04 809,400
120,000 Integrated Health Services, Inc., 9.625%, due 05/31/02 121,800
855,000 Ornda Healthcorp, 12.25%, due 05/15/02 940,500
950,000 Tenet Healthcare Corp., 10.125%, due 03/01/05 1,021,250
-----------
Total Healthcare and Hospital Management 3,917,550
-----------
OTHER CONSUMER STAPLES (5.7%)
590,000 American Safety Razor Company, (144A), 9.875%, due 08/01/05 592,950 *
885,000 Chiquita Brands, Inc., 9.125%, due 03/01/04 885,000
475,000 Cott Corp., 9.375%, due 07/01/05 484,500
1,185,000 Curtice-Burns Foods, Inc., 12.25%, due 02/01/05 1,229,438
950,000 Foodbrands America, Inc., 9.75%, due 07/15/00 926,250
590,000 La Petite Holdings, Inc., 9.625%, due 08/01/01 522,150
250,000 Revlon Consumer Products Corp., 9.5%, 06/01/99 253,437
395,000 Specialty Foods Corp., 10.25%, due 08/15/01 363,400
-----------
Total Other Consumer Staples 5,257,125
-----------
TOTAL CONSUMER STAPLES (Cost: $11,624,442) 11,633,458
-----------
CONSUMER CYCLICALS (33.7%)
AUTO PARTS AND EQUIPMENT (0.8%)
740,000 Motorwheel Corp., 11.5%, due 03/01/00 695,600
-----------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
9
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- - ------------ --------------------------------- -----------
<C> <S> <C>
ENTERTAINMENT AND LEISURE (8.6%)
$ 860,000 AMC Entertainment, Inc., 11.875%, due 08/01/00 $ 936,325
915,000 Aztar Corp., 11%, due 10/01/02 896,700
485,000 Aztar Corp., 13.75%, due 10/01/04 523,800
900,000 Bally's Grand, Inc., Series B, 10.375%, due 12/15/03 897,750
1,135,000 Bally's Park Place, Inc., 9.25%, due 03/15/04 1,119,394
1,150,000 California Hotel Finance Corp., 11%, due 12/01/02 1,201,750
950,000 Griffin Gaming, Inc., Variable Rate, due 06/30/00 855,000
1,060,000 Harrah's Operations, Inc., 10.875%, due 04/15/02 1,158,050
325,000 United Artists Theatre Circuit, Inc., 11.5%, due 05/01/02 347,750
-----------
Total Entertainment and Leisure 7,936,519
-----------
LODGING (3.0%)
750,000 John Q. Hammons Hotels, L.P., 8.875%, due 02/15/04 727,500
725,000 La Quinta Motor Inns, 9.25%, due 05/15/03 768,500
1,260,000 Red Roof Inns, Inc., Series B, 9.625%, due 12/15/03 1,253,700
-----------
Total Lodging 2,749,700
-----------
MEDIA (10.2%)
1,200,000 Ackerley Communications, Inc., 10.75%, due 10/01/03 1,260,000
850,000 Argyle Television, Inc., 9.75%, due 11/01/05 847,875
500,000 Century Communications Corp., 9.5% , due 08/15/00 510,000
500,000 Comcast Corp., 9.125%, due 10/15/06 508,750
400,000 Comcast Corp., 9.375%, due 05/15/05 410,000
685,000 Continental Cablevision, Inc., 8.875%, due 09/15/05 717,538
1,085,000 Garden State Newspaper Company, 12%, due 07/01/04 1,087,712
870,000 Heritage Media Corp., 11%, due 06/15/02 933,075
800,000 Jones Intercable, Inc., 11.5%, due 07/15/04 878,000
695,000 K-III Communications Corp., 10.625%, due 05/01/02 741,912
950,000 Rogers Cablesystems, 10%, due 03/15/05 995,125
635,000 Telemundo Group, Inc., 10.25%, due 12/30/01 603,250
-----------
Total Media 9,493,237
-----------
RESTAURANTS (1.7%)
1,040,000 Flagstar Companies, Inc., 10.75%, due 09/15/01 967,200
465,000 Flagstar Companies, Inc., 10.875%, due 12/01/02 423,150
200,000 Foodmaker, Inc., 9.25%, due 03/01/99 185,000
-----------
Total Restaurants 1,575,350
-----------
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE>
TCW Galileo High Yield Bond Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
- - -----------------------------------
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- - ----------- --------------------------------- -----------
<C> <S> <C>
RETAILERS (3.4%)
$ 1,130,000 Brylane, L.P., 10%, due 09/01/03 $ 1,050,900
500,000 Finlay Fine Jewelry, Inc., 10.625%, due 05/01/03 493,125
815,000 Hills Stores Company, 10.25%, due 09/30/03 709,050
1,025,000 Orchard Supply Hardware Stores Corp., 9.375%, due 02/15/02 940,438
-----------
Total Retailers 3,193,513
-----------
TEXTILES AND APPAREL (3.0%)
765,000 Ithaca Industries, Inc., 11.125%, due 12/15/02 673,200
920,000 Reeves Industries, Inc., 11%, due 07/15/02 901,600
360,000 Salant Corp., 10.5%, due 12/31/98 313,200
1,040,000 United States Leather, Inc., 10.25%, due 07/31/03 852,800
-----------
Total Textiles and Apparel 2,740,800
-----------
TRANSPORTATION (1.9%)
810,000 International Shipholding Corp., 9%, due 07/01/03 810,000
680,000 Moran Transportation, Inc., 11.75%, due 07/15/04 635,800
101,488 US Air, Inc., Equipment Trust Certificate 90-A, 11.2%,
due 03/19/05 96,413
230,000 US Air, Inc., Senior Secured Pass Thru Certificate,
9.625%, due 09/01/03 218,500
-----------
Total Transportation 1,760,713
-----------
OTHER CONSUMER CYCLICALS (1.1%)
1,050,000 Sealy Corp., 9.5%, due 05/01/03 1,053,936
-----------
TOTAL CONSUMER CYCLICALS (Cost: $31,396,830) 31,199,368
-----------
BASIC MATERIALS (16.8%)
CHEMICALS (3.2%)
320,000 Borden Chemical and Plastics, L.P., 9.5%, due 05/01/05 328,000
1,275,000 NL Industries, Inc., 11.75%, due 10/15/03 1,354,688
1,300,000 Sherritt Gordon Limited, 9.75%, due 04/01/03 1,326,000
-----------
Total Chemicals 3,008,688
-----------
ENERGY (3.6%)
815,000 Energy Ventures, Inc., 10.25%, due 03/15/04 849,637
970,000 Flores and Rucks, Inc., 13.5%, due 12/01/04 1,086,400
1,270,000 Maxus Energy Corp., 9.875%, due 10/15/02 1,254,125
120,000 Tuboscope Corp., 10.75%, due 04/15/03 121,200
-----------
Total Energy 3,311,362
-----------
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE>
TCW GALILEO FUNDS, INC.
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- - ----------- --------------------------------- -----------
<C> <S> <C>
FOREST PRODUCTS AND PAPER (6.7%)
$ 740,000 Container Corporation of America, 9.75%, due 04/01/03 $ 743,700
350,000 Container Corporation of America, 10.75%, due 05/01/02 365,750
500,000 Container Corporation of America, 11.25%, due 05/01/04 526,250
900,000 Malette, Inc., 12.25%, due 07/15/04 1,005,750
865,000 Rainy River Forest Products, Inc., 10.75%, due 10/15/01 951,500
995,000 Repap Wisconsin, Inc., 9.25%, due 02/01/02 966,394
790,000 Stone Consolidated Corp., 10.25%, due 12/15/00 843,325
800,000 Stone Container Corp., 10.75%, due 10/01/02 838,000
-----------
Total Forest Products and Paper 6,240,669
-----------
METALS AND MINING (3.3%)
850,000 Carbide Graphite Group, Inc., 11.5%, due 09/01/03 918,000
990,000 Northwestern Steel and Wire Company, 9.5%, due 06/15/01 970,200
1,235,000 Republic Engineering Steel, 9.875%, due 12/15/01 1,139,288
-----------
Total Metals and Mining 3,027,488
-----------
TOTAL BASIC MATERIALS (Cost: $14,894,562) 15,588,207
-----------
INDUSTRIAL (23.9%)
BUSINESS SERVICES AND DISTRIBUTORS (7.9%)
1,320,000 Big Flower Press, Inc., 10.75%, due 08/01/03 1,399,200
1,055,000 Earle M. Jorgensen Company, 10.75%, due 03/01/00 1,012,800
900,000 Envirosource, Inc., 9.75%, due 06/15/03 804,375
1,165,000 Fleming Companies, Inc., 10.625%, due 12/15/01 1,229,075
1,265,000 Mid-American Waste Systems, Inc., 12.25%, due 02/15/03 1,277,650
1,050,000 Webcraft Technologies, Inc., 9.375%, due 02/15/02 992,250
610,000 Williamhouse Regency of Delaware, Inc., 11.5%, due 06/15/05 616,100
-----------
Total Business Services and Distributors 7,331,450
-----------
CAPITAL GOODS (0.8%)
855,000 Terex Corp., Units, (144A), 13.75%, due 05/15/02 724,613 *
-----------
COMMUNICATION SERVICES (5.3%)
755,000 MFS Communications, Inc., 0/9.375%, Step-up, due 01/15/04 586,069
1,115,000 Mobile Telecommunications Corp., 13.5%, due 12/15/02 1,257,162
415,000 Paging Network, Inc., 11.75%, due 05/15/02 458,056
500,000 Pan Am Sat, L.P., 9.75%, due 08/01/00 525,000
830,000 Rogers Cantel Mobile Communications, Inc., 10.75%,
due 11/01/01 869,425
940,000 Telex Communications, Inc., 12%, due 07/15/04 972,900
205,000 USA Mobile Communications, Inc., 9.5%, due 02/01/04 195,263
-----------
Total Communication Services 4,863,875
-----------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
12
<PAGE>
TCW GALILEO FUNDS, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
- - -----------------------------------
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- - ----------- --------------------------------- -----------
<C> <S> <C>
CONTAINERS AND PACKAGING (2.1%)
$ 830,000 Plastic Containers, Inc., 10.75%, due 04/01/01 $ 863,200
1,110,000 Sweetheart Cup Corp., 9.625%, due 09/01/00 1,110,000
-----------
Total Containers and Packaging 1,973,200
-----------
MISCELLANEOUS MANUFACTURING (7.8%)
580,000 American Rice, Inc. 13%, due 07/31/02 545,200
500,000 BE Aerospace, 9.75%, due 03/01/03 501,250
570,000 Communications and Power Industries, Inc.,
(144A), 12%, due 08/01/05 582,825 *
420,000 Dictaphone Corp., 11.75%, due 08/01/05 417,900
1,156,000 Foamex L.P., 9.5%, due 06/01/00 1,156,000
695,000 NEWFLO Corp., 13.25%, due 11/15/02 712,375
1,115,000 PMI Acquisition Corp., 10.25%, due 09/01/03 1,142,875
955,000 Talley Manufacturing and Technology, Inc.,
10.75%, due 10/15/03 964,550
1,100,000 Waters Corp., Series B, 12.75%, due 09/30/04 1,210,000
-----------
Total Miscellaneous Manufacturing 7,232,975
-----------
TOTAL INDUSTRIAL (Cost: $21,548,745) 22,126,113
-----------
CREDIT SENSITIVE (6.0%)
FINANCIAL SERVICES AND INSTITUTIONS (4.9%)
560,000 American Annuity Group, Inc., 11.125%, due 02/01/03 604,800
1,150,000 Bankers Life Holding Corp., 13%, due 11/01/02 1,311,000
1,250,000 CDV Acquisition, 9.75%, due 02/15/03 1,293,750
630,000 Reliance Group Holdings, Inc., 9%, due 11/15/00 642,600
690,000 Trizec Finance Corp., 10.875%, due 10/15/05 697,762
-----------
Total Financial Services and Institutions 4,549,912
-----------
UTILITIES (1.1%)
578,946 Midland Cogeneration Ventures, L.P., Series
C-91, 10.33%, due 07/23/02 604,998
129,875 Midland Cogeneration Ventures, L.P., Series
C-94, 10.33%, due 07/23/02 135,719
290,000 Texas New Mexico Power, 10.75%, due 09/15/03 306,719
-----------
Total Utilities 1,047,436
-----------
TOTAL CREDIT SENSITIVE (Cost: $5,445,992) 5,597,348
-----------
MULTI-INDUSTRY (1.5%)
660,000 Bell and Howell Group, Inc., 10.75%, due 10/01/02 706,200
730,000 Valcor, Inc., 9.625%, due 11/01/03 678,900
-----------
TOTAL MULTI-INDUSTRY (Cost: $1,411,726) 1,385,100
-----------
TOTAL CORPORATE FIXED INCOME SECURITIES
(COST: $86,322,297) (94.5%) 87,529,594
-----------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
13
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Principal
Amount U.S. TREASURY Value
- - ----------- ------------- ------------
<C> <S> <C>
$ 58,000 U.S. Treasury Security Stripped, due 02/15/96 $ 57,085
58,000 U.S. Treasury Security Stripped, due 08/15/96 55,411
58,000 U.S. Treasury Security Stripped, due 02/15/97 54,054
58,000 U.S. Treasury Security Stripped, due 08/15/97 52,589
58,000 U.S. Treasury Security Stripped, due 02/15/98 51,036
58,000 U.S. Treasury Security Stripped, due 08/15/98 49,582
58,000 U.S. Treasury Security Stripped, due 02/15/99 48,127
-----------
TOTAL U.S. TREASURY SECURITIES
(COST: $357,511) (0.4%) 367,884
-----------
<CAPTION>
Number of
Shares, Rights
or Warrants EQUITY SECURITIES
- - -------------- -----------------
<C> <S> <C>
21,420 Edisto Resources Corp., (Restricted Security), Common Stock 117,810 * **
300 Haynes International Corp., (Private Placement), Common Stock 300 * **
100 PST Holdings, Inc., Common Stock 100 **
3,654 Salant Corp., Common Stock 15,073 **
555 Terex Corp., Stock Appreciation Rights, (144A),
expires 07/31/96 56 * **
429 Terex Corp., Stock Appreciation Rights, expires 07/01/97 21 **
17,349 Transamerican Refining, Warrants, expires 02/15/02 60,721 **
-----------
TOTAL EQUITY SECURITIES (COST: $258,193) (0.2%) 194,081
-----------
<CAPTION>
Principal
Amount SHORT-TERM INVESTMENTS (COST: $2,169,101) (2.3%)
- - ----------- ------------------------------------------------
<C> <S> <C>
$ 2,169,101 Bank of New York Depositary Reserve, 5%, due 11/01/95 2,169,101
-----------
TOTAL INVESTMENTS (COST $89,107,102) (97.4%) 90,260,660
EXCESS OF OTHER ASSETS OVER LIABILITIES (2.6%) 2,391,701
-----------
NET ASSETS (100%) $92,652,361
===========
</TABLE>
* Restricted security. (See Note 6)
** Non-income producing.
See accompanying Notes to Financial Statements.
14
<PAGE>
TCW Galileo Mortgage Backed Securities Fund
SCHEDULE OF INVESTMENTS
- - -----------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- - ---------- ----------------------- -----------
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (28.1% OF NET ASSETS)
$ 2,130 CMO Mortgage Investors Trust (5-J), 1225.2%, due 12/22/20, (I/O) $ 59,282
3,565 CMO Mortgage Investors Trust (6-J), 1752.4%, due 02/22/21, (I/O) 121,648
1,867,461 Federal Home Loan Mortgage Corp. (1238-E), 6.5%, due 02/15/04, (PAC) 1,864,286
3,767,254 Federal Home Loan Mortgage Corp. (1298-E), 7%, due 06/15/04, (PAC) 3,777,576
1,439,168 Federal Home Loan Mortgage Corp. (1087-G), 8.5%, due 08/15/20, (PAC) 1,466,857
1,534,527 Federal National Mortgage Association (93-201-BA), 4.625%, due 0/25/08, (PAC) 1,513,535
750,000 Federal National Mortgage Association (92-152-K), 7%, due 04/25/99 758,558
9,000,000 Federal National Mortgage Association (91-83-G), 8.8%, due 11/25/19, (PAC) 9,117,720
837,274 Prudential Home Mortgage Securities (92-36-A2), 6.5%, due 11/25/99, (PAC) 833,950
3,158,037 Ryland Acceptance Corporation Four (63-D), 8.75%, due 04/01/19 3,290,706
73,768 Ryland Acceptance Corporation Four (61-A), 8.9%, due 12/01/08 73,768
1,604,041 Sears Mortgage Securities (88-A-A2), 0.656%, due 05/25/18, (I/O) 15,880
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (Cost: 24,195,667) 22,893,766
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -
VARIABLE RATE (25.6%)
118,754 Columbia Savings and Loan (88-1A), 6.606%, due 08/25/18 118,160
3,260,472 Federal Home Loan Mortgage Corp. (1573-GC), 8.562%, due 01/15/23, (I/F) 2,230,065
166,625 Guardian Savings and Loan Association (88-1-A), 6.68%, due 07/25/18 141,631
372,988 Guardian Savings and Loan Association (88-3-A), 7.127%, due 11/25/18 317,040
400,155 Guardian Savings and Loan Association (89-3-A), 7.731%, due 05/25/19 340,132
2,036,270 Guardian Savings and Loan Association (89-5-A), 8.063%, due 07/25/19 1,934,457
1,981,541 Guardian Savings and Loan Association (89-4-A), 8.263%, due 07/25/19 1,882,464
102,256 Merrill Lynch Trust (26-B), 6.638%, due 07/01/16 102,831
368,948 Residential Funding Mortgage Securities I (89-4B-B), 6.051%, due 07/25/19 359,033
4,848,287 Resolution Trust Corp. (92-1-A2), 7.532%, due 08/25/20 4,860,408
8,104,086 Resolution Trust Corp. (92-M4-A3), 8.23%, due 09/25/21 7,875,551
3,690 Resolution Trust Corp. (91-6-D2), 3,152%, due 08/25/20, (I/O) 107,493
6,751 Resolution Trust Corp. (91-6-C2), 3,390.6%, due 09/25/28, (I/O) 266,136
309,607 Western Federal Savings and Loan Association (88-9-A), 6.48%, due 12/25/18 306,801
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS -
VARIABLE RATE (Cost: 23,569,653) 20,842,202
-----------
</TABLE>
I/F - Inverse floating rate security whose interest rate moves in the opposite
direction of prevailing interest rates.
I/O - Interest Only security.
PAC - Planned Amortization Class.
See accompanying Notes to Financial Statements.
15
<PAGE>
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC.
October 31, 1995
Principal
Amount FIXED INCOME SECURITIES Value
- - ---------- ----------------------- ----------
<S> <C> <C>
NON-AGENCY VARIABLE RATE
PASS-THROUGH SECURITIES (2.0%)
$ 1,482,274 Greenwich Capital Acceptance, Inc. (91-03), (Private Placement),
8.494%, due 08/25/19 $ 1,448,923 *
144,545 National Bank of Washington, (Private Placement), 7.989%,
due 01/25/19 145,990 *
----------
TOTAL NON-AGENCY VARIABLE RATE PASS-
THROUGH SECURITIES (Cost: $1,615,615) 1,594,913
----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - FIXED RATE
PASS-THROUGH SECURITIES (3.8%)
1,416,553 Federal Home Loan Mortgage Corp., Gold Pool #M19147, 8.5%,
due 12/01/96 1,426,738
484,171 Federal Home Loan Mortgage Corp., Gold Pool #M11777, 9%,
due 11/01/96 488,558
200,346 Federal Home Loan Mortgage Corp., Pool #212346, 9.5%,
due 08/01/01 209,989
930,905 Federal National Mortgage Association, Pool #163492, 8.5%,
due 05/01/16 959,120
----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS -
FIXED RATE PASS-THROUGH SECURITIES (Cost: $3,168,681) 3,084,405
U.S. GOVERNMENT AGENCY OBLIGATIONS - VARIABLE RATE
PASS-THROUGH SECURITIES (32.8%)
86,890 Federal Home Loan Mortgage Corp., Pool #770584, 7%, due 05/01/19 88,592
182,028 Federal Home Loan Mortgage Corp., Pool #405877, 7.698%, due 12/01/20 185,203
4,681,163 Federal Home Loan Mortgage Corp., Pool #846024, 7.737%, due 07/01/24 4,757,466
179,541 Federal Home Loan Mortgage Corp., Pool #865006, 7.807%, due 08/01/18 182,232
4,797,989 Federal Home Loan Mortgage Corp., Pool #407166, 8.004%, due 09/01/22 4,885,457
270,899 Federal Home Loan Mortgage Corp., Pool #865270, 8.053%, due 12/01/18 274,210
223,438 Federal Home Loan Mortgage Corp., Pool #865009, 8.184%, due 11/01/18 227,734
303,932 Federal Home Loan Mortgage Corp., Pool #865275, 8.531%, due 02/01/19 312,345
702,189 Federal Home Loan Mortgage Corp., Pool #310005, 9.918%, due 11/01/19 725,668
4,898,051 Federal National Mortgage Association, Pool #318764, 6.12%, due 08/01/25 5,009,139
2,179,246 Federal National Mortgage Association, Pool #303334, 6.755%, due 04/01/25 2,236,909
497,793 Federal National Mortgage Association, Pool #111365, 7.508%, due 09/01/19 513,225
3,970,014 Federal National Mortgage Association, Pool #303063, 7.621%, due 09/01/24 4,055,885
167,778 Federal National Mortgage Association, Pool #96193, 7.728%, due 09/01/18 169,398
3,000,000 Federal National Mortgage Association, Pool #328747, 7.839%, due 10/01/24 3,075,469
----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS -
VARIABLE RATE PASS-THROUGH SECURITIES (Cost: $26,634,208) 26,698,932
----------
TOTAL FIXED INCOME SECURITIES (COST: $79,183,824) (92.3%) 75,114,218
----------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
16
<PAGE>
TCW Galileo Mortgage Backed Securities Fund
SCHEDULE OF INVESTMENTS (Continued)
- - -----------------------------------
Principal
Amount SHORT-TERM INVESTMENTS (COST: $5,202,783)(6.4%) Value
- - ---------- ---------------------------------------------- -----------
$5,202,783 Bank of New York Depositary Reserve, 5%, due 11/01/95 $ 5,202,783
-----------
TOTAL INVESTMENTS (COST: $84,386,607) (98.7%) 80,317,001
EXCESS OF OTHER ASSETS OVER LIABILITIES (1.3%) 1,048,738
-----------
NET ASSETS (100%) $81,365,739
===========
See accompanying Notes to Financial Statements.
17
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Long-Term Mortgage Backed Securities Fund
October 31, 1995
SCHEDULE OF INVESTMENTS
- - -----------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- - --------- ----------------------- ----------
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (41.3% OF NET ASSETS)
$ 2,000,000 CMC Securities Corporation III (94-A-A12), 6.75%,
due 02/25/24 (PAC) $ 1,909,460
250,281 Federal Home Loan Mortgage Corp. (1484-K), 6%,
due 01/15/98 250,069
1,875,170 Federal Home Loan Mortgage Corp. (1688-M), 6%, due 08/15/13 1,779,255
2,000,000 Federal Home Loan Mortgage Corp. (1665-M), 6.5%, due 01/15/24 1,949,140
3,144,107 Federal Home Loan Mortgage Corp. (1717-MA), 6.5%, due 04/15/24 3,046,985
3,281,909 Federal Home Loan Mortgage Corp. -
Government National Mortgage Association(43-OA), 6.5%, due 07/17/23 3,231,532
3,038,000 Federal National Mortgage Association (92-194-D), 5.75%, due 09/25/13, (PAC) 3,019,468
2,000,000 Federal National Mortgage Association (93-X-130A-NA), 6.5%, due 05/25/23 1,857,980
1,894,734 Federal National Mortgage Association (93-223-EA), 6.5%, due 12/25/23, (PAC) 1,807,197
1,423,329 Federal National Mortgage Association (93-114-K), 6.5%, due 07/25/08, (PAC) 1,394,791
1,911,450 Federal National Mortgage Association (94-27-DA), 6.5%, due 11/25/23, (PAC) 1,852,845
500,000 Federal National Mortgage Association (93-2-B), 7.2%, due 11/25/03 518,060
1,541,264 Federal National Mortgage Association (94-36-UB), 7.5%, due 08/25/23, (TAC) 1,528,564
2,190,368 GE Capital Mortgage Services, Inc. (91-3-G), 9.5%, due 05/25/21 2,336,203
2,668,624 Prudential Home Mortgage Securities (93-54-A5), 6.5%, due 01/25/24, (PAC) 2,650,797
3,827,923 Ryland Acceptance Corporation Four (63-D), 8.75%, due 04/01/19 3,988,734
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (Cost: $31,462,618) 33,121,080
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -
VARIABLE RATE (14.2%)
1,500,000 CMC Securities Corporation III (94-A-A22), 6.441%, due 02/25/24, (I/F) 714,375
1,820,539 Federal Home Loan Mortgage Corp. (1646-MC), 6.489%, due 10/15/22 (I/F) (PAC) 1,307,001
1,098,461 Federal Home Loan Mortgage Corp. (1637-VB), 10.152%, due 12/15/23 (I/F) 963,943
2,000,000 Federal National Mortgage Association (93-X-225C-VS), 5.907%, due 12/25/23, (I/F) 1,202,860
2,288,691 Federal National Mortgage Association (93-189-S), 6.862%, due 10/25/23, (I/F) 1,402,556
1,952,082 Federal National Mortgage Association (93-110-SE), 9.387%, due 5/25/23, (I/F) 1,809,775
1,000,000 Federal National Mortgage Association (93-202-SZ), 10%, due 11/25/23, (I/F)(PAC) 697,160
2,886,645 Federal National Mortgage Association (93-179-SL), 10.5%, due 10/25/23, (I/F) 2,452,869
975,414 Prudential Home Mortgage Securities (93-47-A8), 10.063%, due 12/25/23, (I/F) 817,163
837 TMAC Mortgage Securities Corp. (3-A), 6.538%, due 04/20/13 838
----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS - VARIABLE RATE (Cost: $12,348,568) 11,368,540
</TABLE>
I/F - Inverse floating rate security whose interest rate moves in the opposite
direction of prevailing interest rates.
PAC - Planned Amortization Class.
TAC - Targeted Amortization Class.
See accompanying Notes to Financial Statements.
18
<PAGE>
TCW Galileo Long-term Mortgage Backed Securities Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
- - ----------------------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- - --------- ---------------------- -----
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -
FIXED RATE PASS-THROUGH SECURITIES (23.2%)
$3,224,551 FHA (#012-11218), 7.125%, due 04/01/29 $ 3,162,091
1,771,271 FHA (#000-13002), 7.125%, due 03/01/04 1,714,431
2,907,867 FHA (#012-11216), 7.185%, due 05/01/29 2,855,177
1,953,086 FHA (#044-10592), 7.625%, due 09/01/22 1,968,965
1,381,637 FHA (#081-11017), 7.75%, due 04/01/24 1,379,482
2,574,908 FHA (#112-43055), 9.25%, due 05/25/32 2,671,467
34,989 Federal Home Loan Mortgage Corp., Pool #250685, 6.5%, due 10/01/99 34,027
1,738,120 Federal National Mortgage Association, Pool #310001, 6%, due 09/01/00 1,713,144
22,251 Federal National Mortgage Association, Pool #62420, 7.5%, due 03/01/06 22,759
32,130 Federal National Mortgage Association, Pool #29542, 8.75%, due 07/01/09 33,411
1,430,090 Government National Mortgage Association, Pool #365618, 7%, due 10/15/33 1,389,876
1,578,205 Government National Mortgage Association, Pool #351003, 7.5%, due 07/15/28 1,565,390
67,691 Government National Mortgage Association, Pool #3933, 8.25%, due 07/15/04 70,028
21,081 Government National Mortgage Association, Pool #176192, 8.25%, due 12/15/01 21,523
19,620 Government National Mortgage Association, Pool #217350, 9.25%, due 08/15/00 20,429
----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS - FIXED RATE
PASS-THROUGH SECURITIES (Cost: $18,883,966) 18,622,200
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -
VARIABLE RATE PASS-THROUGH SECURITIES (10.7%)
2,421,842 Federal Home Loan Mortgage Corp., Pool #846089, 7.688%, due 09/01/24 2,468,656
3,019,137 Federal National Mortgage Association, Pool #293181, 7.187%, due 10/01/24 3,072,817
2,999,239 Federal National Mortgage Association, Pool #124410, 7.893%, due 07/01/22 3,060,274
----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS -
VARIABLE RATE PASS-THROUGH SECURITIES (Cost: $8,576,958) 8,601,747
----------
TOTAL FIXED INCOME SECURITIES (COST: $71,272,110) (89.4 %) 71,713,567
----------
SHORT-TERM INVESTMENTS (COST: $7,821,021) (9.8%)
7,821,021 Bank of New York Depositary Reserve, 5%, due 11/01/95 7,821,021
----------
TOTAL INVESTMENTS (COST: $79,093,131) (99.2%) 79,534,588
EXCESS OF OTHER ASSETS OVER LIABILITIES (0.8% ) 624,578
----------
NET ASSETS (100%) $80,159,166
===========
</TABLE>
See accompanying Notes to Financial Statements.
19
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Core Equity Fund
October 31, 1995
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
- - -----------------------
Number
of Shares EQUITY SECURITIES Value
- - --------- ----------------- -----
<S> <C> <C>
CONSUMER STAPLES (17.3% OF NET ASSETS)
COSMETICS - HOUSEHOLD PRODUCTS (1.1%)
27,800 Proctor & Gamble Co. $ $2,251,800
--------------
LEISURE, ENTERTAINMENT, PHOTO AND MEDIA (7.3%)
100,000 Electronic Arts, Inc. 3,662,500 **
176,600 News Corp. Ltd. 3,509,925
145,766 Viacom, Inc. Class B 7,288,300 **
--------------
Total Leisure, Entertainment, Photo and Media 14,460,725
--------------
DRUGS & HOSPITAL SUPPLY (1.2%)
99,000 Ivax Corp. 2,252,250
--------------
HEALTHCARE (6.0%)
82,000 Amgen, Inc. 3,936,000 **
161,000 Columbia/HCA Healthcare Corp. 7,909,125
--------------
Total Healthcare 11,845,125
--------------
RETAIL (1.7%)
89,666 Home Depot, Inc. 3,340,059
--------------
TOTAL CONSUMER STAPLES (Cost: $28,693,455) 34,149,959
--------------
CONSUMER CYCLICALS (10.1%)
AUTOS AND AUTO PARTS (10.1%)
127,100 Chrysler Corp. 6,561,538
183,435 Ford Motor Company 5,273,756
159,600 Lear Seating Corp. 4,428,900 **
84,200 Magna International, Inc. 3,641,650
--------------
Total Autos and Auto Parts 19,905,844
--------------
TOTAL CONSUMER CYCLICALS (Cost: $20,348,711) 19,905,844
--------------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
20
<PAGE>
TCW Galileo Core Equity Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
- - -----------------------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- - --------- ----------------- -----------
<S> <C> <C>
CAPITAL GOODS (47.7%)
AEROSPACE AND CONGLOMERATES (6.4%)
101,000 Boeing Company $ 6,628,125
67,200 United Technologies Corp. 5,964,000
-----------
Total Aerospace and Conglomerates 12,592,125
-----------
ELECTRONICS - SEMICONDUCTORS AND INSTRUMENTS (9.3%)
127,300 Intel Corp. 8,895,088
238,000 National Semiconductor Corp. 5,801,250 **
55,100 Texas Instruments, Inc. 3,760,575
-----------
Total Electronics - Semiconductors and Instruments 18,456,913
-----------
ELECTRICAL INSTRUMENTS AND TELECOMMUNICATION EQUIPMENT (5.0%)
118,500 Motorola, Inc. 7,776,562
56,500 Northern Telecom Ltd. 2,034,000
-----------
Total Electrical Instruments and Telecommunication Equipment 9,810,562
-----------
INFORMATION PROCESSING (23.4%)
51,700 America Online, Inc. 4,136,000 **
114,900 Computer Sciences Corp. 7,683,938 **
78,300 First Data Corp. 5,177,588
110,200 General Motors Corp. Class E 5,193,175
87,900 Hewlett-Packard Company 8,141,737
50,700 Microsoft Corp. 5,070,000 **
118,600 Storage Technology Corp. 2,920,525 **
62,500 Xerox Corp. 8,109,375
-----------
Total Information Processing 46,432,338
-----------
MACHINERY AND INFRASTRUCTURE (3.6%)
126,000 America Standard Companies 3,370,500 **
66,100 Caterpillar, Inc. 3,709,862
-----------
Total Machinery and Infrastructure 7,080,362
-----------
TOTAL CAPITAL GOODS (Cost: $68,720,644) 94,372,300
-----------
BASIC INDUSTRIES (14.1%)
PAPER, FOREST PRODUCTS & CONTAINERS (1.4%)
51,500 Champion International Corp. 2,755,250
-----------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
21
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- - --------- ----------------- -----
<S> <C> <C>
TRANSPORTATION (12.7%)
79,800 AMR Corp. 5,266,800**
86,961 Burlington Northern Santa Fe 7,293,854
94,500 Delta Airlines, Inc. 6,201,563
68,500 Northwest Airlines Corp. 2,748,562**
20,900 UAL Corp. 3,675,787**
------------
Total Transportation 25,186,566
------------
TOTAL BASIC INDUSTRIES (Cost: $21,607,956) 27,941,816
------------
CREDIT SENSITIVE (6.9%)
BANKS, FINANCIAL SERVICES AND BUILDING (6.9%)
111,100 Citicorp 7,207,612
106,600 Green Tree Financial Corp. 2,838,225
64,300 Merrill Lynch & Co., Inc. 3,568,650
------------
Total Banks, Financial Services and Building 13,614,487
------------
TOTAL CREDIT SENSITIVE (Cost: $10,008,112) 13,614,487
------------
TOTAL EQUITY SECURITIES (COST: $149,378,878) (96.1%) 189,984,406
------------
Principal
Amount TOTAL SHORT-TERM INVESTMENTS (COST: $8,328,211) (4.2%)
- - --------- ------------------------------------------------------
$8,328,211 Bank of New York Depositary Reserve, 5%, due 11/01/95 8,328,211
------------
TOTAL INVESTMENTS (COST: $157,707,089)(100.3%) 198,312,617
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.3%) (591,795)
------------
NET ASSETS (100.0%) $197,720,822
============
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
22
<PAGE>
TCW Galileo Earnings Momentum Fund
SCHEDULE OF INVESTMENTS
- - -----------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- - --------- ----------------- -------------
<S> <C> <C>
CONSUMER STAPLES (35.2% OF NET ASSETS)
BEVERAGES, TOBACCO AND DISTRIBUTION (2.1%)
27,500 Canadaigua Wine Company, Inc., Class A $1,320,000 **
----------
COSMETICS AND HOUSEHOLD PRODUCTS (0.9%)
37,900 First Alert, Inc. 587,450 **
----------
DRUGS & HOSPITAL SUPPLY (7.0%)
21,900 Biochem Pharma, Inc. 837,675 **
15,700 Dura-Pharmaceuticals, Inc. 459,225 **
21,900 Liposome Company, Inc. 336,712 **
52,300 Matrix Pharmaceuticals, Inc. 758,350 **
6,500 Myriad Genetics, Inc. 175,500 **
8,900 Neurogen Corp. 198,025 **
37,200 Noven Pharmaceuticals, Inc. 381,300 **
55,700 Pharmacyclics, Inc. 807,650 **
27,900 Sepracor, Inc. 470,813 **
----------
Total Drugs & Hospital Supply 4,425,250
----------
FOODS, HOTELS AND RESTAURANTS (1.2%)
58,200 Landry's Seafood Restaurants, Inc. 785,700 **
----------
HEALTHCARE (11.6%)
10,200 AHI Healthcare Systems, Inc. 142,800 **
30,300 Alpharma, Inc., Class A 727,200
43,900 AmeriSource Health Corp., Class A 1,196,275 **
54,700 Apria Healthcare Group, Inc. 1,182,888 **
24,000 Depotech Corp. 348,000 **
26,100 Inphynet Medical Management, Inc. 469,800 **
31,500 Integrated Health Services, Inc. 720,563
19,300 Medic Computer Systems, Inc. 1,027,725 **
50,000 Perrigo Company 612,500 **
10,097 Summit Care Corp. 209,513 **
10,600 Total Renal Care Holdings, Inc. 215,975 **
3,700 United Dental Care, Inc. 112,850 **
13,700 Vencor, Inc. 380,175 **
----------
Total Healthcare 7,346,264
----------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
23
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Number of
Shares EQUITY SECURITIES Value
- - --------- ----------------- -----
<S> <C> <C>
LEISURE, ENTERTAINMENT, PHOTO AND MEDIA (2.9%)
11,800 Franklin Electronic Publishers, Inc. $ 488,225 **
34,500 Heritage Media Corp. 974,625 **
13,100 Hollywood Entertainment Corp. 350,425 **
----------
Total Leisure, Entertainment, Photo and Media 1,813,275
RETAIL (6.5%)
30,000 Bed, Bath & Beyond, Inc. 937,500 **
15,000 De Rigo S.p.A. (ADR) (Italy) 309,375 **
21,300 Gymboree Corp. 481,912 **
9,100 Oakley, Inc. 313,950 **
25,500 OfficeMax, Inc. 631,125 **
24,975 Staples, Inc. 664,959 **
34,400 Stein Mart, Inc. 378,400 **
23,200 Williams-Sonoma, Inc. 403,100 **
----------
Total Retail 4,120,321
----------
SERVICES - BUSINESS (3.0%)
7,900 CBT Group, PLC (ADR) (Ireland) 356,488 **
31,500 Corporate Express, Inc. 822,938 **
21,200 Stewart Enterprises, Inc., Class A 715,500
----------
Total Services - Business 1,894,926
----------
TOTAL CONSUMER STAPLES (Cost:$19,042,269) 22,293,186
----------
CONSUMER CYCLICALS (1.1%)
AUTOMOTIVE AND AUTOMOTIVE PARTS (1.1%)
25,100 ABS Industries, Inc. 232,175
30,600 Titan Wheel International, Inc. 443,700
----------
TOTAL CONSUMER CYCLICALS (Cost:$652,797) 675,875
----------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
24
<PAGE>
TCW Galileo Earnings Momentum Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
- - -----------------------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- - --------- ----------------- -----
<S> <C> <C>
CAPITAL GOODS (45.8%)
COMPUTER SOFTWARE AND SERVICES (9.9%)
47,700 American Management Systems, Inc. $1,377,337 **
8,300 Computron Software, Inc. 141,100 **
17,700 Filenet Corp. 803,137 **
32,100 FIserv, Inc. 826,575 **
4,700 Logic Works, Inc. 71,675 **
11,500 NETCOM On-Line Communication Services, Inc. 669,875 **
21,800 Nimbus CD International, Inc. 174,400 **
26,200 Open Environment Corp. 255,450 **
14,600 Progress Software Corp. 956,300 **
7,800 Remedy Corp. 335,400 **
11,300 Zebra Technologies Corp. 672,350 **
----------
Total Computer Software and Services 6,283,599
----------
ELECTRICAL EQUIPMENT (2.8%)
29,300 AFC Cable Systems, Inc. 344,275 **
27,300 Brooktree Corp. 327,600 **
15,400 Kemet Corp. 531,300 **
59,000 Magnetek, Inc. 582,625 **
----------
Total Electrical Equipment 1,785,800
----------
ELECTRONICS - COMMUNICATION EQUIPMENT (8.1%)
28,100 Cidco, Inc. 832,462 **
38,100 Comverse Technology, Inc. 866,775 **
23,500 Digital Link Corp. 373,062 **
48,600 ECI Telecommunications, Ltd. 923,400
25,600 Octel Communications Corp. 873,600 **
20,100 Plantronics, Inc. 670,838 **
2,500 Premisys Communications, Inc. 223,750 **
26,700 Tekelec 387,150 **
----------
Total Electronics - Communication Equipment 5,151,037
----------
ELECTRONICS - SEMICONDUCTORS AND INSTRUMENTS (6.6%)
26,600 ASM Lithography Holding N.V. 1,320,025 **
33,000 Digital Biometrics, Inc. 206,250 **
31,500 Electro Scientific Industries, Inc. 976,500 **
7,500 EPIC Design Technology, Inc. 345,000 **
24,400 Methode Electronics, Inc., Class A 561,200
17,300 SDL, Inc. 441,150 **
14,600 Veeco Instruments, Inc. 350,400 **
----------
Total Electronics - Semiconductors and Instruments 4,200,525
----------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
25
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Principal
Amount EQUITY SECURITIES Value
- - --------- ------------------ -----
<S> <C> <C>
INFORMATION PROCESSING (9.9%)
14,820 Adobe Systems, Inc. $ 844,740
25,100 Baan Company, N.V. 1,066,750 **
23,700 BDM International, Inc. 592,500 **
22,100 Cadmus Communications Corp. 535,925
5,600 Checkfree Corp. 118,300 **
4,700 Firefox Communications, Inc. 81,075 **
38,200 FTP Software, Inc. 1,031,400 **
1,700 Netscape Communications Corp. 149,600 **
30,000 Quickresponse Services, Inc. 750,000 **
46,700 Symantec Corp. 1,135,394 **
-------------
Total Information Processing 6,305,684
-------------
MACHINERY AND INFRASTRUCTURE (1.8%)
30,000 Indresco, Inc. 513,750 **
33,800 Thermo Power Corp. 485,875 **
15,400 Westinghouse Air Brake Company 134,750 **
-------------
Total Machinery and Infrastructure 1,134,375
-------------
OFFICE EQUIPMENT AND BUILDING SUPPLIES (0.4%)
34,800 Cameron Ashley, Inc. 269,700 **
-------------
POLLUTION CONTROL (6.3%)
30,000 Molten Metal Technologies, Inc. 1,155,000 **
61,200 Tetra Technologies, Inc. 810,900 **
74,200 USA Waste Services, Inc. 1,558,200 **
20,800 U.S. Filter Corp. 483,600 **
-------------
Total Pollution Control 4,007,700
-------------
TOTAL CAPITAL GOODS (Cost: $23,244,596) 29,138,420
-------------
BASIC INDUSTRIES (4.4%)
CHEMICALS (1.1%)
28,300 Mississippi Chemical Corp. 682,737
-------------
ENERGY AND OIL SERVICES (1.3%)
31,900 United Meridian Corp. 538,312 **
11,500 Weatherford Enterra, Inc. 277,438 **
-------------
Total Energy and Oil Services 815,750
-------------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
26
<PAGE>
TCW Galileo Earnings Momentum Fund
SCHEDULE OF INVESTMENTS
- - -----------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- - --------- ----------------- -----
<S> <C> <C>
METALS (0.6%)
15,300 Schnitzer Steel Industries, Inc. $ 405,450
----------
TRANSPORTATION (1.4%)
53,200 Arkansas Best Corp. 485,450
28,600 Atlas Air, Inc. 425,425 **
----------
Total Transportation 910,875
----------
TOTAL BASIC INDUSTRIES (Cost: $2,909,678) 2,814,812
----------
CREDIT SENSITIVE (3.0%)
BANKS (0.8%)
27,800 Vallicorp Holdings, Inc. 361,400
7,300 WFS Financial, Inc. 121,362 **
----------
Total Banks 482,762
----------
INSURANCE (2.2%)
22,000 PartnerRe Holdings, Ltd. 585,750
31,700 PXRE Corp. 808,349
----------
Total Insurance 1,394,099
----------
TOTAL CREDIT SENSITIVE (Cost: $1,775,275) 1,876,861
----------
TOTAL EQUITY SECURITIES (COST: $47,624,615) (89.5%) 56,799,154
----------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
27
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Principal
Amount SHORT-TERM INVESTMENTS (COST: $5,299,744) (8.4%) Value
- - -------------- ------------------------------------------------ --------------
<S> <C> <C>
$ 5,299,744 Bank of New York Depositary Reserve, 5%, due 11/01/95 $ 5,299,744
---------------
TOTAL INVESTMENTS (COST: $52,924,359) (97.9%) 62,098,898
EXCESS OF OTHER ASSETS OVER LIABILITIES (2.1%) 1,312,332
---------------
NET ASSETS (100%) $63,411,230
===============
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
28
<PAGE>
TCW Galileo Small Cap Growth Fund
SCHEDULE OF INVESTMENTS
- - -----------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- - --------- ----------------- -----
<S> <C> <C>
CONSUMER STAPLES (49.9% OF NET ASSETS)
BEVERAGES, TOBACCO AND DISTILLERY (1.6%)
17,000 Canandaigua Wine Company, Inc., Class A $ 816,000 **
11,700 Odwalla, Inc. 236,925 **
----------
Total Beverages, Tobacco and Distillery 1,052,925
----------
COSMETICS AND HOUSEHOLD PRODUCTS (2.4%)
29,500 Sola International, Inc. 722,750 **
43,800 Thermolase Corp. 892,425 **
----------
Total Cosmetics and Household Products 1,615,175
----------
DRUGS AND HOSPITAL SUPPLY (2.2%)
26,300 Dura-Pharmaceuticals, Inc. 769,275 **
19,700 Gulf South Medical Supply, Inc. 408,775 **
17,300 Safeskin Corp. 311,400 **
----------
Total Drugs and Hospital Supply 1,489,450
----------
FOODS, HOTELS AND RESTAURANTS (2.0%)
8,000 Apple South, Inc. 164,000
16,600 Boston Chicken, Inc. 561,287 **
15,000 Papa John's International, Inc. 577,500 **
----------
Total Foods, Hotels and Restaurants 1,302,787
----------
HEALTHCARE (13.7%)
20,200 American Oncology Resources, Inc. 707,000 **
25,600 AmeriSource Health Corp., Class A 697,600 **
17,800 CRA Managed Care, Inc. 427,200 **
8,200 Compdent Corp. 255,225 **
17,400 HealthPlan Services Corp. 358,875 **
6,800 Healthwise of America, Inc. 200,600 **
24,600 Lincare Holdings, Inc. 611,925 **
39,700 Medaphis Corp. 1,260,475 **
15,600 Medic Computer Systems, Inc. 830,700 **
29,300 MedPartners, Inc. 820,400 **
16,000 Omnicare, Inc. 580,000
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
29
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- - --------- ----------------- -----
<C> <S> <C>
HEALTHCARE (CONTINUED)
10,800 Orthodontic Centers of America, Inc. $ 345,600 **
3,500 Oxford Health Plans, Inc. 273,875 **
23,550 PhyCor, Inc. 865,462 **
21,000 Rotech Medical Corp. 477,750 **
4,200 Summit Medical Systems, Inc. 69,300 **
1,000 Thermo Cardiosystems, Inc. 48,500 **
2,600 United Dental Care, Inc. 79,300 **
5,400 Vencor, Inc. 149,850 **
------------
Total Healthcare 9,059,637
------------
LEISURE, ENTERTAINMENT, PHOTO AND MEDIA (8.5%)
600 American Radio Systems Corp. 13,500 **
10,800 Anchor Gaming 237,600 **
10,200 Clear Channel Communication, Inc. 836,400 **
25,400 Hollywood Entertainment Corp. 679,450 **
18,200 Learning Company (The) 1,073,800 **
9,100 Lin Television Corp. 260,487 **
6,100 Premiere Radio Networks, Inc. 106,750 **
18,700 Regal Cinemas, Inc. 733,975 **
19,800 Scientific Games Holdings Corp. 648,450 **
48,500 Westwood One, Inc. 763,875 **
8,200 Young Broadcasting Corp. 250,100 **
-------------
Total Leisure, Entertainment, Photo and Media 5,604,387
-------------
RETAIL (10.7%)
14,900 Bed, Bath & Beyond, Inc. 465,625 **
11,000 Blyth Industries, Inc. 555,500 **
11,600 Department 56, Inc. 526,350 **
7,800 Gymboree Corp. 176,475 **
38,100 Just for Feet, Inc. 900,112 **
18,900 Kenneth Cole Productions, Inc. 772,537 **
19,050 OfficeMax, Inc. 471,488 **
27,000 Petsmart, Inc. 904,500 **
36,300 Renters Choice, Inc. 608,025 **
33,000 Stein Mart, Inc. 363,000 **
24,800 Sunglass Hut International, Inc. 675,800 **
14,300 Tiffany & Company 623,837
-------------
Total Retail 7,043,249
-------------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
30
<PAGE>
TCW Galileo Small Cap Growth Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
- - -------------------------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- - --------- ----------------- -----
<S> <C> <C>
SERVICES - BUSINESS (8.8%)
9,600 Alternative Resources Corp. $ 297,600 **
9,900 CBT Group, PLC (ADR)(Ireland) 446,738 **
34,200 Corporate Express, Inc. 893,475 **
3,600 Corrections Corporation of America 196,200 **
18,900 Filenet Corp. 857,588 **
50,000 Gartner Group, Inc., Class A 2,181,250 **
16,500 Information Resources, Inc. 179,438 **
9,800 Robert Half International, Inc. 357,700 **
21,400 Romac International, Inc. 395,900 **
------------
Total Services - Business 5,805,889
------------
TOTAL CONSUMER STAPLES (Cost:$22,219,506) 32,973,499
------------
CONSUMER CYCLICALS (0.5%)
AUTOMOTIVE AND AUTOMOTIVE PARTS (0.5%)
22,650 Titan Wheel International, Inc. 328,425
------------
TOTAL CONSUMER CYCLICALS (Cost:$282,693) 328,425
------------
CAPITAL GOODS (37.1%)
COMPUTER SOFTWARE AND SERVICES (16.1%)
28,600 Atria Software, Inc. 1,022,450 **
2,500 Broderbund Software, Inc. 173,437 **
13,600 Cambridge Technology Partners, Inc. 771,800 **
13,900 Computron Software, Inc. 236,300 **
21,000 Datastream Systems, Inc. 467,250 **
6,400 Discreet Logic, Inc. 364,800 **
1,200 Imnet Systems, Inc. 30,450 **
7,800 Inso Corp. 278,850 **
14,000 Logic Works, Inc. 213,500 **
60,000 Macromedia, Inc. 2,220,000 **
6,300 Maxis, Inc. 278,775 **
11,800 NETCOM On-Line Communication Services, Inc. 687,350 **
30,400 Netmanage, Inc. 619,400 **
3,600 Peoplesoft, Inc. 309,600 **
53,200 Platinum Software Corp. 352,450 **
18,100 Premenos Technology Corp. 710,425 **
11,400 Remedy Corp. 490,200 **
31,400 Security Dynamics Technologies, Inc. 989,100 **
900 Verity, Inc. 33,075 **
5,700 Xylogics, Inc. 394,015 **
------------
Total Computer Software and Services 10,643,227
------------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
31
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Number of
Shares or
Warrants EQUITY SECURITIES Value
- - -------- ----------------- -----
<S> <C> <C>
ELECTRICAL EQUIPMENT (1.3%)
14,100 Baldor Electric Company $ 338,400
20,400 C.P. Clare Corp. 527,850 **
-------------
Total Electrical Equipment 866,250
-------------
ELECTRONICS - COMMUNICATION EQUIPMENT (7.1%)
3,384 American Satellite Network, Inc., Warrants, expires 06/30/99 3 **
12,800 Ascend Communications, Inc. 832,000 **
16,000 Cascade Communications Corp. 1,140,000 **
10,900 Centennial Cellular Corp. 198,925 **
36,800 Cidco, Inc. 1,090,200 **
42,000 LCI International, Inc. 756,000 **
7,100 Premisys Communications, Inc. 635,450 **
-------------
Total Electronics - Communication Equipment 4,652,578
-------------
ELECTRONICS - SEMICONDUCTORS AND INSTRUMENTS (6.7%)
5,800 ArcSys, Inc. 243,600 **
12,300 ASM Lithography Holding N.V. 610,387 **
22,300 EPIC Design Technology, Inc. 1,025,800 **
2,300 ESS Technology, Inc. 69,000 **
20,000 Maxim Integrated Products, Inc. 1,495,000 **
14,000 Methode Electronics, Inc., Class A 322,000
14,200 Microchip Technology, Inc. 563,563 **
12,400 TelCom Semiconductor, Inc. 97,650 **
--------------
Total Electronics - Semiconductors and Instruments 4,427,000
--------------
INFORMATION PROCESSING (5.9%)
12,948 Adobe Systems, Inc. 738,036
24,700 Aspen Technology, Inc. 679,250 **
23,600 Astea International, Inc. 424,800 **
3,000 Business Objects S.A. (ADR)(France) 129,750 **
25,500 Computer Management Sciences, Inc. 522,750 **
25,700 HNC Software, Inc. 655,350 **
6,700 Oak Technology, Inc. 366,825 **
7,400 Peak Technologies Group (The) 186,850 **
10,700 Performance Systems International, Inc 189,925 **
--------------
Total Information Processing 3,893,536
--------------
TOTAL CAPITAL GOODS (Cost:$14,052,090) 24,482,591
--------------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
32
<PAGE>
TCW Galileo Small Cap Growth Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
- - -----------------------------------
Number
of Shares EQUITY SECURITIES Value
- - ------------ ----------------- ----------
BASIC INDUSTRIES (1.9%)........
ENERGY AND OIL SERVICES (0.1%).
2,600 Global Industries, Ltd. $ 68,250 **
-----------
TRANSPORTATION (1.8%)
54,700 Atlas Air, Inc. 813,662 **
10,000 Fritz Companies, Inc. 350,000 **
-----------
Total Transportation 1,163,662
-----------
TOTAL BASIC INDUSTRIES (Cost: $1,179,538) 1,231,912
-----------
CREDIT SENSITIVE (1.0%)
BANKS (0.0%)
500 Jayhawk Acceptance Corp 6,000 **
-----------
INSURANCE (1.0%)
21,900 Crop Growers Corp. 284,700 **
10,600 Gallagher (Arthur J.) & Company 374,975
-----------
Total Insurance 659,675
-----------
TOTAL CREDIT SENSITIVE (Cost: $620,951) 665,675
-----------
TOTAL EQUITY SECURITIES (COST:$38,354,778)(90.4%) 59,682,102
-----------
Principal
Amount SHORT-TERM INVESTMENTS (COST: $8,024,583) (12.1%)
- - ----------- ------------------------------------------------
$8,024,583 Bank of New York Depositary Reserve, 5%, due
11/01/95 8,024,583
-----------
TOTAL INVESTMENTS (COST: $46,379,361) (102.5%) 67,706,685
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.5%) (1,650,670)
-----------
NET ASSETS (100%) 66,056,015
===========
** Non-income producing.
See accompanying Notes to Financial Statements.
33
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Asia Pacific Equity Fund
October 31, 1995
SCHEDULE OF INVESTMENTS
- - -----------------------
<TABLE>
<CAPTION>
Number of
Shares EQUITY SECURITIES Value
- - -------- ----------------- -----
<S> <C> <C>
CHINA (COST: $276,988) (0.5% OF NET ASSETS)
250,000 Shanghai Yaohua Pilkington Glass Company Limited, Series B $ 245,000
-----------
HONG KONG (38.3%)
235,000 Amoy Properties, Limited 226,435
408,000 ASM Pacific Technology, Limited 385,214
282,000 Cheung Kong Holdings, Limited 1,590,211
159,500 China Light & Power Company, Limited 849,919
110,000 Citic Pacific, Limited 343,581
313,400 Consolidated Electric Power Asia, Limited 634,356
156,000 Dao Heng Bank Group, Limited 572,001
218,000 Guoco Group, Limited 1,009,390
113,800 Hang Seng Bank, Limited 953,019
242,000 Hong Kong Electric Holdings, Limited 823,172
262,400 Hong Kong Telecommunications, Limited 458,160
305,000 Hong Kong & China Gas Company, Limited 495,066
155,437 HSBC Holdings Public, Limited 2,261,654
269,000 Hutchison Whampoa, Limited 1,482,113
330,000 Hysan Development Company, Limited 840,813
21,000 Jardine Matheson Holdings, Limited 128,100
350,000 New World Development Company, Limited 1,362,555
1,480,000 Ng Fung Hong, Limited 660,390
186,000 Sun Hung Kai Properties, Limited 1,485,488
130,000 Swire Pacific, Limited, Class A 975,193
174,000 Varitronix International, Limited 331,941
-----------
TOTAL HONG KONG (Cost: $15,579,953) 17,868,771
-----------
INDIA (2.3%)
12,000 Bajaj Auto, Limited (GDS) 318,000
30,000 India Cement, Limited (GDR) 228,900
31,000 Larsen & Toubro Limited (GDR) 550,250
-----------
TOTAL INDIA (Cost: $1,075,160) 1,097,150
-----------
INDONESIA (5.5%)
270,000 PT Astra International 540,713
145,450 PT Bank Bali 339,298
90,000 PT HM Sampoerna 831,866
81,470 PT Indofood Sukses Makmur 376,512
177,000 PT Semen Gresik 459,639
-----------
TOTAL INDONESIA (Cost: $2,080,143) 2,548,028
-----------
</TABLE>
See accompanying Notes to Financial Statements.
34
<PAGE>
TCW Galileo Asia Pacific Equity Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
- - -----------------------------------
<TABLE>
<CAPTION>
Number of
Shares
or Warrants EQUITY SECURITIES Value
- - ----------- ----------------- -------
<S> <C> <C>
MALAYSIA (14.3%)
81,000 Berjaya South Island (Prime Utilities Berhad) $ 748,820
176,000 Commerce Asset Holdings 872,384
319,000 DCB Holdings Berhad 903,540
466,000 Faber Group Berhad 395,972
594,500 Lion Land Berhad 643,145
175,000 Malakoff Berhad 519,768
32,000 MBF Capital Berhad 30,212
235,000 New Straits Times Press Berhad 739,575
80,000 Petronas Gas Berhad 270,653
80,000 Petronas Gas Berhad Warrants, expires 08/17/00 139,732 **
445,000 Renong Berhad 679,229
18,000 Sime Darby Berhad 44,965
100,000 Telekom Malaysia Berhad 715,972
----------
TOTAL MALAYSIA (Cost: $6,630,538) 6,703,967
----------
PAKISTAN (COST: $541,108) (0.6%)
3,010 Pakistan Telecommunications Corporation (GDS) 281,435
----------
PHILIPPINES (2.5%)
1,501,500 Belle Corporation 227,762
46,900 Manila Electric Company, Series B 349,409
345,100 Pilipino Telephone Corporation 304,812
148,000 Security Bank Corporation 272,811
----------
TOTAL PHILIPPINES (Cost: $1,325,501) 1,154,794
----------
SINGAPORE (11.7%)
80,000 City Development, Limited 495,225
104,000 Development Bank of Singapore, Limited 1,191,935
97,000 Far East Levingston Shipbuilding, Limited 418,606
30,000 Fraser & Neave Limited 354,439
110,000 Keppel Corporation, Limited 902,724
195,000 Parkway Holdings, Limited, Warrants, expires 10/13/98 248,320 **
115,000 Singapore Land, Limited 642,731
91,000 United Overseas Bank, Limited 798,302
80,000 Van der Horst, Limited 410,329
----------
TOTAL SINGAPORE (Cost: $5,025,645) 5,462,611
----------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
35
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Number of
Shares Warrants
or Rights EQUITY SECURITIES Value
- - --------------- ----------------- -------
<S> <C> <C>
SOUTH KOREA (8.1%)
115 Daewoo Corporation Warrants, expires 11/08/96 $ 28,750 **
35 Dong Yang Dragon Trust 525,000
9,000 Halla Engineering & Construction Company, Limited 451,647
9,000 Halla Engineering & Construction Rights, expires 11/22/95 26,252 **
11,000 Korea Electric Power Corporation (New ADR) 270,875
14,500 Korea Electric Power Corporation (ADR) 358,875
60,000 Korea Exchange Bank (IN) 666,492
13,000 L.G. Chemical, Limited (GDR) 308,750
13,500 L.G. Securities, Limited 296,393
7,400 Pohang Iron & Steel Comapny, Limited (ADR) 190,550
2 Samsung Electronics Company, Limited (1/2 Voting GDR) 210
5,500 Samsung Electronics Company, Limited (144A) (1/2 Voting GDR) 643,500 *
130 Tong Yang Cement Corporation, Warrants, expires 08/18/96 19,500 **
----------
TOTAL SOUTH KOREA (Cost: $4,141,984) 3,786,794
----------
TAIWAN (COST: 948,718) (1.8%)
93,300 The Taiwan Index Fund, Limited 863,025
----------
THAILAND (7.1%)
162,100 Bank of Ayudhya Public Company, Limited 933,829
243,780 Electricity Generating Public Company, Limited 832,939
9,600 Mathicon Public Company, Limited 48,057
35,800 Phatra Thanakit Public Company, Limited 280,199
63,500 PTT Exploration & Production Public Company, Limited 575,209
8,700 The Siam Cement Company, Limited Public Company, Limited 474,231
36,000 Swedish Motor Corp. Public Company, Limited 160,191
----------
TOTAL THAILAND (Cost: $2,724,985) 3,304,655
----------
TOTAL EQUITY SECURITIES (COST: $40,351,723) (92.7%) 43,316,230
----------
</TABLE>
* Restricted security. (See Note 6)
** Non-income producing.
See accompanying Notes to Financial Statements.
36
<PAGE>
TCW Galileo Asia Pacific Equity Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
- - -----------------------------------
<TABLE>
<CAPTION>
Principal
Amount CONVERTIBLE SECURITIES Value
- - ----------- ---------------------- ------------
<S> <C> <C>
$ 365,000 PHILIPPINES (COST: $365,000) (0.8%)
Bacnotan Consolidated Industries, Inc., Convertible Bond, 5.5%, due 06/21/04 $ 368,650
------------
SOUTH KOREA (COST: 340,734) (0.6%)
210,000 Daewoo Electronics Public Company, Limited, Convertible Bond,
3.5%, due 12/31/07 268,800
------------
THAILAND (2.7%)
315,000 Land & House Public Company, Limited, Convertible Bond,
5%, due 04/29/03 384,300
905,000 Siam Commercial Bank Public Company, Limited, Convertible Bond,
3.25%, due 01/24/04 907,263
------------
TOTAL THAILAND (Cost: $1,269,400) 1,291,563
------------
TOTAL CONVERTIBLE SECURITIES (COST: $1,975,134) (4.1%) 1,929,013
------------
SHORT-TERM INVESTMENTS (COST: $1,797,438) (3.9%)
------------------------------------------------
1,797,438 Bank of New York Depositary Reserve, 5%, due 11/01/95 1,797,438
------------
TOTAL INVESTMENTS (COST: $44,124,295) (100.7%) 47,042,681
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.7%) (333,274)
------------
NET ASSETS (100%) $46,709,407
============
</TABLE>
See accompanying Notes to Financial Statements.
37
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Emerging Markets Fund
October 31, 1995
SCHEDULE OF INVESTMENTS
- - -----------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- - --------- ----------------- -----
<S> <C> <C>
ARGENTINA (3.3% OF NET ASSETS)
38,400 Astra Compania Argentina de Petroleo, S.A. $ 56,809
2,600 Banco Frances del Rio de la Plata, S.A. (ADR) 56,875
5,000 Banco de Galicia y Buenos Aires, S.A., Series B 23,591
4,800 Banco de Galicia y Buenos Aires, S.A. (ADR) 91,800
3,300 Buenos Aires Embotelladora, S.A. (ADR) 75,488
8,900 Compania Interamericana de Automoviles, S.A. 32,472
99,702 Compania Naviera Perez Companc S.A.C.F.I.M.F.A. 439,510
8,300 IRSA Inversiones y Representaciones, S.A. 17,423
14,040 Juan Minetti, S.A. 34,384
8,846 Molinos Rio de la Plata, S.A. 55,265
10,800 Nobleza Piccardo 41,563
26,500 Sociedad Comercial del Plata Sociedad Anonima 53,509
8,400 Telecom Argentina STET-France Telecom, S.A., Series B 32,327
4,200 Telecom Argentina STET-France Telecom, S.A., Series B (ADR) 161,175
12,600 Telefonica de Argentina Sociedad Anonima 261,450
9,700 TRANSPORTADORA DE GAS DEL SUR, S.A. (ADR) 99,425
10,401 Yacimientos Petroliferos Fiscales Sociedad del Estado (ADR) 178,117
-------------
TOTAL ARGENTINA (Cost: $1,889,118) 1,711,183
-------------
BRAZIL (2.9%)
355,600 Brasmotor, S.A. 83,205
1,552,473 CENTRAIS ELETRICAS BRASILEIRAS, S.A. (ELETROBRAS) 440,750
3,500 Clark Automotive Products Corporation (CAPCO) (ADR) 26,688**
9,220,000 Companhia Brasileira de Petroleo Ipiranga 87,732
17,500 Companhia Energetica de Sao Paulo 173,906
4,300,000 Companhia Paranaense de Energia (COPEL) 31,749
7,400,000 Companhia Siderurgica Nacional 158,527
7,500 Companhia Souza Cruz Industria e Comercio 53,661
760,000 Light-Servicos de Electricidade, S.A. 229,596
4,850,000 Lojas Americanas, S.A. 116,005
2,700,000 Telecomunicacoes Brasileiras, S.A. (Telebras) 89,682
-------------
TOTAL BRAZIL (Cost: $1,971,885) 1,491,501
-------------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
38
<PAGE>
TCW Galileo Emerging Markets Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
- - ----------------------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- - ----------- ----------------- ----------
<S> <C> <C>
CHILE (3.6%)
3,300 Administradora de Fondos de Pensiones Provida, S.A. 80,850
1,900 Banco O'Higgins 40,613
3,000 Chilectra, S.A. 125,250
6,800 Chilgener, S.A. (ADR) 163,200
5,400 Compania Cervecerias Unidas, S.A. 124,875
2,300 Compania de Telecomunicaciones de Chile, S.A. 165,600
4,900 Embotelladora Andina, S.A. 162,925
11,100 Enersis, S.A. (ADR) 278,888
7,650 Genesis Chile Fund Limited 291,656
5,100 Madeco, S.A. 126,862
9,850 Maderas y Sinteticos Sociedad Anonima (MASISA) (ADR) 176,069
2,650 Santa Isabel, S.A. 59,956
1,500 Sociedad Quimica y Minera de Chile, S.A. 65,062
-----------
TOTAL CHILE (Cost: $1,857,199) 1,861,806
-----------
CHINA (1.2%)
24,000 Shandong Huaneng Power (ADR) 192,000
586,690 Shanghai Dajiang, Series B 344,974
98,200 Shanghai Yaohua Pilkington Glass Company Limited, Series B 96,236
-----------
TOTAL CHINA (Cost: $650,405) 633,210
-----------
COLOMBIA (2.0%)
30,200 Almacenes Exito, S.A. 109,014
12,400 Banco Industrial Colombiano 168,950
28,246 Banco de Bogota 130,850
8,300 Cementos Diamante, S.A., (144A) (ADS) 141,100*
14,470 Compania Nacional de Chocolates, S.A. 115,348
9,000 Compania Suramericana de Seguros, S.A. 158,829
39,200 Compania de Cemento Argos, S.A. 235,837
-----------
TOTAL COLOMBIA (Cost: $1,440,880) 1,059,928
-----------
GREECE (1.3%)
34,760 Aegek 366,249
7,230 Ergo Bank 311,571
-----------
TOTAL GREECE (Cost: $619,459) 677,820
-----------
HONG KONG (COST: $459,858) (0.9%)
223,000 Consolidated Electric Power Asia, Limited 451,376
-----------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
39
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Number
or Shares EQUITY SECURITIES Value
- - --------- ----------------- -----
<S> <C> <C>
INDIA (1.8%)
6,000 Hindalco Industries, Limited (GDR) $ 186,000
43,000 Larsen & Toubro Limited (GDR) 763,250
----------
TOTAL INDIA (Cost: $892,850) 949,250
INDONESIA (2.7%) ----------
141,000 PT Astra International 282,372
104,000 PT Bank International Indonesia 'Foreign' 363,908
72,475 PT Indofood Sukses Makmur 334,942
8,900 PT Indonesian Satellite Corporation (ADR) 294,813
190,080 PT Mayora Indah 135,951
----------
TOTAL INDONESIA (Cost: $1,415,239) 1,411,986
IRELAND (COST: $275,000) (0.5%) ----------
27,500 Central Asia Investment Company Limited 275,000 +
MALAYSIA (16.5%) ----------
94,000 Berjaya South Island (Prime Utilities Berhad) 869,001
252,000 Commerce Asset Holdings 1,249,095
445,000 Development & Commercial Bank Holdings Berhad 1,260,425
128,000 Genting Berhad 1,102,754
20,000 Land & General Holdings Berhad 46,420
794,500 Lion Land Berhad 859,510
523,000 MBF Capital Berhad 493,784
265,000 New Straits Times Press Berhad 833,989
620,000 Renong Berhad 946,341
113,000 Technology Resources Industries Berhad 286,723
81,000 Telekom Malaysia Berhad 579,937
----------
TOTAL MALAYSIA (Cost: $8,393,073) 8,527,979
----------
</TABLE>
+ Security valued at fair value by the Adviser. (See Note 2)
See accompanying Notes to Financial Statements.
40
<PAGE>
TCW Galileo Emerging Markets Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
- - -----------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Units EQUITY SECURITIES Value
- - ----------- ----------------- -----
<S> <C> <C>
MEXICO (13.3%).
165,600 Cemex, S.A. de C.V. $ 513,850
386,700 Cifra, S.A. de C.V., Series C 395,972
3,600 Coca Cola FEMSA, S.A. de C.V. (ADR) 64,800
21,000 DESC, S.A. de C.V., Serices B 67,828
13,400 Empresas ICA Sociedad Controladora, S.A. de C.V. (ADR) 127,300
12,500 Empresas La Moderna, S.A. de C.V., (ADR) 175,000
99,600 Fomento Economica Mexicano, S.A. de C.V., Series B 207,348
22,440 Gruma, S.A. de C.V. 66,465
143,800 GRUPO CARSO, S.A. de C.V. Series A1 756,522 **
182,700 Grupo Cementos de Chihuahua, S.A. de C.V., Series B 128,843
4,300 Grupo Embotellador de Mexico (GDR) 44,613
95,900 Grupo Financiero Inbursa, S.A. de C.V., Series B 261,054 **
63,000 Grupo Industria Alfa, S.A. de C.V., Series A 724,189
26,394 Grupo Industrial San Luis, S.A. de C.V., Units 124,711
43,700 Grupo Industrial Bimbo, S.A. de C.V., Series A 166,417
10,613 Grupo Industrial Maseca, S.A. de C.V. (ADR) 102,150
14,030 Grupo Televisa, S.A. (ADR) 242,018
217,600 Industria Automotriz, S.A. Series B 62,272 + **
66,600 Jugos del Valle, S.A. de C.V., Series B 116,292
26,600 Kimberly-Clark de Mexico, S.A. de C.V., Series A 348,914
11,500 Panamerican Beverage (ADR) 314,813
55,745 Telefonos de Mexico, S.A. de C.V., Series L (ADR) 1,532,987
17,300 Transportacion Maritima Mexicana, S.A. de C.V. (TMM), Series A (ADR) 108,125
27,100 Tubos de Acero de Mexico, S.A. de C.V. (TAMSA) (ADR) 182,925
------------
TOTAL MEXICO (Cost: $9,192,704) 6,835,408
------------
PAKISTAN (COST: $713,687) (0.7%)
3,970 Pakistan Telecommunications (GDS) 371,195
-------------
PANAMA (COST: $96,875) (0.2%)
3,100 Banco Latinamericano de Exportaciones, S.A. (ADR) 129,425
-------------
PERU (1.0%)
14,859 Credicorp, Limited 245,174
83,344 Cerveceria Backus y Johnson, S.A. 149,130
5,647 Compania de Minas Buenaventura, S.A. 30,985
19,890 Enrique Ferreyros, S.A. 22,792
34,751 Explosivos, S.A. 92,965
------------
TOTAL PERU (Cost: $530,085) 541,046
------------
</TABLE>
+ Security valued at fair value by the Adviser. (See Note 2)
** Non-income producing.
See accompanying Notes to Financial Statements.
41
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Number of
Shares or
Units EQUITY SECURITIES Value
- - ---------- ----------------- -----
<S> <C> <C>
PHILIPPINES (1.7%)
209,000 Bacnotan Cement Corporation $ 200,653
94,000 Manila Electric Company, Series B 700,307
----------
TOTAL PHILIPPINES (Cost: $905,948) 900,960
----------
PORTUGAL (2.9%)
25,590 Corticeira Amorim 249,802
28,467 Espirito Santo Financial Holding, S.A. (ADR) 313,137
15,750 Portugal Telecom 297,950
20,650 Soares da Costa 287,771
15,000 Sonae Investments, Series A 346,371
----------
TOTAL PORTUGAL (Cost: $1,802,225) 1,495,031
----------
SINGAPORE (Cost: $385,647)(0.8%)
80,000 Van der Horst, Limited 410,329
----------
SOUTH AFRICA (10.0%)
8,300 Anglo Alpha Limited 295,778
5,100 Anglovaal Limited (144A) (ADR) 192,844 *
29,500 Barlow Limited 380,071
18,400 DeBeers Consolidated Mines Limited (ADR) 506,000
20,000 Malbak Limited 132,950
45,591 Malbak Limited (144A) 303,065 *
103,281 Murray & Roberts Holdings Limited 721,948
10,500 Nedcor Limited, Units (144A) (GDR) 582,750 *
54,700 Pick 'n Pay Stores Limited 198,677
16,559 Pretoria Portland Cement Company Limited 453,920
33,525 Sasol Limited 289,484
21,546 The South African Breweries, Limited (ADR) 702,938
12,200 The South African Breweries, Limited (Ordinary Shares) 400,480
----------
TOTAL SOUTH AFRICA (Cost: $4,095,436) 5,160,905
----------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
42
<PAGE>
TCW Galileo Emerging Markets Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
- - -----------------------------------
<TABLE>
<CAPTION>
Number
of shares
or Warrants EQUITY SECURITIES Value
- - ------------ ----------------- ----------
<S> <C> <C>
SOUTH KOREA (4.1%)
60 Daewoo Corporation Warrants, expires 11/08/96 $ 15,000 **
20 Dong Yang Dragon Trust 300,000
25,000 Korea Electric Power Corporation (New ADR) 615,625
38,000 Korea Exchange Bank (IN) 422,112
11,800 L.G. Chemical, Limited (GDR) 280,250
9,784 Pohang Iron & Steel Company, Limited (ADR) 251,938
42 Samsung Electronics Company, Limited (1/2
Voting GDR) 4,326
60 Samsung Electronics Company, Limited (1/2
Voting GDR) 6,300
593 Samsung Electronics Company, Limited (1/2
Non-Voting GDR) 32,615
3,000 Samsung Electronics Company, Limited (144A)
(1/2 Non-Voting GDR) 195,750 *
-----------
TOTAL SOUTH KOREA (Cost: $2,245,246) 2,123,916
-----------
TAIWAN (COST: $430,352) (0.8%)
43,000 The Taiwan Index Fund, Limited 397,750
-----------
THAILAND (3.8%)
54,000 PTT Exploration & Production Public
Company, Limited 489,154
13,200 The Siam Cement Company, Limited Public
Company, Limited 719,523
94,000 Thai Farmer's Bank 776,798
-----------
TOTAL THAILAND (Cost: $1,992,153) 1,985,475
-----------
TURKEY (1.5%)
444,000 Cimentas, A.S. 268,356
1,898,000 Eczacibasi Yapi 225,732
808,000 Netas Telekomunik 279,626
3,098 Turkiye Garanti Bankasi (ADR) 27,882
-----------
TOTAL TURKEY (Cost: $895,624) 801,596
-----------
VIETNAM (COST: $378,350) (0.7%)
32,900 Lazard Vietnam Fund Limited (Preference Shares) 378,350
-----------
TOTAL COMMON STOCK (Cost: $43,529,298) (78.2%) 40,582,425
-----------
</TABLE>
* Restricted Security. (See Note 6)
** Non-income producing.
See accompanying Notes to Financial Statements.
43
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Number of
Shares or
Rights PREFERRED STOCK Value
- - ------------ ----------------- ----------
<S> <C> <C>
BRAZIL (12.7%)
46,582,985 Banco Bradesco, S.A $ 426,300
915,800 Banco Itau, S.A 271,426
535 BARDELLA S/A INDUSTRIAS MECANICAS 77,891
1,192,000 Caemi Mineracao e Metalurgia, S.A 67,558
2,626,289 CENTRAIS ELETRICAS BRASILEIRAS, S.A. (ELETROBRAS) 748,340
1,013,677 Companhia Cervejaria Brahma 386,875
7,794,064 COMPANHIA ENERGETICA DE MINAS GERAIS (CEMIG) 166,969
372,164 COMPANHIA ENERGETICA DE MINAS GERAIS (CEMIG), Rights,
expires 11/24/95 - **
656,900 COMPANHIA DE TECIDOS NORTE DE MINAS (COTEMINAS) 204,940
5,739,300 Compania Vale do Rio Doce 925,116
227,600 Confab Industrial, S.A 120,711
2,600,000 Duratex, S.A 127,080
143,771 Industrias Klabin de Papel e Celulose, S.A 134,561
354,600 Itausa - Investimentos Itau, S.A 202,818
5,887,000 Petroleo Brasileiro, S.A. (PETROBRAS) 508,195
13,110,916 Refrigeracao Parana, S.A 30,950
31,947,492 Telecomunicacoes Brasileiras, S.A. (Telebras) 1,295,375
5,668,700 Telecomunicacoes de San Paulo, S.A. (Telesp) 813,579
79,807,000 Usinas Siderurgicas de Minas Gerais, S.A. (USIMINAS) 74,695 **
----------
TOTAL BRAZIL (Cost: $7,127,608) 6,583,379
----------
PERU (COST: $359,653) (0.8%)
227,056 CPT - Telefonica del Peru, S.A 405,278
----------
TOTAL PREFERRED STOCK (Cost: $7,487,261) (13.5%) 6,988,657
----------
TOTAL EQUITY SECURITIES (COST: $51,016,559) (91.7%) 47,571,082
----------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
44
<PAGE>
TCW Galileo Emerging Markets Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
- - -----------------------------------
<TABLE>
<CAPTION>
Principal
Amount CONVERTIBLE SECURITIES Value
- - --------- ---------------------- -----
<S> <C> <C>
INDIA (COST: $509,760) (0.9%)
$ 450,000 Reliance Industries, Limited, Convertible Bond, 3.5%, due 11/03/99 $ 456,750
------------------
PHILIPPINES (COST: $641,000) (1.3%)
650,000 Bacnotan Consolidated Industries, Inc., Convertible Bond, 5.5%, due 06/21/04 656,500
------------------
SOUTH KOREA (1.4%)
230,000 Daewoo Electronics Public Company, Limited, Convertible Bond, 3.5%,
due 12/31/07 294,400
150,000 Goldstar, Convertible Bond, 3.25%, due 12/31/06 189,000
CHF 250,000 Yukong Limited, Convertible Bond, 1%, due 12/31/98 233,172
------------------
TOTAL SOUTH KOREA (Cost: $1,192,690) 716,572
------------------
THAILAND (1.9%)
$ 303,000 Land & House Public Company, Limited, Convertible Bond, 5%, due 04/29/03 369,660
640,000 Siam Commercial Bank Public Company, Limited, Convertible Bond,
3.25%, due 01/24/04 641,600
------------------
TOTAL THAILAND (Cost: $1,049,629) 1,011,260
------------------
TOTAL CONVERTIBLE SECURITIES (COST: $3,393,079) (5.5%) 2,841,082
------------------
SHORT-TERM INVESTMENTS (COST: $1,580,516) (3.0%)
1,580,516 Bank of New York Depositary Reserve, 5%, due 11/01/95 1,580,516
------------------
TOTAL INVESTMENTS (COST: $55,990,154) (100.2%) 51,992,680
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.2%) (119,496)
------------------
NET ASSETS (100%). $ 51,873,184
==================
</TABLE>
CHF Swiss Franc.
See accompanying Notes to Financial Statements.
45
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Latin America Equity Fund
October 31, 1995
SCHEDULE OF INVESTMENTS
- - -----------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- - ------------ ----------------- ----------
<S> <C> <C>
COMMON STOCK
ARGENTINA (9.3% OF NET ASSETS)
97,400 Astra Compania Argentina de Petroleo, S.A $ 144,094
8,600 Banco Frances del Rio de la Plata, S.A. (ADR) 188,125
11,200 Banco de Galicia y Buenos Aires, S.A. (ADR) 214,200
6,600 Buenos Aires Embotelladora, S.A. (ADR) 150,975
20,000 Compania Interamericana de Automoviles, S.A 72,971
224,441 Compania Naviera Perez Companc S.A.C.F.I.M.F.A 989,389
40,050 IRSA Inversiones y Representaciones, S.A 84,071
31,107 Juan Minetti, S.A 76,182
19,900 Molinos Rio de la Plata, S.A 124,325
24,500 Nobleza Piccardo 94,287
47,500 Sociedad Comercial del Plata Sociedad Anonima 95,912
40,500 Telecom Argentina STET - France Telecom, S.A., Series B 155,863
5,600 Telecom Argentina STET - France Telecom, S.A.,
Series B (ADR) 214,900
23,500 Telefonica de Argentina Sociedad Anonima 487,625
16,255 TRANSPORTADORA DE GAS DEL SUR, S.A. (ADR) 166,614
21,900 Yacimientos Petroliferos Fiscales Sociedad
del Estado (ADR) 375,038
----------
TOTAL ARGENTINA (Cost: $3,797,211) 3,634,571
----------
BRAZIL (5.8%)
3,035,033 CENTRAIS ELETRICAS BRASILEIRAS, S.A. (ELETROBRAS) 861,651
6,700 Clark Automotive Products Corporation (CAPCO) (ADR) 51,088 **
16,837 COMPANHIA ENERGETICA DE MINAS GERAIS (CEMIG) (144A) 354,629 *
4,300,000 Companhia Paranaense de Energia (COPEL) 31,749
12,400,000 Companhia Siderurgica Nacional 265,641
16,900 Companhia Souza Cruz Industria e Comercio 120,915
1,337,900 Light-Servicos de Electricidade, S.A 404,180
5,200,000 Telecomunicacoes Brasileiras, S.A. (Telebras) 172,720
----------
TOTAL BRAZIL (Cost: $3,102,176) 2,262,573
----------
CHILE (6.9%)
4,770 Administradora de Fondos de Pensiones
Provida, S.A 116,865
16,000 Chilgener, S.A. (ADR) 384,000
3,700 Compania Cervecerias Unidas, S.A 85,560
5,600 Compania de Telecomunicaciones de Chile, S.A 403,200
4,850 Embotelladora Andina, S.A 161,263
16,782 Enersis, S.A. (ADR) 421,648
8,300 Genesis Chile Fund Limited 316,438
6,300 Madeco, S.A 156,713
22,363 Maderas y Sinteticos Sociedad Anonima (MASISA) (ADR) 399,739
5,625 Santa Isabel, S.A 127,266
2,370 Sociedad Quimica y Minera de Chile, S.A 102,799
----------
TOTAL CHILE (Cost: $2,645,947) 2,675,491
----------
</TABLE>
* Restriced security. (See Note 6)
** Non-income producing.
See accompanying Notes to Financial Statements.
46
<PAGE>
TCW Galileo Latin America Equity Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
- - -----------------------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- - ------------ ----------------- ----------
<S> <C> <C>
COLOMBIA (5.9%)
69,400 Almacenes Exito, S.A $ 250,516
72,979 Banco de Bogota 338,076
9,770 Banco Industrial Colombiano 133,116
18,900 Cementos Diamante, S.A. (144A) (ADS) 321,300 *
104,828 Compania de Cementos Argos, S.A 630,671
29,358 Compania Nacional de Chocolates, S.A 234,028
22,600 Compania Suramericana de Seguros, S.A 398,837
----------
TOTAL COLOMBIA (Cost: $3,296,251) 2,306,544
----------
MEXICO (31.7%)
275,500 Cemex, S.A. de C.V 854,866
790,040 Cifra, S.A. de C.V., Series C 808,983
2,300 Coca Cola FEMSA, S.A. de C.V. (ADR) 41,400
49,290 Corporacion Industrial San Luis, S.A. de C.V 232,894
32,700 DESC, S.A. de C.V., Series B 105,618
23,300 Empresas ICA Sociedad Controladora, S.A. de C.V. (ADR) 221,350
19,200 Empresas La Moderna, S.A. de C.V. (ADR) 268,800
125,300 Fomento Economico Mexicano, S.A. de C.V., Series B 260,850
41,760 Gruma, S.A. de C.V 123,690
234,200 GRUPO CARSO, S.A. de C.V., Series A1 1,232,110 **
143,100 Grupo Cementos de Chihuahua, S.A. de C.V., Series B 100,917
186,900 Grupo Financiero Inbursa, S.A. de C.V., Series B 508,769
121,359 Grupo Industrial Alfa, S.A., Series A 1,395,029
83,600 Grupo Industrial Bimbo, S.A. de C.V., Series A 318,364
11,358 Grupo Industrial Maseca, S.A. de C.V. (ADR) 109,321
28,040 Grupo Televisa, S.A. (ADR) 483,690
1,740,800 Industria Automotriz, S.A. Series B 498,179 +**
134,700 Jugos Del Valle, S.A. de C.V., Series B 235,200
52,600 Kimberly-Clark de Mexico, S.A. de C.V., Series A 689,958
21,200 Panamerican Beverages, Inc. (ADR) 580,350
101,345 Telefonos de Mexico, S.A., de C.V., Series L (ADR) 2,786,988
28,700 Transportacion Maritima Mexicana, S.A. de C.V. (TMM),
Series A (ADR) 179,375
45,882 Tubos de Acero de Mexico, S.A. de C.V. (TAMSA) (ADR) 309,704
----------
TOTAL MEXICO (Cost: $17,016,462) 12,346,405
----------
PANAMA (COST: $151,563) (0.5%)
4,850 Banco Latinoamericano de Exportaciones, S.A. (ADR) 202,488
----------
PERU (2.9%)
167,197 Cerveceria Backus y Johnston, S.A 299,171
18,072 Compania de Minas Buenaventura, S.A 99,161
19,339 Credicorp, Limited 319,094
53,642 Enrique Ferreyros, S.A 61,467
128,466 Explosivos, S.A 343,671
----------
TOTAL PERU (Cost: $1,122,597) 1,122,564
----------
</TABLE>
+ Security valued at fair value by the Advisor. (See Note 2)
** Restricted Security. (See Note 6).
** Non-income producing.
See accompanying Notes to Financial Statements.
47
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- - ------------ ----------------- ----------
<C> <S> <C>
VENEZUELA (COST: $971) (0.1%)
18,920 C.A. La Electricidad de Caracas, S.A.C.A $ 21,591
-----------
TOTAL COMMON STOCK (Cost: $31,133,178)(63.1%) 24,572,227
-----------
PREFERRED STOCK
BRAZIL (34.2%)
23,473 Aracruz Celulose, S.A. (ADR) 217,125
86,178,780 Banco Bradesco, S.A 788,658
1,586,000 Banco Itau, S.A 470,060
1,160 BARDELLA, S/A INDUSTRIAS MECANICAS 168,885
475,000 Brasmotor, S.A 111,143
3,175,000 Caemi Mineracao e Metalurgia, S.A 179,947
5,188,180 CENTRAIS ELECTRICAS BRASILEIRAS, S.A. (ELETROBRAS) 1,478,329
9,830,000 Companhia Brasileira de Petroleo Ipiranga 93,536
2,434,784 Companhia Cervejaria Brahma 929,249
1,403,400 COMPANHIA DE TECIDOS NORTE DE MINAS (COTEMINAS) 437,833
34,200 Companhia Energetica de Sao Paulo (ADR) 339,863
10,028,800 Compania Vale do Rio Doce 1,616,539
827,200 Confab Industrial, S.A 438,719
288,062 Industrias Klabin de Papel e Celulose, S.A 269,609
486,000 Itausa - Investimentos Itau, S.A 277,974
5,900,000 Lojas Americanas, S.A 141,119
10,389,999 Petroleo Brasileiro, S.A. (PETROBRAS) 896,915
20,353,207 Refrigeracao Parana, S.A 48,047
58,825,257 Telecomunicacoes Brasileiras, S.A. (Telebras) 2,385,188
13,102,800 Telecomunicacoes de San Paulo, S.A. (Telesp) 1,880,530
161,395,000 Usinas Siderurgicas de Minas Gerais, S.A. (USIMINAS) 151,056
-----------
TOTAL BRAZIL (Cost: $14,001,907) 13,320,324
-----------
PERU (COST: $600,882) (1.9%)
406,676 CPT -Telefonica del Peru, S.A 725,887
-----------
TOTAL PREFERRED STOCK (Cost: $14,602,790)(36.1%) 14,046,211
-----------
TOTAL EQUITY SECURITIES (COST: $45,735,968) (99.2%) 38,618,438
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount SHORT-TERM INVESTMENTS (COST: $361,443)(0.9%) Value
- - ------------ --------------------------------------------- ----------
<C> <S> <C>
$ 361,443 Bank of New York Depositary Reserve, 5%, due 11/01/95 361,443
-----------
TOTAL INVESTMENTS (COST: $46,097,411) (100.1%) 38,979,881
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.1%) (37,960)
-----------
NET ASSETS (100%) $38,941,921
===========
</TABLE>
See accompanying Notes to Financial Statements.
48
<PAGE>
<TABLE>
<CAPTION>
TCW GALILEO
MONEY MARKET
STATEMENTS OF ASSETS AND LIABILITIES FUND
- - ------------------------------------ -------------
<S> <C>
ASSETS
Investments, at Value(1) $ 86,422
Receivables for Fund Shares Sold --
Receivables for Fund Shares Issued upon Reinvestment of Dividends --
Receivables for Securities Sold --
Accrued Interest and Dividends Receivable 388
Deferred Organization Costs --
--------------
Total Assets 86,810
--------------
LIABILITIES
Distribution Payable 408
Payables for Securities Purchased --
Management Fees and Other Accrued Expenses 100
--------------
Total Liabilities 508
--------------
NET ASSETS $ 86,302
==============
NET ASSETS CONSIST OF:
Paid-in Capital $ 86,302
Undistributed (Overdistributed) Net Realized Gain (Loss) on Investments
and Foreign Currency Transactions --
Unrealized Appreciation (Depreciation) on Investments
and Foreign Currency Translations --
Undistributed (Overdistributed) Net Investment Income (Loss) --
--------------
NET ASSETS $ 86,302
==============
CAPITAL SHARES OUTSTANDING 86,302,294
==============
NET ASSET VALUE PER SHARE $ 1.00
==============
</TABLE>
(1) The identified cost for the TCW Galileo Money Market Fund, the TCW Galileo
High Grade Fixed Income Fund, the TCW Galileo High Yield Bond Fund, the TCW
Galileo Mortgage Backed Securities Fund and the TCW Galileo Long-Term
Mortgage Backed Securities Fund at October 31, 1995 was $86,422, $34,654,
$89,107, $84,387 and $79,093, respectively.
See accompanying Notes to Financial Statements.
49
<PAGE>
TCW GALILEO FUNDS, INC.
Dollar Amounts in Thousands
(Except per Share Amounts)
October 31, 1995
<TABLE>
<CAPTION>
TCW GALILEO TCW GALILEO TCW GALILEO TCW GALILEO LONG-TERM
HIGH GRADE HIGH YIELD MORTGAGE BACKED MORTGAGE BACKED
FIXED INCOME FUND BOND FUND SECURITIES FUND SECURITIES FUND
- - ----------------- ----------- --------------- ---------------------
<S> <C> <C> <C>
$ 35,944 $ 90,261 $ 80,317 $ 79,534
2 74 100 --
104 556 395 411
- 213 410 134
466 2,388 631 556
23 23 23 26
---------- ---------- ---------- ----------
36,539 93,515 81,876 80,661
---------- ---------- ---------- ----------
113 756 422 417
133 - -- --
57 107 88 85
---------- ---------- ---------- ----------
303 863 510 502
---------- ---------- ---------- ----------
$ 36,236 $ 92,652 $ 81,366 $ 80,159
========== ========== ========== ==========
$ 37,992 $ 92,834 $ 90,117 $ 80,258
(3,623) (1,457) (4,516) (562)
1,290 1,154 (4,070) 441
577 121 (165) 22
---------- ---------- ---------- ----------
$ 36,236 $ 92,652 $ 81,366 $ 80,159
========== ========== ========== ==========
3,770,108 9,513,757 8,494,948 8,384,717
========== ========== ========== ==========
$ 9.61 $ 9.74 $ 9.58 $ 9.56
========== ========== ========== ==========
</TABLE>
50
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
- - ------------------------------------------------
<TABLE>
<CAPTION>
TCW TCW GALILEO
GALILEO CORE EARNINGS MOMENTUM
EQUITY FUND FUND
------------ -----------------
<S> <C> <C>
ASSETS
Investments, at Value (1) $198,313 $62,099
Receivables for Fund Shares Sold -- 425
Receivables for Securities Sold -- 1,722
Accrued Interest and Dividends Receivable 179 21
Deferred Organization Costs 23 3
---------- ---------
Total Assets 198,515 64,270
---------- ---------
LIABILITIES
Payable for Fund Shares Redeemed -- 100
Payables for Securities Purchased 600 648
Management Fees and Other Accrued Expenses 194 111
---------- ---------
Total Liabilities 794 859
---------- ---------
NET ASSETS $197,721 $63,411
========== =========
NET ASSETS CONSIST OF:
Paid-in Capital $165,491 $54,036
Undistributed (Overdistributed) Net Realized
Gain (Loss) on Investments and Foreign
Currency Transactions (8,994) 368
Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency
Translations 40,606 9,175
Undistributed (Overdistributed) Net Investment
Income (Loss) 618 (168)
---------- ---------
NET ASSETS $197,721 $63,411
========== =========
CAPITAL SHARES OUTSTANDING 14,445,808 5,529,534
========== =========
NET ASSET VALUE PER SHARE $13.69 $11.47
========== =========
</TABLE>
(1) The identified cost for the TCW Galileo Core Equity Fund, the TCW Galileo
Earnings Momentum Fund, the TCW Galileo Small Cap Growth Fund, the TCW
Galileo Asia Pacific Equity Fund, the TCW Galileo Emerging Markets Fund and
the TCW Galileo Latin America Equity Fund at October 31, 1995 was $157,707,
$52,924, $46,379, $44,124, $55,990, $46,098, respectively.
See accompanying Notes to Financial Statements.
51
<PAGE>
TCW GALILEO FUNDS, INC.
Dollar Amounts in Thousands
(Except per Share Amounts)
October 31, 1995
<TABLE>
<CAPTION>
TCW GALILEO TCW GALILEO TCW GALILEO TCW GALILEO
SMALL CAP ASIA PACIFIC EMERGING MARKETS LATIN AMERICA
GROWTH FUND EQUITY FUND FUND EQUITY FUND
----------- ----------- ---------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at Value (1) $ 67,706 $ 47,042 $ 51,993 $ 38,980
Receivables for Fund Shares Sold -- 23 -- --
Receivables for Securities Sold 1,380 129 -- 205
Accrued Interest and Dividends Receivable 29 49 77 25
Deferred Organization Costs 7 7 7 23
------------- ------------- --------------- ---------------
Total Assets 69,122 47,250 52,077 39,233
------------- ------------- --------------- ---------------
LIABILITIES
Payable for Fund Shares Redeemed -- 247 -- 178
Payables for Securities Purchased 2,968 179 73 --
Management Fees and Other Accrued Expenses 98 115 131 113
---------- ------------- --------------- ---------------
Total Liabilities 3,066 541 204 291
---------- ------------- --------------- ---------------
NET ASSETS $ 66,056 $ 46,709 $ 51,873 $38,942
========== ============= =============== ===============
NET ASSETS CONSIST OF:
Paid-in Capital $ 43,294 $ 44,719 $ 64,223 $ 73,707
Undistributed (Overdistributed) Net Realized
Gain (Loss) on Investments and Foreign
Currency Transactions 1,840 (1,182) (8,620) (28,111)
Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency
Translations 21,327 2,918 (3,997) (7,118)
Undistributed (Overdistributed) Net Investment
Income (Loss) (405) 254 267 464
------------- ------------- --------------- ---------------
NET ASSETS $ 66,056 $46,709 $ 51,873 $ 38,942
============= ============= =============== ===============
CAPITAL SHARES OUTSTANDING 4,883,358 5,385,801 7,217,659 4,914,720
============= ============= =============== ===============
NET ASSET VALUE PER SHARE $ 13.53 $ 8.67 $7.19 $ 7.92
============= ============= =============== ===============
</TABLE>
52
<PAGE>
STATEMENTS OF OPERATIONS
- - ------------------------
<TABLE>
<CAPTION>
TCW GALILEO
MONEY MARKET
FUND
------------
<S> <C>
INVESTMENT INCOME
Income:
Interest $7,122
------
Expenses:
Management Fees 304
Custodian Fees 44
Registration Fees 9
Transfer Agent Fees 36
Directors Fees and Expenses 10
Audit and Tax Fees 24
Accounting Service Fees 117
Legal Fees 3
Amortization of Deferred Organization Costs --
Other 10
------
Total Expenses 557
Less Expenses Borne by Investment Adviser 95
------
Net Expenses 462
------
Net Investment Income 6,660
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net Realized (Loss) on Investments and
Foreign Currency Transactions During the Year --
Change in Unrealized Appreciation (Depreciation)
on Investments and Foreign Currency
Translations During the Year --
------
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency During the Year --
------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $6,660
======
</TABLE>
See accompanying Notes to Financial Statements.
53
<PAGE>
TCW GALILEO FUNDS, INC.
Dollar Amounts in Thousands
Year Ended October 31, 1995
<TABLE>
<CAPTION>
TCW GALILEO TCW GALILEO TCW GALILEO TCW GALILEO LONG-TERM
HIGH GRADE FIXED HIGH YIELD MORTGAGE BACKED MORTGAGE BACKED
INCOME FUND BOND FUND SECURITIES FUND SECURITIES FUND
---------------- -------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest $ 2,528 $ 9,880 $ 7,647 $ 6,042
------------- ----------- ----------- ------------
Expenses:
Management Fees 143 708 494 353
Custodian Fees 7 10 15 10
Registration Fees -- 1 -- 10
Transfer Agent Fees 27 32 37 28
Directors Fees and Expenses 10 10 10 10
Audit and Tax Fees 21 18 29 27
Accounting Service Fees 35 35 35 35
Legal Fees 1 -- -- 1
Amortization of Deferred Organization Costs 10 10 10 10
Other 4 9 7 2
------------ ----------- ----------- -----------
Total Expenses 258 833 637 486
Less Expenses Borne by Investment Adviser 15 17 21 5
------------ ----------- ----------- ------------
Net Expenses 243 816 616 481
------------ ----------- ----------- -----------
Net Investment Income 2,285 9,064 7,031 5,561
------------ ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net Realized (Loss) on Investments and
Foreign Currency Transactions During the Year
Change in Unrealized Appreciation (Depreciation) (1,514) (1,241) (4,070) (531)
on Investments and Foreign Currency
Translations During the Year 3,904 5,286 6,177 6,062
------------ ----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency During the Year 2,390 4,045 2,107 5,531
------------ ----------- ----------- -----------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 4,675 $ 13,109 $ 9,138 $ 11,092
============ =========== =========== ===========
</TABLE>
54
<PAGE>
STATEMENTS OF OPERATIONS (CONTINUED)
- - ------------------------------------
<TABLE>
<CAPTION>
TCW TCW GALILEO
GALILEO CORE EARNINGS MOMENTUM
EQUITY FUND FUND
------------ -----------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends $1,874 $ 132
Interest 280 311
------ -----
Total 2,154 443
------ -----
Expenses:
Management Fees 1,214 517
Custodian Fees 16 16
Registration Fees 13 19
Transfer Agent Fees 42 19
Directors Fees and Expenses 10 10
Audit and Tax Fees 18 18
Accounting Service Fees 35 35
Legal Fees 2 3
Amortization of Deferred Organization Costs 10 1
Other 13 4
------ -----
Total Expenses 1,373 642
Less Expenses Borne by Investment Adviser -- 53
------ -----
Net Expenses 1,373 589
------ -----
Net Investment Income (Loss) 781 (146)
------ -----
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) on Investments and
Foreign Currency Transactions During the Year (5,733) 368
Change in Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency Translations
During the Year 33,993 7,003
------ -----
Net Realized and Unrealized Gain(Loss)on Investments
and Foreign Currency During the Year 28,260 7,371
------ -----
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $29,041 $7,225
======= ======
</TABLE>
See accompanying Notes to Financial Statements.
55
<PAGE>
TCW GALILEO FUNDS, INC.
Dollar Amounts in Thousands
Year Ended October 31, 1995
<TABLE>
<CAPTION>
TCW GALILEO TCW GALILEO TCW GALILEO TCW GALILEO
SMALL CAP ASIA PACIFIC EMERGING MARKETS LATIN AMERICA
GROWTH FUND EQUITY FUND FUND EQUITY FUND
----------- ------------ ---------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ 78 $ 789(1) $ 902(1) $ 164(1)
Interest 190 186 257 150
---------- ---------- ----------- -----------
Total 268 975 1,159 1,314
---------- ---------- ----------- -----------
Expenses:
Management Fees 444 441 555 610
Custodian Fees 16 133 207 202
Registration Fees -- -- 2 28
Transfer Agent Fees 22 20 23 28
Directors Fees and Expenses 10 10 10 10
Audit and Tax Fees 19 19 19 18
Accounting Service Fees 35 35 35 35
Legal Fees 1 1 1 --
Amortization of Deferred Organization Costs 2 2 2 10
Other 2 3 7 17
---------- ---------- ----------- -----------
Total Expenses 551 664 861 958
Less Expenses Borne by Investment Adviser 15 17 -- --
---------- ---------- ------------ -----------
Net Expenses 536 647 861 958
---------- ---------- ----------- -----------
Net Investment Income (Loss) (268) 328 298 356
---------- ---------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) on Investments and
Foreign Currency Transactions During the Year
Change in Unrealized Appreciation (Depreciation) on 4,011 (612) (7,843) (27,909)
Investments and Foreign Currency Translations
During the Year 13,475 (5,846) (11,550) (21,001)
---------- ---------- ----------- -----------
Net Realized and Unrealized Gain(Loss)on Investments
and Foreign Currency During the Year 17,486 (6,458) (19,393) (48,910)
---------- ---------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 17,218 $ (6,130) $ (19,095) $ (48,554)
========== ========== =========== ===========
</TABLE>
(1) Net of foreign taxes withheld of $63, $92 and $94 for TCW Galileo Asia
Pacific Equity Fund, TCW Galileo Emerging Markets Fund and TCW Galileo Latin
America Equity Fund, respectively.
56
<PAGE>
TCW Galileo Money Market Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- - -----------------------------------
<TABLE>
<CAPTION>
Ten Months Ended
YEAR ENDED October 31, 1994
OCTOBER 31, 1995 (Note 1)
---------------- -----------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 6,660 $ 2,385
------------ --------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (6,660) (2,385)
------------ --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(666,989,130 shares in 1995 and 453,783,500 shares in 1994) 666,989 453,784
Proceeds from Shares Issued upon Reinvestment of Dividends
(4,274,516 shares in 1995 and 1,784,433 shares in 1994) 4,274 1,784
Cost of Shares Redeemed
(709,352,932 shares in 1995 and 412,380,355 shares in 1994) (709,353) (412,380)
------------ --------------
Increase (Decrease) in Net Assets Resulting from
Capital Share Transactions (38,090) 43,188
------------ --------------
Increase (Decrease) in Net Assets (38,090) 43,188
NET ASSETS
Beginning of Period 124,392 81,204
------------ --------------
End of Period $ 86,302 $ 124,392
============ ==============
</TABLE>
57
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo High Grade Fixed Income Fund
Dollar Amounts in Thousands
STATMENT OF CHANGES IN NET ASSETS
- - ---------------------------------
<TABLE>
<CAPTION>
Ten Months Ended
Year Ended October 31, 1994
October 31, 1995 (Note 1)
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 2,285 $ 2,155
Net Realized (Loss) on Investments and
Foreign Currency Transactions (1,514) (2,038)
Change in Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency Translations 3,904 (2,883)
------- -------
Increase (Decrease) in Net Assets Resulting from Operations 4,675 (2,766)
------- -------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (2,147) (1,718)
------- -------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(2,119,508 shares in 1995 and 3,963,230 shares in 1994) 19,224 37,183
Proceeds from Shares Issued upon Reinvestment of Dividends
(189,055 shares in 1995 and 163,910 shares in 1994) 1,718 1,564
Cost of Shares Redeemed
(4,148,031 shares in 1995 and 1,837,337 shares in 1994) (37,387) (17,438)
------- -------
Increase (Decrease) in Net Assets Resulting from
Capital Share Transactions (16,445) 21,309
------- -------
Increase (Decrease) in Net Assets (13,917) 16,825
NET ASSETS
Beginning of Period 50,153 33,328
------- -------
End of Period $36,236 $50,153
======= =======
</TABLE>
See accompanying Notes to Financial Statements.
58
<PAGE>
TCW Galileo High Yield Bond Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- - -----------------------------------
<TABLE>
<CAPTION>
Ten Months Ended
YEAR ENDED October 31, 1994
OCTOBER 31, 1995 (Note 1)
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 9,064 $ 6,285
Net Realized (Loss) on Investments (1,241) (216)
Change in Unrealized Appreciation (Depreciation)
on Investments 5,286 (6,353)
------- -------
Increase (Decrease) in Net Assets Resulting from Operations 13,109 (284)
------- -------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (9,725) (5,497)
------- -------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(4,675,533 shares in 1995 and 3,745,877 shares in 1994) 44,410 36,528
Proceeds from Shares Issued upon Reinvestment of Dividends
(753,663 shares in 1995 and 589,062 shares in 1994) 7,155 5,762
Cost of Shares Redeemed
(5,518,004 shares in 1995 and 2,016,091 shares in 1994) (52,874) (19,669)
------- -------
Increase (Decrease) in Net Assets Resulting from
Capital Share Transactions (1,309) 22,621
------- -------
Increase in Net Assets 2,075 16,840
NET ASSETS
Beginning of Period 90,577 73,737
------- -------
End of Period $92,652 $90,577
======= =======
</TABLE>
See accompanying Notes to Financial Statements.
59
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Mortgage Backed Securities Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- - -----------------------------------
<TABLE>
<CAPTION>
Ten Months Ended
YEAR ENDED October 31, 1994
OCTOBER 31, 1995 (Note 1)
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 7,031 $ 7,221
Net Realized (Loss) on Investments (4,070) (446)
Change in Unrealized Appreciation (Depreciation)
on Investments 6,177 (7,605)
------- ----------
Increase (Decrease) in Net Assets Resulting from Operations 9,138 (830)
------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (7,576) (6,642)
Distributions in Excess of Net Investment Income (165) --
------- ---------
Total Distributions to Shareholders (7,741) (6,642)
------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(1,303,201 shares in 1995 and 18,907,101 shares in 1994) 12,379 183,889
Proceeds from Shares Issued upon Reinvestment of Dividends
(779,171 shares in 1995 and 782,691 shares in 1994) 7,325 7,544
Cost of Shares Redeemed
(7,928,897 shares in 1995 and 20,325,505 shares in 1994) (74,683) (196,679)
------- -----------
(Decrease) in Net Assets Resulting from
Capital Share Transactions (54,979) (5,246)
------- -----------
(Decrease) in Net Assets (53,582) (12,718)
NET ASSETS
Beginning of Period 134,948 147,666
------- -----------
End of Period $81,366 $134,948
======= ===========
</TABLE>
See accompanying Notes to Financial Statements.
60
<PAGE>
TCW Galileo Long-term Mortgage Backed Securities Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- - -----------------------------------
<TABLE>
<CAPTION>
Ten Months Ended
YEAR ENDED October 31, 1994
OCTOBER 31, 1995 (Note 1)
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 5,561 $ 2,931
Net Realized (Loss) on Investments (531) (44)
Change in Unrealized Appreciation (Depreciation)
on Investments 6,062 (5,713)
---------- -------------
Increase (Decrease) in Net Assets Resulting from Operations 11,092 (2,826)
---------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (6,263) (2,207)
---------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(1,550,163 shares in 1995 and 5,158,471 shares in 1994) 14,209 48,322
Proceeds from Shares Issued upon Reinvestment of Dividends
(681,560 shares in 1995 and 229,472 shares in 1994) 6,205 2,152
Cost of Shares Redeemed
(1,293,849 shares in 1995 and 445,928 shares in 1994) (11,716) (4,024)
---------- -------------
Increase in Net Assets Resulting from
Capital Share Transactions 8,698 46,450
Increase in Net Assets 13,527 41,417
NET ASSETS
Beginning of Period 66,632 25,215
---------- -------------
End of Period $ 80,159 $ 66,632
========== =============
</TABLE>
See accompanying Notes to Financial Statements.
61
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Core Equity Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- - -----------------------------------
<TABLE>
<CAPTION>
Ten Months Ended
YEAR ENDED October 31, 1994
OCTOBER 31, 1995 (Note 1)
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 781 $ 383
Net Realized (Loss) on Investments (5,733) (2,535)
Change in Unrealized Appreciation (Depreciation)
on Investments 33,993 (964)
------- -------
Increase (Decrease) in Net Assets Resulting from Operations 29,041 (3,116)
------- -------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (543) --
------- -------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(7,935,518 shares in 1995 and 7,946,014 shares in 1994) 94,454 93,851
Proceeds from Shares Issued upon Reinvestment of Dividends
(40,364 shares in 1995 and 8,694 shares in 1994) 437 102
Cost of Shares Redeemed
(5,300,160 shares in 1995 and 914,855 shares in 1994) (61,790) (10,600)
------- -------
Increase in Net Assets Resulting from
Capital Share Transactions 33,101 83,353
------- -------
Increase in Net Assets 61,599 80,237
NET ASSETS
Beginning of Period 136,122 55,885
------- -------
End of Period $197,721 $136,122
======= =======
</TABLE>
See accompanying Notes to Financial Statements.
62
<PAGE>
TCW Galileo Earnings Momentum Fund
Dollar Amounts in Thousands
STATEMENT OF CHANGES IN NET ASSETS
- - ----------------------------------
<TABLE>
<CAPTION>
Year Ended
October 31, 1995
----------------
<S> <C>
OPERATIONS
Net Investment (Loss) $ (146)
Net Realized Gain on Investments 368
Change in Unrealized Appreciation on Investments 7,003
-------
Increase in Net Assets Resulting from Operations 7,225
-------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions in Excess of Net Investment Income (22)
-------
CAPITAL SHARE TRANSACTIONS
Shares Issued upon Exchange of Limited Partnership
Interests (4,059,985 shares) (Note 1) 40,600
Proceeds from Shares Sold (3,047,975 shares) 31,464
Proceeds from Shares Issued upon
Reinvestment of Dividends (2,265 shares) 21
Cost of Shares Redeemed (1,580,691 shares) (15,877)
-------
Increase in Net Assets Resulting from
Capital Share Transactions 56,208
-------
Increase in Net Assets 63,411
NET ASSETS
Beginning of Period --
-------
End of Period $63,411
=======
</TABLE>
See accompanying Notes to Financial Statements.
63
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Small Cap Growth Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- - -----------------------------------
<TABLE>
<CAPTION>
March 1, 1994
(Commencement of
Year Ended Operations) through
October 31, 1995 October 31, 1994
---------------- -------------------
<S> <C> <C>
OPERATIONS
Net Investment (Loss) $ (268) $ (137)
Net Realized Gain (Loss) on Investments 4,011 (34)
Change in Unrealized Appreciation (Depreciation)
on Investments 13,475 (1,225)
------- -------
Increase (Decrease) in Net Assets Resulting from Operations 17,218 (1,396)
------- -------
DISTRIBUTION TO SHAREHOLDERS
Distributions from Realized Gains (2,137) --
------- -------
CAPITAL SHARE TRANSACTIONS
Shares Issued upon Exchange of Limited Partnership Interests
(3,557,120 shares in 1994) (Note 1) -- 35,571
Proceeds from Shares Sold
(1,983,967 shares in 1995 and 2,394,053 shares in 1994) 23,244 21,442
Proceeds from Shares Issued upon Reinvestment of Dividends
(163,629 shares in 1995) 2,073 --
Cost of Shares Redeemed
(2,704,761 shares in 1995 and 510,650 shares in 1994) (25,431) (4,528)
------- -------
Increase (Decrease) in Net Assets Resulting from
Capital Share Transactions (114) 52,485
------- -------
Increase in Net Assets 14,967 51,089
NET ASSETS
Beginning of Period 51,089 --
------- -------
End of Period $66,056 $51,089
======= =======
</TABLE>
64
<PAGE>
TCW Galileo Asia Pacific Equity Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- - -----------------------------------
<TABLE>
<CAPTION>
March 1, 1994
(Commencement of
Year Ended Operations) through
October 31, 1995 October 31, 1994
---------------- -------------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 328 $ 144
Net Realized Gain (Loss) on Investments and
Foreign Currency Transactions (612) 1,288
Change in Unrealized Appreciation (Depreciation) on Investments
and Foreign Currency Translations (5,846) (49)
------- -------
Increase (Decrease) in Net Assets Resulting from Operations (6,130) 1,383
------- -------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (218) --
Distributions from Realized Gains (676) --
Distributions in Excess of Realized Gains (1,182) --
------- -------
Total Distributions to Shareholders (2,076) --
------- -------
CAPITAL SHARE TRANSACTIONS
Shares Issued upon Exchange of
Limited Partnership Interests
(4,449,194 shares in 1994) (Note 1) -- 44,492
Proceeds from Shares Sold
(1,755,040 shares in 1995 and 1,329,385 shares in 1994) 15,396 12,575
Proceeds from Shares Issued Upon Reinvestment of Dividends
(234,996 shares in 1995) 2,01 --
Cost of Shares Redeemed
(1,905,568 shares in 1995 and 477,246 shares in 1994) (16,54) (4,431)
------- -------
Increase in Net Assets Resulting from
Capital Share Transactions 896 52,636
------- -------
Increase (Decrease) in Net Assets (7,310) 54,019
NET ASSETS
Beginning of Period 54,019 --
------- -------
End of Period $46,709 $54,019
======= =======
</TABLE>
See Accompanying Notes to Financial Statements.
65
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Emerging Markets Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- - -----------------------------------
<TABLE>
<CAPTION>
March 1, 1994
(Commencement of
Year Ended Operations) through
October 31, 1995 October 31, 1994
------------------ --------------------
<S> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 298 $ (31)
Net Realized (Loss) on Investments and
Foreign Currency Transactions (7,843) (777)
Change in Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency Translations (11,550) 2,816
---------------- ---------------
Increase (Decrease) in Net Assets Resulting from Operations (19,095) 2,008
---------------- ---------------
CAPITAL SHARE TRANSACTIONS
Shares Issued upon Exchange of
Limited Partnership Interests
(3,721,358 shares in 1994) (Note 1) -- 37,213
Proceeds from Shares Sold
(2,180,661 shares in 1995 and 4,382,042 shares in 1994) 17,546 39,241
Cost of Shares Redeemed
(2,181,253 shares in 1995 and 885,149 shares in 1994) (16,790) (8,250)
----------------- ---------------
Increase (Decrease) in Net Assets Resulting from
Capital Share Transactions 756 68,204
---------------- ---------------
Increase (Decrease) in Net Assets (18,339) 70,212
NET ASSETS
Beginning of Period 70,212 --
---------------- ---------------
End of Period $51,873 $70,212
================= ===============
</TABLE>
See accompanying Notes to Financial Statements.
66
<PAGE>
TCW Galileo Latin America Equity Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- - -----------------------------------
<TABLE>
<CAPTION>
Ten Months Ended
Year Ended October 31, 1994
October 31, 1995 (Note 1)
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment Income................................ $ 356 $ 108
Net Realized Gain (Loss) on Investments and
Foreign Currency Transactions (27,909) 9,404
Change in Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency Translations (21,001) (11,092)
------------- -----------
(Decrease) in Net Assets Resulting from Operations (48,554) (1,580)
------------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions in Excess of Realized Gains (9,447) --
------------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(467,985 shares in 1995 and 3,184,275 shares in 1994) 4,319 46,812
Proceeds from Shares Issued upon Reinvestment of Dividends
(867,090 shares in 1995 and 488,821 shares in 1994) 8,922 7,235
Cost of Shares Redeemed
(4,601,924 shares in 1995 and 1,443,344 shares in 1994) (38,908) (19,767)
------------- -----------
Increase (Decrease) in Net Assets Resulting from
Capital Share Transactions (25,667) 34,280
------------- -----------
Increase (Decrease) in Net Assets (83,668) 32,700
NET ASSETS
Beginning of Period 122,610 89,910
------------- -----------
End of Period $ 38,942 $ 122,610
============ =============
</TABLE>
See accompanying Notes to Financial Statements.
67
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
NOTES TO FINANCIAL STATEMENTS
- - -----------------------------
NOTE 1 - ORGANIZATION
TCW Galileo Funds, Inc., a Maryland corporation (the "Company"), is an open-end
management investment company registered under the Investment Company Act of
1940, as amended, that currently offers a selection of eleven no-load mutual
funds known as the TCW Galileo Funds (the "Funds"). TCW Funds Management, Inc.
(the "Adviser") is the investment adviser to the Funds, as well as the
administrator of their day-to-day operations. TCW Asia Limited and TCW London
International, Limited are sub-advisers for the TCW Galileo Emerging Markets
Fund and TCW Asia Limited is a sub-adviser to the TCW Galileo Asia Pacific
Equity Fund. The advisers are registered under the Investment Advisers Act of
1940. Each Fund has distinct investment objectives and policies. There is one
diversified money market fund (the TCW Galileo Money Market Fund), four
diversified bond funds (the TCW Galileo High Grade Fixed Income Fund, the TCW
Galileo High Yield Bond Fund, the TCW Galileo Mortgage Backed Securities Fund
and the TCW Galileo Long-Term Mortgage Backed Securities Fund) and six non-
diversified equity funds (the TCW Galileo Core Equity Fund, the TCW Galileo
Earnings Momentum Fund, the TCW Galileo Small Cap Growth Fund, the TCW Galileo
Asia Pacific Equity Fund, the TCW Galileo Emerging Markets Fund, and the TCW
Galileo Latin America Equity Fund) currently offered by the Company. The TCW
Galileo Earnings Momentum Fund commenced operations on November 1, 1994,
resulting from the exchange of limited partnership interests in a separate
limited partnership. The assets and liabilities were transferred at historical
cost from the limited partnership to the Fund on November 1, 1994 and the fair
value of which was exchanged for shares of common stock of the Fund. The
transfer was treated as a tax-free exchange in accordance with the Internal
Revenue Code.
The primary investment objective of each Fund follows: (1) the TCW Galileo Money
Market Fund seeks current income, preservation of capital and liquidity by
investing in short-term money market securities; (2) the TCW Galileo High Grade
Fixed Income Fund seeks capital appreciation and income through investment
principally in high grade fixed income securities emphasizing high quality and
liquid investments; (3) the TCW Galileo High Yield Bond Fund seeks high current
income through investment principally in high yield fixed income securities; (4)
the TCW Galileo Mortgage Backed Securities Fund seeks income by investing
primarily in short-term mortgage backed securities; (5) the TCW Galileo Long-
Term Mortgage Backed Securities Fund seeks income by investing primarily in
long-term mortgage backed securities; (6) the TCW Galileo Core Equity Fund
emphasizes capital appreciation and preservation with focus on long-term
results; (7) the TCW Galileo Earnings Momentum Fund seeks capital appreciation
through investment primarily in publicly-traded equity securities of companies
experiencing or expected to experience accelerating earnings growth; (8) the TCW
Galileo Small Cap Growth Fund seeks long-term capital appreciation, primarily by
investing in publicly-traded equity securities of smaller capitalization
companies; (9) the TCW Galileo Asia Pacific Equity Fund seeks long-term capital
appreciation, primarily by investing in equity securities of companies in the
Asia Pacific region; (10) the TCW Galileo Emerging Markets Fund seeks long-term
capital appreciation by investing in equity securities of companies in emerging
market countries around the world; and (11) the TCW Galileo Latin America Equity
Fund seeks long-term capital appreciation, primarily by investing in Latin
American equity securities.
Effective October 31, 1994, the fiscal year end of each Fund was changed from
December 31 to October 31. As a result, the 1994 financial statement
information covers less than a full twelve month period.
68
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- - -----------------------------------------
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF ACCOUNTING: The Funds use the accrual method of accounting for
financial reporting purposes.
SECURITY VALUATIONS: The value of securities held in the TCW Galileo Money
Market Fund is determined by using the amortized cost method applied to each
individual security unless, due to special circumstances, the use of such a
method would result in a valuation that does not approximate fair market value.
Equity fund securities listed or traded on the New York, American or other stock
exchanges are valued at the latest sale price on that exchange (if there were no
sales that day, the security is valued at the latest bid price). All other
securities, including the bond fund securities, for which over-the-counter
market quotations are readily available, are valued at the latest bid price
prior to the time of valuation. Securities for which 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,
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.
Short-term debt securities with remaining maturities of 60 days or less at the
time of purchase are valued at amortized cost. Other short-term debt securities
are 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 prior to maturity.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions are
recorded as of the trade date. Dividend income is recorded on the ex-dividend
date or at the time the relevant ex-dividend date and amounts become known.
Interest income is recorded on the accrual basis. Original issue discount is
accreted as interest income using a constant yield to maturity method. The TCW
Galileo High Yield Bond Fund recognizes as interest income discounts on
securities purchased at the time the security is sold. The TCW Galileo High
Grade Fixed Income Fund recognizes as interest income discounts on securities
purchased using a constant yield to maturity accretion method. Premiums on
securities purchased are not amortized, except for mortgage backed obligations
for which amortization has been elected as allowed by federal income tax
regulations. Realized and unrealized gains and losses on investments are
recorded on the basis of specific identification.
FOREIGN CURRENCY TRANSLATION: The books and records of each Fund are maintained
in U.S. dollars as follows: (1) the foreign currency market value of investment
securities, and other assets and liabilities stated in foreign currencies, are
translated using the daily spot rate; and (2) purchases, sales, income and
expenses are translated at the rate of exchange prevailing on the respective
dates of such transactions. The resultant exchange gains and losses are
included in the Statements of Operations with the related net realized gain
(loss). Pursuant to U.S. federal income tax regulations, certain foreign
exchange gains and losses included in realized and unrealized gains and losses
are included in, or are a reduction of, ordinary income for federal income tax
purposes. It is not practicable to separately identify that portion of gains
and losses of the Funds that arise as a result of changes in the exchange rates
from the fluctuations that arise from changes in market prices of investments
during the period.
FORWARD FOREIGN CURRENCY CONTRACTS: Certain Funds may enter into forward
foreign currency contracts as a hedge against fluctuations in foreign exchange
rates. Forward foreign currency contracts are marked-to-market daily and the
change in market value is recorded by the Fund as an unrealized gain or loss.
When the contract is closed or delivery is taken, the Fund records a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed. Risks may arise upon
entering into these contracts from the potential inability of couterparties to
meet the terms of their contracts and from unanticipated movements in the value
of the foreign currency relative to the U.S. dollar. The Funds did not enter
into any forward foreign currency contracts during fiscal 1995.
DOLLAR ROLL TRANSACTIONS: The Funds may enter into dollar roll transactions with
financial institutions to take advantage of opportunities in the mortgage backed
securities market. A dollar roll transaction involves a simultaneous sale by the
Fund of securities that it holds with an agreement to repurchase substantially
similar securities at an agreed upon price and date, but generally will be
collaterialized at time of delivery by different pools of mortgages with
different prepayment histories than those securities sold. These transactions
are accounted for as financing transactions as opposed to sales and purchases.
The differential between the sale price and the repurchase price is recorded as
deferred income and recognized between the settlement dates of the sale and
repurchase. During the period between the sale and repurchase, the Fund will not
be entitled to receive interest and principal payments on the securities sold.
Dollar roll transactions involve risk that the market value of the security sold
by the Fund may decline below the repurchase price of the security. There were
no such transactions outstanding as of October 31, 1995.
69
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
REPURCHASE AGREEMENTS: The Funds may invest in repurchase agreements secured by
U.S. Government obligations and in other securities. Securities pledged as
collateral for repurchase agreements are held by the Funds' custodian bank until
maturity of the repurchase agreements. Provisions of the agreements ensure that
the market value of the collateral is sufficient in the event of default;
however, in the event of default or bankruptcy by the other party to the
agreements, realization and/or retention of the collateral may be subject to
legal proceedings.
OPTIONS: Premiums received from call options written are recorded as a
liability. The amount of the liability is subsequently adjusted to reflect the
current market value of the option written. If the option expires unexercised,
premiums received are realized as a gain at expiration date. If the position is
closed prior to expiration, a gain or loss is realized based on premiums
received, less the cost to close the option. When an option is exercised,
premiums received are added to the proceeds from the sale of the underlying
securities and a gain or loss is realized. There were no option contracts
outstanding as of October 31, 1995.
Call options purchased are accounted for in the same manner as portfolio
securities. The cost of securities acquired through the exercise of call options
is increased by premiums paid.
DEFERRED ORGANIZATION COSTS: For those Funds which commenced operations during
1993, organization costs of $50,000 per Fund have been deferred and are being
amortized on a straight line basis over a five-year period from the commencement
of operations of each Fund. Organization costs of $10,000 per Fund for the TCW
Galileo Small Cap Growth Fund, the TCW Galileo Asia Pacific Equity Fund and the
TCW Galileo Emerging Markets Fund have been deferred and are also being
amortized on a straight line basis over a five-year period from the commencement
of operations of each Fund. Organizational costs of approximately $3,800 for
the TCW Galileo Earnings Momentum Fund have been deferred and are also being
amortized on a straight line basis over a five year period from the commencement
of operations.
Upon formation of the Funds, the Company sold and issued to the Adviser 10,006
shares of common stock (one share each of the TCW Galileo Money Market Fund, the
TCW Galileo Small Cap Growth Fund, the TCW Galileo Earnings Momentum Fund, the
TCW Galileo Asia Pacific Equity Fund, the TCW Galileo Emerging Markets Fund, and
the TCW Galileo Long-Term Mortgage Backed Securities Fund, and 2,000 shares each
of the other five Funds, collectively the "Initial Shares"). In the event the
Adviser redeems any of its Initial Shares from one or more of the Funds prior to
the end of the five-year period, the proceeds of the redemption payable in
respect of such shares will be reduced by any unamortized organization costs in
the same ratio as the number of Initial Shares being redeemed bears to the
number of Initial Shares outstanding at the time of the redemption.
EXPENSE ALLOCATION: Common expenses incurred by the Company are allocated among
the Funds based upon the ratio of net assets of each Fund to the combined net
assets of all the Funds. All other expenses are charged to each Fund as
incurred on a specific identification basis.
NET ASSET VALUE: The Net Asset Value of each Fund's shares is determined by
dividing the net assets of the Fund by the number of issued and outstanding
shares on each business day as of 9:00 A.M. Pacific Time for the TCW Galileo
Money Market Fund and as of 1:00 P.M. Pacific Time for the other Funds.
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of the TCW
Galileo Money Market Fund are declared each business day. It is the policy of
the equity funds to declare and pay, or reinvest, dividends from net investment
income annually and the bond funds to declare and pay, or reinvest, dividends
from net investment income monthly. Distribution of any net long-term and net
short-term capital gains earned by a Fund will be distributed no less frequently
than annually.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign currency
transactions, market discount, losses deferred to wash sales and excise tax
regulations. Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may affect
net investment income per share. Undistributed net investment income may include
temporary book and tax basis differences which will reverse in a subsequent
period. Any taxable income or gain remaining at fiscal year end is distributed
in the following year.
70
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- - ------------------------------------------
NOTE 3 - FEDERAL INCOME TAXES
It is the policy of each Fund to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its net taxable income, including any net realized gains on investments, to
its shareholders. Therefore, no federal income tax provision is required. At
October 31, 1995, net unrealized appreciation (depreciation) on investments for
federal income tax purposes was as follows:
<TABLE>
<CAPTION>
TCW TCW TCW TCW
GALILEO HIGH GALILEO GALILEO GALILEO LONG-TERM TCW
GRADE FIXED HIGH YIELD MORTGAGE BACKED MORTGAGE BACKED GALILEO CORE
INCOME FUND BOND FUND SECURITIES FUND SECURITIES FUND EQUITY FUND
------------ ---------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Unrealized Appreciation $ 1,336,944 $ 2,684,724 $ 186,296 $ 2,401,352 $44,300,605
Unrealized (Depreciation) (46,995) (1,531,166) (4,255,902) (1,959,895) (3,695,077)
----------- ----------- ----------- ----------- -----------
Net Unrealized Appreciation
(Depreciation) $ 1,289,949 $ 1,153,558 $(4,069,606) $ 441,457 $40,605,528
=========== =========== =========== =========== ============
Cost of Investments for Federal
Income Tax Purposes $34,654,311 $89,107,102 $84,386,607 $79,093,131 $ 157,707,089
=========== =========== =========== =========== ============
TCW GALILEO TCW GALILEO TCW GALILEO TCW GALILEO TCW GALILEO
EARNINGS SMALL CAP ASIA PACIFIC EMERGING LATIN AMERICA
MOMENTUM FUND GROWTH FUND EQUITY FUND MARKETS FUND EQUITY FUND
------------- ------------ ------------- ------------- ------------
Unrealized Appreciation $12,344,959 $22,098,802 $ 4,500,339 $ 3,067,962 $ 1,984,073
Unrealized (Depreciation) (3,170,420) (771,138) (1,663,958) (7,376,190) (10,488,696)
----------- ----------- ----------- ----------- ------------
Net Unrealized Appreciation
(Depreciation) $ 9,174,539 $21,327,664 $ 2,836,381 $(4,308,228) $ (8,504,623)
=========== =========== =========== =========== ============
Cost of Investments for Federal
Income Tax Purposes $52,924,359 $46,379,021 $44,206,300 $56,300,908 $ 47,484,504
=========== =========== =========== =========== ============
</TABLE>
At October 31, 1995, the following Funds had net realized loss carryforwards for
federal income tax purposes:
<TABLE>
<CAPTION>
Expiring in
--------------------------------------------------------
2001 2002 2003
<S> <C> <C> <C>
TCW Galileo High Grade Fixed Income Fund $ -- $2,712,000 $ 203,000
TCW Galileo High Yield Bond Fund -- 243,700 1,213,000
TCW Galileo Mortgage Backed Securities Fund -- 446,000 4,070,000
TCW Galileo Long-Term Mortgage
Backed Securities Fund -- 44,000 531,000
TCW Galileo Core Equity Fund 726,000 6,864,000 1,403,000
TCW Galileo Emerging Markets Fund -- 483,600 7,490,000
TCW Galileo Latin America Equity Fund -- -- 26,437,000
TCW Galileo Asia Pacific Fund -- -- 914,000
</TABLE>
71
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
NOTE 4 - INVESTMENT ADVISORY AND ACCOUNTING SERVICE FEES
The Funds pay to the Adviser, as compensation for services rendered, facilities
furnished and expenses borne by it, the following annual management fees:
TCW Galileo Money Market Fund 0.25%
TCW Galileo High Grade Fixed Income Fund 0.40%
TCW Galileo High Yield Bond Fund 0.75%
TCW Galileo Mortgage Backed Securities Fund 0.50%
TCW Galileo Long-Term Mortgage Backed Securities Fund 0.50%
TCW Galileo Core Equity Fund 0.75%
TCW Galileo Earnings Momentum Fund 1.00%
TCW Galileo Small Cap Growth Fund 1.00%
TCW Galileo Asia Pacific Equity Fund 1.00%
TCW Galileo Emerging Markets Fund 1.00%
TCW Galileo Latin America Equity Fund 1.00%
The TCW Galileo Money Market Fund reimburses the Adviser for the costs of
providing accounting services to the Fund in an amount not exceeding an annual
rate of 0.10% of the Fund's average daily net assets. Each equity and bond Fund
also reimburses the Adviser for the cost of providing accounting services to the
Fund in an amount not exceeding $35,000 for any fiscal year.
In addition to the management and accounting service fees, each Fund bears all
expenses incurred in its operations. The Adviser voluntarily agreed to reduce
its fees from each Fund, or to pay the operating expenses of each Fund, to the
extent necessary to limit the ordinary operating expenses of each Fund to the
following annual percentages of net assets through December 31, 1994:
TCW Galileo Money Market Fund 0.40%
TCW Galileo High Yield Bond Fund 0.79%
TCW Galileo Mortgage Backed Securities Fund 0.55%
TCW Galileo Long-Term Mortgage Backed Securities Fund 0.65%
TCW Galileo Core Equity Fund 1.00%
TCW Galileo Earnings Momentum Fund 1.14%
TCW Galileo Small Cap Growth Fund 1.09%
TCW Galileo Asia Pacific Equity Fund 1.40%
TCW Galileo Emerging Markets Fund 1.87%
TCW Galileo Latin America Equity Fund 1.50%
Beginning January 1, 1995, the ordinary operating expenses of the TCW Galileo
Money Market Fund and the TCW Galileo Earnings Momentum Fund are limited to the
annual percentages reflected above. Such limitation will cease as of December
31, 1995 for the TCW Galileo Earnings Momentum Fund.
Certain officers and/or directors of the Company are officers and/or directors
of the Adviser.
72
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- - ----------------------------------------
NOTE 5 - PURCHASES AND SALES OF SECURITIES
Investment transactions (excluding short-term investments) for the Year ended
October 31, 1995 were as follows:
<TABLE>
<CAPTION>
TCW TCW TCW TCW
GALILEO HIGH GALILEO GALILEO GALILEO LONG-TERM TCW
GRADE FIXED HIGH YIELD MORTGAGE BACKED MORTGAGE BACKED GALILEO CORE
INCOME FUND BOND FUND SECURITIES FUND SECURITIES FUND EQUITY FUND
----------- ----------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Purchases $75,120,299 $31,680,339 $34,108,880 $31,394,805 $112,430,867
Sales $83,227,900 $36,058,308 $90,114,114 $14,713,779 $ 84,411,448
TCW GALILEO TCW GALILEO TCW GALILEO TCW GALILEO TCW GALILEO
EARNINGS SMALL CAP ASIA PACIFIC EMERGING LATIN AMERICA
MOMENTUM FUND GROWTH FUND EQUITY FUND MARKETS FUND EQUITY FUND
------------- ----------- ------------ ------------ -------------
Purchases $58,896,909 $36,906,367 $42,255,212 $42,236,922 $ 44,534,719
Sales $40,584,024 $42,159,184 $43,255,244 $39,237,744 $ 74,768,179
</TABLE>
NOTE 6 - RESTRICTED SECURITIES
The following restricted securities held by the Funds as of October 31, 1995
were valued both at the date of acquisition and October 31, 1995, in accordance
with the security valuation policy of the Funds described in Note 2. The
restricted securities include securities purchased in private placement
transactions without registration under the Securities Act of 1933, as well as
Rule 144A securities. Such securities generally may be sold only in a privately
negotiated transaction with a limited number of purchasers or in a public
offering registered under the Securities Act of 1933. Each Fund will bear any
costs incurred in connection with the disposition of such securities.
<TABLE>
<CAPTION>
TCW GALILEO HIGH YIELD BOND FUND:
NUMBER OF SHARES, RIGHTS, DATE OF
UNITS OR PRINCIPAL AMOUNT INVESTMENT ACQUISITION COST
------------------------- ------------------------------------------ ------------ --------
<S> <C> <C> <C>
$ 290,000 American Safety Razor Company,
(144A), 9.875%, due 08/01/05 07/27/95 $290,000
$ 75,000 American Safety Razor Company,
(144A), 9.875%, due 08/01/05 07/28/95 75,469
$ 225,000 American Safety Razor Company,
(144A), 9.875%, due 08/01/05 07/31/95 226,406
$ 570,000 Communications and Power Industries, Inc.,
(144A), 12%, due 08/01/05 08/02/95 570,000
244 Haynes International Corp.,
(Private Placement), Common Stock 06/12/90 2,432
56 Haynes International Corp.,
(Private Placement), Common Stock 02/03/92 555
$ 215,000 Terex Corp., Units, (144A),
13.75%, due 05/15/02 04/27/95 215,000
$ 640,000 Terex Corp., Units, (144A),
13.75%, due 05/15/02 06/16/95 569,600
300 Terex Corp., Stock Appreciation Rights, (144A),
expires 07/31/96 07/24/92 299
165 Terex Corp., Stock Appreciation Rights, (144A),
expires 07/31/96 07/09/93 1
90 Terex Corp., Stock Appreciation Rights, (144A),
expires 07/31/96 12/28/93 1
</TABLE>
The Fund holds 21,420 shares of Edisto Resources Corp., which are valued at a
discount to the market price of the unrestricted securities of the same class
due to restrictions on the sale of the shares by the Fund. The discount on these
shares totaled $13,090 at October 31, 1995.
The total value of restricted securities is $2,018,554, which represents 2.2% of
net assets of the Fund at October 31, 1995.
73
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1995
NOTE 6 - RESTRICTED SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
TCW Galileo Mortgage Backed Securities Fund:
DATE OF
NUMBER OF SHARES INVESTMENT ACQUISITION COST
- - --------------------- ---------------------------------------- ------------ ---------
<S> <C> <C> <C>
$ 1,482,274 Greenwich Capital Acceptance, Inc. (91-03),
(Private Placement), 8.494%, due 08/25/19 03/21/91 $ 1,472,552
144,545 National Bank of Washington,
(Private Placement), 7.989%, due 01/25/19 06/13/90 143,063
</TABLE>
The total value of restricted securities is $1,594,913, which represents 2.0% of
net assets of the Fund at October 31, 1995.
TCW Galileo Asia Pacific Equity Fund:
<TABLE>
<CAPTION>
DATE OF
NUMBER OF SHARES INVESTMENT ACQUISITION COST
- - --------------------- ---------------------------------------- ------------ ---------
<S> <C> <C> <C>
5,500 Samsung Electronics Company, Limited (144A)
(1/2 Voting GDR)(South Korea) 7/7/95 $ 576,050
</TABLE>
The total value of restricted securities is $643,500, which represents 1.4% of
net assets of the Fund at October 31, 1995.
TCW Galileo Emerging Markets Fund:
<TABLE>
<CAPTION>
DATE OF
NUMBER OF SHARES INVESTMENT ACQUISITION COST
- - --------------------- ---------------------------------------- ------------ ---------
<S> <C> <C> <C>
5,100 Anglovaal Limited (144A) (ADR), (South Africa) 6/23/94 $ 139,383
8,300 Cementos Diamante, S.A. (144A) (ADS) (Colombia) 5/17/94 136,870
45,591 Malbak Limited (144A) (South Africa) 7/25/95 262,365
10,500 Nedcor Limited Units, (144A) (GDR) (South Africa) 5/23/95 472,500
3,000 Samsumg Electronics Company, Limited (144A)
(1/2 Non-Voting GDR)(South Korea) 9/1/95 205,056
</TABLE>
The total value of restricted securities is $1,415,509, which represents 2.7% of
net assets of the Fund at October 31, 1995.
TCW Galileo Latin America Equity Fund:
<TABLE>
<CAPTION>
DATE OF
NUMBER OF SHARES INVESTMENT ACQUISITION COST
- - --------------------- ---------------------------------------- ------------ ---------
<S> <C> <C> <C>
18,900 Cementos Diamante, S.A. (144A ADS)(Colombia) 5/17/94 $ 311,989
16,837 COMPANHIA ENERGETICA DE MINAS GERAIS
(CEMIG)(144A) 12/14/94 $ 510,097
</TABLE>
The total value of restricted securities is $675,929, which represents 1.7% of
net assets of the Fund at October 31, 1995.
74
<PAGE>
TCW Galileo Money Market Fund
FINANCIAL HIGHLIGHTS
- - --------------------
<TABLE>
<CAPTION>
Ten Months Ended
YEAR ENDED October 31, 1994
OCTOBER 31, 1995 (Note 1)
---------------- -----------------
<S> <C> <C>
Net Asset Value per Share, Beginning of Period $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income 0.0549 0.0304
Less Distributions:
Distributions from Net Investment Income (0.0549) (0.0304)
-------- ----------
Net Asset Value per Share, End of Period $ 1.00 $ 1.00
======== ==========
Total Return 5.67% 3.04% /(1)/
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 86,302 $ 124,392
Ratio of Expenses to Average Net Assets (4) 0.40% 0.40% /(3)/
Ratio of Net Investment Income to Average Net Assets 5.49% 3.65% /(3)/
</TABLE>
(1) For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
(2) For the period July 14, 1988 (commencement of operations) to December 31,
1988 and not indicative of a full year's operating results.
(3) Annualized.
(4) The Investment 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.
75
<PAGE>
TCW GALILEO FUNDS, INC.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income 0.0293 0.0381 0.0620 0.0800 0.0882
Less Distributions:
Distributions from Net Investment Income (0.0293) (0.0381) (0.0620) (0.0800) (0.0882)
--------- ---------- ---------- ---------- ---------
Net Asset Value per Share, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========== ========== ========== =========
Total Return
2.97% 3.92% 6.35% 8.18% 9.22%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 81,204 $ 183,465 $ 140,987 $ 167,572 $ 88,620
Ratio of Expenses to Average Net Assets (4) 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of Net Investment Income to Average Net Assets 2.93% 3.81% 6.20% 8.00% 8.82%
<CAPTION>
July 14, 1988
(Inception) to
December 31, 1988
-----------------
<S> <C>
Net Asset Value per Share, Beginning of Period $ 1.00
Income from Investment Operations:
Net Investment Income 0.0379
Less Distributions:
Distributions from Net Investment Income (0.0379)
---------
Net Asset Value per Share, End of Period $ 1.00
=========
Total Return
7.68% /(2)/
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 63,703
Ratio of Expenses to Average Net Assets (4) 0.40% /(3)/
Ratio of Net Investment Income to Average Net Assets 8.08% /(3)/
</TABLE>
76
<PAGE>
TCW Galileo High Grade Fixed Income Fund
FINANCIAL HIGHLIGHTS
- - --------------------
<TABLE>
<CAPTION>
March 1, 1993
Ten Months (Commencement of
YEAR ENDED Ended Operations) through
OCTOBER 31, 1995 October 31, 1994 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 and Foreign Currency 0.62 (1.16) 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 Distributions (0.53) (0.38) (0.60)
--------- ---------- ----------
Net AssetValue per Share, End of Period $ 9.61 $ 8.94 $ 10.04
========= ========== ==========
Total Return 13.92% (7.24)% /(1)/ 6.54% /(2)/
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 36,236 $ 50,153 $ 33,328
Ratio of Expenses to Average Net Assets /(4)/ 0.68% 0.50% /(3)/ 0.50% /(3)/
Ratio of Net Investment Income to Average Net Assets 6.38% 6.11% /(3)/ 5.24% /(3)/
Portfolio Turnover Rate 223.78% 208.63% /(1)/ 149.96% /(2)/
</TABLE>
(1) For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
(2) For the period March 1, 1993 (commencement of operations) through December
31, 1993 and not indicative of a full year's operating results.
(3) Annualized.
(4) The Investment 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 0.50% 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 as a percentage of average net assets would have been 0.72% for the
fiscal year ended October 31, 1995, 0.68% for the ten months ended October
31, 1994 and 0.89% for the period March 1, 1993 (commencement of operations)
through December 31, 1993.
77
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo High Yield Bond Fund
FINANCIAL HIGHLIGHTS
- - --------------------
<TABLE>
<CAPTION>
March 1, 1993
Ten Months (Commencement of
YEAR ENDED Ended Operations) through
OCTOBER 31, 1995 October 31, 1994 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)
------------- ---------------- ------------------
Total Distributions (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)%(1) 10.47%(2)
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 92,652 $ 90,577 $ 73,737
Ratio of Expenses to Average Net Assets /(4)/ 0.87% 0.79%(3) 0.79%(3)
Ratio of Net Investment Income to Average Net Assets 9.60% 9.18%(3) 8.60%(3)
Portfolio Turnover Rate 36.32% 34.01%(1) 47.60%(2)
</TABLE>
(1) For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
(2) For the period March 1, 1993 (commencement of operations) through December
31, 1993 and not indicative of a full year's operating results.
(3) Annualized.
(4) The Investment 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 0.79% 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 as a percentage of average net assets would have been 0.88% for the
fiscal year ended October 31, 1995, 0.91% for the ten months ended October
31, 1994 and 0.96% for the period March 1, 1993 (commencement of operations)
through December 31, 1993.
78
<PAGE>
TCW Galileo Mortgage Backed Securities Fund
FINANCIAL HIGHLIGHTS
- - --------------------
<TABLE>
<CAPTION>
March 1, 1993
Ten Months (Commencement of
YEAR ENDED Ended Operations) through
OCTOBER 31, 1995 October 31, 1994 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 in Excess of Net Investment Income (0.04) -- --
Distributions from Realized Gains -- -- (0.02)
------------ -------------- ------------------
Total Distributions (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)%(1) 3.89%(2)
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 81,366 $ 134,948 $ 147,666
Ratio of Expenses to Average Net Assets(4) 0.61% 0.55%(3) 0.55%(3)
Ratio of Net Investment Income to Average Net Assets 7.13% 5.18%(3) 5.98%(3)
Portfolio Turnover Rate 37.83% 65.64%(1) 70.44%(2)
</TABLE>
(1) For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
(2) For the period March 1, 1993 (commencement of operations) through December
31, 1993 and not indicative of a full year's operating results.
(3) Annualized.
(4) The Investment 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 0.55% 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 as a percentage of average net assets would have been 0.63% for the
fiscal year ended October 31, 1995, 0.62% for the ten months ended October
31, 1994 and 0.70% for the period March 1, 1993 (commencement of operations)
through December 31, 1993.
79
<PAGE>
TCW GALILEO FUNDS,INC.
TCW Galileo Long-term Mortgage Backed Securities Fund
FINANCIAL HIGHLIGHTS
- - --------------------
<TABLE>
<CAPTION>
June 17, 1993
Ten Months (Commencement of
YEAR ENDED Ended Operations) through
OCTOBER 31, 1995 October 31, 1994 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)
------------- ------------- ----------------
Net Asset Value per Share, End of Period $ 9.56 $ 8.95 $ 10.07
============= ============= ================
Total Return 16.84% (6.39)%(1) 3.51%(2)
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 80,159 $ 66,632 $ 25,215
Ratio of Expenses to Average Net Assets(4) 0.68% 0.65%(3) 0.65%(3)
Ratio of Net Investment Income to Average Net Assets 7.88% 8.03%(3) 5.37%(3)
Portfolio Turnover Rate 23.76% 36.71%(1) 44.47%(2)
</TABLE>
(1) For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
(2) For the period June 17, 1993 (commencement of operations) through December
31, 1993 and not indicative of a full year's operating results.
(3) Annualized.
(4) The Investment 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 0.65% 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 as a percentage of average net assets would have been 0.69% for the
fiscal year ended October 31, 1995, 0.78% for the ten months ended October
31, 1994 and 1.13% for the period June 17, 1993 (commencement of operations)
through December 31, 1993.
80
<PAGE>
TCW Galileo Core Equity Fund
FINANCIAL HIGHLIGHTS
- - --------------------
<TABLE>
<CAPTION>
March 1, 1993
Ten Months (Commencement of
YEAR ENDED Ended Operations) through
OCTOBER 31, 1995 October 31, 1994 December 31, 1993
---------------- ---------------- -------------------
<S> <C> <C> <C>
Net Asset Value per Share, Beginning of Period $ 11.57 $ 11.81 $ 10.00
------------ ------------ ------------
Income (Loss) from Investment Operations:
Net Investment Income 0.06 0.04 0.03
Net Realized and Unrealized Gain (Loss) on Investments 2.11 (0.28) 1.81
------------ ------------ ------------
Total from Investment Operations 2.17 (0.24) 1.84
------------ ------------ ------------
Less Distributions:
Distributions from Net Investment Income (0.05) -- (0.03)
------------ ------------ ------------
Net Asset Value per Share, End of Period $ 13.69 $ 11.57 $ 11.81
============ ============ ============
Total Return 18.85% (2.03)% /(1)/ 18.41% /(2)/
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% /(3)/ 1.00% /(3)(4)/
Ratio of Net Investment Income to Average Net Assets 0.48% 0.44% /(3)/ 0.55% /(3)/
Portfolio Turnover Rate 53.77% 23.53% /(1)/ 29.67% /(2)/
</TABLE>
(1) For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
(2) For the period March 1, 1993 (commencement of operations) through December
31, 1993 and not indicative of a full year's operating results.
(3) Annualized.
(4) The Investment Adviser 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 1.00% 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 as a percentage of average net assets would have been 1.09% for the
period March 1, 1993 (commencement of operations) through December 31, 1993.
81
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Earnings Momentum Fund
FINANCIAL HIGHLIGHTS
- - --------------------
NOVEMBER 1, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
OCTOBER 31, 1995
-------------------
Net Asset Value per Share, Beginning of Period $ 10.00
---------
Income from Investment Operations:
Net Investment (Loss) (0.03)
Net Realized and Unrealized Gain on Investments 1.51
---------
Total from Investment Operations 1.48
---------
Less Distributions:
Distributions in Excess of Net Investment Income (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 (Loss) to Average Net Assets (0.28%)
Portfolio Turnover Rate 85.91%
(1) The Investment 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 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 as a percentage of
average net assets would have been 1.24% for the period November 1, 1994
(commencement of operations) through October 31, 1995.
82
<PAGE>
TCW Galileo Small Cap Growth Fund
FINANCIAL HIGHLIGHTS
- - --------------------
<TABLE>
<CAPTION>
March 1, 1994
(Commencement of
YEAR ENDED Operations) through
OCTOBER 31, 1995 October 31, 1994
---------------- -------------------
<S> <C> <C>
Net Asset Value per Share, Beginning of Period $ 9.39 $ 10.00
------------ -------------
Income (Loss) from Investment Operations:
Net Investment (Loss) (0.07) (0.04)
Net Realized and Unrealized Gain (Loss) on Investments 4.72 (0.57)
------------ -------------
Total from Investment Operations 4.65 (0.61)
------------ -------------
Less Distribuions:
Distribution for Net Realized Gains (0.51) --
------------ -------------
Net Asset Value per Share, End of Period $ 13.53 $ 9.39
============ =============
Total Return 49.89% (6.10)% /(1)/
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 66,056 $ 51,089
Ratio of Expenses to Average Net Assets /(3)/ 1.21% 1.09% /(2)/
Ratio of Net Investment Loss to Average Net Assets (0.61)% (0.59)% /(2)/
Portfolio Turnover Rate 89.73% 88.63% /(1)/
</TABLE>
(1) For the period March 1, 1994 (commencement of operations) through October
31, 1994 and not indicative of a full year's operating results.
(2) Annualized.
(3) The Investment 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 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 as a percentage of average net assets would have been 1.24% for the
fiscal year ended October 31, 1995 and 1.39% for the period March 1, 1994
(commencement of operations) through October 31, 1994.
83
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Asia Pacific Equity Fund
FINANCIAL HIGHLIGHTS
- - --------------------
<TABLE>
<CAPTION>
March 1, 1994
(Commencement of
YEAR ENDED Operations) through
OCTOBER 31, 1995 October 31, 1994
---------------- -------------------
<S> <C> <C>
Net Asset Value per Share, Beginning of Period $ 10.19 $ 10.00
------------- --------------
Income from Investment Operations:
Net Investment Income 0.06 0.03
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency (1.19) 0.16
------------- --------------
Total from Investment Operations (1.13) 0.19
------------- --------------
Less Distributions:
Distributions from Net Investment Income (0.01) --
Distributions from Realized Gains (0.38) --
------------- --------------
Total Distributions (0.39) --
------------- --------------
Net Asset Value per Share, End of Period $ 8.67 $ 10.19
============= ==============
Total Return (10.98)% 1.90% /(1)/
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 46,709 $ 54,019
Ratio of Expenses to Average Net Assets /(3)/ 1.47% 1.40% /(2)/
Ratio of Net Investment Income to Average Net Assets 0.74% 0.45% /(2)/
Portfolio Turnover Rate 102.01% 46.75% /(1)/
</TABLE>
(1) For the period March 1, 1994 (commencement of operations) through October
31, 1994 and not indicative of a full year's operating results.
(2) Annualized.
(3) The Investment Adviser had 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 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 as a percentage of average net assets would have been 1.51% for the
fiscal year ended October 31, 1995 and 1.60% for the period March 1, 1994
(commencement of operations) through October 31, 1994, respectively.
84
<PAGE>
TCW Galileo Emerging Markets Fund
FINANCIAL HIGHLIGHTS
- - --------------------
<TABLE>
<CAPTION>
March 1, 1994
(Commencement of
YEAR ENDED Operations) through
OCTOBER 31, 1995 October 31, 1994
---------------- -------------------
<S> <C> <C>
Net Asset Value per Share, Beginning of Period $ 9.73 $ 10.00
----------- ------------
(Loss) from Investment Operations:
Net Investment Income (Loss) 0.04 (0.01)
Net Realized and Unrealized (Loss) on Investments
and Foreign Currency Transactions/Translations (2.58) (0.26)
----------- ------------
Total from Investment Operations (2.54) (0.27)
----------- ------------
Net Asset Value per Share, End of Period $ 7.19 $ 9.73
=========== ============
Total Return (26.11)% (2.70)% /(1)/
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% /(2)/
Ratio of Net Investment Income (Loss) to Average Net Assets 0.54% (0.09)% /(2)/
Portfolio Turnover Rate 74.24% 61.28% /(1)/
</TABLE>
(1) For the period March 1, 1994 (commencement of operations) through October
31, 1994 and not indicative of a full year's operating results.
(2) Annualized.
85
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Latin America Equity Fund
FINANCIAL HIGHLIGHTS
- - --------------------
<TABLE>
<CAPTION>
March 1, 1993
Ten Months (Commencement of
YEAR ENDED Ended Operations) through
OCTOBER 31, 1995 October 31, 1994 December 31, 1993
---------------- ---------------- -------------------
<S> <C> <C> <C>
Net Asset Value per Share, Beginning of Period $ 14.99 $ 15.11 $ 10.00
----------- ----------- -----------
Income (Loss) from Investment Operations:
Net Investment Income 0.06 0.01 0.08
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency (5.92) (0.13) 6.35
----------- ----------- -----------
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 Distributions (1.21) -- (1.32)
----------- ----------- -----------
Net Asset Value per Share, End of Period $ 7.92 $ 14.99 $ 15.11
=========== =========== ===========
Total Return (40.95)% (0.79)% /(1)/ 64.27% /(2)/
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% /(3)/ 1.50% /(3) (4)/
Ratio of Net Investment Income to Average Net Assets 0.59% 0.11% /(3)/ 0.77% /(3)/
Portfolio Turnover Rate 75.62% 143.65% /(1)/ 120.06% /(2)/
</TABLE>
(1) For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
(2) For the period March 1, 1993 (commencement of operations) through December
31, 1993 and not indicative of a full year's operating results.
(3) Annualized.
(4) The Investment Adviser had 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 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 as a percentage of average net assets would have been 1.52% for the
period March 1, 1993 (commencement of operations) through December 31, 1993.
86
<PAGE>
TCW GALILEO FUNDS, INC.
INDEPENDENT AUDITORS' REPORT
- - ----------------------------
To the Board of Directors and Shareholders of TCW Galileo Funds, Inc.:
We have audited the accompanying statements of assets and liabilities of the
Funds comprising TCW Galileo Funds, Inc. (TCW Galileo Money Market Fund, TCW
Galileo High Grade Fixed Income Fund, TCW Galileo High Yield Bond Fund, TCW
Galileo Mortgage Backed Securities Fund, TCW Galileo Long-Term Mortgage Backed
Securities Fund, TCW Galileo Core Equity Fund, TCW Galileo Earnings Momentum
Fund, TCW Galileo Small Cap Growth Fund, TCW Galileo Asia Pacific Equity Fund,
TCW Galileo Emerging Markets Fund, and TCW Galileo Latin America Equity Fund)
(the "Funds"), including the schedules of investments, as of October 31, 1995
and the related statements of operations for the year ended October 31, 1995
and of changes in net assets for the year ended October 31, 1995 and periods
ended October 31, 1994 and the financial highlights for the year ended October
31, 1995, each of the periods ended October 31, 1994 and December 31, 1993, the
years ended December 31, 1992, 1991, 1990, 1989, and the period ended December
31, 1988. These financial statements and financial highlights are the
responsibility of the Funds' 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
October 31, 1995 by correspondence with the custodians and brokers. Where
confirmations were not received, we performed alternative procedures. 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 the
Funds as of October 31, 1995 and the results of their operations, the changes in
their net assets, and the financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
December 14, 1995
Los Angeles, California
87
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
Included in Part A - Financial Highlights
Included in Part B - Independent Auditor's Report
- Statement of Assets and Liabilities
- Statement of Operations
- Statement of Changes in Net Assets
- Notes to Financial Statement
(b) Exhibits:
1.1 Articles of Incorporation of Registrant (filed on September 22,
1992 as Exhibit 1.1 to Pre-effective Amendment No. 1).
1.2 Articles Supplementary of Registrant (filed on November 26, 1993
as Exhibit 1.2 to Post-effective Amendment No. 3).
1.3 Articles Supplementary of Registrant (filed on March 23, 1994 as
Exhibit 1.3 to Post-Effective Amendment No. 5).
1.4 Articles Supplementary of Registrant (filed on August 18, 1994 as
Exhibit 1.4 to Post-Effective Amendment No. 7).
1.5 Articles Supplementary of Registrant (filed on April 21, 1995 as
Exhibit 1.5 to Post Effective Amendment No. 11).
2.1 Bylaws of Registrant (filed on September 22, 1992 as Exhibit 2.1
to Pre-effective Amendment No. 1).
5.1 Form of Investment Advisory and Management Agreement between
Registrant and TCW Funds Management, Inc. (filed on February 17,
1993 as Exhibit 5.1 to Pre-effective Amendment No. 5).
5.2 Form of Addendum to Investment Advisory and Management Agreement
between Registrant and TCW Funds Management, Inc. (filed on
November 26, 1993 as Exhibit 5.2 to Post-effective Amendment No.
3).
C-1
<PAGE>
5.3 Form of Second Addendum to Investment Advisory and Management
Agreement between Registrant and TCW Funds Management, Inc.
(filed on March 23, 1994 as Exhibit 5.3 to Post-Effective
Amendment No. 5).
5.4 Form of Third Addendum to Investment Advisory and Management
Agreement between Registrant and TCW Funds Management, Inc.
(filed on August 18, 1994 as Exhibit 5.4 to Post-Effective
Amendment No. 7).
5.5 Form of Sub-Advisory Agreements between TCW Funds Management,
Inc. and TCW Asia Limited and TCW London International Limited
(filed on December 21, 1995 as Exhibit 10 to Post-Effective
Amendment No. 12).
5.6 Form of Fourth Addendum to Investment Advisory Agreement between
Registrant and TCW Funds Management, Inc. (filed on March 5, 1996
as Ex-10 to Post Effective Amendment No.14).
5.7 Form of Fifth Addendum to Investment Advisory Agreement between
Registrant and TCW Funds Management, Inc. (filed on September 19,
1996 as Ex-10 to Post Effective Amendment No. 15).
6.1 Form of Distribution Agreement between Registrant and TCW
Brokerage Services (filed on December 10, 1992 as Exhibit 6.1 to
Pre-effective Amendment No. 3).
8.1 Form of Custody Agreement between Registrant and The Bank of New
York Trust Company of California with proposed Fee Schedule
(filed on February 17, 1993 as Exhibit 8.1 to Pre-effective
Amendment No. 5).
9.1 Form of Transfer Agency Agreement between Registrant and
Supervised Service Company, Inc. (filed on February 17, 1993 as
Exhibit 9.1 to Pre-effective Amendment No. 5).
9.2 Form of Addendum to Transfer Agency Agreement between Registrant
and Supervised Service Company, Inc. (filed on March 15, 1994 as
Exhibit 9.2 to Post-Effective Amendment No. 4).
9.3 Form of Second Addendum to Transfer Agency Agreement between
Registrant and Supervised Service Company, Inc. (filed on March
23, 1994 as Exhibit 9.3 to Post-Effective Amendment No. 5).
C-2
<PAGE>
9.4 Form of Third Addendum to Transfer Agency Agreement between
Registrant and Supervised Service Company, Inc. (filed on August
18, 1994 as Exhibit 9.4 to Post-Effective Amendment No. 7).
10.1 Opinion of Counsel regarding validity of shares of the Funds
(filed herewith).
11.1 Consent of Deloitte & Touche LLP (filed herewith).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
TCW Funds Management, Inc. (the "Adviser") is a 100% owned subsidiary
of The TCW Group, Inc. (formerly TCW Management Company), a Nevada corporation.
Robert A. Day, who is Chairman of the Board of Directors of the Adviser, 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. (formerly TCW Management Company).
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Common Stock, $0.001 par value, issued in series. As of December 31,
1996 the Funds had the following number of record holders:
<TABLE>
<CAPTION>
Title Number of Record Holders
----- ------------------------
<S> <C>
High Yield Bond 220
Core Fixed Income 37
Long-Term Mortgage-Backed Securities 45
Mortgage-Backed Securities 42
Core Equity 227
Small Cap Growth 192
Asia Pacific Equity 67
Emerging Markets 92
Latin America Equity 40
Money Market 201
Earnings Momentum 110
Mid-Cap Growth 148
Convertible Securities 1
</TABLE>
ITEM 27. INDEMNIFICATION.
Under Article Eighth, Section (9) of the Company's Articles of
Incorporation, filed as Exhibit 1.1, 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, previously filed as Exhibit 2.1.
C-3
<PAGE>
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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
In addition to the Funds, the Adviser serves as investment adviser or
sub-adviser to a number of open- and closed-end management investment companies
that are registered under the 1940 Act and to a number of foreign investment
companies. The list required by this Item 28 of officers and directors of the
Adviser, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by the Adviser and
such officers and directors during the past two years, is incorporated by
reference to Form ADV (SEC File No. 801-29075) filed by the Adviser pursuant to
the Advisers Act.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) None.
(b)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
- - -------------------------- --------------------- ----------------------
<S> <C> <C>
Alvin R. Albe, Jr.++ Director Senior Vice President
Michael E. Cahill+ Director Senior Vice President,
General Counsel and
Assistant Secretary
Jeffrey Peterson+ President Senior Vice President
William C. Schubert+ Vice President and None
Secretary
Philip K. Holl+ Vice President Secretary
David K. Sandie+ Treasurer and Chief Senior Vice President
Financial Officer and Treasurer
</TABLE>
(c) None.
- - -----------------
/++/Address is 865 South Figueroa Street, Los Angeles, California 90017.
C-4
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Unless otherwise stated below, the books or other documents required
to be maintained by Section 31(a) of the Investment Company Act of 1940 and the
rules promulgated thereunder are in the physical possession of:
Treasurer
TCW Galileo Funds, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
<TABLE>
<CAPTION>
Location of
Rule Required Records
---- ----------------
<S> <C>
31a-l(b)(2)(c) TCW Funds Management, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
31a-l(b)(2)(d) The Bank of New York
Trust Company of California
700 South Flower Street, Suite 200
Los Angeles, California 90017
31a-l(b)(4)-(6) TCW Funds Management, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
31a-1(b)(9)-(11) TCW Funds Management, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
</TABLE>
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement of Amendment
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Registration Statement or Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles and State of
California on the 24th day of February, 1997.
TCW GALILEO FUNDS, INC.
By: /s/ Philip K. Holl
-----------------------------------
Philip K. Holl
Secretary
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Registration Statement or Amendment has
been signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman and February 24, 1997
- - ------------------------ Director
Marc I. Stern
* President and February 24, 1997
- - ------------------------ Director (Principal
Thomas E. Larkin, Jr. Executive Officer)
* Director February 24, 1997
- - ------------------------
John C. Argue
* Director February 24, 1997
- - ------------------------
Norman Barker, Jr.
* Director February 24, 1997
- - ------------------------
Richard W. Call
* Senior Vice Presi- February 24, 1997
- - ------------------------ dent and Treasurer
David K. Sandie (Principal Financial
and Accounting
Officer)
</TABLE>
*By: /s/ Philip K. Holl
------------------------
Philip K. Holl
Attorney-in-Fact
C-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
- - ------- ----------- ----------
<S> <C> <C>
EX-5 Opinion of Counsel C-8
EX-23 Consent of Independent Accountant C-9
EX-24 Powers of Attorney of Messrs. Argue, C-10
Barker, Call, Larkin, Sandie and Stern filed
pursuant to Rule 483 of Regulation C
EX-27.1 Financial Data Schedule
EX-27.2 Financial Data Schedule
EX-27.3 Financial Data Schedule
EX-27.4 Financial Data Schedule
EX-27.5 Financial Data Schedule
EX-27.6 Financial Data Schedule
EX-27.7 Financial Data Schedule
EX-27.8 Financial Data Schedule
EX-27.9 Financial Data Schedule
EX-27.10 Financial Data Schedule
EX-27.11 Financial Data Schedule
EX-27.12 Financial Data Schedule
</TABLE>
C-7
<PAGE>
EX-5
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
February 21, 1997
TCW Galileo Funds, Inc.
865 South Figueroa Street
Los Angeles, California 90017
Dear Sirs:
In connection with the registration under the Securities Act of 1933 of an
indefinite number of shares of common stock, par value $.001 per share
("Shares") of TCW Galileo Funds, Inc. (the "Fund"), I have examined such matters
as I have deemed necessary, and I am of the opinion:
(1) The Fund is a corporation duly organized and existing under the laws
of the State of Maryland;
(2) Assuming that the Fund or its agent receives consideration for such
Shares in accordance with the provisions in the Prospectus, the Shares
will, to the extent of the number of Shares of the Fund authorized to
be issued by the Fund 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 Fund's
Post-Effective Amendment No. 17 on Form N-1A filed with the Securities and
Exchange Commission (File No. 33-52272).
I am a member of the Bar of the State of Maryland.
Very truly yours,
/s/ Philip K. Holl
------------------
Philip K. Holl
C-8
<PAGE>
EX-23
DELOITTE & TOUCHE LLP
1000 WILSHIRE BOULEVARD
LOS ANGELES, CA 90017-2472
(213) 688-0800 TELEPHONE
CONSENT OF INDEPENDENT AUDITORS
TCW GALILEO FUNDS, INC.:
We consent to (a) the use in this Post-Effective Amendment No. 17 to
Registration Statement No. 33-52272 on Form N-1A of our report on the financial
statements of the funds comprising TCW Galileo Funds, Inc. as of and for the
periods ended October 31, 1995 and 1996 dated December 13, 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.
/s/ Deloitte & Touche LLP
- - -------------------------
Deloitte & Touche LLP
February 21, 1997
C-9
<PAGE>
EX-24
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<SERIES>
<NUMBER> 1
<NAME> TCW Galileo Core Equity Fund
</SERIES>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 170,619
<INVESTMENTS-AT-VALUE> 230,789
<RECEIVABLES> 2,702
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 13
<TOTAL-ASSETS> 233,504
<PAYABLE-FOR-SECURITIES> 1,353
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 849
<TOTAL-LIABILITIES> 2,202
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 168,043
<SHARES-COMMON-STOCK> 14,516
<SHARES-COMMON-PRIOR> 14,446
<ACCUMULATED-NII-CURRENT> 275
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,814
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 60,170
<NET-ASSETS> 231,302
<DIVIDEND-INCOME> 1,948
<INTEREST-INCOME> 115
<OTHER-INCOME> 0
<EXPENSES-NET> 1,684
<NET-INVESTMENT-INCOME> 379
<REALIZED-GAINS-CURRENT> 11,808
<APPREC-INCREASE-CURRENT> 19,564
<NET-CHANGE-FROM-OPS> 31,751
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 722
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,809
<NUMBER-OF-SHARES-REDEEMED> 3,778
<SHARES-REINVESTED> 39
<NET-CHANGE-IN-ASSETS> 33,581
<ACCUMULATED-NII-PRIOR> 618
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 8,994
<GROSS-ADVISORY-FEES> 1,549
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,684
<AVERAGE-NET-ASSETS> 206,505
<PER-SHARE-NAV-BEGIN> 13.69
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 2.18
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.93
<EXPENSE-RATIO> .82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<SERIES>
<NUMBER> 2
<NAME> TCW Galileo Latin America Equity Fund
</SERIES>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 61,208
<INVESTMENTS-AT-VALUE> 68,806
<RECEIVABLES> 87
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 13
<TOTAL-ASSETS> 68,906
<PAYABLE-FOR-SECURITIES> 444
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 139
<TOTAL-LIABILITIES> 583
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 91,299
<SHARES-COMMON-STOCK> 6,829
<SHARES-COMMON-PRIOR> 4,915
<ACCUMULATED-NII-CURRENT> 960
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (31,534)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,598
<NET-ASSETS> 68,323
<DIVIDEND-INCOME> 1,515
<INTEREST-INCOME> 58
<OTHER-INCOME> 0
<EXPENSES-NET> 885
<NET-INVESTMENT-INCOME> 688
<REALIZED-GAINS-CURRENT> (3,423)
<APPREC-INCREASE-CURRENT> 14,716
<NET-CHANGE-FROM-OPS> 11,981
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 192
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,091
<NUMBER-OF-SHARES-REDEEMED> 1,182
<SHARES-REINVESTED> 5
<NET-CHANGE-IN-ASSETS> 29,381
<ACCUMULATED-NII-PRIOR> 464
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,811
<GROSS-ADVISORY-FEES> 614
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 885
<AVERAGE-NET-ASSETS> 61,620
<PER-SHARE-NAV-BEGIN> 7.92
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 2.03
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.01
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<SERIES>
<NUMBER> 3
<NAME> TCW Galileo High Grade Fixed Income Fund
</SERIES>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 24,449
<INVESTMENTS-AT-VALUE> 24,852
<RECEIVABLES> 317
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 13
<TOTAL-ASSETS> 25,182
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 176
<TOTAL-LIABILITIES> 176
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,469
<SHARES-COMMON-STOCK> 2,647
<SHARES-COMMON-PRIOR> 3,770
<ACCUMULATED-NII-CURRENT> 592
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,458)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 403
<NET-ASSETS> 25,006
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,012
<OTHER-INCOME> 0
<EXPENSES-NET> 243
<NET-INVESTMENT-INCOME> 1,859
<REALIZED-GAINS-CURRENT> 165
<APPREC-INCREASE-CURRENT> (887)
<NET-CHANGE-FROM-OPS> 1,137
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,844
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,278
<NUMBER-OF-SHARES-REDEEMED> 2,570
<SHARES-REINVESTED> 169
<NET-CHANGE-IN-ASSETS> (11,230)
<ACCUMULATED-NII-PRIOR> 577
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3,623
<GROSS-ADVISORY-FEES> 127
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 243
<AVERAGE-NET-ASSETS> 29,527
<PER-SHARE-NAV-BEGIN> 9.61
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> 0.55
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.45
<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<SERIES>
<NUMBER> 4
<NAME> TCW Galileo High Yield Bond Fund
</SERIES>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 171,101
<INVESTMENTS-AT-VALUE> 174,837
<RECEIVABLES> 14,885
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 13
<TOTAL-ASSETS> 189,735
<PAYABLE-FOR-SECURITIES> 4,233
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,687
<TOTAL-LIABILITIES> 5,920
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 182,656
<SHARES-COMMON-STOCK> 18,806
<SHARES-COMMON-PRIOR> 9,514
<ACCUMULATED-NII-CURRENT> 108
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,685)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,736
<NET-ASSETS> 183,815
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,518
<OTHER-INCOME> 0
<EXPENSES-NET> 1,118
<NET-INVESTMENT-INCOME> 11,400
<REALIZED-GAINS-CURRENT> (1,228)
<APPREC-INCREASE-CURRENT> 2,582
<NET-CHANGE-FROM-OPS> 12,754
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,413
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,695
<NUMBER-OF-SHARES-REDEEMED> 5,199
<SHARES-REINVESTED> 796
<NET-CHANGE-IN-ASSETS> 91,163
<ACCUMULATED-NII-PRIOR> 121
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,457
<GROSS-ADVISORY-FEES> 928
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,118
<AVERAGE-NET-ASSETS> 123,900
<PER-SHARE-NAV-BEGIN> 9.74
<PER-SHARE-NII> .89
<PER-SHARE-GAIN-APPREC> .03
<PER-SHARE-DIVIDEND> 0.89
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.77
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<SERIES>
<NUMBER> 5
<NAME> TCW Galileo Mortgage Backed Securities Fund
</SERIES>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 63,240
<INVESTMENTS-AT-VALUE> 61,657
<RECEIVABLES> 554
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 13
<TOTAL-ASSETS> 62,224
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 389
<TOTAL-LIABILITIES> 389
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,954
<SHARES-COMMON-STOCK> 6,398
<SHARES-COMMON-PRIOR> 8,495
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,159
<ACCUMULATED-NET-GAINS> (5,377)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,583)
<NET-ASSETS> 61,835
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,470
<OTHER-INCOME> 0
<EXPENSES-NET> 511
<NET-INVESTMENT-INCOME> 3,959
<REALIZED-GAINS-CURRENT> (861)
<APPREC-INCREASE-CURRENT> 2,487
<NET-CHANGE-FROM-OPS> 5,585
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,953
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,565
<NUMBER-OF-SHARES-REDEEMED> 8,115
<SHARES-REINVESTED> 453
<NET-CHANGE-IN-ASSETS> (19,531)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 165
<OVERDIST-NET-GAINS-PRIOR> 4,516
<GROSS-ADVISORY-FEES> 373
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 511
<AVERAGE-NET-ASSETS> 74,139
<PER-SHARE-NAV-BEGIN> 9.58
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.22
<PER-SHARE-DIVIDEND> 0.64
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.67
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<SERIES>
<NUMBER> 6
<NAME> TCW Galileo Long-Term Mortgage Backed Sec Fund
</SERIES>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 110,824
<INVESTMENTS-AT-VALUE> 112,092
<RECEIVABLES> 927
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 16
<TOTAL-ASSETS> 113,035
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 775
<TOTAL-LIABILITIES> 775
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111,300
<SHARES-COMMON-STOCK> 11,741
<SHARES-COMMON-PRIOR> 8,385
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 212
<ACCUMULATED-NET-GAINS> (96)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,268
<NET-ASSETS> 112,260
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,471
<OTHER-INCOME> 0
<EXPENSES-NET> 559
<NET-INVESTMENT-INCOME> 5,912
<REALIZED-GAINS-CURRENT> 466
<APPREC-INCREASE-CURRENT> 827
<NET-CHANGE-FROM-OPS> 7,205
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,146
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,357
<NUMBER-OF-SHARES-REDEEMED> 2,572
<SHARES-REINVESTED> 571
<NET-CHANGE-IN-ASSETS> 32,101
<ACCUMULATED-NII-PRIOR> 22
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 562
<GROSS-ADVISORY-FEES> 413
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 559
<AVERAGE-NET-ASSETS> 79,999
<PER-SHARE-NAV-BEGIN> 9.56
<PER-SHARE-NII> 0.68
<PER-SHARE-GAIN-APPREC> 0.02
<PER-SHARE-DIVIDEND> 0.70
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.56
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<SERIES>
<NUMBER> 7
<NAME> TCW Galileo Small Cap Growth Fund
</SERIES>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 86,582
<INVESTMENTS-AT-VALUE> 130,288
<RECEIVABLES> 2,717
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5
<TOTAL-ASSETS> 133,010
<PAYABLE-FOR-SECURITIES> 374
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 192
<TOTAL-LIABILITIES> 566
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 88,386
<SHARES-COMMON-STOCK> 7,713
<SHARES-COMMON-PRIOR> 4,883
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,342
<ACCUMULATED-NET-GAINS> 1,694
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 43,706
<NET-ASSETS> 132,444
<DIVIDEND-INCOME> 113
<INTEREST-INCOME> 298
<OTHER-INCOME> 0
<EXPENSES-NET> 1,250
<NET-INVESTMENT-INCOME> (839)
<REALIZED-GAINS-CURRENT> 1,368
<APPREC-INCREASE-CURRENT> 22,379
<NET-CHANGE-FROM-OPS> 22,908
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 98
<DISTRIBUTIONS-OF-GAINS> 1,514
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,841
<NUMBER-OF-SHARES-REDEEMED> 1,121
<SHARES-REINVESTED> 110
<NET-CHANGE-IN-ASSETS> 66,388
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,840
<OVERDISTRIB-NII-PRIOR> 405
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,101
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,250
<AVERAGE-NET-ASSETS> 110,312
<PER-SHARE-NAV-BEGIN> 13.53
<PER-SHARE-NII> (.13)
<PER-SHARE-GAIN-APPREC> 4.08
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> .30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.17
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<SERIES>
<NUMBER> 8
<NAME> TCW Galileo Emerging Mkts. Fund
</SERIES>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 54,638
<INVESTMENTS-AT-VALUE> 57,410
<RECEIVABLES> 566
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5
<TOTAL-ASSETS> 57,981
<PAYABLE-FOR-SECURITIES> 222
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 120
<TOTAL-LIABILITIES> 342
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63,830
<SHARES-COMMON-STOCK> 7,048
<SHARES-COMMON-PRIOR> 7,218
<ACCUMULATED-NII-CURRENT> 559
<OVERDISTRIBUTION-NII> 0
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<TABLE> <S> <C>
<PAGE>
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<NUMBER> 9
<NAME> TCW Galileo Asia Pacific Equity Fund
</SERIES>
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<TABLE> <S> <C>
<PAGE>
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<NUMBER> 10
<NAME> TCW Galileo Money Market Fund
</SERIES>
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<PERIOD-END> OCT-31-1996
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<SERIES>
<NUMBER> 11
<NAME> TCW Galileo Earnings Momentum Fund
</SERIES>
<S> <C>
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<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
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</TABLE>
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<SERIES>
<NUMBER> 12
<NAME> TCW Galileo Mid Cap Growth Fund
</SERIES>
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> JUN-01-1996
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