<PAGE>
TCW GALILEO FUNDS, INC.
865 South Figueroa Street, Suite 1800
Los Angeles, California 90017
(800) FUND TCW or (213) 244-0000
TCW Galileo Funds, Inc. (the "Company") is a no-load open-end management
investment company that consists of seventeen separate investment funds known as
the Galileo Funds, each of which has different investment objectives and
policies. Shares are sold without any purchase or redemption charge. There is
no guarantee of the performance of a Galileo Fund or that its objective can be
attained.
TCW GALILEO ASIA PACIFIC EQUITIES FUND
TCW GALILEO CONVERTIBLE SECURITIES FUND
TCW GALILEO CORE EQUITY FUND
TCW GALILEO CORE FIXED INCOME FUND
TCW GALILEO EARNINGS MOMENTUM FUND
TCW GALILEO EMERGING MARKETS EQUITIES FUND
TCW GALILEO EUROPEAN EQUITIES FUND
TCW GALILEO HIGH YIELD BONDS FUND
TCW GALILEO INTERNATIONAL EQUITIES FUND
TCW GALILEO JAPANESE EQUITIES FUND
TCW GALILEO LATIN AMERICA EQUITIES FUND
TCW GALILEO LONG-TERM MORTGAGE-BACKED SECURITIES FUND
TCW GALILEO MID-CAP GROWTH FUND
TCW GALILEO MONEY MARKET FUND
TCW GALILEO MORTGAGE-BACKED SECURITIES FUND
TCW GALILEO SMALL CAP GROWTH FUND
TCW GALILEO VALUE OPPORTUNITIES FUND
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.
THE SECURITIES THAT THE HIGH YIELD BONDS AND CONVERTIBLE SECURITIES FUNDS
INVEST IN ARE REGARDED BY THE RATINGS 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 Investor 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 27, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................................. 1
EXPENSES OF THE FUNDS.................................................................... 5
MANAGEMENT DISCUSSION....................................................................21
INVESTMENT OBJECTIVES AND POLICIES.......................................................32
TCW Galileo Money Market Fund.......................................................32
TCW Galileo Core Fixed Income Fund..................................................33
TCW Galileo High Yield Bonds Fund...................................................36
TCW Galileo Long-Term Mortgage-Backed Securities Fund and TCW Galileo
Mortgage-Backed Securities Fund..................................................38
TCW Galileo Convertible Securities Fund.............................................40
TCW Galileo Core Equity Fund........................................................42
TCW Galileo Earnings Momentum Fund..................................................43
TCW Galileo Mid-Cap Growth Fund.....................................................44
TCW Galileo Small Cap Growth Fund...................................................46
TCW Galileo Value Opportunities Fund................................................47
TCW Galileo Asia Pacific Equities Fund..............................................48
TCW Galileo Emerging Markets Equities Fund..........................................50
TCW Galileo European Equities Fund..................................................52
TCW Galileo International Equities Fund.............................................53
TCW Galileo Japanese Equities Fund..................................................56
TCW Galileo Latin America Equities Fund.............................................57
General.............................................................................60
Money Market Instruments.........................................................60
Additional Fundamental Policies..................................................60
Other Investment Policies........................................................61
Portfolio Turnover...............................................................62
RISK CONSIDERATIONS......................................................................63
General.............................................................................63
Repurchase Agreements...............................................................63
Reverse Repurchase Agreements and Mortgage Dollar Rolls.............................64
Fixed Income Securities.............................................................64
Foreign Securities..................................................................65
Foreign Currency Risks..............................................................65
Risks Associated With Emerging Market Countries.....................................66
Futures.............................................................................67
Options.............................................................................68
Risks Associated With Lower Rated Securities........................................69
Risks Associated With Mortgage-Backed Securities....................................71
Non-Diversified Status..............................................................74
Year 2000...........................................................................74
MANAGEMENT OF THE FUNDS..................................................................75
Investment Adviser..................................................................75
Sub-Investment Advisers.............................................................75
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Portfolio Managers................................................................. 75
Advisory and Sub-Advisory Agreements............................................... 79
PURCHASE OF SHARES.................................................................... 81
Minimums........................................................................... 81
Purchases Made By Wire or Check.................................................... 81
Purchase and Settlement............................................................ 83
Distributor........................................................................ 83
SHAREHOLDER ACCOUNT SERVICES.......................................................... 84
General............................................................................ 84
Check Writing Privilege............................................................ 84
REDEMPTION AND EXCHANGE OF SHARES..................................................... 84
Redemptions and Exchanges.......................................................... 84
Systematic Withdrawal Plan......................................................... 85
Receiving Your Proceeds............................................................ 86
Shareholder Inquiries.............................................................. 86
OTHER CONDITIONS RELATING TO SHARES................................................... 86
Account Balance.................................................................... 86
Excessive Trading and Exchange Limitations......................................... 87
Nonpayment......................................................................... 87
Redemptions in Excess of $250,000.................................................. 87
Signature Guarantees............................................................... 88
Telephone Exchanges and Redemption................................................. 88
Other Conditions................................................................... 89
NET ASSET VALUE....................................................................... 89
DIVIDENDS, DISTRIBUTIONS AND TAXES................................................. 90
Dividends and Distributions........................................................ 90
Taxes.............................................................................. 91
PERFORMANCE INFORMATION............................................................... 93
GENERAL INFORMATION................................................................... 95
Organization, Shares and Voting Rights............................................. 95
Code of Ethics..................................................................... 96
Transfer Agent and Custodians...................................................... 96
Independent Auditors............................................................... 96
Legal Counsel...................................................................... 96
Reports to Shareholders............................................................ 97
APPENDIX............................................................................. A-1
Strategies Available to All Bond Funds and Equity Funds........................... A-1
Strategies Available to All Bond Funds and Equity Funds
(except International Equities).............................................. A-2
Strategies Available to All Bond Funds and Equity Funds
(except Mid-Cap Growth and International Equities)........................... A-2
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Strategies Available to Core Fixed Income, Long-Term Mortgage-Backed
Securities, Mortgage-Backed Securities, Money Market and Latin
America Equities............................................................. 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-8
Strategies Available to the Equity Funds (except Earnings Momentum, Mid-
Cap Growth and International Equities) and Core Fixed Income................. A-8
Strategies Available to the Equity Funds (except International Equities) and
High Yield Bonds............................................................. A-9
Strategies Available to Convertible Securities.................................... A-9
Strategies Available to Convertible Securities, Mid-Cap Growth, Value
Opportunities, Latin America Equities and Emerging Markets Equities.......... A-10
Strategies Available to Asia Pacific Equities, Latin America Equities and
Emerging Markets Equities.................................................... A-11
Pro Forma Portfolio Composition of High Yield Bonds and Convertible
Securities Funds.............................................................. A-12
Emerging Market Country Designation.............................................. A-13
Description of S&P and Moody's Ratings........................................... A-14
</TABLE>
iii
<PAGE>
SUMMARY
The Company is an open-end management investment company which consists of
seventeen separate investment funds in the TCW Galileo Funds (each, "a Fund"
collectively, "the Funds") and is designed to offer investors a range of
investment opportunities.
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,
1997, the Adviser and its affiliated companies had
approximately $50 billion under management or committed
for management in various fiduciary and advisory
capacities.
SUB-ADVISERS TCW Asia Limited ("TCW Asia") has been retained by the
Adviser to provide investment advice and assist in the
management of the Asia Pacific Equities and Emerging
Markets Equities Funds. TCW London International,
Limited ("TCW London") has been retained by the Adviser
to provide investment advice and assist in the
management of Emerging Markets Equities, European
Equities, Japanese Equities and International Equities
Funds (collectively, TCW Asia and TCW London are
hereinafter referred to as the "Sub-Advisers").
EXPENSES OF THE FUND Each Fund pays its operating expenses and an investment
advisory fee except the International Equities Fund
which does not pay a direct advisory fee. Because the
International Equities Fund is a "fund of funds" it
will bear its proportionate share of any investment
advisory fee and other expenses paid by the Galileo
Funds it invests in. Each Fund's investment advisory
fee is based on the value of its average daily net
assets at the following annual rates: Money Market --
0.25%; Core Fixed Income -- 0.40%; High Yield Bonds --
0.75%; Long-Term Mortgage-Backed Securities -- 0.50%;
Mortgage-Backed Securities -- 0.50%; Convertible
Securities -- 0.75%; Core Equity -- 0.75%; Earnings
Momentum -- 1.00%; Mid-Cap Growth -- 1.00%; Small Cap
Growth -- 1.00%; Value Opportunities --0.80%; Asia
Pacific Equities -- 1.00%; Emerging Markets Equities --
1.00%; European Equities --0.75%; Japanese Equities --
0.75%; and Latin America Equities -- 1.00%. The Sub-
Advisers are paid from the investment advisory fee at
the same rate as the Adviser based on the amount of
assets
1
<PAGE>
to which the Sub-Adviser provides investment advisory
services.
EXPENSE CAPS The Money Market, Convertible Securities, Value
Opportunities, European Equities, International
Equities and Japanese Equities Funds are subject to
expense caps. The expense caps require the Adviser 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, 1.05% for Convertible Securities, 1.36%
for Value Opportunities, 1.20% for European Equities,
1.16% for International Equities and 1.20% for
Japanese Equities until October 31, 1998. The
International Equities Fund will also bear its
proportionate share of the advisory fees and other
expenses of any Fund it invests in. With respect to
the Core Fixed Income Fund, the Adviser has agreed to
reduce its investment advisory fee to 0.35% of the
Fund's average daily net assets until October 31,
1998.
REDEMPTION AND Investors may exchange shares of one Fund for shares
EXCHANGES of 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 of shares may produce
taxable gain or loss for shareholders.
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
OF FIXED INCOME SECURITIES 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
2
<PAGE>
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 HIGHER YIELDING MORTGAGE SECURITIES, INCLUDING
COLLATERALIZED MORTGAGE OBLIGATIONS, WILL BE REDEEMED
DUE TO REFINANCINGS. AS A RESULT, 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.
The High Yield Bonds and Convertible Securities Funds
invest in high yield/high risk fixed income
securities, commonly known as "junk bonds". High yield
securities are regarded by the ratings agencies as
speculative with respect to the issuer's continuing
ability to meet principal and interest payments.
Issuers of high yield securities generally have
greater risk of default than issuers of investment
grade securities.
The Earnings Momentum and Small Cap Growth Funds
invest 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.
The Asia Pacific Equities, Emerging Markets Equities,
International Equities and Latin America Equities
Funds can have extreme share price volatility and
should be considered only as a long-term investment
due to their investment in countries with emerging
economies or securities markets. 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 currency risk, exchange rate
fluctuations, international and regional political and
economic developments and the possible imposition of
exchange controls or other restrictions applicable to
such investments. Currency risk is the risk that
fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an
investment. Adverse changes in exchange rates may
erode or reverse any gains produced by foreign
currency denominated investments and may widen any
losses.
3
<PAGE>
Certain of the Funds may from time to time use other
investment techniques or invest in specialized
securities including "derivative" securities that
entail particular risks. These techniques and
securities include the following: (i) when issued and
delayed delivery securities; (ii) options for hedging
purposes (all Funds except International Equities and
Mid-Cap Growth); (iii) futures for hedging purposes
(all Funds except Mid-Cap Growth, Value Opportunities
and International Equities); (iv) inverse floater
classes of collateralized mortgage obligations (Long-
Term Mortgage-Backed Securities and Mortgage-Backed
Securities); (v) mortgage dollar rolls and interest-
only stripped mortgage securities (Core Fixed Income,
Long-Term Mortgage-Backed Securities and Mortgage-
Backed Securities); (vi) repurchase agreements (all
Funds); and (vii) reverse repurchase agreements (Core
Fixed Income, Long-Term Mortgage-Backed Securities,
Mortgage-Backed Securities, Money Market and Latin
American Equities). INVESTMENTS BY THE LONG-TERM
MORTGAGE-BACKED SECURITIES AND MORTGAGE-BACKED
SECURITIES FUNDS IN INVERSE FLOATER CLASSES OF
COLLATERALIZED MORTGAGE OBLIGATIONS AND INVESTMENTS BY
THE CORE FIXED INCOME, LONG-TERM MORTGAGE-BACKED
SECURITIES AND MORTGAGE-BACKED SECURITIES FUNDS IN
INTEREST-ONLY STRIPPED MORTGAGE SECURITIES ARE (I)
HIGHLY SENSITIVE TO CHANGES IN INTEREST AND PREPAYMENT
RATES AND (II) 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" .
4
<PAGE>
EXPENSES OF THE FUNDS
This table describes the expenses and fees you will pay directly or
indirectly as a shareholder in the Funds. The expenses and fees set forth in
the table are for the twelve month period ended October 31, 1997. 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 (FEES PAID DIRECTLY FROM YOUR ACCOUNT)
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Contingent Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE FUND'S
ASSETS)
<TABLE>
<CAPTION>
LONG-
TERM
CORE MORT- MORT-
MONEY FIXED HIGH GAGE GAGE
MARKET INCOME YIELD BACKED BACKED
------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Management Fees 0.25% 0.35% 0.75% 0.50% 0.50%
Rule 12b-1 Fees None None None None None
Other Expenses 0.15% 0.58% 0.08% 0.17% 0.27%
---- ------ ---- ---- ----
TOTAL FUND OPERATING 0.40% 0.93%* 0.83% 0.67% 0.77%
EXPENSES
<CAPTION>
Value
CONVERTIBLE CORE EARNINGS MID-CAP SMALL Oppor-
SECURITIES EQUITY MOMENTUM GROWTH CAP tunities
------------ ------- --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.61% 0.75% 1.00% 1.00% 1.00% 0.80%
Rule 12b-1 Fees None None None None None None
Other Expenses 0.44% 0.08% 0.17% 0.12% 0.14% 0.56%
------ ---- ---- ---- ---- ------
TOTAL FUND OPERATING 1.05%* 0.83% 1.17% 1.12% 1.14% 1.36%*
EXPENSES
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
ASIA EMERGING Interna- LATIN
PACIFIC MARKETS EUROPEAN tional JAPANESE AMERICA
EQUITIES EQUITIES EQUITIES Equities EQUITIES EQUITIES
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 1.00% 1.00% 0.75% 0.00% 0.08% 1.00%
Rule 12b-1 Fees None None None None None None
Other Expenses 0.49% 0.50% 0.45% 1.16% 1.12% 0.46%
---- ---- ------ ------ ------ ----
TOTAL FUND OPERATING 1.49% 1.50% 1.20%* 1.16%* 1.20%* 1.46%
EXPENSES
</TABLE>
* After expense reimbursements or advisory fee waiver, see footnote next page
for expense ratios had there been no reimbursement. In addition, the
International Equities Fund will pay its pro rata portion of the expenses of
the underlying funds in which it invests in.
6
<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 $22 $ 51
Core Fixed Income 9 30 51 114
High Yield Bonds 8 26 46 103
Long-Term Mortgage-Backed 7 21 37 83
Mortgage-Backed 8 25 43 95
Convertible Securities 11 33 58 128
Core Equity 8 26 46 103
Earnings Momentum 12 37 64 142
Mid-Cap Growth 11 36 62 136
Small Cap Growth 12 36 63 139
Value Opportunities 14 43 -- --
Asia Pacific Equities 15 47 81 178
Emerging Markets Equities 15 47 82 179
European Equities 12 38 -- --
International Equities 12 37 -- --
Japanese Equities 12 38 -- --
Latin America Equities 15 46 80 175
</TABLE>
*This example is intended to help you compare the cost of investing in the Funds
to the cost of investing in other mutual funds. The example has been calculated
using actual expenses except Convertible Securities, Value Opportunities,
European Equities, International Equities and Japanese Equities where expenses
are assumed to be the expense limit. Without an expense limit, total expenses
for Convertible Securities would have been 1.08% for the period ended October
31, 1997 and total expenses for Value Opportunities, European Equities,
International Equities and Japanese Equities are estimated at 1.36%, 1.20%,
1.16% and 1.20% respectively. Total expenses for Mid-Cap Growth were limited at
1.20% of average net assets through December 31, 1996. For the period November
1, 1997 through October 31, 1998, 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.
7
<PAGE>
FINANCIAL HIGHLIGHTS
(INTRODUCTION)
------------
The following information for the periods ended December 31, 1993 and
October 31, 1994 and fiscal years ended October 31, 1995, 1996 and 1997, 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>
CORE FIXED INCOME
-------------------------------------------------
YEAR TEN MONTHS MARCH 1, 1993
ENDED YEAR ENDED YEAR ENDED ENDED (INCEPTION) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 9.45 $ 9.61 $ 8.94 $ 10.04 $ 10.00
------- ------- ------- --------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.58 0.55 0.58 0.44 0.45
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) 0.19 (0.16) 0.62 (1.16)(5) 0.19
on Investments ------- ------- ------- --------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.77 0.39 1.20 (0.72) 0.64
------- ------- ------- --------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from Net Investment Income (0.60) (0.55) (0.53) (0.38) (0.45)
-------
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from Realized Gains - - - - (0.14)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions in Excess of Realized Gains - - - - (0.01)
------- ------- ------- --------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL (0.60) (0.55) (0.53) (0.38) (0.60)
------- ------- ------- --------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 9.62 $ 9.45 $ 9.61 $ 8.94 $ 10.04
------- ======= ======= ========= ========
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 8.45% 4.26% 13.92% (7.24)%(1) 6.54%(2)
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $19,368 $25,006 $36,236 $ 50,153 $ 33,328
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 0.93% 0.76% 0.68%(4) 0.50%(3)(4) 0.50%(3)(4)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average 6.13% 5.85% 6.38% 6.11%(3) 5.24%(3)
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 142.96% 238.73% 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) to 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 0.50% of net assets
through December 31, 1994. 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.
(5) Includes net realized losses on foreign currency
transactions/translations.
8
<PAGE>
<TABLE>
<CAPTION>
HIGH YIELD BONDS
-------------------------------------------------
TEN MONTHS MARCH 1, 1993
YEAR ENDED YEAR ENDED YEAR ENDED ENDED (INCEPTION) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 9.77 $ 9.74 $ 9.43 $ 10.12 $ 10.00
------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net Investment Income 0.91 0.89 0.92 0.73 0.74
Net Realized and Unrealized Gain (Loss) on 0.34 0.03 0.39 (0.77) 0.27
Investments -------- -------- ------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 1.25 0.92 1.31 (0.04) 1.01
-------- -------- ------- -------- --------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from Net Investment Income (0.91) (0.89) (1.00) (0.65) (0.74)
--------
Distributions from Realized Gains - - - - (0.15)
-------- -------- -------
Distributions in Excess of Realized Gains - - - - -
-------- -------- ------- -------- --------
TOTAL (0.91) (0.89) (1.00) (0.65) (0.89)
-------- -------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 10.11 $ 9.77 $ 9.74 $ 9.43 $ 10.12
-------- ======== ======= ======== ========
_____________________________
TOTAL RETURN 13.26% 9.92% 14.65% (0.34)%(1) 10.47%(2)
- -------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------
Net Assets, End of Period (in thousands) $208,761 $183,815 $92,652 $ 90,577 $ 73,737
Ratio of Expenses to Average Net Assets 0.83% 0.90% 0.87%(4) 0.79%(3)(4) 0.79%(3)(4)
Ratio of Net Investment Income to Average 9.10% 9.21% 9.60% 9.18%(3) 8.60%(3)
Net Assets
Portfolio Turnover Rate 109.45% 82.56% 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) to 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 0.79% of net assets
through December 31, 1994. 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.
9
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM MORTGAGE-BACKED SECURITIES
-------------------------------------------------
TEN MONTHS JUNE 17, 1993
YEAR ENDED YEAR ENDED YEAR ENDED ENDED (INCEPTION) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share, Beginning of Period $ 9.56 $ 9.56 $ 8.95 $ 10.07 $ 10.00
------- -------- ------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net Investment Income 0.75 0.68 0.72 0.63 0.28
Net Realized and Unrealized Gain (Loss) on 0.32 0.02 0.71 (1.26) 0.07
Investments ------- -------- ------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 1.07 0.70 1.43 (0.63) 0.35
------- -------- ------- -------- --------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from Net Investment Income (0.72) (0.68) (0.82) (0.49) (0.28)
Distributions from Realized Gains - - - - -
Distributions in Excess of Net Investment - (0.02) - - -
Income
TOTAL (0.72) (0.70) (0.82) (0.49) (0.28)
------- -------- ------- -------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 9.91 $ 9.56 $ 9.56 $ 8.95 $ 10.07
------- ======== ======= ======== ========
_____________________________
TOTAL RETURN 11.66% 7.69% 16.84% (6.39)%(1) 3.51%(2)
- -------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------
Net Assets, End of Period (in thousands) $81,442 $112,260 $80,159 $ 66,632 $ 25,215
Ratio of Expenses to Average Net Assets 0.67% 0.68% 0.68%(4) 0.65%(3)(4) 0.65%(3)(4)
Ratio of Net Investment Income to Average Net 7.77% 7.15% 7.88% 8.03%(3) 5.37%(3)
Assets
Portfolio Turnover Rate 16.01% 39.28% 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) to 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 0.65% of net assets
through December 31, 1994. 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.
10
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE-BACKED SECURITIES
-------------------------------------------------
TEN MONTHS MARCH 1, 1993
YEAR ENDED YEAR ENDED YEAR ENDED ENDED (INCEPTION) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share, Beginning of Period $ 9.67 $ 9.58 $ 9.41 $ 9.86 $ 10.00
------- ------- ------- ---------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net Investment Income 0.58 0.51 0.67 0.42 0.50
Net Realized and Unrealized Gain (Loss) on 0.05 0.22 0.25 (0.48) (0.12)
Investments ------- ------- ------- ---------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.63 0.73 0.92 (0.06) 0.38
------- ------- ------- ---------- --------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from Net Investment Income (0.38) (0.46) (0.71) (0.39) (0.50)
Distributions from Realized Gains - - - - (0.02)
Distributions in Excess of Net Investment (0.22) (0.18) (0.04) - -
Income ------- ------- -------
TOTAL (0.60) (0.64) (0.75) (0.39) (0.52)
------- ------- ------- ---------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 9.70 $ 9.67 $ 9.58 $ 9.41 $ 9.86
------- ======= ======= ========== ========
_____________________________
TOTAL RETURN 6.71% 7.86% 10.16% (0.61)%(1) 3.89%(2)
- -------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------
Net Assets, End of Period (in thousands) $55,307 $61,835 $81,366 $ 134,948 $147,666
Ratio of Expenses to Average Net Assets 0.77% 0.69% 0.61%(4) 0.55%(3)(4) 0.55%(3)(4)
Ratio of Net Investment Income to Average Net 6.00% 5.34% 7.13% 5.18%(3) 5.98%(3)
Assets
Portfolio Turnover Rate 109.91% 54.10% 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) to 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 0.55% of net assets
through December 31, 1994. 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.
11
<PAGE>
<TABLE>
<CAPTION>
CONVERTIBLE SECURITIES
-------------------------------------------------------
JANUARY 2, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
OCTOBER 31, 1997
<S> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 10.00
--------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------
Net Investment Income (Loss) 0.31
Net Realized and Unrealized Gain (Loss) on 1.43
Investments --------
TOTAL FROM INVESTMENT OPERATIONS 1.74
--------
LESS DISTRIBUTIONS
- -------------------------------------------------------
Distributions from Net Investment Income (0.33)
Distributions from Realized Gains -
Distributions in Excess of Net Investment Income -
--------
TOTAL (0.33)
--------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 11.41
--------
_____________________________
TOTAL RETURN 17.66%(1)
- -------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $ 36,890
Ratio of Expenses to Average Net Assets 0.95%(2)(3)
Ratio of Net Investment Income to Average Net Assets 3.54%(2)
Portfolio Turnover Rate 141.43%(1)
Average Commission Rate Paid by the Fund (4) $ 0.06
===========================================================================================
</TABLE>
(1) For the period January 2, 1997 (commencement of operations) to October 31,
1997 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 0.95% of net assets
through December 31, 1997. Had such action not been taken, total annualized
operating expenses as a percentage of average net assets would have been
1.08% for the period January 2, 1997 (commencement of operations) through
October 31, 1997.
(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>
CORE EQUITY
------------------------------------------------
TEN MONTHS MARCH 1, 1993
YEAR ENDED YEAR ENDED YEAR ENDED ENDED (INCEPTION) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF $ 15.93 $ 13.69 $ 11.57 $ 11.81 $ 10.00
PERIOD -------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------
Net Investment Income 0.01 0.11 0.06 0.04 0.03
Net Realized and Unrealized Gain (Loss) on 3.57 2.18 2.11 (0.28) 1.81
Investments -------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 3.58 2.29 2.17 (0.24) 1.84
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
- ------------------------------------------------
Distributions from Net Investment Income (0.02) (0.05) (0.05) - (0.03)
Distributions from Realized Gains (0.20) - - - -
Distributions in Excess of Realized Gains - - - - -
-------- -------- -------- -------- --------
TOTAL (0.22) (0.05) (0.05) - (0.03)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 19.29 $ 15.93 $ 13.69 $ 11.57 $ 11.81
-------- ======== ======== ======== ========
_____________________________
TOTAL RETURN 22.68% 16.79% 18.85% (2.03)%(1) 18.41%(2)
- ------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------
Net Assets, End of Period (in thousands) $156,113 $231,302 $197,721 $136,122 $ 55,885
Ratio of Expenses to Average Net Assets 0.83% 0.82% 0.85% 0.91%(3) 1.00%(3)(4)
Ratio of Net Investment Income to Average Net 0.08% 0.18% 0.48% 0.44%(3) 0.55%(3)
Assets
Portfolio Turnover Rate 39.22% 39.58% 53.77% 23.53%(1) 29.67%(2)
Average Commission Rate Paid by the Fund(5) $ 0.06 $ 0.06 n/a n/a n/a
================================================
</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) to 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 1.00% of net assets
through December 31, 1993. 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.
(5) 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>
EARNINGS MOMENTUM
---------------------------------------------------
NOVEMBER 1, 1994
YEAR ENDED (COMMENCEMENT OF
OCTOBER 31, YEAR ENDED OPERATIONS) THROUGH
1997 OCTOBER 31, 1996 OCTOBER 31, 1995
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 13.01 $ 11.47 $ 10.00
------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------
Net Investment Income (Loss) (0.12) (0.11) (0.03)
Net Realized and Unrealized Gain (Loss) on 1.98 1.72 1.51
Investments -------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS 1.86 1.61 1.48
-------- ------- -------
LESS DISTRIBUTIONS
- ---------------------------------------------------
Distributions from Net Investment Income - - -
Distributions from Realized Gains (1.00) (0.07) -
Distributions in Excess of Net Investment Income - - (0.01)
-------- ------- -------
TOTAL (1.00) (0.07) (0.01)
-------- ------- -------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 13.87 $ 13.01 $ 11.47
-------- ======= =======
_____________________________
TOTAL RETURN 15.53% 13.99% 14.76%
- ---------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------
Net Assets, End of Period (in thousands) $101,667 $77,994 $63,411
Ratio of Expenses to Average Net Assets 1.17% 1.13% 1.14%(1)
Ratio of Net Investment Income to Average Net (0.96%) (0.82)% (0.28%)
Assets
Portfolio Turnover Rate 93.06% 99.03% 85.91%
Average Commission Rate Paid by the Fund(2) $ 0.06 $ 0.06 n/a
===================================================
</TABLE>
(1) 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 1.14% of net assets
through December 31, 1995. Had such action not been taken, total annualized
operating expenses as a percentage of average net assets would have been
1.14% for the year ended October 31, 1996 and November 1, 1994
(commencement of operations) through October 31, 1995.
(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.
14
<PAGE>
<TABLE>
<CAPTION>
MID-CAP GROWTH
---------------------------------------------------
JUNE 3, 1996
YEAR ENDED (COMMENCEMENT OF
OCTOBER 31, OPERATIONS) THROUGH
1997 OCTOBER 31, 1996
<S> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 9.19 $ 10.00
-------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------
Net Investment Income (Loss) (0.08) (0.03)
Net Realized and Unrealized Gain (Loss) on 0.29 (0.78)
Investments -------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.21 (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 $ 9.40 $ 9.19
-------- ========
_____________________________
TOTAL RETURN 2.28% (8.10)%(1)
- ---------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------
Net Assets, End of Period (in thousands) $135,850 $ 92,430
Ratio of Expenses to Average Net Assets 1.12% 1.20%(2)(3)
Ratio of Net Investment Income to Average Net (0.86%) (0.80)%(2)
Assets(4)
Portfolio Turnover Rate 50.45% 19.19%(1)
Average Commission Rate Paid by the Fund(4) $ 0.06 $ 0.06
=======================================================================================================
</TABLE>
(1) For the period June 3, 1996 (commencement of operations) through October
31, 1996 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 1.20% of net assets
through December 31, 1996. Had such action not been taken, total annualized
operating expenses as a percentage of average net assets would have been
1.27% for the period June 3, 1996 (commencement of operations) through
October 31, 1996.
(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 an 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>
SMALL CAP GROWTH
------------------------------------------------
YEAR ENDED YEAR ENDED MARCH 1, 1994
OCTOBER 31, OCTOBER 31, YEAR ENDED (INCEPTION) TO
1997 1996 OCTOBER 31, 1995 OCTOBER 31, 1994
<S> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF $ 17.17 $ 13.53 $ 9.39 $ 10.00
PERIOD -------- -------- ------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------
Net Investment Income (Loss) (0.15) (0.13) (0.07) (0.04)
Net Realized and Unrealized Gain (Loss) on 1.91 4.08 4.72 (0.57)
Investments -------- -------- ------- --------
TOTAL FROM INVESTMENT OPERATIONS 1.76 3.95 4.65 (0.61)
-------- -------- ------- --------
LESS DISTRIBUTIONS
- ------------------------------------------------
Distributions from Net Investment Income - (0.01) - -
Distributions from Realized Gains (0.19) (0.30) (0.51) -
Distributions in Excess of Realized Gains - - - -
-------- -------- -------
TOTAL (0.19) (0.31) (0.51) -
-------- ------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 18.74 $ 17.17 $ 13.53 $ 9.39
-------- ======== ======= ========
_____________________________
TOTAL RETURN 10.38% 29.73% 49.89% (6.10)%(1)
- ------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------
Net Assets, End of Period (in thousands) $144,756 $132,444 $66,056 $ 51,089
Ratio of Expenses to Average Net Assets 1.14% 1.14% 1.21%(3) 1.09%(2)(3)
Ratio of Net Investment Income to Average Net (0.89%) (0.76)% (0.61)% (0.59)%(2)
Assets
Portfolio Turnover Rate 60.52% 45.43% 89.73% 88.63%(1)
Average Commission Rate Paid by the Fund(4) $ 0.06 $ 0.06 n/a n/a
=================================================================================================================================
</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 1.09% of net assets
through December 31, 1994. Had such action not been taken, total annualized
operating expenses as a percentage of average net assets would have been
1.24% for the year ended October 31, 1995 and 1.39% for the period March 1,
1994 (commencement of operations) through October 31, 1994.
(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>
<TABLE>
<CAPTION>
ASIA PACIFIC EQUITIES
---------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED MARCH 1, 1994
OCTOBER 31, OCTOBER 31, OCTOBER 31, (INCEPTION) TO
1997 1996 1995 OCTOBER 31, 1994
<S> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 9.61 $ 8.67 $ 10.19 $ 10.00
------- ------- ------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------
Net Investment Income (Loss) (0.01) 0.06 0.06 0.03
Net Realized and Unrealized Gain (Loss) on (2.10) 0.93 (1.19) 0.16
Investments and Foreign Currency ------- -------
TOTAL FROM INVESTMENT OPERATIONS (2.11) 0.99 (1.13) 0.19
------- ------- ------- --------
LESS DISTRIBUTIONS
- ---------------------------------------------------
Distributions from Net Investment Income (0.08) (0.05) (0.01) -
Distributions from Realized Gains - - (0.16) -
Distributions in Excess of Net Investment Income (0.05) - (0.22) -
------- ------- -------
TOTAL (0.13) (0.05) (0.39) -
------- ------- ------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 7.37 $ 9.61 $ 8.67 $ 10.19
------- ======= ======= ========
_____________________________
TOTAL RETURN (22.40%) 11.36% (10.98%) 1.90%(1)
- ---------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------
Net Assets, End of Period (in thousands) $21,327 $48,266 $46,709 $ 54,019
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets 1.49% 1.43% 1.47%(3) 1.40%(2)(3)
Ratio of Net Investment Income to Average Net (0.02%) 0.66% 0.74% 0.45%(2)
Assets
Portfolio Turnover Rate 81.92% 84.81% 102.01% 46.75%(1)
Average Commission Rate Paid by the Fund(4) $ 0.00 $ 0.01 n/a n/a
===================================================
</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. Had such action not been taken, total annualized
operating expenses as a percentage of average net assets would have been
1.51% for the year ended October 31, 1995 and 1.60% for the period March 1,
1994 (commencement of operations) through October 31, 1994.
(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.
18
<PAGE>
<TABLE>
<CAPTION>
EMERGING MARKETS EQUITIES
-------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED MARCH 1, 1994
OCTOBER 31, OCTOBER 31, OCTOBER 31, (INCEPTION) TO
1997 1996 1995 OCTOBER 31, 1994
<S> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 8.18 $ 7.19 $ 9.73 $ 10.00
------- ------- -------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net Investment Income (Loss) 0.03 0.07 0.04 (0.01)
Net Realized and Unrealized Gain (Loss) on 0.22 0.94 (2.58) (0.26)
Investments and Foreign Currency ------- ------- -------- -------
TOTAL FROM INVESTMENT OPERATIONS 0.25 1.01 (2.54) (0.27)
------- ------- -------- -------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from Net Investment Income (0.11) (0.02) - -
Distributions from Realized Gains - - - -
Distributions in Excess of Realized Gains - - - -
------- ------- --------
TOTAL (0.11) (0.02) (2.54) (0.27)
------- ------- -------- -------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 8.32 $ 8.18 $ 7.19 $ 9.73
------- ======= ======== =======
_____________________________
TOTAL RETURN 2.82% 14.14% (26.11)% (2.70)%(1)
- -------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------
Net Assets, End of Period (in thousands) $47,726 $57,639 $ 51,873 $70,212
Ratio of Expenses to Average Net Assets 1.50% 1.41% 1.55% 1.70%(2)
Ratio of Net Investment Income to Average Net 0.36% 0.82% 0.54% (0.09)%(2)
Assets
Portfolio Turnover Rate 79.80% 83.76% 74.24% 61.28%(1)
Average Commission Rate Paid by the Fund(3) $ 0.00 $ 0.00 n/a n/a
=================================================
</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) 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.
19
<PAGE>
<TABLE>
<CAPTION>
LATIN AMERICA EQUITIES
-------------------------------------------------
TEN MONTHS MARCH 1, 1993
YEAR ENDED YEAR ENDED YEAR ENDED ENDED (INCEPTION) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $ 10.01 $ 7.92 $ 14.99 $ 15.11 $ 10.00
------- ------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net Investment Income 0.11 0.11 0.06 0.01 0.08
Net Realized and Unrealized Gain (Loss) on 2.50 2.03 (5.92) (0.13) 6.35
Investments and Foreign Currency ------- ------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 2.61 2.14 (5.86) (0.12) 6.43
------- ------- -------- -------- --------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from Net Investment Income (0.11) (0.05) - - (0.08)
Distributions from Realized Gains - - - - (1.21)
Distributions in Excess of Realized Gains - - (1.21) - (0.03)
------- ------- -------- -------- --------
TOTAL (0.11) (0.05) (1.21) - (1.32)
------- ------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF PERIOD $ 12.51 $ 10.01 $ 7.92 $ 14.99 $ 15.11
------- ======= ======== ======== ========
_____________________________
TOTAL RETURN 26.24% 27.08% (40.95)% (0.79)%(1) 64.27%(2)
- -------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------
Net Assets, End of Period (in thousands) $55,336 $68,323 $ 38,942 $122,610 $ 89,910
Ratio of Expenses to Average Net Assets 1.46% 1.44% 1.58%(4) 1.36%(3)(4) 1.50%(3)(4)
Ratio of Net Investment Income to Average Net 0.87% 1.12% 0.59% 0.11%(3) 0.77%(3)
Assets
Portfolio Turnover Rate 21.17% 44.32% 75.62% 143.65%(1) 120.06%(2)
Average Commission Rate Paid by the Fund (5) $ 0.00 $ 0.00 n/a n/a n/a
=================================================
</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. 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.
(5) 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.
20
<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
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ten 1993
Year Year Year Months
Ended Ended Ended Ended
October October October October
31, 1997 31, 1996 31, 31, 1994
1995
NET ASSET VALUE PER SHARE, $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
- ----------------------------- 0.0516 0.0509 0.0549 0.0304 0.0293
Net Investment Income
LESS DISTRIBUTIONS
- ----------------------------- (0.0516) -------- (0.0549) (0.0304) (0.0293)
--------- (0.0509)
Dividends from Net
Investment Income
NET ASSET VALUE PER SHARE, $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
END OF PERIOD ========= ======== ======== ========= ========
Total Return 5.29% 5.21% 5.67% 3.04%/1/ 2.97%
- -----------------------------
Ratios/Supplemental Data
- -----------------------------
Net Assets, End of Period $ 222,771 $233,671 $ 86,302 $ 124,392 $ 81,204
(in thousands)
Ratio of Expenses to Average 0.40% 0.40% 0.40% 0.40%/3/ 0.40%
Net Assets/4/
Ratio of Net Investment 5.17% 5.04% 5.49% 3.65%/3/ 2.93%
Income to Average Net Assets
<CAPTION>
Year Ended December 31
--------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1991 1990 1989 July 14,
1988
(Inception)
to December
31, 1988
NET ASSET VALUE PER SHARE, $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
- ----------------------------- 0.0381 0.0620 0.0800 0.0882 0.0379
Net Investment Income
LESS DISTRIBUTIONS
- ----------------------------- (0.0381) (0.0620) (0.0800) (0.0882) (0.0379)
Dividends from Net
Investment Income
1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
NET ASSET VALUE PER SHARE, ======= ======== ======== ======= =========
END OF PERIOD 3.92% 6.35% 8.18% 9.22% 7.68%/2/
Total Return
- -----------------------------
Ratios/Supplemental Data
- -----------------------------
Net Assets, End of Period 183,465 $140,987 $167,572 $88,620 $ 63,703
(in thousands)
Ratio of Expenses to Average 0.40% 0.40% 0.40% 0.40% 0.40%/3/
Net Assets/4/
Ratio of Net Investment 3.81% 6.20% 8.00% 8.82% 8.08%/3/
Income to Average Net Assets
</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
through December 31, 1998. Had such action not been taken, 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, 1998.
21
<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
1997 ended up as a strong year for U.S. fixed income market returns.
Concerns over the inflationary consequences of high capacity utilization and
tight labor markets waned by summer as reported data simply did not show an
emergence of upward price pressures from these conditions. As the year
progressed, U.S. Treasury bonds reemerged as a sector of investment choice for
the first time in over four years due, largely, to the Asian financial crisis.
One negative of the Asian financial crisis was the perception of increased risks
regarding high yield securities. During the fourth quarter, high yield
securities came under pressure as the global financial market turmoil caused a
flight to quality. These concerns led to high yield underperformance for the
fourth quarter which negatively affected the Fund's performance.
22
<PAGE>
TCW GALILEO HIGH YIELD BONDS FUND
The Fund earned a total return of 13.3% for the period November 1, 1996 to
October 31, 1997. The return on the Salomon Brothers High Yield Cash Pay Index
during the same period was 14.0%. The Fund's underperformance was largely
attributable to the fact that the portfolio maintained a higher concentration in
defensive industry groups during a period in which cyclical sectors
outperformed. Additionally, the Fund was underweighted in the
Telecommunications and Media sectors during this period, a time when a high
level of merger and acquisition activity significantly enhanced the performance
of high yield bonds in these sectors. Importantly, the Fund experienced no
defaults in the most recent year. 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 8.8% for the 12 months ended
October 31, 1997.
We continue to pursue a high yield investment approach which emphasizes
strong fundamental credits in the upper-tier of the high yield market and is
designed to preserve principal while simultaneously providing attractive risk-
adjusted returns.
23
<PAGE>
TCW GALILEO MORTGAGE-BACKED SECURITIES FUND
Financial markets posted strong performance gains over the twelve month
period ending October 31, 1997. Although the fiscal year began with rising
interest rates, negative bond market returns and a Fed hike in March, the bond
market recovered fully during the second half. News of slowing economic growth
and minimal inflationary pressures pushed interest rates lower between April and
July. Interest rates rose moderately in August, and then reversed course and
declined in September and October due to reassuring inflation data, a declining
budget deficit and a somewhat complacent Fed. Bond market returns were further
augmented by a "flight to quality" in late October as investors sold their
equity positions and purchased U.S. bonds as equity markets declined
globally.
Stable prepayment rates and strong investor demand helped mortgages
outperform both treasuries and corporates during the year. In the first half,
rising interest rates reduced refinancing incentives among homeowners and
lowered prepayment expectations among mortgage investors. In the second half,
strong technicals bolstered the mortgage sector's performance as mortgage
spreads narrowed to the tightest levels seen in a decade. Even when mortgage
spreads appeared tight on a historical basis, the sector retained much of its
yield advantage over other fixed income securities and investor demand for
mortgages remained strong throughout most of the year.
Declining interest rates reignited prepayment fears among mortgage investors
and mortgage performance began to lag recently. Refinancing activity steadily
increased over the summer and analysts forecasted prepayments to move higher as
well. Homeowners are now exposed to their best opportunity to refinance in two
years and the longer rates remain low, the greater the likelihood of a strong
acceleration in prepayments. The increase in volatility and the widening of
mortgage spreads over the past few weeks has produced new investment
opportunities within the mortgage sector. Our strategy remains focused on call
protection and mitigating the effects of prepayments on returns.
24
<PAGE>
TCW GALILEO LONG-TERM MORTGAGE-BACKED SECURITIES FUND
Financial markets posted strong performance gains over the twelve month
period ending October 31, 1997. Although the fiscal year began with rising
interest rates, negative bond market returns and a Fed hike in March, the bond
market recovered fully during the second half. News of slowing economic growth
and minimal inflationary pressures pushed interest rates lower between April and
July. Interest rates rose moderately in August, and then reversed course and
declined in September and October due to reassuring inflation data, a declining
budget deficit and a somewhat complacent Fed. Bond market returns were further
augmented by a "flight to quality" in late October as investors sold their
equity positions and purchased U.S. bonds as equity markets declined
globally.
Stable prepayment rates and strong investor demand helped mortgages
outperform both treasuries and corporates during the year. In the first half,
rising interest rates reduced refinancing incentives among homeowners and
lowered prepayment expectations among mortgage investors. In the second half,
strong technicals bolstered the mortgage sector's performance as mortgage
spreads narrowed to the tightest levels seen in a decade. Even when mortgage
spreads appeared tight on a historical basis, the sector retained much of its
yield advantage over other fixed income securities and investor demand for
mortgages remained strong throughout most of the year.
Declining interest rates reignited prepayment fears among mortgage investors
and mortgage performance began to lag recently. Refinancing activity steadily
increased over the summer and analysts forecasted prepayments to move higher as
well. Homeowners are now exposed to their best opportunity to refinance in two
years and the longer rates remain low, the greater the likelihood of a strong
acceleration in prepayments. The increase in volatility and the widening of
mortgage spreads over the past few weeks has produced new investment
opportunities within the mortgage sector. Our strategy remains focused on call
protection and mitigating the effects of prepayments on returns.
25
<PAGE>
TCW GALILEO CONVERTIBLE SECURITIES FUND
The Fund achieved returns over 22.7% for the twelve month period beginning
November 1996. The strong performance of the Fund outperformed its two
benchmarks, the First Boston Convertible Securities Index and the Lipper average
of convertible mutual funds which returned 19.7% and 20.7%, respectively for the
same time period.
The Fund benefitted from holdings in a diverse group of securities. The
best performing sector was cable. After three years of stagnation, the group
performed spectacularly. In addition to the excellent performance generated by
cable stocks several other holdings added incremental performance as well.
These included Sepracor, SFX Broadcasting, American Bankers Insurance, Omnicom
Group, Home Depot, Hexcel Corp. and Staples. In contrast to cable, the
performance of technology was mixed. Sales during the second and third quarters
of holdings in Altera, Analog Devices, SCI Systems and Quantum were all made at
substantial profits. In addition, the Fund realized small profits on new issues
from companies such as Level One, Read Rite, Apple Computer and Photronics.
These profits, along with the good performance of our holding in Cisco Systems,
helped to offset the poor performance of our remaining technology holdings.
The Fund seeks to invest in convertible securities which will participate in
a greater proportion of the upside of their underlying equities than in any
downside. In addition, the Fund attempts to purchase these statistically
attractive convertibles in companies which have good fundamental business
prospects. In a slowing economy with intense competition and little pricing
flexibility, the Fund is focusing on companies which have good unit growth
characteristics and can generate above average earnings growth.
26
<PAGE>
TCW GALILEO CORE EQUITY FUND
The end of 1997 was marked by both a dramatic increase in volatility and the
biggest leadership shift in many years. The turmoil in Asia has threatened to
transmit a deflationary shock to the U.S and other economies and, particularly,
to corporate profits, since U.S. companies have been burdened with higher
exchange rates for the dollar versus the currencies of the Pacific Rim. This
raises the prospects for lower export sales and increased import competition.
This has occurred during a period of tightening labor markets which has, in
turn, caused a modest acceleration in wage costs. Up to now these increasing
costs have been largely offset by productivity gains, but if the economy slows,
that may diminish. With little pricing power, the outlook for 1998 profit gains
has turned weaker, at least for the early part of the year. In response to these
factors, adjustments were made to the Fund's investment portfolio in order to
reduce companies with Asian exposure and to increase holdings with companies
that will benefit from lower interest rates. Healthcare, financial services,
information and communications technology, airlines and aerospace equipment,
together with media and entertainment, outsourcing and miscellaneous business
services all represent areas in which the long-term growth prospects are good
and where the impact transmitted out of Asia's turmoil should be limited in
scope and duration.
27
<PAGE>
TCW GALILEO EARNINGS MOMENTUM FUND
Although the TCW Galileo Earnings Momentum Fund gained more than 45% and
significantly outpaced the small cap average in the second half of the 1997
fiscal year, a difficult first half caused the Fund to lag the small cap indices
for the full fiscal year. Total return for the twelve months ending in October
was 15.5%. This compares with 21.2% for the Russell 2000 Growth Index and 17.8%
for the NASDAQ Industrials.
The fact that performance lagged the indices is due to low weightings in two
industry groups that enjoyed strong performance, and several industry groups
where stock selection was disappointing. Financial services and energy were two
groups with excellent performance that were underweighted in the Fund. The best
performing industry groups in which the Fund had meaningful weightings were
telecommunications, business services and leisure. Industries that experienced
disappointing performance were retail, specialty chemicals and computer
software.
As bottom up investors, the Fund does not target particular industries in
which to invest. Instead industry or sector changes merely reflect the impact
of individual stock selection. In 1997 stock selection reduced the Fund's focus
on capital goods and increased the weighting in consumer staples. Industry
groups that increased as a percent of the Fund's holdings included technology,
energy, and education. Groups in which the weighting declined in the fiscal
year included technology, pollution control and retail. The largest industry
weightings at year end were business services, healthcare and information
processing.
28
<PAGE>
TCW GALILEO MID-CAP GROWTH FUND
During the first six months of the fiscal 1997, fears of rising interest
rates resulting from an overheating economy exacerbated the bear market in mid
cap growth stocks that actually began in May of 1996. The second half of the
year represented the stock market's most remarkable reversal of fortune in three
years. Driven by stronger relative earnings growth, small and mid cap growth
stocks stormed ahead of large caps. The return to leadership of our asset class
has been truncated by the advent of the Asian financial crisis. As concerns
about deflation mount, the expectation of lower interest rates buoys bond
prices. Meanwhile, the "flight to liquidity" in equities supports the S&P's
largest, most stable growers at the expense of all other stocks. From our
perspective, we do not believe the deflation argument. We think the benefits of
lower inflation will offset the lower growth in earnings. With this fundamental
backdrop, it is difficult to forecast with precision when mid cap growth stocks
will regain relative favor with domestic equity investors. Several factors
indicate mid caps will lead the market once the full extent of the fall out from
Asia is understood. On almost all standard financial benchmarks (price to book,
price to earnings, price to growth rate) mid cap growth stock valuations
relative to the S&P 500 are at historical and/or recession lows. Also,
significant economic fall out is less likely to affect mid cap companies that
generally have little business in Asia. Moreover, periods of market turbulence
frequently create unprecedented buying opportunities in great growth companies
unfairly penalized in the short term.
29
<PAGE>
TCW GALILEO SMALL CAP GROWTH FUND
Although the TCW Galileo Small Cap Growth Fund gained more than 40% and
significantly outpaced the small cap averages in the second half of the 1997
fiscal year, a difficult first half caused the Fund to lag the small cap indices
for the full fiscal year. Total return for the twelve months ending in October
was 10.4%. This compares with 21.2% for the Russell 2000 Growth Index and 17.8%
for the NASDAQ Industrials.
The fact that performance lagged the indices is due to low weightings in two
industry groups that enjoyed strong performance, and several industry groups
where stock selection was disappointing. Financial services and energy were two
groups with excellent performance that were underweighted in the Fund. The
energy stocks in the Fund performed very well, as did two other areas that were
underweighted, food and machinery. Industries that experienced disappointing
performance were restaurants, electrical equipment, retail and auto parts.
As a bottom up investor, the Fund does not target particular industries in
which to invest. Instead industry or sector changes merely reflect the impact
of individual stock selection. In 1997 stock selection reduced the Fund's focus
on consumer staples and increased the weighting in capital goods. Industry
groups that increased as a percent of the Fund's holdings included technology,
energy, and education. Groups in which the weighting declined in the fiscal
year included healthcare, business services, and retail. The largest industry
weightings at year end were information processing, business services,
healthcare and electronics.
30
<PAGE>
TCW GALILEO ASIA PACIFIC EQUITIES FUND
The total return earned by the Fund during the fiscal year ended October 31,
1997, was negative 22.4%. This compares favorably to the negative 42.8% 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 in the wake of the Asian currency crisis.
The Fund benefitted from maintaining an overweight position in its largest
holding, Hong Kong, which has been viewed as a relatively safe haven during the
crisis. The Fund also overweighted the Indian equity market, which rose a
strong 18.2% during the twelve months ended October 31, 1997. The Fund also
benefitted from an underweight position in Southeast Asia, particularly in
Thailand and Malaysia, which posted losses of 69.0% and 56.8%, respectively,
during the period. The Fund exited the Thai equity market prior to the onset of
the currency crisis, and subsequently exited the markets in Malaysia and Korea
as the near-term outlook for the region continued to deteriorate. Confidence is
still lacking as we have yet to witness appropriate policy responses from
governments to the region. As a result, we have temporarily increased the
Fund's cash position while we carefully monitor further developments in the
region.
31
<PAGE>
TCW GALILEO EMERGING MARKETS EQUITIES FUND
The total return earned by the Fund during the fiscal year ended October 31,
1997, was 2.8%. This compares favorably to the negative 10.0% return of the
International Finance Corporation (IFC) Composite Investable Index for the same
period.
As an asset class, the Emerging Markets equities posted moderate declines
during the twelve months ended October 31, 1997, due to investor concerns about
the currency crisis in Asia and it potential spillover effect into other
regions. 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 Mexico, Brazil, and India which rose
37.2%, 28.1% and 18.2%, respectively, during the period. Furthermore, the Fund
maintained its overweight position in Emerging Europe, where Russia and Hungary
surged 150.7% and 58.9%, respectively. The Fund also benefitted from a
significantly underweight position in the Asian equity markets, which on average
posted losses in excess of 40% due to capital flight in the wake of the currency
crisis. Despite continued uncertainly in Southeast Asia, fundamentals in Latin
America and emerging Europe remain largely positive, and we anticipate a rebound
in these markets in the near term.
32
<PAGE>
TCW GALILEO LATIN AMERICA EQUITIES FUND
The total return earned by the Fund during the twelve months ended October
31, 1997, was 26.2%. This compares favorably to the 22.6% 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 an overweight position
to Brazil earlier in the year. The Brazilian equity market rose 47.6% in the
first half of the Fund's fiscal year due to continued progress of privatization
or deregulation. Later in the year, however, the Fund shifted to an
underweighted position in Brazil as the currency crisis in Asia -- and
particularly the capital flight to quality in international markets -- put into
question the sustainability of financing Brazil's current account deficit;
Brazilian equities fell 23.1% in the last half of the fiscal year. The Fund
also benefitted from its strong position in Mexico, which rose 37.2% in the
twelve months ended October. The market was driven by positive sentiment toward
Mexico's macroeconomic environment, including robust GDP growth and a recovery
in consumer spending, while inflation continued its gradual decline. The Fund
maintained its overweight position in Venezuelan equities, which outperformed
the entire region by rising 48.8% during the fiscal year. Investors were
encouraged by the success of the economic stabilization plan as well as private
investment flows into the petroleum sector.
33
<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 Bonds
Fund, TCW Galileo Long-Term Mortgage-Backed Securities Fund and TCW Galileo
Mortgage-Backed Securities Fund (collectively, the "Bond Funds"); six 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 TCW Galileo Value Opportunities Fund and six international
equity funds -- TCW Galileo Asia Pacific Equities Fund, TCW Galileo Emerging
Markets Equities Fund, TCW Galileo European Equities Fund, TCW Galileo
International Equities Fund, TCW Galileo Japanese Equities Fund and TCW Galileo
Latin America Equities 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 discussed 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. 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 seeks 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.
34
<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.
After purchase, a security may cease to be rated or its rating may be
lowered. Neither event will require the sale of the security. However, the
Adviser will consider such event in its determination of whether the Fund should
continue to hold the security.
35
<PAGE>
Fixed income securities that the Fund may invest in include, but are not
limited to, obligations issued or guaranteed by the United States government,
its agencies or instrumentalities ("U.S. Government Securities"), bonds, notes,
debentures, mortgage-backed securities and other securities bearing fixed or
variable interest rates of any maturity.
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 71 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.
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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 BONDS FUND
TCW Galileo High Yield Bonds 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
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bankruptcy, the Fund may purchase the company's securities on a "when, as and
if" issued basis, which means that the Fund will only hold the securities if the
company does indeed come out of bankruptcy. 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, 1997.
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
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a matter of operating policy, the Fund does not purchase securities rated below
both B3 by Moody's and below B- by S&P.
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
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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 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 the security's stated 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 71 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
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investments in floating rate or fixed rate securities or may diversify in
investments which reset off of each of the indices or focus investments in
securities which reset off of one index.
Part of each Fund's investment strategy involves the purchase of inverse
floaters which are considered to be a derivative instrument. Inverse floaters
constitute a class of CMOs with a coupon rate that moves opposite to that of a
designated index, such as LIBOR or COFI. Any rise in the index rate causes a
decline in the coupon rate on an inverse floater while any drop in the index
rate causes an increase in the coupon rate of the inverse floater. Inverse
floaters exhibit greater price volatility than other mortgage-backed securities.
See the Appendix to this Prospectus for a greater discussion of inverse floaters
and "Risk Considerations - Inverse Floaters" in this Prospectus.
Each Fund may invest in other securities, including mortgage-backed
securities which are not guaranteed, or secured by collateral which is not
guaranteed, by Federal Agencies. In addition, each Fund may invest in mortgage
dollar rolls, asset-backed securities and debt securities rated Aa or higher by
Moody's or AA or higher by S&P, measured at time of purchase or initial
investment, or which have received a similar rating by any other nationally
recognized rating system. See "Risk Considerations - Reverse Repurchase
Agreements and Mortgage Dollar Rolls." Each Fund also may invest in stripped
mortgage securities (including interest-only securities), enter into repurchase
agreements and purchase and sell securities on a when issued, forward commitment
or a when, as and if issued basis. Each Fund also may enter into reverse
repurchase agreements for temporary borrowing purposes and may borrow money
through the use of mortgage dollar rolls as part of its investment strategy.
See the Appendix to this 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
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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.
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 may
not invest in convertible securities that are rated lower than B by both S&P and
Moody's, 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. A description of S&P and Moody's ratings is contained in the
Appendix to this Prospectus. 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. See the Appendix to this Prospectus for the
composition of the Fund's portfolio by rating category as of October 31,
1997.
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
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ratings agencies to be speculative. See "Risk Considerations - Risks Associated
With Lower Rated Securities."
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
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or convertible debentures, of large capitalization companies. Under normal
circumstances, it is expected that the Fund will be fully invested in common
stock or common stock surrogates.
In implementing its investment policy, the Fund may purchase and sell
convertible securities, including Eurodollar convertible securities and equity
securities of foreign companies including American Depositary Shares (ADSs)
evidenced by American Depositary Receipts. 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 the first
paragraph on page 43 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.
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The Adviser will employ a "bottom-up" decision making process to identify
industries or companies that are experiencing or, in its opinion, expected to
experience an acceleration in earnings growth. Earnings acceleration in a
company or industry is typically triggered by a change that causes fundamentals
to improve. The change could be broad based such as one driven by general
economic, political or demographic trends. Alternatively, the change could be
industry or company specific, resulting from new products or technology,
changing consumer attitudes, competitive advantages, restructuring or changes in
the way a company is operated or valued. Because of these diverse factors,
earnings acceleration can occur in companies on a wide range of market
capitalizations. Earnings acceleration or growth, by itself, does not guarantee
that a company's stock will increase in value and there can be no assurance that
the Fund will be able to achieve its investment objective.
In addition, to general money market investments as described below under
"Investment Objectives and Policies-General-Money Market Instruments", the Fund
may 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 69 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.
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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 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 43 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 69 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 69 of
this Prospectus.
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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.
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 25% of the Fund's total assets will be invested in
securities of companies with market capitalization of less than $100 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 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.
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
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States and abroad) or changes in circumstances in dealings between nations. See
"Risk Considerations - Foreign Securities" at page 65.
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 69 of this Prospectus for a greater discussion of the risks associated
with lower rated securities.
TCW GALILEO VALUE OPPORTUNITIES FUND
The TCW Galileo Value Opportunities Fund seeks capital appreciation by
investing at least 65% of its total assets, under normal circumstances, in
publicly-traded equity securities issued by small and medium capitalization
companies defined as companies with market capitalizations at the time of
purchase of between $500 million and $2.5 billion. The equity securities in
which the Fund may invest include common and preferred stocks, rights or
warrants to purchase common stock and securities convertible or exchangeable
into common stocks. The Fund may also purchase money market instruments and
purchase and sell securities on a when issued, delayed delivery, forward
commitment or a when, as and if issued basis and may purchase and sell options.
The Adviser will primarily invest the Fund's assets in the equity securities
of companies that, in the Adviser's opinion, have undervalued assets,
undervalued growth potential or are in a turnaround situation. The Adviser will
consider a company to have undervalued assets when its securities are considered
to be selling below probable liquidation values or below tangible book value. A
company will be considered to have undervalued growth potential by the Adviser
if the Adviser believes it has a reasonably strong potential growth rate and a
strong balance sheet but has securities selling at less than a market multiple
(based on normalized earnings) and/or a price earnings multiple at a discount to
its peer group of companies. The Adviser will consider a company to be in a
turnaround situation if the issuer has a sound balance sheet but whose
securities are selling at a significant market discount to the Adviser's
estimated earnings in twenty-four months for the company.
The Adviser's investment approach is based on the belief that every company
has an intrinsic value. The Adviser performs fundamental analysis which
includes a review of available financial information, company visits and
management interviews. The investment holding period for securities is
generally long-term although circumstances could require that shares be held
only for the short-term. Positions will generally be sold when it is judged
that companies will not achieve the anticipated results. Positions may
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also be reduced to raise cash and reduce risk exposure if the Adviser believes
it advantageous to do so.
The Fund may invest up to 25% of its total assets in foreign securities
(including ADRs, ADSs, and other similar securities) which are listed on the New
York or American Stock Exchanges or which are quoted and actively traded on the
National Association of Securities Dealers Automated Quotation System.
In addition, the Fund may lend its portfolio securities to brokers, dealers
and financial institutions, subject to applicable regulatory requirements.
Loans of securities by the Fund will be limited to 25% of its total assets. See
the Appendix to this Prospectus for a further discussion of this investment
practice.
There may be periods which, in the opinion of the Adviser, market conditions
warrant reduction of some or all of the Fund's securities holdings. During such
periods, the Fund may adopt a temporary "defensive" posture in which up to 100%
of its total assets is invested in money market instruments.
TCW GALILEO ASIA PACIFIC EQUITIES FUND
The investment objective of TCW Galileo Asia Pacific Equities Fund is to
seek long-term capital appreciation, by investing primarily in equity securities
of companies in the Asia Pacific Region ("Asia Pacific Countries") except
Australia, Japan and New Zealand. 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.
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 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. New forms of investments, and investment techniques, may be developed
in Asia Pacific Countries
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<PAGE>
in the future. The Fund may take advantage of any such developments to the
extent consistent with its investment objective and policies.
The Fund's assets will be allocated among the Asia Pacific Countries in
accordance with the Adviser's judgment as to where the best investment
opportunities exist. However, except when the Fund has adopted a defensive
position, it will generally vary investments on a geographic basis by investing
its assets among at least three Asia Pacific Countries. For defensive purposes,
such as during times of international political or economic uncertainty, most or
all of the Fund's investments may be in securities issued or guaranteed by the
United States Government or its agencies or instrumentalities or in cash or
short-term obligations including, but not limited to: bankers' acceptances,
commercial paper, repurchase agreements and other money market instruments.
The Adviser'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.
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Instead, a stock is examined in its totality, incorporating the quantitative
data as well as making certain qualitative judgements.
In addition to directly investing in Asia Pacific Countries and companies,
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 securities in
such industries or in such country. The advisory fees payable with respect to
investment in investment companies will be an expense of the Fund in addition to
the fees paid to the Adviser.
In 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 EQUITIES FUND
The investment objective of TCW Galileo Emerging Markets Equities 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.
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 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. 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 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
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or in cash or short-term obligations including, but not limited to: bankers'
acceptances, commercial paper, repurchase agreements and other money market
instruments.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in Emerging Market Company equity-related securities. The Fund may
invest up to 35% of its total assets in debt securities of governmental and
corporate issuers in the Emerging Market Countries. These instruments may be
denominated in U.S. dollars or local currencies, and may include bonds, notes
and debentures of any maturity. The Fund anticipates that most of the debt
securities it purchases will be unrated or will be rated below investment grade.
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 policies.
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.
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The Adviser also considers the possible impact of short-term cyclical factors,
such as business and political cycles, on particular industries. These analyses
produce industry weightings for each market.
In selecting Emerging Market Companies for investment, the Adviser takes
into account a variety of factors, including price/earnings ratio, earnings
growth, quality of management, availability of new products and markets, current
and historical stock prices, sales growth and country factors affecting
particular companies. Occasionally, the Adviser will identify and invest in an
attractive company or sector within an Emerging Market Country, even though that
country's expected overall return is undesirable.
In addition to directly investing in Emerging Market Countries or companies,
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 Equities
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 EUROPEAN EQUITIES FUND
TCW Galileo European Equities Fund seeks long-term capital appreciation by
investing primarily in the securities of issuers located in Europe. The Fund
seeks to achieve its investment objective by investing, under normal market
conditions, at least 65% of its total assets in European equity securities
issued by companies (i) which are organized under the laws of a European country
and have a principal office in Europe; (ii) which derive 50% or more of their
gross revenues or profits from goods produced or sold, investments made, or
services performed in European countries or have at least 50% of their assets
situated in Europe; or (iii) the equity securities of which are traded
principally on a stock exchange or over-the-counter in a European country.
Equity securities in which the Fund may invest include common and preferred
stocks, rights or warrants to purchase common stock and securities convertible
or exchangeable into common stocks. Such equity securities may be in the form
of ADRs, EDRs, GDRs or other depositary instruments.
The Fund may invest up to 35% of its total assets in U.S. dollar or foreign
currency denominated debt securities issued or guaranteed by European
governmental entities, or by European or multinational companies or
supranational organizations.
The Fund seeks to emphasize companies which are moving towards the American
concept of shareholder value. In addition, the outlook of the Adviser is
primarily sectoral.
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It is the Adviser's view that despite the difficulties experienced in the march
towards the European Monetary Union, barriers within Europe are falling which
offers tremendous investment opportunities.
In recent years, economic ties between the former "eastern bloc" countries
of Eastern Europe and certain other European countries have been strengthened.
The Adviser believes that as this strengthening continues, some Western European
financial institutions and other companies will have special opportunities to
facilitate East-West transactions. The Fund will seek investment opportunities
among such companies. The Fund will not invest more than 30% of its total
assets in issuers based in former "eastern bloc" countries, or more than 10% of
its total assets in issuers based in any one former "eastern bloc" country.
Under normal circumstances, the Fund will invest in companies based in at
least three European countries. Subject to the foregoing and to the limitation
on investment in any former "eastern bloc" country, the Fund may invest without
limitation in a single European country. When the Fund is so invested, it would
be subject to a correspondingly greater risk of loss due to adverse political or
regulatory developments, or an economic downtown, within that country.
To hedge against adverse price movements in the securities held in its
portfolio and the currencies in which they are denominated (as well as in the
securities it might wish to purchase and their denominated currencies) the Fund
may (i) engage in transactions in forward foreign currency contracts; (ii)
write, sell and purchase exchange-traded put and call options, including
exchange-traded index options; (iii) enter into financial futures contracts,
including contracts for the purchase or sale for future delivery of foreign
currencies and futures contracts based on stock indices, and purchase and write
options on futures-contracts; and (iv) purchase and write put options on foreign
currencies traded on securities exchanges or boards of trade or over-the-
counter. The Fund may also enter into forward commitments for the purchase or
sale of securities; and enter into standby commitment agreements.
TCW GALILEO INTERNATIONAL EQUITIES FUND
TCW Galileo International Equities Fund seeks long-term capital appreciation
by investing in registered investment companies. The Fund seeks to achieve its
investment objective by investing in a mix of "Underlying Galileo Funds", which
consist of separate series of the Company for which the Adviser now or in the
future acts as investment manager or for which TCW Brokerage Services now or in
the future acts as principal underwriter for.
In order to achieve its investment objective, the Fund allocates its assets,
within predetermined percentage ranges, among certain of the Underlying Galileo
Funds which,
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except for the Galileo Money Market, invest in foreign securities. The Fund will
invest in the following Underlying Galileo Funds up to the percentage limits set
forth below:
<TABLE>
<CAPTION>
Fund Investment Limit (Percent of the
Underlying Galileo Funds International Equities Fund's Total Assets)
- ------------------------ -------------------------------------------
<S> <C>
Galileo Asia Pacific Equities Fund................ 50%
Galileo Emerging Markets Equities Fund............ 35%
Galileo European Equities Fund.................... 75%
Galileo Japanese Equities Fund.................... 75%
Galileo Latin America Equities Fund............... 50%
Galileo Money Market Fund......................... 50%
</TABLE>
As new Underlying Galileo Funds are created in the future, the Board of
Directors may authorize the Fund to invest in shares of these new Underlying
Galileo Funds. The percentages reflect the extent to which each Fund will
invest in the particular market segment represented by each Underlying Galileo
Fund, and the varying degrees of potential investment risk and reward
represented by each Fund's investments in those market segments and their
corresponding Underlying Galileo Funds. The Adviser may alter these percentage
ranges when it deems appropriate. The assets of each Fund will be allocated
among each of the Underlying Galileo Funds in accordance with its investment
objective, the Adviser's outlook for the economy and the financial markets and
the relative market valuations of the Underlying Galileo Funds. In addition, in
order to meet liquidity needs or for temporary defensive purposes, the Fund may
invest its assets without limit directly in cash or the following short-term
instruments: (i) short-term obligations of the U.S. government, its agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities rated A or higher by Moody's or S&P; or if unrated, of
comparable quality in the opinion of the Adviser; (iii) commercial paper,
including master notes; (iv) bank obligations, including negotiable certificates
of deposit, time deposits and bankers' acceptances; and (v) repurchase
agreements. At the time the Fund invests in any commercial paper, bank
obligations or repurchase agreements, the issuer must have outstanding debt
rated A or high by Moody's or S&P; the issuer's parent corporation, if any, must
have outstanding commercial paper rated Prime-1 by Moody's or A-1 by S&P; or, if
no such ratings are available, the investment must be of comparable quality in
the opinion of the Adviser.
An investment in the Fund involves certain risks in addition to those
ordinarily associated with a mutual fund that invests in foreign securities.
Investing in the Underlying Galileo Funds through the Fund involves certain
additional expenses and tax results that would not present in a direct
investment in the Underlying Galileo Funds. In addition, from time to time, one
or more of the Underlying Galileo Funds used for investment by the Fund may
experience relatively large investments or redemptions due to reallocations or
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rebalancings by the Fund as recommended by the Adviser. These transactions will
affect the Underlying Galileo Funds, since the Underlying Galileo Funds that
experience redemptions as a result of reallocations or rebalancings may have to
sell portfolio securities and Underlying Galileo Funds that receive additional
cash will have to invest such cash. While it is impossible to predict the
overall impact of these transactions over time, there could be adverse effects
on portfolio management to the extent that the Underlying Galileo Funds may be
required to sell securities or invest cash at times when they would not
otherwise do so. These transactions could also have tax consequences if sales
of securities resulted in gains and could also increase transaction costs.
Because the Adviser serves as investment adviser to the Fund and the Underlying
Galileo Funds, the Adviser may face conflicts in fulfilling its fiduciary
responsibilities to the Fund and the Underlying Galileo Fund.
Each Underlying Galileo Fund has a specific investment objective and
investment policies. Investors should read the disclosure contained in this
Prospectus under "Investment Objectives and Policies" regarding each Underlying
Galileo Fund's investment objective, policies and permissible investments.
Investors should also read the section titled "Risk Considerations" and, in
particular, the sub-sections titled "Foreign Securities", "Foreign Currency
Risks" and "Risks Associated with Emerging Market Countries" for a discussion of
the risks of investing in foreign securities and in developing or emerging
markets countries. 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. In
addition, the securities markets of emerging market countries are more volatile
than the securities markets of developed countries.
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TCW GALILEO JAPANESE EQUITIES FUND
TCW Galileo Japanese Equities Fund seeks long-term capital appreciation by
investing primarily in Japanese equity securities as described below. The Fund
seeks to achieve its investment objective by investing, under normal market
conditions, at least 65% of its total assets in equity securities issued by
companies (i) which are organized under the laws of Japan and have a principal
office in Japan; (ii) which derive 50% or more of their gross revenues or
profits from goods produced or sold, investments made, or services performed in
Japan or have at least 50% of their assets situated in Japan; or (iii) the
equity securities of which are traded principally on a stock exchange or over-
the-counter in Japan. Equity securities in which the Fund may invest include
common and preferred stocks, rights or warrants to purchase common stock and
securities convertible or exchangeable into stocks. Such equity securities may
be in the form of ADRs, EDRs, GDRs or other depository instruments.
The Fund may invest up to 25% of its total assets in equity securities of
Japanese companies traded on the Second Sections of the Main Japanese exchanges
and in the over-the-counter market. These would generally be smaller companies.
As a "single country" mutual fund, the Fund may exhibit certain speculative
characteristics and thus should not constitute a complete investment program.
Investing internationally involves certain risks, such as economic and political
risk, and therefore poses different and greater risks than those customarily
associated with domestic securities and their markets. The concentration of the
Fund's assets in Japanese issuers will subject the Fund to the risks of adverse
social, political or economic events which occur in Japan.
It is the Adviser's approach to invest in securities of exceptional value
by purchasing equity securities with low price-to-book ratios and high dividend
yields. Typically an equity security, at the date of purchase, will have
suffered underperformance in share price terms and its valuation will typically
be at the lower end of its historic range. The Adviser believes that stocks
with these characteristics tend to be consistently undervalued relative to
underlying quality and will tend to produce positive rather than negative
earnings surprises in the future. The Adviser's investment philosophy is
contrarian. It is the Adviser's belief that the emotional nature of stock
market cycles tends to result in excessive optimism and pessimism in the
manifest. This usually manifests itself in valuation levels of individual
stocks becoming unsustainably high at market peaks and far too low at market
troughs. This volatility presents investment opportunities to be exploited by
identifying stocks that have suffered excessive declines, purchase them and hold
them until the valuation gap closes.
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The Fund may invest up to 35% of its total assets in debt securities of
issuers located in Japan or issued or guaranteed by the Japanese government.
The Fund has adopted a policy that it may invest more than 25% of its total
assets in debt securities issued or guaranteed by the Japanese government. In
addition, this portion of the Fund's investment portfolio will consist of
various other financial instruments such as forward foreign exchange contracts,
futures contracts and options.
There may be periods of time which, in the opinion of the Adviser, market
conditions warrant reduction of some or all of the Fund's securities holdings.
During such periods, the Fund may adopt a temporary defensive position in which
up to 100% of the Fund's total assets are invested in cash or money market
instruments.
To hedge against adverse price movements in the securities held in its
portfolio and the currencies in which they are denominated (as well as in the
securities it might wish to purchase and their denominated currencies) the Fund
may (i) engage in transactions in forward foreign currency contracts; (ii)
write, sell and purchase exchange-traded put and call options, including
exchange-traded index options; (iii) enter into financial futures contracts,
including contracts for the purchase or sale for future delivery of foreign
currencies and futures contracts on stock indices, and purchase and write
options on futures contracts; and (iv) purchase and write put options on foreign
currencies traded on securities exchanges or boards of trade or over-the-
counter. The Fund may also enter into forward commitments for the purchase or
sale of securities and enter into standby commitment agreements.
TCW GALILEO LATIN AMERICA EQUITIES FUND
TCW Galileo Latin America Equities 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. The 35% limit on investment in Latin American debt and convertible
securities 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
Equities and Latin American Equities - 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, the Fund may invest up to 100%
of its total assets 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 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) equity
securities of companies that derive at least 50% of their gross revenues or
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. 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. New forms
of investments, and investment techniques, may be developed in Latin American
countries in the future. The Fund may take advantage of any such developments
to the extent consistent with its investment objective and policies.
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
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of securities on a when issued, forward commitment or a when, as and if issued
basis and may enter into reverse repurchase agreements for temporary borrowing
purposes. It may also purchase and write call and put options and lend its
portfolio securities to brokers, dealers and financial institutions. In
addition, the Fund may invest in other investment companies, including closed
end investment companies commonly known as country funds. 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
redemptions from 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 Investment Company Act of 1940 ("1940 Act"), the Bond
Funds and the Equity Funds may also invest in money market mutual funds
unaffiliated with the Adviser. The International Equities Fund may also invest
in the Money Market Fund. 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. If a temporary
defensive position is established, up to 100% of a Fund's total assets may be
invested 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, (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 portfolio turnover rates for each of the Funds
for the fiscal years ended October 31, 1996 and 1997 were, respectively, Core
Fixed Income - 238.73% and 142.96%, High Yield - 82.56% and 109.45%, Long-Term
Mortgage-Backed - 39.28% and 16.01%, Mortgage-Backed - 54.10% and 109.91%, Core
Equity - 39.58% and 39.22%, Earnings Momentum - 99.03% and 93.06%, Small Cap
Growth - 45.43% and 60.52%, Asia Pacific Equities - 84.81% and 81.92%, Emerging
Markets Equities - 83.76% and 79.80% and Latin America Equities - 44.32% and
21.17%. The portfolio turnover rate for Mid-Cap Growth for the period June 3,
1996 through October 31, 1996 was 19.19% and for the fiscal year ended October
31, 1997, 50.45%. The portfolio turnover rate for Convertible Securities for
the period January 2, 1997 through October 31, 1997 was 141.43%. The portfolio
turnover rates for European Equities, Japanese Equities and Value Opportunities
are 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.
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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.
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
Equities and Emerging Markets Equities may involve additional risks. See
Appendix A - "Strategies Available to All Bond Funds and Equity Funds."
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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.
"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).
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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 Bonds may invest in securities issues by foreign companies.
Investment in foreign securities involves special risks in addition to the usual
risks inherent in domestic investments. These include: 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. Investment in foreign securities involves
higher costs than investment in U.S. securities, including higher transaction
and custody costs as well as the imposition of additional taxes by foreign
governments. In addition, security trading practices abroad may offer less
protection to investors such as the Funds. Settlement of transactions in some
foreign markets may be delayed or may be less frequent than in the U.S., which
could affect the liquidity of each Fund's portfolio. Also, it may be more
difficult to obtain and enforce legal judgments against foreign corporate
issuers than against domestic issuers and it may be impossible to obtain and
enforce judgments against foreign governmental issues. Additional
considerations relating to Emerging Market Country securities are described
under "Risk Considerations - Risks Associated with Emerging Market Countries" at
page 66.
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.
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With respect to Emerging Markets Equities, Core Fixed Income and Latin
America Equities, 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, in December 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. Further, in
July 1997, the Thai and Philippine governments allowed the baht and peso,
respectively, to trade freely against the U.S. dollar resulting in a sharp
devaluation of both currencies.
RISKS ASSOCIATED WITH EMERGING MARKET COUNTRIES
Investors should recognize that investing in securities of emerging market
countries through investment in the Asia Pacific Equities, Emerging Markets
Equities, International Equities and Latin America Equities 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.
Political and economic structures in many emerging markets countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristics of more
developed countries. Some of these countries may have in the past failed to
recognize private property rights and have at times nationalized or expropriated
the assets of private companies.
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 Equities, Emerging Markets Equities, International Equities and Latin
America Equities 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.
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
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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. 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.
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A market may at times find it necessary to impose restrictions on particular
types of options transactions, such as opening transactions. For example, if an
underlying security ceases to meet qualifications imposed by the market or the
Options Clearing Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening transactions in
existing series may be prohibited. If an options market were to become
unavailable, a Fund which holds an option would be able to realize profits or
limit losses only by exercising the option, and a Fund which acted as option
writer would remain obligated under the option until expiration or exercise.
Special risks are presented by internationally-traded options of the type
the Equity Funds and 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 Bonds 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 Equities, Core Fixed Income, Earnings Momentum, Mid-Cap Growth,
Emerging Markets Equities, European Equities and Latin America Equities 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
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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.
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
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<PAGE>
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 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
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<PAGE>
changes in governmental legislation or regulation. Fluctuations in
the market value of mortgage-backed securities after their acquisition usually
do not affect cash income from such securities but are reflected in each Fund's
net asset value. The liquidity of mortgage-backed securities varies by type of
security; at certain times a Fund may encounter difficulty in disposing of
investments. Other factors that could affect the value of a mortgage-backed
security include, among other things, the types and amounts of insurance which a
mortgagor carries, the amount of time the mortgage loan has been outstanding,
the loan-to-value ratio of each mortgage and the amount of overcollateralization
of a mortgage pool.
PREPAYMENT AND REDEMPTION RISK OF MORTGAGE-BACKED SECURITIES. Mortgage-
backed securities reflect an interest in monthly payments made by the borrowers
who receive the underlying mortgage loans. Although the underlying mortgage
loans are for specified periods of time, such as 20 or 30 years, the borrowers
can, and typically do, pay them off sooner. In such an event, the mortgage-
backed security which represents an interest in such underlying mortgage loan
will be prepaid. A borrower is more likely to prepay a mortgage which bears a
relatively high rate of interest. This means that in times of declining
interest rates, a portion of the Fund's higher yielding securities are likely to
be redeemed and the Fund will probably be unable to replace them with securities
having as great a yield. Prepayments can result in lower yields to
shareholders. The increased likelihood of prepayment when interest rates
decline also limits market price appreciation 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.
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<PAGE>
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.
INVERSE FLOATERS. LONG-TERM MORTGAGE-BACKED AND MORTGAGE-BACKED SECURITIES
INVEST IN INVERSE FLOATERS, A CLASS OF CMOS WITH A COUPON RATE THAT RESETS IN
THE OPPOSITE DIRECTION FROM THE MARKET RATE OF INTEREST TO WHICH IT IS INDEXED
SUCH AS LIBOR OR COFI. ANY RISE IN THE INDEX RATE (AS A CONSEQUENCE OF AN
INCREASE IN INTEREST RATES) CAUSES A DROP IN THE COUPON RATE OF AN INVERSE
FLOATER WHILE ANY DROP IN THE INDEX RATE CAUSES AN INCREASE IN THE COUPON OF AN
INVERSE FLOATER. AN INVERSE FLOATER MAY BE CONSIDERED TO BE LEVERAGED TO THE
EXTENT THAT ITS INTEREST RATE VARIES BY A MAGNITUDE THAT EXCEEDS THE MAGNITUDE
OF THE CHANGE IN THE INDEX RATE OF INTEREST. THE HIGHER DEGREE OF LEVERAGE
INHERENT IN INVERSE FLOATERS IS ASSOCIATED WITH GREATER VOLATILITY IN THEIR
MARKET PRICES.
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.
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NON-DIVERSIFIED STATUS
Each Equity Fund, is classified as a non-diversified investment company
under the 1940 Act, and as such is not limited by the 1940 Act in the proportion
of its assets that it may invest in the obligations of a single issuer.
However, each Equity Fund intends to conduct its operations so as to qualify as
a "regulated investment company" under Subchapter M of the Internal Revenue
Code. See "Dividends, Distributions and Taxes." In order to qualify, among
other requirements, each Equity Fund will limit its investments so that at the
close of each quarter of the taxable year, (a) not more than 25% of the market
value of the Fund's total assets will be invested in the securities of a single
issuer (other than U.S. Government Securities or the shares of other qualified
regulated investment companies) or in the securities of two or more issuers
(other than U.S. Government Securities or the shares of other qualified
regulated investment companies) which the Fund controls and which are engaged in
the same or similar trades or businesses or related trades or businesses and (b)
with respect to 50% of the market value of its total assets not more than 5%
will be invested in the securities of a single issuer (other than U.S.
Government Securities or the shares of other qualified regulated investment
companies) and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. To the extent that a relatively high percentage
of an Equity Fund's assets may be invested in the obligations of a limited
number of issuers, the Fund's portfolio securities may be more susceptible to
any single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment portfolio. The limitations described in
this paragraph are not fundamental policies and may be revised to the extent
applicable federal income tax requirements are revised.
YEAR 2000
The investment advisory and management services provided by the Adviser and
the services provided to shareholders by the Transfer Agent depend on the smooth
functioning of their computer systems. Many computer software systems in use
today cannot recognize the year 2000, but revert to 1900 or some other date, due
to the manner in which dates were encoded and calculated. That failure could
have a negative impact on the handling of securities trades, pricing and account
services. The Adviser and the Transfer Agent have been actively working on
necessary changes to their own computer systems to prepare for the year 2000 and
expect that their systems will be adapted for year 2000 compliance before that
date, but there can be no assurance that they will be successful, or that
interaction with other non-complying computer systems will not impair their
services at that time.
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<PAGE>
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
TCW Funds Management, Inc., the Adviser to the Funds, is a registered
investment adviser under the Investment Advisers Act of 1940 ("Advisers Act")
and is headquartered at 865 South Figueroa Street, Suite 1800, Los Angeles,
California 90017. The Adviser was organized in 1987 as a wholly-owned subsidiary
of The TCW Group, Inc. (formerly TCW Management Company), whose subsidiaries,
including Trust Company of the West and TCW Asset Management Company ("TAMCO"),
provide a variety of trust, investment management and investment advisory
services. As of December 31, 1997, the Adviser and its affiliated companies had
approximately $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 the Asia Pacific Equities and Emerging
Markets Equities Funds, 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 the Emerging Markets Equities,
European Equities, Japanese Equities and International Equities Funds is a
registered investment adviser under the Advisers Act and is headquartered at 16
Charles II Street, London, England SWIY4QV. The Sub-Advisers are wholly-owned
subsidiaries of The TCW Group, Inc. See "Investment Adviser" above.
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>
CORE FIXED INCOME 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.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
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.
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.
HIGH YIELD Mark L. Attanasio See above.
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.
LONG-TERM MORTGAGE-BACKED Philip A. Barach See above.
AND MORTGAGE-BACKED
Jeffrey E. Gundlach See above.
Frederick Horton See above.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
CONVERTIBLE SECURITIES 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.
Kevin A. Hunter Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West.
CORE EQUITY Equity Committee
chaired
by Douglas S. Foreman
EARNING MOMENTUM Charles Larsen Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West.
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 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.
SMALL CAP GROWTH Christopher J. Ainley See above.
Douglas S. Foreman See above.
Charles Larsen See above.
VALUE OPPORTUNITIES Nicholas F. Galluccio Managing Director, TCW Asset
Management Company and Trust
Company of the West.
ASIA PACIFIC EQUITIES 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.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Terence F. Mahony Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West since April 1996.
Previously he was Chief Investment
Officer for Global Emerging Markets
Equities at HSBC Asset Management
(September 1993 to April 1996) and
prior thereto was a Director at Baring
Asset Management.
EMERGING MARKETS EQUITIES Shaun C.K. Chan See above.
Terence F. Mahony See above.
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.
EUROPEAN EQUITIES James M. Burns Managing Director and Executive Vice
President, TCW London International
Limited (since August 1993) and
Managing Director, TCW Asset
Management Company since October
1994. Previously Managing Director
Dillon, Read International Asset
Management Co. (London).
Saker A. Nusseibeh Managing Director and Executive Vice
President, TCW London International,
Limited and Managing Director, TCW
Asset Management Company since
July 1996. Previously Director of
Mercury Asset Management (London).
INTERNATIONAL EQUITIES Saker A. Nusseibeh See above.
JAPANESE EQUITIES Stephen J. Harker Managing Director and Executive Vice
President, TCW London International,
Limited (since January 1994) and
Managing Director, TCW Asset
Management Company (since October
1994). Previously Assistant Director
and Fund Manager for Prudential
Portfolio Managers, Ltd. (England).
Peter A. Kirkman Vice President TCW London
International, Ltd. and TCW Asset
Management Company since March
1996. Previously Senior Fund Manager
Prudential Portfolio Managers, Ltd.
(England).
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
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.
Michael P. Reilly See above.
</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 Bonds .75%
Convertible Securities .75%
Core Equity .75%
European Equities .75%
Japanese Equities .75%
Value Opportunities .80%
Small Cap Growth 1.00%
Earnings Momentum 1.00%
Mid-Cap Growth 1.00%
Asia Pacific Equities 1.00%
Emerging Markets Equities 1.00%
Latin America Equities 1.00%
</TABLE>
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<PAGE>
The Advisory Agreement for International Equities provides that the Fund
does not pay a direct management fee. However, as a "fund of funds" investing
its assets in a mix of other Galileo Funds, International Equities will bear its
proportionate share of the management fee of any other Fund it invests in.
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 Fund reimburses the Adviser for
accounting services, but in an amount not exceeding 0.10% of its average daily
net assets.
The Adviser has retained, at its sole expense, TCW Asia to provide
investment advisory services for the Asia Pacific Equities and Emerging Markets
Equities Funds and TCW London to provide such services with respect to the
Emerging Markets Equities, European Equities, International Equities and
Japanese Equities Funds. Under the Sub-Advisory Agreements the Sub-Advisers
assist the Adviser in performing its advisory functions in respect of the
Funds.
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 fiscal year ended October 31, 1997, the
expenses (annualized) paid by the Funds, as a percentage of their average daily
net assets were: Money Market - 0.40%; High Yield Bonds - 0.83%; Core Fixed
Income - 0.93% (after fee waiver); Long-Term Mortgage-Backed - 0.67%; Mortgage-
Backed - 0.77%; Convertible Securities - 0.95% (after expense reimbursement);
Core Equity - 0.83%; Mid-Cap Growth -1.12%; Small Cap Growth - 1.14%; Earnings
Momentum - 1.17%; Asia Pacific Equities
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<PAGE>
- -1.49%; Emerging Markets Equities -1.50%; and Latin America Equities - 1.46%.
With respect to Convertible Securities, Value Opportunities, Money Market,
European Equities, International Equities and Japanese Equities, 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 1.05%, 1.36%, 0.40%, 1.20%, 1.16% and 1.20%
respectively, of their average net value, until October 31, 1998. 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, 1998.
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 Fund
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. 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.
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<PAGE>
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) _____________________
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. Money Market Fund purchases made after 12:00
p.m. Eastern time earn dividends commencing the next 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 money 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
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<PAGE>
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 Investor 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. Federal funds received by the Transfer Agent
by 4:00 p.m. (Eastern time) (12:00 p.m. Eastern Time for the Money Market Fund)
on a Business Day will be processed on that day unless the New York Stock
Exchange closes earlier. If the New York Stock Exchange closes earlier than 4:00
p.m. (Eastern Time) (12:00 p.m. Eastern time for the Money Market Fund) purchase
orders received after its close will be executed the next Business Day and
receive the net asset value for that day.
However, orders received by the Transfer Agent from dealers, brokers or
other service providers after the net asset value is determined that day will
receive such net asset value if the orders were received from the dealers,
brokers or other service providers from their customers prior to such
determination and were transmitted to and received by the Transfer Agent prior
to 9:30 a.m. Eastern Time on the next day.
DISTRIBUTOR
TCW Brokerage Services (the "Distributor"), 865 South Figueroa Street, Suite
1800 Los Angeles, California 90017.
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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.
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
A shareholder may request checks which may be drawn on the shareholder's
Money Market Fund 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
Investor Relations Department at (800) FUND TCW (800-386-3829) or your
investment representative at TCW Galileo Funds, Inc. This service is subject to
the rules and regulations of United Missouri Bank of Kansas City, N.A. and
Missouri Law. All notices with respect to checks are to be given to DST
Systems, Inc. Stop payment instructions may be given by calling DST Systems,
Inc. at 800-248-4486. The Fund reserves the right to impose conditions on or to
terminate this service at any time with respect to a particular shareholder or
all shareholders of the Fund in general. Since income is earned daily, it is
not possible for a shareholder to determine in advance the precise balance in
his account so as to write a check for the redemption of the entire account.
See "Redemption and Exchange of Shares."
REDEMPTION AND EXCHANGE OF SHARES
REDEMPTIONS AND EXCHANGES
The following are the procedures you may follow to exchange or redeem
your shares.
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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 Investor 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
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.
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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: Investor
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.
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.
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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.
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.
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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 can generally 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 a financial institution that
participates in STAMP. A notary public cannot provide a signature guarantee.
If a corporation, partnership, trust or fiduciary requests redemption, the
Transfer Agent may require written evidence of authority acceptable to the
Transfer Agent before it accepts the redemption request.
TELEPHONE EXCHANGES AND REDEMPTIONS
By establishing these services, you authorize us to: (a) redeem or exchange
shares from your account based on any instructions reasonably believed by us to
be genuine and (b) honor any written instructions for a redemption or exchange
without a signature guarantee. Shareholders who elect the telephone exchange
and redemption option bear the risk of any loss, damages, expense or cost
arising from their election of the telephone exchange and redemption option,
including risk of unauthorized use, provided the Transfer Agent and the Funds
employ reasonable procedures to confirm that telephone instructions are genuine.
These services may be modified or withdrawn without notice. The Transfer Agent
employs procedures considered by it to be reasonable to confirm that
instructions communicated by telephone are genuine, including requiring account
registration verification from the caller and recording telephone instructions.
If reasonable procedures are not employed, the Transfer Agent and the Funds may
be responsible for losses due to unauthorized or fraudulent instructions.
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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,
Martin Luther King Jr.'s Birthday, 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.
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.
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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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The amount of dividends of net investment income (i.e., all income other
than long-and short-term capital gains) and distributions of net realized long-
and short-term capital gains payable to shareholders will be determined
separately for each Fund. Dividends from the net investment income of the Bond
Funds will be declared and paid monthly. Dividends from the net investment
income of the Equity Funds will be declared and paid annually except for the
Convertible Securities Fund which will declare and pay dividends
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quarterly. 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 and paid each Business 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.
TAXES
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
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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.
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 Equities, Emerging Markets Equities, European Equities, Japanese
Equities and Latin America Equities' 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.
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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.
For redemptions made after July 28, 1997, net capital gains are subject to a
maximum tax rate of 20%, so long as the shares were held for more than eighteen
(18) months. Shares held no more than eighteen months but more than one year,
are subject to a tax at a maximum rate of 20%.
Dividends to shareholders who are non-resident aliens may be subject to a
30% United States withholding tax under provisions of the Internal Revenue Code
applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty law.
Non-resident shareholders should consult their own tax advisers.
Shareholders are notified annually of the federal tax status of dividends
and any distributions. To avoid being subject to a 31% federal backup
withholding on dividends, distributions and redemption payments, shareholders
must furnish the Fund with their correct taxpayer identification number.
Shareholders should consult their own tax advisers with respect to the
applicability of state, local, estate and gift taxes and non-U.S. taxes to their
investment in a Fund.
PERFORMANCE INFORMATION
From time to time, a Bond Fund may publish its 30-day "yield." The yield of
a Bond Fund refers to the income generated by an investment in the Fund over the
30-day period identified in the publication, and is computed by dividing the net
investment income per share earned by the Fund during the period of computation
by the maximum public offering price per share on the last day of the period.
The income is "annualized" by assuming that the amount of income is generated
each month over a one-year period and is compounded semiannually. The
annualized income is then shown as a percentage of the maximum public offering
price. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in a Bond Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
yield is generally a function of the kind and quality of the instruments held in
a portfolio, portfolio maturity, operating expenses and market conditions.
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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" 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 April 30, 1997, the yield and effective yield of Money Market
were 5.20% and 5.34%, 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.
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GENERAL INFORMATION
ORGANIZATION, SHARES AND VOTING RIGHTS
The Company was incorporated as a Maryland corporation on September 15, 1992
and is registered with the Securities and Exchange Commission as an open-end,
management investment company. The Company has acknowledged that the name "TCW"
is owned by The TCW Group, Inc. ("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 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.
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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.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 1000 Wilshire Boulevard, Los Angeles, California
90017.
LEGAL COUNSEL
O'Melveny & Myers LLP, 400 South Hope Street, Los Angeles, California 90071.
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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 Equities 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.
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STRATEGIES AVAILABLE TO ALL BOND FUNDS AND EQUITY FUNDS (EXCEPT INTERNATIONAL
EQUITIES)
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, any Bond Fund or Equity Fund
may purchase securities on a when-issued or delayed delivery basis and may
purchase or sell securities on a forward commitment basis. When such
transactions are negotiated, the price is fixed at the time of the commitment,
but delivery and payment can take place a month or more after the date of the
commitment. The securities so purchased or sold are subject to market
fluctuation, and no interest or dividends accrue to the purchaser prior to the
settlement date. While a Fund will only purchase securities on a when-issued,
delayed delivery or forward commitment basis with the intention of acquiring the
securities, the Fund may sell the securities before the settlement date, if it
is deemed advisable. At the time a Fund makes the commitment to purchase or
sell securities on a when-issued, delayed delivery or forward commitment basis,
the Fund will record the transaction and thereafter reflect the value, each day,
of such security purchased or, if a sale, the proceeds to be received, in
determining its net asset value. At the time of delivery of the securities, the
value may be more or less than the purchase or sale price. An increase in the
percentage of a Fund's assets committed to the purchase of securities on a when-
issued or delayed delivery basis may increase the volatility of the Fund's net
asset value. The Adviser does not believe that any Fund's net asset value or
income will be adversely affected by its purchase of securities on such basis.
STRATEGIES AVAILABLE TO ALL BOND FUNDS AND EQUITY FUNDS (EXCEPT MID-CAP GROWTH
AND INTERNATIONAL EQUITIES)
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
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or sold (written) to dealers or financial institutions which have entered into
direct agreements with a Fund. With respect to OTC Options, such variables as
expiration date, exercise price and premium will be agreed upon between a Fund
and the transacting dealer, without the intermediation of a third party such as
the OCC.
As a writer of covered put options, a Fund incurs an obligation to buy the
security (or currency) underlying the option from the purchaser of the put at
the option's exercise price at any time during the option period, at the
purchaser's election (certain listed and OTC put options written by a Fund will
be exercisable by the purchaser only on a specific date). A Fund will write
covered put options for three purposes: (a) to receive the premiums paid by
purchasers; (b) when the Adviser wishes to purchase the security underlying the
option (or a security denominated in the currency underlying the option) at a
price lower than its current market price, in which case it will write the
covered put at an exercise price reflecting the lower purchase price sought; and
(c) to close out a long put option position.
The Bond Funds and the Equity Funds (except Mid-Cap Growth and International
Equities) are permitted to write covered call options on portfolio securities
and, with respect to the Equity Funds (except Earnings Momentum, Mid-Cap Growth
and International Equities) 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 EQUITIES
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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.
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.
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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 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.
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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.
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
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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.
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.
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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 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, MID-CAP
GROWTH AND INTERNATIONAL EQUITIES) AND CORE FIXED INCOME
FORWARD CURRENCY TRANSACTIONS. The Equity Funds (except Earnings Momentum,
Mid-Cap Growth and International Equities) 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.
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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 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 (EXCEPT INTERNATIONAL EQUITIES) AND
HIGH YIELD BONDS
CONVERTIBLE SECURITIES. The Equity Funds (except International Equities)
and High Yield Bonds Fund may invest directly in convertible securities, bonds,
debentures, notes, preferred stocks or other securities that may be converted
into or exchanged for a prescribed amount of common or preferred 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 contemporaneously owns or has the
right to obtain at no added cost securities identical to those sold short. In a
short sale, the Fund does not immediately deliver the
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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 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, VALUE
OPPORTUNITIES, LATIN AMERICA EQUITIES AND EMERGING MARKETS EQUITIES
Lending of Portfolio Securities. The Latin America Equities, Emerging
Markets Equities, Convertible Securities, Mid-Cap Growth and Value Opportunities
Funds may,
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consistent with applicable regulatory requirements, lend their portfolio
securities to brokers, dealers and other financial institutions, provided such
loans are callable at any time by the Funds (subject to the notice provisions
described below), and are at all times secured by cash, bank letters of credit,
other money market instruments rated A-1, P-1 or the equivalent or securities of
the United States Government (or its agencies or instrumentalities), which are
maintained in a segregated account and that are equal to at least the market
value, determined daily, of the loaned securities. The advantage of such loans
is that the Funds continue to receive the income on the loaned securities while
at the same time earning interest on the cash amounts deposited as collateral,
which will be invested in short-term obligations. A Fund will not lend more than
25% of the value of its total assets (10% with respect to Mid-Cap Growth). A
loan may be terminated by the borrower on one business day's notice, or by a
Fund on two business 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 EQUITIES, LATIN AMERICA EQUITIES AND
EMERGING MARKETS EQUITIES
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 Equities 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
A-11
<PAGE>
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 5% of its total
assets in any one investment company, as long as that investment does not
represent more than 3% 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 Equities,
Latin America Equities and Emerging Markets Equities Funds may acquire the
securities of wholly-owned subsidiaries in order to facilitate investing in the
securities of certain foreign issuers. The tax laws of certain countries impose
a capital gains tax on profits derived from securities dispositions. Certain of
these countries have double taxation treaties whereby residents of one country
are exempt from taxation on their investments in the securities of issuers in
another country. The Funds intend to establish wholly-owned subsidiaries in
certain foreign countries to take advantage of these double taxation treaties in
order to avoid the imposition of various taxes, including capital gains taxes.
PRO FORMA PORTFOLIO COMPOSITION OF HIGH YIELD BONDS AND CONVERTIBLE SECURITIES
FUNDS
The table below reflects the portfolio composition by quality rating
category of High Yield Bond's and convertible securities on October 31, 1997 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.
HIGH YIELD BONDS
----------------
<TABLE>
<CAPTION>
RATINGS CATEGORY: MOODY'S S&P
---------------- ------- ---
<S> <C> <C>
Aaa/AAA 0.4% 0.0%
Aa/AA 0 0
A/A 0 0
Baa/BBB 2.1 1.0
Ba/BB 23.1 24.3
B/B 67.3 66.4
Caa/CCC 0.7 0
Ca/CC 0.5 0
D/D 0 0.3
NR/NR 5.9 8.0
---- ----
TOTAL 100% 100%
</TABLE>
A-12
<PAGE>
CONVERTIBLE SECURITIES
----------------------
<TABLE>
<CAPTION>
RATINGS CATEGORY: MOODY'S S&P
---------------- ------- ---
<S> <C> <C>
Aaa/AAA 2.4% 0.0%
Aa/AA 0 5.5
A/A 15.9 15.5
Baa/BBB 9.7 9.2
Ba/BB 4.7 6.5
B/B 22.5 22.5
Caa/CCC 1.9 1.9
Ca/CC 0 0
D/D 0 0
NR/NR 42.9 38.9
---- ----
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:
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
A-13
<PAGE>
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.
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.
A-14
<PAGE>
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 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.
A-15
<PAGE>
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.
A-16
<PAGE>
GRAPHICS APPENDIX
Performance graph on page 21 compares the performance of the Galileo Core Fixed
Income Fund since inception of predecessor limited partnership (January 1, 1990)
through October 31, 1997 to that of the Lehman Brothers Aggregate Bond and
Salomon Brothers Broad Based Bond Indexes using a minimum initial investment of
$250,000. At October 31, 1996 and 1997, the value of an investment in the Fund
would have been $406,649 and $441,022 compared to $440,432 and $479,837 for the
Lehman Brothers Aggregate Bond Index and $442,913 and $482,099 for the Salomon
Broad Index. The Fund's average annualized total return is 8.5% (1 year), 8.8%
(3 years), 6.1% (5 years) and 7.5% (since inception).
Performance graph on page 22 compares the performance of the Galileo High Yield
Bonds Fund since inception of predecessor limited partnership (February 1, 1989)
through October 31, 1997 to that of the Salomon Brothers High Yield Cash Pay
Index using a minimum initial investment of $250,000. At October 31, 1996 and
1997, the value of an investment in the Fund would have been $562,805 and
$637,405 compared to $558,977 and $637,394, respectively, for an investment in
the index. The Fund's average annualized total return is 13.3% (1 year), 12.6%
(3 years), 11.3% (5 years) and 11.3% (since inception).
Performance graph on page 23 compares the performance of the Galileo Mortgage-
Backed Securities Fund since of inception of predecessor limited partnership
(February 1, 1990) through October 31, 1997 to that of the Salomon Brothers One
Year U.S. Treasury Bill Index using a minimum initial investment of $250,000.
At October 31, 1996 and 1997, the value of an investment in the Fund would have
been $397,172 and $409,195 compared to $373,334 and $383,130, respectively, for
an investment in the index. The Fund's average annualized total return is 6.7%
(1 year), 8.2% (3 years), 5.9% (5 years) and 7.0% (since inception).
Performance graph on page 24 compares the performance of the Galileo Long-Term
Mortgage-Backed Securities Fund since inception of predecessor limited
partnership (June 18, 1993) through October 31, 1997 to that of the Lehman
Brothers Mortgage-Backed Securities Index using a minimum initial investment of
$250,000. At October 31, 1996 and 1997, the value of an investment in the Fund
would have been $304,814 and $350,179 compared to $305,596 and $333,440,
respectively, for an investment in the index. The Fund's average annualized
total return is 11.7% (1 year), 12.0% (3 years) and 7.3% (since inception).
Performance graph on page 25 compares the performance of the Galileo Convertible
Securities Fund since inception of predecessor limited partnership (January 1,
1989) through October 31, 1997, to that of the First Boston Convertible
Securities Index using a minimum initial investment of $250,000. At October 31,
1997, the value of an investment in the Fund would have been $775,242 as
compared to $748,300 for an investment in the index. The Fund's average
annualized total return is 22.7% (1 year), 16.8% (3 years), 14.4% (5 years) and
13.7% (since inception).
Performance graph on page 26 compares the performance of the Galileo Core Equity
Fund since inception of predecessor limited partnership (July 1, 1991) through
October 31, 1997, to that of the S&P 500 Index using a minimum initial
investment of $250,000. At October 31, 1996 and 1997, the value of an
investment in the Fund would have been $534,639 and $655,895 compared to
$549,783 and $726,271, respectively, for an investment in the index. The Fund's
average annualized total return is 22.7% (1 year), 19.4% (3 years), 17.0% (5
years) and 16.4% (since inception).
Performance graph on page 27 compares the performance of the Galileo Earnings
Momentum Fund since inception of predecessor limited partnership (May 1, 1993)
through October 31, 1997 to that of the Russell 2000 Index using a minimum
initial investment of $250,000. At October 31, 1996 and 1997, the value of an
investment in the Fund would have been $402,953 and $460,272 compared to
$398,406 and $521,163, respectively, for an investment in the index. The Fund's
average annualized total return is 15.5% (1 year), 14.8% (3 years) and 14.5%
(since inception).
Performance graph on page 28 compares the performance of the Galileo Mid-Cap
Growth Fund since inception of predecessor limited partnership (November 1,
1994) through October 31, 1997 to that of the S&P 400 Mid Cap Index using a
minimum initial investment of $250,000. At October 31, 1996 and 1997, the value
of an investment in the Fund would have been $479,777 and $490,704 compared to
$355,581 and $471,802, respectively for an investment in the index. The Fund's
average annualized total return is 2.3% (1 year) and 25.2% (since
inception).
Performance graph on page 29 compares the performance of the Galileo Small Cap
Growth Fund since inception of predecessor limited partnership (December 1,
1989) through October 31, 1997 to that of the Russell 2000 Index using a minimum
initial investment of $250,000. At October 31, 1996 and 1997 the value of an
investment in the Fund would have been $901,671 and $995,245 compared to
$569,047 and $738,764, respectively, for an investment in the index. The Fund's
average annualized total return is 10.4% (1 year), 29.0% (3 years), 22.3% (5
years) and 19.1% (since inception).
Performance graph on page 30 compares the performance of the Galileo Asia
Pacific Equities Fund since inception of predecessor limited partnership (April
1, 1993) through October 31, 1997 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, 1996 and 1997, the value of an investment in the Fund
would have been $435,478 and $337,894 compared to $405,823 and $264,411,
respectively, for an investment in the index. The Fund's average annualized
total return is (22.4)% (1 year), (8.4)% (3 years) and 6.8% (since
inception).
Performance graph on page 31 compares the performance of the Galileo Emerging
Markets Equities Fund since inception of predecessor limited partnership (June
1, 1993) through October 31, 1997 to that of the International Finance
Corporation ("IFC") Emerging Markets Equities Composite Global Total Return
Index using a minimum initial investment of $250,000. At October 31, 1996 and
1997, the value of an investment in the Fund would have been $312,254 and
$321,076 compared to $348,051 and $313,071, respectively, for an investment in
the index. The Fund's average annualized total return is 2.8% (1 year),
(4.6)% (3 years) and 5.8% (since inception).
Performance graph on page 32 compares the performance of the Galileo Latin
America Equities Fund since inception of predecessor limited partnership (July
1, 1991) through October 31, 1997 to that of the IFC Latin America Investable
Index using a minimum initial investment of $250,000. At October 31, 1996 and
1997, the value of an investment in the Fund would have been $414,966 and
$543,549 compared to $518,776 and $636,313, respectively, for an investment in
the index. The Fund's average annualized total return is 26.2% (1 year), (1.8)%
(3 years), 9.5% (5 years) and 13.0% (since inception).
A-17
<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 27, 1998
_________________________________
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 Core Fixed Income Fund, TCW Galileo High Yield Bonds Funds, 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 Earnings Momentum Fund, TCW Mid-Cap Growth Fund, TCW Galileo
Small Cap Growth Fund, TCW Galileo Value Opportunities Fund, TCW Galileo Asia
Pacific Equities Fund, TCW Galileo Emerging Markets Equities Fund, TCW Galileo
European Equities Fund, TCW Galileo International Equities Fund, TCW Galileo
Japanese Equities Fund and TCW Galileo Latin America Equities 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
Investor 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.
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<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-22
DIRECTORS AND OFFICERS OF THE COMPANY............................. B-26
INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS................... B-30
DETERMINATION OF NET ASSET VALUE.................................. B-32
(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)
PURCHASES-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-41
</TABLE>
B-2
<PAGE>
GENERAL INFORMATION
As of January 30, 1998, the following shareholders owned of record 5% or
more (but less than 25%) of the outstanding shares of the following Funds: CORE
FIXED INCOME --Mead Foundation (8.13%) and Cedars-Sinai Medical Center (11.67%);
HIGH YIELD BONDS -- Genesee County Employees Retirement System (20.01%) and
First Insurance Company of Hawaii (5.69%); LONG-TERM MORTGAGE-BACKED SECURITIES
- -- Wendel & Co. (5.38%); Mellon Bank, NA (16.56%) and Bost & Co., CWCF 0012002
(22.89%); MORTGAGE-BACKED SECURITIES -- St. Vincents Medical Center Foundation
(13.17%); Mac & Co. 504-902, Mellon Bank (22.09%), B.H. McCoy Charitable Trust
(5.56%) and Jeffries and Company Inc. (16.53%); ASIA PACIFIC EQUITIES -- TCW
Galileo International Equities Fund (13.43%) and TCW Profit Sharing & Savings
Plan (10.19%); EMERGING MARKETS EQUITIES -- Duke Endowment Trust (22.65%),
Cravath Swaine & Moore Retirement Savings Plan (8.24%) and Mac & Co. 861-5202,
Mellon Bank, NA (23.64%); LATIN AMERICA EQUITIES -- TCW Profit Sharing and
Savings Plan (6.63%), Keswick Management, Inc. (5.42%), TCW Galileo
International Equities Fund, Inc. (10.02%) and TCW Capital Investment Corp.
(9.73%); CORE EQUITY -- Duke Endowment Trust (10.73%), Jupiter & Co. (7.66%),
Egleston's Children's Hospital (9.28%) and The Salk Institute (7.45%); SMALL CAP
GROWTH -- University of Tennessee (8.44%), Mac & Co. GCMF 8563402, Mellon Bank,
NA (6.38%), Mac & Co. FSPF 8631272, Mellon Bank, NA (6.19%) and Salem Hospital
Retirement Plan (8.71%); MID CAP GROWTH -- Tranan Management Corp. (5.26%);
EARNINGS MOMENTUM -- Goldman Sachs Pension Plan (20.33%); CONVERTIBLE SECURITIES
- -- Kresge Foundation (8.33%), Buck Foundation (8.09%), William & Charlene Nored
(5.49%), Transition Zone Horticultural Institute (8.35%), B.F. Foundation
(13.52%), Pennington Fund (5.10%), The Rio Hondo Foundation (7.22%), The Seaver
Institute (5.78%), Donohue Living Trust (5.52%) and TCW Profit Sharing and
Savings Plan (6.83%); VALUE OPPORTUNITIES -- Robson Trust (5.78%); William &
Charlene Norred (5.77%); TCW Capital Investment Corp. (5.56%); Collins
Management Trust (6.38%); Mead Foundation (5.47%) and Tranan Management Corp.
(14.73%); INTERNATIONAL EQUITIES -- Salk Institute
B-3
<PAGE>
(14.02%) and First Insurance Company of Hawaii (17.89%); JAPANESE EQUITIES --
D.C. Searle IRA (6.84%); and MONEY MARKET -- TCW Realty Fund VB (9.48%).
As of January 30, 1998, Ministers and Missionaries Benefit Board owned
55.76% of the outstanding shares of Latin American Equities and 32.89% of the
outstanding shares of Core Fixed Income; Sabrato Revocable Trust owned 31.69% of
the outstanding shares of Asia Pacific Equities; Duke Endowment Trust owned
38.15% of the outstanding shares of Earnings Momentum and 28.02% of the
outstanding shares of Mid-Cap Growth; Saxon & Co. FBO PNC owned 28.46% and TCW
Realty Fund VA owned 34.27% of the outstanding shares of Money Market and the
Galileo International Equities Fund owned 95.78% of the outstanding shares of
European Equities. 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: Investor Relations
Department.
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 Fund) 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
B-4
<PAGE>
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. (Money Market Fund, 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. (Money Market Fund, 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 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 Money Market Fund and the Bond and Equity Funds
----------------
may purchase commercial paper rated within the two highest ratings
categories by Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's") or, if not rated, the security is determined by
the Adviser to be of comparable quality.
World Bank Securities. (Money Market Fund) 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.
B-5
<PAGE>
Money Market Mutual Funds. (Money Market Fund, 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 (EXCEPT INTERNATIONAL
EQUITIES)
WHEN, AS AND IF ISSUED SECURITIES. The Bond Funds and the Equity Funds
(except International Equities) 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 ordinarily occur within three Business
Days (as defined in the Prospectus under "Purchase of Shares") of the occurrence
of the subsequent event. Once 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
AND INTERNATIONAL EQUITIES)
OPTIONS. The Bond Funds and the Equity Funds (except Mid-Cap Growth and
International Equities) 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").
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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 and International Equities) are permitted to write covered call options
on securities and (for the Equity Funds, except Mid-Cap Growth and International
Equities and, for the Bond Funds, 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 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
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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
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
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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).
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
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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.
OPTIONS ON FOREIGN CURRENCIES. The Equity Funds (except Mid-Cap Growth and
International Equities) 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.
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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.
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
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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.
STRATEGIES AVAILABLE TO ALL BOND FUNDS AND EQUITY FUNDS (EXCEPT MID-CAP GROWTH,
VALUE OPPORTUNITIES AND INTERNATIONAL EQUITIES)
FUTURES CONTRACTS. The Bond Funds and the Equity Funds (except Mid-Cap
Growth, Value Opportunities and International Equities) 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%.
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
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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 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, Value Opportunities and International Equities) may also
purchase and write call and put options on futures contracts which are traded on
an exchange and enter
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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 HIGH YIELD BONDS 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 only invest in convertible securities that are rated at
least B by either S&P or Moody's or, if not rated, determined to be of
comparable quality by the Adviser. 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 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
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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 Bonds and Core Equity may also invest in
Eurodollar convertible securities, and Emerging Markets Equities and Latin
America Equities 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 Equities and Latin American, in the case of Latin
America Equities) 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.
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. 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
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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 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
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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 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
B-17
<PAGE>
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 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
B-18
<PAGE>
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.
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
B-19
<PAGE>
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.
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
B-20
<PAGE>
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.
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. During the fiscal period or year ended October 31, 1997, Convertible
Securities, Core Equity, Mid-Cap Growth, Small Cap Growth, Asia Pacific Equities
and Latin America Equities directed $373, $219,619, $10,230, $23,908, $14,115,
$31,826 and $28,080, respectively, in brokerage commissions because of research
services provided.
B-21
<PAGE>
For the fiscal years ended October 31, 1995, 1996 and 1997, Core Equity,
Small Cap Growth, Earnings Momentum, Asia Pacific Equities, Latin America
Equities and Emerging Markets Equities paid $391,662, $237,979 and $386,378;
$205,604, $345,369 and $407,737; $280,024, $399,530 and $459,925; $564,590,
$470,820 and $450,959; $423,996, $195,703 and $200,989; and $414,350, $353,334
and $431,596 in brokerage commissions, respectively. During the fiscal period
June 3, 1996 to October 31, 1996, Mid-Cap Growth paid $97,907 in brokerage
commissions and for the fiscal year ended October 31, 1997, paid $334,812 in
brokerage commissions. Convertible Securities paid $23,633 in brokerage
commissions for the period January 2, 1997 through October 31, 1997.
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, 14 and
15 have also been adopted by 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 13 with respect to a Bond Fund or
Equity Fund and 9, 10 and 12 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 Equities 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,
B-22
<PAGE>
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. The European
Equities Fund may invest more than 25% of the value of its total assets in a
single European country, the International Equities Fund may invest more
than 25% of the value of its total assets in shares of registered investment
companies and the Japanese Equities Fund may invest more than 25% of the
value of its total assets in debt securities issued or guaranteed by the
Japanese government. 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.
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.
B-23
<PAGE>
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 Equities,
Emerging Markets Equities and Latin America Equities 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: (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
B-24
<PAGE>
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. 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.
15. 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.
B-25
<PAGE>
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
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.
B-26
<PAGE>
<TABLE>
<CAPTION>
Name and Address Principal Occupations and Other Affiliations
- ---------------- --------------------------------------------
<S> <C>
Marc I. Stern* (53) President and Director, The TCW
Chairman Group, Inc. (formerly TCW Management
865 South Figueroa Street Company) and the Adviser; Vice
Los Angeles, California 90017 Chairman, TCW Asset Management
Company; Chairman, TCW Americas
Development, Inc.; Chairman, TCW Asia
Ltd.; Chairman, TCW London
International, Limited (since March
1993) and Executive Vice President,
Trust Company of the West (since May
1993). Chairman, Apex Mortgage
Capital, Inc. (Since October 1997).
Trustee, TCW/DW Mutual Funds (since
April 1995). Director of Qualcomm
Incorporated (wireless
communications); formerly President
of Sun America, Inc. (financial
services company).
Thomas E. Larkin, Jr.* (58) 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 Mutual
Funds.
John C. Argue (66) 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), CalMat Company (producer of
aggregates, asphalt and ready mixed
concrete) Apex Mortgage Capital, Inc.
(real estate investment trust),
Nationwide Health Properties, Inc.
(real estate investment trust) and TCW
Convertible Securities Fund, Inc.;
Advisory Director, LAACO Ltd. (owner
and operator of private clubs and real
estate); Trustee, TCW/DW Mutual
Funds.
Norman Barker, Jr. (76) Former Chairman of the Board, First
Director Interstate Bank of California and
former Vice Chairman of the Board,
</TABLE>
B-27
<PAGE>
<TABLE>
<S> <C>
707 Wilshire Blvd. First Interstate Bancorp; Director,
Los Angeles, CA 90017 American Health Properties, Inc., ICN
Pharmaceuticals, Inc., TCW
Convertible Securities Fund, Inc.;
Chairman of the Board Fidelity
Federal Bank and America Income
Shares, Inc.
Richard W. Call (73) Former President, The Seaver
800 West 6th Street Institute (a private foundation);
Los Angeles, CA 90017 Director, TCW Convertible Securities
Fund, Inc. and The Seaver Institute.
</TABLE>
- ----------------------
* 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,
1997.
<TABLE>
<CAPTION>
Aggregate Compensation
Name of Independent Director From the Company
---------------------------- -------------------------
<S> <C>
John C. Argue............................ $38,000
Norman Barker, Jr........................ 38,000
Richard W. Call.......................... 38,000
</TABLE>
The following table illustrates the total compensation paid to Company's
Independent Directors for the calendar year ended December 31, 1997 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,
B-28
<PAGE>
TCW Funds Management, Inc., also serves as investment adviser to those
investment companies.
<TABLE>
<CAPTION>
Total Cash
For Service as Compensation from
For Service as Director and the TCW Galileo
Trustee and Committee Member Funds, Inc., 14
Committee Member of the TCW TCW/DW Funds, and
Name of Independent of 14 Convertible Securities the TCW Convertible
Director TCW/DW Funds Fund, Inc. Securities Fund, Inc.
- -------------------- ----------------- ----------------------- ---------------------
<S> <C> <C> <C>
John C. Argue $71,125 $ 5,250 $114,375
Norman Barker, Jr. -- 12,750 50,750
Richard W. Call 12,750 50,750
</TABLE>
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. (44)+ Senior Vice Executive Vice President, Finance
President and Administration, The TCW Group,
Inc., Trust Company of the West and
TCW Asset Management Company ;
formerly President of Oakmont
Corporation (investment management
services).
Michael E. Cahill Senior Vice Managing Director, General Counsel
(47)+ President, and Secretary, The TCW Group, Inc.,
General Trust Company of the West and TCW
Counsel Asset Management Company;
and Assistant formerly General Counsel and Senior
Secretary Vice President of Act III
Communications (media and
entertainment business).
</TABLE>
B-29
<PAGE>
<TABLE>
<S> <C> <C>
Ronald E. Robison Senior Vice Managing Director, Trust Company of
(59)+ 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.
Jeffrey Peterson (52)+ Senior Vice Managing Director, Trust Company of
President the West and TCW Asset Manage
ment Company; President, TCW
Brokerage Services since January
1994; formerly Managing Director,
Kidder Peabody & Co.; Director, The
Presley Companies (publicly-traded
home builder).
David K. Sandie (42)+ Senior Vice Managing Director, The TCW Group, Inc.,
President, Trust Company of the West,
Principal TCW Asset Management
Accounting Company and the Adviser; Principal
Officer and Accounting Officer and Assistant Treasurer,
Treasurer TCW Convertible Securities Fund, Inc.
Philip K. Holl (48)+ 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 Mohan Phansalkar are
Senior Vice Presidents, Associate General Counsels and Assistant Secretaries of
the Adviser. Patricia Navis is a Vice President, Associate General Counsel and
Assistant Secretary of the Adviser. Susan Marsch is Vice President/Legal 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
B-30
<PAGE>
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.
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 the Asia Pacific Equities and Emerging Markets Equities Funds and TCW
London International, Limited is a Sub-Adviser to Emerging Markets Equities,
European Equities, Japanese Equities and International Equities Funds (the "Sub-
Advisers"). The Sub-Advisers provide their respective Funds 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.
B-31
<PAGE>
The total amounts paid, net of any expense reimbursement by the Adviser and
payment of any accounting fees by the Funds, for the fiscal years ended October
31, 1995, 1996 and 1997 were: Money Market - $304,000, $455,000 and $592,000;
High Yield Bonds - $708,000, $928,000 and $1,612,000; Core Fixed Income -
$143,000, $127,000 and $77,000; Long-Term Mortgage-Backed Securities -$353,000,
$413,000 and $512,000; Mortgage-Backed - $494,000, $373,000 and $265,000; Core
Equity -$1,214,000, $1,549,000 and $1,628,000; Small Cap Growth -$444,000,
$1,101,000 and 1,290,000; Earnings Momentum - $517,000, $742,000 and $828,000;
Asia Pacific Equities - $441,000, $490,000 and $457,000; Emerging Markets
Equities - $555,000, $541,000 and $623,000; and Latin America Equities -
$610,000, $614,000 and $754,000. During the fiscal period ended October 31, 1996
and the fiscal year ended October 31, 1997, Mid-Cap Growth paid $338,000 and
$1,090,000, respectively in advisory fees. For the fiscal period ended October
31, 1997 Convertible Securities paid $198,000 in advisory fees.
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.
B-32
<PAGE>
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.
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, weekends 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.
B-33
<PAGE>
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.
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.
B-34
<PAGE>
PURCHASES-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 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 and (b) diversify
its holdings so that at the end of each fiscal 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
B-35
<PAGE>
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.
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 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.
Net capital gains on sales after July 28, 1997 by individual taxpayers are
subject to a maximum tax rate of 20%, so long as the shares were held for more
than eighteen
B-36
<PAGE>
months. Gains on shares held no more than eighteen months but more than one year
are subject to a tax at a maximum rate of 28%. Gain on sales of shares held a
year or less is "short-term" capital gain, subject to taxation at ordinary
income rates.
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-37
<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-38
<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:
B-39
<PAGE>
P(1+T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
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.
B-40
<PAGE>
Comparative performance information may be used from time to time in
publishing information about the Company's shares, including data from Lipper
Analytical Services, Inc., CDA Technologies, Inc. or similar independent
services which monitor the performance of mutual funds or with other appropriate
indexes of investment securities. The performance information may also include
evaluations of the Funds published by nationally recognized ranking services and
by financial publications that are nationally recognized, such as Business Week,
Forbes, Fortune, Institutional Investor, Money and The Wall Street Journal. A
Fund may compare its performance to other investments or relevant indexes
including, but not limited to, the following: High Yield Bonds -- First Boston
High Yield Index, Salomon Brothers High Yield Cash Pay Index and Lehman Brothers
Government/Corporate Bond Index; High Yield Bonds and Core Fixed Income --Lehman
Brothers Aggregate 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 Equities -Morgan Stanley Combined Far East ex Japan Index;
Emerging Markets Equities - International Finance Corporation Emerging Markets
Equities Composite Global Total Return Investable Index; European Equities --
Morgan Stanley Capital International European Equities; International Equities -
- - Morgan Stanley Combined Far East ex Japan Index, Morgan Stanley Capital
International European Equities and Tokyo Stock Exchange First Section Index;
Japanese Equities -- Tokyo Stock Exchange First Section Index; Latin America
Equities -- Baring Securities Emerging Markets Equities Index, International
Finance Corporation Latin America Investable Index, and Morgan Stanley Capital
International Latin America Index; and Money Market -- Donoghue's Money Fund
Average 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.
B-41
<PAGE>
FINANCIAL STATEMENTS
Set forth on the following pages are certain financial statements of the
Funds.
B-42
<PAGE>
TCW GALILEO FUNDS, INC.
ANNUAL REPORT
OCTOBER 31, 1997
<PAGE>
TCW GALILEO FUNDS,INC.
TABLE OF CONTENTS
- -----------------
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders..................................................... 2
Performance Summary........................................................ 3
Schedules of Investments:
TCW Galileo Money Market Fund............................................. 4
TCW Galileo Core 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 Convertible Securities Fund................................... 20
TCW Galileo Core Equity Fund.............................................. 24
TCW Galileo Earnings Momentum Fund........................................ 27
TCW Galileo Mid-Cap Growth Fund........................................... 31
TCW Galileo Small Cap Growth Fund......................................... 34
TCW Galileo Asia Pacific Equity Fund...................................... 39
TCW Galileo Emerging Markets Fund......................................... 41
TCW Galileo Latin America Equity Fund..................................... 47
Statements of Assets and Liabilities....................................... 50
Statements of Operations................................................... 54
Statements of Changes in Net Assets........................................ 58
Notes to Financial Statements.............................................. 71
Financial Highlights....................................................... 82
Independent Auditors' Report............................................... 96
Shareholder Information.................................................... 97
Tax Information Notice..................................................... 98
</TABLE>
1
<PAGE>
TO OUR SHAREHOLDERS
- -------------------
We are pleased to submit the October 31, 1997 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. On the next page is a
summary of each Fund's net asset value and returns through October 31, 1997.
TCW is committed to providing you with superior professional investment
management and distinctive personal service through the TCW Galileo Funds.
On November 3, 1997, we started four new Galileo Mutual Funds; TCW Galileo
International Equities Fund, TCW Galileo European Equities Fund, TCW Galileo
Japanese Equities Fund and TCW Galileo Value Opportunities Fund, each with a
unique investment strategy designed to meet the needs of our investors. TCW
Galileo International Equities Fund is a "Fund of Funds" investing in our five
international Galileo Funds and Galileo Money Market Fund providing investors
with a broad diversification across international markets.
Please call your Account Representative or our Investor 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
November 26, 1997
2
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
PERFORMANCE SUMMARY
- -------------------
<TABLE>
<CAPTION>
Net Asset Value Total Return - Annualized
per Share As of October 31, 1997
--------------- --------------------------------------------------------------
October 31, Year Ended Latest Since Inception
1997 October 31, 1997 5 Years Inception Date
--------------- ---------------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
TCW Galileo Money Market Fund $ 1.00 5.29% 4.54% 5.73% 07/14/88
TCW Galileo Core Fixed Income Fund 9.62 8.45% 6.11%/(1)/ 7.51%/(1)/ 01/01/90/(2)/
TCW Galileo High Yield Bond Fund 10.11 13.26% 11.19%/(1)/ 11.29%/(1)/ 02/01/89/(2)/
TCW Galileo Mortgage Backed Securities Fund 9.70 6.71% 5.89%/(1)/ 7.05%/(1)/ 02/01/90/(2)/
TCW Galileo Long-Term Mortgage Backed
Securities Fund 9.91 11.66% N/A 7.30% 06/17/93
TCW Galileo Convertible Securities Fund/(3)/ 11.41 22.73%/(1)/ 14.42%/(1)/ 13.65%/(1)/ 01/01/89/(2)/
TCW Galileo Core Equity Fund 19.29 22.68% 17.03%/(1)/ 16.44%/(1)/ 07/01/91/(2)/
TCW Galileo Earnings Momentum Fund 13.87 15.53% N/A 14.51%/(1)/ 05/01/93/(2)/
TCW Galileo Mid-Cap Growth Fund 9.40 2.28% N/A 25.19%/(1)/ 11/01/94/(2)/
TCW Galileo Small Cap Growth Fund 18.74 10.38% 22.32%/(1)/ 19.06%/(1)/ 12/01/89/(2)/
TCW Galileo Asia Pacific Equity Fund 7.37 (22.40)% N/A 6.79%/(1)/ 04/01/93/(2)/
TCW Galileo Emerging Markets Fund 8.32 2.82% N/A 5.81%/(1)/ 06/01/93/(2)/
TCW Galileo Latin America Equity Fund 12.51 26.24% 9.47%/(1)/ 13.03%/(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, as amended ("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 lower.
(2) Inception date of the predecessor limited partnership.
(3) Inception date of the Fund was January 2, 1997.
3
<PAGE>
TCW Galileo Money Market Fund
SCHEDULE OF INVESTMENTS
- -----------------------
<TABLE>
<CAPTION>
Principal
Amount INVESTMENTS Value
---------- ----------- -------------
<S> <C> <C>
AGENCY FIXED INCOME SECURITIES (26.6% of Net Assets)
$ 4,500,000 Federal Farm Credit Bank, 5.7%, due 09/02/98 $ 4,501,300
6,300,000 Federal Home Loan Bank, 5.5%, due 04/21/98 6,300,000
2,000,000 Federal Home Loan Bank, 5.655%, due 11/26/97 1,999,609
9,000,000 Federal Home Loan Bank, 5.71%, due 06/23/98 9,001,823
4,500,000 Federal Home Loan Bank, 5.8%, due 09/18/98 4,502,293
9,000,000 Federal Home Loan Bank, 7.87%, due 12/15/97 9,022,876
5,000,000 Federal Home Loan Mortgage Corp., 5.84%, due 04/08/98 5,004,247
10,000,000 Federal National Mortgage Association, 5.64%, due 01/29/98 9,864,522
3,500,000 Federal National Mortgage Association, 5.71%, due 03/18/98 3,501,108
5,500,000 Federal National Mortgage Association, 9.55%, due 11/10/97 5,504,458
-------------
TOTAL AGENCY FIXED INCOME SECURITIES (Cost: $59,202,236) 59,202,236
-------------
COMMERCIAL PAPER (58.3%)
6,000,000 Abbott Corp., 5.45%, due 11/06/97 5,995,458
4,100,000 American Express Credit Corp., 5.48%, due 11/03/97 4,098,752
5,700,000 American General Finance Corp., 5.7%, due 11/03/97 5,698,195
7,000,000 Bellsouth Corp., 5.5%, due 11/10/97 6,990,375
2,100,000 Bellsouth Corp., 5.51%, due 11/14/97 2,095,822
5,000,000 Beneficial Corp., 5.55%, due 11/03/97 4,998,458
2,200,000 B.P. America, 5.67%, due 11/03/97 2,199,307
3,000,000 Ciesco L.P., 5.5%, due 11/05/97 2,998,167
5,000,000 Ciesco L.P., 5.5%, due 11/17/97 4,987,778
5,000,000 CIT Group Holdings, 5.47%, due 11/14/97 4,990,124
4,000,000 General Electric Capital Corp., 5.59%, due 01/20/98 3,950,311
5,000,000 International Lease Finance Corp., 5.49%, due 11/04/97 4,997,712
2,900,000 International Lease Finance Corp., 5.5%, due 11/05/97 2,898,228
8,000,000 J.P. Morgan & Co., 5.47%, due 11/07/97 7,992,707
8,400,000 Metlife Funding Inc., 5.57%, due 11/24/97 8,370,108
5,000,000 Morgan Stanley/Dean Witter, Discover, 5.51%, due 11/21/97 4,984,694
5,000,000 Northern Illinois Gas Co., 5.5%, due 11/12/97 4,991,597
6,150,000 Pacific Mutual, 5.5%, due 11/13/97 6,138,725
5,000,000 Pitney-Bowes Credit Corp., 5.51%, due 01/15/98 4,942,604
2,000,000 Sara Lee Corp., 5.5%, due 12/23/97 1,984,111
8,000,000 Sara Lee Corp., 5.67%, due 11/03/97 7,997,480
7,000,000 Schering Corp., 5.55%, due 11/12/97 6,988,129
4,850,000 United Parcel Service, 5.48%, due 11/03/97 4,848,523
4,750,000 USAA Capital Corp., 5.5%, due 11/04/97 4,747,823
4,200,000 USAA Capital Corp., 5.53%, due 01/05/98 4,158,064
4,900,000 Wal-Mart Stores, Inc., 5.5%, due 11/10/97 4,893,263
-------------
TOTAL COMMERCIAL PAPER (Cost: $ 129,936,515) 129,936,515
-------------
</TABLE>
See accompanying Notes to Financial Statements.
4
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
Principal
Amount INVESTMENTS Value
- ------------ ----------- -------------
<S> <C> <C>
CORPORATE FIXED INCOME SECURITIES (14.8%)
$ 6,841,000 Associates Corp. of North America, 8.125%, due 01/15/98 $ 6,871,145
3,000,000 CIT Group Holdings, 6.75%, due 04/30/98 3,014,152
8,100,000 Ford Motor Credit Corp., 7.125%, due 12/01/97 8,108,707
1,000,000 Ford Motor Credit Corp., 8%, due 12/01/97 1,001,696
1,500,000 General Electric Capital Corp., 6.29%, due 11/05/97 1,500,085
2,550,000 General Electric Capital Corp., 7.95%, due 02/02/98 2,562,502
2,350,000 General Electric Capital Corp., 8%, due 01/15/98 2,359,758
5,000,000 NationsBank Corp., 6.625%, due 01/15/98 5,007,043
2,500,000 Norwest Corp., 6.5%, due 11/15/97 2,500,835
-------------
TOTAL CORPORATE FIXED INCOME SECURITIES (Cost: $ 32,925,923) 32,925,923
-------------
SHORT-TERM INVESTMENT (COST: $23,344) (0.0%)
--------------------------------------------
23,344 Bank of New York Depository Reserve, 4.6%, due 11/03/97 23,344
-------------
TOTAL INVESTMENTS (Cost: $222,088,018) (99.7%) 222,088,018
EXCESS OF OTHER ASSETS OVER LIABILITIES (0.3%) 683,015
-------------
NET ASSETS (100%) $222,771,033
=============
</TABLE>
See accompanying Notes to Financial Statements.
5
<PAGE>
TCW Galileo Core Fixed Income Fund
SCHEDULE OF INVESTMENTS
- -----------------------
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- ----------- --------------------------------- -------------
<S> <C> <C>
BASIC INDUSTRIES (5.9% OF Net Assets)
$ 100,000 AMR Corp., 9.5%, due 05/15/01 $ 109,875
25,000 Consumers International, (144A), 10.25%, due 04/01/05 26,750 *
50,000 Doskocil Companies, Inc., (144A), 10.125%, due 09/15/07 51,750 *
25,000 Globalstar LP/Capital, 11.25%, due 06/15/04 24,625
50,000 GSI Group, Inc., (144A), 10.25%, due 11/01/07 50,625 *
100,000 International Business Machines Corp., 7%, due 10/30/25 101,000
50,000 Iron Mountain, Inc., 10.125%, due 10/01/06 54,125
25,000 Jordan Telecommunications Products, Inc., (144A), 9.875%, due 08/01/07 25,375 *
50,000 Lockheed Martin Corp., 7.25%, due 05/15/06 52,625
100,000 MCI Communications Corp., 6.95%, due 08/15/06 103,375
25,000 National Energy Group, Inc., (144A), 10.75%, due 11/01/06 25,875 *
100,000 Raytheon Co., 6.45%, due 08/15/02 100,750
50,000 Telex Communications, Inc., 10.5%, due 05/01/07 49,500
125,000 Transamerica Energy, Inc., (144A), 11.5%, due 06/15/02 127,500 *
50,000 Trico Marine Services, Inc., Series B, 8.5%, due 08/01/05 50,563
100,000 Union Pacific Co., 7.875%, due 02/15/02 105,000
50,000 U. S. Can Corp., Series B, 10.125%, due 10/15/06 52,125
25,000 Viasystems, Inc., (144A), 9.75%, due 06/01/07 25,562 *
-------------
TOTAL BASIC INDUSTRIES (Cost: $1,124,787) 1,137,000
-------------
CONSUMER CYCLICALS (2.4%)
25,000 Atlas Air, Inc., (144A), 10.75%, due 08/01/05 26,375 *
25,000 Foodmaker, 1993A Corp., Series B, 9.75%, due 11/01/03 26,000
25,000 Grand Casinos, Inc., 10.125%, due 12/01/03 26,500
100,000 J. C. Penney Company, Inc., 9.05%, due 03/01/01 108,500
50,000 Livent, Inc., (144A), 9.375%, due 10/15/04 50,375 *
90,000 May Department Stores Co., 9.75%, due 02/15/21 113,625
25,000 Outdoor Communications, Inc., 9.25%, due 08/15/07 24,812
10,000 Outdoor Systems, Inc., 8.875%, due 06/15/07 10,300
25,000 Signature Resorts, Inc., (144A), 9.75%, due 10/01/07 25,250 *
25,000 STC Broadcasting, Inc., Series B, 11%, due 03/15/07 26,750
25,000 Von Hoffman Press, (144A), 10.375%, due 05/15/07 26,500 *
-------------
TOTAL CONSUMER CYCLICALS (Cost: $437,328) 464,987
-------------
CONSUMER NON-CYCLICALS (0.6%)
25,000 Dade International, Inc., Series B, 11.125%, due 05/01/06 27,750
50,000 Physician Sales & Service, Inc., (144A), 8.5%, due 10/01/07 49,000 *
50,000 Stater Brothers Holdings, Inc., (144A), 9%, due 07/01/04 50,875 *
------------
TOTAL CONSUMER NON-CYCLICALS (Cost: $128,833) 127,625
------------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
6
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- ----------- --------------------------------- -------------
<S> <C> <C>
FINANCIAL SERVICES (2.5%)
$ 100,000 BHP Finance USA Ltd., (Yankee), 6.69%, due 03/01/06 $ 102,125
100,000 Comdisco, Inc., 6.375%, due 11/30/01 100,250
100,000 Hartford Life Inc., 7.65%, due 06/15/27 106,250
100,000 Lehman Brothers, Inc., 7.125%, due 07/15/02 103,125
60,000 Security Pacific Corp., 11.5%, due 11/15/00 68,850
-------------
TOTAL FINANCIAL SERVICES (Cost: $467,148) 480,600
-------------
UTILITIES (2.8%)
100,000 Florida Power & Light Co., 5.5%, due 07/01/99 99,375
100,000 Hydro-Quebec (Yankee), 9.4%, due 02/01/21 126,125
100,000 Northern Telecom Capital Corp., 7.4%, due 06/15/06 106,500
100,000 Pacificorp., 6.75%, due 04/01/05 102,250
100,000 Praxair, Inc., 6.75%, due 03/01/03 101,750
-------------
TOTAL UTILITIES (Cost: $509,936) 536,000
-------------
TOTAL CORPORATE FIXED INCOME SECURITIES
(COST: $2,668,032) (14.2%) 2,746,212
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (8.7%)
--------------------------------------
400,000 Bear Stearns Mortgage Securities Inc. (97-2-A2), 6.5%,
due 04/28/24 392,696
462,882 Federal Home Loan Mortgage Corp (1578-O), 7%,
due 09/15/23 457,105
321,204 Federal Home Loan Mortgage Association - Government
National Mortgage Association (41-K), 8%, due 04/25/24 332,740
500,000 Federal National Mortgage Association (96-46-B),
6.5%, due 11/25/23 500,965
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (Cost: $1,607,719) 1,683,506
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -
FIXED RATE PASS-THROUGH SECURITIES (15.2%)
-------------------------------------------
1,333,370 Federal Home Loan Mortgage Corp., Pool #E20246, 7.5%,
due 06/01/11 1,368,784
346,452 Federal Home Loan Mortgage Corp., Pool #C80409, 8%,
due 06/01/26 359,011
835,774 Government National Mortgage Association, Pool #422688, 7%,
due 05/15/26 840,212
355,791 Government National Mortgage Association, Pool #432017, 8%,
due 08/15/26 369,133
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS-
FIXED RATE PASS-THROUGH SECURITIES (Cost: $2,843,010) 2,937,140
-------------
</TABLE>
See accompanying Notes to Financial Statements.
7
<PAGE>
TCW Galileo Core Fixed Income Fund
SCHEDULE OF INVESTMENTS (Continued)
- ------------------------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- ----------- --------------------------------- -------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (37.5%)
---------------------------------
$ 675,000 United States Treasury Bonds, 5.5%, due 11/15/98 $ 674,312
1,100,000 United States Treasury Bonds, 6.375%, due 04/30/99 1,111,550
100,000 United States Treasury Bonds, 6.375%, due 08/15/27 102,980
710,000 United States Treasury Bonds, 7.5%, due 11/15/24 826,689
1,050,000 United States Treasury Bonds, 12%, due 08/15/13 1,536,602
100,000 United States Treasury Notes, 5.625%, due 10/31/99 100,007
45,000 United States Treasury Notes, 5.875%, due 01/31/99 45,131
1,000,000 United States Treasury Notes, 7.5%, due 10/31/99 1,033,860
1,000,000 United States Treasury Notes, 7.75%, due 11/30/99 1,039,700
660,000 United States Treasury Notes, 8%, due 11/15/21 802,256
-------------
TOTAL U. S. GOVERNMENT OBLIGATIONS (Cost: $7,129,280) 7,273,087
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (15.8%)
------------------------------------------
555,000 Federal National Mortgage Association, 6.3%, due 09/25/02 556,576
400,000 Federal National Mortgage Association, 6.4%, due 10/24/02 405,500
415,000 Federal National Mortgage Association, 6.4%, due 09/27/05 423,458
600,000 Federal National Mortgage Association, 6.48%, due 06/28/04 614,130
480,000 Federal National Mortgage Association, 6.74%, due 05/13/04 497,026
520,000 Federal National Mortgage Association, 7.4%, due 07/01/04 557,892
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost: $3,001,500) 3,054,582
-------------
TOTAL FIXED INCOME SECURITIES
(COST: $17,249,541) (91.4%) 17,694,527
-------------
SHORT-TERM INVESTMENT (COST: $2,311,587) (11.9%)
------------------------------------------------
2,311,587 Bank of New York Depository Reserve, 4.6%, due 11/03/97 2,311,587
-------------
TOTAL INVESTMENTS (COST: $19,561,128) (103.3%) 20,006,114
LIABILITIES IN EXCESS OF OTHER ASSETS (-3.3%) (637,874)
-------------
NET ASSETS (100%) $ 19,368,240
=============
</TABLE>
See accompanying Notes to Financial Statements.
8
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo High Yield Bond Fund
October 31, 1997
SCHEDULE OF INVESTMENTS
- -----------------------
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- ------------- --------------------------------- --------------
<S> <C> <C>
BASIC MATERIALS (17.6% of net Assets)
Chemicals (2.4%)
$ 820,000 Borden Chemical and Plastics, L.P., 9.5%, due 05/01/05 $ 865,100
725,000 Foamex L.P., (144A), 9.875%, due 06/15/07 741,313 *
875,000 ISP Holdings Inc., 9%, due 10/15/03 907,813
2,265,000 NL Industries, Inc., 11.75%, due 10/15/03 2,491,500
--------------
Total Chemicals 5,005,726
--------------
Energy (7.6%)
400,000 Abraxas Petroleum Corp., 11.5%, due 11/01/04 438,000
1,000,000 Chesapeake Energy Corp., 12%, due 03/01/01 1,077,490
1,250,000 Forman Petroleum Corp., (144A), 13.5%, due 06/01/04 1,268,750 *
2,500,000 HarCor Energy, Inc., 14.875%, due 07/15/02 2,943,750
1,950,000 Magnum Hunter Resources, Inc., (144A), 10%, due 06/01/07 1,998,750 *
900,000 National Energy Group, Inc., (144A), 10.75%, due 11/01/06 931,500 *
850,000 Plains Resources, Inc., 10.25%, due 03/15/06 905,250
3,300,000 Transamerica Energy, Inc., (144A), 11.5%, due 06/15/02 3,366,000 *
150,000 Transamerica Energy, Inc., (144A), 13%, due 06/15/02 123,000 *
750,000 Trico Marine Services, Inc., Series B, 8.5%, due 08/01/05 758,438
2,000,000 Veritas DGC, Inc., 9.75%, due 10/15/03 2,150,000
--------------
Total Energy 15,960,928
--------------
Forest Products & Paper (4.4%)
1,750,000 Fibermark, Inc., Series B, 9.375%, due 10/15/06 1,785,000
2,150,000 Malette, Inc., 12.25%, due 07/15/04 2,434,875
1,250,000 SD Warren Co., Series B, 12%, due 12/15/04 1,406,250
1,300,000 Stone Container Corp., 10.75%, due 10/01/02 1,391,000
2,000,000 Stone Container Corp., 12.25%, due 04/01/02 2,090,000
--------------
Total Forest Products & Paper 9,107,125
--------------
Metals & Mining (3.2%)
1,500,000 AK Steel Corp., 9.125%, due 12/15/06 1,571,250
225,000 AK Steel Corp., 10.75%, due 04/01/04 240,750
700,000 Great Lakes Carbon Corp., 10%, due 01/01/06 736,750
1,500,000 Kaiser Aluminum & Chemical Corp., 10.875%, due 10/15/06 1,653,750
720,000 Oregon Steel Mills, Inc., 11%, due 06/15/03 781,200
350,000 Ryerson Tull, Inc., 9.125%, due 07/15/06 375,375
1,250,000 WCI Steel Inc., 10%, due 12/01/04 1,306,250
--------------
Total Metals & Mining 6,665,325
--------------
TOTAL BASIC MATERIALS (Cost: $35,931,795) 36,739,104
--------------
CONSUMER CYCLICALS (21.9%)
Auto Parts (1.9%)
1,250,000 Blue Bird Body Co., Series B, 10.75%, due 11/15/06 1,314,064
2,000,000 Hayes Wheels International, Inc., 11%, due 07/15/06 2,220,000
500,000 Hayes Wheels International, Inc., (144A), 9.125%, due 07/15/07 515,000 *
--------------
Total Auto Parts 4,049,064
--------------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
9
<PAGE>
TCW Galileo High Yield Bond Fund
SCHEDULE OF INVESTMENTS (Continued)
- -----------------------------------
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- ------------- --------------------------------- --------------
<S> <C> <C>
Entertainment & Leisure (1.5%)
$ 1,000,000 Cinemark, USA Inc., 9.625%, due 08/01/08 $ 1,030,000
1,000,000 Hollywood Park, Inc., (144A), 9.5%, due 08/01/07 1,075,000 *
600,000 Livent, Inc., (144A), 9.375%, due 10/15/04 604,500 *
350,000 Regal Cinemas, Inc., (144A), 8.5%, due 10/01/07 346,500 *
--------------
Total Entertainment & Leisure 3,056,000
--------------
Gaming (2.1%)
670,000 California Hotel Finance Corp., 11%, due 12/01/02 697,639
825,000 Grand Casinos, Inc., 10.125%, due 12/01/03 874,500
1,100,000 Griffin Gaming & Entertainment, Inc., Variable Rate, due 06/30/00 1,133,000
1,605,000 Trump Atlantic City Funding, Inc., 11.25%, due 05/01/06 1,580,925
--------------
Total Gaming 4,286,064
--------------
Lodging (1.2%)
500,000 HMC Acquisition Properties, Inc., Series B, 9%, due 12/15/07 510,000
488,000 John Q. Hammons Hotels, L.P., 8.875%, due 02/15/04 494,100
525,000 La Quinta Inns, Inc., 9.25%, due 05/15/03 546,000
1,000,000 Signature Resorts, Inc., (144A), 9.75%, due 10/01/07 1,010,000 *
--------------
Total Lodging 2,560,100
--------------
Media (4.7%)
675,000 Ackerley Communications, Inc., Series B, 10.75%, due 10/01/03 718,875
2,000,000 Adams Outdoor Advertising, L.P., 10.75%, due 03/15/06 2,180,000
810,000 Chancellor Media Corp., 9.375%, due 10/01/04 834,300
525,000 Heritage Media Services Corp., 11%, due 06/15/02 553,875
500,000 Jacor Communications, Inc., 9.75%, due 12/15/06 527,500
1,100,000 JCAC, Inc., 10.125%, due 06/15/06 1,171,500
850,000 Outdoor Communications, Inc., 9.25%, due 08/15/07 843,625
450,000 Outdoor Systems, Inc., 8.875%, due 06/15/07 463,500
150,000 Outdoor Systems, Inc., 9.375%, due 10/15/06 158,250
2,225,000 STC Broadcasting, Inc., Series B, 11%, due 03/15/07 2,358,500
--------------
Total Media 9,809,925
--------------
Publishing (2.7%)
1,225,000 American Media Operations, 11.625%, due 11/15/04 1,335,250
2,335,000 Garden State Newspapers Co., 12%, due 07/01/04 2,632,714
250,000 Hollinger International Publishing, 8.625%, due 03/15/05 253,750
550,000 K-III Communications Corp., 10.25%, due 06/01/04 594,688
800,000 U. S. Banknote Corp., 10.375%, due 06/01/02 834,000
--------------
Total Publishing 5,650,402
--------------
Restaurants (0.8%)
1,600,000 Foodmaker, 1993A Corp., Series B, 9.75%, due 11/01/03 1,664,000
--------------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
10
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- ------------- --------------------------------- --------------
<S> <C> <C>
Retailers (5.6%)
$ 850,000 Cole National Corp., (144A), 8.625%, due 08/15/07 $ 843,625 *
2,000,000 County Seat Stores, Inc., (144A), 12.75%, due 11/01/04 2,020,000 *
1,325,000 Finlay Fine Jewelry Corp., 10.625%, due 05/01/03 1,391,250
2,343,000 Guitar Center Management, Inc., 11%, due 07/01/06 2,577,300
475,000 Leslie's Poolmart, (144A), 10.375%, due 07/15/04 491,625 *
2,000,000 Michael's Stores, Inc., 10.875%, due 06/15/06 2,175,000
450,000 Specialty Retailers, Inc., 8.5%, due 07/15/05 459,000
1,650,000 Zale Corp., (144A), 8.5%, due 10/01/07 1,633,500 *
--------------
Total Retailers 11,591,300
--------------
Transportation (1.4%)
500,000 Atlas Air, Inc., (144A), 10.75%, due 08/01/05 527,500 *
810,000 International Shipholding Corp., 9%, due 07/01/03 828,225
680,000 Moran Transportation Company, Inc., 11.75%, due 07/15/04 754,800
825,000 Von Hoffman Press, Inc., (144A), 10.375%, due 05/15/07 874,500 *
--------------
Total Transportation 2,985,025
--------------
TOTAL CONSUMER CYCLICALS (COST: $44,048,308) 45,651,880
--------------
CONSUMER NON-CYCLICALS (16.7%)
Cable (2.8%)
1,000,000 Adelphia Communications Corp., (144A), 9.25%, due 10/01/02 995,000 *
1,175,000 Cablevision Systems Corp., 9.875%, due 05/15/06 1,242,564
175,000 Century Communications Corp., 9.5%, due 08/15/00 181,125
500,000 Comcast Corp., 9.125%, due 10/15/06 531,875
400,000 Comcast Corp., 9.375%, due 05/15/05 429,500
975,000 Jones Intercable, Inc., 8.875%, due 04/01/07 1,014,000
600,000 Rogers Cablesystems of America, Inc., Series B, 10%, due 03/15/05 651,000
750,000 Rogers Communications, Inc., 8.875%, due 07/15/07 750,000
--------------
Total Cable 5,795,064
--------------
Food & Drug Retailers (2.7%)
900,000 Jitney Jungle Stores, Inc., 12%, due 03/01/06 1,010,250
375,000 Jitney Jungle Stores, Inc., (144A), 10.375%, due 09/15/07 390,000 *
250,000 Quality Food Centers, Inc., 8.7%, due 03/15/07 252,500
2,920,000 Ralphs Grocery Co., 10.45%, due 06/15/04 3,219,300
700,000 Stater Brothers Holdings, Inc., (144A), 9%, due 07/01/04 712,250 *
--------------
Total Food & Drug Retailers 5,584,300
--------------
Health & Hospital Management (5.8%)
3,875,000 Dade International, Inc., Series B, 11.125%, due 05/01/06 4,301,250
2,700,000 Integrated Health Services, Inc., (144A), 9.5%, due 09/15/07 2,774,250 *
1,000,000 Physician Sales & Service, Inc., (144A), 8.5%, due 10/01/07 980,000 *
2,000,000 Tenet Healthcare Corp., 8.625%, due 01/15/07 2,045,000
2,000,000 Vencor, Inc., (144A), 8.625%, due 07/15/07 1,940,000 *
--------------
Total Health & Hospital Management 12,040,500
--------------
</TABLE>
* Restricted Security. (See Note 6).
See accompanying Notes to Financial Statements.
11
<PAGE>
TCW Galileo High Yield Bond Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (Continued)
- -----------------------------------
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- ------------- --------------------------------- --------------
<S> <C> <C>
Other Consumer Non-Cyclicals (5.4%)
$ 255,000 American Safety Razor Co., Series B, 9.875%, due 08/01/05 $ 267,750
1,395,000 Cott Corp., 9.375%, due 07/01/05 1,464,750
600,000 Delta Beverage Group, 9.75%, due 12/15/03 624,000
4,700,000 International Home Foods, Inc., 10.375%, due 11/01/06 4,982,000
175,000 NBTY, Inc., (144A), 8.625%, due 09/15/07 170,625 *
3,000,000 North Atlantic Trading, Inc., (144A), 11%, due 06/15/04 3,060,000 *
615,000 PMI Acquisition Corp., 10.25%, due 09/01/03 650,364
250,000 Revlon Consumer Products Corp., 9.5%, due 06/01/99 256,875
--------------
Total Other Consumer Non-Cyclicals 11,476,364
--------------
TOTAL CONSUMER NON-CYCLICALS (Cost: $33,869,268) 34,896,228
--------------
INDUSTRIALS (35.2%)
Building Materials & Construction (2.7%)
500,000 Atrium Companies, Inc., 10.5%, due 11/15/06 515,000
1,750,000 Johns Manville Corp., 10.875%, due 12/15/04 1,946,875
1,250,000 K Hovnanian Entertainment, 11.25%, due 04/15/02 1,312,500
820,000 Standard Pacific Corp., 10.5%, due 03/01/00 865,100
485,000 Trizec Finance Corp., 10.875%, due 10/15/05 552,294
425,000 U.S. Home Corp., 9.75%, due 06/15/03 447,313
--------------
Total Building Materials & Construction 5,639,082
--------------
Business Services & Distribution (6.7%)
500,000 Allied Waste of North America, 10.25%, due 12/01/06 542,505
2,750,000 American Pad & Paper Co., 13%, due 11/15/05 3,210,625
225,000 Big Flower Press, Inc., 8.875%, due 07/01/07 225,000
1,500,000 Coinmach Laundry Corp., (144A), 11.75%, due 11/15/05 1,665,000 *
1,503,000 Data Documents, Inc., 13.5%, due 7/15/02 1,698,390
671,000 Envirosource, Inc., 9.75%, due 06/15/03 681,065
550,000 Federal Data Corp., (144A), 10.125%, due 08/01/05 554,125 *
3,125,000 Iron Mountain, Inc., 10.125%, due 10/01/06 3,382,813
310,000 Earle M. Jorgensen Co., 10.75%, due 03/01/00 319,300
1,265,000 Mid-American Waste Systems, Inc., 12.25%, due 02/15/03 506,000 **
648,000 Pierce Leahy Corp., 11.125%, due 07/15/06 732,240
450,000 Williams Scotsman, Inc., (144A), 9.875%, due 06/01/07 463,500 *
--------------
Total Business Services & Distribution 13,980,563
--------------
Communication Services (10.3%)
775,000 Brooks Fiber Properties, Inc., 10%, due 06/01/07 875,750
1,200,000 Comcast Cellular Holdings, Inc., (144A), 9.5%, due 05/01/07 1,242,000 *
950,000 Globalstar LP/Capital, 11.25%, due 06/15/04 935,750
275,000 Globalstar LP/Capital, (144A), 10.75%, due 11/01/04 261,938 *
900,000 Intermedia Communications, Inc., (144A), 8.875%, due 11/01/07 879,750 *
3,000,000 Mobile Telecommunications Technologies Corp., 13.5%, due 12/15/02 3,352,500
1,400,000 Nextlink Communications, 9.625%, due 10/01/07 1,400,000
350,000 Paging Network, Inc., 10.125%, due 08/01/07 357,875
4,000,000 Qwest Communications International, Inc., 0%, due 10/15/07 2,560,000
1,100,000 RCN Corp., (144A), 10%, due 10/15/07 1,083,500 *
</TABLE>
* Restricted security. (See Note 6).
** Non-income producing.
See accompanying Notes to Financial Statements.
12
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- ------------- --------------------------------- --------------
<S> <C> <C>
Communication Services (Continued)
$ 580,000 Rogers Cantel, Inc., 9.375%, due 06/01/08 $ 614,800
750,000 Rogers Cantel, Inc., (144A), 8.8%, due 10/01/07 742,500 *
1,250,000 Sprint Spectrum, L.P., 11%, due 08/15/06 1,381,250
2,510,000 Teleport Communications Group, Inc., 9.875%, due 07/01/06 2,761,000
3,125,000 Telex Communications, Inc., 10.5%, due 05/01/07 3,093,750
--------------
Total Communication Services 21,542,363
--------------
Containers & Packaging (5.2%)
550,000 Bway Corp., (144A), 10.25%, due 04/15/07 591,250 *
2,050,000 Consumers International, (144A), 10.25%, due 04/01/05 2,193,500 *
500,000 Container Corp. of America, Series A, 11.25%, due 05/01/04 549,375
350,000 Container Corp. of America, Series B, 10.75%, due 05/01/02 385,000
400,000 Huntsman Packaging Corp., (144A), 9.125%, due 10/01/07 408,000 *
500,000 Owens-Illinois, Inc., 8.1%, due 05/15/07 529,285
900,000 Paperboard Industries International, Inc., (144A), 8.375%, due 09/15/07 909,000 *
1,000,000 Plastic Containers, Inc., Series B, 10%, due 12/15/06 1,052,500
2,360,000 Sweetheart Cup Corp., 9.625%, due 09/01/00 2,348,200
1,725,000 U.S. Can Corp., Series B, 10.125%, due 10/15/06 1,798,313
--------------
Total Containers & Packaging 10,764,423
--------------
Miscellaneous Manufacturing (10.3%)
1,000,000 AGCO Corp., 8.5%, due 03/15/06 1,052,200
1,800,000 BE Aerospace, Inc., 9.75%, due 03/01/03 1,881,000
2,570,000 Communications and Power Industries, Inc., Series B, 12%, due 08/01/05 2,852,700
500,000 Doskocil Companies, Inc., (144A), 10.125%, due 09/15/07 517,500 *
1,200,000 GSI Group, Inc., (144A), 10.25%, due 11/01/07 1,215,000 *
500,000 International Wire Group, (144A), 11.75%, due 06/01/05 535,000 *
1,500,000 Jordan Industries, Inc., (144A), 0%, due 04/01/09 847,500 *
2,000,000 Jordan Telecommunications Products, Inc., (144A), 9.875%, due 08/01/07 2,030,000 *
600,000 Mettler-Toledo, Inc., 9.75%, due 10/01/06 673,500
850,000 Neenah Corp., Series B, 11.125%, due 05/01/07 922,250
1,500,000 Rohr Industries, Inc., 11.625%, due 05/15/03 1,680,000
4,905,000 Talley Manufacturing and Technology, Inc., 10.75%, due 10/15/03 5,309,663
775,000 United Defense Industries, Inc., (144A), 8.75%, due 11/15/07 775,000 *
650,000 Viasystems, Inc., (144A), 9.75%, due 06/01/07 664,625 *
575,000 Wavetek Corp., (144A), 10.125%, due 06/15/07 598,000 *
--------------
Total Miscellaneous Manufacturing 21,553,938
--------------
TOTAL INDUSTRIALS (Cost: $72,590,838) 73,480,369
--------------
CREDIT SENSITIVE (5.1%)
Financial Services (2.9%)
1,310,000 American Annuity Group, Inc., 11.125%, due 02/01/03 1,364,784
1,525,000 First Nationwide Holdings, 10.625%, due 10/01/03 1,669,875
2,205,000 First Nationwide Holdings, 12.25%, due 05/15/01 2,447,550
630,000 Reliance Group Holdings, Inc., 9%, due 11/15/00 655,200
--------------
Total Financial Services 6,137,409
--------------
</TABLE>
* Restricted security. (See Note 6).
See accompanying Notes to Financial Statements.
13
<PAGE>
TCW Galileo High Yield Bond Fund
SCHEDULE OF INVESTMENTS (Continued)
- -----------------------------------
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- ------------- --------------------------------- --------------
<S> <C> <C>
CREDIT SENSITIVE (CONTINUED)
Utilities (2.2%)
$ 1,850,000 California Energy Company, Inc., 0%, due 01/15/04 $ 2,009,563
452,085 Midland Cogeneration Ventures, L.P., Series C-91, 10.33%, due 07/23/02 483,731
1,696,523 Panda Funding Corp., 11.625%, due 08/20/12 1,764,384
290,000 Texas-New Mexico Power, Inc., 10.75%, due 09/15/03 317,077
--------------
Total Utilities 4,574,755
--------------
TOTAL CREDIT SENSITIVE (Cost: $10,540,223) 10,712,164
--------------
TOTAL CORPORATE FIXED INCOME SECURITIES
(Cost: $196,980,432) (96.5%) 201,479,745
--------------
<CAPTION>
Number of
Shares, Rights
or Warrants EQUITY SECURITIES
- --------------- -----------------
<S> <C> <C>
6,969 Fitzgerald Gaming Corp., Warrants, expire 12/19/98 13,938 **
200 PureTec Corp., Common Stock 525 **
2,920 Terex Corp., Stock Appreciation Rights, expire 05/15/02 58,400 **
--------------
TOTAL EQUITY SECURITIES (COST: $31,766) (0.0%) 72,863
--------------
<CAPTION>
Principal
Amount SHORT-TERM INVESTMENT (Cost: $8,340,581) (4.0%)
- --------------- -----------------------------------------------
<S> <C> <C>
$ 8,340,581 Bank of New York Depository Reserve, 4.6%, due 11/03/97 8,340,581
--------------
TOTAL INVESTMENTS (Cost $205,352,779) (100.5%) 209,893,189
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.5%) (1,132,379)
--------------
NET ASSETS (100%) $ 208,760,810
==============
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
14
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Mortgage Backed Securities Fund
October 31, 1997
SCHEDULE OF INVESTMENTS
- -----------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- ------------ ----------------------- ----------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (13.3% of Net Assets)
$ 2,283 CMO Mortgage Investors Trust (6-J), 1752.4%,
due 02/22/21, (I/O) $ 33,789
456,860 Federal Home Loan Mortgage Corp. (1087-G), 8.5%,
due 08/15/20, (PAC) 462,771
639,816 Federal National Mortgage Association (92-152-K), 7%,
due 04/25/99 638,254
3,754,908 Ryland Acceptance Corporation Four (63-D), 8.75%,
due 04/01/19 3,818,742
2,366,267 Salomon Brothers Mortgage Securities VII (96-2-A1), 7.5%,
due 05/25/26 2,398,689
1,487,244 Sears Mortgage Securities (88-A-A2), 0.722%,
due 05/25/18, (I/O) 15,170
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (Cost: $7,919,959) $ 7,367,415
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS -
VARIABLE RATE (12.1%)
797 Federal National Mortgage Association (91-130-SQ), 6,725.76%,
due 09/25/21, (I/O) (I/F) 118,845
95,387 Guardian Savings and Loan Association (88-1-A), 6.5566%,
due 07/25/18 81,079
221,072 Guardian Savings and Loan Association (88-3-A), 6.8495%,
due 11/25/18 187,912
209,260 Guardian Savings and Loan Association (89-3-A), 7.6524%,
due 05/25/19 177,871
991,228 Guardian Savings and Loan Association (89-4-A), 7.9415%,
due 07/25/19 941,666
1,262,027 Guardian Savings and Loan Association (89-5-A), 8.1328%,
due 07/25/19 1,198,925
338,501 Residential Funding Mortgage Securities I (89-4B-B), 6.75%,
due 07/25/19 327,817
2,370 Resolution Trust Corp. (91-6-D2), 3,121.1%, due 08/25/20, (I/O) 88,692
4,508 Resolution Trust Corp. (91-6-C2), 3,351.72%, due 09/25/28, (I/O) 182,421
3,172,503 Resolution Trust Corp. (92-M4-A3), 7.94%, due 09/25/21 3,210,177
165,831 Western Federal Savings and Loan Association (88-9-A),
6.6493%, due 12/25/18 165,595
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS -
VARIABLE RATE (Cost: $7,534,903) 6,681,000
-------------
NON-GOVERNMENTAL AGENCY VARIABLE RATE
PASS-THROUGH SECURITIES (Cost: $1,006,541) (1.8%)
1,016,137 Greenwich Capital Acceptance, Inc. (91-03), (Private Placement),
8.5638%, due 08/25/19 983,113 *
-------------
</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.
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
15
<PAGE>
TCW Galileo Mortgage Backed Securities Fund
SCHEDULE OF INVESTMENTS (Continued)
- -----------------------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- ------------ ----------------------- ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -
FIXED RATE PASS-THROUGH SECURITIES (1.3%)
$ 85,511 Federal Home Loan Mortgage Corp., Pool #212346, 9.5%,
due 08/01/01 $ 88,744
622,154 Federal National Mortgage Association, Pool #163492, 8.5%,
due 05/01/16 650,736
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS -
FIXED RATE PASS-THROUGH SECURITIES (Cost: $733,474) 739,480
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -
VARIABLE RATE PASS-THROUGH SECURITIES (65.1%)
1,897,844 Federal Home Loan Mortgage Corp., Pool #785630, 6.715%,
due 07/01/26 1,921,472
91,714 Federal Home Loan Mortgage Corp., Pool #770584, 7.125%,
due 05/01/19 93,139
894,621 Federal Home Loan Mortgage Corp., Pool #410013, 7.916%,
due 12/01/24 920,341
211,984 Federal Home Loan Mortgage Corp., Pool #865270, 8.322%,
due 12/01/18 220,890
320,195 Federal Home Loan Mortgage Corp., Pool #865275, 8.352%,
due 02/01/19 334,825
116,002 Federal Home Loan Mortgage Corp., Pool #865009, 8.436%,
due 11/01/18 120,492
162,939 Federal Home Loan Mortgage Corp., Pool #865006, 8.525%,
due 08/01/18 171,158
693,243 Federal Home Loan Mortgage Corp., Pool #310005, 8.915%,
due 11/01/19 716,423
1,490,088 Federal National Mortgage Association, Pool #394575, 5.645%,
due 07/01/27 1,512,991
2,346,567 Federal National Mortgage Association, Pool #394996, 5.656%,
due 08/01/27 2,373,530
2,736,057 Federal National Mortgage Association, Pool #400040, 5.667%,
due 09/01/27 2,765,771
2,284,706 Federal National Mortgage Association, Pool #397897, 5.775%,
due 08/01/27 2,314,019
1,955,732 Federal National Mortgage Association, Pool #376663, 5.836%,
due 06/01/27 1,968,288
2,796,223 Federal National Mortgage Association, Pool #369080, 5.851%,
due 04/01/27 2,850,218
1,969,622 Federal National Mortgage Association, Pool #284916, 5.861%,
due 06/01/27 1,987,822
1,843,876 Federal National Mortgage Association, Pool #393943, 5.869%,
due 07/01/27 1,872,770
2,495,392 Federal National Mortgage Association, Pool #400472, 5.905%,
due 09/01/27 2,523,341
2,028,105 Federal National Mortgage Association, Pool #402972, 5.92%,
due 10/01/27 2,047,798
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- ------------ ----------------------- ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -
VARIABLE RATE PASS-THROUGH SECURITIES (Continued)
$2,118,746 Federal National Mortgage Association, Pool #313323, 5.924%,
due 12/01/26 $ 2,140,908
1,693,573 Federal National Mortgage Association, Pool #392275,
6.031%, due 06/01/27 1,727,970
2,516,298 Federal National Mortgage Association, Pool #313343,
6.241%, due 02/01/27 2,570,046
1,342,310 Federal National Mortgage Association, Pool #358869,
7.712%, due 09/01/26 1,382,553
384,951 Federal National Mortgage Association, Pool #111365,
7.742%, due 09/01/19 401,370
904,896 Federal National Mortgage Association, Pool #303334,
7.882%, due 04/01/25 937,237
123,534 Federal National Mortgage Association, Pool #096193,
8.244%, due 09/01/18 129,151
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS -
VARIABLE RATE PASS-THROUGH SECURITIES
(Cost: $35,914,976) 36,004,523
-------------
TOTAL FIXED INCOME SECURITIES (Cost: $53,109,853) (93.6%) 51,775,531
-------------
SHORT-TERM INVESTMENTS (Cost: $2,861,668) (5.2%)
------------------------------------------------
2,861,197 Repurchase Agreement, Goldman Sachs, dated 10/31/97,
5.67%, due 11/03/97 (Collateralized by $2,934,916 current face
Federal National Mortgage Association, Pool #296042, 6.14%,
due 12/01/33, valued at $2,939,502) 2,861,197
471 Bank of New York Depository Reserve, 4.6%, due 11/03/97 471
-------------
2,861,668
-------------
TOTAL INVESTMENTS (Cost: $55,971,521) (98.8%) 54,637,199
EXCESS OF OTHER ASSETS OVER LIABILITIES (1.2%) 669,913
-------------
NET ASSETS (100%) $ 55,307,112
=============
</TABLE>
See accompanying Notes to Financial Statements.
17
<PAGE>
TCW Galileo Long-Term Mortgage Backed Securities Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
- -----------------------
Principal
Amount FIXED INCOME SECURITIES Value
- ------------- ----------------------- -------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (47.8% OF Net Assets)
$ 2,000,000 CMC Securities Corporation III (94-A-A12), 6.75%, due 02/25/24, (PAC) $ 1,987,480
1,433,415 Citicorp Mortgage Securities, Inc. (95-2-A1), 7.5%, due 04/25/25 1,448,093
21,785 Federal Home Loan Mortgage Corp. (1484-K), 6%, due 01/15/98 21,749
1,640,209 Federal Home Loan Mortgage Corp. (1796-A-E), 6%, due 09/15/08 1,611,523
1,782,000 Federal Home Loan Mortgage Corp. (1662-N), 6.25%, due 01/15/09 1,726,063
997,034 Federal Home Loan Mortgage Corp. (1805-A-A), 6.5%, due 12/15/08 998,737
1,000,000 Federal Home Loan Mortgage Corp. (1844 E), 6.5%, due 10/15/13 982,586
827,033 Federal Home Loan Mortgage Corp. (1541-J), 6.5% , due 07/15/23 828,240
3,144,107 Federal Home Loan Mortgage Corp. (1717-MA), 6.5%, due 04/15/24 3,073,270
310,642 Federal Home Loan Mortgage Corp. (1175 C), 8%, due 01/15/21, (TAC) 318,082
2,003,310 Federal Home Loan Mortgage Corp. -Government National
Mortgage Association (43-OA), 6.5%, due 07/17/23 1,963,985
2,000,000 Federal National Mortgage Association (93-X-130A-NA), 6.5%, due 05/25/23 1,945,180
1,894,734 Federal National Mortgage Association (93-223-EA), 6.5%, due 12/25/23, (PAC) 1,848,843
487,907 Federal National Mortgage Association (93-2-B), 7.2%, due 11/25/03 500,432
1,000,000 Federal National Mortgage Association (92-215-PL), 7.25%, due 11/25/21, (PAC) 1,037,820
4,000,000 Federal National Mortgage Association (G92-29-J), 8%, due 07/25/22 4,264,360
4,145,426 Government National Mortgage Association (94-2-Z), 7.99125%, due 07/16/24 4,364,014
1,500,000 Residential Funding Mortgage Securities I (95-S7-A9), 8%, due 05/25/10, (I/O) 302,932
4,551,404 Ryland Acceptance Corporation Four (63-D), 8.75%, due 04/01/19 4,628,778
1,577,511 Salomon Brothers Mortgage Securities VII (96-2-A1), 7.5%, due 05/26/26 1,599,126
2,139,106 Securitized Asset Sales, Inc. (95-B-A2), 7.41%, due 09/25/24 2,150,307
1,319,127 Securitized Asset Sales, Inc. (95-4-A7), 7.5%, due 11/25/25 1,318,877
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (Cost: $37,847,396) 38,920,477
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS -
VARIABLE RATE (12.8%)
1,500,000 CMC Securities Corporation III (94-A-A22), 7.231%, due 02/25/24, (I/F) 1,158,750
2,000,000 Federal Home Loan Mortgage Corp. (1422-SA), 8.2159%, due 11/15/07, (I/F) 1,914,360
2,000,000 Federal Home Loan Mortgage Corp. (1620-SB), 10%, due 11/15/23, (I/F) 1,720,420
2,288,691 Federal National Mortgage Association (93-189-S), 7.35799%, due 10/25/23, (I/F) 2,084,883
3,000,000 Federal National Mortgage Association (94-40 SA), 7.67812%, due 3/25/24, (I/F) 2,539,770
1,000,000 Federal National Mortgage Association (93-202-SZ), 10%, due 11/25/23, (I/F) (PAC) 958,080
73,817 Northwestern Acceptence Corp. I (A-1), 6.25%, due 02/20/18 73,530
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS -
VARIABLE RATE (Cost: $8,640,990) 10,449,793
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -
FIXED RATE PASS-THROUGH SECURITIES (23.0%)
1,442,295 FHA (#000-13002), 7.125%, due 03/01/04 1,426,070
2,863,784 FHA (#012-11216), 7.185%, due 05/01/29 2,842,306
1,907,088 FHA (#044-10592), 7.625%, due 09/01/22 1,926,159
1,353,539 FHA (#081-11017), 7.75%, due 04/01/24 1,373,842
2,556,687 FHA (#112-43055), 9.25%, due 05/25/32 2,713,284
</TABLE>
PAC - Planned Amortization Class.
I/O - Interest Only security.
TAC - Target Amortization Class.
I/F - Inverse floating rate security whose interest rate moves in the opposite
direction of prevailing interest rates.
See accompanying Notes to Financial Statements.
18
<PAGE>
TCW GALILEO FUNDS,INC
October 31, 1997
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- ------------- ----------------------- -------------
<C> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -
FIXED RATE PASS-THROUGH SECURITIES (Continued)
$ 9,593 Federal Home Loan Mortgage Corp., Pool #250685, 6.5%, due 10/01/99 $ 9,640
1,282,509 Federal National Mortgage Association, Pool #310001, 6%, due 09/01/00 1,276,096
1,807,544 Federal National Mortgage Association, Pool #347216, 6%, due 09/01/00 1,857,270
10,758 Federal National Mortgage Association, Pool #62420, 7.5%, due 03/01/06 11,171
2,244,175 Federal National Mortgage Association, Pool #303786, 7.5%, due 02/01/11 2,304,498
15,752 Federal National Mortgage Association, Pool #29542, 8.75%, due 07/01/09 16,708
1,415,794 Government National Mortgage Association, Pool #365618, 7%, due 10/15/33 1,395,435
1,555,382 Government National Mortgage Association, Pool #351003, 7.5%, due 07/15/28 1,558,788
5,425 Government National Mortgage Association, Pool #176192, 8.25%, due 12/15/01 5,590
50,963 Government National Mortgage Association, Pool #3933, 8.25%, due 07/15/04 52,811
9,425 Government National Mortgage Association, Pool #217350, 9.25%, due 08/15/00 9,719
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS -
FIXED RATE PASS-THROUGH SECURITIES (Cost: $18,708,954) 18,779,387
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -
VARIABLE RATE PASS-THROUGH SECURITIES (11.3%)
1,359,643 Federal Home Loan Mortgage Corp., Pool #846317, 7.628%, due 08/01/26 1,397,047
2,148,334 Federal Home Loan Mortgage Corp., Pool #846510, 7.889%, due 04/01/25 2,247,888
726,454 Federal Home Loan Mortgage Corp., Pool #755183, 7.999%, due 12/01/15 754,488
2,617,439 Federal National Mortgage Association, Pool #348025, 7.63%, due 06/01/26 2,693,188
440,401 Federal National Mortgage Association, Pool #137064, 7.657%, due 03/01/19 444,805
1,575,177 Federal National Mortgage Association, Pool #124410, 7.818%, due 07/01/22 1,631,332
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS -
VARIABLE RATE PASS-THROUGH SECURITIES (Cost: $8,994,074) 9,168,748
--------------
U.S. TREASURY SECURITIES (0.4%)
197,000 Certificate Accrual Treasury Strip, 0%, due 08/15/01 158,459
177,000 Certificate Accrual Treasury Strip, 0%, due 05/15/06 106,112
112,000 Certificate Accrual Treasury Strip, 0%, due 08/15/08 58,053
--------------
TOTAL U.S. TREASURY SECURITIES (Cost: $307,268) 322,624
--------------
TOTAL FIXED INCOME SECURITIES (Cost: $74,498,682) (95.3%) 77,641,029
--------------
SHORT-TERM INVESTMENT (Cost: $3,985,557) (4.9%)
-----------------------------------------------
3,985,557 Repurchase Agreement, Goldman Sachs, dated 10/31/97,
5.67%, due 11/03/97 (Collateralized by $4,088,264 current face,
Federal National Mortgage Association, Pool #296042, 6.14%,
due 12/01/33, valued at $4,094,652) 3,985,557
--------------
TOTAL INVESTMENTS (COST: $78,484,239) (100.2%) 81,626,586
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.2% ) (184,749)
--------------
NET ASSETS (100%) $ 81,441,837
==============
</TABLE>
See accompanying Notes to Financial Statements.
19
<PAGE>
TCW Galileo Convertible Securities Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
- -----------------------
Number
of Shares
or Principal
Amount FIXED INCOME AND EQUITY SECURITIES Value
- ------------ ---------------------------------- -------------
<C> <S> <C>
BASIC INDUSTRIES (7.3% OF NET ASSETS)
OIL & GAS - DOMESTIC (4.2%)
$ 500,000 Baker Hughes, Inc., 0%, due 05/05/08 $ 439,615
7,200 EVI, Inc., (144A), $2.50 Convertible Preferred 362,700 *
330,000 Loews Corp., Exchangeable Diamond Offshore, 3.125%,
due 09/15/07 372,900
6,300 Unocal Corp., $3.125 Convertible Preferred 376,425
-------------
Total Oil & Gas - Domestic 1,551,640
-------------
OIL AND GAS - INTERNATIONAL (0.8%)
3,200 Occidental Petroleum Corp., (Canada) Exchangeable Canadian
Occidental Petroleum, $3.00 Convertible Preferred 302,400
-------------
PAPER, FOREST PRODUCTS & CONTAINERS (0.8%)
$ 305,000 Metsa Serla, OYJ, (Finland), (144A), 4.375%, due 10/15/02 303,475 *
-------------
TRANSPORTATION (1.5%)
$ 240,000 Halter Marine Group, Inc., (144A), 4.5%, due 09/15/04 303,000 *
3,500 Hvide Marine, Inc., (144A), $3.25 Convertible Preferred 233,590 *
-------------
Total Transportation 536,590
-------------
TOTAL BASIC INDUSTRIES (Cost:$2,366,230) 2,694,105
-------------
CAPITAL GOODS (26.2%)
AEROSPACE & CONGLOMERATES (2.5%)
$ 305,000 Hexcel Corp., 7%, due 08/01/03 547,475
$ 330,000 Morgan Stanley Group Inc., Exchangeable Boeing Co., 0%,
due 09/30/00 360,941
-------------
Total Aerospace & Conglomerates 908,416
-------------
ELECTRONICS (5.8%)
$ 95,000 Adaptec, Inc., 4.75%, due 02/01/04 107,469
$ 285,000 Adaptec, Inc., (144A), 4.75%, due 02/01/04 322,406 *
$ 355,000 Premiere Technologies, (144A), 5.75%, due 07/01/04 425,113 *
$ 385,000 Tel-Save Holdings, Inc., (144A), 4.5%, due 09/15/02 422,056 *
$ 885,000 XILINX, Inc., (144A), 5.25%, due 11/01/02 882,788 *
-------------
Total Electronics 2,159,832
-------------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
20
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount FIXED INCOME AND EQUITY SECURITIES Value
- ---------- ----------------------------------- -------------
<C> <S> <C>
INFORMATION PROCESSING (5.5%)
7,700 Morgan Stanley Group, Inc., Exchangeable Cisco Systems, Inc.,
$4.00 Convertible Preferred $ 605,120
$ 635,000 Safeguard Scientifics Inc., (144A), 6%, due 02/01/06 695,325 *
$ 385,000 Vantive Corp., (144A), 4.75%, due 09/01/02 361,769 *
$ 365,000 Wind River Systems, Inc., (144A), 5%, due 08/01/02 379,600 *
-------------
Total Information Processing 2,041,814
-------------
OFFICE EQUIPMENT & SUPPLIES (1.0%)
$ 350,000 Xerox Corp., 2.875%, due 07/01/02 354,813
-------------
POLLUTION CONTROL (8.2%)
$ 900,000 Thermo Electron Corp., Euro, 4.25%, due 01/01/03 1,011,600
$ 800,000 USA Waste Systems, Inc., 4%, due 02/01/02 846,000
$ 1,000,000 United States Filter Corp., 4.5%, due 12/15/01 1,183,750
-------------
Total Pollution Control 3,041,350
-------------
TELECOMMUNICATION EQUIPMENT (3.2%)
$ 1,470,000 Motorola, Inc., 0%, due 09/27/13 1,168,650
-------------
TOTAL CAPITAL GOODS (Cost:$9,118,751) 9,674,875
-------------
CONSUMER CYCLICALS (COST : $405,000) (1.2%)
AUTOMOTIVE (1.2%)
$ 405,000 Tower Automotive, Inc., (144A), 5%, due 08/01/04 425,250 *
-------------
CONSUMER STAPLES (55.5%)
DRUGS & HOSPITAL SUPPLY (3.3%)
$ 580,000 Sandoz Capital BVI, Ltd., (Switzerland), Euro, 2%, due 10/06/02 867,825
$ 195,000 Sepracor, Inc., Euro, 7%, due 12/01/02 366,194
-------------
Total Drugs & Hospital Supply 1,234,019
-------------
ENTERTAINMENT, LEISURE & MEDIA (10.7%)
9,500 Chancellor Media Corp., (144A), $3.00 Convertible Preferred 586,321 *
$ 345,000 Family Golf Centers, Inc., (144A), 5.75%, due 10/15/04 339,394 *
20,300 Houston Industries, Inc., Exchangeable Time Warner, Inc.,
$3.215 Convertible Preferred 1,111,425
16,100 Merrill Lynch & Company, Inc., Exchangeable Cox
Communications, Inc., $1.3725 Convertible Preferred 436,713
4,600 TCI Pacific Communications, Inc., $5.00 Convertible Preferred 641,125
$ 400,000 Tele-Communications International, Inc., 4.5%, due 02/15/06 337,000
8,500 U.S. West, Inc., Exchangeable U.S. West Media Group,
$2.25 Convertible Preferred 487,688
-------------
Total Entertainment, Leisure & Media 3,939,666
-------------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
21
<PAGE>
TCW Galileo Convertible Securities Fund
SCHEDULE OF INVESTMENTS (Continued)
- -----------------------------------
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount FIXED INCOME AND EQUITY SECURITIES Value
- ---------- ----------------------------------- -------------
<C> <S> <C>
RETAIL - FOOD & DRUG (1.8%)
$ 605,000 Rite Aid Corp., (144A), 5.25%, due 09/15/02 $ 651,888 *
-------------
FOODS, HOTELS & RESTAURANTS (9.8%)
7,000 Apple South, Inc., (144A), $3.50 Convertible Preferred 504,000 *
$ 405,000 Einstein/Noah Bagel Corp., (144A), 7.25%, due 06/01/04 329,569 *
$ 755,000 Fine Host Corp., (144A), 5%, due 11/01/04 690,825 *
$ 1,030,000 Hospitality Franchise Service, Inc., 4.75%, due 03/01/03 1,275,912
1,000 Host Marriott Financial Trust, $3.375 Convertible Preferred 65,250
5,000 Host Marriott Financial Trust, (144A), $3.375 Convertible
Preferred 321,816 *
$ 400,000 Signature Resorts, 5.75%, due 01/15/07 429,000
-------------
Total Foods, Hotels & Restaurants 3,616,372
-------------
HEALTHCARE (9.3%)
$ 540,000 Assisted Living Concepts, Inc., 6%, due 11/01/02 594,000
$ 360,000 Atria Communities, Inc., (144A), 5%, due 10/15/02 364,500 *
$ 45,000 Concentra Managed Care, Inc., 6%, due 12/15/01 55,871
$ 300,000 Concentra Managed Care, Inc., (144A), 6%, due 12/15/01 370,635 *
8,000 Laboratory Corp. of America, $4.25 Convertible Preferred 436,000
$ 310,000 Morgan Stanley Group, Inc., Exchangeable Johnson & Johnson,
2%, due 03/29/02 332,522
$ 50,000 Physician Resource, (144A), 6%, due 12/01/01 43,225 *
$ 300,000 Physician Resource, (144AI, Reg D), 6%, due 12/01/01 259,347 *
$ 50,000 Quintiles Transnational Corp., 4.25%, due 05/31/00 51,750
$ 320,000 Quintiles Transnational Corp., (144AI, Reg D), 4.25%,
due 05/31/00 348,599 *
$ 285,000 Sunrise Assisted Living, (144A), 5.5%, due 06/15/02 342,356 *
$ 245,000 Tenet Healthcare Corp., Exchangeable Vencor, Inc.,
6%, due 12/01/05 239,488
-------------
Total Healthcare 3,441,293
-------------
RETAIL (9.0%)
$ 350,000 Charming Shoppes, Inc., 7.5%, due 07/15/06 343,438
$ 1,285,000 Costco Companies, Inc., (144A), 0%, due 08/19/17 695,506 *
$ 665,000 Home Depot, Inc., 3.25%, due 10/01/01 857,019
9,100 Kmart Corp., $3.875 Convertible Preferred 518,131
$ 585,000 Staples, Inc., Euro, 4.5%, due 10/01/00 742,650
$ 125,000 Staples, Inc., (144A), 4.5%, due 10/01/00 158,262 *
-------------
Total Retail 3,315,006
-------------
SERVICES - BUSINESS (11.6%)
$ 495,000 Corestaff, Inc., 2.94%, due 08/15/04 407,138
$ 1,050,000 CUC International, Inc., (144A), 3%, due 02/15/02 1,194,375 *
7,200 Dimon, Inc., $2.008 Convertible Preferred 180,000
$ 440,000 Interpublic Group of Companies, Inc., (144A), 1.8%, due 09/16/04 359,700 *
$ 560,000 Omnicom Group, Inc., (144A), 4.25%, due 01/03/07 704,200 *
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
22
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
Number
of Shares
or Principal
Amount FIXED INCOME AND EQUITY SECURITIES Value
- ---------- ----------------------------------- -------------
<C> <S> <C>
SERVICES - BUSINESS (CONTINUED)
$ 350,000 Personnel Group of America, Inc., (144A), 5.75%, due 07/01/04 $ 409,500 *
$ 350,000 Smartalk Teleservices, Inc., (144A), 5.75%, due 09/15/04 367,938 *
9,500 Snyder Communications, Inc., $1.6778 Convertible Preferred 270,750
$ 400,000 U.S. Office Products Co., 5.5%, due 05/15/03 375,612
-------------
Total Services - Business 4,269,213
-------------
TOTAL CONSUMER STAPLES (Cost: $18,334,976) 20,467,457
-------------
CREDIT SENSITIVE (5.7%)
REAL ESTATE (1.4%)
$ 220,000 LTC Properties, Inc., 8.25%, due 07/01/01 260,150
$ 200,000 LTC Properties, Inc., 8.5%, due 01/01/01 262,250
-------------
Total Real Estate 522,400
-------------
INSURANCE (1.9%)
1,600 PennCorp Financial Group, Inc., (144A), $3.50
Convertible Preferred 86,112 *
4,500 PennCorp Financial Group, Inc., (144AI, Reg D), $3.50
Convertible Preferred 242,190 *
10,200 Salomon, Inc., Exchangeable Financial Security Assurance
Holdings, Ltd., $2.30 Convertible Preferred 374,213
-------------
Total Insurance 702,515
-------------
FINANCIAL SERVICES (2.4%)
7,400 SunAmerica Corp., $3.188 Convertible Preferred 325,138
18,300 Westpac Banking Corp., Ltd., $3.135 Convertible Preferred 567,300
-------------
Total Financial Services 892,438
-------------
TOTAL CREDIT SENSITIVE (Cost:$1,919,171) 2,117,353
-------------
TOTAL FIXED INCOME AND EQUITY SECURITIES
(COST: $32,144,128) (95.9%) 35,379,040
-------------
SHORT-TERM INVESTMENT (COST: $1,380,527) (3.7%)
-----------------------------------------------
$ 1,380,527 Bank of New York Depository Reserve, 4.6%, due 11/03/97 1,380,527
-------------
TOTAL INVESTMENTS (COST: $33,524,655) (99.6%) 36,759,567
EXCESS OF OTHER ASSETS OVER LIABILITIES (0.4%) 130,473
-------------
NET ASSETS (100%) $ 36,890,040
=============
</TABLE>
* Restricted security. (Note 6)
See accompanying Notes to Financial Statements.
23
<PAGE>
TCW Galileo Core Equity Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
- -----------------------
Number
Of Shares EQUITY SECURITIES VALUE
--------- ----------------- ------------
<S> <C> <C>
BASIC INDUSTRIES (9.5% OF NET ASSETS)
Transportation (9.5%)
13,000 AMR Corp. $ 1,513,688
45,733 Burlington Northern Santa Fe 4,344,635
52,100 Delta Air Lines, Inc. 5,249,075
41,700 UAL Corp. 3,653,962
------------
TOTAL BASIC INDUSTRIES (Cost: $10,257,066) 14,761,360
------------
CAPITAL GOODS (36.5%)
Aerospace (6.5%)
100,500 Boeing Co. 4,811,438
75,200 United Technologies Corp. 5,264,000
------------
Total Aerospace 10,075,438
------------
Electronics, Semiconductors & Instruments (8.7%)
40,900 Honeywell, Inc. 2,783,756
119,400 Intel Corp. 9,193,800
45,500 Oracle Corp. 1,628,047 **
------------
Total Electronics, Semiconductors & Instruments 13,605,603
------------
Telecommunications Equipment (7.7%)
94,000 Cisco Systems, Inc. 7,710,938
29,800 Lucent Technologies, Inc. 2,456,638
45,600 3Com Corp. 1,889,550 **
------------
Total Telecommunications Equipment 12,057,126
------------
Information Processing (9.0%)
62,300 Computer Sciences Corp. 4,419,406
55,200 Microsoft Corp. 7,176,000
30,700 Xerox Corp. 2,434,894
------------
Total Information Processing 14,030,300
------------
Machinery (3.0%)
91,900 Caterpillar, Inc. 4,709,875
------------
Services (1.6%)
84,000 Corrections Corp. of America 2,562,000 **
------------
TOTAL CAPITAL GOODS (Cost: $32,941,023) 57,040,342
------------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
24
<PAGE>
TCW GALILEO FUNDS, INC.
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
--------- ----------------- ------------
<S> <C> <C>
CONSUMER CYCLICALS (8.1%)
Autos & Auto Parts (8.1%)
140,226 Ford Motor Co. $ 6,126,123
71,700 Lear Seating Corp. 3,446,081
47,800 Magna International, Inc. 3,148,825
------------
TOTAL CONSUMER CYCLICALS (Cost: $9,153,300) 12,721,029
------------
CONSUMER STAPLES (32.5%)
Beverages, Distributions & Restaurants (2.2%)
92,800 PepsiCo, Inc. 3,416,200
------------
Cosmetics And Household Products (2.5%)
57,400 Procter & Gamble Co. 3,903,200
------------
Foods & Restaurants (1.9%)
60,600 Kellogg Co. 2,609,587
9,280 Tricon Global Restaurants, Inc. 281,300 **
------------
Total Foods & Restuarants 2,890,887
------------
Healthcare (9.3%)
38,600 Johnson & Johnson 2,214,675
78,600 Lilly (Eli) & Co. 5,256,375
35,600 United Healthcare Corp. 1,648,725
38,300 Warner-Lambert Co. 5,484,081
------------
Total Healthcare 14,603,856
------------
Leisure, Entertainment, Media & Hotels (8.3%)
116,400 Mirage Resorts, Inc. 2,910,000 **
195,891 Westinghouse Electric Corp. 5,178,868
83,600 Time Warner, Inc. 4,822,675
------------
Total Leisure, Entertainment, Media & Hotels 12,911,543
------------
Retail (5.6%)
119,699 Home Depot, Inc. 6,658,257
62,800 Tandy Corp. 2,158,750
------------
Total Retail 8,817,007
------------
Tobacco (2.7%)
104,400 Philip Morris Companies, Inc. 4,136,850
------------
TOTAL CONSUMER STAPLES (Cost: $40,406,570) 50,679,543
------------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
25
<PAGE>
TCW Galileo Core Equity Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (Continued)
- -----------------------------------
Number
Of Shares EQUITY SECURITIES Value
--------- ----------------- ------------
<S> <C> <C>
CREDIT SENSITIVE (13.3%)
Financial Services (13.3%)
63,500 Associates First Capital Corp. $ 4,040,188
39,000 Citicorp 4,877,437
82,000 Federal National Mortgage Association 3,971,875
51,300 Marsh & McLennan Companies, Inc. 3,642,300
63,000 Merrill Lynch & Co., Inc. 4,260,375
------------
TOTAL CREDIT SENSITIVE (Cost: $12,624,086) 20,792,175
------------
TOTAL INVESTMENTS (COST: $105,382,045) (99.9%) 155,994,449
EXCESS OF OTHER ASSETS OVER LIABILITIES (0.1%) 118,544
------------
NET ASSETS (100%) $156,112,993
============
</TABLE>
See accompanying Notes to Finacial Statements.
26
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Earnings Momentum Fund
October 31, 1997
SCHEDULE OF INVESTMENTS
- -----------------------
<TABLE>
<CAPTION>
Number of Shares EQUITY SECURITIES Value
- ---------------- ----------------- -------------
<S> <C> <C>
CAPITAL GOODS (32.5% of Net Assets)
Aerospace & Defense (1.7%)
59,900 BE Aerospace, Inc. $ 1,684,687 **
-------------
Computer Software & Services (7.1%)
11,300 Aspect Development, Inc. 528,275 **
40,000 BDM International, Inc. 885,000 **
50,500 Ciber, Inc. 2,234,625 **
17,400 Hall, Kinion & Associates, Inc. 271,875 **
70,000 Legato Systems, Inc. 2,992,500 **
14,500 RWD Technologies, Inc. 326,250 **
-------------
Total Computer Software & Services 7,238,525
-------------
Electronics (9.3%)
31,125 AFC Cable Systems, Inc. 883,172 **
113,400 Anicom, Inc. 1,757,700 **
64,700 Bolder Technologies Corp. 768,312 **
84,600 C.P. Clare Corp. 1,427,625 **
29,900 ECI Telecommunications, Ltd. (Israel) 825,987
14,700 Genesys Telecommunications Laboratories, Inc. 470,400 **
27,000 Integrated Circuit Systems, Inc. 924,750 **
50,400 MRV Communications, Inc. 1,474,200 **
4,700 Tollgrade Communications, Inc. 115,738
42,500 Sheldahl, Inc. 828,750 **
-------------
Total Electronics 9,476,634
-------------
Information Processing (9.7%)
2,400 Advantage Learning Systems, Inc. 60,600 **
31,900 Aspen Technologies, Inc. 1,200,237 **
54,500 Citrix Systems, Inc. 4,002,344 **
67,800 Computer Products, Inc. 1,847,550 **
10,500 Great Plains Software, Inc. 250,687 **
43,900 QAD, Inc. 620,088 **
29,800 Radiant Systems, Inc. 540,125 **
21,400 Saville Systems, PLC (ADR) (Ireland) 1,278,650 **
3,600 TSI International Software, Ltd. 39,150 **
-------------
Total Information Processing 9,839,431
-------------
Office Equipment & Building Supplies (1.1%)
28,400 Daisytek International Corp. 1,082,750 **
-------------
</TABLE>
** Non-income producing
See accompanying Notes to Financial Statements.
27
<PAGE>
TCW Galileo Earnings Momentum Fund
SCHEDULE OF INVESTMENTS (Continued)
- -----------------------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- -------------- ----------------- -------------
<S> <C> <C> <C>
Pollution Control (3.6%)
3,100 Casella Waste Systems, Inc. $ 68,587
11,300 Culligan Water Technologies, Inc. 481,663 **
50,400 Tetra Tech, Inc. 1,316,700 **
79,100 Tetra Technologies, Inc. 1,824,244 **
-------------
Total Pollution Control 3,691,194
-------------
TOTAL CAPITAL GOODS (Cost: $23,480,321) 33,013,221
-------------
CONSUMER CYCLICALS (1.6%)
Autos & Auto Parts (1.6%)
25,100 Dura Automotive Systems, Inc. 778,100 **
85,900 Miller Industries, Inc. 869,737 **
-------------
TOTAL CONSUMER CYCLICALS (Cost: $1,591,426) 1,647,837
-------------
CONSUMER STAPLES (56.9%)
Cosmetics & Household Products (0.5%)
35,600 Enamelon, Inc. 551,800 **
-------------
Drugs & Hospital Supply (6.7%)
66,700 BioChem Pharma, Inc. (Canada) 1,671,669 **
43,700 Gulf South Medical Supply, Inc. 1,442,100 **
35,200 PathoGenesis Corp. 1,267,200 **
25,600 Pharmacyclics, Inc. 652,800 **
25,700 Safeskin Corp. 1,166,138 **
48,500 Selfcare, Inc. 612,312 **
-------------
Total Drugs & Hospital Supply 6,812,219
-------------
Foods, Hotels & Restaurants (6.5%)
4,000 Beringer Wine Estates Holdings, Inc. 124,000
64,100 Fine Host Corp. 1,794,800 **
29,200 Il Fornaio (America) Corp. 388,725 **
79,100 Interstate Hotels Co. 2,432,325 **
17,500 O'Charley's, Inc. 323,750 **
25,950 Signature Resorts, Inc. 677,944 **
42,300 United Natural Foods, Inc. 888,300 **
-------------
Total Foods, Hotels & Restaurants 6,629,844
-------------
Healthcare (15.4%)
33,300 BioReliance Corp. 740,925 **
65,100 Complete Management, Inc. 1,131,113 **
62,600 Concentra Managed Care, Inc. 2,042,325 **
48,100 Cytyc Corp. 1,142,375 **
51,800 Envoy Corp. 1,450,400 **
</TABLE>
** Non-income producing
See accompanying Notes to Financial Statements.
28
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- -------------- ------------------ -------------
<S> <C> <C>
Healthcare (Continued)
18,000 Express Scripts, Inc. $ 1,014,750 **
51,400 Healthcare Recoveries, Inc. 950,900 **
27,700 MedCath, Inc. 436,275 **
99,400 NeoPath, Inc. 1,801,625 **
72,600 Neoprobe Corp. 726,000 **
25,300 OEC Medical Systems, Inc. 461,725 **
55,100 Ocular Sciences, Inc. 1,212,200 **
42,500 Simione Central Holdings, Inc. 472,812 **
63,333 Total Renal Care Holdings, Inc. 1,951,458 **
16,900 Urocor, Inc. 141,538 **
-------------
Total Healthcare 15,676,421
-------------
Leisure, Entertainment, Photo & Media (5.8%)
72,200 Family Golf Centers, Inc. 1,931,350 **
80,700 Gemstar International Group, Ltd. (Virgin Islands) 1,785,488 **
63,500 Macrovision Corp. 889,000 **
40,200 Metro Networks, Inc. 1,246,200 **
-------------
Total Leisure, Entertainment, Photo & Media 5,852,038
-------------
Retail (2.9%)
73,050 Just for Feet, Inc. 1,082,053 **
9,600 Linens 'N Things, Inc. 345,000 **
93,500 Marks Brothers Jewelers, Inc. 1,519,375 **
-------------
Total Retail 2,946,428
-------------
Schools (1.9%)
22,300 EduTrek International, Inc. 546,350 **
39,100 Learning Tree International, Inc. 1,358,725 **
-------------
Total Schools 1,905,075
-------------
Services - Business (17.2%)
17,400 Administaff, Inc. 376,275 **
90,700 American Residential Services, Inc. 1,326,488 **
54,700 Brightpoint, Inc. 1,960,200 **
172,097 Corporate Express, Inc. 2,527,675 **
50,600 CSG Systems International, Inc. 1,982,887 **
18,100 Hagler Bailly, Inc. 366,525 **
28,500 Industrial Distribution Group, Inc. 552,188 **
28,500 Innovative Valve Technologies, Inc. 498,750 **
33,000 MAXIMUS, Inc. 924,000 **
79,000 Norwood Promotional Products, Inc. 1,264,000 **
28,300 Nova Corp. 760,562 **
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
29
<PAGE>
TCW Galileo Earnings Momentum Fund
SCHEDULE OF INVESTMENTS (Continued)
- -----------------------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- -------------- ----------------- -------------
<S> <C> <C> <C>
Services - Business (Continued)
49,100 Pegasus Systems, Inc. $ 761,050 **
71,500 Stericycle, Inc. 670,313 **
21,800 Stewart Enterprises, Inc., Class A 904,700 **
50,300 Wackenhut Corrections Corp., Class B 1,012,287
60,600 Wilmar Industries, Inc. 1,590,750 **
-------------
Total Services - Business 17,478,650
-------------
TOTAL CONSUMER STAPLES (Cost: $47,628,640) 57,852,475
-------------
CREDIT SENSITIVE (5.1%)
Financial Services (1.5%)
28,200 American Capital Strategies, Ltd. 507,600 **
46,900 ARM Financial Group, Inc. 1,014,213 **
-------------
Total Financial Services 1,521,813
-------------
Insurance (1.4%)
22,800 PAULA Financial 575,700 **
28,800 PXRE Corp. 878,400
-------------
Total Insurance 1,454,100
-------------
Real Estate (0.9%)
18,400 Imperial Credit Commercial Mortgage Investment Corp. 303,600 **
14,900 LaSalle Partners, Inc. 544,781
-------------
Total Real Estate 848,381
-------------
Telecommunications (1.3%)
58,000 Omnipoint Corp. 1,344,875 **
-------------
TOTAL CREDIT SENSITIVE (Cost: $4,605,318) 5,169,169
-------------
TOTAL EQUITY SECURITIES (Cost: $77,305,705) (96.1%) 97,682,702
-------------
Principal Amount SHORT-TERM INVESTMENT (Cost: $6,266,799) (6.1%)
- ---------------- -----------------------------------------------
$ 6,266,799 Bank Of New York Depository Reserve, 4.6%, due 11/03/97 6,266,799
-------------
TOTAL INVESTMENTS (Cost: $83,572,504) (102.2%) 103,949,501
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.2%) (2,282,133)
-------------
NET ASSETS (100%) $ 101,667,368
=============
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
30
<PAGE>
TCW GALILEO FUNDS, INC.
<TABLE>
<CAPTION>
TCW Galileo Mid-Cap Growth Fund
SCHEDULE OF INVESTMENTS October 31, 1997
- -----------------------
Number of
Shares EQUITY SECURITIES Value
--------- ----------------- ------------
<S> <C> <C>
COMMON STOCK
------------
BASIC MATERIALS (2.1% OF Net Assets)
Oil & Gas (2.1%)
24,900 Patterson Energy, Inc. $ 1,394,400 **
45,900 Precision Drilling Corp. 1,411,425 **
------------
TOTAL BASIC MATERIALS (Cost: $3,132,277) 2,805,825
------------
CAPITAL GOODS (37.5%)
Electronics (7.4%)
48,000 Advanced Fibre Communications 1,395,000 **
88,000 Maxim Integrated Products, Inc. 5,830,000 **
97,100 Pairgain Technologies, Inc. 2,743,075 **
------------
Total Electronics 9,968,075
------------
Information Processing (30.0%)
87,200 Avid Technology, Inc. 2,490,650 **
21,900 Baan Company N.V. 1,535,737 **
25,800 CBT Group, PLC (ADR) (Ireland) 1,980,150 **
71,200 Cerner Corp. 1,726,600 **
103,500 Cognex Corp. 2,768,625 **
46,650 Computer Horizons Corp. 1,416,994 **
115,000 E*TRADE Group, Inc. 3,550,625 **
139,300 Fore Systems, Inc. 2,263,625 **
75,800 Netscape Communications Corp. 2,491,925 **
86,300 Peoplesoft, Inc. 5,426,112 **
90,600 Security Dynamics Technologies, Inc. 3,069,075 **
149,600 Siebel Systems, Inc. 6,040,100 **
53,700 Transaction Systems Architects, Inc. 2,101,013 **
89,800 Yahoo!, Inc. 3,937,169 **
------------
Total Information Processing 40,798,400
------------
MANUFACTURING (0.1%)
4,600 Dril-Quip, Inc. 165,025 **
------------
TOTAL CAPITAL GOODS (Cost: $38,175,395) 50,931,500
------------
CONSUMER CYCLICALS (2.1%)
Autos & Auto Parts (1.0%)
135,350 Miller Industries, Inc. 1,370,419 **
------------
Services-Commercial & Consumer (1.1%)
39,300 CB Commercial Real Estate Services Group, Inc. 1,473,750 **
------------
TOTAL CONSUMER CYCLICALS (Cost: $3,670,399) 2,844,169
------------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
31
<PAGE>
TCW Galileo Mid-Cap Growth Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
- -----------------------
Number of
Shares EQUITY SECURITIES Value
--------- ----------------- ------------
<S> <C> <C>
CONSUMER STAPLES (52.7%)
Beverages, Distributions & Restaurants (1.3%)
55,300 Starbucks, Corp. $ 1,824,900 **
------------
Foods, Tobacco & Hotels (6.9%)
48,500 HFS, Inc. 3,419,250 **
107,400 Mirage Resorts, Inc. 2,685,000 **
125,700 Signature Resorts, Inc. 3,283,912 **
------------
Total Foods, Tobacco & Hotels 9,388,162
------------
Healthcare (11.0%)
46,700 Biogen, Inc. 1,564,450 **
138,600 Coventry Corp. 1,931,737 **
44,300 Dura-Pharmaceuticals, Inc. 2,143,013 **
119,150 Health Management Associates, Inc., Class A 2,904,281 **
80,075 Phycor, Inc. 1,846,730 **
100,700 Safeskin Corp. 4,569,262 **
------------
Total Healthcare 14,959,473
------------
Leisure, Entertainment, Photo & Media (11.2%)
61,500 Cablevision Systems Corp. 4,297,312 **
81,800 Clear Channel Communications, Inc. 5,398,800 **
95,500 Playboy Enterprises, Inc. 1,319,094 **
40,900 Regal Cinemas, Inc. 940,700 **
104,500 Westwood One, Inc. 3,206,844 **
------------
Total Leisure, Entertainment, Photo & Media 15,162,750
------------
Retail (5.1%)
107,300 Bed, Bath & Beyond, Inc. 3,406,775 **
127,200 Best Buy Co., Inc. 3,553,650 **
------------
Total Retail 6,960,425
------------
Services-Business (17.2%)
68,275 Apollo Group, Inc., Class A 2,884,619 **
63,600 Corrections Corp. of America 1,939,800 **
133,000 National TechTeam, Inc. 1,596,000 **
117,400 Outdoor Systems, Inc. 3,610,050 **
101,150 Paychex, Inc. 3,856,344
119,550 Robert Half International, Inc. 4,894,078 **
228,100 Romac International, Inc. 4,562,000 **
------------
Total Services-Business 23,342,891
------------
TOTAL CONSUMER STAPLES (Cost: $52,583,812) 71,638,601
------------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
32
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
Number Of
Shares EQUITY SECURITIES Value
--------- ----------------- ------------
<S> <C> <C>
CREDIT SENSITIVE (4.9%)
Banks, Financial Services, and Building (4.9%)
22,000 CCA Prison Realty Trust $ 759,000
86,700 Hartford Life, Inc. 3,202,481
40,100 T. Rowe Price Associates 2,656,625
------------
TOTAL CREDIT SENSITIVE (Cost: $5,075,071) 6,618,106
------------
TOTAL COMMON STOCK (Cost: $102,636,954) (99.3%) 134,838,201
------------
PREFERRED STOCK
---------------
BASIC INDUSTRIES (COST: $1,252,075)
Energy and Oil Services (1.2%)
39,100 Newpark Resources, Inc. 1,622,650 **
------------
TOTAL EQUITY SECURITIES (Cost: $103,889,029)
(100.5%) 136,460,851
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount SHORT-TERM INVESTMENT (Cost: $8,311,912) (6.1%)
---------- -----------------------------------------------
<S> <C> <C>
$8,311,912 Bank of New York Depository Reserve, 4.6%,
Due 11/03/97 8,311,912
------------
TOTAL INVESTMENTS (Cost: $112,200,941) (106.6%) 144,772,763
LIABILITIES IN EXCESS OF OTHER ASSETS (-6.6%) (8,923,143)
------------
NET ASSETS (100%) $135,849,620
============
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
33
<PAGE>
TCW Galileo Small Cap Growth Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
-----------------------
Number
of Shares
or Warrants EQUITY SECURITIES Value
---------------- ----------------- ------------
<S> <C> <C>
COMMON STOCK
------------
BASIC MATERIALS (3.3%)
Energy & Oil Services (3.3%)
27,600 Cal Dive International, Inc. $ 862,500 **
42,000 Eagle Geophysical, Inc. 735,000 **
44,400 Friede Goldman International, Inc. 1,767,675 **
12,600 Key Energy Group, Inc. 395,325 **
39,400 NS Group, Inc. 1,053,950 **
----------
TOTAL BASIC MATERIALS (Cost: $3,115,346) 4,814,450
----------
CAPITAL GOODS (39.4%)
Aerospace/Defense (0.8%)
43,500 BE Aerospace, Inc. 1,223,438 **
----------
COMPUTER SOFTWARE & SERVICES (12.4%)
17,300 Applied Graphics Technologies, Inc. 925,550 **
26,800 Aspect Development, Inc. 1,252,900 **
33,600 Cambridge Technology Partners, Inc. 1,226,400 **
22,900 Ciber, Inc. 1,013,325 **
28,300 Clarify, Inc. 367,900 **
41,250 Computer Horizons Corp. 1,252,969 **
40,875 Computer Management Sciences, Inc. 715,313 **
71,100 CSG Systems International, Inc. 2,786,231 **
30,400 International Network Services 668,800 **
57,100 Legato Systems, Inc. 2,441,025 **
21,100 Peoplesoft, Inc. 1,326,662 **
3,000 Radiant Systems, Inc. 54,375 **
60,600 Security Dynamics Tech, Inc. 2,052,825 **
21,800 Select Software Tools, Ltd. (ADR) (Great Britain) 175,762 **
16,200 SPR, Inc. 279,450 **
1 Synopsis, Inc. 39 **
36,000 Viasoft, Inc. 1,476,000 **
----------
Total Computer Software & Services 18,015,526
----------
Electronics (8.3%)
3,384 American Satellite Network, Inc., Warrants, expire 06/30/99 -- **
37,000 Bolder Technologies Corp. 439,376 **
46,900 Computer Products, Inc. 1,278,026 **
46,025 EXCEL Communications, Inc. 1,087,342 **
23,100 Genesys Telecommunications Laboratories, Inc. 739,200 **
44,900 GeoTel Communications Corp. 768,912 **
33,300 International Manufacturing Services, Inc. 362,138 **
38,400 Maxim Integrated Products, Inc. 2,544,000 **
20,800 MRV Communications, Inc. 608,400 **
30,000 Natural Microsystems Corp. 1,432,500 **
37,100 Premisys Communications, Inc. 1,010,975 **
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
34
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
---------------- ----------------- ------------
<S> <C> <C>
Electronics (Continued)
24,400 Sheldahl, Inc. $ 475,800 **
54,600 Winstar Communications 1,248,975 **
-----------
Total Electronics 11,995,644
-----------
Information Processing (17.4%)
6,000 Advantage Learning Systems, Inc. 151,500 **
39,400 Aspen Technologies, Inc. 1,482,425 **
29,100 Avid Technology, Inc. 831,169 **
22,000 AXENT Technologies, Inc. 514,250 **
19,300 CBT Group, PLC (ADR)(Ireland) 1,481,275 **
72,300 Citrix Systems, Inc. 5,309,531 **
18,000 Concord EFS, Inc. 319,500 **
30,400 DBT Online, Inc. 837,900 **
57,500 Dendrite International, Inc. 1,114,063 **
24,500 Discreet Logic, Inc. 479,281 **
13,600 Documentum, Inc. 406,300 **
1,100 Great Plains Software, Inc. 26,263 **
19,600 HNC Software, Inc. 725,200 **
10,800 IDX Systems Corp. 364,500 **
800 INSpire Insurance Solutions, Inc. 14,800 **
196,600 Intelligent Electronics, Inc. 1,044,437 **
5,600 Network Appliance, Inc. 281,400 **
77,500 Platinum Software Corp. 804,062 **
9,300 QAD, Inc. 131,362 **
16,300 QuadraMed Corp. 383,050 **
50,800 Saville Systems, PLC (ADR)(Ireland) 3,035,300 **
43,200 Siebel Systems, Inc. 1,744,200 **
98,900 Sigma Designs, Inc. 593,400 **
2,600 TSI International Software, Ltd. 28,275 **
111,200 Topro, Inc. 688,050 **
33,500 Transaction System Architects, Inc. 1,310,688 **
21,750 Yahoo!, Inc. 953,602 **
-----------
Total Information Processing 25,055,783
-----------
Pollution Control (0.5%)
2,000 Casella Waste Systems, Inc. 44,250 **
16,500 Culligan Water Technologies, Inc. 703,313 **
-----------
Total Pollution Control 747,563
-----------
TOTAL CAPITAL GOODS (Cost: $34,902,767) 57,037,954
-----------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
35
<PAGE>
TCW Galileo Small Cap Growth Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (Continued)
-----------------------------------
Number
of Shares EQUITY SECURITIES Value
---------------- ----------------- ------------
<S> <C> <C>
CONSUMER STAPLES (44.8%)
Drugs & Hospital Supply (4.7%)
15,000 Dura Pharmaceuticals, Inc. $ 725,625 **
21,300 Gulf South Medical Supply, Inc. 702,900 **
119,500 Safeskin Corp. 5,422,313 **
-------------
Total Drugs & Hospital Supply 6,850,838
-------------
Food, Hotels & Restaurants (2.4%)
2,300 Beringer Wine Estates Holdings, Inc. 71,300 **
18,200 Il Fornaio (America) Corp. 242,288 **
30,300 Interstate Hotels Co. 931,725 **
37,650 Signature Resorts, Inc. 983,606 **
21,500 Silverleaf Resorts, Inc. 467,625 **
6,100 Star Buffet, Inc. 87,306 **
14,400 Suburban Lodges of America, Inc. 356,400 **
11,400 Trendwest Resorts, Inc. 260,775 **
-------------
Total Food, Hotels & Restaurants 3,401,025
-------------
Healthcare (10.8%)
19,400 BioReliance Corp. 431,650 **
37,600 Cell Therapeutics, Inc. 601,600 **
72,459 Concentra Managed Care, Inc. 2,363,975 **
76,800 Coventry Corp. 1,070,400 **
25,800 Curative Health Services, Inc. 777,225 **
19,300 Cytyc Corp. 458,375 **
36,600 Hanger Orthopedic Group, Inc. 475,800 **
75,000 IRIDEX Corp. 759,375 **
6,300 Monarch Dental Corp. 114,187 **
36,300 NeoPath, Inc. 657,938 **
50,100 Neoprobe Corp. 501,000 **
54,100 Neose Technologies, Inc. 906,175 **
72,300 Ocular Sciences, Inc. 1,590,600 **
32,000 Omnicare, Inc. 890,000
96,500 Orthodontic Centers of America, Inc. 1,670,656 **
38,000 Pharmaceutical Product Development, Inc. 674,500 **
61,200 PolyMedica Industries, Inc. 627,300 **
32,500 Total Renal Care Holdings, Inc. 1,001,406 **
-------------
Total Healthcare 15,572,162
-------------
Leisure, Entertainment, Photo and Media (7.5%)
41,900 Clear Channel Communications, Inc. 2,765,400 **
59,700 Family Golf Centers, Inc. 1,596,975 **
26,200 Gemstar International Group, Ltd. (Virgin Islands) 579,675 **
8,900 Heftel Broadcasting Corp. 591,850 **
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
36
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
---------------- ----------------- ------------
<S> <C> <C>
Leisure, Entertainment, Photo & Media (Continued)
35,000 International Speedway Corp. $ 735,000
28,000 Metro Networks, Inc. 868,000 **
49,400 North Face, Inc. 1,167,075 **
5,900 Penske Motorsports, Inc. 174,788 **
54,900 VDI Media 631,350 **
56,400 Westwood One, Inc. 1,730,775 **
-----------
Total Leisure, Entertainment, Photo & Media 10,840,888
-----------
Retail (4.9%)
40,800 Bed, Bath and Beyond, Inc. 1,295,400 **
49,700 Cost Plus, Inc. 1,348,112 **
23,700 Dollar Tree Stores, Inc. 959,850 **
62,250 Just for Feet, Inc. 922,078 **
30,900 Marks Brothers Jewelers, Inc. 502,125 **
6,800 Men's Wearhouse, Inc. 263,500 **
16,500 St. John Knits, Inc. 663,094 **
14,200 Tiffany & Co. 560,900 **
8,500 Timberland Co. 613,063 **
-----------
Total Retail 7,128,122
-----------
Schools (1.1%)
21,050 Computer Learning Centers, Inc. 952,513 **
10,400 EduTrek International, Inc. 254,800 **
9,800 Learning Tree International, Inc. 340,550 **
-----------
Total Schools 1,547,863
-----------
Services - Business (13.4%)
25,400 Brightpoint, Inc. 838,200 **
42,600 Caribiner International, Inc. 1,909,012 **
27,300 C.H. Robinson Worldwide, Inc. 600,600 **
29,600 Corrections Corp. of America 902,800 **
57,900 Envoy Corp. 1,621,200 **
1,800 Industrial Distribution Group, Inc. 34,875 **
38,300 MAXIMUS, Inc. 1,072,400 **
29,400 Meta Group, Inc. 635,775 **
109,900 National TechTeam, Inc. 1,318,800 **
98,700 Outdoor Systems, Inc. 3,035,025 **
13,200 Pegasus Systems, Inc. 204,600 **
55,050 Robert Half International, Inc. 2,253,609 **
101,000 Romac International, Inc. 2,020,000 **
49,000 Snyder Communications, Inc. 1,445,500 **
26,800 Superior Consultant Holdings Corp. 830,800 **
23,500 Vincam Group, Inc. 737,313 **
-----------
Total Services - Business 19,460,509
-----------
TOTAL CONSUMER STAPLES (Cost: $44,514,651) 64,801,407
-----------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
37
<PAGE>
TCW Galileo Small Cap Growth Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (Continued)
-----------------------------------
Number
of Shares EQUITY SECURITIES Value
---------------- ----------------- ------------
<S> <C> <C>
CONSUMER CYCLICALS (1.6%)
Auto & Auto Parts (1.6%)
22,900 Dura Automotive Systems, Inc. $ 709,900 **
104,600 Miller Industries, Inc. 1,059,075 **
12,100 Tower Automotive, Inc. 506,688 **
------------
TOTAL CONSUMER CYCLICALS (Cost: $1,791,902) 2,275,663
------------
CREDIT SENSITIVE (4.1%)
Banks & Financial Services (2.7%)
42,700 ARM Financial Group, Inc. 923,387
31,000 E*TRADE Group, Inc. 957,125 **
28,900 Imperial Credit Industries, Inc. 726,113 **
29,900 Redwood Trust, Inc. 751,237 **
48,100 United Industrial Corp. 502,044 **
------------
Total Banks & Financial Services 3,859,906
------------
Insurance (0.0%)
2,800 PAULA Financial 70,700 **
------------
Real Estate (1.4%)
22,600 CB Commercial Real Estate Services Group, Inc. 847,500 **
4,000 CCA Prison Realty Trust 138,000 **
53,400 Imperial Credit Commercial Mortgage Investment Corp. 881,100 **
5,400 LaSalle Partners, Inc. 197,437 **
------------
Total Real Estate 2,064,037
------------
TOTAL CREDIT SENSITIVE (Cost: $5,463,466) 5,994,643
------------
TOTAL COMMON STOCK (COST: $89,788,132) (93.2%) 134,924,117
------------
PREFERRED STOCK
---------------
BASIC INDUSTRIES (Cost: $1,011,013)
Energy & Oil Services (1.7%)
57,800 Newpark Resources, Inc. 2,398,700 **
------------
TOTAL EQUITY SECURITIES (Cost: $90,799,145) (94.9%) 137,322,817
------------
<CAPTION>
Principal
Amount SHORT-TERM INVESTMENT (COST: $8,373,144) (5.8%)
----------- -----------------------------------------------
<S> <C> <C>
$ 8,373,144 Bank Of New York Depository Reserve, 4.6%, due 11/03/97 8,373,144
------------
TOTAL INVESTMENTS (Cost: $99,172,289) (100.7%) 145,695,961
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.7%) (940,209)
------------
NET ASSETS (100%) $144,755,752
============
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
38
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Asia Pacific Fund
October 31, 1997
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
- -----------------------
Number
of Shares
or Warrants EQUITY SECURITIES Value
- ----------- ----------------- ----------
COMMON STOCK
------------
<S> <C> <C>
HONG KONG (34.1% OF Net Assets)
734,000 Beijing Datang Power Generation Company, Limited $ 370,252 **
600,000 Beijing Yanhua Petrochemical Company, Limited 174,610 **
91,000 Cheung Kong Holdings, Limited 632,639
244,500 China Light & Power Company, Limited 1,287,092
156,000 Citic Pacific, Limited 746,556
266,500 Hong Kong Electric Holdings, Limited 903,098
139,200 Hong Kong Telecommunications, Limited 266,463
142,000 Hutchison Whampoa, Limited 982,604
240,000 Hysan Development Company, Limited 501,326
142,000 New World Development Company, Limited 499,567
67,000 Sun Hung Kai Properties, Limited 493,953
76,000 Swire Pacific, Limited, Class A 405,975
----------
TOTAL HONG KONG (Cost: $8,967,544) 7,264,135
----------
INDIA (6.9%)
16,000 BSES, Limited (GDR) 248,000 **
5,500 Indian Hotels (GDR) 92,125 **
16,100 Mahindra & Mahindra (GDR) 165,025 **
12,500 Reliance Industries, Limited (GDR) 256,250
25,600 State Bank of India (GDR) 448,000 **
10,000 Tata Engineering & Locomotive (144A) (GDR) 98,800 * **
11,300 Videsh Sanchar Nigam, Limited (GDR) 155,940 **
----------
TOTAL INDIA (Cost: $1,574,926) 1,464,140
----------
INDONESIA (4.1%)
501,600 PT London Sumatra Indonesia 536,934
110,000 PT Ramayana Lestari Sentosa 185,359
7,380 PT Telekomunikasi Indonesia (ADR) 143,449
----------
TOTAL INDONESIA (Cost: $921,663) 865,742
----------
MALAYSIA (Cost: $472,735) (1.7%)
155,000 Malakoff Berhad 369,267
----------
PHILIPPINES (1.8%)
580,700 Belle Corporation 51,906 **
194,140 Belle Corporation, Warrants, expire 09/10/00 24 **
1,310 Far East Bank and Trust Company 1,866
10,443 Manila Electric Company 31,504
6,140 Philippine Long Distance Telephone Company 150,070
909,000 SM Prime Holdings 157,425 **
----------
TOTAL PHILIPPINES (Cost: $642,120) 392,795
----------
</TABLE>
* Restricted security. (See Note 6)
** Non-income producing.
See accompanying Notes to Financial Statements.
39
<PAGE>
TCW Galileo Asia Pacific Equity Fund
SCHEDULE OF INVESTMENTS (Continued)
- -----------------------------------
<TABLE>
<CAPTION>
Number of
Shares EQUITY SECURITIES Value
- ---------- ----------------- -----------
<S> <C> <C>
SINGAPORE (3.6%)
70,000 Fraser & Neave, Limited $ 350,666
110,000 Keppel Corporation, Limited 347,369
16,600 Orchard Parade Holding, Limited 11,368
23,000 Singapore Land, Limited 65,339
-----------
TOTAL SINGAPORE (Cost: $1,588,668) 774,742
-----------
SOUTH KOREA (0.1%)
2,067 Hyundai Engineering & Construction (New GDR) 10,852 **
111 Samsung Electronics Company, Limited 4,337
-----------
TOTAL SOUTH KOREA (Cost: $31,113) 15,189
-----------
TAIWAN (4.3%)
8,200 China Steel, Limited (GDR) 118,900 **
40,000 Taiwan Semiconductor Manufacturing Company,
Limited (ADR) 792,500 **
-----------
TOTAL TAIWAN (Cost: $1,195,200) 911,400
-----------
TOTAL EQUITY SECURITIES (COST: $15,393,969)(56.6%) 12,057,410
-----------
<CAPTION>
Principal
Amount CONVERTIBLE SECURITIES (COST: $182,792)
- ---------- ---------------------------------------
<S> <C> <C>
TAIWAN (0.8%)
$ 184,000 Far East Department Stores, Limited, Convertible
Bond, 3%, due 07/06/02 176,640
-----------
SHORT-TERM INVESTMENT (COST: $7,297,651)(34.2%)
-----------------------------------------------
7,297,651 Bank of New York Depository Reserve, 4.6%, due
11/03/97 7,297,651
-----------
TOTAL INVESTMENTS (Cost: $22,874,412)(91.6%) 19,531,701
EXCESS OF OTHER ASSETS OVER LIABILITIES (8.4%) 1,795,519
-----------
NET ASSETS (100%) $21,327,220
===========
</TABLE>
** Non-income producing.
See accompanying notes to Financial Statements.
40
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Emerging Markets Fund
October 31, 1997
SCHEDULE OF INVESTMENTS
- -----------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- ---------- ----------------- --------------
COMMON STOCK
------------
<S> <C> <C>
ARGENTINA (6.1% OF Net Assets)
8,279 Banco de Galicia y Buenos Aires, S.A. (ADR) $ 200,636
10,100 Banco Frances del Rio de la Plata, S.A. (ADR) 106,050
42,968 CEI Citicorp Holdings, S.A. 171,970
41,439 IRSA Inversiones y Representaciones, S.A. 139,314
23,576 Molinos Rio de la Plata, S.A., Series B 58,266
117,393 Perez Companc S.A. 735,299
94,098 Siderca S.A., Series A 230,672
4,800 Telecom Argentina STET-France Telecom, S.A., Series B (ADR) 121,500
12,550 Telefonica de Argentina, Sociedad Anonima, Series B (ADR) 352,969
24,926 Yacimientos Petroliferos Fiscales Sociedad del Estado, Series D (ADR) 797,632
--------------
TOTAL ARGENTINA (Cost: $2,568,293) 2,914,308
--------------
BRAZIL (5.8%)
881,000 Companhia de Saneamento Basico de Estado de Sao Paula (SABESP) 162,985
8,160 Companhia Paranaense de Energia (COPEL) (ADR) 97,410
864,477 CENTRAIS ELETRICAS BRASILEIRAS, S.A. (ELECTROBRAS) 348,864
840 Espirito Santo Centrais Eletricas, S.A. (ESCELSA) 152,353
339,000 Light Participacoes, S.A. 86,694 **
4,800,000 Telecomunicacoes Brasileiras, S.A. (TELEBRAS) 426,546
14,580 Telecomunicacoes Brasileiras, S.A. (TELEBRAS) (ADR) 1,479,870
165,883 Telecomunicacoes de Sao Paulo, S.A. (TELESP) 35,352
--------------
TOTAL BRAZIL (Cost: $2,284,270) 2,790,074
--------------
CHILE (5.1%)
8,200 Banco BHIF (ADR) 141,963
11,600 Banco Santander Chile, Series A (ADR) 150,800
4,100 Chilectra, S.A. (144A) (ADR) 106,600 *
5,761 Chilgener, S.A. (ADR) 156,987
18,147 Compania de Telecomunicaciones de Chile, S.A., Series A (ADR) 503,579
10,260 Embotelladora Andina, S.A. (ADR) 210,330
13,860 Embotelladora Andina, S.A., Series B (ADR) 332,640
8,440 Enersis, S.A. (ADR) 278,520
34,000 The Five Arrows Chile Investment Trust, Limited 93,160
7,041 Genesis Chile Fund, Limited 281,640
2,850 Santa Isabel, S.A. (ADR) 52,725 **
5,600 Vina Concha y Toro, S.A. (ADR) 152,600
--------------
TOTAL CHILE (Cost: $2,364,477) 2,461,544
--------------
</TABLE>
* Restricted security. (See Note 6)
** Non-income producing.
See accompanying Notes to Financial Statements.
41
<PAGE>
TCW Galileo Emerging Markets Fund
SCHEDULE OF INVESTMENTS (Continued)
- ----------------------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- ---------- ----------------- --------------
<S> <C> <C>
COLOMBIA (2.8%)
13,900 Almacenes Exito, S.A. $ 49,249
36,926 Banco de Bogota 209,676
8,350 Banco Industrial Colombiano (ADS) 133,600
31,850 Bavaria CB 335,693
26,200 Compania de Cemento Argos, S.A. 175,264
22,770 Compania Nacional de Chocolates, S.A. 182,429
10,600 Compania Suramericana de Seguros, S.A. 234,988
--------------
TOTAL COLOMBIA (Cost: $1,403,878) 1,320,899
--------------
EGYPT (1.4%)
15,000 Commercial International Bank (144A) (GDR) 326,250 *
6,750 MISR International Bank S.A.E. (144A) (GDR) 111,375 *
9,500 Suez Cement Company (144A) (GDR) 217,550 *
--------------
TOTAL EGYPT (Cost: $656,200) 655,175
--------------
HONG KONG (1.8%)
588,000 Beijing Datang Power Generation Company, Limited 296,605
364,000 First Tractor Company, Limited, Series H 282,481
207,000 Guangdong Kelon Electrical Holdings Company, Series H 262,381
--------------
TOTAL HONG KONG (Cost: $866,483) 841,467
--------------
HUNGARY (1.6%)
5,095 Egis 239,241
3,140 Gedeon Richter (144A) (ADR) 326,560 *
8,383 Mol Magyar Olaj-es Gazipari Rt. (144A) (GDR) 203,288 *
--------------
TOTAL HUNGARY (Cost: $732,560) 769,089
--------------
INDIA (6.4%)
24,900 BSES, Limited (GDR) 385,950
13,500 Hindalco Industries, Limited (GDR) 378,000
27,000 Mahindra & Mahindra (GDR) 276,750
14,000 Ranbaxy Laboratories, Limited (GDR) 311,500
27,000 Reliance Industries, Limited (GDR) 553,500
43,600 State Bank of India (GDR) 763,000
17,000 Tata Engineering & Locomotive (144A) (GDR) 167,960 *
17,500 Videsh Sanchar Nigam, Limited (GDR) 241,500
--------------
TOTAL INDIA (Cost: $3,186,153) 3,078,160
--------------
INDONESIA (1.9%)
64,000 PT Gudang Garam 180,331 **
244,800 PT London Sumatra Indonesia 262,044
169,000 PT Ramayana Lestari Sentosa 284,779
201,000 PT Telekomunikasi Indonesia 186,008
--------------
TOTAL INDONESIA (Cost: $1,220,351) 913,162
--------------
</TABLE>
* Restricted security. (See Note 6)
** Non-income producing.
See accompanying Notes to Financial Statements.
42
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- ---------- ----------------- --------------
<S> <C> <C>
IRELAND (COST: $275,000) (0.4%)
27,500 Central Asia Investment Company, Limited $ 206,250
--------------
KAZAKSTAN (COST: $139,684) (0.3%)
7,430 Kazkommertsbank (144A) (GDR) 148,600 *
--------------
LATIN AMERICAN REGIONAL (COST: $141,309) (0.5%)
6,970 Panamerican Beverages, Inc. (ADR) 216,070
--------------
MALAYSIA (COST: $317,415) (0.3%)
123,000 Kulim Berhad 137,725
--------------
MEXICO (16.0%)
111,683 Alfa, S.A. de C.V., Series A 811,758
43,800 Apasco, S.A.de C.V. 265,297 **
141,300 Cemex, S.A. de C.V., Series B 617,558
384,800 Cifra, S.A. de C.V., Series C 662,660
37,900 DESC, S.A. de C.V., Series B 324,086 **
9,850 Empresas ICA Sociedad Controladora, S.A. de C.V. (ADR) 131,128
9,000 Empresas La Moderna, S.A. de C.V. (ADR) 176,063
50,600 Fomento Economico Mexicano, S.A. de C.V., Series B 354,561
76,400 GROUP CARSO, S.A. De C.V., Series A1 481,810 **
71,891 Grupo Financiero Inbursa, S.A. de C.V., Series B 251,875
35,300 Grupo Industrial Bimbo, S.A. de C.V., Series A 264,540
33,900 Grupo Modelo, S.A. de C.V., Series C 249,620
10,710 Grupo Televisa, S.A. de C.V. (ADR) 332,010
42,200 Jugos del Valle, S.A. de C.V., Series B 60,944 **
158,700 Kimberly-Clark de Mexico, S.A. de C.V., Series A 693,606
36,835 Telefonos de Mexico, S.A. de C.V. (ADR) 1,593,115
17,080 Tubos de Acero de Mexico, S.A. de C.V., (ADR) 344,803 **
--------------
TOTAL MEXICO (Cost: $6,190,271) 7,615,434
--------------
PERU (3.5%)
128,725 Cementos Lima, S.A., Class T 266,082
249,924 Cerveceria Backus y Johnston, S.A., Class T 228,376
3,820 Compania de Minas Buenaventura, S. A. (ADR) 68,521
29,094 Compania de Minas Buenaventura, S. A., Series B 269,071
15,405 Credicorp, Limited (ADR) 276,327
9,400 Telefonica del Peru, S.A., (ADR) 185,650
198,056 Telefonica del Peru, S.A., Series B 394,798
--------------
TOTAL PERU (Cost: $1,384,204) 1,688,825
--------------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
43
<PAGE>
TCW Galileo Emerging Markets Fund
SCHEDULE OF INVESTMENTS (Continued)
- ----------------------------------
<TABLE>
<CAPTION>
Number of
Shares or
Warrants EQUITY SECURITIES Value
- ---------- ----------------- --------------
<S> <C> <C>
PHILIPPINES (0.9%)
1,260,100 Belle Corporation $ 112,635
252,020 Belle Corporation, Warrants, expire 09/10/00 31
18,990 Manila Electric Company 57,288
10,200 Philippine Long Distance Telephone Company 249,302
--------------
TOTAL PHILIPPINES (Cost: $737,255) 419,256
--------------
POLAND (2.4%)
14,750 @Entertainment, Inc. (ADR) 169,625
1,580 International Trading & Investments Holdings, S.A. (GDR) 371,300
9,900 Krosno, S.A. 96,729
10,618 Powszechne Swiadectwo Udzialowe 390,920
1,800 Zaklady Piwowarskie w Zywcu, S.A. (ZYWIEC) 132,540
--------------
TOTAL POLAND (Cost: $1,425,872) 1,161,114
--------------
RUSSIA (4.0%)
10,406 AO Mosenergo Joint Stock Company (144A) (ADR) 437,052 *
2,000 AO Tatneft (ADR) 280,000
3,208 Lukoil Holdings (144A) (ADR) 266,264 *
16 Nizhny Novgorod Svyazinform (144A) (Bridge Certificates) 84,000 *
53 Samara Svyazinform (144A) (Bridge Certificates) 47,700 *
30,000 Surgutneftegaz (ADR) 270,000
6,252 Unified Energy Systems (144A) (Bridge Certificates) 440,782 *
23 Ural Telcom (144A) (Bridge Certificates) 70,150 *
--------------
TOTAL RUSSIA (Cost: $2,217,999) 1,895,948
--------------
SOUTH AFRICA (4.7%)
24,520 Barlow, Limited 246,854
44,693 JD Group, Limited 299,654
23,400 Johnnies Industrial Corp., Limited 262,294
10,340 Liberty Life Association of Africa, Limited 257,561
13,900 Nedcor, Limited 291,417
139,000 New Africa Investments, Limited, Series N 113,970
30,040 Rembrandt Group, Limited 246,306
42,660 Sasol, Limited 513,602
--------------
TOTAL SOUTH AFRICA (Cost: $2,513,231) 2,231,658
--------------
SOUTH KOREA (Cost: $575) (0.0%)
11 Samsung Electronics Company, Limited 430
--------------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
44
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- ---------- ----------------- --------------
<S> <C> <C>
TAIWAN (3.4%)
10,490 China Steel, Limited (GDR) $ 152,105
100,600 R.O.C. Taiwan Fund, Limited 873,963
30,000 Taiwan Semiconductor Manufacturing Company, Limited (ADR) 594,375
--------------
TOTAL TAIWAN (Cost: $2,086,879) 1,620,443
--------------
TURKEY (6.2%)
3,700,000 Aksigorta, A.S. 287,017
950,000 Baticim Bati Anadolu Cimento Sanayii, A.S. 134,458
970,000 Cimsa Cimento Sanayi Ve Ticaret, A.S. 219,134
43,500 Haci Omer Sabanci Holdings (144A) (ADR) 565,500 *
1,110,000 Netas Northern Electric Telekomunikasyon, A.S. 332,335
7,800,000 Trakya Cam Sanayii, A.S. 562,602
10,400,000 Turkey Garanti Bankasi, A.S. 537,833
2,900,000 Vestel Elektronik Sanayi Ve Ticaret, A.S. 224,959
2,630 Yapi Ve Kredi Bankasi, A.S. (144A) (GDR) 78,900 *
--------------
TOTAL TURKEY (Cost: $3,077,290) 2,942,738
--------------
VENEZUELA (4.7%)
40,000 Banco Provincial, S.A. de C.V. 79,720
466,995 C.A. La Electricidad de Caracas 612,683
35,250 Compania Anonima Nacional Telefonos de Venezuela (ADR) 1,542,189 **
--------------
TOTAL VENEZUELA (Cost: $1,477,387) 2,234,592
--------------
TOTAL COMMON STOCK (Cost: $37,267,036) (80.2%) 38,262,961
--------------
PREFERRED STOCK
---------------
ARGENTINA (Cost: $97,906) (0.2%)
7,650 Quilmes Industrial, S.A. (ADR) 94,669
--------------
BRAZIL (7.4%)
3,700,000 Companhia Paranaense de Energia (COPEL), Series B 44,660
633,289 CENTRAIS ELETRICAS BRASILEIRAS, S.A. (ELECTROBRAS),
Series B 273,945
432,677 Companhia Cervejaria Brahma 270,742
21,625 COMPANHIA ENERGETICA DE MINAS GERIAS (CEMIG) (ADR) 859,594
198,376 Companhia Riograndense de Telecomunicacoes 152,915
21,158 Companhia Vale do Rio Doce 408,693
312,000 Itausa - Investimentos Itau, S.A. 212,206
2,280,000 Petrobras Distribudora, S.A. 41,146
1,873,000 Petroleo Brasileiro, S.A. (PETROBRAS) 348,204
</TABLE>
* Restricted security. (See Note 6)
** Non-Income producing.
See accompanying Notes to Financial Statements.
45
<PAGE>
TCW Galileo Emerging Markets Fund
SCHEDULE OF INVESTMENTS (Continued)
- ----------------------------------
<TABLE>
<CAPTION>
Number of
Shares or
Rights PREFERRED STOCK Value
- ---------- --------------- --------------
<S> <C> <C>
BRAZIL (CONTINUED)
217,000 Sadia-Concordia, S.A. Industria e Comercio $ 216,469
4,822,166 Telecomunicacoes Brasileiras, S.A. (TELEBRAS) 481,036
946,282 Telecomunicacoes de Sao Paulo, S.A. (TELESP) 247,147
37,187 Telecomunicacoes de Sao Paulo, S.A. (TELESP),
Rights, expire 11/07/97 337 **
--------------
TOTAL BRAZIL (Cost: $3,160,325) 3,557,094
--------------
TOTAL PREFERRED STOCK (Cost: $3,258,231) (7.6%) 3,651,763
--------------
TOTAL EQUITY SECURITIES (Cost: $40,525,267) (87.8%) 41,914,724
--------------
Principal
Amount CONVERTIBLE SECURITIES (Cost: $341,000)
- ---------- ----------------------------------------
PHILIPPINES (0.5%)
$ 350,000 Bacnotan Consolidated Industries Inc., Convertible Bond,
5.5%, due 06/21/04 215,250
--------------
SHORT-TERM INVESTMENT (Cost: $3,139,846) (6.6%)
-----------------------------------------------
3,139,846 Bank of New York Depository Reserve, 4.6%, due 11/03/97 3,139,846
--------------
TOTAL INVESTMENTS (COST: $44,006,113) (94.9%) 45,269,820
EXCESS OF OTHER ASSETS OVER LIABILITIES (5.1%) 2,456,648
--------------
NET ASSETS (100%) $ 47,726,468
==============
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
46
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Latin America Equity Fund
October 31, 1997
SCHEDULE OF INVESTMENTS
- -----------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- ----------- ----------------- -----------
<S> <C> <C>
COMMON STOCK
------------
ARGENTINA (10.9% OF Net Assets)
19,297 Banco de Galicia y Buenos Aires, S.A., (ADR) $ 467,651
21,700 Banco Frances del Rio de la Plata, S.A., (ADR) 227,850
82,000 IRSA Inversiones y Representaciones, S.A. 275,677
59,316 Molinos Rio de la Plata, S.A., Series B 146,594
279,557 Perez Companc, S.A. 1,751,025
216,138 Siderca, S.A., Series A 529,840
12,723 Telecom Argentina STET-France Telecom, S.A., Series B 63,651
9,850 Telecom Argentina STET-France Telecom, S.A., Series B (ADR) 249,328
22,090 Telefonica de Argentina, Sociedad Anonima, Series B (ADR) 621,281
52,870 Yacimientos Petroliferos Fiscales Sociedad del Estado,
Series D (ADR) 1,691,840
-----------
TOTAL ARGENTINA (Cost: $4,799,618) 6,024,737
-----------
BRAZIL (13.8%)
5,230,000 COMPANHIA ENERGETICA DE MINAS GERIAS (CEMIG) 208,688
2,175,033 CENTRAIS ELETRICAS BRASILEIRAS, S.A. (ELETROBRAS) 877,745
827,400 Empresa Nacional de Comercio Redito e Participacoes, S.A. --
2,030 Espirito Santo Centrais Eletricas, S.A. (ESCELSA) 368,187
1,074,900 Light Participacoes, S.A. 274,891 **
5,200,000 Telecomunicacoes Brasileiras, S.A. (TELEBRAS) 462,091
53,625 Telecomunicacoes Brasileiras, S.A. (TELEBRAS) (ADR) 5,442,937
-----------
TOTAL BRAZIL (Cost: $4,641,980) 7,634,539
-----------
CHILE (8.4%)
9,960 Banco BHIF (ADR) 172,433
18,440 Banco Santander Chile, Series A (ADR) 239,720
9,300 Chilectra, S.A. (144A) (ADR) 241,800 *
9,221 Chilgener, S.A. (ADR) 251,272
22,400 Compania de Telecomunicaciones de Chile, S.A., Series A (ADR) 621,600
30,500 Embotelladora Andina, S.A., (ADR) 732,000
11,840 Embotelladora Andina, S.A., Series B (ADR) 242,720
20,962 Enersis, S.A. (ADR) 691,746
185,491 The Five Arrows Chile Investment Trust, Limited 508,245
14,987 Genesis Chile Fund, Limited 599,480
5,275 Santa Isabel, S.A. (ADR) 97,588 **
9,400 Vina Concha y Toro, S.A. (ADR) 256,150
-----------
TOTAL CHILE (Cost: $4,467,664) 4,654,754
-----------
COLOMBIA (3.7%)
32,400 Almacenes Exito, S.A. 114,796
54,394 Banco de Bogota 308,865
13,470 Banco Industrial Colombiano (ADS) 215,520
</TABLE>
* Restricted security. (See Note 6)
** Non-income producing.
See accompanying Notes to Financial Statements.
47
<PAGE>
TCW Galileo Latin America Equity Fund
SCHEDULE OF INVESTMENTS CONTINUED
- ---------------------------------
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- ----------- ----------------- -----------
<S> <C> <C>
COLOMBIA (CONTINUED)
41,750 Bavaria CB $ 440,038
30,028 Compania de Cemento Argos, S.A. 200,872
26,809 Compania Nacional de Chocolates, S.A. 214,789
23,900 Compania Suramericana de Seguros, S.A. 529,830
-----------
TOTAL COLOMBIA (Cost: $2,233,698) 2,024,710
-----------
LATIN AMERICA REGIONAL (Cost: $481,219) (1.1%)
19,400 Panamerican Beverages, Inc. (ADR) 601,400
-----------
MEXICO (32.8%)
258,990 Alfa, S.A. de C.V., Series A 1,882,445
98,500 Apasco, S.A. de C.V. 596,615 **
352,500 Cemex, S.A. de C.V., Series B 1,540,617
62,726 Cifra, S.A. de C.V., Series A 114,576
780,640 Cifra, S.A. de C.V., Series C 1,344,333
80,900 DESC, S.A. de C.V., Series B 691,781
25,900 Empresas ICA Sociedad Controladora, S.A. de C.V. (ADR) 344,794
25,900 Empresas La Moderna, S.A. de C.V. (ADR) 506,669
82,900 Fomento Economico Mexicano, S.A. de C.V., Series B 580,891
188,000 GROUPO CARSO, S.A. de C.V., Series A1 1,185,606 **
189,639 Grupo Financiero Inbursa, S.A. de C.V., Series B 664,412
85,100 Grupo Industrial Bimbo, S.A. de C.V., Series A 637,745
13,290 SanLuis Corporacion, S.A. de C.V. 102,279
93,000 Grupo Modelo, S.A. de C.V., Series C 684,798
27,640 Grupo Televisa, S.A. de C.V. (ADR) 856,840
20,200 Industries Bachoco, S.A. (ADR) 343,400
87,700 Jugos Del Valle, S.A. de C.V., Series B 126,655 **
401,500 Kimberly-Clark de Mexico, S.A. de C.V., Series A 1,754,774
76,745 Telefonos de Mexico, S.A. de C.V. (ADR) 3,319,221
44,032 Tubos de Acero de Mexico, S.A. de C.V. (ADR) 888,896 **
-----------
TOTAL MEXICO (Cost: $13,377,305) 18,167,347
-----------
PERU (4.6%)
153,856 Cementos Lima, S.A., Class T 318,029
335,389 Cerveceria Backus y Johnston, S.A., Class T 306,472
11,400 Compania de Minas Buenaventura, S.A. (ADR) 204,488
44,046 Compania de Minas Buenaventura, S.A., Series B 407,352
26,568 Credicorp, Limited (ADR) 476,563
9,100 Telefonica del Peru, S.A., (ADR) 179,725
328,153 Telefonica del Peru, S.A., Series B 654,130
-----------
TOTAL PERU (Cost: $2,080,624) 2,546,759
-----------
</TABLE>
** Non-income producing.
See accompanying Notes to Financial Statements.
48
<PAGE>
TCW GALILEO FUNDS, INC.
OCTOBER 31, 1997
<TABLE>
<CAPTION>
Number
of Shares EQUITY SECURITIES Value
- ----------- ----------------- -----------
<S> <C> <C>
VENEZUELA (3.6%)
50,000 Banco Provincial, S.A. de C.V., $ 99,649
816,466 C.A. La Electricidad de Caracas 1,071,177
16,550 Compania Anonima Nacional Telefonos de Venezuela (ADR) 724,063 **
15,500 Mavesa (ADR) 116,250
-----------
TOTAL VENEZUELA (Cost: $1,346,562) 2,011,139
-----------
TOTAL COMMON STOCK (Cost: $33,428,670) (78.9%) 43,665,385
-----------
PREFERRED STOCK
---------------
BRAZIL (16.5%)
383,700 Banco Itau, S.A. 154,844
28,900,000 Companhia Paranaense de Energia (COPEL), Series B 348,834
1,786,180 CENTRAIS ELECTRICAS BRASILEIRAS, S.A.
(ELECTROBRAS), Series B 772,656
1,100,491 Companhia Cervejara Brahma 688,618
970,000 Companhia Cimento Portland Itau 248,944
2,137 COMPANHIA ENERGETICA DE MINAS GERAIS (CEMIG) (144A) (ADR) 84,946 *
39,950 COMPANHIA ENERGETICA DE MINAS GERAIS (CEMIG) (ADR) 1,588,012
64,242 Companhia Vale do Rio Doce 1,240,913
676,000 Itausa - Investimentos Itau, S.A. 459,780
9,450,000 Petrobras Distribudora, S.A. 170,540
8,980,000 Petroleo Brasiliero, S.A. (PETROBRAS) 1,669,448
7,155,257 Telecomunicacoes Brasileiras, S.A. (TELEBRAS) 713,774
3,143,800 Telecomunicacoes de Sao Paulo, S.A. (TELESP) 821,089
105,121 Telecomunicacoes de Sao Paulo, S.A. (TELESP), Rights,
expire 11/07/97 953 **
21,500 Usinas Siderurgicas de Minas Gerais, S.A. (USIMINAS) 155,981
-----------
TOTAL PREFERRED STOCK (Cost: $7,853,193) (16.5%) 9,119,332
-----------
TOTAL EQUITY SECURITIES (Cost: $41,281,863) (95.4%) 52,784,717
-----------
<CAPTION>
Principal
Amount SHORT-TERM INVESTMENT (Cost: $1,568,128) (2.8%)
- ------------ -----------------------------------------------
<S> <C> <C>
$1,568,128 Bank of New York Depository Reserve, 4.6%, due 11/03/97 1,568,128
-----------
TOTAL INVESTMENTS (Cost: $42,849,991) (98.2%) 54,352,845
EXCESS OF OTHER ASSETS OVER LIABILITIES (1.8%) 982,660
-----------
NET ASSETS (100%) $55,335,505
===========
</TABLE>
* Restricted security. (See Note 6)
** Non-income producing.
See accompanying Notes to Financial Statements.
49
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
- ------------------------------------
TCW Galileo TCW Galileo
Money Market Core Fixed
Fund Income Fund
------------ -----------
<S> <C> <C>
ASSETS
Investments, at Value /(1)/ $ 222,088 $ 20,006
Receivables for Fund Shares Sold - 112
Receivables for Securities Sold - 560
Accrued Interest and Dividends Receivable 1,704 245
Deferred Organization Costs - 3
------------ -----------
Total Assets 223,792 20,926
------------ -----------
LIABILITIES
Payables for Fund Shares Redeemed - -
Distributions Payable 930 110
Payables for Securities Purchased - 1,407
Management Fees and Other Accrued Expenses 91 41
------------ -----------
Total Liabilities 1,021 1,558
------------ -----------
NET ASSETS $ 222,771 $ 19,368
============ ===========
NET ASSETS CONSIST OF:
Paid-in Capital $ 222,771 $ 21,567
Undistributed Net Realized Gain (Loss) on Investments - (3,217)
Unrealized Appreciation (Depreciation) on Investments - 445
Undistributed (Overdistributed) Net Investment Income - 573
------------ -----------
NET ASSETS $ 222,771 $ 19,368
============ ===========
CAPITAL SHARES OUTSTANDING 222,771,033 2,012,966
============ ===========
NET ASSET VALUE PER SHARE $ 1.00 $ 9.62
============ ===========
</TABLE>
/(1)/ The identified cost for the TCW Galileo Money Market Fund, the TCW Galileo
Core Fixed Income Fund, the TCW Galileo High Yield Bond Fund, the TCW
Galileo Mortgage Backed Securities Fund, the TCW Galileo Long-Term
Mortgage Backed Securities Fund and the TCW Convertible Securities Fund at
October 31, 1997 was $222,088, $19,561, $205,353, $55,972, $78,484 and
$33,525 respectively.
See accompanying Notes to Financial Statements.
50
<PAGE>
TCW GALILEO FUNDS, INC.
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
(Except per Share Amounts)
October 31, 1997
TCW Galileo TCW Galileo TCW Galileo Long-Term TCW Galileo
High Yield Mortgage Backed Mortgage Backed Convertible
Bond Fund Securities Fund Securities Fund Securities Fund
- -------------- --------------- ---------------------- ---------------
<S> <C> <C> <C>
$ 209,893 $ 54,637 $ 81,627 $ 36,760
88 - 5 -
1,532 600 128 387
5,370 423 571 279
3 3 6 3
- -------------- -------------- --------------- --------------
216,886 55,663 82,337 37,429
- -------------- -------------- --------------- --------------
4,730 - 200 -
1,636 285 618 -
1,564 - - 468
195 71 77 71
- -------------- -------------- --------------- --------------
8,125 356 895 539
- -------------- -------------- --------------- --------------
$ 208,761 $ 55,307 $ 81,442 $ 36,890
============== ============== =============== ==============
$ 201,054 $ 63,316 $ 77,539 $ 31,176
2,871 (5,455) 473 2,477
4,540 (1,335) 3,143 3,235
296 (1,219) 287 2
- -------------- -------------- --------------- --------------
$ 208,761 $ 55,307 $ 81,442 $ 36,890
============== ============== =============== ==============
20,646,868 5,701,120 8,218,873 3,232,972
============== ============== =============== ==============
$ 10.11 $ 9.70 $ 9.91 $ 11.41
============== ============== =============== ==============
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
- ------------------------------------------------
TCW TCW Galileo
Galileo Core Earnings Momentum
Equity Fund Fund
------------ -----------------
ASSETS
<S> <C> <C>
Investments, at Value /(1)/ $ 155,994 $ 103,950
Receivables for Fund Shares Sold 166 -
Receivables for Securities Sold 53 1,986
Unrealized Appreciation of Forward Foreign Currency Contracts - -
Accrued Interest and Dividends Receivable 174 12
Deferred Organization Costs 3 1
------------ ------------
Total Assets 156,390 105,949
------------ ------------
LIABILITIES
Payables for Fund Shares Redeemed - -
Payables for Securities Purchased - 4,151
Management Fees and Other Accrued Expenses 277 131
------------ ------------
Total Liabilities 277 4,282
------------ ------------
NET ASSETS $ 156,113 $ 101,667
============ ============
NET ASSETS CONSIST OF:
Paid-in Capital $ 46,832 $ 74,995
Undistributed Net Realized Gain (Loss) on Investments and
Foreign Currency Transactions 58,504 7,865
Unrealized Appreciation (Depreciation) on Investments
and Foreign Currency Translations 50,612 20,377
Undistributed (Overdistributed) Net Investment Income 165 -
Net Investment (Loss) - (1,570)
------------ ------------
NET ASSETS $ 156,113 $ 101,667
============ ============
CAPITAL SHARES OUTSTANDING 8,091,318 7,327,493
============ ============
NET ASSET VALUE PER SHARE $ 19.29 $ 13.87
============ ============
</TABLE>
/(1)/ The identified cost for the TCW Galileo Core Equity Fund, the TCW Galileo
Earnings Momentum Fund, the TCW Galileo Mid-Cap Growth 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, 1997 was $105,382, $83,573, $112,201, $99,172,
$22,874, $44,006 and $42,850, respectively.
See accompanying Notes to Financial Statements.
52
<PAGE>
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC.
Dollar Amounts in Thousands
(Except per Share Amounts)
October 31, 1997
TCW Galileo TCW Galileo TCW Galileo TCW Galileo TCW Galileo
Mid-Cap Small Cap Asia Pacific Emerging Markets Latin America
Growth Fund Growth Fund Equity Fund Fund Equity Fund
----------- ----------- ----------- ---------------- -------------
<S> <C> <C> <C> <C>
$ 144,773 $ 145,696 $ 19,532 $ 45,270 $ 54,353
- 53 - - 36
936 2,904 2,097 3,118 932
- - - 35 93
34 14 25 66 83
2 3 2 2 3
----------- ----------- ---------- ------------- -------------
145,745 148,670 21,656 48,491 55,500
----------- ----------- ---------- ------------- -------------
2,825 2,511 - 11 -
6,909 1,218 241 621 -
161 185 88 133 164
----------- ----------- ---------- ------------- -------------
9,895 3,914 329 765 164
----------- ----------- ---------- ------------- -------------
$ 135,850 $ 144,756 $ 21,327 $ 47,726 $ 55,336
=========== =========== ========== ============= =============
$ 115,616 $ 89,492 $ 20,834 $ 51,337 $ 57,306
(11,123) 11,233 4,068 (5,020) (14,458)
32,572 46,524 (3,342) 1,299 11,596
- - (233) 110 892
(1,215) (2,493) - - -
----------- ----------- ---------- ------------- -------------
$ 135,850 $ 144,756 $ 21,327 $ 47,726 $ 55,336
=========== =========== ========== ============= =============
14,451,046 7,724,218 2,891,878 5,737,619 4,424,572
=========== =========== ========== ============= =============
$ 9.40 $ 18.74 $ 7.37 $ 8.32 $ 12.51
=========== =========== ========== ============= =============
</TABLE>
53
<PAGE>
STATEMENTS OF OPERATIONS
- ------------------------
<TABLE>
<CAPTION>
TCW Galileo TCW Galileo
Money Market Core Fixed
Fund Income Fund
-------------------- --------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ - $ -
Interest 13,174 1,559
---------------- ----------------
Total 13,174 1,559
---------------- ----------------
Expenses:
Management Fees 592 77
Accounting Service Fees 237 35
Custodian Fees 40 6
Transfer Agent Fees 35 34
Registration Fees 3 7
Directors' Fees and Expenses 9 9
Audit and Tax Fees 15 16
Amortization of Deferred Organization Costs - 10
Other 24 11
---------------- ----------------
Total Expenses 955 205
Less Expenses Borne by Investment Adviser 11 -
---------------- ----------------
Net Expenses 944 205
---------------- ----------------
Net Investment Income 12,230 1,354
---------------- ----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss) on Investments During the Year - 241
Change in Unrealized Appreciation
on Investments During the Year - 42
---------------- ----------------
Net Realized and Unrealized Gain on Investments
During the Year - 283
---------------- ----------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 12,230 $ 1,637
================ ================
</TABLE>
See accompanying Notes to Financial Statements.
54
<PAGE>
TCW GALILEO FUNDS, INC.
Dollar Amounts in Thousands
Year Ended October 31, 1997
<TABLE>
<CAPTION>
TCW Galileo TCW Galileo TCW Galileo Long-Term TCW Galileo
High Yield Mortgage Backed Mortgage Backed Convertible
Bond Fund Securities Fund Securities Fund Securities Fund /(1)/
- ----------- --------------- --------------------- -------------------
<S> <C> <C> <C>
$ - $ - $ - $ 329
21,365 3,615 8,641 861
- ----------- ----------- ----------- -----------
21,365 3,615 8,641 1,190
- ----------- ----------- ----------- -----------
1,612 265 512 198
35 35 35 29
21 11 12 11
40 35 38 11
5 6 5 4
9 9 9 8
16 23 24 17
10 10 10 1
46 16 21 7
- ----------- ----------- ----------- -----------
1,794 410 666 286
- - - 35
- ----------- ----------- ----------- -----------
1,794 410 666 251
- ----------- ----------- ----------- -----------
19,571 3,205 7,975 939
- ----------- ----------- ----------- -----------
5,556 (78) 569 2,477
804 248 1,875 1,623
- ----------- ----------- ----------- -----------
6,360 170 2,444 4,100
- ----------- ----------- ----------- -----------
$ 25,931 $ 3,375 $ 10,419 $ 5,039
=========== =========== =========== ===========
</TABLE>
(1) For the period January 2, 1997 (commencement of operations) through
October 31, 1997.
55
<PAGE>
STATEMENTS OF OPERATIONS (Continued)
- ------------------------------------
<TABLE>
<CAPTION>
TCW TCW Galileo
Galileo Core Earnings Momentum
Equity Fund Fund
------------- -----------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ 1,987 $ 80
Interest - 95
------------- -------------
Total 1,987 175
------------- -------------
Expenses:
Management Fees 1,628 828
Accounting Service Fees 35 35
Custodian Fees 31 24
Transfer Agent Fees 41 31
Registration Fees 13 6
Directors' Fees and Expenses 9 9
Audit and Tax Fees 16 16
Amortization of Deferred Organization Costs 10 1
Other 23 19
------------- -------------
Total Expenses 1,806 969
------------- -------------
Net Investment Income (Loss) 181 (794)
------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) on Investments and
Foreign Currency Transactions During the Year 58,507 7,257
Change in Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency Translations
During the Year (9,558) 8,786
------------- -------------
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency During the Year 48,949 16,043
------------- -------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 49,130 $ 15,249
============= =============
</TABLE>
See accompanying Notes to Financial Statements.
56
<PAGE>
TCW GALILEO FUNDS, INC.
Dollar Amounts in Thousands
Year Ended October 31, 1997
<TABLE>
<CAPTION>
TCW Galileo TCW Galileo TCW Galileo TCW Galileo TCW Galileo
Mid-Cap Small Cap Asia Pacific Emerging Markets Latin America
Growth Fund Growth Fund Equity Fund Fund Equity Fund
-------------- ------------- -------------- ------------------ ---------------
<S> <C> <C> <C> <C>
$ 69 $ 135 $ 617/(1)/ $ 1,013/(1)/ $ 1,676/(1)/
204 184 54 144 84
--------- --------- --------- --------- ---------
273 319 671 1,157 1,760
--------- --------- --------- --------- ---------
1,090 1,290 457 623 754
35 35 35 35 35
14 29 117 203 225
36 39 29 30 36
5 24 6 5 5
8 9 9 9 9
16 16 16 16 16
- 2 2 3 10
13 26 10 12 12
--------- --------- --------- --------- ---------
1,217 1,470 681 936 1,102
--------- --------- --------- --------- ---------
(944) (1,151) (10) 221 658
--------- --------- --------- --------- ---------
(8,474) 10,965 4,190 4,502 17,076
12,646 2,818 (9,363) (1,473) 3,998
--------- --------- --------- --------- ---------
4,172 13,783 (5,173) 3,029 21,074
--------- --------- --------- --------- ---------
$ 3,228 $ 12,632 $ (5,183) $ 3,250 $ 21,732
========= ========= ========= ========= =========
</TABLE>
(1) Net of foreign taxes withheld of $50, $70 and $105 for TCW Galileo Asia
Pacific Equity Fund, TCW Galileo Emerging Markets Fund and TCW Galileo
Latin America Equity Fund, respectively. None of the foreign taxes withheld
are subject to reclaim.
57
<PAGE>
TCW Galileo Money Market Fund
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
Year Ended Year Ended
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 12,230 $ 9,174
--------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (12,230) (9,174)
--------------- ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(1,234,945,155 shares in 1997 and 1,034,355,297 shares in 1996) 1,234,945 1,034,355
Proceeds from Shares Issued upon Reinvestment of Dividends
(5,434,998 shares in 1997 and 4,792,741 shares in 1996) 5,435 4,793
Cost of Shares Redeemed
(1,251,280,223 shares in 1997 and 891,779,229 shares in 1996) (1,251,280) (891,779)
--------------- ------------
Increase (Decrease) in Net Assets Resulting from Capital
Share Transactions (10,900) 147,369
--------------- ------------
Increase (Decrease) in Net Assets (10,900) 147,369
NET ASSETS
Beginning of Year 233,671 86,302
--------------- ------------
End of Year $ 222,771 $ 233,671
=============== ============
</TABLE>
See accompanying Notes to Financial Statements.
58
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Core Fixed Income Fund
Dollar Amounts in Thousands
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
Year Ended Year Ended
October 31, 1997 October 31, 1996
------------------ ------------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 1,354 $ 1,859
Net Realized Gain on Investments 241 165
Change in Unrealized Appreciation (Depreciation) on
Investments 42 (887)
------------------ ------------------
Increase in Net Assets Resulting from Operations 1,637 1,137
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (1,373) (1,844)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(717,575 shares in 1997 and 1,277,842 shares in 1996) 6,812 12,275
Proceeds from Shares Issued upon Reinvestment of Dividends
(138,935 shares in 1997 and 169,477 shares in 1996) 1,310 1,595
Cost of Shares Redeemed
(1,490,800 shares in 1997 and 2,570,171 shares in 1996) (14,024) (24,393)
------------------ ------------------
(Decrease) in Net Assets Resulting from
Capital Share Transactions (5,902) (10,523)
------------------ ------------------
(Decrease) in Net Assets (5,638) (11,230)
NET ASSETS
Beginning of Year 25,006 36,236
------------------ ------------------
End of Year $ 19,368 $ 25,006
================== ==================
</TABLE>
See accompanying Notes to Financial Statements.
59
<PAGE>
TCW Galileo High Yield Bond Fund
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
Year Ended Year Ended
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 19,571 $ 11,400
Net Realized Gain (Loss) on Investments 5,556 (1,228)
Change in Unrealized Appreciation
on Investments 804 2,582
-------------- -------------
Increase in Net Assets Resulting from Operations 25,931 12,754
-------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (19,383) (11,413)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(13,039,199 shares in 1997 and 13,695,295 shares in 1996) 130,756 132,706
Proceeds from Shares Issued upon Reinvestment of Dividends
(1,688,689 shares in 1997 and 795,733 shares in 1996) 16,818 7,704
Cost of Shares Redeemed
(12,886,525 shares in 1997 and 5,199,280 shares in 1996) (129,176) (50,588)
-------------- --------------
Increase in Net Assets Resulting from
Capital Share Transactions 18,398 89,822
-------------- --------------
Increase in Net Assets 24,946 91,163
NET ASSETS
Beginning of Year 183,815 92,652
-------------- --------------
End of Year $ 208,761 $ 183,815
============== ==============
</TABLE>
See accompanying Notes to Financial Statements.
60
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Mortgage Backed Securities Fund
Dollar Amounts in Thousands
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
Year Ended Year Ended
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 3,205 $ 3,959
Net Realized (Loss) on Investments (78) (861)
Change in Unrealized Appreciation
on Investments 248 2,487
------------- --------------
Increase in Net Assets Resulting from Operations 3,375 5,585
------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (2,046) (3,794)
Distributions in Excess of Net Investment Income (1,219) (1,159)
------------- --------------
Total Distributions to Shareholders (3,265) (4,953)
------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(8,709,536 shares in 1997 and 5,564,984 shares in 1996) 84,756 53,480
Proceeds from Shares Issued upon Reinvestment of Dividends
(321,824 shares in 1997 and 453,325 shares in 1996) 3,115 4,350
Cost of Shares Redeemed
(9,728,007 shares in 1997 and 8,115,490 shares in 1996) (94,509) (77,993)
------------- --------------
(Decrease) in Net Assets Resulting from
Capital Share Transactions (6,638) (20,163)
------------- --------------
(Decrease) in Net Assets (6,528) (19,531)
NET ASSETS
Beginning of Year 61,835 81,366
------------- --------------
End of Year $ 55,307 $ 61,835
============= ==============
</TABLE>
See accompanying Notes to Financial Statements.
61
<PAGE>
TCW Galileo Long-Term Mortgage Backed Securities Fund
Dollar Amounts in Thousands
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
Year Ended Year Ended
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 7,975 $ 5,912
Net Realized Gain on Investments 569 466
Change in Unrealized Appreciation
on Investments 1,875 827
--------------- --------------
Increase in Net Assets Resulting from Operations 10,419 7,205
--------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (7,476) (5,934)
Distributions in Excess of Net Investment Income - (212)
---------------- --------------
Total Distributions to Shareholders (7,476) (6,146)
---------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(516,324 shares in 1997 and 5,357,272 shares in 1996) 4,947 50,184
Proceeds from Shares Issued upon Reinvestment of Dividends
(758,014 shares in 1997 and 570,644 shares in 1996) 7,257 5,384
Cost of Shares Redeemed
(4,796,056 shares in 1997 and 2,572,042 shares in 1996) (45,965) (24,526)
---------------- --------------
Increase (Decrease) in Net Assets Resulting from
Capital Share Transactions (33,761) 31,042
---------------- --------------
Increase (Decrease) in Net Assets (30,818) 32,101
NET ASSETS
Beginning of Year 112,260 80,159
---------------- --------------
End of Year $ 81,442 $ 112,260
================ ==============
</TABLE>
See accompanying Notes to Financial Statements.
62
<PAGE>
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC.
TCW Galileo Convertible Securities Fund
Dollar Amounts in Thousands
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------
January 2, 1997
(Commencement of
Operations) through
October 31, 1997
-------------------
<S> <C>
OPERATIONS
Net Investment Income $ 939
Net Realized Gain on Investments 2,477
Change in Unrealized Appreciation on Investments 1,623
------------------
Increase in Net Assets Resulting from Operations 5,039
------------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (937)
------------------
CAPITAL SHARE TRANSACTIONS
Shares Issued Upon Exchange of Limited Partnership
Interests (2,485,514 shares) (Note 1) 24,855
Proceeds from Shares Sold (1,575,745 shares) 16,632
Proceeds from Shares Issued upon Reinvestment of Dividends
(62,882 shares) 672
Cost of Shares Redeemed (891,169 shares) (9,371)
------------------
Increase in Net Assets Resulting from
Capital Share Transactions 32,788
------------------
Increase in Net Assets 36,890
NET ASSETS
Beginning of Period -
------------------
End of Period $ 36,890
==================
</TABLE>
See accompanying Notes to Financial Statements.
63
<PAGE>
TCW Galileo Core Equity Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1997 October 31, 1996
------------------ ------------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 181 $ 379
Net Realized Gain on Investments 58,507 11,808
Change in Unrealized Appreciation (Depreciation)
on Investments (9,558) 19,564
-------------- -------------
Increase in Net Assets Resulting from Operations 49,130 31,751
-------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (291) (722)
Distributions from Net Realized Gains (2,817) -
-------------- -------------
Total Distributions to Shareholders (3,108) (722)
-------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(916,772 shares in 1997 and 3,809,396 shares in 1996) 15,783 57,075
Proceeds from Shares Issued upon Reinvestment of Dividends
(178,643 shares in 1997 and 39,376 shares in 1996) 2,971 539
Cost of Shares Redeemed
(7,520,587 shares in 1997 and 3,778,090 shares in 1996) (139,965) (55,062)
-------------- -------------
Increase (Decrease) in Net Assets Resulting from
Capital Share Transactions (121,211) 2,552
-------------- -------------
Increase (Decrease) in Net Assets (75,189) 33,581
NET ASSETS
Beginning of Year 231,302 197,721
-------------- -------------
End of Year $ 156,113 $ 231,302
============== =============
</TABLE>
See accompanying Notes to Financial Statements.
64
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Earnings Momentum Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment (Loss) $ (794) $ (608)
Net Realized Gain on Investments 7,257 6,438
Change in Unrealized Appreciation on Investments 8,786 2,416
----------- -----------
Increase in Net Assets Resulting from Operations 15,249 8,246
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions From Net Realized Gains (5,829) (369)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(2,696,542 shares in 1997 and 1,440,632 shares in 1996) 31,271 19,079
Proceeds from Shares Issued upon
Reinvestment of Dividends
(458,342 shares in 1997 and 26,564 shares in 1996) 5,474 357
Cost of Shares Redeemed
(1,821,359 shares in 1997 and 1,002,762 shares in 1996) (22,492) (12,730)
----------- -----------
Increase in Net Assets Resulting from
Capital Share Transactions 14,253 6,706
----------- -----------
Increase in Net Assets 23,673 14,583
NET ASSETS
Beginning of Year 77,994 63,411
----------- -----------
End of Year $ 101,667 $ 77,994
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
65
<PAGE>
TCW Galileo Mid-Cap Growth Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<CAPTION>
June 3, 1996
(Commencement of
Year Ended Operations) through
October 31, 1997 October 31, 1996
------------------ ---------------------
<S> <C> <C>
OPERATIONS
Net Investment (Loss) $ (944) $ (271)
Net Realized (Loss) on Investments (8,474) (2,649)
Change in Unrealized Appreciation (Depreciation)
on Investments 12,646 (2,861)
------------------ ------------------
Increase (Decrease) in Net Assets Resulting from Operations 3,228 (5,781)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS
Shares Issued upon Exchange of Limited Partnership
Interests (6,603,028 shares in 1996) - 66,030
Proceeds from Shares Sold (7,109,713 shares in 1997 and
3,972,481 shares in 1996) 63,202 36,973
Cost of Shares Redeemed (2,719,048 shares in 1997 and
515,128 shares in 1996) (23,010) (4,792)
------------------ ------------------
Increase in Net Assets Resulting from
Capital Share Transactions 40,192 98,211
------------------ ------------------
Increase in Net Assets 43,420 92,430
NET ASSETS
Beginning of Period 92,430 -
------------------ ------------------
End of Period $ 135,850 $ 92,430
================== ==================
</TABLE>
See accompanying Notes to Financial Statements.
66
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Small Cap Growth Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment (Loss) $ (1,151) $ (839)
Net Realized Gain on Investments 10,965 1,368
Change in Unrealized Appreciation on Investments 2,818 22,379
-------------- --------------
Increase in Net Assets Resulting from Operations 12,632 22,908
-------------- --------------
DISTRIBUTION TO SHAREHOLDERS
Distributions from Net Investment Income - (98)
Distributions from Net Realized Gains (1,426) (1,514)
-------------- --------------
Total Distributions to Shareholders (1,426) (1,612)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(2,161,818 shares in 1997 and 3,841,344 shares in 1996) 35,977 62,195
Proceeds from Shares Issued upon Reinvestment of Dividends
(80,731 shares in 1997 and 109,774 shares in 1996) 1,386 1,531
Cost of Shares Redeemed
(2,231,297 shares in 1997 and 1,121,510 shares in 1996) (36,257) (18,634)
-------------- --------------
Increase in Net Assets Resulting from Capital
Share Transactions 1,106 45,092
-------------- --------------
Increase in Net Assets 12,312 66,388
NET ASSETS
Beginning of Year 132,444 66,056
-------------- --------------
End of Year $ 144,756 $ 132,444
============== ==============
</TABLE>
See accompanying Notes to Financial Statements.
67
<PAGE>
TCW Galileo Asia Pacific Equity Fund
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
Year Ended Year Ended
October 31, 1997 October 31, 1996
-------------------- --------------------
<S> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ (10) $ 320
Net Realized Gain on Investments and
Foreign Currency Transactions 4,190 1,060
Change in Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency Translations (9,363) 3,103
-------------- --------------
Increase (Decrease) in Net Assets Resulting from Operations (5,183) 4,483
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (322) (242)
Distributions in Excess of Net Investment Income (233) -
-------------- --------------
Total Distributions to Shareholders (555) (242)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(671,147 shares in 1997 and 1,653,606 shares in 1996) 7,355 15,972
Proceeds from Shares Issued Upon Reinvestment of Dividends
(47,638 shares in 1997 and 24,113 shares in 1996) 540 232
Cost of Shares Redeemed
(2,849,433 shares in 1997 and 2,040,994 shares in 1996) (29,096) (18,888)
-------------- --------------
(Decrease) in Net Assets Resulting from Capital
Share Transactions (21,201) (2,684)
-------------- --------------
Increase (Decrease) in Net Assets (26,939) 1,557
NET ASSETS
Beginning of Year 48,266 46,709
-------------- --------------
End of Year $ 21,327 $ 48,266
============== ==============
</TABLE>
See accompanying Notes to Financial Statements.
68
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Emerging Markets Fund
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
Year Ended Year Ended
October 31, 1997 October 31, 1996
---------------------- ----------------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 221 $ 443
Net Realized Gain (Loss) on Investments and
Foreign Currency Transactions 4,502 (902)
Change in Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency Translations (1,473) 6,769
------------------- -------------------
Increase in Net Assets Resulting from Operations 3,250 6,310
------------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (670) (151)
------------------- -------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(775,118 shares in 1997 and 2,488,039 shares in 1996) 7,428 20,122
Proceeds from Shares Issued Upon Reinvestment of Dividends
(49,995 shares in 1997 and 17,923 shares in 1996) 483 135
Cost of Shares Redeemed (2,135,058 shares in 1997 and
2,676,057 shares in 1996) (20,404) (20,650)
------------------- -------------------
(Decrease) in Net Assets Resulting from Capital
Share Transactions (12,493) (393)
------------------- -------------------
Increase (Decrease) in Net Assets (9,913) 5,766
NET ASSETS
Beginning of Year 57,639 51,873
------------------- -------------------
End of Year $ 47,726 $ 57,639
=================== ===================
</TABLE>
See accompanying Notes to Financial Statements.
69
<PAGE>
TCW Galileo Latin America Equity Fund
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 658 $ 688
Net Realized Gain (Loss) on Investments and
Foreign Currency Transactions 17,076 (3,423)
Change in Unrealized Appreciation on Investments
and Foreign Currency Translations 3,998 14,716
------------- -------------
Increase in Net Assets Resulting from Operations 21,732 11,981
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (726) (192)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(879,898 shares in 1997 and 3,090,695 shares in 1996) 11,912 27,546
Proceeds from Shares Issued upon Reinvestment of Dividends
(8,386 shares in 1997 and 5,047 shares in 1996) 94 43
Cost of Shares Redeemed
(3,292,335 shares in 1997 and 1,181,839 shares in 1996) (45,999) (9,997)
------------- -------------
Increase (Decrease) in Net Assets Resulting from
Capital Share Transactions (33,993) 17,592
------------- -------------
Increase (Decrease) in Net Assets (12,987) 29,381
NET ASSETS
Beginning of Year 68,323 38,942
------------- -------------
End of Year $ 55,336 $ 68,323
============= =============
</TABLE>
See accompanying Notes to Financial Statements.
70
<PAGE>
TCW GALILEO FUNDS, INC.
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 thirteen 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 Core 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), a convertible securities
fund (the TCW Galileo Convertible Securities Fund), and seven non-diversified
equity funds (the TCW Galileo Core Equity Fund, the TCW Galileo Earnings
Momentum Fund, the TCW Galileo Mid-Cap Growth 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 Convertible Securities Fund commenced operations
on January 2, 1997, resulting from the exchange of limited partnership interest.
The assets and liabilities were transferred at historical cost from the limited
partnership to the Fund on January 2, 1997, and the fair value of which was
exchanged for shares of common shares 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 Core Fixed
Income Fund seeks capital appreciation and income through investment principally
in Core 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 Convertible Securities Fund seeks high
total return from current income and capital appreciation through investment
principally in convertible securities; (7) the TCW Galileo Core Equity Fund
emphasizes capital appreciation and preservation with focus on long-term
results; (8) 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; (9) the TCW
Galileo Mid-Cap Growth Fund seeks long-term capital appreciation, primarily by
investing in publicly-traded equity securities of medium capitalization
companies; (10) the TCW Galileo Small Cap Growth Fund seeks long-term capital
appreciation, primarily by investing in publicly-traded equity securities of
smaller capitalization companies; (11) 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; (12) 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 (13) the TCW Galileo Latin America Equity Fund seeks long-term capital
appreciation, primarily by investing in Latin American equity securities.
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.
71
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- -----------------------------------------
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.
For Funds other than TCW Galileo Money Market Funds, 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. 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 Core
Fixed Income Fund recognizes as interest income discounts on securities
purchased using a constant yield to maturity accretion method and also amortizes
premiums as a reduction to interest for securities purchased in excess of par
value on a constant yield to maturity amortization method. For all other Funds,
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 year.
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
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of the foreign currency relative to the U.S. dollar (See
Note 7).
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, 1997.
72
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
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. 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. There were
no option contracts entered into during the year ended October 31, 1997.
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,
$2,200 and $4,400 for the TCW Galileo Earnings Momentum Fund, TCW Galileo Mid-
Cap Growth Fund and the TCW Galileo Convertible Securities Fund, respectively,
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 10,008
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,
TCW Galileo Long-Term Mortgage Backed Securities Fund, the TCW Galileo Mid-Cap
Growth Fund and the TCW Convertible 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. TCW Galileo Convertible Securities Fund
declares dividends from net investment income quarterly. Distribution of any
net long-term and net short-term capital gains earned by a Fund will be
distributed at least 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.
73
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- -----------------------------------------
Use of Estimates: The preparation of the accompanying financial statements
requires management to make estimates and assumptions that effect the reported
amount of assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period. Actual
results could differ from these estimates.
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, 1997, net unrealized appreciation (depreciation) on investments for
federal income tax purposes was as follows:
<TABLE>
<CAPTION>
TCW TCW TCW TCW
Galileo Galileo Galileo Galileo Long-Term
Core Fixed High Yield Mortgage Backed Mortgage Backed
Income Fund Bond Fund Securities Fund Securities Fund
------------- ----------- --------------- -----------------
<S> <C> <C> <C> <C>
Unrealized Appreciation $ 464,780 $ 6,031,961 $ 177,088 $ 4,399,666
Unrealized (Depreciation) (20,357) (1,505,301) (1,511,410) (1,257,319)
----------- ----------- ------------ ------------
Net Unrealized Appreciation $ 444,423 $ 4,526,660 $ (1,334,322) $ 3,142,347
=========== =========== ============ ============
Cost of Investments for Federal
Income Tax Purposes $19,561,689 $205,352,779 $ 55,971,521 $ 78,484,238
=========== ============ ============ ============
<CAPTION>
TCW Galileo TCW TCW Galileo TCW Galileo
Convertible Galileo Core Earnings Mid-Cap
Securities Fund Equity Fund Momentum Fund Growth Fund
--------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Unrealized Appreciation $ 3,701,656 $ 52,227,054 $ 23,312,494 $ 36,933,803
Unrealized (Depreciation) (485,693) (1,615,363) (2,935,497) (4,361,981)
----------- ------------ ------------ ------------
Net Unrealized Appreciation $ 3,215,963 $ 50,611,691 $ 20,376,997 $ 32,571,822
=========== ============ ============ ============
Cost of Investments for Federal
Income Tax Purposes $33,543,604 $105,382,758 $ 77,305,705 $109,375,922
=========== ============ ============ ============
<CAPTION>
TCW Galileo TCW Galileo TCW Galileo TCW Galileo
Small Cap Asia Pacific Emerging Latin America
Growth Fund Equity Fund Markets Fund Equity Fund
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Unrealized Appreciation $49,301,708 $ 288,858 $ 5,520,832 $ 13,325,562
Unrealized (Depreciation) (2,893,941) (3,822,017) (4,282,277) (1,822,708)
----------- ------------ ------------ ------------
Net Unrealized Appreciation
(Depreciation) $46,407,767 $ (3,533,159) $ 1,238,555 $ 11,502,854
=========== ============ ============ ============
Cost of Investments for Federal
Income Tax Purposes $90,819,259 $ 23,064,391 $ 44,026,112 $ 42,838,258
=========== ============ ============ ============
</TABLE>
74
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
At October 31, 1997, the following Funds had net realized loss carryforwards for
federal income tax purposes:
<TABLE>
<CAPTION>
Expiring in
---------------------------------------------------------
2002 2003 2004 2005
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
TCW Galileo Core Fixed Income Fund $ 1,977,000 $ 644,000 $ -- $ --
TCW Galileo Mortgage Backed Securities Fund 446,000 4,070,000 861,000 73,000
TCW Galileo Mid-Cap Growth Fund -- -- 2,649,000 8,154,000
TCW Galileo Emerging Markets Fund -- 3,478,000 902,000 --
TCW Galileo Latin America Equity Fund -- 10,558,000 3,423,000 --
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
TCW Galileo Money Market Fund 0.25%
TCW Galileo Core Fixed Income Fund 0.35%
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 Convertible Securities Fund 0.75%
TCW Galileo Core Equity Fund 0.75%
TCW Galileo Earnings Momentum Fund 1.00%
TCW Galileo Small Cap Growth Fund 1.00%
TCW Galileo Mid-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%
</TABLE>
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. The ordinary
operating expenses of the TCW Galileo Money Market Fund are limited to 0.40% of
the Fund's daily net assets. The ordinary operating expenses of the TCW Galileo
Convertible Securities Fund are limited to 0.95% of the Fund's daily net assets
until December 31, 1997 and 1.05% of the Fund's daily assets until October 31,
1998.
Certain officers and/or directors of the Company are officers and/or directors
of the Adviser.
75
<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, 1997 were as follows:
<TABLE>
<CAPTION>
TCW TCW TCW TCW
Galileo Galileo Galileo Galileo Long-Term
Core Fixed High Yield Mortgage Backed Mortgage Backed
Income Fund Bond Fund Securities Fund Securities Fund
------------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Purchases at Cost $ 6,706,718 $ 251,330,075 $ 2,769,636 $ 2,015,264
============ ============= ============ ============
Sales Proceeds $ 8,866,206 $ 220,874,363 $ 8,396,144 $ 6,927,076
============ ============= ============ ============
U.S. Government Purchases
at Cost $ 22,659,379 $ -- $ 48,725,076 $ 13,521,386
============ ============= ============ ============
U.S. Government Sales Proceeds $ 26,799,139 $ -- $ 46,979,375 $ 39,160,479
============ ============= ============ ============
<CAPTION>
TCW Galileo TCW TCW Galileo TCW Galileo
Convertible Galileo Core Earnings Mid-Cap
Securities Fund Equity Fund Momentum Fund Growth Fund
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Purchases at Cost $ 46,899,785 $ 83,346,735 $ 83,422,395 $ 94,470,812
============ ============= ============ ============
Sales Proceeds $ 43,760,219 $ 205,699,168 $ 75,686,919 $ 52,655,257
============ ============= ============ ============
<CAPTION>
TCW Galileo TCW Galileo TCW Galileo TCW Galileo
Small Cap Asia Pacific Emerging Latin America
Growth Fund Equity Fund Markets Fund Equity Fund
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Purchases at Cost $ 76,433,042 $ 35,530,481 $ 46,600,802 $ 15,109,693
============ ============= ============ ============
Sales Proceeds $ 82,042,172 $ 65,972,755 $ 63,628,733 $ 51,207,786
============ ============= ============ ============
</TABLE>
There were no purchases or sales of U.S. Government Securities for the equity
funds for the year ended October 31, 1997.
Note 6 - Restricted Securities
The following restricted securities held by the Funds as of October 31, 1997,
were valued both at the date of acquisition and October 31, 1997, 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.
76
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
<TABLE>
<CAPTION>
TCW Galileo Core Fixed Income Fund:
Date of
Principal Amount Investment Acquisition Cost
---------------- --------------------------------------------------------------- ----------- -----------
<C> <S> <C> <C>
$ 25,000 Atlas Air, Inc., (144A), 10.75%, due 08/01/05 08/08/97 $ 25,000
25,000 Consumers International, (144A), 10.25%, due 04/01/05 04/10/97 25,000
50,000 Doskocil Companies, Inc., (144A), 10.125%, due 09/15/07 09/11/97 50,000
50,000 GSI Group, Inc., (144A), 10.25%, due 11/01/07 10/30/97 49,616
25,000 Jordan Telecommunications Products, Inc., (144A), 9.875%,
due 08/01/07 07/21/97 24,807
50,000 Livent, Inc., (144A), 9.375%, due 10/15/04 10/10/97 50,344
25,000 National Energy Group, Inc., (144A), 10.75%, due 11/01/06 09/17/97 25,938
50,000 Physician Sales & Service, Inc., (144A), 8.5%, due 10/01/07 10/02/97 49,833
25,000 Signature Resorts, Inc., (144A), 9.75%, due 10/01/07 08/05/97 24,811
50,000 Stater Brothers Holdings, Inc., (144A), 9%, due 07/01/04 07/29/97 51,000
125,000 Transamerica Energy, Inc., (144A), 11.5%, due 06/15/02 06/05/97 124,250
25,000 Viasystems, Inc., (144A), 9.75%, due 06/01/07 09/12/97 25,719
25,000 Von Hoffman Press, (144A), 10.375%, due 05/15/07 10/03/97 27,113
</TABLE>
The total value of restricted securities is $561,812, which represents 2.9% of
net assets of the Fund at October 31, 1997.
<TABLE>
<CAPTION>
TCW Galileo High Yield Bond Fund:
Date of
Principal Amount Investment Acquisition Cost
---------------- --------------------------------------------------------------- ----------- -----------
<C> <S> <C> <C>
$ 1,000,000 Adelphia Communications Corp., (144A), 9.25%,
due 10/01/02 09/22/97 $ 1,000,000
500,000 Atlas Air, Inc., (144A), 10.75%, due 08/01/05 08/08/97 500,000
550,000 Bway Corp., (144A), 10.25%, due 04/15/07 04/08/97 550,000
1,500,000 Coinmach Laundry Corp., (144A), 11.75%, due 11/15/05 10/01/97 1,648,125
850,000 Cole National Corp., (144A), 8.625%, due 08/15/07 08/15/97 850,000
1,200,000 Comcast Cellular Holdings, Inc., (144A), 9.5%,
due 05/01/07 07/02/97 1,234,875
2,050,000 Consumers International, (144A), 10.25%, due 04/01/05 04/10/97 2,083,000
2,000,000 County Seat Stores, Inc., (144A), 12.75%, due 11/01/04 10/23/97 2,000,000
500,000 Doskocil Companies, Inc., (144A), 10.125%, due 09/15/07 09/11/97 500,000
550,000 Federal Data Corp., (144A), 10.125%, due 08/01/05 07/18/97 550,000
725,000 Foamex L.P., (144A), 9.875%, due 06/15/07 05/29/97 725,000
1,250,000 Forman Petroleum Corp., (144A), 13.5%, due 06/01/04 10/10/97 1,281,250
275,000 Globalstar LP/Capital (144A), 10.75%, due 11/01/04 10/23/97 271,700
1,200,000 GSI Group, Inc., (144A), 10.25%, due 11/01/07 10/30/97 1,190,772
500,000 Hayes Wheels International, Inc., (144A), 9.125%,
due 07/15/07 07/16/97 500,000
1,000,000 Hollywood Park, Inc., (144A), 9.5%, due 08/01/07 08/21/97 1,012,500
400,000 Huntsman Packaging Corp., (144A), 9.125%, due 10/01/07 09/19/97 400,000
2,700,000 Integrated Health Services, Inc., (144A), 9.5%, due 09/15/97 09/18/97 2,806,375
900,000 Intermedia Communications, Inc., (144A), 8.875%,
due 11/01/07 10/24/97 900,000
500,000 International Wire Group, (144A), 11.75%, due 06/01/05 06/11/97 543,750
375,000 Jitney Jungle Stores, Inc., (144A), 10.375%, due 09/15/07 09/10/97 375,000
1,500,000 Jordan Industries, Inc., (144A), 0%, due 04/01/09 09/22/97 844,438
2,000,000 Jordan Telecommunications Products, Inc., (144A), 9.875%,
due 08/01/07 07/21/97 1,984,580
475,000 Leslie's Poolmart, (144A), 10.375%, due 07/15/04 06/06/97 480,594
600,000 Livent, Inc., (144A), 9.375%, due 10/15/04 10/10/97 602,063
1,950,000 Magnum Hunter Resources, Inc., (144A), 10%, due 06/01/07 05/23/97 1,955,544
900,000 National Energy Group, Inc., (144A), 10.75%, due 11/01/06 09/17/97 938,000
</TABLE>
77
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- -----------------------------------------
Note 6 - Restricted Securities (Continued)
<TABLE>
<CAPTION>
TCW Galileo High Yield Bond Fund: (Continued)
Date of
Principal Amount Investment Acquisition Cost
---------------- --------------------------------------------------------------- ----------- -----------
<C> <S> <C> <C>
$ 175,000 NBTY, Inc., (144A), 8.625%, due 09/15/07 09/17/97 $ 173,565
3,000,000 North Atlantic Trading, Inc., (144A), 11%, due 06/15/04 06/18/97 3,022,875
900,000 Paperboard Industries International, Inc., (144A), 8.375%,
due 09/15/07 09/18/97 908,250
1,000,000 Physician Sales & Service, Inc., (144A), 8.5%, due 10/01/07 10/02/97 996,665
1,100,000 RCN Corp., (144A), 10%, due 10/15/07 10/10/97 1,110,288
350,000 Regal Cinemas, Inc., (144A), 8.5%, due 10/01/07 09/19/97 347,431
750,000 Rogers Cantel, Inc., (144A), 8.8%, due 10/01/07 09/23/97 748,038
1,000,000 Signature Resorts, Inc., (144A), 9.75%, due 10/01/07 08/05/97 992,445
700,000 Stater Brothers Holdings, Inc., (144A), 9%, due 07/01/04 07/21/97 704,000
3,300,000 Transamerica Energy, Inc., (144A), 11.5%, due 06/15/02 06/13/97 3,324,250
150,000 Transamerica Energy, Inc., (144A), 13%, due 06/15/02 06/05/97 118,804
775,000 United Defense Industries, Inc., (144A), 8.75%, due 11/15/07 10/01/97 775,000
2,000,000 Vencor, Inc., (144A), 8.625%, due 07/15/07 07/16/97 1,991,653
650,000 Viasystems, Inc., (144A), 9.75%, due 06/01/07 06/02/97 651,438
825,000 Von Hoffman Press, Inc., (144A), 10.375%, due 05/15/07 10/03/97 894,781
575,000 Wavetek Corp., (144A), 10.125%, due 06/15/07 06/06/97 587,688
450,000 Williams Scotsman, Inc., (144A), 9.875%, due 06/01/07 05/16/97 450,000
1,650,000 Zale Corp., (144A), 8.5%, due 10/01/07 09/23/97 1,638,358
</TABLE>
The total value of restricted securities is $47,569,876, which represents 22.8%
of net assets of the Fund at October 31, 1997.
<TABLE>
<CAPTION>
TCW Galileo Mortgage Backed Securities Fund:
Date of
Principal Amount Investment Acquisition Cost
---------------- --------------------------------------------------------------- ----------- -----------
<C> <S> <C> <C>
$ 1,016,137 Greenwich Capital Acceptance, Inc. (91-03),
(Private Placement), 8.5638%, due 08/25/19 03/21/91 $ 1,006,541 *
</TABLE>
The total value of restricted securities is $983,113, which represents 1.8% of
net assets of the Fund at October 31, 1997.
<TABLE>
<CAPTION>
TCW Galileo Convertible Securities Fund:
Date of
Principal Amount Investment Acquisition Cost
---------------- -------------------------------------------------------------- ----------- -----------
<C> <S> <C> <C>
$ 285,000 Adaptec, Inc., (144A), 4.75%, due 02/01/04 01/28/97 $ 285,000
7,000 Apple South, Inc., (144A), $3.50 Convertible Preferred 03/06/97 359,000
$ 360,000 Atria Communities, Inc., (144A), 5%, due 10/15/02 10/10/97 360,000
9,500 Chancellor Media Corp., (144A), $3.00 Convertible Preferred 06/11/97 495,188
$ 300,000 Concentra Managed Care, Inc., (144A), 6%, due 12/15/01 04/08/97 292,981
$ 1,285,000 Costco Companies, Inc., (144A), 0%, due 08/19/17 08/14/97 646,481
$ 1,050,000 CUC International, Inc., (144A), 3%, due 02/15/02 02/05/97 1,059,772
</TABLE>
* Security deemed illiquid.
78
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
TCW Galileo Convertible Securities Fund (Continued)
<TABLE>
<CAPTION>
Number of Shares Date of
or Principal Amount Investment Acquisition Cost
------------------- -------------------------------------------------------------- ----------- -----------
<C> <S> <C> <C>
$ 405,000 Einstein/Noah Bagel Corp., (144A), 7.25%,
due 06/01/04 05/22/97 $ 397,354
7,200 EVI, Inc., (144A), $2.50 Convertible Preferred 10/29/97 360,000
$ 345,000 Family Golf Centers, Inc., (144A), 5.75%,
due 10/15/04 10/10/97 345,000
$ 755,000 Fine Host Corp., (144A), 5%, due 11/01/04 10/22/97 753,978
$ 240,000 Halter Marine Group, Inc., (144A), 4.5%,
due 09/15/04 09/10/97 240,000
5,000 Host Marriott Financial Trust, (144A), $3.375
Convertible Preferred 01/06/97 267,500
3,500 Hvide Marine, Inc., (144A), $3.25 Convertible
Preferred 06/24/97 177,000
$ 440,000 Interpublic Group of Companies, Inc., (144A),
1.8%, due 09/16/04 09/10/97 353,360
$ 305,000 Metsa Serla, OYJ, (Finland) (144A), 4.375%,
due 10/15/02 10/09/97 305,401
$ 560,000 Omnicom Group, Inc., (144A), 4.25%,
due 01/03/07 01/06/97 602,431
1,600 PennCorp Financial Group, Inc., (144A), $3.50
Convertible Preferred 07/07/97 93,250
4,500 PennCorp Financial Group, Inc., (144AI, Reg D),
$3.50 Convertible Preferred 08/02/96 225,000
$ 350,000 Personnel Group of America, Inc., (144A), 5.75%,
due 07/01/04 06/17/97 365,225
$ 50,000 Physician Resource, (144A), 6%, due 12/01/01 07/07/97 41,861
$ 300,000 Physician Resource, (144AI, Reg D), 6%,
due 12/01/01 12/06/96 300,000
$ 355,000 Premiere Technologies, 144AI, 5.75%,
due 07/01/04 06/25/97 357,550
$ 320,000 Quintiles Transnational Corp., (144AI, Reg D),
4.25%, due 05/31/00 04/23/96 320,000
$ 605,000 Rite Aid Corp., (144A), 5.25%, due 09/15/02 04/23/96 605,000
$ 635,000 Safeguard Scientifics, Inc., (144A), 6%,
due 02/01/06 01/07/97 645,725
$ 350,000 Smartalk Teleservices, Inc., (144A), 5.75%,
due 09/15/04 09/12/97 350,000
$ 125,000 Staples, Inc., (144A), 4.5%, due 10/01/00 07/07/97 154,375
$ 285,000 Sunrise Assisted Living, (144A), 5.5%,
due 06/15/02 06/03/97 289,988
$ 385,000 Tel-Save Holdings, Inc., (144A), 4.5%,
due 09/15/02 09/03/97 385,000
$ 405,000 Tower Automotive, Inc., (144A), 5%,
due 08/01/04 07/24/97 405,000
$ 385,000 Vantive Corp., (144A), 4.75%, due 09/01/02 08/14/97 379,955
$ 365,000 Wind River Systems, Inc., (144A), 5%,
due 08/01/02 07/23/97 365,000
$ 885,000 XILINX, Inc., (144A), 5.25%, due 11/01/02 04/25/97 1,003,569
</TABLE>
The total value of restricted securities is $14,487,330, which represents 39.3%
of net assets of the Fund at October 31, 1997.
79
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- -----------------------------------------
Note 6 - Restricted Securities (Continued)
TCW Galileo Asia Pacific Equity Fund:
<TABLE>
<CAPTION>
Date of
Number of Shares Investment Acquisition Cost
----------------- -------------------------------------------------------------- ----------- -----------
<C> <S> <C> <C>
10,000 Tata Engineering & Locomotive (144A) (GDR) (India) 02/13/97 $ 103,750
</TABLE>
The total value of restricted securities is $98,800, which represents 0.5% of
net assets of the Fund at October 31, 1997.
<TABLE>
<CAPTION>
TCW Galileo Emerging Markets Fund:
Date of
Number of Shares Investment Acquisition Cost
----------------- -------------------------------------------------------------- ----------- -----------
<C> <S> <C> <C>
10,406 AO Mosenergo Joint Stock Company (144A) (ADR) (Russia) 06/14/96 $ 425,990
4,100 Chilectra, S.A. (144A) (ADR) (Chile) 06/24/97 125,050
15,000 Commercial International Bank (144A) (GDR) (Egypt) 02/25/97 358,125
3,140 Gedeon Richter (144A) (ADR) (Hungary) 08/02/96 164,957
43,500 Haci Omer Sabanci Holdings (144A) (ADR) (Turkey) 09/16/97 470,675
7,430 Kazkommertsbank (144A) (GDR) (Kazakstan) 07/15/97 139,684
3,208 Lukoil Holdings (144A) (ADR) (Russia) 06/21/96 136,080
6,750 MISR International Bank S.A.E. (144A) (GDR) (Egypt) 06/25/97 106,650 *
8,383 Mol Magyar Olaj-es Gazipari Rt. (144A) (GDR) (Hungary) 10/17/97 207,898
16 Nizhny Novgorod Svyazinform (144A) (Bridge Certificates)
(Russia) 06/06/97 102,880 *
53 Samara Svyazinform (144A) (Bridge Certificates) (Russia) 06/06/97 99,349 *
9,500 Suez Cement Company (144A) (GDR) (Egypt) 07/14/97 191,425
17,000 Tata Engineering & Locomotive (144A) (GDR) (India) 02/14/97 189,295
6,252 Unified Energy Systems (144A) (Bridge Certificates) (Russia) 08/18/97 629,889 *
23 Ural Telcom (144A) (Bridge Certificates) (Russia) 06/06/97 97,911 *
2,630 Yapi Ve Kredi Bankasi, A.S. (144A) (GDR) (Turkey) 10/02/97 70,024
</TABLE>
The total value of restricted securities is $3,598,531, which represents 7.5% of
net assets of the Fund at October 31, 1997.
<TABLE>
<CAPTION>
TCW Galileo Latin America Equity Fund:
Date of
Number of Shares Investment Acquisition Cost
----------------- -------------------------------------------------------------- ----------- -----------
<C> <S> <C> <C>
9,300 Chilectra, S.A. (144A) (ADR) (Chile) 06/24/97 $ 289,213
2,137 COMPANHIA ENERGETICA DE MINAS GERAIS
(CEMIG) (144A) (ADR) (Brazil) 12/14/94 64,743
</TABLE>
The total value of restricted securities is $326,746, which represents 0.6% of
net assets of the Fund at October 31, 1997.
* Security deemed illiquid
80
<PAGE>
TCW GALILEO FUNDS, INC.
October 31, 1997
Note 7 - Forward Foreign Currency Contracts
The Funds listed below invested in forward foreign currency contracts during the
year ended October 31, 1997. These contracts are used for the purpose of
hedging against foreign exchange risk arising from the Funds' investment in
foreign securities. These contracts are"marked-to-market" at the valuation date
at the applicable translation rates and any resulting unrealized gains or losses
are recorded in the Funds' financial statements. The Funds record realized
gains or losses at the time the forward contract is closed. There were no
realized gains or losses recorded in the financial statements for the year ended
October 31, 1997. A forward contract is extinguished through a sale or the
expiration of the contract. Risks may arise upon entering into these contracts
from the potential inability of counterparties 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 following forward foreign currency contracts
were outstanding as of October 31, 1997:
<TABLE>
<CAPTION>
TCW Galileo Emerging Markets Fund:
Unrealized
Expiration Contract In Exchange Appreciation
Date to Sell for U.S. $ on Contracts
---------- ------------------------ ------------ ------------
<S> <C> <C> <C>
04/29/98 Brazilian Real 1,338,000 $ 1,115,000 $ 17,379
04/30/98 Brazilian Real 1,338,000 $ 1,115,000 17,379
---------
Net Unrealized Appreciation
on Forward Foreign Currency Contracts $ 34,758
=========
</TABLE>
TCW Galileo Latin America Equity Fund:
<TABLE>
<CAPTION>
Unrealized
Expiration Contract In Exchange Appreciation
Date to Sell for U.S. $ on Contracts
---------- ------------------------ ------------ ------------
<S> <C> <C> <C>
04/29/98 Brazilian Real 3,601,200 $ 3,001,000 $ 46,725
04/30/98 Brazilian Real 3,601,200 $ 3,001,000 46,725
---------
Net Unrealized Appreciation
on Forward Foreign Currency Contracts $ 93,450
=========
</TABLE>
Note 8 - Subsequent Event
On November 3, 1997, TCW Galileo International Equities Fund, TCW Galileo
European Equities Fund, TCW Galileo Japanese Equities Fund and TCW Galileo Value
Opportunities Fund commenced operations resulting from the exchange of Limited
Partnership interests. The assets and liabilities were transferred at
historical cost from the respective predecessor limited partnerships to the
Funds on November 3, 1997, and the fair values of which were exchanged for
common shares of the Funds. The transfers were treated as tax-free exchanges in
accordance with the Internal Revenue Code.
81
<PAGE>
TCW Galileo Money Market Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Year Ended October 31,
----------------------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Net Asset Value per Share, Beginning of Period $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income 0.0516 0.0509 0.0549
Less Distributions:
Distributions from Net Investment Income (0.0516) (0.0509) (0.0549)
--------------- --------------- ---------------
Net Asset Value per Share, End of Period $ 1.00 $ 1.00 $ 1.00
=============== =============== ===============
Total Return 5.29% 5.21% 5.67%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 222,771 $ 233,671 $ 86,302
Ratio of Net Expenses to Average Net Assets (4) 0.40% 0.40% 0.40%
Ratio of Net Investment Income to Average Net Assets 5.17% 5.04% 5.49%
</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 0.40% , 0.44%, and 0.46% for the fiscal
years ended October 31, 1997, 1996 and 1995, respectively, 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.
82
<PAGE>
TCW GALILEO FUNDS, INC.
<TABLE>
<CAPTION>
Year Ended December 31, July 14, 1988
----------------------------------------------------- (Commencement of
Ten Months Ended Operations)
October 31, 1994 1993 1992 1991 1990 1989 December 31, 1988
---------------- -------- -------- -------- -------- -------- -----------------
<S> <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
Income from Investment Operations:
Net Investment Income 0.0304 0.0293 0.0381 0.0620 0.0800 0.0882 0.0379
Less Distributions:
Distributions from Net
Investment Income (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
======== ======== ======== ======== ======== ======== ========
Total Return 3.04% /(1)/ 2.97% 3.92% 6.35% 8.18% 9.22% 7.68% /(2)/
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands) $124,392 $ 81,204 $183,465 $140,987 $167,572 $ 88,620 $ 63,703
Ratio of Net Expenses to Average
Net Assets /(4)/ 0.40% /(3)/ 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% /(3)/
Ratio of Net Investment Income
to Average Net Assets 3.65% /(3)/ 2.93% 3.81% 6.20% 8.00% 8.82% 8.08% /(3)/
</TABLE>
83
<PAGE>
TCW Galileo Core Fixed Income Fund
<TABLE>
<CAPTION>
March 1, 1993
Year Ended October 31, Ten Months (Commencement of
------------------------------------------ Ended Operations) through
1997 1996 1995 October 31, 1994 December 31, 1993
------------ ------------ ------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share, Beginning
of Period $ 9.45 $ 9.61 $ 8.94 $ 10.04 $ 10.00
------------ ------------ ------------ ------------ ------------
Income (Loss) from Investment Operations:
Net Investment Income 0.58 0.55 0.58 0.44 0.45
Net Realized and Unrealized Gain (Loss) 0.19 (0.16) 0.62 (1.16) 0.19
on Investments ------------ ------------ ------------ ------------ ------------
Total from Investment Operations 0.77 0.39 1.20 (0.72) 0.64
------------ ------------ ------------ ------------ ------------
Less Distributions:
Distributions from Net Investment Income (0.60) (0.55) (0.53) (0.38) (0.45)
Distributions from Net Realized Gains - - - - (0.14)
Distributions in Excess of Net Realized
Gains - - - - (0.01)
------------ ------------ ------------ ------------ ------------
Total Distributions (0.60) (0.55) (0.53) (0.38) (0.60)
------------ ------------ ------------ ------------ ------------
Net Asset Value per Share, End of Period $ 9.62 $ 9.45 $ 9.61 $ 8.94 $ 10.04
============ ============ ============ ============ ============
Total Return 8.45% 4.26% 13.92% (7.24)%(1) 6.54%(2)
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 19,368 $ 25,006 $ 36,236 $ 50,153 $ 33,328
Ratio of Expenses to Average Net Assets 0.93% 0.76% 0.68%(4) 0.50%(3)(4) 0.50%(3)(4)
Ratio of Net Investment Income to Average
Net Assets 6.13% 5.85% 6.38% 6.11%(3) 5.24%(3)
Portfolio Turnover Rate 142.96% 238.73% 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) to 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 0.50% of net assets
through December 31, 1994. 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.
84
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo High Yield Bond Fund
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
March 1, 1993
Year Ended October 31, Ten Months (Commencement of
----------------------------------- Ended Operations) through
1997 1996 1995 October 31, 1994 December 31, 1993
------- --------- -------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share, Beginning
of Period $ 9.77 $ 9.74 $ 9.43 $ 10.12 $ 10.00
------- --------- -------- --------- --------
Income (Loss) from Investment Operations:
Net Investment Income 0.91 0.89 0.92 0.73 0.74
Net Realized and Unrealized Gain (Loss)
on Investments 0.34 0.03 0.39 (0.77) 0.27
------- --------- -------- --------- --------
Total from Investment Operations 1.25 0.92 1.31 (0.04) 1.01
------- --------- -------- --------- --------
Less Distributions:
Distributions from Net Investment Income (0.91) (0.89) (1.00) (0.65) (0.74)
Distributions from Net Realized Gains - - - - (0.15)
------- --------- -------- --------- --------
Total Distributions (0.91) (0.89) (1.00) (0.65) (0.89)
------- --------- -------- --------- --------
Net Asset Value per Share, End of Period $ 10.11 $ 9.77 $ 9.74 $ 9.43 $ 10.12
======= ========= ======== ========= ========
Total Return 13.26% 9.92% 14.65% (0.34)% (1) 10.47% (2)
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $208,761 $ 183,815 $ 92,652 $ 90,577 $ 73,737
Ratio of Expenses to Average Net Assets 0.83% 0.90% 0.87% (4) 0.79% (3)(4) 0.79% (3)(4)
Ratio of Net Investment Income to Average
Net Assets 9.10% 9.21% 9.60% 9.18% (3) 8.60% (3)
Portfolio Turnover Rate 109.45% 82.56% 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) to 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 0.79% of net assets
through December 31, 1994. 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.
85
<PAGE>
TCW Galileo Mortgage Backed Securities Fund
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
March 1, 1993
Year Ended October 31, Ten Months (Commencement of
--------------------------------- Ended Operations) through
1997 1996 1995 October 31, 1994 December 31, 1993
--------- --------- --------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share, Beginning
of Period $ 9.67 $ 9.58 $ 9.41 $ 9.86 $ 10.00
--------- --------- --------- ---------- ----------
Income (Loss) from Investment Operations:
Net Investment Income 0.58 0.51 0.67 0.42 0.50
Net Realized and Unrealized Gain (Loss)
on Investments 0.05 0.22 0.25 (0.48) (0.12)
--------- --------- --------- ---------- ----------
Total from Investment Operations 0.63 0.73 0.92 (0.06) 0.38
--------- --------- --------- ---------- ----------
Less Distributions:
Distributions from Net Investment Income (0.38) (0.46) (0.71) (0.39) (0.50)
Distributions in Excess of Net Investment
Income (0.22) (0.18) (0.04) - -
Distributions from Net Realized Gains - - - - (0.02)
--------- --------- --------- ---------- ----------
Total Distributions (0.60) (0.64) (0.75) (0.39) (0.52)
--------- --------- --------- ---------- ----------
Net Asset Value per Share, End of Period $ 9.70 $ 9.67 $ 9.58 $ 9.41 $ 9.86
========= ========= ========= ========== ==========
Total Return 6.71% 7.86% 10.16% (0.61)%/(1)/ 3.89%/(2)/
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 55,307 $ 61,835 $ 81,366 $ 134,948 $ 147,666
Ratio of Expenses to Average Net Assets 0.77% 0.69% 0.61%/(4)/ 0.55%/(3)(4)/ 0.55%/(3)(4)/
Ratio of Net Investment Income to Average
Net Assets 6.00% 5.34% 7.13% 5.18%/(3)/ 5.98%/(3)/
Portfolio Turnover Rate 109.91% 54.10% 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) to 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 0.55% of net assets
through December 31, 1994. 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.
86
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Long-Term Mortgage Backed Securities Fund
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
June 17, 1993
Year Ended October 31, Ten Months (Commencement of
-------------------------------- Ended Operations) through
1997 1996 1995 October 31, 1994 December 31, 1993
------- -------- ------ ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share, Beginning
of Period $ 9.56 $ 9.56 $ 8.95 $ 10.07 $ 10.00
------- -------- ------ ------- -------
Income (Loss) from Investment Operations:
Net Investment Income 0.75 0.68 0.72 0.63 0.28
Net Realized and Unrealized Gain (Loss)
on Investments 0.32 0.02 0.71 (1.26) 0.07
------- -------- ------ ------- -------
Total from Investment Operations 1.07 0.70 1.43 (0.63) 0.35
------- -------- ------ ------- -------
Less Distributions:
Distributions from Net Investment Income (0.72) (0.68) (0.82) (0.49) (0.28)
Distributions in Excess of Net Investment
Income - (0.02) - - -
------- -------- ------ ------- -------
Total Distributions (0.72) (0.70) (0.82) (0.49) (0.28)
------- -------- ------ ------- -------
Net Asset Value per Share, End of Period $ 9.91 $ 9.56 $ 9.56 $ 8.95 $ 10.07
======= ======== ======= ======= =======
Total Return 11.66% 7.69% 16.84% (6.39)%/(1)/ 3.51%/(2)/
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $81,442 $112,260 $80,159 $ 66,632 $25,215
Ratio of Expenses to Average Net Assets 0.67% 0.68% 0.68%/(4)/ 0.65%/(3)(4)/ 0.65%/(3)(4)/
Ratio of Net Investment Income to Average
Net Assets 7.77% 7.15% 7.88% 8.03%/(3)/ 5.37%/(3)/
Portfolio Turnover Rate 16.01% 39.28% 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) to 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 0.65% of net assets
through December 31, 1994. 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.
87
<PAGE>
TCW GALILEO CONVERTIBLE SECURITIES FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
January 2, 1997
(Commencement of
Operations) through
October 31, 1997
--------------------
<S> <C>
Net Asset Value per Share, Beginning
of Period $ 10.00
Income from Investment Operations:
Net Investment Income 0.31
Net Realized and Unrealized Gain
on Investments 1.43
Total from Investment Operations 1.74
Less Distributions:
Distributions from Net Investment Income (0.33)
Net AssetValue per Share, End of Period $ 11.41
Total Return 17.66% (1)
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 36,890
Ratio of Net Expenses to Average Net Assets 0.95% (2)(3)
Ratio of Net Investment Income to Average
Net Assets 3.54% (2)
Portfolio Turnover Rate 141.43% (1)
Average Commission Rate Paid by the Fund (4) $ 0.06
</TABLE>
(1) For the period January 2,1997 (commencement of operations) through October
31, 1997 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 0.95% of Net Assets as disclosed in
Note 4 of the Financial Statements. Had such action not been taken, total
annualized operating expenses as a percentage of average net assets would have
been 1.08% for the period January 2,1997 (commencement of operations) through
October 31, 1997.
(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.
88
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Core Equity Fund
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
March 1, 1993
Year Ended October 31, Ten Months (Commencement of
----------------------------------- Ended Operations) through
1997 1996 1995 October 31, 1994 December 31, 1993
------- --------- -------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share, Beginning
of Period $ 15.93 $ 13.69 $ 11.57 $ 11.81 $ 10.00
-------- ---------- --------- ---------- ---------
Income (Loss) from Investment Operations:
Net Investment Income 0.01 0.11 0.06 0.04 0.03
Net Realized and Unrealized Gain (Loss)
on Investments 3.57 2.18 2.11 (0.28) 1.81
-------- ---------- --------- ---------- ---------
Total from Investment Operations 3.58 2.29 2.17 (0.24) 1.84
-------- ---------- --------- ---------- ---------
Less Distributions:
Distributions from Net Investment Income (0.02) (0.05) (0.05) - (0.03)
Distributions from Net Realized Gains (0.20) - - - -
--------- ---------- --------- ---------- ---------
Total Distributions (0.22) (0.05) (0.05) - (0.03)
--------- ---------- --------- ---------- ---------
Net Asset Value per Share, End of Period $ 19.29 $ 15.93 $ 13.69 $ 11.57 $ 11.81
========= ========== ========= ========== =========
Total Return 22.68% 16.79% 18.85% (2.03)%/(1)/ 18.41%/(2)/
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $156,113 $ 231,302 $ 197,721 $ 136,122 $ 55,885
Ratio of Expenses to Average Net Assets 0.83% 0.82% 0.85% 0.91% /(3)/ 1.00% /(3)/(4)/
Ratio of Net Investment Income to Average
Net Assets 0.08% 0.18% 0.48% 0.44%/(3)/ 0.55%/(3)/
Portfolio Turnover Rate 39.22% 39.58% 53.77% 23.53%/(1)/ 29.67%/(2)/
Average Commission Rate Paid by the Fund/(5)/ $ 0.06 $ 0.06 N/A N/A N/A
</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 1.00% of net assets
through December 31, 1993. 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.
(5) 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.
89
<PAGE>
TCW Galileo Earnings Momentum Fund
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
November 1, 1994
Years Ended October 31, (Commencement of
------------------------------------------ Operations) through
1997 1996 October 31, 1995
-------------------- ------------------ ---------------------
<S> <C> <C> <C>
Net Asset Value per Share, Beginning of Period $ 13.01 $ 11.47 $ 10.00
--------------- -------------- ----------------
Income (Loss) from Investment Operations:
Net Investment (Loss) (0.12) (0.11) (0.03)
Net Realized and Unrealized Gain on
Investments 1.98 1.72 1.51
--------------- -------------- ----------------
Total from Investment Operations 1.86 1.61 1.48
--------------- -------------- ----------------
Less Distributions:
Distributions in Excess of Net Investment Income - - (0.01)
Distributions From Net Realized Gains (1.00) (0.07) -
--------------- -------------- ----------------
Total Distributions (1.00) (0.07) (0.01)
--------------- -------------- ----------------
Net Asset Value per Share, End of Period $ 13.87 $ 13.01 $ 11.47
=============== ============== ================
Total Return 15.53% 13.99% 14.76%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 101,667 $ 77,994 $ 63,411
Ratio of Net Expenses to Average Net Assets 1.17% 1.13% 1.14%/(1)/
Ratio of Net Investment (Loss) to Average Net Assets (0.96)% (0.82)% (0.28)%
Portfolio Turnover Rate 93.06% 99.03% 85.91%
Average Commission Rate Paid by the Fund /(2)/ $ 0.06 $ 0.06 N/A
</TABLE>
(1) 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 1.14% of net assets
through December 31, 1995. Had such action not been taken, total annualized
operating expenses as a percentage of average net assets would have been
1.14% for the year ended October 31, 1996 and November 1, 1994
(commencement of operations) through October 31, 1995.
(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.
90
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Mid-Cap Growth Fund
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
June 3, 1996
(Commencement of
Year Ended Operations) through
October 31, 1997 October 31, 1996
---------------- -------------------
<S> <C> <C>
Net Asset Value per Share, Beginning of Period $ 9.19 $ 10.00
---------------- -------------------
Income (Loss) from Investment Operations:
Net Investment (Loss) (0.08) (0.03)
Net Realized and Unrealized Gain (Loss) on Investments 0.29 (0.78)
---------------- -------------------
Total from Investments Operations 0.21 (0.81)
---------------- -------------------
Net Asset Value per Share, End of Period $ 9.40 $ 9.19
================ ===================
Total Return 2.28% (8.10)% (1)
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 135,850 $ 92,430
Ratio of Net Expenses to Average Net Assets 1.12% 1.20% (2)(3)
Ratio of Net Investment (Loss) to Average Net Assets (0.86)% (0.80)% (2)
Portfolio Turnover Rate 50.45% 19.19% (1)
Average Commission Rate Paid by the Fund /(4)/ $ 0.06 $ 0.06
</TABLE>
(1) For the period June 3, 1996 (commencement of operations) through October
31, 1996 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 1.20% of net assets
through December 31, 1996. Had such action not been taken, total
annualized operating expenses as a percentage of average net assets would
have been 1.27% for the period June 3, 1996 (commencement of operations)
through October 31, 1996.
(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.
91
<PAGE>
TCW Galileo Small Cap Growth Fund
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
March 1, 1994
Years Ended October 31, (Commencement of
------------------------------------------------------ Operations) through
1997 1996 1995 October 31, 1994
--------------- --------------- ------------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value per Share, Beginning
of Period $ 17.17 $ 13.53 $ 9.39 $ 10.00
--------------- --------------- ------------- ---------------
Income (Loss) from Investment Operations:
Net Investment (Loss) (0.15) (0.13) (0.07) (0.04)
Net Realized and Unrealized Gain (Loss)
on Investments 1.91 4.08 4.72 (0.57)
--------------- --------------- ------------- ---------------
Total from Investment Operations 1.76 3.95 4.65 (0.61)
--------------- --------------- ------------- ---------------
Less Distributions:
Distributions from Net Investment Income - (0.01) - -
Distributions from Net Realized Gains (0.19) (0.30) (0.51) -
--------------- --------------- ------------- ---------------
Total Distributions (0.19) (0.31) (0.51) -
--------------- --------------- ------------- ---------------
Net Asset Value per Share, End of Period $ 18.74 $ 17.17 $ 13.53 $ 9.39
=============== =============== ============= ===============
Total Return 10.38% 29.73% 49.89% (6.10)%/(1)/
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 144,756 $ 132,444 $ 66,056 $ 51,089
Ratio of Expenses to Average Net Assets 1.14% 1.14% 1.21%/(3)/ 1.09%/(2)(3)/
Ratio of Net Investment (Loss) to Average
Net Assets (0.89)% (0.76)% (0.61)% (0.59)%/(2)/
Portfolio Turnover Rate 60.52% 45.43% 89.73% 88.63%/(1)/
Average Commission Rate Paid by the Fund/(4)/ $ 0.06 $ 0.06 N/A N/A
</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 1.09% of net assets
through December 31, 1994. 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.
(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.
92
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Asia Pacific Equity Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- --------------------
March 1, 1994
Year Ended October 31, (Commencement of
------------------------------------------------- Operations) through
1997 1996 1995 October 31, 1994
------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Net Asset Value per Share, Beginning
of Period $ 9.61 $ 8.67 $ 10.19 $ 10.00
------------- ------------- ------------- -------------
Income (Loss) from Investment Operations:
Net Investment Income (Loss) (0.01) 0.06 0.06 0.03
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency (2.10) 0.93 (1.19) 0.16
------------- ------------- ------------- -------------
Total from Investment Operations (2.11) 0.99 (1.13) 0.19
------------- ------------- ------------- -------------
Less Distributions:
Distributions from Net Investment Income (0.08) (0.05) (0.01) -
Distributions in Excess of Net Investment Income (0.05) - (0.22) -
Distributions from Net Realized Gains - - (0.16) -
------------- ------------- ------------- -------------
Total Distributions (0.13) (0.05) (0.39) -
------------- ------------- ------------- -------------
Net Asset Value per Share, End of Period $ 7.37 $ 9.61 $ 8.67 $ 10.19
============= ============= ============= =============
Total Return (22.40)% 11.36% (10.98)% 1.90%/(1)/
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 21,327 $ 48,266 $ 46,709 $ 54,019
Ratio of Expenses to Average Net Assets 1.49% 1.43% 1.47%/(3)/ 1.40%/(2)(3)/
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.02)% 0.66% 0.74% 0.45%/(2)/
Portfolio Turnover Rate 81.92% 84.81% 102.01% 46.75%/(1)/
Average Commission Rate Paid by the Fund/(4)/ $ 0.00 $ 0.01 N/A N/A
</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. 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.
(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.
93
<PAGE>
TCW Galileo Emerging Markets Fund
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
March 1, 1994
(Commencement of
Year Ended October 31, Operations) through
------------------------------------
1997 1996 1995 October 31, 1994
-------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value per Share, Beginning
of Period $ 8.18 $ 7.19 $ 9.73 $ 10.00
-------- -------- -------- ---------
Income (Loss) from Investment Operations:
Net Investment Income (Loss) 0.03 0.07 0.04 (0.01)
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency 0.22 0.94 (2.58) (0.26)
-------- -------- -------- ---------
Total from Investment Operations 0.25 1.01 (2.54) (0.27)
-------- -------- -------- ---------
Less Distributions:
Distributions from Net Investment Income (0.11) (0.02) - -
-------- -------- -------- ---------
Net Asset Value per Share, End of Period $ 8.32 $ 8.18 $ 7.19 $ 9.73
======== ======== ======== =========
Total Return 2.82% 14.14% (26.11)% (2.70)% /(1)/
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $ 47,726 $ 57,639 $ 51,873 $ 70,212
Ratio of Expenses to Average Net Assets 1.50% 1.41% 1.55% 1.70% /(2)/
Ratio of Net Investment Income (Loss) to
Average Net Assets 0.36% 0.82% 0.54% (0.09)% /(2)/
Portfolio Turnover Rate 79.80% 83.76% 74.24% 61.28% /(1)/
Average Commission Rate Paid by the Fund /(3)/ $ 0.00 $ 0.00 N/A N/A
</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) 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.
94
<PAGE>
TCW GALILEO FUNDS, INC.
TCW Galileo Latin America Equity Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- -------------------- March 1, 1993
Year Ended October 31, Ten Months (Commencement of
---------------------------------------- Ended Operations) through
1997 1996 1995 October 31, 1994 December 31, 1993
------------ ------------ ------------ ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share, Beginning
of Period $ 10.01 $ 7.92 $ 14.99 $ 15.11 $ 10.00
------------ ------------ ------------ ------------- ---------------
Income (Loss) from Investment Operations:
Net Investment Income 0.11 0.11 0.06 0.01 0.08
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency 2.50 2.03 (5.92) (0.13) 6.35
------------ ------------ ------------ ------------- ---------------
Total from Investment Operations 2.61 2.14 (5.86) (0.12) 6.43
------------ ------------ ------------ ------------- ---------------
Less Distributions:
Distributions from Net Investment Income (0.11) (0.05) - - (0.08)
Distributions from Net Realized Gains - - - - (1.21)
Distributions in Excess of Net Realized
Gains - - (1.21) - (0.03)
------------ ------------ ------------ ------------- ---------------
Total Distributions (0.11) (0.05) (1.21) - (1.32)
------------ ------------ ------------ ------------- ---------------
Net Asset Value per Share, End of Period $ 12.51 $ 10.01 $ 7.92 $ 14.99 $ 15.11
============ ============ ============ ============= ===============
Total Return 26.24% 27.08% (40.95)% (0.79)% /(1)/ 64.27% /(2)/
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $ 55,336 $ 68,323 $ 38,942 $ 122,610 $ 89,910
Ratio of Expenses to Average Net Assets 1.46% 1.44% 1.58%/(4)/ 1.36% /(3)(4)/ 1.50% /(3)/
/(4)/
Ratio of Net Investment Income to Average
Net Assets 0.87% 1.12% 0.59% 0.11% /(3)/ 0.77% /(3)/
Portfolio Turnover Rate 21.17% 44.32% 75.62% 143.65% /(1)/ 120.06% /(2)/
Average Commission Rate Paid by the Fund /(5)/ $ 0.00 0.0 N/A N/A N/A
</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. 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.
(5) 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.
95
<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, including
the schedules of investments, of TCW Galileo Funds, Inc. (comprising TCW Galileo
Money Market Fund, TCW Galileo Core 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 Convertible Securities Fund, TCW
Galileo Core Equity Fund, TCW Galileo Earnings Momentum Fund, TCW Galileo Mid-
Cap Growth 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") as of October 31, 1997 and related statements of
operations for the periods then ended, the statements of changes in net assets
for each of the periods ended October 31, 1997 and 1996, and the financial
highlights for each of the respective periods in the periods ended October 31,
1997. 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, 1997 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, 1997 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 10, 1997
Los Angeles, California
96
<PAGE>
TCW GALILEO FUNDS, INC.
SHAREHOLDER INFORMATION INVESTMENT ADVISER
- -----------------------
TCW Funds Management, Inc.
865 South Figueroa Street
DIRECTORS AND OFFICERS Los Angeles, California 90017
(213) 244-0000
Marc I. Stern
Director and Chairman of the Board
SUB-ADVISERS
Thomas E. Larkin, Jr.
Director and President TCW Asia Limited
Suite 1308, One Pacific Place
John C. Argue 88 Queensway
Director Hong Kong
Norman Barker, Jr. TCW London International, Limited
Director 14-16 Charles II Street
London, England SW1Y4QU
Richard W. Call
Director
CUSTODIAN
Alvin R. Albe, Jr.
Senior Vice President BNY Western Trust Company
700 South Flower Street
Michael E. Cahill Suite 200
Senior Vice President, Los Angeles, California 90017
General Counsel and Assistant Secretary
Ronald E. Robison TRANSFER AGENT
Senior Vice President
DST Systems, Inc.
David K. Sandie 811 Main Street
Senior Vice President and Treasurer Kansas City, Missouri 64105
Philip K. Holl
Secretary DISTRIBUTOR
TCW Brokerage Services
Marie M. Bender 865 South Figueroa Street
Assistant Secretary Los Angeles, California 90017
(213) 244-0000
Hilary G.D. Lord
Assistant Secretary
INDEPENDENT AUDITORS
Peter C. DiBona
Assistant Treasurer Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017
97
<PAGE>
TAX INFORMATION NOTICE (Unaudited)
----------------------------------
On account of the year ended October 31, 1997, the following funds paid capital
gain distributions within the meaning of Section 852 (b)(3)(c) of the Internal
Revenue Code.
<TABLE>
<CAPTION>
Amount Per
Fund Share
- -------- ------------
<S> <C>
TCW Galileo Long-Term Mortgage Backed Securities Fund $ 0.05
TCW Galileo High Yield Bond Fund 0.15
TCW Galileo Convertible Securities Fund 0.58
TCW Galileo Core Equity Fund 9.12
TCW Galileo Earnings Momentum Fund 1.04
TCW Galileo Small Cap Growth Fund 1.28
TCW Galileo Asia Pacific Equity Fund 1.96
</TABLE>
This information is given to meet certain requirements of the Internal Revenue
Code and should not be used by shareholders for preparing their income tax
returns. For income tax preparation purposes, please refer to the calendar year
end information you will receive from the Funds' transfer agent in January 1998.
98
