<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
ANNUAL REPORT
OCTOBER 31, 1998
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
October 31, 1998
TABLE OF CONTENTS
- -----------------
<TABLE>
<S> <C>
Letter to Shareholders...................................................... 3
Management Discussions...................................................... 4
Schedules of Investments:
TCW Galileo Money Market Fund............................................ 8
TCW Galileo Core Fixed Income Fund....................................... 10
TCW Galileo High Yield Bond Fund......................................... 17
TCW Galileo Mortgage Backed Securities Fund.............................. 24
TCW Galileo Long-Term Mortgage Backed Securities Fund.................... 27
Statements of Assets and Liabilities........................................ 30
Statements of Operations.................................................... 32
Statements of Changes in Net Assets......................................... 34
Notes to Financial Statements............................................... 39
Financial Highlights........................................................ 45
Independent Auditors' Report................................................ 50
Shareholder Information..................................................... 51
Shareholder Voting Information.............................................. 52
</TABLE>
1
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2
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
TO OUR SHAREHOLDERS
- -------------------
We are pleased to submit the October 31, 1998 Annual Reports for the TCW Galileo
Funds. In our new format, we have separated our reports into three categories;
1) U.S. Equities Funds, 2) U.S. Fixed Income Funds, and 3) International Funds
to provide more focused information to our shareholders. In addition, we have
incorporated in this report a discussion and analysis of how the Fund's
performance over the last fiscal year has compared to the benchmark as well as a
graphical analysis of each Fund's performance since inception.
TCW is committed to providing you with superior professional investment
management and distinctive personal service through 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.
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.
Sincerely,
/s/ Marc I. Stern
Marc I. Stern
Chairman of the Board
December 10, 1998
3
<PAGE>
MANAGEMENT DISCUSSIONS
- ----------------------
TCW GALILEO CORE FIXED INCOME FUND
- ----------------------------------
Performance of the TCW Galileo Core Fixed Income Fund for the fiscal year ended
October 31, 1998, was 9.0%, slightly below the 9.3% return of the Lehman
Aggregate Bond Market Index. The relatively high absolute return was achieved
with aid from a generally declining interest rate trend. Five year U.S. Treasury
yields, for example, fell nearly 150 basis points from October 31, 1997 to
October 31, 1998.
The twelve months through October were unusual in that U.S. Treasuries were the
top performing fixed income sector, returning over 11%. Other investment grade
bond indices trailed Treasuries significantly, with high-grade corporate bonds
returning 8% and mortgage-backed securities just over 7%. Non-investment grade
bonds were especially soft, returning only around 1% as reporting by the Salomon
Brothers High Yield Cash Pay Index.
The Fund benefited from strong relative returns within all market subsectors;
the Fund's holdings in corporate mortgage backed, and high yield bonds all
outperformed relevant benchmarks, by more than 100 basis points on average. This
security selection benefit, along with positive performance contribution from
tactical asset allocation during the year, helped to raise the Fund's return net
of fees near that of high grade market indices in spite of the drag introduced
by the typical underweighting to U.S. Treasuries and moderate inclusion of below
investment grade corporate bonds central to the Fund's strategy.
<TABLE>
<CAPTION>
--------------------------------------------
AVERAGE ANNUALIZED TOTAL RETURN(1)
1-YEAR 3-YEARS 5-YEARS SINCE INCEPTION
9.0% 7.2% 5.4% 7.7%
--------------------------------------------
SALOMON BROTHERS
BROAD-BASED LEHMAN BROTHERS
TCW BOND AGGREGATE BOND
--------------------------------------------------
<S> <C> <C> <C>
INITIAL VALUE 250,000.00 250,000.00 250,000.00
1990 JAN 246,935.00 247,151.40 247,029.20
FEB 247,263.42 247,595.03 247,828.55
MAR 248,079.39 248,100.93 248,011.08
APR 246,298.18 245,906.11 245,738.92
MAY 252,635.44 252,910.87 253,014.85
JUN 256,013.17 257,043.68 257,074.52
JULY 260,053.06 260,701.72 260,630.66
AUG 256,854.41 257,316.09 257,150.05
SEP 258,403.24 259,557.61 259,277.44
OCT 260,677.19 262,818.72 262,569.23
NOV 265,645.69 268,445.88 268,221.30
DEC 269,561.31 272,718.78 272,400.55
1991 JAN 272,663.96 276,018.80 275,767.88
FEB 274,439.00 277,832.26 278,121.85
MAR 276,115.83 279,894.77 280,035.25
APR 278,923.92 283,272.63 283,068.98
MAY 280,636.52 284,883.72 284,724.32
JUN 280,257.66 284,922.64 284,579.56
JULY 284,083.18 288,923.13 288,525.93
AUG 290,244.94 294,993.93 294,769.64
SEP 296,688.38 301,158.12 300,742.70
OCT 299,076.72 304,240.22 304,091.14
NOV 301,789.34 307,112.17 306,879.41
DEC 312,952.53 316,303.98 315,993.20
1992 JAN 306,834.31 312,256.78 311,695.69
FEB 308,420.64 314,288.16 313,722.39
MAR 306,637.97 312,638.15 311,953.75
APR 307,790.93 315,019.77 314,207.03
MAY 314,149.89 320,779.24 320,136.06
JUN 319,257.97 325,340.12 324,541.92
JULY 327,070.21 331,768.94 331,163.30
AUG 329,588.65 335,450.33 334,518.05
SEP 332,426.41 339,357.43 338,483.32
OCT 328,061.65 334,936.65 333,995.64
NOV 328,632.48 335,068.96 334,071.17
DEC 333,598.12 340,275.83 339,383.38
1993 JAN 339,999.86 347,163.85 345,891.46
FEB 346,456.46 353,063.42 351,946.37
MAR 349,065.28 354,456.59 353,412.89
APR 350,629.09 357,258.49 355,873.88
MAY 348,707.64 357,484.20 356,327.05
JUN 356,522.18 364,271.04 362,784.79
JULY 358,814.62 366,356.90 364,836.66
AUG 367,494.34 372,630.06 371,231.45
SEP 369,096.62 373,883.13 372,251.09
OCT 370,259.27 375,058.37 373,642.08
NOV 366,401.17 371,921.80 370,463.57
DEC 369,116.21 374,015.44 372,471.38
1994 JAN 372,884.88 379,066.65 377,500.36
FEB 363,749.20 372,770.15 370,941.92
MAR 352,345.66 363,523.86 361,796.61
APR 345,175.43 360,784.22 358,907.63
MAY 343,587.62 360,753.09 358,857.28
JUN 343,116.91 359,982.57 358,064.22
JULY 349,811.12 366,800.54 365,176.54
AUG 349,905.57 367,213.04 365,629.71
SEP 343,526.79 361,920.55 360,248.27
OCT 342,379.41 361,570.31 359,927.27
NOV 340,848.97 360,612.99 359,127.92
DEC 340,589.93 363,368.20 361,607.79
1995 JAN 346,052.99 370,886.65 368,764.17
FEB 353,500.05 379,549.20 377,531.83
MAR 355,073.13 381,751.81 379,848.05
APR 359,028.64 386,966.47 385,153.97
MAY 374,319.67 402,314.69 400,058.36
JUN 376,112.66 405,132.16 402,991.40
JULY 373,513.72 404,314.93 402,091.35
AUG 380,543.25 408,953.64 406,944.09
SEP 384,371.52 412,790.70 410,903.07
OCT 390,037.15 418,308.89 416,246.75
NOV 395,720.00 424,823.32 422,484.19
DEC 402,162.32 430,691.76 428,413.21
1996 JAN 403,187.83 433,625.98 431,258.14
FEB 393,922.57 426,255.41 423,761.88
MAR 389,991.23 423,165.53 420,816.25
APR 387,705.88 420,052.30 418,449.68
MAY 386,662.95 419,818.81 417,599.98
JUN 390,231.85 425,243.61 423,208.01
JUL 391,706.93 426,395.50 424,366.12
AUG 391,072.36 425,780.64 423,654.89
SEP 397,251.30 433,190.12 431,037.85
OCT 406,670.13 442,934.53 440,585.97
NOV 413,123.99 450,242.83 448,132.58
DEC 410,310.61 446,273.47 443,965.90
1997 JAN 411,615.40 448,013.93 445,342.19
FEB 412,710.30 448,506.75 446,455.55
MAR 407,654.60 443,976.83 441,499.89
APR 413,174.24 450,325.70 448,122.39
MAY 417,500.17 454,558.76 452,379.55
JUN 422,405.80 459,968.01 457,762.87
JUL 433,616.45 472,433.14 470,122.47
AUG 428,772.95 468,370.22 466,126.43
SEP 435,346.04 475,255.26 472,978.48
OCT 441,049.08 482,098.94 479,836.67
NOV 442,195.80 484,364.80 482,043.92
DEC 446,860.97 489,305.32 486,912.56
1998 JAN 452,419.92 495,617.36 493,145.05
FEB 451,953.93 495,270.43 492,750.53
MAR 452,889.47 497,201.98 494,425.88
APR 455,710.97 499,787.43 496,996.90
MAY 459,967.31 504,585.39 501,718.37
JUN 464,005.83 508,722.99 505,982.97
JUL 464,720.40 509,791.31 507,045.54
AUG 472,634.59 517,591.12 515,310.38
SEP 485,400.45 529,806.27 527,368.64
OCT 480,823.12 527,422.14 524,573.59
</TABLE>
(1) Performance data includes the performance of the predecessor limited
partnership for periods before the TCW Galileo Core Fixed Income Fund's
registration became effective. The predecessor limited partnership was not
registered under the Investment Company Act of 1940, as amended ("1940
Act"), and, therefore was not subject to certain investment restrictions
that are imposed by the 1940 Act. If the limited partnership had been
registered under the 1940 Act, the limited partnership's performance may
have been lower.
4
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
October 31, 1998
TCW GALILEO HIGH YIELD BOND FUND
- --------------------------------
The Fund returned a modest 1.2% for the fiscal year ended October 31, 1998. The
Fund performed in line with its conservatively structured benchmark, the
Adjusted Salomon Brothers High Yield Cash Pay Index, which returned 1.3% for the
period, and significantly outperformed other widely used benchmarks.
Specifically, the Fund outperformed the CS First Boston High Yield Index and the
Lipper High Yield Mutual Fund Average, which achieved returns of negative 2.5%
and negative 3.3%, respectively, over the same period.
The Fund is widely diversified consisting of 140 separate issuers within 31
separate industry groups. In the most recent fiscal year, the Fund benefited
considerably from its concentration in the upper-tier of the high yield market
as double-B rated securities significantly outperformed lower rated securities
during this period of economic uncertainty and financial market volatility. The
Fund's overweighting in consumer based industries such as Business Services and
Containers enhanced performance in the latest year. Furthermore, the Fund's
underweighting in the Energy and other economically sensitive sectors positively
impacted performance during the period.
The Fund seeks to preserve principal while simultaneously providing a high level
of current income by investing in a well-diversified, upper-tier portfolio of
high yield bonds. The Fund emphasizes investments in companies that have good
prospects for improved operating results and debt ratings.
<TABLE>
<CAPTION>
--------------------------------------------
AVERAGE ANNUALIZED TOTAL RETURN(1)
1-YEAR 3-YEARS 5-YEARS SINCE INCEPTION
1.2% 8.0% 8.0% 10.2%
--------------------------------------------
SALOMON BROTHERS HY
TCW CASH PAY
----------------------------------------------
<S> <C> <C>
INITIAL VALUE 250,000.00 250,000.00
1989 FEB 251,707.50 251,075.00
MAR 250,796.32 251,100.11
APR 251,611.41 252,832.70
MAY 256,107.70 257,130.85
JUN 260,948.14 260,859.25
JULY 262,612.99 262,033.12
AUG 264,461.78 261,011.19
SEP 262,184.77 256,782.81
OCT 259,214.21 250,979.52
NOV 259,971.12 251,908.14
DEC 260,470.26 252,462.34
1990 JAN 257,763.98 244,812.73
FEB 255,075.50 242,119.79
MAR 258,307.31 244,686.26
APR 261,275.26 243,438.36
MAY 266,626.17 249,840.79
JUN 271,500.10 254,487.83
JULY 276,264.93 258,890.47
AUG 269,178.73 248,871.41
SEP 257,063.00 236,104.30
OCT 249,698.14 227,746.21
NOV 254,005.44 232,346.68
DEC 256,525.17 234,693.38
1991 JAN 260,644.96 238,072.97
FEB 276,205.47 254,261.93
MAR 287,154.25 266,847.90
APR 297,913.92 276,828.01
MAY 300,252.55 278,572.02
JUN 306,533.83 284,310.61
JULY 313,038.48 291,702.68
AUG 317,364.67 298,178.48
SEP 321,741.13 300,176.28
OCT 330,424.92 308,371.09
NOV 333,891.08 311,238.94
DEC 335,981.24 315,036.06
1992 JAN 348,022.80 324,109.10
FEB 352,557.54 333,670.32
MAR 356,929.26 338,408.43
APR 357,671.67 341,318.75
MAY 362,507.39 347,974.46
JUN 365,218.94 352,463.33
JULY 371,705.23 358,842.92
AUG 375,898.07 363,723.18
SEP 380,352.46 367,360.41
OCT 375,103.60 363,099.03
NOV 382,909.50 368,436.59
DEC 388,078.78 372,857.83
1993 JAN 397,765.23 381,694.56
FEB 405,672.80 389,175.77
MAR 410,901.92 395,480.42
APR 413,055.05 398,486.07
MAY 418,259.54 403,865.63
JUN 425,595.81 412,993.00
JULY 428,289.83 417,081.63
AUG 429,608.97 421,836.36
SEP 430,163.16 423,017.50
OCT 438,960.00 430,927.93
NOV 442,199.52 432,910.19
DEC 448,155.95 437,585.63
1994 JAN 457,396.93 446,731.16
FEB 456,559.89 444,676.20
MAR 438,968.64 428,667.86
APR 434,780.88 424,295.45
MAY 438,111.30 425,059.18
JUN 440,564.72 425,781.78
JULY 440,978.85 430,380.22
AUG 443,898.13 433,177.69
SEP 445,855.72 432,441.29
OCT 446,631.51 432,916.98
NOV 443,406.83 429,020.72
DEC 446,612.67 433,997.36
1995 JAN 452,883.11 440,594.12
FEB 466,120.88 454,781.25
MAR 469,015.49 459,510.98
APR 478,480.22 469,712.12
MAY 488,011.55 483,662.57
JUN 489,529.27 487,241.68
JULY 498,051.97 492,650.06
AUG 500,103.94 496,049.34
SEP 506,310.23 501,753.91
OCT 512,046.73 505,517.07
NOV 513,096.42 509,965.62
DEC 517,868.22 517,462.11
1996 JAN 527,490.21 524,861.82
FEB 529,916.67 527,591.10
MAR 526,117.17 525,427.98
APR 530,494.46 525,112.72
MAY 533,799.44 528,158.37
JUN 536,575.20 532,647.72
JUL 541,747.78 536,695.84
AUG 549,207.65 541,204.09
SEP 560,131.39 552,785.86
OCT 562,842.43 558,921.78
NOV 571,341.35 569,317.72
DEC 579,785.77 573,587.61
1997 JAN 584,760.33 578,004.23
FEB 594,929.32 587,194.50
MAR 587,950.80 582,496.94
APR 592,289.87 587,389.92
MAY 607,049.74 598,550.33
JUN 612,209.66 608,127.13
JUL 625,494.61 621,505.93
AUG 625,932.45 622,313.88
SEP 636,322.93 632,021.98
OCT 637,404.68 637,394.17
NOV 643,523.77 642,365.84
DEC 650,988.64 648,853.74
1998 JAN 662,511.14 662,868.98
FEB 666,287.45 667,575.35
MAR 670,744.92 674,918.68
APR 671,912.01 679,170.66
MAY 673,591.79 680,732.76
JUN 677,310.02 682,774.96
JUL 680,019.26 687,827.49
AUG 651,934.47 645,457.32
SEP 658,127.84 653,525.53
OCT 644,899.47 647,578.45
</TABLE>
(1) Performance data includes the performance of the predecessor limited
partnership for periods before the TCW Galileo High Yield Bond Fund's
registration became effective. The predecessor limited partnership was not
registered under the Investment Company Act of 1940, as amended ("1940
Act"), and, therefore was not subject to certain investment restrictions
that are imposed by the 1940 Act. If the limited partnership had been
registered under the 1940 Act, the limited partnership's performance may
have been lower.
5
<PAGE>
MANAGEMENT DISCUSSIONS (CONTINUED)
- ----------------------------------
TCW GALILEO MORTGAGE BACKED SECURITIES FUND
- -------------------------------------------
The Fund achieved returns of 4.7% for the fiscal year ended October 31, 1998,
underperforming the return of 6.4% posted by the Salomon Brothers 1-Year
Treasury Index. Even though the mortgage sector posted solid returns in the past
12 months, it along with many other asset classes was left by the wayside as
panicked investors from around the world sought the liquidity and safety of the
U.S. Treasury market and pushed yield levels to new lows. For the past 12 months
the MBS market has underperformed the U.S. Treasury market by over 400 basis
points, one of its greatest underperformances ever. While part of this
under-performance can be explained by prepayments and a shortening of the
index's duration, a significant portion is due to the lack of focus by investors
on mortgage-backed securities. As a result, on a percentage basis, mortgages
have widened to the greatest level since 1982.
The silver lining in this picture is that seldom has the potential for
outperformance of the mortgage market over other high-grade bond indices been as
clear and compelling. As would be expected in a period of historically low U.S.
Treasury yields, prepayments will be exceedingly fast. However the fact that
mortgage rates have not dropped nearly as much as Treasury rates means that
prepayment rates will be lower than if spreads were at historical averages. The
reason why mortgages are such an attractive investment option versus U.S.
Treasuries is that the mortgage market has already fully priced in the
refinancing risk and is currently compensating investors for this risk with high
incremental income. These conditions make it extremely difficult for mortgages
to underperform an equivalent duration U.S. Treasury over the next 12 months.
In this environment call protection is of utmost importance and we are, as
usual, concentrating our investment energies on those securities that provide
the best combination of call protection and income. Our outlook for the mortgage
sector in the coming year is very positive. The sector has underperformed not
due to fundamental problems but as a result of benign neglect. History has shown
that those conditions always reverse themselves providing patient investors with
superior returns.
<TABLE>
<CAPTION>
--------------------------------------------
AVERAGE ANNUALIZED TOTAL RETURN(1)
1-YEAR 3-YEARS 5-YEARS SINCE INCEPTION
4.7% 6.3% 5.7% 6.8%
--------------------------------------------
SALOMON BROTHERS
TCW 1-YEAR TREASURY
----------------------------------
<S> <C> <C>
INITIAL VALUE 250,000.00 250,000.00
1990 FEB 251,500.00 251,508.85
MAR 253,512.00 252,792.77
APR 255,793.61 254,076.70
MAY 257,584.16 256,625.81
JUN 259,902.42 258,781.30
JULY 261,721.74 261,236.69
AUG 263,553.79 262,717.42
SEP 265,398.67 264,535.54
OCT 267,521.86 266,944.07
NOV 269,929.55 268,696.58
DEC 272,358.92 271,386.26
1991 JAN 274,810.15 273,644.85
FEB 277,008.63 275,219.30
MAR 279,224.70 277,206.10
APR 281,179.27 279,221.02
MAY 283,147.53 280,458.09
JUN 285,412.71 281,610.81
JULY 287,981.42 283,485.16
AUG 290,861.24 286,043.63
SEP 294,060.71 288,030.44
OCT 297,001.32 290,251.54
NOV 299,080.33 292,528.86
DEC 302,669.29 295,134.20
1992 JAN 304,182.64 295,893.31
FEB 306,311.91 296,699.28
MAR 307,537.16 297,355.30
APR 309,074.85 299,117.18
MAY 310,929.30 300,569.80
JUN 313,416.73 302,069.28
JULY 314,983.81 304,281.00
AUG 316,873.72 305,808.59
SEP 318,774.96 307,776.65
OCT 319,093.73 307,467.39
NOV 320,689.20 307,645.45
DEC 322,613.34 309,360.47
1993 JAN 324,000.58 310,991.15
FEB 324,713.38 312,078.27
MAR 327,311.08 313,043.56
APR 329,589.17 314,149.42
MAY 329,589.17 314,149.42
JUN 331,813.90 315,602.04
JULY 330,572.91 316,445.49
AUG 332,982.79 317,879.37
SEP 334,820.85 318,797.80
OCT 335,661.25 319,500.67
NOV 335,493.42 320,091.09
DEC 337,355.41 321,206.33
1994 JAN 338,212.29 322,518.37
FEB 338,039.81 322,190.36
MAR 336,829.62 322,180.99
APR 333,188.50 321,909.21
MAY 332,665.39 322,537.11
JUN 332,841.70 323,661.72
JULY 335,833.95 325,695.38
AUG 336,451.88 326,791.87
SEP 334,234.67 327,326.06
OCT 335,304.22 328,656.85
NOV 333,698.11 328,469.41
DEC 335,867.15 329,650.25
1995 JAN 340,041.98 332,958.46
FEB 343,507.00 335,882.44
MAR 347,172.22 337,859.87
APR 350,126.66 340,184.06
MAY 355,336.54 343,220.50
JUN 358,708.69 345,216.67
JULY 360,975.73 346,912.96
AUG 363,253.48 348,599.87
SEP 366,686.23 350,136.83
OCT 369,370.37 352,095.52
NOV 371,682.63 354,222.90
DEC 374,749.01 356,312.79
1996 JAN 377,286.06 358,608.86
FEB 379,051.76 359,030.59
MAR 380,435.30 360,164.57
APR 382,223.35 361,401.63
MAY 384,619.89 362,882.37
JUN 386,604.53 364,887.91
JUL 389,016.94 366,293.67
AUG 390,635.25 368,064.93
SEP 393,479.07 370,539.06
OCT 397,158.10 373,350.58
NOV 398,802.34 375,262.41
DEC 400,872.12 376,536.96
1997 JAN 402,948.64 378,419.65
FEB 405,035.91 379,781.96
MAR 406,295.57 380,807.37
APR 409,245.28 383,130.29
MAY 412,633.83 385,544.01
JUN 414,763.02 387,818.72
JUL 419,043.38 390,611.02
AUG 419,474.99 391,978.16
SEP 422,071.54 394,094.84
OCT 423,810.48 396,301.77
NOV 425,556.57 397,649.20
DEC 428,190.77 399,518.15
1998 JAN 429,406.83 402,154.97
FEB 430,184.06 403,240.79
MAR 432,747.96 405,256.99
APR 434,877.08 407,121.17
MAY 436,116.47 408,912.51
JUN 438,266.53 410,875.29
JUL 438,836.28 412,888.57
AUG 441,574.61 416,191.68
SEP 444,325.62 419,479.60
OCT 443,863.53 421,702.84
</TABLE>
(1) Performance data includes the performance of the predecessor limited
partnership for periods before the TCW Galileo Mortgage Backed Securities
Fund's registration became effective. The predecessor limited partnership
was not registered under the Investment Company Act of 1940, as amended
("1940 Act"), and, therefore was not subject to certain investment
restrictions that are imposed by the 1940 Act. If the limited partnership
had been registered under the 1940 Act, the limited partnership's
performance may have been lower.
6
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
October 31, 1998
TCW GALILEO LONG-TERM MORTGAGE BACKED SECURITIES FUND
- -----------------------------------------------------
The Fund achieved returns of 8.2% for the fiscal year ended October 31, 1998,
outperforming the return of 7.3% on the Lehman Brothers Mortgage-Backed
Securities Index.
Even though the mortgage sector posted solid returns in the past 12 months, it
along with many other asset classes was left by the wayside as panicked
investors from around the world sought the liquidity and safety of the U.S.
Treasury market and pushed yield levels to new lows. For the past 12 months the
MBS market has underperformed the U.S. Treasury market by over 400 basis points,
one of its greatest underperformances ever. While part of this under-performance
can be explained by prepayments and a shortening of the index's duration, a
significant portion is due to the lack of focus by investors on mortgage-backed
securities. As a result, on a percentage basis, mortgages have widened to the
greatest level since 1982.
The silver lining in this picture is that seldom has the potential for
outperformance of the mortgage market over other high-grade bond indices been as
clear and compelling. As would be expected in a period of historically low U.S.
Treasury yields, prepayments will be exceedingly fast. However the fact that
mortgage rates have not dropped nearly as much as Treasury rates means that
prepayment rates will be lower than if spreads were at historical averages. The
reason why mortgages are such an attractive investment option versus U.S.
Treasuries is that the mortgage market has already fully priced in the
refinancing risk and is currently compensating investors for this risk with high
incremental income. These conditions make it extremely difficult for mortgages
to underperform an equivalent duration U.S. Treasury over the next 12 months.
In this environment call protection is of utmost importance and we are, as
usual, concentrating our investment energies on those securities that provide
the best combination of call protection and income. Our outlook for the mortgage
sector in the coming year is very positive. The sector has underperformed not
due to fundamental problems but as a result of benign neglect. History has shown
that those conditions always reverse themselves providing patient investors with
superior returns.
<TABLE>
<CAPTION>
--------------------------------------------
AVERAGE ANNUALIZED TOTAL RETURN
1-YEAR 3-YEARS 5-YEARS SINCE INCEPTION
8.2% 9.2% 7.4% 7.5%
--------------------------------------------
LEHMAN BROTHERS
MORTGAGE-BACKED
TCW SECURITIES
--------------------------------------
<S> <C> <C>
INITIAL VALUE 250,000.00 250,000.00
1993 JUN 18-30 250,000.00 250,900.00
JUL 250,250.00 251,901.63
AUG 253,510.76 253,088.44
SEP 256,154.87 253,307.28
OCT 257,294.76 254,039.56
NOV 257,168.69 253,542.96
DEC 258,768.28 255,596.72
1994 JAN 260,822.90 258,130.26
FEB 261,469.74 256,329.01
MAR 254,329.00 249,654.27
APR 243,754.00 247,815.15
MAY 244,409.70 248,795.73
JUN 242,163.57 248,257.04
JULY 246,282.78 253,227.32
AUG 247,753.08 254,026.94
SEP 243,313.35 250,411.81
OCT 242,230.61 250,268.72
NOV 239,517.62 249,485.93
DEC 242,765.48 251,476.57
1995 JAN 245,962.70 256,859.28
FEB 253,378.48 263,416.17
MAR 255,349.76 264,657.69
APR 259,034.46 268,420.12
MAY 270,729.87 276,883.47
JUN 272,738.68 278,457.46
JULY 271,293.17 278,937.23
AUG 273,911.15 281,824.29
SEP 278,008.86 284,303.11
OCT 283,015.80 286,832.44
NOV 288,047.82 290,110.88
DEC 293,267.24 293,734.43
1996 JAN 295,214.54 295,948.12
FEB 289,038.65 293,490.33
MAR 287,220.60 292,429.79
APR 285,391.00 291,604.91
MAY 286,312.81 290,754.79
JUN 290,945.36 294,757.10
JUL 291,256.67 295,838.70
AUG 290,945.02 295,834.49
SEP 297,243.98 300,787.93
OCT 304,770.20 306,688.29
NOV 311,304.47 311,077.79
DEC 308,178.98 309,449.08
1997 JAN 308,582.69 311,739.01
FEB 308,986.93 312,767.75
MAR 306,459.42 309,827.73
APR 311,129.86 314,753.99
MAY 313,930.03 317,838.58
JUN 319,069.07 321,557.29
JUL 331,257.50 327,602.57
AUG 326,719.28 326,816.32
SEP 334,005.12 330,966.89
OCT 340,317.81 334,640.62
NOV 341,168.61 335,744.94
DEC 344,955.58 338,800.22
1998 JAN 348,474.13 342,154.34
FEB 346,348.43 342,872.86
MAR 348,838.68 344,312.93
APR 350,272.41 346,275.51
MAY 354,601.77 348,560.93
JUN 357,144.27 350,234.02
JUL 357,679.98 352,020.22
AUG 366,729.29 355,223.60
SEP 371,753.48 359,521.81
OCT 368,184.64 359,054.43
</TABLE>
7
<PAGE>
TCW GALILEO MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
- -----------------------
<TABLE>
<CAPTION>
Principal
Amount INVESTMENTS Value
- -------------- ----------- ------------
<S> <C> <C>
AGENCY FIXED INCOME SECURITIES (34.8% OF NET ASSETS)
$ 5,000,000 Federal Farm Credit Bank, 5.5%, due 08/03/99 $ 5,003,560
5,000,000 Federal Home Loan Bank, 5.605%, due 03/12/99 5,001,116
5,000,000 Federal Home Loan Bank, 5.81%, due 11/04/98 5,000,013
7,500,000 Federal Home Loan Bank, Floating Rate Note, due 03/11/99 7,496,178
8,000,000 Federal Home Loan Mortgage Corp., 4.93%, due 03/19/99 7,848,813
10,000,000 Federal Home Loan Mortgage Corp., 5.01%, due 01/28/99 9,877,533
6,325,000 Federal Home Loan Mortgage Corp., 5.17%, due 02/05/99 6,237,799
10,000,000 Federal Home Loan Mortgage Corp., 5.17%, due 02/19/99 9,842,028
5,000,000 Federal Home Loan Mortgage Corp., 5.605%, due 03/12/99 4,999,952
10,000,000 Federal National Mortgage Association, 5.28%, due 12/18/98 9,931,067
5,000,000 Federal National Mortgage Association, 5.41%, due 02/23/99 4,997,762
8,200,000 Federal National Mortgage Association, Floating Rate Note, due 01/21/99 8,199,090
-------------
TOTAL AGENCY FIXED INCOME SECURITIES (Cost: $84,434,911) 84,434,911
-------------
COMMERCIAL PAPER (48.9%)
2,511,000 Abbott Laboratories, 4.98%, due 11/19/98 2,504,748
5,000,000 American Express Credit Corp., 5.07%, due 11/02/98 4,999,296
5,000,000 American Express Credit Corp., 5.12%, due 11/03/98 4,998,578
10,000,000 American General Finance Corp., 5.62%, due 11/02/98 9,998,439
10,000,000 Ciesco L.P., 5.65%, due 11/02/98 9,998,431
2,800,000 Du Pont (E.I.) De Nemours & Co., 5.05%, due 11/24/98 2,790,966
1,300,000 Du Pont (E.I.) De Nemours & Co., 5.13%, due 11/23/98 1,295,925
3,400,000 Du Pont (E.I.) De Nemours & Co., 5.32%, due 11/05/98 3,397,990
10,000,000 Ford Motor Credit Corp., 5.56%, due 11/02/98 9,998,456
11,000,000 General Electric Capital Corp., 5%, due 03/18/99 10,790,694
10,000,000 General Motors Acceptance Corp., 5.15%, due 11/03/98 9,997,139
10,000,000 J.P. Morgan & Co., 5.3%, due 11/20/98 9,972,028
5,000,000 May Department Stores Co., 4.97%, due 11/02/98 4,999,310
8,000,000 Prudential Funding Corp., 5.2%, due 11/05/98 7,995,378
10,000,000 Toyota Motor Credit Corp., 5.2%, due 01/04/99 9,907,556
5,000,000 USAA Capital Corp., 5.2%, due 11/03/98 4,998,556
10,000,000 Wal-Mart Stores Inc., 5.2%, due 11/02/98 9,998,556
-------------
TOTAL COMMERCIAL PAPER (Cost: $118,642,046) 118,642,046
-------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. Fixed Income)
October 31, 1998
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- ------------ ----------------------- --------------
<S> <C> <C>
CORPORATE FIXED INCOME SECURITIES (16.5%)
$ 5,000,000 Associates Corp. of North America, 6%, due 03/15/99 $ 5,004,476
3,000,000 Associates Corp. of North America, 7.25%, due 09/01/99 3,046,561
6,000,000 CIT Group Holdings, Inc., 6.25%, due 03/22/99 6,013,169
5,000,000 IBM Credit Corp., 5.68%, due 05/07/99 4,998,596
2,125,000 Merrill Lynch & Company, Inc., 5.765%, due 06/10/99 2,129,751
3,250,000 Merrill Lynch & Company, Inc., 6.2%, due 07/19/99 3,268,978
3,500,000 Morgan Stanley Dean Witter & Co., 5.625%, due 03/01/99 3,497,025
5,000,000 Morgan Stanley Dean Witter &Co., 7.5%, due 09/01/99 5,091,200
6,850,000 Norwest Corp., 6.25%, due 04/15/99 6,868,030
-------------
TOTAL CORPORATE FIXED INCOME SECURITIES
(Cost: $39,917,786) 39,917,786
-------------
SHORT-TERM INVESTMENT (COST: $28,715) (0.0%)
-------------------------------------------
28,715 Bank of New York Depository Reserve, 4%, due 11/02/98 28,715
-------------
TOTAL INVESTMENTS (COST: $243,023,458) (100.2%) 243,023,458
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.2%) (571,961)
-------------
NET ASSETS (100%) $ 242,451,497
=============
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
TCW GALILEO CORE FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
- -----------------------
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- -------------- --------------------------------- -------------
<S> <C> <C>
BASIC INDUSTRIES (3.8% OF NET ASSETS)
$ 1,000,000 Anheuser-Busch Co., 5.375%, due 09/15/08 $ 997,500
50,000 Anthony Crane Rentals, L.P., (144A), 10.375%, due 08/01/08 46,000 *
75,000 BE Aerospace, Inc., (144A), 8%, due 03/01/08 76,500 *
25,000 Consumers International, 10.25%, due 04/01/05 25,250
1,000,000 Eli Lilly and Co., 7.125%, due 06/01/25 1,111,250
40,000 Geneva Steel Co., 11.125%, due 03/15/01 12,800
65,000 GEO Specialty Chemicals, (144A), 10.125%, due 08/01/08 60,450 *
40,000 GSI Group, Inc., 10.25%, due 11/01/07 28,000
225,000 Intermedia Communications, Inc., 8.5%, due 01/15/08 212,625
100,000 International Wire Group, 11.75%, due 06/01/05 101,000
45,000 Iron Mountain, Inc., 10.125%, due 10/01/06 47,250
100,000 ISP Holdings, Inc., 9%, due 10/15/03 103,000
25,000 Jordan Telecommunications Products, Inc., 9.875%, due 08/01/07 22,500
450,000 Level 3 Communications, Inc., 9.125%, due 05/01/08 424,125
200,000 Litton Industries, Inc., 6.05%, due 04/15/03 201,500
25,000 MDC Holdings, Inc., 8.375%, due 02/01/08 23,813
35,000 Metal Management, Inc., (144A), 10%, due 05/15/08 20,300 *
25,000 Morris Materials Handling, Inc., 9.5%, due 04/01/08 17,000
50,000 Packaged Ice, Inc., 9.75%, due 02/01/05 46,500
40,000 Pierce Leahy Corp., (144A), 8.125%, due 05/15/08 38,500 *
150,000 Pitney Bowes, Inc., 5.95%, due 02/01/05 154,313
50,000 Polymer Group, Inc., 8.75%, due 03/01/08 46,250
75,000 Praxair, Inc., 6.15%, due 04/15/03 75,000
200,000 Protection One Alarm Monitoring, Inc.,
(144A), 7.375%, due 08/15/05 200,648 *
500,000 Raytheon Co., 6.45%, due 08/15/02 516,720
75,000 Rental Service Corp., 9%, due 05/15/08 70,500
50,000 Safety-Kleen Corp., (144A), 9.25%, due 06/01/08 50,000 *
150,000 Southwest Airlines, Inc., 7.375%, due 03/01/27 169,875
25,000 Telecommunications Techniques Co.,
(144A), 9.75%, due 05/15/08 20,750 *
500,000 United Technologies Corp., 6.7%, due 08/01/28 514,025
50,000 U.S. Can Corp., Series B, 10.125%, due 10/15/06 50,375
30,000 Viasystems, Inc., 9.75%, due 06/01/07 26,550
500,000 Warner-Lambert Co., 6%, due 01/15/08 522,500
50,000 Westpoint Stevens, Inc., 7.875%, due 06/15/08 50,750
40,000 Wheeling-Pittsburgh Corp., 9.25%, due 11/15/07 36,800
50,000 Williams Scottsman, Inc., 9.875%, due 06/01/07 50,000
-------------
TOTAL BASIC INDUSTRIES (Cost: $6,190,385) 6,170,919
-------------
</TABLE>
* Restricted Security. (See Note 6)
See accompanying Notes to Financial Statements.
10
<PAGE>
TCW GALILEO FUNDS, INC.
(U. S. FIXED INCOME)
October 31, 1998
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- -------------- --------------------------------- -------------
<S> <C> <C>
CONSUMER CYCLICALS (4.0%)
$ 1,000,000 Airtouch Communications, Inc., 6.65%, due 05/01/08 $ 1,051,250
300,000 Albertson's, Inc., 6.625%, due 06/01/28 292,875
50,000 American Restaurant Group, Inc., (144A), 11.5%,
due 02/15/03 45,000 *
25,000 Atlas Air, Inc., 10.75%, due 08/01/05 25,000
1,500,000 Campbell Soup Co., 4.75%, due 10/01/03 1,491,300
10,000 Chancellor Media Corp., 8.125%, due 12/15/07 9,500
75,000 Chancellor Media Corp., (144A), 9%, due 10/01/08 74,625 *
50,000 CMS Energy Corp., 7.625%, due 11/15/04 49,921
150,000 Coca-Cola Enterprises, Inc., 6.375%, due 08/01/01 154,875
70,000 Eagle-Picher Industries, Inc., 9.375%, due 03/01/08 61,600
100,000 Federal-Mogul Corp., 7.875%, due 7/01/10 95,664
200,000 Gap, Inc., 6.9%, due 09/15/07 217,500
150,000 General American Transportation, 6.75%, due 03/01/06 159,188
45,000 Grand Casinos, Inc., 10.125%, due 12/01/03 47,700
75,000 Hard Rock Hotel, Inc., 9.25%, due 04/01/05 72,750
200,000 HMH Properties, Inc., 7.875%, due 08/01/08 193,000
50,000 Jacor Communications, Inc., 8%, due 02/15/10 51,250
90,000 May Department Stores Co., 9.75%, due 02/15/21 120,263
1,000,000 McDonald's Corp., 6.375%, due 01/08/28 996,250
50,000 Mrs. Fields Original, (144A), 10.125%, due 12/01/04 44,500 *
60,000 Outdoor Communications, Inc., 9.25%, due 08/15/07 61,350
10,000 Outdoor Systems, Inc., 8.875%, due 06/15/07 10,425
50,000 Owens-Illinois, Inc., 7.15%, due 05/15/05 51,203
75,000 Owens-Illinois, Inc., 7.85%, due 05/15/04 77,457
80,000 Perkins Family Restaurants, L.P., Series B,
10.125%, due 12/15/07 82,400
50,000 Primedia, Inc., 7.625%, due 04/01/08 48,750
75,000 Regal Cinemas, Inc., (144A), 9.5%, due 06/01/08 74,250 *
25,000 Signature Resorts, Inc., 9.25%, due 05/15/06 21,250
100,000 Starwood Hotels & Resorts, Inc., 7.375%, due 11/15/15 85,701
50,000 Station Casinos, Inc., 10.125%, due 03/15/06 49,750
50,000 STC Broadcasting, Inc., Series B, 11%, due 03/15/07 51,000
500,000 Time Warner Entertainment, Inc., 8.375%, due 03/15/23 585,000
25,000 Von Hoffman Press, Inc., (144A), 10.375%, due 05/15/07 24,750 *
-------------
TOTAL CONSUMER CYCLICALS (Cost: $6,497,714) 6,477,297
-------------
</TABLE>
* Restricted Security. (See Note 6)
See accompanying Notes to Financial Statements.
11
<PAGE>
TCW GALILEO CORE FIXED INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
- ----------------------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- -------------- ----------------------- -------------
<S> <C> <C>
CONSUMER NON-CYCLICALS (0.7%)
$ 50,000 Adelphia Communications Corp., 8.375%, due 02/01/08 $ 50,000
100,000 Boyds Collection, Ltd., (144A), 9%, due 05/15/08 94,500 *
25,000 Century Communications Corp., 8.75%, due 10/01/07 26,500
75,000 Classic Cable, Inc., (144A), 9.875%, due 08/01/08 75,750 *
350,000 CSC Holdings, Inc., 7.25%, due 07/15/08 341,303
50,000 CSC Holdings, Inc., 7.625%, due 07/15/18 46,268
25,000 CSC Holdings, Inc., Series B, 8.125%, due 08/15/09 25,765
10,000 Dade International, Inc., Series B, 11.125%, due 05/01/06 10,700
75,000 Doskocil Manufacturing Company, Inc., 10.125%, due 09/15/07 67,500
75,000 Fred Meyer, Inc., 7.45%, due 03/01/08 78,500
45,000 Holmes Products Corp., Series B, 9.875%, due 11/15/07 39,600
50,000 Home Interiors and Gifts, Inc., (144A), 10.125%, due 06/01/08 46,500 *
50,000 Prime Medical Services, Inc., 8.75%, due 04/01/08 45,500
150,000 Revlon Consumer Products Corp., 8.125%, due 02/01/06 146,250
40,000 Revlon Consumer Products Corp., 8.625%, due 02/01/08 36,600
-------------
TOTAL CONSUMER NON-CYCLICALS (Cost: $1,171,342) 1,131,236
-------------
FINANCIAL (5.0%)
100,000 Ahmanson (H.F.) & Co., 8.25%, due 10/01/02 107,625
550,000 American General Finance Corp., 6.25%, due 12/18/02 559,625
1,000,000 Banc One Corp., 7.6%, due 05/01/07 1,108,750
500,000 Barclays Bank PLC, 5.875%, due 07/15/00 506,875
150,000 Bear Stearns Companies, Inc., 6.75%, due 12/15/07 148,500
150,000 CIT Group Holdings, Inc., 6.125%, due 12/15/00 151,875
100,000 Citicorp Mortgage Securities, Inc., 6.375%, due 01/15/06 101,375
500,000 Comdisco, Inc., 6.5%, due 06/15/00 511,250
500,000 Finova Capital Corp., 6.25%, due 08/15/00 503,020
200,000 Fleet Financial Group, Inc., 6.5%, due 03/15/08 207,250
300,000 Fleet Mortgage Group, Inc., 6.5%, due 06/15/00 306,750
1,000,000 Ford Motor Credit Corp., 6.55%, due 09/10/02 1,032,500
50,000 Forest City Enterprises, Inc., 8.5%, due 03/15/08 49,000
1,000,000 General Electric Capital Corp., 5.77%, due 08/27/01 1,018,750
200,000 International Lease Finance Corp., 5.75%, due 01/15/03 202,592
500,000 Lehman Brothers, Inc., 6.125%, due 07/15/03 481,875
100,000 NationsBank Corp., 7.5%, due 09/15/06 110,125
20,000 Nationwide Credit, Inc., (144A), 10.25%, due 01/15/08 18,400 *
1,000,000 PNC Funding Corp., 6.5%, due 05/01/08 1,032,500
60,000 Security Pacific Corp., 11.5%, due 11/15/00 67,575
-------------
TOTAL FINANCIAL (Cost: $8,158,339) 8,226,212
-------------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements
12
<PAGE>
TCW GALILEO FUNDS, INC.
(U. S. FIXED INCOME)
October 31, 1998
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- -------------- --------------------------------- -------------
<S> <C> <C>
MISCELLANEOUS (2.8%)
$ 400,000 Abbey National PLC (Yankee), 6.69%, due 10/17/05 $ 414,500
750,000 Alabama Power Co., 5.375%, due 10/01/08 735,000
25,000 Gulf Canada Resources, Ltd., 9.25%, due 01/15/04 25,213
100,000 Laidlaw, Inc. (Yankee), 7.7%, due 08/15/02 104,750
1,000,000 Manitoba Province (Yankee), 5.5%, due 10/01/08 1,003,750
150,000 Manitoba Province (Yankee), 6.875%, due 09/15/02 159,938
1,000,000 Ontario Province (Yankee), 5.5%, due 10/01/08 1,000,000
1,000,000 Tennessee Valley Authority, 6.375%, due 06/15/05 1,065,000
100,000 Trans-Canada Pipelines, Ltd. (Yankee), 7.06%, due 10/14/25 99,750
-------------
TOTAL MISCELLANEOUS (Cost: $4,606,730) 4,607,901
-------------
UTILITIES (4.2%)
500,000 Commonwealth Edison Corp., 6.95%, due 07/15/18 500,625
200,000 Enron Corp., 6.4%, due 07/15/06 203,000
330,000 Enron Corp., 6.45%, due 11/15/01 340,725
200,000 Ensearch Corp., 6.375%, due 02/01/04 209,000
300,000 Ensearch Corp., 7.125%, due 06/15/05 322,125
200,000 GTE South, Inc., Series B, 7.25%, due 08/01/02 213,000
500,000 MCI Worldcom, Inc., 6.125%, due 08/15/01 509,375
700,000 National Rural Utilities, 5%, due 10/01/02 695,625
75,000 Niagara Mohawk Power Corp., Series H, 0%, due 07/01/10 54,230
75,000 Niagara Mohawk Power Corp., Series F, 7.625%, due 10/01/05 76,847
100,000 Northern Telecom Capital Corp., 7.4%, due 06/15/06 107,125
1,000,000 PP&L Resources, Inc., 6.875%, due 02/01/03 1,073,750
150,000 Sonat, Inc., 6.75%, due 10/01/07 159,536
200,000 Transcontinental Gas Pipelines, 6.25%, due 01/15/08 207,000
1,000,000 Union Electric Co., 6.875%, due 08/01/04 1,096,250
500,000 U.S. West Capital Funding, Inc., 6.125%, due 07/15/02 515,000
500,000 Western Resources, Inc., 6.875%, due 08/01/04 543,750
-------------
TOTAL UTILITIES (Cost: $6,703,192) 6,826,963
-------------
TOTAL CORPORATE FIXED INCOME SECURITIES
(COST: $33,327,702) (20.5%) 33,440,528
-------------
</TABLE>
See accompanying Notes to Financial Statements
13
<PAGE>
TCW GALILEO CORE FIXED INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
- -----------------------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- -------------- ----------------------- -------------
<S> <C> <C>
ASSET BACKED SECURITIES (5.2%)
$ 500,000 Case Equipment Loan Trust (98-B-A4), 5.92%, due 10/15/05 $ 505,705
1,500,000 Citibank Credit Card Master Trust I (97-7-A), 6.35%,
due 08/15/02 1,533,135
500,000 Contimortgage Home Equity Loan Trust (98-1-A3), 6.22%,
due 01/15/13 502,335
250,000 Discover Credit Card Master Trust I (98-4-A), 5.75%, due 10/16/03 255,010
400,000 EQCC Home Equity Loan Trust (98-1-A2F), 6.14%, due 04/15/09 401,468
1,000,000 Ford Credit Auto Loan Master Trust (95-1-A), 6.5%, due 08/15/02 1,022,910
1,500,000 MBNA Master Credit Card Trust (95-F-A), 6.6%, due 01/15/03 1,542,645
1,000,000 Premier Auto Trust (97-2-A5), 6.32%, due 03/06/02 1,036,560
300,000 Southern Pacific Secured Assets Corporation (97-3-A4), 6.66%,
due 06/25/24 305,598
300,000 The Money Store Home Equity Trust (97-C-AF3), 6.307%, due 08/15/12 307,347
1,000,000 Toyota Auto Lease Trust (98-B-A2), 5.45%, due 03/25/03 1,006,820
-------------
TOTAL ASSET BACKED SECURITIES (Cost: $8,350,505) 8,419,533
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (33.2%)
400,000 Bear Stearns Mortgage Securities, Inc. (97-2-A2), 6.5%, due 04/28/24 401,000
122,455 Bear Stearns Mortgage Securities, Inc. (97-2-A5), 6.875%, due 01/28/24 124,674
1,400,000 Chase Mortgage Finance Corp. (98-S4-A15), 6.75%, due 08/25/28 1,394,750
907,337 Citicorp Mortgage Securities, Inc. (98-5-A1), 6.75%, due 03/25/25 947,051
3,500,000 CMC Securities Corporation IV (97-NAM3-A4), 7.25%, due 10/25/27 3,570,315
665,000 Countrywide Home Loans (97-8-A1), 6.75%, due 01/25/28, (PAC) 683,500
3,444,546 Countrywide Home Loans (97-1-A6), 7.5%, due 03/25/27 3,451,848
1,000,000 Federal Home Loan Mortgage Corp. (2061-TA), 5.25%, due 10/15/27, (PAC) 940,470
1,000,000 Federal Home Loan Mortgage Corp. (1648-LA), 6%, due 05/15/23 933,880
2,000,000 Federal Home Loan Mortgage Corp. (2082-PE), 6%, due 11/15/23, (PAC) 1,994,760
1,000,000 Federal Home Loan Mortgage Corp. (2043-CH), 6%, due 08/15/26, (PAC) 1,057,030
1,372,843 Federal Home Loan Mortgage Corp. (1589-Z), 6.25%, due 09/15/23 1,329,942
1,000,000 Federal Home Loan Mortgage Corp. (2081-PC), 6.25%, due 10/15/26, (PAC) 970,180
500,000 Federal Home Loan Mortgage Corp. (2063-PV), 6.25%, due 10/15/26, (PAC) 537,475
2,000,000 Federal Home Loan Mortgage Corp. (2075-PK), 6.25%, due 08/15/27, (PAC) 2,000,960
781,000 Federal Home Loan Mortgage Corp. (1588-QD), 6.5%, due 09/15/23, (PAC) 772,307
1,000,000 Federal Home Loan Mortgage Corp. (2018-H), 6.5%, due 01/15/28, (PAC) 1,049,570
2,296,896 Federal Home Loan Mortgage Corp. (2082-ED), 6.5%, due 08/15/28, (TAC) 2,237,774
2,182,330 Federal Home Loan Mortgage Corp. (1974-ZB), 7%, due 05/15/15 2,313,378
2,227,721 Federal Home Loan Mortgage Corp. (1468-ZA), 7%, due 02/15/22, (PAC) 2,522,627
341,188 Federal Home Loan Mortgage Corp. (1578-O), 7%, due 09/15/23, (PAC) 347,247
450,000 Federal Home Loan Mortgage Corp. (1944-GB), 7.5%, due 04/17/24 464,297
368,428 Federal Home Loan Mortgage Corp. (2007-D), 7.5%, due 05/15/26 367,809
250,160 Federal Home Loan Mortgage Corp. - Government National Mortgage
Association (41-K), 8%, due 04/25/24 253,968
</TABLE>
PAC - Planned Amortization Class.
TAC - Target Amortization Class.
See accompanying Notes to Financial Statements.
14
<PAGE>
TCW GALILEO FUNDS, INC.
(U. S. FIXED INCOME)
October 31, 1998
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- -------------- ----------------------- -------------
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS-
FIXED RATE (CONTINUED)
$ 1,000,000 Federal National Mortgage Association (95-22-J), 6.5%, due 04/25/23 $ 998,030
545,681 Federal National Mortgage Association (G93-40-ZC), 6.5%, due 12/25/23 547,635
928,228 Federal National Mortgage Association (94-2-N), 6.5%, due 01/25/24, (TAC) 948,723
1,000,000 Federal National Mortgage Association (92-181-PL), 7%, due 10/25/21, (PAC) 1,089,650
1,480,125 Financial Asset Securitization, Inc. (97-NAM1-A4), 7.75%, due 05/25/27 1,518,446
3,894,667 GE Capital Mortgage Services, Inc. (95-11-A6), 7.5%, due 12/25/25 3,964,460
2,500,000 Government National Mortgage Association (98-14-PG), 6.375%,
due 11/20/26, (PAC) 2,500,250
250,000 Green Tree Financial Corp. (98-4-A3), 5.98%, due 08/01/08 250,795
992,181 Headlands Mortgage Securities, Inc. (97-5-AI5), 7.25%, due 11/25/27 1,006,409
698,227 Norwest Asset Securities Corp. (97-15-A1), 6.75%, due 10/25/12 731,371
987,808 Norwest Asset Securities Corp. (97-8-A4), 7.5%, due 06/25/27 1,009,994
3,410,747 PNC Mortgage Securities Corp. (96-1-A5), 7.5%, due 06/25/26 3,498,948
2,777,305 Prudential Home Mortgage Securities (93-50-A11), 8.75%, due 11/25/23 2,586,365
400,000 Residential Funding Mortgage Securities I (98-S8-A3), 6.5%, due 04/25/28 386,352
1,000,000 Residential Funding Mortgage Securities I (97-S12-A10), 6.7%,
due 08/25/27, (PAC) 992,660
350,000 Residential Funding Mortgage Securities I (97-S20-A7), 7%, due 12/25/27 357,711
600,000 Residential Funding Mortgage Securities I (97-S5-A2), 7.5%, due 04/25/27 626,010
492,633 Residential Funding Mortgage Securities I (97-S5-A5), 7.5%, due 04/25/27 502,973
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
- FIXED RATE (Cost: $53,470,380) 54,183,594
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -
FIXED RATE PASS-THROUGH SECURITIES (1.7%)
271,619 Federal Home Loan Mortgage Corp., Pool #C00581, 7%, due 02/01/28 276,967
487,242 Federal National Mortgage Association, Pool #405532, 6.5%, due 11/01/17 492,573
1,967,864 Government National Mortgage Association, Pool #446728, 6.5%, due 09/15/28 1,989,392
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS-
FIXED RATE PASS-THROUGH SECURITIES (Cost: $2,720,036) 2,758,932
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (6.9%)
5,275,000 Federal Home Loan Mortgage Corp., 7.1%, due 04/10/07 5,929,364
3,525,000 Federal National Mortgage Association, 5.86%, due 08/20/03 3,602,550
555,000 Federal National Mortgage Association, 6.3%, due 09/25/02 571,728
400,000 Federal National Mortgage Association, 6.4%, due 10/24/02 413,608
600,000 Federal National Mortgage Association, 6.48%, due 06/28/04 645,366
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost: $10,950,092) 11,162,616
-------------
</TABLE>
PAC - Planned Amortization Class.
TAC - Target Amortization Class.
See accompanying Notes to Financial Statements.
15
<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 (9.6%)
$ 2,294,353 U.S. Treasury Inflation Index Notes, 3.375%, due 01/15/07 $ 2,257,047
2,950,000 United States Treasury Bonds, 7.5%, due 11/15/24 3,823,672
2,680,000 United States Treasury Bonds, 12%, due 08/15/13 4,134,784
1,650,000 United States Treasury Notes, 5.875%, due 07/31/99 1,666,764
1,200,000 United States Treasury Notes, 6.5%, due 10/15/06 1,346,196
2,000,000 United States Treasury Notes, 7.5%, due 11/15/16 2,492,260
-------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost: $15,549,054) 15,720,723
-------------
FOREIGN GOVERNMENT SECURITIES (4.3%)
CAD 660,000 Canada - Canadian Government, 8.75%, due 12/01/05 522,016
DKK 1,890,000 Denmark - Kingdom of Denmark, 7%, due 12/15/04 341,508
FRF 8,000,000 France - France O.A.T., 5.25%, due 04/25/08 1,554,043
DEM 810,000 Germany - Bundesrepublik Deutschland, 5.625%, due 01/04/28 520,728
DEM 3,070,000 Germany - Truehandanstalt, 6.625%, due 07/09/03 2,082,288
ITL 1,000,000,000 Italy - Republic of Italy BTP, 6.25%, due 03/01/02 656,738
ESP 59,500,000 Spain - Spanish Government Treasury, 5.25%, due 01/31/03 447,631
SEK 1,400,000 Sweden - Swedish Government, 5.5%, due 04/12/02 187,692
GBP 590,000 United Kingdom - United Kingdom Treasury, 0%, due 06/07/04 748,371
-------------
TOTAL FOREIGN GOVERNMENT SECURITIES (Cost: $7,210,462) 7,061,015
-------------
TOTAL FIXED INCOME SECURITIES (COST: $131,578,231) (81.4%) 132,746,941
-------------
SHORT-TERM INVESTMENTS (12.4%)
$ 18,778,597 Bank of New York Depository Reserve, 4%, due 11/02/98 18,778,597
1,236,219 Foreign Currency Call Accounts 1,365,983
-------------
TOTAL SHORT-TERM INVESTMENTS (COST: $20,014,816) 20,144,580
-------------
TOTAL INVESTMENTS (COST: $151,593,047) (93.8%) 152,891,521
EXCESS OF OTHER ASSETS OVER LIABILITIES (6.2%) 10,104,876
-------------
NET ASSETS (100%) $ 162,996,397
=============
</TABLE>
CAD - Canadian Dollar. ITL - Italian Lira
DKK - Danish Krona. ESP - Spanish Peseta.
FRF - French Franc. SEK - Swedish Krone.
DEM - Deutsche Mark. GBP - British Pound.
See accompanying Notes to Financial Statement.
16
<PAGE>
TCW GALILEO CORE FUNDS, INC.
(U.S. FIXED INCOME)
TCW GALILEO HIGH YIELD BOND FUND
October 31, 1998
SCHEDULE OF INVESTMENTS
- -----------------------
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- ------------ --------------------------------- -------------
<S> <C> <C>
BASIC MATERIALS (12.0% OF NET ASSETS)
CHEMICALS (2.8%)
$ 820,000 Borden Chemical and Plastics, L.P., 9.5%, due 05/01/05 $ 582,200
725,000 Foamex L.P., 9.875%, due 06/15/07 819,250
525,000 GEO Specialty Chemicals, (144A), 10.125%, due 08/01/08 488,250 *
1,050,000 ISP Holdings, Inc., 9%, due 10/15/03 1,081,500
250,000 Polymer Group, Inc., 8.75%, due 03/01/08 231,250
1,450,000 Texas Petrochemical Corp., 11.125%, due 07/01/06 1,348,500
-------------
Total Chemicals 4,550,950
-------------
ENERGY (1.1%)
1,250,000 Forman Petroleum Corp., 13.5%, due 06/01/04 937,500
1,075,000 Magnum Hunter Resources, Inc., 10%, due 06/01/07 870,750
-------------
Total Energy 1,808,250
-------------
FOREST PRODUCTS & PAPER (3.4%)
850,000 Buckeye Technologies, Inc., 8%, due 10/15/10 807,500
1,450,000 Riverwood International Corp., 10.625%, due 08/01/07 1,352,125
750,000 Specialty Retail Group, Inc., 9.375%, due 10/15/06 723,750
1,550,000 Stone Container Corp., 12.25%, due 04/01/02 1,449,250
1,330,000 Tembec Finance Corp., 9.875%, due 09/30/05 1,336,650
-------------
Total Forest Products & Paper 5,669,275
-------------
METALS & MINING (4.7%)
925,000 AK Steel Corp., 9.125%, due 12/15/06 962,000
1,250,000 Geneva Steel Co., 11.125%, due 03/15/01 400,000
500,000 International Wire Group, 11.75%, due 06/01/05 505,000
1,925,000 Kaiser Aluminum & Chemical Corp., 10.875%, due 10/15/06 1,828,750
325,000 Metal Management, Inc., (144A), 10%, due 05/15/08 188,500 *
525,000 P & L Coal Holdings Corp., (144A), 8.875%, due 05/15/08 530,250 *
1,550,000 Ryerson Tull, Inc., 9.125%, due 07/15/06 1,765,698
725,000 WCI Steel, Inc., 10%, due 12/01/04 681,500
1,075,000 Wheeling-Pittsburgh Corp., 9.25%, due 11/15/07 989,000
-------------
Total Metals & Mining 7,850,698
-------------
TOTAL BASIC MATERIALS (Cost: $22,544,496) 19,879,173
-------------
</TABLE>
* Restricted Security. (See Note 6)
See accompanying Notes to Financial Statements.
17
<PAGE>
TCW GALILEO HIGH YEILD BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
- ----------------------------------
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- ---------------- --------------------------------- -----
<S> <C> <C>
CONSUMER CYCLICALS (23.4%)
AUTO PARTS (3.2%)
$ 1,250,000 Blue Bird Body Co., Series B, 10.75%, due 11/15/06 $ 1,237,500
450,000 Eagle-Picher Industries, Inc., 9.375%, due 03/01/08 396,000
1,075,000 Federal Mogul Corp., 7.875%, due 07/01/10 1,028,388
500,000 Hayes Wheels International, Inc., 9.125%, due 07/15/07 505,000
1,175,000 Hayes Wheels International, Inc., 9.125%, due 07/15/07 1,186,750
800,000 Hayes Wheels International, Inc., 11%, due 07/15/06 865,000
-------------
Total Auto Parts 5,218,638
-------------
ENTERTAINMENT & LEISURE (0.9%)
650,000 Cinemark, USA Inc., 9.625%, due 08/01/08 663,000
900,000 Regal Cinemas, Inc., (144A), 9.5%, due 06/01/08 891,000 *
-------------
Total Entertainment & Leisure 1,554,000
-------------
GAMING (2.1%)
600,000 Boyd Gaming Corp., 9.25%, due 10/01/03 607,500
200,000 CMS Energy Corp., 7.625%, due 11/15/04 199,682
725,000 Grand Casinos, Inc., 10.125%, due 12/01/03 768,500
1,175,000 Hard Rock Hotel, Inc., 9.25%, due 04/01/05 1,139,750
775,000 Hollywood Park, Inc., 9.5%, due 08/01/07 720,750
125,000 Station Casinos, Inc., 10.125%, due 03/15/06 124,375
-------------
Total Gaming 3,560,557
-------------
LODGING (2.5%)
2,600,000 HMH Properties, Inc., 7.875%, due 08/01/08 2,509,000
1,550,000 ITT Corp., 7.375%, due 11/15/15 1,328,365
300,000 Signature Resorts, Inc., 9.25%, due 05/15/06 255,000
-------------
Total Lodging 4,092,365
-------------
MEDIA (6.1%)
1,500,000 Adams Outdoor Advertising, L.P., 10.75%, due 03/15/06 1,582,500
175,000 Chancellor Media Corp., 8.125%, due 12/15/07 166,250
700,000 Chancellor Media Corp., (144A), 9%, due 10/01/08 696,500 *
810,000 Chancellor Media Corp., 9.375%, due 10/01/04 814,050
325,000 Jacor Communications, Inc., 8%, due 02/15/10 333,125
650,000 Jacor Communications, Inc., 9.75%, due 12/15/06 705,250
1,195,000 Outdoor Communications, Inc., 9.25%, due 08/15/07 1,221,887
450,000 Outdoor Systems, Inc., 8.875%, due 06/15/07 469,125
1,550,000 Outdoor Systems, Inc., 9.375%, due 10/15/06 1,643,000
2,400,000 STC Broadcasting, Inc., Series B, 11%, due 03/15/07 2,448,000
-------------
Total Media 10,079,687
-------------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
<PAGE>
TCW GALILEO FUNDS, INC.
(U. S. FIXED INCOME)
October 31, 1998
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- --------------- --------------------------------- -----
<S> <C> <C>
PUBLISHING (1.8%)
$ 1,000,000 American Media Operations, 11.625%, due 11/15/04 $ 1,020,000
750,000 Garden State Newspapers Co., Series B, 8.75%, due 10/01/09 720,000
100,000 Hollinger International Publishing, 8.625%, due 03/15/05 104,500
350,000 Primedia, Inc., 7.625%, due 04/01/08 341,250
825,000 Von Hoffman Press, Inc., (144A), 10.375%, due 05/15/07 816,750 *
-------------
Total Publishing 3,002,500
-------------
RESTAURANTS (0.8%)
750,000 American Restaurant Group, Inc., (144A), 11.5%, due 02/15/03 675,000 *
675,000 Foodmaker, 1993A Corp., Series B, 9.75%, due 11/01/03 695,250
-------------
Total Restaurants 1,370,250
-------------
RETAILERS (4.5%)
2,000,000 County Seat Stores, Inc., (144A), 12.75%, due 11/01/04 1,760,000 *
1,318,000 Guitar Center Management, Inc., 11%, due 07/01/06 1,331,180
2,075,000 Michael's Stores, Inc., 10.875%, due 06/15/06 2,095,750
426,000 Mrs. Field's Original, (144A), 10.125%, due 12/01/04 379,140 *
500,000 Specialty Retailers, Inc., 8.5%, due 07/15/05 460,000
1,475,000 Zale Corp., 8.5%, due 10/01/07 1,430,750
-------------
Total Retailers 7,456,820
-------------
TRANSPORTATION (1.5%)
450,000 Atlas Air, Inc., 10.75%, due 08/01/05 450,000
810,000 International Shipholding Corp., 9%, due 07/01/03 805,950
255,000 Moran Transportation Company, Inc., 11.75%, due 07/15/04 267,750
900,000 Navistar International Corp., Series B, 8%, due 02/01/08 877,500
-------------
Total Transportation 2,401,200
-------------
TOTAL CONSUMER CYCLICALS (Cost: $39,814,927) 38,736,017
-------------
CONSUMER NON-CYCLICALS (16.1%)
CABLE (6.8%)
1,000,000 Adelphia Communications Corp., 8.375%, due 02/01/08 1,000,000
800,000 Adelphia Communications Corp., 9.25%, due 10/01/02 826,000
350,000 Century Communications Corp., 9.5%, due 03/01/05 377,125
950,000 Classic Cable Inc., (144A), 9.875%, due 08/01/08 959,500 *
500,000 Comcast Corp., 9.125%, due 10/15/06 523,750
400,000 Comcast Corp., 9.375%, due 05/15/05 424,000
2,500,000 CSC Holdings, Inc., 7.25%, due 07/15/08 2,437,875
700,000 CSC Holdings, Inc., 7.625%, due 07/15/08 647,752
325,000 CSC Holdings, Inc., Series B, 8.125%, due 08/15/09 334,945
1,175,000 CSC Holdings, Inc., 9.875%, due 05/15/06 1,269,000
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
<PAGE>
TCW GALILEO HIGH YEILD BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
- ----------------------------------
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- ---------------- --------------------------------- -----
<S> <C> <C>
CABLE (CONTINUED)
$ 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 07/15/07 731,250
-------------
Total Cable 11,196,197
-------------
FOOD & DRUG RETAILERS (1.6%)
1,700,000 Fred Meyer, Inc., 7.45%, due 03/01/08 1,779,339
565,000 Jitney Jungle Stores, Inc., 10.375%, due 09/15/07 536,750
325,000 Jitney Jungle Stores, Inc., 12%, due 03/01/06 351,000
-------------
Total Food & Drug Retailers 2,667,089
-------------
HEALTH & HOSPITAL MANAGEMENT (3.6%)
775,000 Dade International, Inc., Series B, 11.125%, due 05/01/06 829,250
2,325,000 Integrated Health Services, Inc., 9.5%, due 09/15/07 2,162,250
1,075,000 Prime Medical Services, Inc., 8.75%, due 04/01/08 978,250
2,000,000 Tenet Healthcare Corp., 8.625%, due 01/15/07 2,070,000
-------------
Total Health & Hospital Management 6,039,750
-------------
OTHER CONSUMER NON-CYCLICALS (4.1%)
925,000 Boyds Collection, Ltd., (144A), 9%, due 05/15/08 874,125 *
745,000 Cott Corp., 9.375%, due 07/01/05 700,300
225,000 Doskocil Manufacturing Company, Inc., 10.125%, due 09/15/07 202,500
775,000 Holmes Products Corp., 9.875%, due 11/15/07 682,000
1,000,000 Home Interiors and Gifts, Inc., (144A), 10.125%, due 06/01/08 930,000 *
2,225,000 International Home Foods, Inc., 10.375%, due 11/01/06 2,347,375
700,000 Revlon Consumer Products Corp., 8.125%, due 02/01/06 682,500
425,000 Revlon Consumer Products Corp., 8.625%, due 02/01/08 388,875
-------------
Total Other Consumer Non-Cyclicals 6,807,675
-------------
TOTAL CONSUMER NON-CYCLICALS (Cost: $27,284,699) 26,710,711
-------------
CREDIT SENSITIVE (8.3%)
FINANCIAL SERVICES (4.1%)
125,000 Chevy Chase Savings Bank, 9.25%, due 12/01/05 120,000
625,000 Chevy Chase Savings Bank, 9.25%, due 12/01/08 600,000
1,500,000 Forest City Enterprises, Inc., 8.5%, due 03/15/08 1,470,000
4,300,000 GS Escrow Corp., (144A), 7.125%, due 08/01/05 4,292,303 *
375,000 Nationwide Credit, Inc., (144A), 10.25%, due 01/15/08 345,000 *
-------------
Total Financial Services 6,827,303
-------------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S.Fixed Income)
October 31,1998
<TABLE>
<CAPTION>
Principal
Amount COROPORATE FIXED INCOME SECURITIES Value
- -------------- ---------------------------------- ------------
<S> <C> <C>
UTILITIES (4.2%)
$ 1,850,000 California Energy Company, Inc., 9.5%, due 09/15/06 $ 1,998,000
725,000 Niagara Mohawk Power Corp., Series H, 0%, due 07/01/10 524,218
650,000 Niagara Mohawk Power Corp., Series F, 7.625%, due 10/01/05 666,009
1,000,000 Niagara Mohawk Power Corp., 7.75%, due 10/01/08 1,051,770
2,444,985 Panda Funding Corp., 11.625%, due 08/20/12 2,665,034
-------------
Total Utilities 6,905,031
-------------
TOTAL CREDIT SENSITIVE (Cost: $13,610,220) 13,732,334
-------------
INDUSTRIALS (33.4%)
BUILDING MATERIALS & CONSTRUCTION (2.5%)
1,550,000 American Standard Companies, Inc., 7.375%, due 02/01/08 1,536,437
1,050,000 Atrium Companies, Inc., 10.5%, due 11/15/06 1,060,500
150,000 Buildings Materials Corporation of America, 8.625%, due 12/15/06 150,000
450,000 MDC Holdings, Inc., 8.375%, due 02/01/08 428,625
1,025,000 Standard Pacific Corp., 8%, due 02/15/08 963,500
-------------
Total Building Materials & Construction 4,139,062
-------------
BUSINESS SERVICES & DISTRIBUTION (4.6%)
475,000 American Business Information, Inc., (144A), 9.5%, due 06/15/08 384,750 *
1,002,000 American Pad & Paper Co., 13%, due 11/15/05 475,950
100,000 Anthony Crane Rentals, L.P., (144A), 10.375%, due 08/01/08 92,000 *
975,000 Coinmach Laundry Corp., 11.75%, due 11/15/05 1,006,688
1,925,000 Iron Mountain, Inc., 10.125%, due 10/01/06 2,021,250
300,000 Les, Inc., (144A), 9.25%, due 06/01/08 300,000 *
1,265,000 Mid-American Waste Systems, Inc., 12.25%, due 02/15/03 253,000 **
200,000 Pierce Leahy Corp., (144A), 8.125%, due 05/15/08 192,500 *
1,400,000 Rental Service Corp., 9%, due 05/15/08 1,316,000
1,650,000 Williams Scotsman, Inc., 9.875%, due 06/01/07 1,650,000
-------------
Total Business Services & Distribution 7,692,138
-------------
</TABLE>
* Restricted security. (See Note 6)
** Non-income producing.
See accompanying Notes to Financial Statements.
21
<PAGE>
TCW GALILEO HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
- -----------------------------------
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- -------------- --------------------------------- ------------
<S> <C> <C>
COMMUNICATION SERVICES (8.8%)
$ 1,000,000 Caprock Communications Corp., (144A), 12%, due 07/15/08 $ 850,000 *
850,000 Intermedia Communications, Inc., 8.5%, due 01/15/08 803,250
1,375,000 Intermedia Communications, Inc., Series B, 8.875%, due 11/01/07 1,320,000
2,475,000 Level 3 Communications, Inc., 9.125%, due 05/01/08 2,332,688
1,550,000 Mastec, Inc., 7.75%, due 02/01/08 1,395,000
2,000,000 Mobile Telecommunications Technologies Corp., 13.5%, due 12/15/02 2,180,000
2,400,000 Nextlink Communications, 9.625%, due 10/01/07 2,232,000
350,000 Paging Network, Inc., 10.125%, due 08/01/07 344,750
625,000 Quest Communications Corp., 0%, due 10/15/07 481,250
1,000,000 RCN Corp., 10%, due 10/15/07 880,000
200,000 Rogers Cantel, Inc., 9.375%, due 06/01/08 195,000
1,575,000 Verio, Inc., 10.375%, due 04/01/05 1,496,250
-------------
Total Communication Services 14,510,188
-------------
CONTAINERS & PACKAGING (6.7%)
1,500,000 Ball Corp., (144A), 7.75%, due 08/01/06 1,556,250 *
550,000 Ball Corp., (144A), 8.25%, due 08/01/08 570,625 *
550,000 Bway Corp., 10.25%, due 04/15/07 569,250
1,150,000 Consumers International, 10.25%, due 04/01/05 1,161,500
550,000 Huntsman Packaging Corp., 9.125%, due 10/01/07 514,250
200,000 Owens-Illinois, Inc., 7.15%, due 05/15/05 204,810
650,000 Owens-Illinois, Inc., 7.85%, due 05/15/04 671,294
500,000 Owens-Illinois, Inc., 8.1%, due 05/15/07 516,595
900,000 Paperboard Industries International, Inc., 8.375%, due 09/15/07 819,000
1,000,000 Plastic Containers, Inc., Series B, 10%, due 12/15/06 980,000
800,000 Stone Container Corp., 10.75%, due 10/01/02 804,000
2,360,000 Sweetheart Cup Corp., 9.625%, due 09/01/00 2,100,400
725,000 U.S. Can Corp., Series B, 10.125%, due 10/15/06 730,438
-------------
Total Containers & Packaging 11,198,412
-------------
</TABLE>
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
22
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. Fixed Income)
October 31, 1998
<TABLE>
<CAPTION>
Principal
Amount CORPORATE FIXED INCOME SECURITIES Value
- -------------- --------------------------------- -------------
<S> <C> <C>
MISCELLANEOUS MANUFACTURING (10.8%)
$ 825,000 AGCO Corp., 8.5%, due 03/15/06 $ 775,500
1,050,000 Ametek, Inc., 7.2%, due 07/15/08 1,063,356
1,150,000 BE Aerospace, Inc., (144A), 8%, due 03/01/08 1,081,000 *
500,000 BE Aerospace Inc., 9.5%, due 11/01/08 510,000
2,570,000 Communications and Power Industries, Inc., Series B, 12%, due 08/01/05 2,704,925
1,100,000 GSI Group, Inc., 10.25%, due 11/01/07 770,000
1,500,000 Jordan Industries, Inc., 0%, due 04/01/09 945,000
250,000 Jordan Telecommunications Products, Inc., 0%, due 08/01/07 175,000
2,000,000 Jordan Telecommunications Products, Inc., 9.875%, due 08/01/07 1,800,000
375,000 Morris Materials Handling, Inc., 9.5%, due 04/01/08 255,000
150,000 Neenah Corp., Series B, 11.125%, due 05/01/07 153,000
1,350,000 Packaged Ice, Inc., 9.75%, due 02/01/05 1,255,500
3,000,000 Protection One Alarm Monitoring, Inc., (144A), 7.375%, due 08/15/05 3,009,720 *
550,000 Telecommunications Techniques Co., (144A), 9.75%, due 05/15/08 456,500 *
600,000 Viasystems, Inc., 9.75%, due 06/01/07 531,000
575,000 Wavetek Corp., 10.125%, due 06/15/07 523,250
975,000 Westpoint Stevens, Inc., 7.875%, due 06/15/08 989,625
900,000 Wyman-Gordon Co., 8%, due 12/15/07 922,500
-------------
Total Miscellaneous Manufacturing 17,920,876
-------------
TOTAL INDUSTRIALS (Cost: $59,772,192) 55,460,676
-------------
MISCELLANEOUS (COST: $102,000) (0.1%)
100,000 Gulf Canada Resources, Ltd., 9.25%, due 01/15/04 102,000
-------------
TOTAL CORPORATE FIXED INCOME SECURITIES
(COST: $163,128,534) (93.3%) 154,620,911
-------------
<CAPTION>
Number of
Rights or
Warrants EQUITY SECURITIES
- --------------- -----------------
<S> <C> <C>
6,969 Fitzgerald Gaming Corp., Warrants, expire 12/19/98 13,938 **
1,250 Forman Petroleum Corp., Warrants, expire 06/01/04 13 **
2,920 Terex Corp., Stock Appreciation Rights, expire 05/15/02 40,880 **
-------------
TOTAL EQUITY SECURITIES (COST: $31,492) (0.0%) 54,831
-------------
<CAPTION>
Principal
Amount SHORT-TERM INVESTMENT (COST: $12,007,438) (7.3%)
- ------------- ------------------------------------------------
<S> <C> <C>
$ 12,007,438 Bank of New York Depository Reserve, 4%, due 11/02/98 12,007,438
-------------
TOTAL INVESTMENTS (COST: $175,167,464) (100.6%) 166,683,180
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.6%) (981,592)
-------------
NET ASSETS (100%) $ 165,701,588
=============
</TABLE>
* Restricted security. (See Note 6)
** Non-income producing.
See accompanying Notes to Financial Statements.
23
<PAGE>
TCW GALILEO MORTGAGE BACKED SECURITIES FUND
SCHEDULE OF INVESTMENTS
- -----------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- -------------- ----------------------- ----------
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (26.1% OF NET ASSETS)
$ 1,500,000 Federal Home Loan Mortgage Corp. (2057-HJ), 7%, due 05/15/28, (I/O)(PAC) $ 606,390
902,486 Federal Home Loan Mortgage Corp. (1899-D), 7.25%, due 09/15/23, (TAC) 915,951
2,576,459 Federal Home Loan Mortgage Corp. (2021-AD), 7.5%, due 08/15/24 2,590,733
2,655,645 Federal Home Loan Mortgage Corp. (2032-AU), 7.5%, due 02/15/27 2,674,978
2,000,000 Federal National Mortgage Association (G93-8-PH), 6.85%, due 01/25/21, (PAC) 2,074,960
1,277,035 General Electric Capital Mortgage Services, Inc. (97-9-2A7), 7%, due 10/25/27 1,275,707
1,228,304 Salomon Brothers Mortgage Securities VII (96-2-A1), 7.5%, due 05/25/26 1,248,202
780,388 Sears Mortgage Securities (88-A-A2), 0.796%, due 05/25/18, (I/O) 7,960
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (Cost: $11,371,775) 11,394,881
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -
VARIABLE RATE (15.2%)
547 Federal National Mortgage Association (91-130-SQ), 6,707.16%,
due 09/25/21, (I/O) (I/F) 68,511
38,585 Guardian Savings and Loan Association (88-1-A), 6.722%, due 07/25/18 32,797
157,663 Guardian Savings and Loan Association (88-3-A), 6.8991%, due 11/25/18 134,013
137,691 Guardian Savings and Loan Association (89-3-A), 7.6872%, due 05/25/19 117,038
684,141 Guardian Savings and Loan Association (89-4-A), 7.8062%, due 07/25/19 649,934
950,964 Guardian Savings and Loan Association (89-5-A), 7.9957%, due 07/25/19 903,416
2,000,000 Residential Funding Mortgage Securities I (97-S12-A10), 6.7%, due 08/25/27, (PAC) 1,985,320
258,258 Residential Funding Mortgage Securities I (89-4B-B), 6.8527%, due 07/25/19 253,013
1,584 Resolution Trust Corp. (91-6-D2), 3,083.88%, due 08/25/20, (I/O) 49,090
3,239 Resolution Trust Corp. (91-6-C2), 3,344.28%, due 09/25/28, (I/O) 110,114
2,305,492 Resolution Trust Corp. (92-M4-A3), 7.25%, due 09/25/21 2,281,722
32,808 Western Federal Savings and Loan Association (88-9-A), 6.7982%, due 12/25/18 32,572
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS -
VARIABLE RATE (Cost: $7,398,598) 6,617,540
-----------
NON-AGENCY VARIABLE RATE PASS-THROUGH SECURITIES
(COST: $708,333) (1.6%)
715,398 Greenwich Capital Acceptance, Inc. (91-03), (Private Placement),
7.8601%, due 08/25/19 692,147 *
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - FIXED RATE
PASS-THROUGH SECURITIES (0.9%)
54,413 Federal Home Loan Mortgage Corp., Pool #212346, 9.5%, due 08/01/01 56,131
313,482 Federal National Mortgage Association, Pool #163492, 8.5%, due 05/01/16 325,237
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS -
FIXED RATE PASS-THROUGH SECURITIES (Cost: $381,604) 381,368
-----------
</TABLE>
I/O - Interest Only security.
PAC - Planned Amortization Class.
TAC - Target Amortization Class.
I/F - Inverse floating rate security whose interest rate moves in the opposite
direction of prevailing interest rates
* Restricted security. (See Note 6)
See accompanying Notes to Financial Statements.
24
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
October 31, 1998
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- --------------- ----------------------- ---------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS - VARIABLE RATE
PASS-THROUGH SECURITIES (43.8%)
$ 89,890 Federal Home Loan Mortgage Corp., Pool #770584, 7.25%,
due 05/01/19 $ 93,000
595,190 Federal Home Loan Mortgage Corp., Pool #785630, 7.473%,
due 07/01/26 602,469
500,769 Federal Home Loan Mortgage Corp., Pool #410013, 7.749%,
due 12/01/24 511,205
61,918 Federal Home Loan Mortgage Corp., Pool #865009, 8.201%,
due 11/01/18 63,001
85,667 Federal Home Loan Mortgage Corp., Pool #865275, 8.248%,
due 02/01/19 86,637
182,724 Federal Home Loan Mortgage Corp., Pool #865270, 8.332%,
due 12/01/18 185,778
131,206 Federal Home Loan Mortgage Corp., Pool #865006, 8.573%,
due 08/01/18 136,746
668,503 Federal Home Loan Mortgage Corp., Pool #310005, 8.666%,
due 11/01/19 679,366
1,921,898 Federal National Mortgage Association, Pool #313920, 5.36%,
due 11/01/27 1,951,015
559,724 Federal National Mortgage Association, Pool #376663, 7.295%,
due 06/01/27 566,508
739,309 Federal National Mortgage Association, Pool #284916, 7.312%,
due 06/01/27 750,088
969,115 Federal National Mortgage Association, Pool #394996, 7.442%,
due 08/01/27 978,399
246,768 Federal National Mortgage Association, Pool #392275, 7.454%,
due 06/01/27 249,166
446,871 Federal National Mortgage Association, Pool #394575, 7.509%,
due 07/01/27 452,854
310,671 Federal National Mortgage Association, Pool #397897, 7.533%,
due 08/01/27 314,247
508,091 Federal National Mortgage Association, Pool #393943, 7.571%,
due 07/01/27 513,660
432,013 Federal National Mortgage Association, Pool #358869, 7.589%,
due 09/01/26 436,623
260,809 Federal National Mortgage Association, Pool #369080, 7.6%,
due 04/01/27 263,149
583,180 Federal National Mortgage Association, Pool #400472, 7.612%,
due 09/01/27 590,195
521,917 Federal National Mortgage Association, Pool #303334, 7.706%,
due 04/01/25 530,132
314,860 Federal National Mortgage Association, Pool #111365, 7.876%,
due 09/01/19 323,912
85,062 Federal National Mortgage Association, Pool #096193, 8.248%,
due 09/01/18 86,636
</TABLE>
See accompanying Notes to Financial Statements.
25
<PAGE>
TCW GALILEO MORTGAGE BACKED SECURITIES FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
- -----------------------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- ------------- ----------------------- -------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS - VARIABLE RATE
PASS-THROUGH SECURITIES (CONTINUED)
$ 4,914,494 Government National Mortgage Association II, Pool #80185, 5%,
due 04/20/28 $ 4,885,646
3,882,240 Government National Mortgage Association II, Pool #80186, 5.5%,
due 04/20/28 3,865,936
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS -
VARIABLE RATE PASS-THROUGH SECURITIES (Cost: $19,164,839) 19,116,368
-------------
TOTAL FIXED INCOME SECURITIES (COST: $39,025,149) (87.6%) 38,202,304
-------------
SHORT-TERM INVESTMENT (COST: $5,162,093) (11.8%)
------------------------------------------------
5,162,093 Repurchase Agreement, Goldman Sachs, dated 10/30/98,
5.35%, due 11/02/98 (Collateralized by $6,828,000 current
face Federal Home Loan Mortgage Corp., Pool #390381, 6.125%,
due 02/01/37, valued at $6,825,866) 5,162,093
-------------
TOTAL INVESTMENTS (COST: $44,187,242) (99.4%) 43,364,397
EXCESS OF OTHER ASSETS OVER LIABILITIES (0.6%) 274,819
-------------
NET ASSETS (100%) $ 43,639,216
=============
</TABLE>
See accompanying Notes to Financial Statements.
26
<PAGE>
TCW GALILEO FUNDS, INC.
(U. S. FIXED INCOME)
TCW GALILEO LONG-TERM MORTGAGE BACKED SECURITIES FUND
October 31, 1998
SCHEDULE OF INVESTMENTS
- -----------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- ------------------- ----------------------- ------------
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (52.2% of Net Assets)
$ 2,013,462 Bear Stearns Mortgage Securities, Inc. (97-2-A5), 6.875%, due 01/28/24 $ 2,049,946
2,000,000 CMC Securities Corporation III (94-A-A12), 6.75%, due 02/25/24, (PAC) 2,038,780
4,710,119 Countrywide Funding Corp. (93-7-A5), 7%, due 11/25/23, (TAC) 4,532,642
2,000,000 Federal Home Loan Mortgage Corp. (2061-TA), 5.25%, due 10/15/27, (PAC) 1,880,940
1,295,742 Federal Home Loan Mortgage Corp. (1796-E), 6%, due 09/15/08 1,290,391
3,357,000 Federal Home Loan Mortgage Corp. (1629-PB), 6%, due 05/15/23 3,280,930
1,782,000 Federal Home Loan Mortgage Corp. (1662-N), 6.25%, due 01/15/09 1,740,961
3,500,000 Federal Home Loan Mortgage Corp. (2020-D), 6.25%, due 01/15/27, (PAC) 3,443,930
1,000,000 Federal Home Loan Mortgage Corp. (1844-E), 6.5%, due 10/15/13 1,001,720
300,144 Federal Home Loan Mortgage Corp. (1541-J), 6.5% , due 07/15/23 301,167
2,513,184 Federal Home Loan Mortgage Corp. (1717-MA), 6.5%, due 04/15/24 2,543,644
134,231 Federal Home Loan Mortgage Corp. (1175-C), 8%, due 01/15/21, (TAC) 136,873
1,459,663 Federal Home Loan Mortgage Corp. - Government National Mortgage
Association (43-OA), 6.5%, due 07/17/23 1,459,458
2,000,000 Federal National Mortgage Association (93-X-130A-NA), 6.5%, due 05/25/23 2,044,900
1,336,943 Federal National Mortgage Association (93-223-EA), 6.5%, due 12/25/23, (PAC) 1,340,913
421,392 Federal National Mortgage Association (93-2-B), 7.2%, due 11/25/03 435,935
1,000,000 Federal National Mortgage Association (92-215-PL), 7.25%, due 11/25/21, (PAC) 1,036,920
3,826,837 Federal National Mortgage Association (G92-29-J), 8%, due 07/25/22 3,976,849
2,197,000 GE Capital Mortgage Services, Inc. (96-12-A2), 7.25%, due 07/25/11 2,196,429
4,000,000 GE Capital Mortgage Services, Inc. (97-5-A2), 7.5%, due 06/25/27 4,040,880
3,327,098 Government National Mortgage Association (94-2-Z), 7.99125%, due 07/16/24 3,347,161
2,980,501 Residential Accredit Loans, Inc. (97-QS13-A7), 7.25%, due 12/25/27 3,014,032
2,300,000 Residential Asset Securitization Trust (98-A12-A16), 6.75%, due 11/25/28 2,291,375
888,376 Residential Funding Mortgage Securities I (95-S7-A9), 8%, due 05/25/10, (I/O) 59,726
818,869 Salomon Brothers Mortgage Securities VII (96-2-A1), 7.5%, due 05/26/26 832,135
687,079 Securitized Asset Sales, Inc. (95-B-A2), 7.41%, due 09/25/24 687,189
2,000,000 Superior Wholesale Inventory Financing Trust (97-A), 6.346%, due 11/15/04 2,022,460
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS -
FIXED RATE (Cost: $53,899,348) 53,028,286
------------
COLLATERALIZED MORTGAGE OBLIGATIONS
-VARIABLE RATE (11.6%)
1,500,000 CMC Securities Corporation III (94-A-A22), 7.1734%, due 02/25/24, (I/F) 1,293,750
2,000,000 Federal Home Loan Mortgage Corp. (1620-SB), 10%, due 11/15/23, (I/F) 1,937,400
2,000,000 Federal Home Loan Mortgage Corp. (1422-SA), 12.3239%, due 11/15/07, (I/F) 2,131,480
2,288,691 Federal National Mortgage Association (93-189-S), 7.3428%, due 10/25/23, (I/F) 2,259,923
3,000,000 Federal National Mortgage Association (94-40-SA), 7.5687%, due 03/25/24, (I/F) 3,111,210
1,000,000 Federal National Mortgage Association (93-202-SZ), 10%, due 11/25/23,
(I/F) (PAC) 1,016,850
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS -
VARIABLE RATE (Cost: $8,579,075) 11,750,613
------------
</TABLE>
I/O - Interest Only security.
PAC - Planned Amortization Class.
TAC - Target Amortization Class.
I/F - Inverse floating rate security whose interest rate moves in opposite
direction of prevailing interest rates.
See accompanying Notes to Financial Statements.
27
<PAGE>
TCW GALILEO LONG-TERM MORTGAGE BACKED SECURITIES FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
- -----------------------------------
<TABLE>
<CAPTION>
Principal
Amount FIXED INCOME SECURITIES Value
- ------------ ----------------------- --------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -
FIXED RATE PASS-THROUGH SECURITIES (23.9%)
$ 1,259,090 Federal Housing Authority (#000-13002), 7.125%, due 03/01/04 $ 1,268,534
2,839,213 Federal Housing Authority (#012-11216), 7.185%, due 05/01/29 2,860,507
1,881,235 Federal Housing Authority (#044-10592), 7.625%, due 09/01/22 1,911,805
1,337,748 Federal Housing Authority (#081-11017), 7.75%, due 04/01/24 1,361,158
2,546,139 Federal Housing Authority (#112-43055), 9.25%, due 05/25/32 2,689,359
2,593 Federal Home Loan Mortgage Corp., Pool #250685, 6.5%, due 10/01/99 2,602
930,392 Federal National Mortgage Association, Pool #310001, 6%, due 09/01/00 939,696
4,484,746 Federal National Mortgage Association, Pool #406796, 6.5%, due 03/01/18 4,532,374
4,795,800 Federal National Mortgage Association, Pool #413618, 6.5%, due 03/01/18 4,846,731
7,916 Federal National Mortgage Association, Pool #62420, 7.5%, due 03/01/06 8,116
779,259 Federal National Mortgage Association, Pool #303786, 7.5%, due 02/01/11 800,447
11,850 Federal National Mortgage Association, Pool #29542, 8.75%, due 07/01/09 12,469
1,407,804 Government National Mortgage Association, Pool #365618, 7%, due 10/15/33 1,412,196
1,542,577 Government National Mortgage Association, Pool #351003, 7.5%, due 07/15/28 1,558,481
3,903 Government National Mortgage Association, Pool #176192, 8.25%, due 12/15/01 4,006
41,232 Government National Mortgage Association, Pool #3933, 8.25%, due 07/15/04 42,772
5,571 Government National Mortgage Association, Pool #217350, 9.25%, due 08/15/00 5,668
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
- FIXED RATE PASS-THROUGH SECURITIES (Cost: $24,003,131) 24,256,921
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -
VARIABLE RATE PASS-THROUGH SECURITIES (4.6%)
539,767 Federal Home Loan Mortgage Corp., Pool #846317, 7.4786%, due 08/01/26 546,590
1,242,080 Federal Home Loan Mortgage Corp., Pool #846510, 7.595%, due 04/01/25 1,257,556
501,810 Federal Home Loan Mortgage Corp., Pool #755183, 7.93%, due 12/01/15 515,786
588,140 Federal National Mortgage Association, Pool #348025, 7.356%, due 06/01/26 595,345
336,915 Federal National Mortgage Association, Pool #347216, 7.446%, due 09/01/00 339,903
988,518 Federal National Mortgage Association, Pool #124410, 7.483%, due 07/01/22 1,004,038
379,177 Federal National Mortgage Association, Pool #137064, 7.541%, due 03/01/19 389,760
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
- VARIABLE RATE PASS-THROUGH SECURITIES (Cost: $4,650,467) 4,648,978
-------------
U.S. TREASURY SECURITIES (0.4%)
197,000 Certificate Accrual Treasury Strip, 0%, due 08/15/01 174,410
177,000 Certificate Accrual Treasury Strip, 0%, due 05/15/06 123,514
112,000 Certificate Accrual Treasury Strip, 0%, due 08/15/08 69,004
-------------
TOTAL U.S. TREASURY SECURITIES (Cost: $328,232) 366,928
-------------
TOTAL FIXED INCOME SECURITIES (COST: $91,460,253) (92.7%) 94,051,726
-------------
</TABLE>
See accompanying Notes to Financial Statements.
28
<PAGE>
TCW GALILEO FUNDS, INC.
(U. S. FIXED INCOME)
October 31, 1998
<TABLE>
<CAPTION>
Principal
Amount OTHER INVESTMENTS Value
- ------------------ ----------------- --------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (9.7%)
-----------------------------
$ 9,774,043 Repurchase Agreement, Goldman Sachs, dated 10/30/98,
5.35%, due 11/02/98 (Collateralized by $12,927,000 current face
Federal Home Loan Mortgage Corp., Pool #390381, 6.125%,
due 02/01/37, valued at $12,922,960) $ 9,774,043
140,556 Bank of New York Depository Reserve, 4%, due 11/02/98 140,556
-------------
TOTAL SHORT-TERM INVESTMENTS (Cost: $9,914,599) 9,914,599
-------------
TOTAL INVESTMENTS (Cost: $101,374,852) (102.4%) 103,966,325
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.4%) (2,465,244)
-------------
NET ASSETS (100%) $ 101,501,081
=============
</TABLE>
See accompanying Notes to Financial Statements.
29
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- ------------------------------------
<TABLE>
<CAPTION>
TCW GALILEO
MONEY MARKET
FUND
------------
<S> <C>
ASSETS
Investments, at Value (1) $ 243,023
Receivable for Fund Shares Sold -
Receivables for Securities Sold -
Accrued Interest Receivable 824
------------
Total Assets 243,847
------------
LIABILITIES
Payables for Fund Shares Redeemed -
Distributions Payable 1,262
Payables for Securities Purchased -
Management Fees and Other Accrued Expenses 134
------------
Total Liabilities 1,396
------------
NET ASSETS $ 242,451
============
NET ASSETS CONSIST OF:
Paid-in Capital $ 242,451
Undistributed Net Realized Gain (Loss) on Investments
and Foreign Currency Transactions -
Unrealized Appreciation (Depreciation) on Investments
and Foreign Currency Translations -
Undistributed (Overdistributed) Net Investment Income -
------------
NET ASSETS $ 242,451
============
CAPITAL SHARES OUTSTANDING 242,451,497
============
NET ASSET VALUE PER SHARE $ 1.00
============
</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 and the TCW Galileo Long-Term
Mortgage Backed Securities Fund at October 31, 1998,was $243,023, $151,594
$175,167, $44,187 and $101,374 respectively.
See accompanying Notes to Financial Statements.
30
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. Fixed Income)
Dollar Amount in Thousands
(Except per Share Amounts)
October 31, 1998
<TABLE>
<CAPTION>
TCW GALILEO TCW GALILEO TCW GALILEO TCW GALILEO LONG-TERM
CORE FIXED INCOME HIGH YIELD BOND MORTGAGE BACKED MORTGAGE BACKED
FUND FUND SECURITIES FUND SECURITIES FUND
- ----------------- --------------- --------------- ---------------------
<S> <C> <C> <C>
$ 152,892 $ 166,683 $ 43,364 $ 103,966
- 55 - -
37,813 182 259 115
1,986 3,950 282 601
------------ ----------- ------------ ------------
192,691 170,870 43,905 104,682
------------ ----------- ------------ ------------
21,097 62 - -
838 1,260 182 780
7,471 3,658 - 2,291
289 188 84 110
------------ ----------- ------------ ------------
29,695 5,168 266 3,181
------------ ----------- ------------ ------------
$ 162,996 $ 165,702 $ 43,639 $ 101,501
============ =========== ============ ============
$ 163,565 $ 177,162 $ 49,932 $ 98,917
(1,947) (2,963) (5,470) 79
1,298 (8,484) (823) 2,592
80 (13) - (87)
------------ ----------- ------------ ------------
$ 162,996 $ 165,702 $ 43,639 $ 101,501
============ =========== ============ ============
16,478,492 18,005,108 4,546,474 10,400,873
============ =========== ============ ============
$ 9.89 $ 9.20 $ 9.60 $ 9.76
============ =========== ============ ============
</TABLE>
31
<PAGE>
STATEMENTS OF OPERATIONS
- ------------------------
<TABLE>
<CAPTION>
TCW GALILEO
MONEY MARKET
FUND
------------
<S> <C>
INVESTMENT INCOME
Income:
Interest $ 15,139
-----------
Expenses:
Management Fees 678
Accounting Service Fees 271
Custodian Fees 40
Transfer Agent Fees 38
Registration Fees 37
Directors' Fees and Expenses 6
Audit and Tax Fees 23
Amortization of Deferred Organization Costs -
Other 29
-----------
Total Expenses 1,122
Less Expenses Borne by Investment Adviser 45
-----------
Net Expenses 1,077
-----------
Net Investment Income 14,062
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) on Investments and Foreign
Currency Transactions During the Year -
Change in Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency Translations During
the Year -
-----------
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency During the Year -
-----------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 14,062
===========
</TABLE>
See accompanying Notes to Financial Statements.
32
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
Dollar Amounts in Thousands
Year Ended October 31, 1998
<TABLE>
<CAPTION>
TCW GALILEO TCW GALILEO TCW GALILEO TCW GALILEO LONG-TERM
CORE FIXED INCOME HIGH YIELD BOND MORTGAGE BACKED MORTGAGE BACKED
FUND FUND SECURITIES FUND SECURITIES FUND
- ----------------- --------------- --------------- ---------------------
<S> <C> <C> <C>
$ 4,087 $ 19,867 $ 2,227 $ 8,085
- ------------- ------------- ------------ ------------
229 1,530 250 439
35 35 35 35
14 25 15 15
38 44 38 40
49 26 26 27
6 6 6 6
22 24 26 27
3 3 3 6
14 44 16 15
- ------------- ------------- ------------ ------------
410 1,737 415 610
- - - -
- ------------- ------------- ------------ ------------
410 1,737 415 610
- ------------- ------------- ------------ ------------
3,677 18,130 1,812 7,475
- ------------- ------------- ------------ ------------
1,270 (2,950) (15) 41
853 (13,024) 512 (551)
- ------------- ------------- ------------ ------------
2,123 (15,974) 497 (510)
- ------------- ------------- ------------ ------------
$ 5,800 $ 2,156 $ 2,309 $ 6,965
============= ============= ============ =============
</TABLE>
33
<PAGE>
TCW GALILEO MONEY MARKET FUND
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1998 October 31, 1997
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 14,062 $ 12,230
---------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (14,062) (12,230)
---------------- ---------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(3,148,816,550 shares in 1998 and 1,234,945,155 shares in 1997) 3,148,816 1,234,945
Proceeds from Shares Issued Upon Reinvestment of Dividends
(8,491,656 shares in 1998 and 5,434,998 shares in 1997) 8,492 5,435
Cost of Shares Redeemed
(3,137,627,742 shares in 1998 and 1,251,280,223 shares in 1997) (3,137,628) (1,251,280)
---------------- ---------------
Increase (Decrease) in Net Assets Resulting from Capital
Share Transactions 19,680 (10,900)
---------------- ---------------
Increase (Decrease) in Net Assets 19,680 (10,900)
NET ASSETS
Beginning of Year 222,771 233,671
---------------- ---------------
End of Year $ 242,451 $ 222,771
================ ===============
</TABLE>
See accompanying Notes to Financial Statements.
34
<PAGE>
TCW GALILEO, INC.
(U.S. Fixed Income)
TCW GALILEO CORE FIXED INCOME FUND
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1998 October 31, 1997
---------------- ----------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 3,677 $ 1,354
Net Realized Gain on Investments 1,270 241
Change in Unrealized Appreciation on Investments 853 42
---------------- ---------------
Increase in Net Assets Resulting from Operations 5,800 1,637
---------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (4,170) (1,373)
---------------- ---------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(22,816,543 shares in 1998 and 717,575 shares in 1997) 224,517 6,812
Proceeds from Shares Issued Upon Reinvestment of Dividends
(263,818 shares in 1998 and 138,935 shares in 1997) 2,578 1,310
Cost of Shares Redeemed
(8,614,835 shares in 1998 and 1,490,800 shares in 1997) (85,097) (14,024)
---------------- ---------------
Increase (Decrease) in Net Assets Resulting from Capital
Share Transactions 141,998 (5,902)
---------------- ---------------
Increase (Decrease) in Net Assets 143,628 (5,638)
NET ASSETS
Beginning of Year 19,368 25,006
---------------- ---------------
End of Year $ 162,996 $ 19,368
================ ===============
</TABLE>
See accompanying Notes to Financial Statements.
35
<PAGE>
TCW GALILEO HIGH YIELD BOND FUND
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<CAPTION>
YEAR ENDED Year Ended
OCTOBER 31, 1998 October 31, 1997
-------------------- --------------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 18,130 $ 19,571
Net Realized Gain (Loss) on Investments (2,950) 5,556
Change in Unrealized Appreciation (Depreciation)
on Investments (13,024) 804
----------------- ----------------
Increase in Net Assets Resulting from Operations 2,156 25,931
----------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (18,426) (19,383)
Distribution in Excess of Net Investment Income (13) _
Distribution of Net Realized Gains (2,884) _
----------------- ----------------
Total Distributions to Shareholders (21,323) (19,383)
----------------- ----------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(8,469,692 shares in 1998 and 13,039,199 shares in 1997) 84,380 130,756
Proceeds from Shares Issued upon Reinvestment of Dividends
(1,952,231 shares in 1998 and 1,688,689 shares in 1997) 19,439 16,818
Cost of Shares Redeemed
(13,063,683 shares in 1998 and 12,886,525 shares in 1997) (127,711) (129,176)
----------------- ----------------
Increase (Decrease)in Net Assets Resulting from
Capital Share Transactions (23,892) 18,398
----------------- ----------------
Increase (Decrease) in Net Assets (43,059) 24,946
NET ASSETS
Beginning of Year 208,761 183,815
----------------- ----------------
End of Year $ 165,702 $ 208,761
================= ================
</TABLE>
See accompanying Notes to Financial Statements.
36
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
TCW GALILEO MORTGAGE BACKED SECURITIES FUND
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<CAPTION>
YEAR ENDED Year Ended
OCTOBER 31, 1998 October 31, 1997
------------------- ------------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 1,812 $ 3,205
Net Realized (Loss) on Investments (15) (78)
Change in Unrealized Appreciation on Investments 512 248
----------------- ----------------
Increase in Net Assets Resulting from Operations 2,309 3,375
----------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (593) (2,046)
Distributions in Excess of Net Investment Income - (1,219)
Distributions from Paid-in-Capital (2,222) -
----------------- ----------------
Total Distributions to Shareholders (2,815) (3,265)
----------------- ----------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(2,948,909 shares in 1998 and 8,709,536 shares in 1997) 28,585 84,756
Proceeds from Shares Issued upon Reinvestment of Dividends
(242,345 shares in 1998 and 321,824 shares in 1997) 2,343 3,115
Cost of Shares Redeemed
(4,345,900 shares in 1998 and 9,728,007 shares in 1997) (42,090) (94,509)
----------------- ----------------
(Decrease) in Net Assets Resulting from
Capital Share Transactions (11,162) (6,638)
----------------- ----------------
(Decrease) in Net Assets (11,668) (6,528)
NET ASSETS
Beginning of Year 55,307 61,835
----------------- ----------------
End of Year $ 43,639 $ 55,307
================= ================
</TABLE>
See accompanying Notes to Fiancial Statements.
37
<PAGE>
TCW GALILEO LONG-TERM MORTGAGE BACKED SECURITIES FUND
Dollar Amounts in Thousands
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<CAPTION>
YEAR ENDED Year Ended
OCTOBER 31, 1998 October 31, 1997
------------------ ------------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 7,475 $ 7,975
Net Realized Gain on Investments 41 569
Change in Unrealized Appreciation (Depreciation)
on Investments (551) 1,875
----------------- ----------------
Increase in Net Assets Resulting from Operations 6,965 10,419
----------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from Net Investment Income (7,762) (7,476)
Distributions in Excess of Investment Income (87) _
Distribution from Net Realized Gains (435) _
----------------- ----------------
Total Distributions to Shareholders (8,284) (7,476)
----------------- ----------------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold
(2,490,553 shares in 1998 and 516,324 shares in 1997) 24,464 4,947
Proceeds from Shares Issued upon Reinvestment of Dividends
(782,364 shares in 1998 and 758,014 shares in 1997) 7,673 7,257
Cost of Shares Redeemed
(1,090,917 shares in 1998 and 4,796,056 shares in 1997) (10,759) (45,965)
----------------- ----------------
Increase (Decrease) in Net Assets Resulting from
Capital Share Transactions 21,378 (33,761)
----------------- ----------------
Increase (Decrease) in Net Assets 20,059 (30,818)
NET ASSETS
Beginning of Year 81,442 112,260
----------------- ----------------
End of Year $ 101,501 $ 81,442
================= ================
</TABLE>
See accompanying Notes to Financial Statements.
38
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
October 31, 1998
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 21 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 Equities Fund.
TCW London International, Limited is also a sub-adviser to the TCW Galileo
International Equities Fund, TCW Galileo European Equities Fund, and TCW Galileo
Japanese Equities Fund. TCW Asia Limited is a sub-adviser to the TCW Galileo
Asia Pacific Equities Fund. Berkeley Quantitative Advisors is sub-adviser to the
TCW Galileo Enhanced 500 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 fixed income 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), one
non-diversified fixed income fund (the TCW Galileo Emerging Markets Income
Fund), a convertible securities fund (the TCW Galileo Convertible Securities
Fund), and fourteen non-diversified equity funds (the TCW Galileo Core Equities
Fund, the TCW Galileo Earnings Momentum Fund, the TCW Galileo Mid-Cap Growth
Fund, the TCW Galileo Small Cap Growth Fund, the TCW Galileo Enhanced 500 Fund,
the TCW Galileo Large Cap Growth Fund, the TCW Galileo Large Cap Value Fund, the
TCW Galileo Asia Pacific Equities Fund, the TCW Galileo Emerging Markets
Equities Fund, the TCW Galileo Latin America Equities Fund, the TCW Galileo
International Equities Fund, the TCW Galileo European Equities Fund, the
TCW Galileo Japanese Equities Fund and the TCW Galileo Value Opportunities Fund)
currently offered by the Company. On November 3, 1997, TCW Galileo International
Equities Fund, TCW Galileo Japanese Equities Fund and TCW Galileo Value
Opportunities Fund commenced operations resulting from the exchange of Limited
Partnership interests. On June 3, 1998, four additional Galileo Funds (the TCW
Galileo Enhanced 500 Fund, the TCW Galileo Large Cap Growth Fund, the TCW
Galileo Large Cap Value Fund, and the TCW Galileo Emerging Markets Income Fund)
also 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 those dates, and
the fair values of which were exchanged for commons shares of the Funds. The
transfers were treated as tax-free exchanges in accordance with the Internal
Revenue Code. The TCW Galileo European Equities Fund commenced operations on
November 3, 1997, as a new Galileo Fund.
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 Equities Fund
(formerly 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 Equities 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 Equities Fund seeks long-term
capital appreciation by investing in equity securities of companies in emerging
market countries around the world; (13) the TCW Galileo
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------
Latin America Equities Fund seeks long-term capital appreciation, primarily by
investing in Latin American equity securities; (14) the TCW Galileo
International Equities Fund seeks long-term capital appreciation by investing in
a mix of underlying TCW Galileo Funds; (15) the TCW Galileo European Equities
Fund seeks long-term capital appreciation by investing primarily in the
securities of issuers located in Europe; (16) the TCW Galileo Japanese Equities
Fund seeks long-term capital appreciation by investing primarily in Japanese
equity securities; (17) 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
companies with market capitalization at the time of purchase between $500
million and $2.5 billion; (18) the TCW Galileo Emerging Markets Income Fund
seeks high total return from capital appreciation and current income by
investing at least 65% of its total assets in debt securities issued or
guaranteed by companies, financial institutions, and government entities in
emerging market countries; (19) the TCW Galileo Enhanced 500 Fund seeks to
achieve a high level of total return through a combination of capital
appreciation and current income by investing at least 65% of its total assets in
a broadly diversified portfolio of common stock of companies which are included
in the Standard & Poor's 500 Composite Stock Price Index; (20) the TCW Galileo
Large Cap Growth Fund seeks long-term appreciation by investing primarily in
publicly traded equity securities of large capitalization U.S. companies with
above average earnings prospects; and (21) the TCW Galileo Large Cap Value Fund
seeks long-term capital appreciation by investing primarily in publicly traded
equity securities of large capitalization companies.
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.
All other securities, including the bond fund securities, for which
over-the-counter market quotations are readily available, are valued at the
latest bid price prior to the time of valuation.
Securities for which market quotations are not readily available, including
circumstances under which it is determined by the Adviser that sale or bid
prices are not reflective of a security's market value, are valued at their fair
value as determined in good faith under procedures established by and under the
general supervision of the Company's Board of Directors.
For Funds other than TCW Galileo Money Market Fund, 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. Interest income is recorded on the accrual basis.
The TCW Galileo Core Fixed Income Fund and the TCW Galileo High Yield Bond Fund
recognize as interest income discounts on securities purchased using a constant
yield to maturity accretion method. Original issue discount is accreted as
interest income using a constant yield to maturity method. Premiums on
securities purchased are not amortized, except for mortgage backed obligations
for which amortization has been elected as allowed by federal income tax
regulations and securities held by the TCW Galileo Core Fixed Income Fund.
Realized and unrealized gains and losses on investments are recorded on the
basis of specific identification.
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
collateralized 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
40
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
October 31, 1998
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, 1998.
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.
DEFERRED ORGANIZATION COSTS: Organization costs of $50,000 per Fund have been
deferred and were being amortized on a straight line basis over a five-year
period from the commencement of operations of each Fund. Deferred organization
costs have been completely amortized as of October 31, 1998.
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. The other fixed income
funds declare and pay, or reinvest, dividends from net investment income
monthly. Distribution of any net long-term and net short-term capital gains
earned by a Fund will be distributed 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.
USE OF ESTIMATES: The preparation of the accompanying financial statements
requires management to make estimates and assumptions that affect 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.
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------
NOTE 3 - FEDERAL INCOME TAXES
It is the policy of each Fund to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its net taxable income, including any net realized gains on investments, to
its shareholders. Therefore, no federal income tax provision is required. At
October 31, 1998, net unrealized appreciation (depreciation) on investments for
federal income tax purposes was as follows:
<TABLE>
<CAPTION>
TCW GALILEO TCW GALILEO TCW GALILEO TCW 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 $ 2,145,749 $ 1,518,960 $ 166,471 $ 5,619,598
Unrealized (Depreciation) (913,188) (10,392,454) (989,316) (3,028,125)
------------- -------------- ------------- -------------
Net Unrealized Appreciation
(Depreciation) $ 1,232,561 $ (8,873,494) $ (822,845) $ 2,591,473
============= ============== ============= =============
Cost $ 151,658,960 $ 175,556,674 $ 44,187,242 $ 101,374,852
============= ============== ============= =============
</TABLE>
At October 31, 1998, the following Funds had net realized loss carryforwards for
federal income tax purposes (in thousands):
<TABLE>
<CAPTION>
Expiring in
---------------------------------------------------------------
2002 2003 2004 2005 2006
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TCW Galileo Core Fixed
Income Fund $ 641 $ 644 $ - $ - $ -
TCW Galileo High Yield
Bond Fund - - - - 2,560
TCW Galileo Mortgage Backed
Securities Fund 446 4,068 861 73 15
</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:
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%
42
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
October 31, 1998
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 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.
Certain officers and/or directors of the Company are officers and/or directors
of the Adviser.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
Investment transactions (excluding short-term investments) for the year ended
October 31, 1998 were as follows:
<TABLE>
<CAPTION>
TCW GALILEO TCW GALILEO TCW GALILEO TCW 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 $117,527,306 $179,027,215 $ 7,233,258 $ 20,639,299
============ ============ =============== ==============
Sales Proceeds $ 40,889,862 $210,082,230 $ 11,024,829 $ 9,977,035
============ ============ =============== ==============
U.S. Government Purchases
at Cost $150,730,736 $ _ $ 22,987,681 $ 17,743,846
============ ============ =============== ==============
U.S. Government Sales Proceeds $114,251,220 $ _ $ 32,096,497 $ 13,317,949
============ ============ =============== ==============
</TABLE>
NOTE 6 - RESTRICTED SECURITIES
The following restricted securities held by the Funds as of October 31, 1998,
were valued both at the date of acquisition and October 31, 1998, 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.
TCW GALILEO CORE FIXED INCOME FUND:
<TABLE>
<CAPTION>
PRINCIPAL DATE OF
AMOUNT INVESTMENT ACQUISITION COST
- ----------- ------------------------------------------------------------ ------------ ----------
<S> <C> <C> <C>
$ 50,000 American Restaurant Group, Inc., (144A), 11.5%, due 02/15/03 02/13/98 $ 50,000
50,000 Anthony Crane Rentals, L.P., (144A), 10.375%, due 08/01/08 07/15/98 50,000
75,000 BE Aerospace, Inc., (144A), 8%, due 03/01/08 02/06/98 75,000
100,000 Boyds Collection, Ltd., (144A), 9%, due 05/15/08 04/16/98 100,469
75,000 Chancellor Media Corp., (144A), 9%, due 10/01/08 09/25/98 75,000
75,000 Classic Cable, Inc., (144A), 9.875%, due 08/01/08 07/21/98 75,362
65,000 GEO Specialty Chemicals, (144A), 10.125%, due 08/01/08 07/29/98 62,375
50,000 Home Interiors and Gifts, Inc., (144A), 10.125%, due 06/01/08 05/28/98 50,000
35,000 Metal Management, Inc., (144A), 10%, due 05/15/08 05/08/98 35,000
50,000 Mrs. Fields Original, (144A), 10.125%, due 12/01/04 08/13/98 48,533
20,000 Nationwide Credit, Inc., (144A), 10.25%, due 01/15/08 01/23/98 20,000
40,000 Pierce Leahy Corp., (144A), 8.125%, due 05/15/08 04/02/98 39,862
</TABLE>
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------
NOTE 6 - RESTRICTED SECURITIES (CONTINUED)
TCW GALILEO CORE FIXED INCOME FUND (CONTINUED):
<TABLE>
<CAPTION>
PRINCIPAL DATE OF
AMOUNT INVESTMENT ACQUISITION COST
- ------------- ------------------------------------------------------------------- ----------- ---------
<S> <C> <C> <C>
$ 200,000 Protection One Alarm Monitoring, Inc., (144A), 7.375%, due 08/15/05 08/12/98 $ 199,556
75,000 Regal Cinemas, Inc., (144A), 9.5%, due 06/01/08 06/10/98 76,188
50,000 Safety-Kleen Corp., (144A), 9.25%, due 06/01/08 05/21/98 50,000
25,000 Telecommunications Techniques Co., (144A), 9.75%, due 05/15/08 05/14/98 25,000
25,000 Von Hoffman Press, Inc., (144A), 10.375%, due 05/15/07 10/03/97 27,113
</TABLE>
The total value of restricted securities is $1,011,423 which represents 0.62% of
net assets of the Fund at October 31, 1998.
TCW GALILEO HIGH YIELD BOND FUND:
<TABLE>
<CAPTION>
PRINCIPAL DATE OF
AMOUNT INVESTMENT ACQUISITION COST
- -------------- --------------------------------------------------------------- ----------- ---------
<S> <C> <C> <C>
$ 475,000 American Business Information, Inc., (144A), 9.5%, due 06/15/08 06/12/98 $ 475,000
750,000 American Restaurant Group, Inc., (144A), 11.5%, due 02/15/03 02/13/98 750,000
100,000 Anthony Crane Rentals, L.P., (144A), 10.375%, due 08/01/08 07/15/98 100,000
1,150,000 BE Aerospace, Inc., (144A), 9%, due 11/01/08 02/06/98 1,147,200
1,500,000 Ball Corp., (144A), 7.75%, due 08/01/06 08/05/98 1,502,438
550,000 Ball Corp., (144A), 8.25%, due 08/01/08 08/05/98 550,000
925,000 Boyds Collection, Ltd., (144A), 9%, due 05/15/08 04/16/98 929,500
1,000,000 Caprock Communications Corp., (144A), 12%, due 07/15/08 07/10/98 1,000,000
700,000 Chancellor Media Corp., (144A), 9%, due 10/01/08 09/25/98 700,000
950,000 Classic Cable, Inc., (144A), 9.875%, due 08/01/08 07/21/98 962,880
2,000,000 County Seat Stores, Inc., (144A), 12.75%, due 11/01/04 10/23/97 2,000,000
525,000 GEO Specialty Chemicals, (144A), 10.125%, due 08/01/08 07/29/98 506,625
4,300,000 GS Escrow Corp., (144A), 7.125%, due 08/01/05 07/30/98 4,284,217
1,000,000 Home Interiors and Gifts, Inc., (144A), 10.125%, due 06/01/08 05/28/98 1,000,000
300,000 Les, Inc., (144A), 9.25%, due 06/01/08 05/21/98 300,000
325,000 Metal Management, Inc., (144A), 10%, due 05/15/08 05/08/98 325,000
426,000 Mrs. Fields Original, (144A), 10.125%, due 12/01/04 08/13/98 413,498
375,000 Nationwide Credit, Inc., (144A), 10.25%, due 01/15/08 01/23/98 375,000
525,000 P & L Coal Holdings Corp., (144A), 8.875%, due 05/15/08 05/13/98 529,167
200,000 Pierce Leahy Corp., (144A), 8.125%, due 05/15/08 04/02/98 199,309
3,000,000 Protection One Alarm Monitoring, Inc., (144A), 7.375%, due 08/15/05 08/12/98 2,993,492
900,000 Regal Cinemas, Inc., (144A), 9.5%, due 06/01/08 06/10/98 912,000
550,000 Telecommunications Techniques Co., (144A), 9.75%, due 05/15/08 05/14/98 550,000
825,000 Von Hoffman Press, Inc., (144A), 10.375%, due 05/15/07 10/03/97 894,781
</TABLE>
The total value of restricted securities is $22,319,663, which represents 13.5%
of net assets of the Fund at October 31, 1998.
TCW GALILEO MORTGAGE BACKED SECURITIES FUND:
<TABLE>
<CAPTION>
PRINCIPAL DATE OF
AMOUNT INVESTMENT ACQUISITION COST
- -------------- ------------------------------------------------- ----------- ----------
<S> <C> <C> <C>
$ 715,398 Greenwich Capital Acceptance, Inc. (91-03),
(Private Placement), 7.8601%, due 08/25/19 03/21/91 $ 708,333 *
</TABLE>
The total value of restricted securities is $692,147, which represents 1.6% of
net assets of the Fund at October 31, 1998.
* Security deemed illiquid.
44
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
TCW GALILEO MONEY MARKET FUND
October 31, 1998
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
Ten Months
Year Ended October 31, Ended
--------------------------------------------------
1998 1997 1996 1995 October 31, 1994
---------- -------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share,
Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income 0.0519 0.0516 0.0509 0.0549 0.0304
Less Distributions:
Distributions from Net Investment
Income (0.0519) (0.0516) (0.0509) (0.0549) (0.0304)
---------- --------- --------- --------- ---------
Net Asset Value per Share,
End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========= ========= ========= =========
Total Return 5.31% 5.29% 5.21% 5.67% 3.04% /(1)/
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(in thousands) $ 242,451 $ 222,771 $ 233,671 $ 86,302 $ 124,392
Ratio of Net Expenses to
Average Net Assets /(3)/ 0.40% 0.40% 0.40% 0.40% 0.40% /(2)/
Ratio of Net Investment
Income to Average
Net Assets 5.19% 5.17% 5.04% 5.49% 3.65% /(2)/
</TABLE>
(1) For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
(2) Annualized.
(3) The Investment Adviser has voluntarily agreed to reduce its fee, or to pay
the operating expenses of the Fund, to the extent necessary to limit the
annual ordinary operating expenses of the Fund to 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 0.41%, 0.40%, 0.44%, and 0.46% for the
fiscal years ended October 31, 1998, 1997, 1996 and 1995, respectively and
0.68% for the ten months ended October 31, 1994.
45
<PAGE>
TCW GALILEO CORE FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
Ten Months
Year Ended October 31, Ended
-----------------------------------------------------
1998 1997 1996 1995 October 31, 1994
------------ ----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share,
Beginning of Period $ 9.62 $ 9.45 $ 9.61 $ 8.94 $ 10.04
----------- ---------- ------------ ----------- ----------
Income (Loss) from Investment Operations:
Net Investment Income 0.55 0.58 0.55 0.58 0.44
Net Realized and Unrealized Gain (Loss)
on Investments 0.29 0.19 (0.16) 0.62 (1.16)
----------- ---------- ------------ ----------- ----------
Total from Investment Operations 0.84 0.77 0.39 1.20 (0.72)
----------- ---------- ------------ ----------- ----------
Distributions from Net Investment
Income (0.57) (0.60) (0.55) (0.53) (0.38)
----------- ---------- ------------ ----------- ----------
Net Asset Value per Share,
End of Period $ 9.89 $ 9.62 $ 9.45 $ 9.61 $ 8.94
=========== ========== ============ =========== ==========
Total Return 9.02% 8.45% 4.26% 13.92% (7.24)% (1)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $ 162,996 $ 19,368 $ 25,006 $ 36,236 $ 50,153
Ratio of Expenses to
Average Net Assets 0.62% 0.93% 0.76% 0.68% (3) 0.50% (2) (3)
Ratio of Net Investment
Income to Average
Net Assets 5.60% 6.13% 5.85% 6.38% 6.11% (3)
Portfolio Turnover Rate 272.77% 142.96% 238.73% 223.78% 208.63% (1)
</TABLE>
(1) For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
(2) Annualized.
(3) The Investment Adviser has voluntarily agreed to reduce its fee, or to pay
the operating expenses of the Fund, to the extent necessary to limit the
annual ordinary operating expenses of the Fund to 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 and 0.68% for the ten
months ended October 31, 1994.
46
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
TCW GALILEO HIGH YIELD BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
Ten Months
Year Ended October 31, Ended
---------------------------------------------------------
1998 1997 1996 1995 October 31, 1994
------------ ------------ -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share,
Beginning of Period $ 10.11 $ 9.77 $ 9.74 $ 9.43 $ 10.12
---------- ---------- ---------- ---------- --------
Income (Loss) from Investment Operations:
Net Investment Income 0.88 0.91 0.89 0.92 0.73
Net Realized and Unrealized Gain (Loss)
on Investments (0.74) 0.34 0.03 0.39 (0.77)
---------- ---------- ---------- ---------- --------
Total from Investment Operations 0.14 1.25 0.92 1.31 (0.04)
---------- ---------- ---------- ---------- --------
Less Distributions:
Distributions from Net Investment
Income (0.89) (0.91) (0.89) (1.00) (0.65)
Distributions in Excess of Net Investment
Income (0.01) _ _ _ _
Distribution from Net Realized
Gains (0.15) _ _ _ _
---------- ---------- ---------- ---------- --------
Total Distributions (1.05) (0.91) (0.89) (1.00) (0.65)
---------- ---------- ---------- ---------- --------
Net Asset Value per Share,
End of Period $ 9.20 $ 10.11 $ 9.77 $ 9.74 $ 9.43
========== ========== ========== ========== ========
Total Return 1.18% 13.26% 9.92% 14.65% (0.34)% (1)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $ 165,702 $ 208,761 $ 183,815 $ 92,652 $90,577
Ratio of Expenses to
Average Net Assets 0.85% 0.83% 0.90% 0.87% (3) 0.79% (2) (3)
Ratio of Net Investment
Income to Average
Net Assets 8.89% 9.10% 9.21% 9.60% 9.18% (2)
Portfolio Turnover Rate 92.24% 109.45% 82.56% 36.32% 34.01% (1)
</TABLE>
(1) For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
(2) Annualized.
(3) The Investment Adviser has voluntarily agreed to reduce its fee, or to pay
the operating expenses of the Fund, to the extent necessary to limit the
annual ordinary operating expenses of the Fund to 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 and 0.91% for the ten
months ended October 31, 1994.
47
<PAGE>
TCW GALILEO MORTGAGE BACKED SECURITIES FUND
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
Year Ended October 31, Ten Months
---------------------------------------------------------- Ended
1998 1997 1996 1995 October 31,1994
----------- ----------- ----------- ----------- --------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share, Beginning
of Period
$ 9.70 $ 9.67 $ 9.58 $ 9.41 $ 9.86
----------- ----------- ----------- ----------- ------------------
Income (Loss) from Investment Operations:
Net Investment Income 0.35 0.58 0.51 0.67 0.42
Net Realized and Unrealized Gain (Loss)
on Investments 0.10 0.05 0.22 0.25 (0.48)
----------- ----------- ----------- ----------- ------------------
Total from Investment Operations 0.45 0.63 0.73 0.92 (0.06)
----------- ----------- ----------- ----------- ------------------
Less Distributions:
Distributions from Net Investment Income (0.11) (0.38) (0.46) (0.71) (0.39)
Distributions in Excess of Net Investment
Income - (0.22) (0.18) (0.04) -
Distributions from Paid-in-Capital (0.44) - - - -
----------- ----------- ----------- ----------- ------------------
Total Distributions (0.55) (0.60) (0.64) (0.75) (0.39)
----------- ----------- ----------- ----------- ------------------
Net Asset Value per Share, End of Period $ 9.60 $ 9.70 $ 9.67 $ 9.58 $ 9.41
=========== ============ =========== =========== ==================
Total Return 4.73% 6.71% 7.86% 10.16% (0.61)% (1)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $ 43,639 $ 53,307 $ 61,835 $ 81,366 $ 134,948
Ratio of Net Expenses to Average Net Assets 0.83% 0.77% 0.69% 0.61%(3) 0.55% (2)(3)
Ratio of Net Investment Income to
Average Net Assets 3.61% 6.00% 5.34% 7.13% 5.18% (2)
Portfolio Turnover Rate 68.40% 109.91% 54.10% 37.83% 65.64% (1)
</TABLE>
(1) For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
(2) Annualized.
(3) The Investment Adviser has voluntarily agreed to reduce its fee, or to pay
the operating expenses of the Fund, to the extent necessary to limit the
annual ordinary operating expenses of the Fund to 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 and 0.62% for the ten
months ended October 31, 1994.
48
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. FIXED INCOME)
TCW GALILEO LONG-TERM MORTGAGE BACKED SECURITIES FUND
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
Year Ended October 31, Ten Months
---------------------------------------------------------- Ended
1998 1997 1996 1995 October 31, 1994
----------- ----------- ----------- ----------- --------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value per Share, Beginning
of Period
$ 9.91 $ 9.56 $ 9.56 $ 8.95 $ 10.07
----------- ----------- ----------- ----------- -------------
Income (Loss) from Investment Operations:
Net Investment Income 0.84 0.75 0.68 0.72 0.63
Net Realized and Unrealized Gain (Loss)
on Investments (0.07) 0.32 0.02 0.71 (1.26)
----------- ----------- ---------- ----------- -------------
Total from Investment Operations 0.77 1.07 0.70 1.43 (0.63)
----------- ----------- ---------- ----------- -------------
Less Distributions:
Distributions from Net Investment Income (0.86) (0.72) (0.68) (0.82) (0.49)
Distributions in Excess of Net Investment
Income (0.01) - (0.02) - -
Distributions from Net Realized Gains (0.05) - - - -
----------- ----------- ---------- ----------- -------------
Total Distributions (0.92) (0.72) (0.70) (0.82) (0.49)
----------- ----------- ---------- ----------- -------------
Net Asset Value per Share, End of Period $ 9.76 $ 9.91 $ 9.56 $ 9.56 $ 8.95
=========== =========== ========== =========== =============
Total Return 8.20% 11.66% 7.69% 16.84% (6.39)% (1)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $ 101,501 $ 81,442 $ 112,260 $ 80,159 $ 66,632
Ratio of Net Expenses to Average Net Assets 0.70% 0.67% 0.68% 0.68%(3) 0.65% (2)(3)
Ratio of Net Investment Income to
Average Net Assets 8.52% 7.77% 7.15% 7.88% 8.03% (2)
Portfolio Turnover Rate 27.95% 16.01% 39.28% 23.76% 36.71% (1)
</TABLE>
(1) For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
(2) Annualized.
(3) The Investment Adviser has voluntarily agreed to reduce its fee, or to pay
the operating expenses of the Fund, to the extent necessary to limit the
annual ordinary operating expenses of the Fund to 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 and 0.78% for the ten
months ended October 31, 1994.
49
<PAGE>
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 Money Market Fund, TCW Galileo Core
Fixed Income Fund, TCW Galileo High Yield Bond Fund, TCW Galileo Mortgage Backed
Securities Fund, and TCW Galileo Long-Term Mortgage Backed Securities Fund (the
"Galileo U.S. Fixed Income Funds")(five of twenty-one funds comprising TCW
Galileo Funds, Inc.) as of October 31, 1998 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, 1998 and 1997, and the financial highlights for
each of the respective periods in the periods ended October 31, 1998. 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 on 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, 1998 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 each
of the respective Galileo U.S. Fixed Income Funds as of October 31, 1998 and the
results of their operations, the changes in their net assets, the financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
December 22, 1998
Los Angeles, California
50
<PAGE>
TCW GALILEO FUNDS, INC.
(U.S. Fixed Income)
SHAREHOLDER INFORMATION
- -----------------------
DIRECTORS AND OFFICERS INVESTMENT ADVISER
Marc I. Stern TCW Funds Management, Inc.
Director and Chairman of the Board 865 South Figueroa Street
Los Angeles, California 90017
Thomas E. Larkin, Jr. (213) 244-0000
Director and President
CUSTODIAN
John C. Argue
Director BNY Western Trust Company
700 South Flower Street
Norman Barker, Jr. Suite 200
Director Los Angeles, California 90017
Richard W. Call TRANSFER AGENT
Director
DST Systems, Inc.
Alvin R. Albe, Jr. 811 Main Street
Senior Vice President Kansas City, Missouri 64105
Michael E. Cahill DISTRIBUTOR
Senior Vice President,
General Counsel and Assistant Secretary TCW Brokerage Services
865 South Figueroa Street
Philip K. Holl Los Angeles, California 90017
Secretary (213) 244-0000
Marie M. Bender INDEPENDENT AUDITORS
Assistant Secretary
Deloitte & Touche LLP
Hilary G.D. Lord 1000 Wilshire Boulevard
Assistant Secretary Los Angeles, California 90017
Peter C. DiBona
Treasurer
51
<PAGE>
SHAREHOLDER VOTING INFORMATION (UNAUDITED)
- ------------------------------------------
A Special Meeting of Shareholders of the TCW Galileo Long-Term Mortgage-Backed
Securities Fund (the "Fund") was held on October 23, 1998. At the meeting, an
amendment to a fundamental policy of the Fund was submitted to a shareholder
vote and approved by a majority of the Fund's outstanding voting securities
(vote for: 5,976,681; votes against: 0; abstentions: 0). 9,318,925 shares of the
Fund were outstanding on the record date and 5,976,681 shares of the Fund were
entitled to vote were present in person or by proxy at the meeting.
52
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> TCW GALILEO CORE FIXED INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 151,594
<INVESTMENTS-AT-VALUE> 152,892
<RECEIVABLES> 39,799
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 192,691
<PAYABLE-FOR-SECURITIES> 7,471
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,224
<TOTAL-LIABILITIES> 29,695
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 163,565
<SHARES-COMMON-STOCK> 16,478
<SHARES-COMMON-PRIOR> 2,013
<ACCUMULATED-NII-CURRENT> 80
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,947)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,298
<NET-ASSETS> 162,996
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,087
<OTHER-INCOME> 0
<EXPENSES-NET> 410
<NET-INVESTMENT-INCOME> 3,677
<REALIZED-GAINS-CURRENT> 1,270
<APPREC-INCREASE-CURRENT> 853
<NET-CHANGE-FROM-OPS> 5,800
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,170
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,816
<NUMBER-OF-SHARES-REDEEMED> 8,615
<SHARES-REINVESTED> 264
<NET-CHANGE-IN-ASSETS> 143,628
<ACCUMULATED-NII-PRIOR> 573
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3,217
<GROSS-ADVISORY-FEES> 229
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 410
<AVERAGE-NET-ASSETS> 71,934
<PER-SHARE-NAV-BEGIN> 9.62
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> 0.57
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.89
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> TCW GALILEO HIGH YIELD BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 175,167
<INVESTMENTS-AT-VALUE> 166,683
<RECEIVABLES> 4,187
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 170,870
<PAYABLE-FOR-SECURITIES> 3,658
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,510
<TOTAL-LIABILITIES> 5,168
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 177,162
<SHARES-COMMON-STOCK> 18,005
<SHARES-COMMON-PRIOR> 20,647
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (13)
<ACCUMULATED-NET-GAINS> (2,963)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,484)
<NET-ASSETS> 165,702
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,867
<OTHER-INCOME> 0
<EXPENSES-NET> 1,737
<NET-INVESTMENT-INCOME> 18,130
<REALIZED-GAINS-CURRENT> (2,950)
<APPREC-INCREASE-CURRENT> (13,024)
<NET-CHANGE-FROM-OPS> 2,156
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18,426)
<DISTRIBUTIONS-OF-GAINS> (2,884)
<DISTRIBUTIONS-OTHER> (13)
<NUMBER-OF-SHARES-SOLD> 8,470
<NUMBER-OF-SHARES-REDEEMED> 13,064
<SHARES-REINVESTED> 1,952
<NET-CHANGE-IN-ASSETS> (43,059)
<ACCUMULATED-NII-PRIOR> 296
<ACCUMULATED-GAINS-PRIOR> 2,871
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,530
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,737
<AVERAGE-NET-ASSETS> 200,817
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> 0.88
<PER-SHARE-GAIN-APPREC> (0.74)
<PER-SHARE-DIVIDEND> 0.90
<PER-SHARE-DISTRIBUTIONS> 0.15
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.20
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> TCW GALILEO MORTGAGE BACKED SECURITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 44,187
<INVESTMENTS-AT-VALUE> 43,364
<RECEIVABLES> 541
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43,905
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 266
<TOTAL-LIABILITIES> 266
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,932
<SHARES-COMMON-STOCK> 4,546
<SHARES-COMMON-PRIOR> 5,701
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,470)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (823)
<NET-ASSETS> 43,639
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,227
<OTHER-INCOME> 0
<EXPENSES-NET> 415
<NET-INVESTMENT-INCOME> 1,812
<REALIZED-GAINS-CURRENT> (15)
<APPREC-INCREASE-CURRENT> 512
<NET-CHANGE-FROM-OPS> 2,309
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 593
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<SHARES-REINVESTED> 242
<NET-CHANGE-IN-ASSETS> (11,668)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> TCW GALILEO LONG TERM MORTGAGE BACKED SECURITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 8,219
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (87)
<ACCUMULATED-NET-GAINS> 79
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<NET-ASSETS> 101,501
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<NET-INVESTMENT-INCOME> 7,475
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<APPREC-INCREASE-CURRENT> (551)
<NET-CHANGE-FROM-OPS> 6,965
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<DISTRIBUTIONS-OF-GAINS> 435
<DISTRIBUTIONS-OTHER> 87
<NUMBER-OF-SHARES-SOLD> 2,491
<NUMBER-OF-SHARES-REDEEMED> 1,091
<SHARES-REINVESTED> 782
<NET-CHANGE-IN-ASSETS> 20,059
<ACCUMULATED-NII-PRIOR> 287
<ACCUMULATED-GAINS-PRIOR> 473
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 610
<AVERAGE-NET-ASSETS> 88,149
<PER-SHARE-NAV-BEGIN> 9.91
<PER-SHARE-NII> 0.84
<PER-SHARE-GAIN-APPREC> (0.07)
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> TCW GALILEO MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 243,023
<INVESTMENTS-AT-VALUE> 243,023
<RECEIVABLES> 824
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<TOTAL-LIABILITIES> 1,396
<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 222,771
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 242,451
<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 1,077
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<APPREC-INCREASE-CURRENT> 0
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<ACCUMULATED-GAINS-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 1.00
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<PER-SHARE-DIVIDEND> .052
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<PER-SHARE-NAV-END> 0
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</TABLE>
