<PAGE>
Registration No. 33-52272 and 811-7170
As filed with the Securities and Exchange Commission on December 30, 1998
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ________ [_]
Post-Effective Amendment No. 23 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 26 [X]
(Check appropriate box or boxes)
TCW Galileo Funds, Inc
----------------------
(Exact Name of Registrant as Specified in Charter)
865 South Figueroa Street, Suite 1800
Los Angeles, California 90017
-----------------------------
(Address of Principal Executive Offices)
(213) 244-0000
-------------
(Registrant's Telephone Number, including Area Code)
Philip K. Holl, Esq.
Secretary
865 South Figueroa Street, Suite 1800,
Los Angeles, California 90017
-----------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[_] immediately upon filing pursuant to paragraph (b) of Rule
485
[_] on ____________ pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a) (1) of Rule
485
[X] on March 1, 1999 pursuant to paragraph (a) (1) of Rule 485
[_] 75 days after filing pursuant to paragraph (a) (2) of Rule
485
[_] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Institutional Class shares of five of
the separate investment funds offered by TCW Galileo Funds, Inc., each of which
has different investment objectives and policies. Please read this document
carefully, and keep it for future reference. Sometimes we will refer to the
funds in this prospectus as the Galileo Fixed Income Funds.
TCW GALILEO MONEY MARKET FUND
TCW GALILEO CORE FIXED INCOME FUND
TCW GALILEO MORTGAGE-BACKED SECURITIES FUND
TCW GALILEO TOTAL RETURN MORTGAGE-BACKED SECURITIES FUND
TCW GALILEO HIGH YIELD BOND FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
March 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES............ 3
PRINCIPAL RISKS........................................... 4
PERFORMANCE SUMMARY....................................... 6
FUND EXPENSES AND EXPENSE EXAMPLE......................... 9
TCW GALILEO MONEY MARKET FUND
INVESTMENT OBJECTIVES/APPROACH............................ 10
MAIN RISKS................................................ 11
TCW GALILEO CORE FIXED INCOME FUND
INVESTMENT OBJECTIVES/APPROACH............................ 12
MAIN RISKS................................................ 13
TCW GALILEO MORTGAGE-BACKED SECURITIES FUND
INVESTMENT OBJECTIVES/APPROACH............................ 15
MAIN RISKS................................................ 16
TCW GALILEO TOTAL RETURN MORTGAGE-BACKED SECURITIES FUND
INVESTMENT OBJECTIVES/APPROACH............................ 18
MAIN RISKS................................................ 19
TCW GALILEO HIGH YIELD BOND FUND
INVESTMENT OBJECTIVES/APPROACH............................ 21
MAIN RISKS................................................ 22
RISK CONSIDERATIONS....................................... 24-34
MANAGEMENT OF THE FUNDS................................... 35
MULTIPLE CLASS STRUCTURE.................................. 37
ACCOUNT POLICIES AND SERVICES............................. 38
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT................... 42
TO SELL OR EXCHANGE SHARES................................ 43
DISTRIBUTIONS AND TAXES................................... 44
FINANCIAL HIGHLIGHTS...................................... 45-49
FOR MORE INFORMATION...................................... 50
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
All of the Galileo Fixed Income Funds are affected by changes in the economy, or
in securities and other markets. Additionally, changes in interest rates will
affect not only the current return on the Galileo Fixed Income Funds, but the
value of the capital investment will most likely fluctuate up or down. There is
also the possibility that investment decisions the Adviser makes will not
accomplish what they were designed to achieve or that companies in which the
Funds invest will have disappointing performance or not pay their debts.
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC. INVESTMENT OBJECTIVES PRINCIPAL INVESTMENT STRATEGIES
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<S> <C> <C>
TCW Galileo Money Market Fund Current income, preservation of capital Invests in high credit quality,
and liquidity short-term money market securities.
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TCW Galileo Core Fixed Income Maximize current income and achieve Invests in fixed income securities
Fund average total return consistent rated A or higher by Moody's and S&P.
with prudent investment management over
a full market cycle
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TCW Galileo Mortgage-Backed Securities Fund Maximum current income Invests in mortgage-backed
securities guaranteed by, or
secured by collateral which is
guaranteed by, the United States
instrumentalities or its sponsored
corporations, or private issued
mortgage-backed securities rated Aa
or higher by Moody's or AA or
higher by S&P.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Total Return Mortgage-Backed Maximize current income and achieve Invests in mortgage-backed
Securities Fund above average total return consistent securities guaranteed by, or
with prudent investment management over secured by collateral that is
a full market guaranteed by, the United States
cycle government, its agencies,
instrumentalities or its sponsored
corporations, or private issued
mortgage-backed securities rated
Aa or higher by Moody's or AA or
higher by S&P.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo High Yield Bond Fund Maximize current income and achieve Invests in high yield bonds,
above average total return commonly known as"junk" bonds.
consistent with reasonable risk over
a full market cycle
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</TABLE>
Under adverse market conditions, each Fund could invest some or all of its
assets in money market securities. Although the Funds would do this only
when seeking to avoid losses, it could have the effect of reducing the
benefit from any upswing in the market.
3
<PAGE>
PRINCIPAL RISKS
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you and the more you can lose. Since shares of a
Fund represent an investment in securities with fluctuating market prices, the
value of fund shares will vary as the value of each Fund's portfolio securities
increases or decreases. Therefore, the value of an investment in a Fund could go
down as well as up. All investments are subject to:
. ASSET CLASS RISK
There is the possibility that the returns from the types of securities in
which a Fund invests will underperform returns from the various general
securities markets or different asset classes. Different types of
securities tend to go through cycles of outperformance and underperformance
in comparison to the general securities markets.
. SECURITIES SELECTION RISK
There is the possibility that the specific securities held in a Fund's
portfolio will underperform the other funds in the same asset class or
benchmarks that are representative of the general performance of the asset
class because of the portfolio manager's choice of securities.
Because the Galileo Funds described in this prospectus are fixed income funds,
each Fund may also be subject (in varying degrees) to the following additional
risks:
. CREDIT RISK
There is the possibility that a Fund could lose money if an issuer is
unable to meet its financial obligations such as the payment of principal
and/or interest on an instrument, or goes bankrupt. The High Yield Bond
Fund is subject to great credit risk because it invests in high yield bond
funds, which are commonly referred to as "junk bonds." The Core Fixed
Income Fund is subject to credit risk because it invests to some degree in
below investment grade fixed income securities.
. INTEREST RATE RISK
There is the possibility that the value of the Fund's portfolio investments
may fall since fixed income securities generally fall in value when
interest rates rise. The longer the term of a fixed income instrument, the
more sensitive it will be to fluctuations in value from interest rate
changes. Changes in interest rates may have a significant effect on the
Core Fixed Income, High Yield Bond, Total Return Mortgage-Backed
Securities, and Mortgage-Backed Securities Funds, because each Fund may
hold securities with long terms to maturity.
In the case of mortgage-backed securities, rising interest rates tend to
extend the term to maturity of the securities, making them even more
susceptible to interest rate changes. When interest rates drop, not only
can the value of fixed income securities drop, but the yield can drop,
particularly where the yield on the fixed income securities is tied to
changes in interest rates, such as adjustable mortgages. Also when interest
rates drop, the holdings of mortgage-backed securities by the Core Fixed
Income, Total Return Mortgage-Backed Securities and Mortgage-Backed
Securities Funds can reduce returns if the owners of the underlying
mortgages pay off their mortgages sooner than anticipated since the funds
prepaid will have to be reinvested at the then lower prevailing rates. This
is known as prepayment risk. When interest rates rise, the holdings of
mortgage-backed securities by these Funds can reduce returns if the owners
of the underlying mortgages pay off their mortgages later than anticipated.
This is known as extension risk.
4
<PAGE>
PRINCIPAL RISKS
. JUNK BONDS
These bonds are speculative in nature. They are usually issued by companies
without long track records of sales and earnings, or by those companies
with questionable credit strength. These bonds are considered "below
investment grade." The High Yield Bond Fund primarily invests in below
investment grade corporate securities. The Core Fixed Income Fund may
invest in debt instruments rated below investment grade.
. FOREIGN INVESTING RISK
There is the likelihood that foreign investments may be riskier than U.S.
investments because of a lack of political stability, foreign controls on
investment and currency exchange rates, fluctuations in currency exchange
rates, withholding taxes and lack of adequate company information. The Core
Fixed Income and High Yield Bond Funds are subject to foreign investing
risk because these Funds may invest a portion of their assets in foreign
company securities. If they invest in "emerging markets," and they may, the
risk is even more pronounced. In addition, because foreign securities
generally are denominated and pay dividends or interest in foreign
currencies, the Core Fixed Income and High Yield Bond Funds hold various
foreign currencies, the value of the net assets of these Funds as measured
in United States dollars will be affected favorably or unfavorably by
changes in exchange rates.
. LIQUIDITY RISK
There is the possibility that a Fund may lose money or be prevented from
earning capital gains if it can not sell a security at the time and price
that is most beneficial to the Fund. Each Fund (except the Money Market
Fund) is subject to liquidity risks because it invests in high yield bonds,
mortgage-backed securities or foreign or emerging markets securities, which
have all experienced periods of illiquidity.
Each Fund may be more susceptible to some of these risks than others, as noted
in the description of each Fund. A more detailed explanation of these risks is
presented under the "Risk Considerations" section at page 24.
Your investment is not a bank deposit, and it is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Money Market Fund seeks to preserve the value of your investment
at $1.00 per share, it is possible to lose money by investing in the Fund. The
value of the other Galileo Fixed Income Funds will fluctuate in value.
5
<PAGE>
PERFORMANCE SUMMARY
- -------------------
The two tables below show each Fund's annual returns and its long-term
performance with respect to its Institutional Class shares. The first table
shows you how the Fund's performance has varied from year to year. The second
compares the Fund's performance over time to that of a broad-based securities
market index. Both tables assume reinvestment of dividends and distributions.
The performance information includes performance of the predecessor limited
partnership of each Fund, except for the Money Market and Long Term Mortgage-
Backed Securities Funds. As with all mutual funds, past performance is not a
prediction of future results.
Year by year total return (%)
as of December 31 each year*
TCW Galileo Money Market Fund
9.23% 8.18% 6.36% 3.91% 2.97% 3.91% 4.32% 5.14% 5.33% ______%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
______%
TCW Galileo Core Fixed Income Fund
7.82% 16.10% 6.60% 10.65% -7.73% 18.08% 2.03% 8.90% ______%
1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
______%
TCW Galileo Mortgage-Backed Securities Fund
8.94% 11.07% 6.34% 4.53% -0.44% 11.58% 7.31% 6.81% ______%
1990 1991 1992 1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
_________%
6
<PAGE>
TCW Galileo Total Return Mortgage-Backed Securities Fund
3.50% -6.20% 20.80% 5.10% 3.28% ______%
1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
______%
TCW Galileo High Yield Bond Fund
4.19% -1.51% 30.97% 15.51% 15.48% -0.34% 15.95% 11.96% 12.28% ______%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
______%
Best and worst quarterly performance during this period
- -------------------------------------------------------------------------------
Fund Performance
- -------------------------------------------------------------------------------
. Money Market Fund
Quarter ending June 30, 1989 2.38% (Best)
Quarter ending March 31, 1994 0.73% (Worst)
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. Core Fixed Income Fund
Quarter ending June 30, 1998 5.93% (Best)
Quarter ending March 31, 1994 -4.54% (Worst)
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. Mortgage-Backed Securities Fund
Quarter ending March 31, 1995 3.37% (Best)
Quarter ending June 30, 1994 -1.18% (Worst)
- -------------------------------------------------------------------------------
. Total Return Mortgage-Backed Securities Fund
Quarter ending June 30, 1995 6.81% (Best)
Quarter ending June 30, 1994 -4.78% (Worst)
- -------------------------------------------------------------------------------
. High Yield Bond Fund
Quarter ending March 31, 1991 11.94% (Best)
Quarter ending September 30, 1990 -5.32% (Worst)
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7
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF SINCE
DECEMBER 31 1 YEAR 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
.Money Market Fund % % % %
- -------------------------------------------------------------------------------------------------------
Merrill Lynch 90-day T-Bill Index % % % %
- -------------------------------------------------------------------------------------------------------
.Core Fixed Income Fund % % % %
- -------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index % % % %
- -------------------------------------------------------------------------------------------------------
.Mortgage-Backed Securities Fund % % % %
- -------------------------------------------------------------------------------------------------------
Salomon Brothers 1-Year Treasury % % % %
Index
- -------------------------------------------------------------------------------------------------------
.Total Return Mortgage-Backed % % % %
Securities Fund
- -------------------------------------------------------------------------------------------------------
Lehman Brothers Mortgage-Backed % % % %
Securities Index
- -------------------------------------------------------------------------------------------------------
.High Yield Bond Fund % % % %
- -------------------------------------------------------------------------------------------------------
Salomon Brothers High Yield Cash % % % %
Pay Index
- -------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
FUND EXPENSES AND EXPENSE EXAMPLE
- ---------------------------------
As an investor, you pay certain fees and expenses in connection with the Funds,
which are described in the table below. Annual Fund Operating Expenses are paid
out of Fund assets, so their effect is included in the share price. The
Institutional Class shares of the Funds have no sales charge (load) or Rule
12b-1 distribution fees.
<TABLE>
<CAPTION>
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FEE TABLE
TOTAL RETURN
CORE FIXED MORTGAGE- MORTGAGE- HIGH YIELD BOND
MONEY INCOME BACKED BACKED
MARKET SECURITIES SECURITIES
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES
1) Redemption Fees None None None None None
2) Exchange Fees None None None None None
3) Contingent Deferred Sales Load None None None None None
4) Sales Load on Reinvested Dividends None None None None None
5) Sales Load on Purchases None None None None None
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.25% 0.40% 0.50% 0.50% 0.75%
Distribution (12b-1) Fees None None None None None
Other Expenses _% _% _% _% _%
Total Annual Fund Operating Expenses _% _% _% _% _%
</TABLE>
<TABLE>
<CAPTION>
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EXPENSE EXAMPLE
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MONEY MARKET
CORE FIXED
INCOME
HIGH YIELD BOND
TOTAL RETURN
MORTGAGE-
BACKED
SECURITIES
MORTGAGE-
BACKED
SECURITIES
</TABLE>
This example shows what you could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses:
$10,000 initial investment, 5% total return each year and no changes in
expenses. The figures shown would be the same whether or not you sold
your shares at the end of a period. Because actual return and expenses
will be different, the example is for comparison purposes only.
9
<PAGE>
TCW GALILEO MONEY MARKET FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks current income, preservation of capital and liquidity.
To pursue these goals, it invests in high credit quality, short-term
money market securities. The Fund also seeks to maintain a constant
net asset value of $1.00 per share. To pursue this goal, the Fund
invests in money market instruments that have remaining maturities of
397 days or less (and an average portfolio maturity of 90 days or less
on a dollar-weighted basis).
If the Fund's board believes that any deviation from a $1.00 amortized
cost price per share may result in material dilution or other unfair
results to new or existing shareholders, it will take steps to
eliminate or reduce these consequences. These steps include:
. selling portfolio securities prior to maturity
. shortening the average maturity of the portfolio
. withholding or reducing dividends
. redeeming shares in kind
. utilizing a net asset value per share determined by using
available market quotations
CONCEPTS TO UNDERSTAND
----------------------
Maturity is the date on which the principal amount of a note, draft,
acceptance, bond, or other debt instrument becomes due and payable.
10
<PAGE>
. MAIN RISKS
----------
This portfolio generally has the least investment risk of the Galileo
Funds because it invests in securities that have high credit ratings.
The two primary risks affecting this Fund are "credit risk" and
"interest rate risk." CREDIT RISK refers to the likelihood that the
Fund could lose money if a money market issuer is unable to meet its
financial obligations, such as the payment of principal and/or
interest on an investment, or goes bankrupt. This Fund invests
primarily in securities that have limited susceptibility to this risk.
INTEREST RATE RISK refers to the possibility that the value of the
Fund's portfolio investment may fall since fixed income securities
generally fall in value when interest rates rise. Short-term money
market instruments generally are affected less by changes in interest
rates than fixed income securities with longer terms to maturity.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high-grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
11
<PAGE>
TCW GALILEO CORE FIXED INCOME FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks to provide maximum current income and achieve above
average total return consistent with prudent investment management
over a full market cycle. To pursue this goal, it invests at least
65% of its total assets in fixed income securities rated A or higher
by Moody's and S&P. These securities include U.S. Government
obligations, bonds, notes, debentures, mortgage-backed securities,
asset-backed securities, foreign securities (government and corporate)
and other securities bearing fixed or variable interest rates of any
maturity.
In managing the Fund's investments, the Adviser uses a controlled risk
approach. The techniques of this approach attempt to control the
principal risk components of the fixed income markets. These
components include:
. security selection within a given sector
. relative performance of the various market
sectors
. the shape of the yield curve
. fluctuations in the overall level of interest
rates
The Adviser also utilizes active asset allocation in managing the
Fund's investments and monitors the duration of the Fund's portfolio
securities to mitigate the Fund's exposure to interest rate risk.
MARK L. ATTANASIO, PHILIP A. BARACH, WALTER J. BLASBERG, JEFFREY E.
GUNDLACH, AND FREDERICK H. HORTON ARE THE FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
Duration is often used to measure the potential volatility of a bond's
price: bonds with longer durations are more sensitive to changes in
interest rates, making them more volatile than bonds with shorter
durations. Bonds with fixed maturities have a readily determinable
duration. Bonds with uncertain payment schedules, such as mortgage-
backed securities, which can be prepaid, have durations which may vary
or lengthen in certain interest rate environments, making their values
even more volatile than they were when acquired.
12
<PAGE>
. MAIN RISKS
----------
The primary risks affecting this Fund are "credit risk," "interest
rate risk" (including "extension risk" and "prepayment risk"),
"foreign investing risk" and "liquidity risk."
CREDIT RISK refers to the likelihood that the Fund could lose money if
an issuer is unable to meet its financial obligations, such as the
payment of principal and/or interest on an instrument, or goes
bankrupt. This Fund invests primarily in high credit quality
securities that have limited susceptibility to this risk. A portion
of the Fund's assets, however, will be invested in low credit quality
securities, which may make the Fund more susceptible to credit risk.
This is especially true during periods of economic uncertainty or
during economic downturns. INTEREST RATE RISK refers to the
possibility that the value of the Fund's portfolio investments may
fall since fixed income securities generally fall in value when
interest rates rise. The longer the term of a fixed income
instrument, the more sensitive it will be to fluctuations in value
from interest rate changes. Changes in interest rates may have a
significant effect on this Fund, because it may hold securities with
long terms to maturity and mortgage-backed securities, including
collateralized mortgage obligations and stripped mortgage securities.
Its holding of mortgage-backed securities can reduce returns if the
owners of the underlying mortgages pay off their mortgage sooner than
anticipated when interest rates go down. Because this Fund invests in
mortgage-backed securities, it may be subject to extension risk and
prepayment risk, which are both a type of interest rate risk.
EXTENSION RISK refers to the possibility that rising interest rates
may cause owners of the underlying mortgages to pay off their
mortgages at a slower than expected rate. This particular risk may
effectively change a security which was considered short or
intermediate term into a long-term security. Long-term securities
generally drop in value more dramatically in response to rising
interest rates than short or intermediate-term securities. PREPAYMENT
RISK refers to the possibility that falling interest rates may cause
owners of the underlying mortgages to pay off their mortgages at a
faster than expected rate. This tends to reduce returns since the
funds prepaid will have to be reinvested at the then lower prevailing
rates. Because the Fund may invest a portion of its assets in foreign
company securities, it may be subject to FOREIGN INVESTING RISKS.
Foreign investing risk refers to the likelihood that foreign
investments may be riskier than U.S. investments because of many
factors, some of which include:
13
<PAGE>
. a lack of political or economic stability
. foreign controls on investment and changes in currency exchange
rates
. withholding taxes
. a lack of adequate company information
The risks of foreign investing are even more pronounced if the Fund
invests in emerging markets. In addition, securities traded only
through foreign markets may be more volatile and are often harder to
sell. Volatility is a way to measure the changes in the price of a
single security or an entire portfolio. Large and frequent price
changes indicate higher volatility, which generally indicates that
there is a greater chance you could lose money over the short term.
The Fund is also subject to foreign currency risk. Because foreign
securities are generally denominated and pay dividends or interest in
foreign currencies, the value of the net assets of the Fund as
measured in United States dollars will be affected favorably or
unfavorably by changes in exchange rates. LIQUIDITY RISK refers to
the possibility that the Fund may lose money or be prevented from
earning capital gains if it cannot sell a security at the time and
price that is most beneficial to the Fund. Because the Fund invests
in below investment grade fixed income securities and foreign
securities, it is more susceptible to liquidity risks than funds that
invest in higher quality investments or do not invest in foreign
securities.
The Fund may invest some assets in options, futures and foreign
currency futures and forward contracts. These practices are used
primarily to hedge the Fund's portfolio but may also be used to
increase returns; however, such practices sometimes may reduce returns
or increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high-grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
14
<PAGE>
TCW GALILEO MORTGAGE-BACKED SECURITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks to maximize current income. To pursue this goal, the
Fund invests primarily in short-term mortgage-backed securities
guaranteed by, or secured by collateral that is guaranteed by, the
United States Government, its agencies, instrumentalities or its
sponsored corporations (collectively, the "Federal Agencies"), and in
privately issued mortgage-backed securities rated Aa or higher by
Moody's or AA or higher by S&P.
The Fund will invest at least 65% of its assets in mortgage-backed
securities which are guaranteed by, or secured by collateral which is
guaranteed by, Federal Agencies. In managing the Fund's investments,
the Adviser seeks to construct a portfolio with a weighted-average
duration for fixed rate securities and a weighted average reset
frequency for floating rate securities of no more than two years.
PHILIP A. BARACH, JEFFREY E. GUNDLACH AND FREDERICK H. HORTON ARE THE
FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
Duration is often used to measure the potential volatility of a bond's
price: bonds with longer durations are more sensitive to changes in
interest rates, making them more volatile than bonds with shorter
durations. Bonds with fixed maturities have a readily determinable
duration. Bonds with uncertain payment schedules, such as mortgage-
backed securities which can be prepaid, have durations which may vary
or lengthen in certain interest rate environments, making their value
even more volatile than they were when acquired.
Weighted-average duration is the average duration of the securities in
the portfolio weighted by market value.
Weighted-average reset frequency is the average time to the next
coupon reset date of the floating rate securities in the portfolio
weighted by market value.
15
<PAGE>
. MAIN RISKS
----------
The primary risks affecting this Fund are "credit risk," "interest
rate risk" (including "extension risk" and "prepayment risk"), and
"liquidity risk."
CREDIT RISK refers to the likelihood that the Fund could lose money if
an issuer is unable to meet its financial obligations, such as the
payment of principal and/or interest on an instrument, or goes
bankrupt. The Fund may invest a portion of its assets in mortgage-
backed securities which are not guaranteed by the U.S. Government,
which may make the Fund subject to substantial credit risk. This is
especially true during periods of economic uncertainty or during
economic downturns. INTEREST RATE RISK refers to the possibility that
the value of the Fund's portfolio investments may fall since fixed
income securities generally fall in value when interest rates rise.
The longer the term of a fixed income instrument, the more sensitive
it will be to fluctuations in value from interest rate changes.
Changes in interest rates may have a significant effect on this Fund,
because it may hold securities with long terms to maturity and
mortgage-backed securities, including collateralized mortgage
obligations, and stripped mortgage securities. Its holdings of
mortgage-backed securities can reduce returns if the owners of the
underlying mortgages pay off their mortgages sooner than anticipated
when interest rates go down. Because this Fund invests in mortgage-
backed securities, it may be subject to extension risk and prepayment
risk, which are both a type of interest rate risk. EXTENSION RISK
refers to the possibility that rising interest rates may cause owners
of the underlying mortgages to pay off their mortgages at a slower
than expected rate. This particular risk may effectively change a
security which was considered short or intermediate term into a long-
term security. Long-term securities generally drop in value more
dramatically in response to rising interest rates than short or
intermediate-term securities. PREPAYMENT RISK refers to the
possibility that falling interest rates may cause owners of the
underlying mortgages to pay off their mortgages at a faster than
expected rate. This tends to reduce returns since the funds prepaid
will have to be reinvested at the then lower prevailing rates.
LIQUIDITY RISK refers to the possibility that the Fund may lose money
or be prevented from earning capital gains if it cannot sell a
security at the time and price that is most beneficial to the Fund.
Because mortgage-backed securities may be less liquid than other
securities, the Fund may be more susceptible to liquidity risks than
funds that invest in other securities.
16
<PAGE>
The Fund may invest some assets in inverse floaters and interest-only
and principal-only securities, which are sometimes referred to as
derivatives. This practice may be used to increase returns; however,
such practice sometimes may reduce returns or increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high-grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
17
<PAGE>
TCW GALILEO TOTAL RETURN MORTGAGE-BACKED SECURITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks to maximize current income and achieve above average
total return consistent with prudent investment management over a full
market cycle. To pursue these goals, the Fund invests primarily in
mortgage-backed securities of any maturity or type guaranteed by, or
secured by collateral that is guaranteed by, the United States
Government, its agencies, instrumentalities or its sponsored
corporations (collectively, the "Federal Agencies"), and in privately
issued mortgage-backed securities rated Aa or higher by Moody's or AA
or higher by S&P.
The Fund will invest at least 65% of its assets in mortgage-backed
securities which are guaranteed by, or secured by collateral which is
guaranteed by Federal Agencies. In managing the Fund's investments,
the Adviser seeks to construct a portfolio with a weighted-average
duration for fixed rate securities and a weighted-average reset
frequency for floating rate securities of no more than eight years.
PHILIP A. BARACH, JEFFREY E. GUNDLACH AND FREDERICK H. HORTON ARE THE
FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
Duration is often used to measure the potential volatility of a bond's
price: bonds with longer durations are more sensitive to changes in
interest rates, making them more volatile than bonds with shorter
durations. Bonds with fixed maturities have a readily determinable
duration. Bonds with uncertain payment schedules, such as mortgage-
backed securities which can be prepaid, have durations which may vary
or lengthen in certain interest rate environments, making their value
even more volatile than they were when acquired.
Weighted-average duration is the average duration of the securities in
the portfolio weighted by market value.
Weighted-average reset frequency is the average time to the next
coupon reset date of the floating rate securities in the portfolio
weighted by market value.
18
<PAGE>
. MAIN RISKS
----------
The primary risks affecting this Fund are "credit risk," "interest
rate risk" (including "extension risk" and "prepayment risk"), and
"liquidity risk."
CREDIT RISK refers to the likelihood that the Fund could lose money if
an issuer is unable to meet its financial obligations, such as the
payment of principal and/or interest on an instrument, or goes
bankrupt. The Fund may invest a portion of its assets in mortgage-
backed securities which are not guaranteed by the U.S. Government,
which may make the Fund subject to substantial credit risk. This is
especially true during periods of economic uncertainty or during
economic downturns. INTEREST RATE RISK refers to the possibility that
the value of the Fund's portfolio investments may fall since fixed
income securities generally fall in value when interest rates rise.
The longer the term of a fixed income instrument, the more sensitive
it will be to fluctuations in value from interest rate changes.
Changes in interest rates may have a significant effect on this Fund,
because it may hold securities with long terms to maturity and
mortgage-backed securities, including collateralized mortgage
obligations, and stripped mortgage securities. Because this Fund
invests in mortgage-backed securities, it may be subject to extension
risk and prepayment risk, which are both a type of interest rate risk.
EXTENSION RISK is the possibility that rising interest rates may cause
owners of the underlying mortgages to pay off their mortgages at a
slower than expected rate. This particular risk may effectively
change a security which was considered short or intermediate term into
a long-term security. Long-term securities generally drop in value
more dramatically in response to rising interest rates than short or
intermediate-term securities. PREPAYMENT RISK refers to the
possibility that falling interest rates may cause owners of the
underlying mortgages to pay off their mortgages at a faster than
expected rate. This tends to reduce returns since the funds prepaid
will have to be reinvested at the then lower prevailing rates.
LIQUIDITY RISK refers to the possibility that the Fund may lose money
or be prevented from earning capital gains if it cannot sell a
security at the time and price that is most beneficial to the Fund.
Because mortgage-backed securities may be less liquid than other
securities, the Fund may be more susceptible to liquidity risks than
funds that invest in other securities.
The Fund may invest some assets in inverse floaters and interest-only
and principal-only securities, which are sometimes referred to as
19
<PAGE>
derivatives. These practices may be used to increase returns;
however, such practices sometimes may reduce returns or increase
volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high-grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
20
<PAGE>
TCW GALILEO HIGH YIELD BOND FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks to maximize income and achieve above average total
return consistent with reasonable risk over a full market cycle. To
pursue this goal, it invests at least 65% of its total assets in high
yield/below investment grade bonds, commonly known as "junk" bonds.
It also invests in other high yield fixed income securities, including
convertible and nonconvertible debt securities and convertible and
non-convertible preferred stocks.
In managing the Fund's investments, the Adviser places emphasis on
securities at the lower-risk end of the high yield bond/below
investment grade spectrum. These securities are issued by companies
that the Adviser believes have stable to improving business prospects.
The Adviser's investment approach also emphasizes consistent and high
current income. It attempts to reduce the Fund's investment risk
through diversification and by analysis of:
. each issuer
. each issuer's ability to make timely payments of principal and
interest
. broad economic trends and corporate developments
MARK L. ATTANASIO, MARK D. SENKPIEL, AND MELISSA V. WEILER ARE THE
FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
Junk bonds are bonds that have a credit rating of BB or lower by
rating agencies such as Moody's Investors Service, Inc. and Standard &
Poor's Corporation. These bonds are often issued by companies without
long track records of sales and earnings, or by those companies with
questionable credit strength. In the event of a prepayment problem by
the issuer of these bonds, they will only be paid if there is anything
left after the payment of senior debt, such as bank loans and
investment grade bonds.
Junk bonds are considered to be mostly speculative in nature. This
gives the Fund more credit risk than Galileo's other fixed income
funds, but also gives it the potential for higher returns.
21
<PAGE>
. MAIN RISKS
----------
The primary risks affecting this Fund are "credit risk," "interest
rate risk," "liquidity risk" and, to a lesser extent, "foreign
investing risk."
CREDIT RISK refers to the likelihood that the Fund could lose money if
an issuer is unable to meet its financial obligations, such as the
payment of principal and/or interest on an instrument, or goes
bankrupt. This Fund is subject to high credit risk, because it
invests primarily in high yield/below investment grade bonds. This is
especially true during periods of economic uncertainty or during
economic downturns. INTEREST RATE RISK refers to the possibility that
the value of the Fund's portfolio investments may fall since fixed
income securities generally fall in value when interest rates rise.
The longer the term of a fixed income instrument, the more sensitive
it will be to fluctuations in value from interest rate changes.
Changes in interest rates may have a significant effect on this Fund,
because it may hold securities with long terms to maturity. LIQUIDITY
RISK refers to the possibility that the Fund may lose money or be
prevented from earning capital gains if it can not sell a security at
the time and price that is most beneficial to the Fund. Because high
yield bonds may be less liquid than higher quality securities, the
Fund may be more susceptible to liquidity risk than funds that invest
in higher quality investments. A security whose credit rating has
been lowered may be particularly difficult to sell. Because the Fund
may invest a portion of its assets in foreign company securities, it
may be subject to FOREIGN INVESTING RISK. Foreign investing risk
refers to the likelihood that foreign investments may be riskier than
U.S. investments because of many factors, some of which include:
. a lack of political or economic stability
. foreign controls on investment and currency exchange rates
. withholding taxes
. a lack of adequate company information
The risks of foreign investing are even more pronounced if the Fund
invests in emerging markets. In addition, securities traded only
through foreign markets may be more volatile and are often harder to
sell. Volatility is a way to measure the changes in the price of a
single security or an entire portfolio. Large and frequent price
changes indicate higher volatility, which generally indicate that
there is a greater chance you could lose money over the short term.
The Fund is also subject to foreign currency risk. Because foreign
securities are generally
22
<PAGE>
denominated and pay dividends or interest in foreign currencies, the
value of the net assets of the Fund as measured in the United States
dollars will be affected favorably or unfavorably by changes in
exchange rates.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high-grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
23
<PAGE>
. RISK CONSIDERATIONS
-------------------
Please consider the following risks before investing in a Fund.
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's
performance or financial position can depress the value of the
issuer's securities. The liquidity in a market for a particular
security will affect its value and may be affected by factors relating
to the issuer and the depth of the market for that security. Other
market risks that can affect value include a market's current
attitudes about type of security, market reactions to political or
economic events, and tax and regulatory effects (including lack of
adequate regulations for a market or particular type of instrument).
Market restrictions on trading volume can also affect price and
liquidity.
Prices of most securities tend to be more volatile in the short-term.
Therefore an investor who trades frequently or redeems in the short-
term is more likely to incur loss than an investor who holds
investments for the longer term. Lack of diversification in a
portfolio can also increase volatility. A security that is leveraged,
whether explicitly or implicitly, will also tend to be more volatile
in that both gains and losses are intensified by the magnifying
effects of leverage. Certain instruments (such as inverse floaters
and interest-only securities) behave similarly to leveraged
instruments.
GENERAL INVESTMENT RISK
-----------------------
Since shares of a Fund represent an investment in securities with
fluctuating market prices, the value of Fund shares will vary as the
value of each Fund's portfolio securities increases or decreases.
Therefore, the value of an investment in a Fund could go down as well
as up. This is also true for funds that invest primarily in fixed
income securities. High credit quality investments also react in value
to interest rate changes.
24
<PAGE>
. RISK CONSIDERATIONS
-------------------
FIXED Fixed income securities are subject to various risks. The two
INCOME primary (but not exclusive) risks affecting fixed income instruments
SECURITIES are "credit risk" and "interest rate risk." These risks can affect a
security's price volatility to varying degrees, depending upon the
nature of the instrument. In addition, the depth and liquidity of
the market for an individual or class of fixed income security can
also affect its price and, hence, the market value of a Fund.
"CREDIT RISK" refers to the likelihood that an issuer will default
in the payment of principal and/or interest on an instrument.
Financial strength and solvency of an issuer are the primary factors
influencing credit risk. In addition, lack of or inadequacy of
collateral or credit enhancements for a fixed income security may
affect its credit risk. Credit risk of a security may change over
its life and securities which are rated by rating agencies are often
reviewed and may be subject to downgrades.
The High Yield Bond portfolio consists primarily of below investment
grade corporate securities that are commonly known as junk bonds. In
addition, the Core Fixed Income Fund may invest in debt instruments
rated below investment grade. Generally, lower-rated debt securities
provide a higher yield than higher rated debt securities of similar
maturity but are subject to greater credit risk than higher rated
securities of similar maturity. These securities are regarded as
predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Because investment
in lower quality securities involves greater investment risk,
achievement of a Fund's investment objective will be more dependent
25
<PAGE>
on the Adviser's analysis than would be the case if the Fund were
investing in higher quality bonds. In addition, lower quality
securities may be more susceptible to real or perceived adverse
economic and individual corporate developments than would investment
grade bonds. Moreover, the secondary trading market for lower quality
securities may be less liquid than the market for investment grade
bonds. This potential lack of liquidity may make it more difficult for
the Adviser to value accurately certain portfolio securities.
"INTEREST RATE RISK" refers to the change in value of debt instruments
associated with changes in interest rates. Interest rate changes may
affect the value of a fixed income security directly (especially in
the case of fixed rate securities) and indirectly (especially in the
case of adjustable rate securities). In general, rises in interest
rates will negatively impact the value of fixed rate securities and
falling interest rates will have a positive effect on value. The
degree to which a security's price will change as a result of changes
in interest rates is measured by its "duration." For example, the
price of a bond with a 5 year duration would be expected under normal
market conditions to decrease 5% for every 1% increase in interest
rates. Generally, securities with longer maturities have a greater
duration and thus are subject to greater price volatility from changes
in interest rates. Adjustable rate instruments also react to interest
rate changes in a similar manner although generally to a lesser degree
(depending, however, on the characteristics of the reset terms,
including the index chosen, frequency of reset and reset caps or
floors, among other things).
26
<PAGE>
. RISK CONSIDERATIONS
-------------------
FOREIGN Investment in foreign securities involves special risks in addition to
INVESTING the usual risks inherent in domestic investments. These include:
political or economic instability; the unpredictability of
international trade patterns; the possibility of foreign governmental
actions such as expropriation, nationalization or confiscatory
taxation; the imposition or modification of currency exchange or
foreign investment controls; the imposition of withholding taxes on
dividends, interest and gains; price volatility; and fluctuations in
currency exchange rates. These risks are more pronounced in emerging
market countries.
As compared to United States companies, foreign issuers generally
disclose less financial and other information publicly and are subject
to less stringent and less uniform accounting, auditing and financial
reporting standards. Foreign countries typically impose less thorough
regulations on brokers, dealers, stock exchanges, insiders and listed
companies than does the United States, and foreign securities markets
may be less liquid and more volatile than domestic markets. Investment
in foreign securities involves higher costs than investment in U.S.
securities, including higher transaction and custody costs as well as
the imposition of additional taxes by foreign governments. In
addition, security trading practices abroad may offer less protection
to investors such as the Funds. Settlement of transactions in some
foreign markets may be delayed or may be less frequent than in the
U.S., which could affect the liquidity of each Fund's portfolio. Also,
it may be more difficult to obtain and enforce legal judgments against
foreign corporate issuers than against
27
<PAGE>
domestic issuers and it may be impossible to obtain and enforce
judgments against foreign governmental issuers.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and some of the Funds hold various
foreign currencies from time to time, the value of the net assets of
those Funds as measured in United States dollars will be affected
favorably or unfavorably by changes in exchange rates. Generally,
currency exchange transactions will be conducted on a spot (i.e.,
----
cash) basis at the spot rate prevailing in the currency exchange
market. The cost of currency exchange transactions will generally be
the difference between the bid and offer spot rate of the currency
being purchased or sold. In order to protect against uncertainty in
the level of future foreign currency exchange rates, the Core Fixed
Income Fund is authorized to enter into certain foreign currency
futures and forward contracts.
With respect to the Core Fixed Income Fund, the forward currency
market for the purchase or sale of U.S. dollars in some countries is
not highly developed, and in certain countries, there may be no such
market. If a devaluation of a currency is generally anticipated, the
Fund may not be able to contract to sell the currency at an exchange
rate more advantageous than that which would prevail after the
anticipated amount of devaluation, particularly as regards forward
contracts for local currencies in view of the relatively small,
inactive or even non-existent market for these contracts. In the
event the Funds hold securities denominated in a currency that suffers
a devaluation, the Funds' net asset values will suffer corresponding
reductions. In this regard, in December 1994, the Mexican government
determined to allow the Mexican peso to trade freely against the U.S.
dollar rather than within a controlled band, which resulted in a
significant devaluation of the Mexican peso against the dollar.
Further, in July 1997, the Thai and Philippine governments allowed the
baht and peso, respectively, to trade freely against the U.S. dollar
resulting in a sharp devaluation of both currencies, and in 1998
Russia did the same, causing a sharp devaluation of the ruble.
28
<PAGE>
. RISK CONSIDERATIONS
-------------------
MORTGAGE- CREDIT AND MARKET RISKS OF MORTGAGE-BACKED SECURITIES. The
BACKED investments by Core Fixed Income in fixed rate and floating rate
SECURITIES mortgage-backed securities will entail normal credit risks (i.e.,
----
the risk of non-payment of interest and principal) and market risks
(i.e., the risk that interest rates and other factors will cause the
----
value of the instrument to decline). Many issuers or servicers of
mortgage-backed securities guarantee timely payment of interest and
principal on the securities, whether or not payments are made when
due on the underlying mortgages. This kind of guarantee generally
increases the quality of a security, but does not mean that the
security's market value and yield will not change. Like bond
investments, the value of fixed rate mortgage-backed securities will
tend to rise when interest rates fall, and fall when rates rise.
Floating rate mortgage-backed securities will generally tend to have
minimal changes in price when interest rates rise or fall, but their
current yield will be affected. The value of all mortgage-backed
securities may also change because of changes in the market's
perception of the creditworthiness of the organization that issued
or guarantees them. In addition, the mortgage-backed securities
market in general may be adversely affected by changes in
governmental legislation or regulation. Fluctuations in the market
value of mortgage-backed securities after their acquisition usually
do not affect cash income from these securities but are reflected in
Fund's net asset value. Factors that could affect the value of a
mortgage-backed security include, among other things, the types and
amounts of insurance which a mortgage carries, the amount of time
the mortgage loan has been outstanding, the loan-to-value ratio of
each mortgage and the amount of overcollateralization of a mortgage
pool.
29
<PAGE>
LIQUIDITY RISK OF MORTGAGE-BACKED SECURITIES. The liquidity of
mortgage-backed securities varies by type of security; at certain
times a Fund may encounter difficulty in disposing of investments.
Because mortgage-backed securities may be less liquid than other
securities, a Fund may be more susceptible to liquidity risks than
funds that invest in other securities. In the past, in stressed
markets, certain types of mortgage-backed securities, such as inverse
floaters, and interest-only securities, suffered periods of
illiquidity if disfavored by the market.
PREPAYMENT, EXTENSION AND REDEMPTION RISKS OF MORTGAGE-BACKED
SECURITIES. Mortgage-backed securities reflect an interest in monthly
payments made by the borrowers who receive the underlying mortgage
loans. Although the underlying mortgage loans are for specified
periods of time, such as 20 or 30 years, the borrowers can, and
typically do, pay them off sooner. When that happens, the mortgage-
backed security which represents an interest in the underlying
mortgage loan will be prepaid. A borrower is more likely to prepay a
mortgage which bears a relatively high rate of interest. This means
that in times of declining interest rates, a portion of the Fund's
higher yielding securities are likely to be redeemed and the Fund will
probably be unable to replace them with securities having as great a
yield. Prepayments can result in lower yields to shareholders. The
increased likelihood of prepayment when interest rates decline also
limits market price appreciation of mortgage-backed securities. This
is known as prepayment risk. Mortgage-backed securities are also
subject to extension risk. Extension risk is the possibility that
rising interest rates may cause prepayments to occur at a slower than
expected rate. This particular risk may effectively change a security
which was considered short or intermediate term into a long-term
security. Long-term securities generally fluctuate more widely in
response to changes in interest rates than short or intermediate-term
securities. In addition, a mortgage-backed security may be subject to
redemption at the option of the issuer. If a mortgage-backed security
held by a Fund is called for redemption, the Fund will be required to
permit the issuer to redeem or "pay-off" the security, which could
have an adverse effect on the Fund's ability to achieve its investment
objective.
COLLATERALIZED MORTGAGE OBLIGATIONS. There are certain risks
associated specifically with collateralized mortgage obligations
("CMOs.") CMOs are debt obligations collateralized by mortgage loans
or mortgage pass-through securities. The average life of CMOs is
determined using mathematical models that incorporate prepayment
assumptions and other
30
<PAGE>
factors that involve estimates of future economic and market
conditions. These estimates may vary from actual future results,
particularly during periods of extreme market volatility. Further,
under certain market conditions, such as those that occurred in 1994,
the average weighted life of certain CMOs may not accurately reflect
the price volatility of such securities. For example, in periods of
supply and demand imbalances in the market for such securities and/or
in periods of sharp interest rate movements, the prices of CMOs may
fluctuate to a greater extent than would be expected from interest
rate movements alone. CMOs issued by private entities are not
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities and are not guaranteed by any government
agency, although the securities underlying a CMO may be subject to a
guarantee. Therefore, if the collateral securing the CMO, as well as
any third party credit support or guarantees, is insufficient to make
payment, the holder could sustain a loss.
STRIPPED MORTGAGE SECURITIES. Part of the investment strategy of the
Core Fixed Income, Total Return Mortgage-Backed Securities and
Mortgage-Backed Securities Funds involves interest-only Stripped
Mortgage Securities. These investments are highly sensitive to
changes in interest and prepayment rates and tend to be less liquid
than other CMOs. They could sustain significant loss if prepaid too
early.
INVERSE FLOATERS. Total Return Mortgage-Backed and Mortgage-Backed
Securities Funds invest in inverse floaters, a class of CMOs with a
coupon rate that resets in the opposite direction from the market rate
of interest to which it is indexed such as London Interbank Offered
Rate (LIBOR) or COFI. Any rise in the index rate (as a consequence of
an increase in interest rates) causes a drop in the coupon rate of an
inverse floater while any drop in the index rate causes an increase in
the coupon of an inverse floater. An inverse floater may behave like
a security that is leveraged since its interest rate usually varies by
a magnitude much greater than the magnitude of the change in the index
rate of interest. The "leverage-like" characteristics inherent in
inverse floaters are associated with greater volatility in their
market prices.
ADJUSTABLE RATE MORTGAGES. ARMs contain maximum and minimum rates
beyond which the mortgage interest rate may not vary over the lifetime
of the security. In addition, many ARMs provide for additional
limitations on the maximum amount by which the mortgage interest rate
may adjust for any single adjustment period. Alternatively, certain
31
<PAGE>
ARMs contain limitations on changes in the required monthly payment.
In the event that a monthly payment is not sufficient to pay the
interest accruing on an ARM, any excess interest is added to the
principal balance of the mortgage loan, which is repaid through future
monthly payments. If the monthly payment for such an instrument
exceeds the sum of the interest accrued at the applicable mortgage
interest rate and the principal payment required at such point to
amortize the outstanding principal balance over the remaining term of
the loan, the excess is utilized to reduce the then-outstanding
principal balance of the ARM.
ASSET-BACKED SECURITIES. Certain asset-backed securities do not have
the benefit of the same security interest in the related collateral as
do mortgage-backed securities; nor are they provided government
guarantees of repayment. Credit card receivables are generally
unsecured, and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. In addition, some issuers of
automobile receivables permit the servicers to retain possession of
the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related
automobile receivables.
32
<PAGE>
. RISK CONSIDERATIONS
-------------------
YEAR 2000 The investment advisory and management services provided by the
Adviser and the services provided to shareholders by the Transfer
Agent depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000,
but revert to 1900 or some other date, due to the manner in which
dates were encoded and calculated. That failure could have a negative
impact on the handling of securities trades, pricing and account
services. The Adviser and the Transfer Agent have been actively
working on necessary changes to their own computer systems to prepare
for the year 2000 and expect that their systems will be adapted for
year 2000 compliance before that date, but there can be no assurance
that they will be successful, or that interaction with other non-
complying computer systems will not impair their services at that
time.
In addition, it is possible that the markets for securities in which
the Funds invest may be negatively affected by computer failures
throughout the financial services industry commencing January 1, 2000.
Improperly functioning trading systems may result in settlement
problems. In addition, corporate and governmental data processing
errors may result in production problems for individual companies and
create overall economic uncertainties. Earnings of individual issuers
will be affected by remediation costs which may be substantial.
Individual firms may further experience disruptions to their business
due to the failure of their counterparts to address approaching year
2000 problems, or could experience further disruption to the economy
at large, which could adversely affect corporate earnings generally
and the value of their securities. Accordingly, a Fund's portfolio
investments may be negatively affected.
33
<PAGE>
. RISK CONSIDERATIONS
-------------------
EUROPEAN Certain of the Funds will invest in European countries that have
ECONOMIC agreed to enter into the European Monetary Union (EMU). EMU is an
AND effort by certain European countries to, among other things, reduce
MONETARY barriers between countries and eliminate fluctuations in their
UNION currencies. Among other things, EMU establishes a single European
currency (the euro), which will be introduced on January 1, 1999 and
is expected to replace the existing national currencies of all initial
EMU participants by July 1, 2002. Upon introduction of the euro,
certain securities (beginning with government and corporate bonds)
will be redonominated in the euro and, thereafter will trade and make
dividend and other payments only in euros.
Like other investment companies and business organizations, including
the companies in which the Funds invest, the Funds could be adversely
affected: (i) if the euro, or EMU as a whole does not take effect as
planned; (ii) if a participating country withdraws from EMU; or (iii)
if the computing, accounting and trading systems used by the Funds'
service providers, or by other business entities with which the Funds
or their service providers do business, are not capable of recognizing
the euro as a distinct currency at the time of, and following euro
conversion.
34
<PAGE>
. MANAGEMENT OF THE FUNDS
-----------------------
INVESTMENT ADVISER
The Funds' investment adviser is TCW Funds Management, Inc. and is
headquartered at 865 South Figueroa Street, Suite 1800, Los Angeles,
California 90017. As of October 31, 1998, the Adviser and its
affiliated companies, which provide a variety of trust, investment
management and investment advisory services, had over $50 billion
under management or committed for management.
PORTFOLIO MANAGERS
Listed below are the individuals who have been primarily responsible
for the day-to-day portfolio management of the Funds, including a
summary of each person's business experience during the past five
years:
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS(1)
---------- -------------------------
<S> <C>
Mark L. Attanasio Group Managing Director and Chief Investment
Officer - Below Investment Grade Fixed
Income, the Adviser, TCW Asset Management
Company and Trust Company of the West since
April 1995. From April 1991 to March 1995
he was Co-Chief Executive Officer and Chief
Portfolio Strategist of Crescent Capital
Corporation, Los Angeles.
Philip A. Barach Group Managing Director and Chief Investment
Officer - Investment Grade Fixed Income, the
Adviser, TCW Asset Management Company and
Trust Company of the West.
Walter J. Blasberg Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of the
West since June 1995. Prior to its
acquisition by TCW, he was President and
Chief Executive Officer of Continental Asset
Management.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS(1)
---------- -------------------------
<S> <C>
Jeffrey E. Gundlach Group Managing Director and Chairman
Multi-Strategy Fixed Income Committee, the
Adviser, TCW Asset Management Company and
Trust Company of the West.
Frederick H. Horton Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of the
West; Senior Portfolio Manager for Dewey
Square Investors from June 1992 through
September 1993.
Mark D. Senkpiel Senior Vice President, the Adviser, TCW
Asset Management Company and Trust Company
of the West since January 1996. Previously,
he was an Investment Director of Allstate
Insurance Company.
Melissa V. Weiler Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of the
West since April 1995. From February 1992
to March 1995 she was a Vice President and
Portfolio Manager of Crescent Capital
Corporation, Los Angeles.
</TABLE>
Advisory Agreements
The Company and the Adviser have entered into an Investment Advisory
and Management Agreement (the "Advisory Agreement"), under the terms
of which the Company has employed the Adviser to manage the investment
of its assets, to place orders for the purchase and sale of its
portfolio securities, to administer its day-to-day operations, and to
be responsible for overall management of the Company's business
affairs, subject to control by the Board of Directors of the Company.
The Adviser also pays certain costs of marketing the Funds, including
sales personnel compensation, from legitimate profits from its
investment advisory fees and other resources available to it. In
addition, the Adviser reimburses third party administrators, out of
its own resources, for retirement plan shareholder servicing expenses.
Under the Advisory Agreement, the Funds pay to the Adviser as
compensation for the services rendered, facilities furnished, and
expenses paid by it the following fees:
36
<PAGE>
<TABLE>
<CAPTION>
Annual Management Fee
(As Percent of Average Net Asset
FUND Value)
---- ------
<S> <C>
Money Market .25%
Core Fixed Income .40%
Mortgage-Backed Securities .50%
Total Return Mortgage-Backed Securities .50%
High Yield Bond .75%
</TABLE>
The Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the matters to which the agreements
relate, except a loss resulting from willful misfeasance, bad faith,
gross negligence on the part of the Adviser in the performance of its
duties or from reckless disregard by them of its duties under each
respective agreement.
. MULTIPLE CLASS STRUCTURE
------------------------
Each Fund currently offers two classes of shares, Institutional Class
shares and Class A shares. Shares of each class of a Fund represents
an equal pro rata interest in that Fund and generally gives you the
same voting, dividend, liquidation, and other rights. The
Institutional Class shares are offered at the current net asset value.
The Class A shares are also offered at the current net asset value,
but will be subject to a distribution or service fee imposed under a
distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. Pursuant to the
Distribution Plan, each Fund compensates the Funds' distributor at a
rate equal to 0.25% of the average daily net assets of the Fund
attributable to its Class A shares for distribution and related
services.
37
<PAGE>
YOUR INVESTMENT
. ACCOUNT POLICIES AND SERVICES
-----------------------------
BUYING SHARES
You pay no sales charges to invest in a Fund. Your price for Fund
shares is the Fund's net asset value per share (NAV) which is
generally calculated as of the close of trading on the New York Stock
Exchange (usually 4:00 p.m. Eastern time) every day the exchange is
open. Your order will be priced at the next NAV calculated after your
order is accepted by the Fund. Orders received by a Fund's Transfer
agent from dealers, brokers or other service providers after the NAV
is determined that day will receive that NAV if the orders were
received by the dealers, brokers or service providers from their
customers prior to such determination and were transmitted to and
received by the transfer agent prior to 8:00 a.m. Eastern time on the
next day. A Fund's investments are valued based on market value, or
where market quotations are not readily available, based on fair value
as determined in good faith by the Fund pursuant to procedures
established by the Fund's Board.
============================================================
Minimums
Initial Additional
------------------------------------------------------------
All Funds except
Money Market Fund $250,000 $25,000
Money Market Fund $100,000 $ 1,000
TCW Galileo Funds, Inc. may waive the minimum investment. All
investments must be in U.S. dollars. Third-party checks, except
those payable to an existing shareholder, will normally not be
accepted. If your check or wire does not clear, you will be
responsible for any loss a Fund incurs.
38
<PAGE>
SELLING SHARES
You may sell shares at any time. Your shares will be sold at the next
NAV calculated after your order is accepted by the Fund's transfer
agent. Any certificates representing Fund shares being sold must be
returned with your redemption request. Your order will be processed
promptly and you will generally receive the proceeds within a week.
Before selling recently purchased shares, please note that if the Fund
has not yet collected payment for the shares you are selling, it may
delay sending the proceeds for up to fifteen business days.
WRITTEN SELL ORDER
Some circumstances require written sell orders, along with signature
guarantees. These include:
. amounts of $100,000 or more
. amounts of $1,000 or more on accounts whose address has been
changed within the last 30 days
. requests to send the proceeds to a payee or address different than
what is on our records
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one
from most banks or securities dealers but not from a notary public.
Please call us to ensure that your signature guarantee will be
processed correctly.
CHECK WRITING PRIVILEGE
You may request checks which may be drawn on your Money Market Fund
account. These checks may be drawn in amounts of $1,000 or more, may
be made payable to the order of any person and may be cashed or
deposited. You can set up this service with your New Account Form or
by calling 1-800-386-3829.
EXCHANGE PRIVILEGE
You can exchange from one Galileo Fund into another. You can request
your exchange in writing or by phone. Be sure to read the current
prospectus for any Fund into which you are exchanging. Any new
account established through an exchange will have the same privileges
as your original account (as long as they are available).
39
<PAGE>
ACCOUNT STATEMENTS
Every investor automatically receives regular account statements. You
will also be sent a yearly statement detailing the tax characteristics
of any dividends and distributions you have received.
GENERAL POLICIES
For any Fund except the Money Market Fund, if your account falls below
$25,000 as a result of redemptions and or exchanges for six months or
more, the Fund may close your account and send you the proceeds upon
60 days' written notice. If your account with the Money Market Fund
drops below $10,000 as a result of redemptions and or exchanges, the
Fund may close your account and send you the proceeds upon 30 days'
written notice.
Unless you decline telephone privileges on your New Account Form, you
may be responsible for any fraudulent telephone order as long as the
Transfer Agent takes reasonable measures to verify the order.
Each Fund restricts excessive trading (usually defined as more than
four exchanges out of the Fund within a calendar year). You are
limited to one exchange of shares in the same Fund during any 15-day
period except the TCW Galileo International Equities Fund and
investors in 401(k) and other group retirement accounts and asset
allocation accounts managed by the Adviser or an affiliate:
. refuse any purchase or exchange request that could adversely affect
a Fund or its operations, including those from any individual or
group who, in the Fund's view, are likely to engage in excessive
trading
. change or discontinue its exchange privilege, or temporarily
suspend this privilege during unusual market conditions delay
sending out redemption proceeds for up to seven days (generally
LARGE REDEMPTION AMOUNTS
------------------------
Each Fund also reserves the right to make a "redemption in kind" --
payment in portfolio securities rather than cash -- if the amount you
are redeeming in any 90-day period is large enough to affect Fund
operations (for example, if it equals more than $250,000 or represents
more than 1% of the Fund's assets).
40
<PAGE>
applies only in cases of very large redemptions, excessive trading
or during unusual market conditions)
41
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
<S> <C>
- -----------------------------------------------------------------------------------------------------
In Writing
Complete the New Account Form. Mail your New (Same, except that you should include a note
Account Form and a check to: specifying the Fund name, your account number, and
Regular Mail the name(s) your account is registered in.)
TCW Galileo __________ Fund
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
TCW Galileo __________ Fund
DST Systems, Inc.
1004 Baltimore, 2/nd/ Floor
Kansas City, MO 64105-2005
- -----------------------------------------------------------------------------------------------------
By Telephone
WIRE Have your bank send your investment to: (Same)
United Missouri Bank, n.a.
ABA No. 101000695
DST Systems, Inc./AC 9870371553 (for all Galileo
Funds except the Money Market Fund)
DST Systems, Inc./AC 9870371170 (for Money Market
Fund only)
FBO TCW Galileo ______ Fund
(Name on the Fund Account) __________
- -----------------------------------------------------------------------------------------------------
Via Exchange
Call the Transfer Agent at (800)248-4486 or the
Investor Relations Department at (800) 386-3829.
The new account will have the same registration as
the account from which you are exchanging.
- -----------------------------------------------------------------------------------------------------
</TABLE>
If you need help completing the New Account Form, please call the Transfer agent
at (800) 248-4486, the Investor Relations Department at TCW Galileo Funds at
(800) FUND TCW (800) 386-3829 or your investment representative at TCW Galileo
Funds.
42
<PAGE>
TO SELL OR EXCHANGE SHARES
By Mail To reach the Transfer
Agent at DST System,
Write a letter of instruction that Inc., call toll free in the U.S.
includes:
. your name(s) and signature(s) as they 1-800-248-4486
appear on the account form
. your account number
. the Fund name
. the dollar amount you want to sell or
exchange
. how and where to send the proceeds
- ----------------------------------------
To reach your investment
Obtain a signature guarantee or other representative or the
documentation, if required (see Investor Relations
"Account Policies and Services - Department at TCW Galileo
Selling Shares"). Funds, call toll free in
Mail your letter of instruction to: the U.S.
1-800-386-3829
Regular Mail
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- ----------------------------------------
By Telephone
Be sure the Fund has your bank account
information on file. Call the
Transfer Agent at (800) 248-4486 to
request your transaction. Proceeds
will be wired to your bank.
Telephone redemption requests must be
for a minimum of $1,000.
- ----------------------------------------
Systematic Withdrawal Plan Call us to
request a form to add the plan.
Complete the form, specifying the
amount and frequency of withdrawals
you would like.
Be sure to maintain an account balance
of $25,000 ($10,000 -- the Money
Market Fund only) or more. Systematic
Withdrawal plans are subject to a
minimum annual withdrawal of $500.
- ----------------------------------------
43
<PAGE>
. DISTRIBUTIONS AND TAXES
-----------------------
The amount of dividends of net investment income and distributions of
net realized long and short-term capital gains payable to shareholders
will be determined separately for each Fund. Dividends from the net
investment income of each Fund except the Money Market Fund will be
declared and paid monthly. Dividends from net investment income for
the Money Market Fund will be declared and paid each weekday exclusive
of days the New York Stock Exchange or the Fund's custodian bank is
closed. The Funds will distribute any net realized long or short-term
capital gains at least annually. Your distributions will be
reinvested in the fund unless you instruct the fund otherwise. There
are no fees or sales charges on reinvestments.
In any fiscal year in which the Funds qualify as regulated investment
companies and distribute to shareholders all of their net investment
income and net capital gains, the Funds are relieved of federal income
tax.
Generally, all dividends and capital gains are taxable whether they
are reinvested or received in cash - unless you are exempt from
taxation or entitled to tax deferral. Capital gains distributions may
be taxable at different rates depending on the length of time a Fund
has held the assets sold. Early each year, you will be notified as to
the amount and federal tax status of all distributions paid during the
prior year. Distributions may also be subject to state or local
taxes. The tax treatment of redemptions from a retirement plan
account may differ from redemptions from an ordinary shareholder
account. If you redeem shares of a Fund or exchange them for shares
of another Fund, any gain on the transaction may be subject to tax.
You must provide the Funds with a correct taxpayer identification
number (generally your Social Security Number) and certify that you
are not subject to backup withholding. If you fail to do so, the IRS
can require the Funds to withhold 31% of your taxable distributions
and redemptions. Federal law also requires the Funds to withhold 30%
or the applicable tax treaty rate from dividends paid to nonresident
alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
This is a brief summary of some of the tax laws that affect your
investment in the Fund. Please see the Statement of Additional
Information and your tax adviser for further information.
44
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions.
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
TCW GALILEO MONEY MARKET FUND
TEN MONTHS
YEAR ENDED OCTOBER 31 ENDED
1998 1997 1996 1995 10/31/1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment operations:
Investment income - net 0.0516 0.0509 0.0549 0.0304
Total from investment operations
Distributions:
Dividends from net investment income (0.0516) (0.0549) (0.0509) (0.0304)
-------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========= ======== ======== ========
Total return (%) 5.29% 5.21% 5.67% 3.04%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets3 (%) 0.40% 0.40% 0.40% 0.40%/2/
Ratio of net investment income to average net assets (%) 5.17% 5.04% 5.49% 3.65%/2/
Net assets, end of period ($ x 1,000) $222,771 $233,671 $ 86,302 $124,392
</TABLE>
/1/ For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee, or to pay the
operating expenses of the Fund, to the extent necessary to limit the annual
ordinary operating expenses of the Fund to 0.40% of net assets through
December 31, 1998. Had such action not been taken, total annualized
operating expenses as a percentage of average net assets would have been
____% for the fiscal year ended October 31, 1998, 0.44% for the fiscal year
ended October 31, 1996, 0.46% for the fiscal year ended October 31, 1995
and 0.68% for the ten months ended October 31, 1994.
45
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions.
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
TCW GALILEO CORE FIXED INCOME FUND
YEAR ENDED OCTOBER 31 TEN MONTHS
ENDED
1998 1997 1996 1995 10/31/94
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 9.45 $ 9.61 $ 8.94 $ 10.04
------- ------- ------- ---------
Investment operations:
Investment income - net 0.58 0.55 0.58 0.44
Net realized and unrealized gain (loss) on investments 0.19/4/ 0.16 0.62 (1.16)/4/
------- ------- ------- ---------
Total from investment operations 0.77 0.39 1.20 (0.72)
------- ------- ------- ---------
Distributions:
Dividends from net investment income (0.60) (0.55) (0.53) (0.38)
Dividends from net realized gains on investments -- -- -- --
------- ------- ------- ---------
Dividends in excess of net realized gains -- -- -- --
------- ------- ------- ---------
Total Distributions (0.60) (0.55) (0.53) (0.38)
Net asset value, end of period $ 9.62 $ 9.45 $ 9.61 $ 8.94
------- ------- ------- ---------
Total return (%) 8.45% 4.26% 13.92% (7.24)%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 0.93% 0.76% 0.68%/3/ 0.50%/2,3/
Ratio of net investment income to average net assets (%) 6.13% 5.85% 6.38% 6.11%/2/
Portfolio turnover rate (%) 142.96% 238.73% 223.78% 208.63%/1/
Net assets, end of period ($ x 1,000) $19,368 $25,006 $36,236 $ 50,153
</TABLE>
/1/ For the ten months ended October 31, 1994, and not indicative of a
full year's operating results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the 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 for the ten months ended October 31, 1994 would have been 0.68%
and for the fiscal year ended October 31, 1995, total operating expenses
would have been 0.72% of average net assets.
/4/ Includes net realized losses on foreign currency transactions/translations.
46
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions.
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
TCW GALILEO MORTGAGE-BACKED SECURITIES FUND
YEAR ENDED OCTOBER 31 TEN MONTHS
ENDED
1998 1997 1996 1995 10/31/1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 9.67 $ 9.58 $ 9.41 $ 9.86
------- ------- ------- ---------
Investment operations:
Investment income - net .58 .51 .67 .42
Net realized and unrealized gain (loss) on investments 0.05 0.22 0.25 (0.48)
------- ------- ------- ---------
Total from investment operations 0.63 0.73 0.92 (0.06)
------- ------- ------- ---------
Distributions:
Dividends from net investment income (0.38) (0.46) (0.71) (0.39)
Dividends from net realized gains on investments -- -- -- --
Dividends in excess of net realized gains on investment (0.22) (0.18) (0.04) --
------- ------- ------- ---------
Total Distributions: (0.60) (0.64) (0.75) (0.39)
------- ------- ------- ---------
Net asset value, end of period $ $ 9.70 $ 9.67 $ 9.58 $ 9.41
======== ======== ======== ======== =========
Total return (%) 6.71% 7.86% 10.16% (0.61)%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 0.77% 0.69% 0.61%/3/ 0.55 %/2,3/
Ratio of net investment income to average net assets (%) 6.00% 5.34% 7.13% 5.18 %/2/
Portfolio turnover rate (%) 109.91% 54.10% 37.83% 65.54 %/1/
Net assets, end of period ($ x 1,000) $55,307 $61,835 $81,366 $ 134,948
</TABLE>
/1/ For the ten months ended October 31, 1994 and not indicative of a
full year's operating results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 0.55% of net assets through
December 31, 1994. Had such action not been taken, total annualized
operating expenses for the ten months ended October 31, 1994 would have
been 0.62% of average net assets and for the fiscal year ended October 31,
1995, total operating expenses would have been 0.63% of average net assets.
47
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions.
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
TCW GALILEO TOTAL RETURN MORTGAGE-BACKED SECURITIES FUND
YEAR ENDED OCTOBER 31 TEN MONTHS
ENDED
1998 1997 1996 1995 10/31/1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 9.56 $ 9.56 $ 8.95 $ 10.07
------- -------- ------- ---------
Investment operations:
Investment income - net 0.75 0.68 0.72 0.63
Net realized and unrealized gain (loss) on investments 0.32 0.02 0.71 (1.26)
------- -------- ------- ---------
Total from investment operations 1.07 0.70 1.43 (0.63)
------- -------- ------- ---------
Distributions:
Dividends from net investment income (0.72) (0.68) (0.82) (0.49)
Dividends from net realized gains on investments -- -- -- --
Distributions in Excess of Net -- (0.02) -- --
------- -------- ------- ---------
Total Distributions: (0.72) (0.70) (0.82) (0.49)
------- -------- ------- ---------
Net asset value, end of period $ $ 9.91 $ 9.56 $ 9.56 $ 8.95
======= ======= ======== ======= =========
Total return (%) 11.66% 7.69% 16.84% (6.39)%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 0.67% 0.68% 0.68%/3/ 0.65 %/2,3/
Ratio of net investment income to average net assets (%) 7.77% 7.15% 7.88% 8.03 %/2/
Portfolio turnover rate (%) 16.01% 39.28% 23.76% 36.71 %/1/
Net assets, end of period ($ x 1,000) $81,442 $112,260 $80,159 $ 66,632
</TABLE>
/1/ For the ten months ended October 31, 1994 and not indicative of a
full year's operating results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 0.65% of net assets through
December 31, 1994. Had such action not been taken, for the ten months ended
October 31, 1994 total annualized operating expenses would have been 0.78%
of average net assets, and for the fiscal year ended October 31, 1995,
total operating expenses would have been 0.69% of average net assets.
48
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions.
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
TCW GALILEO HIGH YIELD BOND FUND
YEAR ENDED OCTOBER 31 TEN MONTHS
ENDED
1998 1997 1996 1995 10/31/1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 9.77 $ 9.74 $ 9.43 $ 10.12
-------- -------- ------- ---------
Investment operations:
Investment income - net 0.91 0.89 0.92 0.73
Net realized and unrealized gain (loss) on investments 0.34 0.03 0.39 (0.77)
-------- -------- ------- ---------
Total from investment operations 1.25 0.92 1.31 (0.04)
-------- -------- ------- ---------
Distributions:
Dividends from net investment income (0.91) (0.89) (1.00) (0.65)
Dividends from net realized gains on investments -- -- -- --
-------- -------- ------- ---------
Distributions in Excess of net Realized Gains -- -- -- --
-------- -------- ------- ---------
Total Distributions (0.91) (0.89) (1.00) (0.65)
Net asset value, end of period $ $ 10.11 $ 9.77 $ 9.74 $ 9.43
========= ======== ======== ======= =========
Total return (%) 13.26% 9.92% 14.65% (0.34)%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 0.83% 0.90% 0.87%/3/ 0.79%/2,3/
Ratio of net investment income to average net assets (%) 9.10% 9.21% 9.60% 9.18%/2/
Portfolio turnover rate (%) 109.45% 82.56% 36.32% 34.01%/1/
Net assets, end of period ($ x 1,000) $208,761 $183,815 $92,652 $ 90,577
</TABLE>
/1/ For the ten months ended October 31, 1994 and not indicative for a
full year's operating results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 0.79% of net assets through
December 31, 1994. Had such action not been taken, for the ten months ended
October 31, 1994 total annualized operating expenses would have been 0.91%
of average net assets, and for the fiscal year ended October 31, 1995,
total operating expenses would have been 0.88% of average net assets.
49
<PAGE>
FOR MORE INFORMATION
TO OBTAIN INFORMATION:
---------------------
BY TELEPHONE
Call 1-800-386-3829
BY MAIL Write to:
TCW Galileo Funds, Inc.
Investor Relations Department
By E-mail Send your request to
ON THE INTERNET Text-only versions of Fund documents can be viewed
online or downloaded from:
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room
in Washington, DC (phone 1-800-SEC-0330)or by sending your request and
a duplicating fee to the SECs Public Reference Section, Washington DC
20549-6009.
__________________________
__________________________
__________________________
SEC file number: 811-____
More information on this Fund is available free upon request,
including the following:
ANNUAL/SEMIANNUAL REPORT
Describes the Fund's performance, lists portfolio holdings and
contains a letter from the Fund's manager discussing recent market
conditions, economic trends and Fund strategies.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Fund and its policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is
incorporated by reference (is legally considered part of this
prospectus).
50
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Institutional Class shares of ten of
the separate investment funds offered by TCW Galileo Funds, Inc., each of which
has different investment objectives and policies. Please read this document
carefully, and keep it for future reference. Sometimes we will refer to the
funds in this prospectus as the Galileo Equity Funds.
TCW GALILEO CONVERTIBLE SECURITIES FUND
TCW GALILEO SELECT EQUITIES FUND
TCW GALILEO EARNINGS MOMENTUM FUND
TCW GALILEO ENHANCED 500 FUND
TCW GALILEO LARGE CAP GROWTH FUND
TCW GALILEO LARGE CAP VALUE FUND
TCW GALILEO AGGRESSIVE GROWTH EQUITIES FUND
TCW GALILEO SMALL CAP GROWTH FUND
TCW GALILEO SMALL CAP VALUE FUND
TCW GALILEO VALUE OPPORTUNITIES FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
March 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES.......................................... 4
PRINCIPAL RISKS......................................................................... 5
PERFORMANCE SUMMARY..................................................................... 7
FUND EXPENSES........................................................................... 12
EXPENSE EXAMPLE......................................................................... 13
TCW GALILEO CONVERTIBLE SECURITIES FUND
INVESTMENT OBJECTIVES/APPROACH.......................................................... 14
MAIN RISKS.............................................................................. 15
TCW GALILEO SELECT EQUITIES FUND
INVESTMENT OBJECTIVES/APPROACH.......................................................... 17
MAIN RISKS.............................................................................. 18
TCW GALILEO EARNINGS MOMENTUM FUND
INVESTMENT OBJECTIVES/APPROACH.......................................................... 19
MAIN RISKS.............................................................................. 20
TCW GALILEO ENHANCED 500 FUND
INVESTMENT OBJECTIVES/APPROACH.......................................................... 22
MAIN RISKS.............................................................................. 23
TCW GALILEO LARGE CAP GROWTH FUND
INVESTMENT OBJECTIVES/APPROACH.......................................................... 24
MAIN RISKS.............................................................................. 25
TCW GALILEO LARGE CAP VALUE FUND
INVESTMENT OBJECTIVES/APPROACH.......................................................... 26
MAIN RISKS.............................................................................. 27
TCW GALILEO AGGRESSIVE GROWTH EQUITIES FUND
INVESTMENT OBJECTIVES/APPROACH.......................................................... 28
MAIN RISKS.............................................................................. 29
TCW GALILEO SMALL CAP GROWTH FUND
INVESTMENT OBJECTIVES/APPROACH.......................................................... 30
MAIN RISKS.............................................................................. 31
TCW GALILEO SMALL CAP VALUE FUND
INVESTMENT OBJECTIVES/APPROACH.......................................................... 32
MAIN RISKS.............................................................................. 33
TCW GALILEO VALUE OPPORTUNITIES FUND
INVESTMENT OBJECTIVES/APPROACH.......................................................... 34
MAIN RISKS.............................................................................. 35
RISK CONSIDERATIONS..................................................................... 36-43
MANAGEMENT OF THE FUNDS................................................................. 44
MULTIPLE CLASS STRUCTURE................................................................ 47
ACCOUNT POLICIES AND SERVICES........................................................... 48
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT................................................. 51
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
TO SELL OR EXCHANGE SHARES............................................................. 52
DISTRIBUTIONS AND TAXES................................................................ 53
FINANCIAL HIGHLIGHTS................................................................... 54-62
FOR MORE INFORMATION................................................................... 63
</TABLE>
3
<PAGE>
All of the Galileo Equity Funds are affected by changes in the economy, or in
securities and other markets. There is also the possibility that investment
decisions the Adviser makes will not accomplish what they were designed to
achieve or that companies in which the Funds invest will have disappointing
performance or not pay their debts.
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC. INVESTMENT OBJECTIVES PRINCIPAL INVESTMENT STRATEGIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCW Galileo Convertible Securities Fund High total return from current income Invests in convertible securities.
and capital appreciation
- -----------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Select Equities Fund Long-term capital appreciation Invests in common stock of large
capitalization companies.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Earnings Momentum Fund Long-term capital appreciation Invests in equity securities of companies
experiencing or expected to experience
accelerating earnings growth.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Enhanced 500 Fund A high level of total return through a Invests in equity securities of
combination of capital appreciation and companies which are included in the
current income Standard & Poor's 500 Composite Stock
Price Index.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Large Cap Growth Long-term capital appreciation Invests in equity securities of large
Fund capitalization U.S. companies with above
average earnings prospects.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Large Cap Value Fund Long-term capital appreciation Invests in equity securities of large
capitalization value companies.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Aggressive Growth Equities Long-term capital appreciation Invests in equity securities issued by
Fund companies that appear to offer superior
growth prospects.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Small Cap Growth Long-term capital appreciation Invests in equity securities issued by
Fund companies with market capitalizations of
less than $1 billion.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Small Cap Value Fund Long-term capital appreciation Invests in equity securities issued by
value companies with market
capitalizations of less than $1 billion.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Value Opportunities Fund Long-term capital appreciation Invests in equity securities of
companies with market capitalizations
between $500 million and $2.5 billion.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Under adverse market conditions, each Fund could invest some or all of its
assets in money market securities. Although the Funds would do this only in
seeking to avoid losses, it could have the effect of reducing the benefit from
any upswing in the market.
4
<PAGE>
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you and the more you can lose. Since shares of a
Fund represent an investment of securities with fluctuating market prices, the
value of Fund shares will vary as each Fund's portfolio securities increase or
decrease. Therefore, the value of an investment in a Fund could go down as well
as up. All investments are subject to:
. ASSET CLASS RISK
There is the possibility that the returns from the types of securities in
which a Fund invests will underperform returns from the various general
securities markets or different asset classes. Different types of
securities tend to go through cycles of outperformance and underperformance
in comparison to the general securities markets.
. SECURITIES SELECTION RISK
There is the possibility that the specific securities held in a Fund's
portfolio will underperform other funds in the same asset class or
benchmarks that are representative of the general performance of the asset
class because of the portfolio manager's choice of securities.
. PRICE VOLATILITY
There is the possibility that the value of the Fund's portfolio will change
as the prices of its investments go up or down. Although stocks offer the
potential for greater long-term growth than most fixed income securities,
stocks generally have higher short-term volatility.
Each Fund may also be subject (in varying degrees) to the following risks:
. LIQUIDITY RISK
There is the possibility that a Fund may lose money or be prevented from
earning capital gains if it can not sell a security at the time and price
that is most beneficial to the Fund. The Earnings Momentum, Aggressive
Growth Equities, Small Cap Growth, Small Cap Value, and Value
Opportunities Funds are subject to liquidity risk because they invest
primarily in securities of small or medium sized companies. The
Convertible Securities Fund is subject to liquidity risk because it
may invest in lower quality securities.
. FOREIGN INVESTING RISK
There is the likelihood that foreign investments may be riskier than U.S.
investments because of a lack of political stability, foreign controls on
investment and currency exchange rates, fluctuations in currency exchange
rates, withholding taxes, and lack of adequate company information. Each
Fund is subject to foreign investing risk because it may invest in
securities issued by foreign governments or companies. In addition, because
foreign securities generally are denominated and pay dividends or interest
in foreign currencies, and each Fund holds various foreign currencies, the
value of the net assets of these Funds as measured in United States dollars
will be affected favorable or unfavorable by changes in exchange rates.
5
<PAGE>
PRINCIPAL RISKS
. JUNK BONDS
These bonds are speculative in nature. They are usually issued by companies
without long track records of sales and earnings, or by those companies with
questionable credit strength. The Convertible Securities Fund's portfolio
consists, at times, primarily of below investment grade corporate securities.
Each Fund may be more susceptible to some of the risks discussed on the previous
page than others, as noted in the description of each Fund. A more detailed
explanation of these risks is presented under the "Risk Considerations" section
at page 36.
Because each Fund is non-diversified for 1940 Act purposes, it may invest more
than 5% of its total assets in the securities of any one issuer. Consequently,
its exposure to credit and market risks associated with that issuer is
increased.
Your investment is not a bank deposit, and it is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
6
<PAGE>
PERFORMANCE SUMMARY
The two tables below show each Fund's annual returns and its long-term
performance with respect to its Institutional Class shares. The first table
shows you how the Fund's performance has varied from year to year. The second
compares the Fund's performance over time to that of a broad-based securities
index. Both tables assume reinvestment of dividends and distributions. The
performance information includes performance of the predecessor limited
partnership of each Fund. As with all mutual funds, past performance is not a
prediction of future results.
Year by year total return (%)
as of December 31 each year*
TCW Galileo Convertible Securities Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
16.24% -6.09% 33.34% 14.53% 20.12% -6.70% 22.63% 15.04% 19.26% ______%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998
is: ______%
TCW Galileo Select Equities Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15.41% 10.35% 22.93% -7.04% 26.45% 20.58% 22.70% ______%
1991 1992 1993 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998
is: ______%
TCW Galileo Earnings Momentum Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
23.95% -5.70% 26.43% 10.56% 9.94% ______%
1993 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998
is: ______%
7
<PAGE>
TCW Galileo Enhanced 500 Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
13.22% 30.75% ______%
1996 1997 1998
- ---------------------------------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998
is: ______%
TCW Galileo Large Cap Growth Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.70% ______%
1997 1998
- ---------------------------------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998
is: ______%
TCW Galileo Large Cap Value Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
______%
1998
- -----------------------------------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998
is: ______%
TCW Galileo Aggressive Growth Equities Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
60.66% 12.38% 12.65% ______%
1995 1996 1997 1998
- --------------------------------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998
is: ______%
TCW Galileo Small Cap Growth Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-11.49% 81.09% 2.74% 13.06% -4.38% 64.29% 17.63% 14.37% ______%
1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998
is: ______%
8
<PAGE>
TCW Galileo Value Opportunities Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.50% 17.10% ______%
1996 1997 1998
- --------------------------------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998
is: ______%
9
<PAGE>
Best and worst quarterly performance during this period
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------------------------
<S> <C>
. Convertible Securities Fund
Quarter ending March 31, 1991 14.63% (Best)
Quarter ending September 30, 1998 -10.34% (Worst)
- --------------------------------------------------------------------------------------------------
. Select Equities Fund
Quarter ending June 30, 1997 18.15% (Best)
Quarter ending September 30, 1998 -6.62% (Worst)
- --------------------------------------------------------------------------------------------------
. Earnings Momentum Fund
Quarter ending June 30, 1997 28.01% (Best)
Quarter ending September 30, 1998 -24.71% (Worst)
- --------------------------------------------------------------------------------------------------
. Enhanced 500 Fund
Quarter ending June 30, 1997 17.02% (Best)
Quarter ending September 30, 1998 -9.71% (Worst)
- --------------------------------------------------------------------------------------------------
. Large Cap Growth Fund
Quarter ending March 31, 1998 14.54% (Best)
Quarter ending September 30, 1998 -3.81% (Worst)
- --------------------------------------------------------------------------------------------------
. Large-Cap Value Fund
Quarter ending March 31, 1998 10.67% (Best)
Quarter ending September 30, 1998 -10.46% (Worst)
- --------------------------------------------------------------------------------------------------
. Aggressive Growth Equities Fund
Quarter ending June 30, 1997 23.41% (Best)
Quarter ending March 31, 1997 -19.98% (Worst)
- --------------------------------------------------------------------------------------------------
. Small Cap Growth Fund
Quarter ending June 30, 1997 28.00% (Best)
Quarter ending September 30, 1998 -22.30% (Worst)
- --------------------------------------------------------------------------------------------------
. Value Opportunities Fund
Quarter ending June 30, 1997 14.83% (Best)
Quarter ending September 30, 1998 -27.00% (Worst)
- --------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF SINCE
DECEMBER 31 1 YEAR 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
. Convertible Securities Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
First Boston Convertible Securities ____% ____% ____% ____%
Index
- -------------------------------------------------------------------------------------------------------
. Select Equities Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
S&P 500 ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
. Earnings Momentum Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
Russell 2000 Index ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
. Enhanced 500 Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
S&P 500 ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
. Large Cap Growth Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
S&P/BARRA Growth Index ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
. Large Cap Value Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
S&P/BARRA Value Index ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
. Aggressive Growth Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
S&P 400 Mid-Cap ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
. Small Cap Growth Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
Russell 2000 Index ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
. Value Opportunities Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
Wilshire Mid-Cap 750 ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
FUND EXPENSES
As an investor, you pay certain fees and expenses in connection with the Funds,
which are described in the table below. Annual Fund operating expenses are paid
out of Fund assets, so their effect is included in the share price. The
Institutional Class shares of the Funds have no sales charge (load) or Rule 12b-
1 distribution fees.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FEE TABLE
ENHANCED LARGE CAP LARGE CAP AGGRESSIVE SMALL CAP
CONVERTIBLE SELECT EARNINGS 500 GROWTH VALUE GROWTH GROWTH
SECURITIES EQUITIES MOMENTUM EQUITIES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder
transaction fees
1) Redemption None None None None None None None None
Fees
2) Exchange None None None None None None None None
Fees
3) Contingent None None None None None None None None
Deferred Sales
Load
4) Sales Load on None None None None None None None None
Reinvested
Dividends
5) Sales Load on None None None None None None None None
Purchases
ANNUAL FUND
OPERATING EXPENSES
Management 0.75% 0.75% 1.00% 0.25% 0.55% 0.55% 1.00% 1.00%
Fees
Distribution None None None None None None None None
(12b-1) Fees
Other Expenses _% _% _% _% _% _% _% _%
Total Annual _% _% _% _% _% _% _% _%
Fund Operating
Expenses
<CAPTION>
SMALL CAP
VALUE VALUE
OPPORTUNITIES
<S> <C> <C>
Shareholder
transaction fees
1) Redemption None None
Fees
2) Exchange None None
Fees
3) Contingent None None
Deferred Sales
Load
4) Sales Load on None None
Reinvested
Dividends
5) Sales Load on None None
Purchases
ANNUAL FUND
OPERATING EXPENSES
Management 1.00% 0.80%
Fees
Distribution None None
(12b-1) Fees
Other Expenses _% _%
Total Annual _% _%
Fund Operating
Expenses
</TABLE>
12
<PAGE>
EXPENSE EXAMPLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Expense Example
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convertible Securities
Select Equities
Earnings Momentum
Enhanced 500
Large Cap Growth
Large Cap Value
Aggressive Growth Equities
Small Cap Growth
Small Cap Value
Value Opportunities
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 Initial
Investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether or not you sold your shares at the end of a
period. Because actual return and expenses will be different, the example is for
comparison purposes only.
13
<PAGE>
TCW GALILEO CONVERTIBLE SECURITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks high total return from current income and capital
appreciation. To pursue this goal, the Fund invests at least 65% of
its total assets in convertible securities.
In managing the Fund's investments, the Adviser considers the
following factors when determining which securities to select:
. the Adviser's own evaluations of the creditworthiness of the
issuers of the securities
. the interest or dividend income generated by the securities
. the potential for capital appreciation of the securities and the
underlying common stocks
. the protection against price declines relative to the underlying
common stocks
. the prices of the securities relative to other comparable
securities
. whether the securities have protective conditions
. the diversification of the Fund's investments
. the ratings assigned to the securities
THOMAS D. LYON AND KEVIN A. HUNTER ARE THE FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
Convertible securities are corporate securities that are exchangeable
for a set number of another form of security at a prestated price.
They can be in the form of equity or debt.
The Fund anticipates that it will invest in convertible securities
that have a credit rating of at least B- or B3 by rating agencies such
as Moody's Investors Service, Inc. or Standard & Poor's Corporation.
These securities are considered to be mostly speculative in nature.
14
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily convertible securities, which may go up or
down in value, in accordance with moves in the convertible securities'
underlying stock, sometimes rapidly and unpredictably. Although
stocks offer the potential for greater long-term growth than most
fixed income securities, stocks generally have higher short-term
volatility.
The primary risks affecting this Fund are "credit risk," "interest
rate risk," "liquidity risk" and, to a lesser extent, "foreign
investing risk."
CREDIT RISK refers to the likelihood that the Fund could lose money if
an issuer is unable to meet its financial obligations, such as the
payment of principal and/or interest on an instrument, or goes
bankrupt. This Fund may be subject to greater credit risk, because it
may invest in securities that are below investment grade. This is
especially true during periods of economic uncertainty or during
economic downturns. Below investment grade securities are often
issued by companies without long track records of sales and earnings,
or by those companies with questionable credit strength. In the event
of a prepayment problem by the issuer of these securities, they will
only be paid if there is anything left after the payment of senior
debt, such as bank loans and investment grade bonds. INTEREST RATE
RISK refers to the possibility that the value of the Fund's portfolio
investments may fall since fixed income securities generally fall in
value when interest rates rise. The longer the term of a fixed income
instrument, the more sensitive it will be to fluctuations in value
from interest rate changes. LIQUIDITY RISK refers to the possibility
that the Fund may lose money or be prevented from earning capital
gains if it can not sell a security at the time and price that is most
beneficial to the Fund. Because lower quality securities may be less
liquid than higher quality securities, the Fund may be more
susceptible to liquidity risk than funds that invest in higher quality
securities. A security whose credit rating has been lowered may be
particularly difficult to sell. Because the Fund may invest a portion
of its assets in securities issued by foreign companies, it may be
subject to FOREIGN INVESTING RISKS. Foreign investing risk refers to
the likelihood that foreign investments may be riskier than U.S.
investments because of many factors, some of which include:
. a lack of political or economic stability
. foreign controls on investment and changes in currency exchange
rates
. withholding taxes
. a lack of adequate company information
15
<PAGE>
The risks of foreign investing are even more pronounced if the Fund
invests in emerging markets. In addition, securities traded only
through foreign markets may be more volatile and are often harder to
sell. Volatility is a way to measure the changes in the price of a
single security or an entire portfolio. Large and frequent price
changes indicate higher volatility, which generally indicates that
there is a greater chance you could lose money over the short term.
The Fund is also subject to foreign currency risk. Because foreign
securities are generally denominated and pay dividends or interest in
foreign currencies, the value of the net assets of the Fund as
measured in United States dollars will be affected favorably or
unfavorably by changes in exchange rates.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
16
<PAGE>
TCW GALILEO SELECT EQUITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. Performance should be
measured over a full market cycle.
To pursue this goal, the Fund invests primarily in the common stocks
of larger companies. The investment philosophy underlying our
strategy is a highly focused approach which seeks to achieve superior
long-term returns by owning shares in companies that are believed to
have strong and enduring business models and inherent advantages over
their competitors. In implementing its investment policy, the Fund
may purchase and sell convertible securities and foreign securities.
GLEN A. BICKERSTAFF IS THE FUND'S PORTFOLIO MANAGER.
CONCEPTS TO UNDERSTAND
----------------------
Large capitalization companies are established companies that are
considered known quantities. Large companies often have the resources to
weather economic shifts, though they can be slower to innovate than small
companies.
17
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "price volatility" and
"foreign investing risk." PRICE VOLATILITY refers to the possibility
that the value of the Fund's portfolio will change as the prices of
its investments go up or down. Although the Fund is subject to price
volatility because of its stock investments, it is subject to less
price volatility than funds that invest in the securities of smaller
companies. Because the Fund may invest a portion of its assets in
securities issued by foreign companies, it may be subject to foreign
investing risks. FOREIGN INVESTING RISK refers to the likelihood that
foreign investments may be riskier than U.S. investments because of
many factors, some of which include:
. a lack of political or economic stability
. foreign controls on investment and currency exchange rates
. withholding taxes
. a lack of adequate company information
In addition, securities traded only through foreign markets may be
more volatile and are often harder to sell. Volatility is a way to
measure the changes in the price of a single security or an entire
portfolio. Large and frequent price changes indicate higher
volatility, which generally indicates that there is a greater chance
you could lose money over the short-term. The Fund is also subject to
foreign currency risk. Because foreign securities are generally
denominated and pay dividends or interest in foreign currencies, the
value of the net assets of the Fund as measured in United States
dollars will be affected favorably or unfavorably by changes in
exchange rates.
The Fund may invest some assets in options, futures and foreign
currency futures and forward contracts. These practices are used
primarily to hedge the Fund's portfolio but may be used to increase
returns; however, such practices sometimes may reduce returns or
increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
18
<PAGE>
TCW GALILEO EARNINGS MOMENTUM FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal,
the Fund invests primarily in equity securities of companies
experiencing or expected to experience accelerating earnings growth.
The Fund will invest primarily in common stocks, but may also invest
in convertible securities, warrants, options and foreign securities.
The Adviser uses a "bottom-up" approach to identify industries or
companies that are experiencing or expected to experience an
acceleration in earnings growth. It monitors the following changes in
an attempt to identify these companies:
. changes in general economic, political or demographic trends
. development of new products or technology
. changes in consumer attitudes
. changes in a company's competitive advantage
. changes in the way a company is operated or valued
CHARLES LARSEN IS THE FUND'S PORTFOLIO MANAGER.
CONCEPTS TO UNDERSTAND
----------------------
Earnings acceleration is the pattern of increasing rate of growth in a
company or industry is typically triggered by a change that causes
fundamentals to improve .
19
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "price volatility,"
"liquidity risk" and "foreign investing risk." PRICE VOLATILITY
refers to the possibility that the value of the Fund's portfolio will
change as the prices of its investments go up or down. This Fund may
be subject to greater price volatility than funds that invest in the
securities of large companies. LIQUIDITY RISK refers to the
possibility that the Fund may lose money or be prevented from earning
capital gains if it can not sell securities at the time and price that
is most beneficial to the Fund. Because the securities of small-sized
companies may be less liquid than the securities of large-sized
companies, the Fund may be more susceptible to liquidity risk than
funds that invest in the securities of large-sized companies. Because
the Fund may invest a portion of its assets in securities issued by
foreign companies, it may be subject to FOREIGN INVESTING RISKS.
Foreign investing risk refers to the likelihood that foreign
investments may be riskier than U.S. investments because of many
factors, some of which include:
. a lack of political or economic stability
. foreign controls on investment and currency exchange rates
. withholding taxes
. a lack of adequate company information
In addition, securities traded only through foreign markets may be
more volatile and are often harder to sell. Volatility is a way to
measure the changes in the price of a single security or an entire
portfolio. Large and frequent price changes include higher
volatility, which generally indicates that there is a greater chance
you could lose money over the short term. The Fund is also subject to
foreign currency risk. Because foreign securities are generally
denominated and pay dividends or interest in foreign currencies, the
value of the net assets of the Fund as measured in United States
dollars will be affected favorably or unfavorably by changes in
exchange rates.
The Fund may invest some assets in options. This practice is used
primarily to hedge the Fund's portfolio but it may be used to increase
returns; however, this practice sometimes may reduce returns or
increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will
20
<PAGE>
be secured at all times by cash and other high grade debt obligations.
As with any extension of credit, there are risks of delay in recovery
and in some cases even loss of rights in the collateral should the
borrower fail financially.
21
<PAGE>
TCW GALILEO ENHANCED 500 FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks to achieve a high level of total return through a
combination of capital appreciation and current income. To pursue
this goal, it invests at least 65% of its total assets in equity
securities of companies which are included in the Standard & Poor's
500 Composite Stock Price Index.
In managing the Fund's investments, the Sub-Adviser utilizes a
quantitative analysis approach. This approach employs three
investment processes: (1) the analyst process; (2) the strategist
process; and (3) the portfolio manager process. The analyst process
creates a profile for each issuer in the S&P Index. The strategist
process attempts to determine the expected return on an investment in
the issuer's securities. The portfolio manager process is designed to
implement the results of the strategist process by over-weighting
those companies with a positive estimated return and under-weighting
those with lower estimated returns in the Fund's portfolio.
WALTER A. FRENCH IS THE FUND'S PORTFOLIO MANAGER.
CONCEPTS TO UNDERSTAND
----------------------
Standard & Poor's 500 Composite Stock Price Index is an unmanaged
index containing common stocks of 500 industrial, transportation,
utility and financial companies. The S&P 500 Index is generally
considered representative of the United States stock market.
22
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risk affecting this Fund is "price volatility." PRICE
VOLATILITY refers to the possibility that the value of the Fund's
portfolio will change as the prices of its investments go up or down.
This Fund may be less subject to price volatility than funds that
invest primarily in the securities of smaller companies. This is
especially true during periods of economic uncertainty or during
economic downturns.
The Fund may invest some assets in options. This practice is used
primarily to hedge the Fund's portfolio, but may be used to increase
returns; however, such practice sometimes may reduce returns or
increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
23
<PAGE>
TCW GALILEO LARGE CAP GROWTH FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal,
it invests primarily in equity securities of large capitalization U.S.
companies with above-average earnings prospects. It will invest at
least 65% of its total assets in companies with a market
capitalization of greater than $3 billion at the time of purchase.
In managing the Fund's investments, the Adviser seeks to invest in
companies that will have reported earnings that exceed analysts'
expectations (i.e., potential for earnings surprises). The Adviser
----
utilizes "bottom-up" fundamental research to identify these companies.
The Adviser performs fundamental research by using techniques such as:
. making company visits
. attending industry conferences
. maintaining communication with company management
The Adviser then uses the information that it has obtained from its
fundamental research to analyze the company's long-term growth
potential, future earnings and cash flow.
The Adviser uses quantitative and qualitative screening criteria to
determine which companies to subject to its fundamental analysis.
WENDY S. BARKER AND DOUGLAS S. FOREMAN ARE THE FUND'S PORTFOLIO
MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
Large capitalization companies are established companies that are
considered known quantities. Large capitalization companies often have
the resources to weather economic shifts, although they can be slower
to innovate than small companies.
Growth companies are companies exhibiting faster than average gains in
earnings and which are expected to continue to show high levels of
growth gain.
24
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risk affecting this Fund is "price volatility." PRICE
VOLATILITY refers to the possibility that the value of the Fund's
portfolio will change as the prices of its investments go up or down.
This Fund may be less susceptible to price volatility risk because it
invests in the securities of large companies. This is especially true
during periods of economic uncertainty or during economic downturns.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
25
<PAGE>
TCW GALILEO LARGE CAP VALUE FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal,
the Fund invests primarily in equity securities of large
capitalization companies. The securities include common and preferred
stock and convertible securities. The Fund will invest at least 65%
of its total assets in publicly traded equity securities of companies
with a market capitalization of greater than $3 billion at the time of
purchase. The Fund will invest mostly in "value companies."
In managing the Fund's investments, the Adviser seeks to invest in
attractively valued equity securities of companies where the return on
invested capital is improving. The Adviser utilizes bottom-up
fundamental research to identify these companies. The Adviser
performs fundamental research by
. making company visits
. financial screening to identify companies
. maintaining a disciplined approach to stock selection and portfolio
construction
The Adviser will use both quantitative and qualitative screening
criteria to supplement the scope of fundamental research.
THOMAS K. MCKISSICK IS THE FUND'S PORTFOLIO MANAGER.
CONCEPTS TO UNDERSTAND
----------------------
Large capitalization companies are established companies that are
considered known quantities. Large capitalization companies often have
the resources to weather economic shifts, though they can be slower
to innovate than small companies.
Value companies are companies that appear underpriced according to
certain financial measurements of their intrinsic worth or business
prospects (such as price-to-earnings or price-to-book ratios). Because
a stock can remain undervalued for years, value investors often look
for factors that could trigger a rise in price.
26
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risk affecting this Fund is "price volatility." PRICE
VOLATILITY refers to the possibility that the value of the Fund's
portfolio will change as the prices of its investments go up or down.
This Fund may be less susceptible to price volatility than funds that
invest in the securities of small companies. This is especially true
during periods of economic uncertainty or during economic downturns.
The Fund may invest some assets in options. This practice is used
primarily to hedge the Fund's portfolio but it may be used to increase
returns; however, this practice sometimes may reduce returns or
increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
27
<PAGE>
TCW GALILEO AGGRESSIVE GROWTH EQUITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal,
the Fund invests in the equity securities of companies that appear to
offer superior growth prospects. These securities include common and
preferred stock and convertible securities. In managing the Fund's
investments, the Adviser will focus on emerging companies that exhibit
this characteristic.
The Adviser utilizes a "bottom-up" approach to identify securities for
investment. First, the Adviser uses quantitative and qualitative
criteria to screen companies. The Adviser then subjects companies
that make it through this screening process to fundamental analysis,
which generally looks for at least some of the following factors:
. a demonstrated record of consistent earnings growth or the
potential to grow earnings
. an ability to earn an attractive return on equity
. a price/earnings ratio which is less than the Adviser's internally
estimated three-year earnings growth rate
. a large and growing market share
. a strong balance sheet
. significant ownership interest by management and a strong
management team.
CHRISTOPHER J. AINLEY AND DOUGLAS S. FOREMAN ARE THE FUND'S PORTFOLIO
MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
Emerging growth companies are companies that are likely to show rapid
growth through reinventing an existing industry or pioneering a new
industry.
28
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "price volatility" and
"liquidity risk." PRICE VOLATILITY refers to the possibility that the
value of the Fund's portfolio will change as the prices of its
investments go up or down. This Fund may be subject to greater price
volatility than funds that invest in the securities of larger
companies. LIQUIDITY RISK refers to the possibility that the Fund may
lose money or be prevented from earning capital gains if it can not
sell securities at the time and price that is most beneficial to the
Fund. Because the securities of medium-sized companies may be less
liquid than the securities of large-sized companies, the Fund may be
susceptible to liquidity risk more than funds that invest in the
securities of large-sized companies. In addition, the Fund may be
subject to liquidity risk because it may invest in debt instruments
rated below investment grade.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
29
<PAGE>
TCW GALILEO SMALL CAP GROWTH FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal, it
invests at least 65% of its total assets in equity securities issued
by companies with market capitalizations at the time of acquisition of
less than $1 billion.
In managing the Fund's investments, the Adviser pursues a small cap
growth investment philosophy. That philosophy consists of fundamental
company-by-company analysis used in conjunction with technical and
quantitative market analysis to screen potential investments and to
continuously monitor securities in the Fund's portfolio.
DOUGLAS S. FOREMAN, CHRISTOPHER J. AINLEY AND CHARLES LARSEN ARE THE
FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
SMALL-SIZED COMPANIES seek long term capital appreciation by focusing
on small, fast-growing companies that offer cutting-edge products,
services or technologies. Because these companies are often in their
early stages of development, their stocks tend to fluctuate more than
most other securities.
30
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "price volatility" and
"liquidity risk." PRICE VOLATILITY refers to the possibility that the
value of the Fund's portfolio will change as the prices of its
investments go up or down. This Fund may be subject to greater price
volatility than funds that invest in the securities of large or midcap
companies. LIQUIDITY RISK refers to the possibility that the Fund may
lose money or be prevented from earning capital gains if it can not
sell securities at the time and price that is most beneficial to the
Fund. Because the securities of small-size companies may be less
liquid than the securities of large-size companies, the Fund may be
more susceptible to liquidity risk than funds that invest in the
securities of large-sized companies.
The Fund may invest some assets in options. This practice is used
primarily to hedge the Fund's portfolio but may be used to increase
returns; however, such practice sometimes may reduce returns or
increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
31
<PAGE>
TCW GALILEO SMALL CAP VALUE FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal, it
invests at least 65% of its total assets in equity securities issued
by value companies with market capitalizations of less than $1
billion. These securities include common and preferred stocks, rights
or warrants to purchase common or preferred stock and convertible
securities.
In managing the Fund's investments, the Adviser looks to invest the
Fund's assets in the equity securities of companies that:
. have undervalued assets or undervalued growth potential
. are in a turnaround situation
. are emerging growth companies
The Adviser performs fundamental analysis on each company. This
includes a review of available financial and other business
information, company visits and management interviews.
NICHOLAS F. GALLUCIO, SUSAN I. SCHOTTENFELD AND TYLER D. DAVIS ARE
THE FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
- ----------------------
Undervalued Assets: When a company's securities are selling below probable
liquidation values, net working capital or tangible book value.
Undervalued Growth Potential: When a company has a strong potential growth rate
and a strong balance sheet but has securities selling at a market multiple
(based on normalized earnings) and/or a price earnings multiple at a discount to
its peer group of companies.
Turnaround Situation: When a company has a sound balance sheet but has
securities that are selling at a significant market discount to the Adviser's
estimate of the company's 24 month sustainable earnings.
Emerging Growth Company: When a company has the potential for a significant
annual growth rate, a proprietary product and/or pre-eminent market position,
with a price/earnings multiple of generally not more than half the expected
growth rate.
32
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "price volatility" and
"liquidity risk." PRICE VOLATILITY refers to the possibility that the
value of the Fund's portfolio will change as the prices of its
investments go up or down. This Fund may be subject to greater price
volatility than funds that invest in the securities of large
companies. LIQUIDITY RISK refers to the possibility that the Fund may
lose money or be prevented from earning capital gains if it can not
sell securities at the time and price that is most beneficial to the
Fund. Because the securities of small-size companies may be less
liquid than the securities of large-size companies, the Fund may be
susceptible to liquidity risk more than funds that invest in the
securities of large-sized companies.
The Fund may invest some assets in options. This practice is used
primarily to hedge the Fund's portfolio but may be used to increase
returns; however, such practice sometimes may reduce returns or
increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
33
<PAGE>
TCW GALILEO VALUE OPPORTUNITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal,
the Fund invests at least 65% of its total assets in equity securities
of companies with market capitalizations between $500 million and $2.5
billion. These equity securities include common and preferred stocks,
rights or warrants to purchase common stock and convertible
securities.
In managing the Fund's investments, the Adviser looks to invest the
Fund's assets in the equity securities of companies that:
. have undervalued assets
. have growth potential
. are in a turnaround situation
. are emerging growth companies
The Adviser also utilizes fundamental analysis on each company. This
includes a review of available financial information, company visits
and management interviews.
NICHOLAS F. GALLUCIO, SUSAN I. SCHOTTENFELD AND TYLER D. DAVIS ARE THE
FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
- ----------------------
Undervalued Assets: When a company's securities are selling below probable
liquidation values, net working capital or tangible book value.
Undervalued Growth Potential: When a company has a strong potential growth rate
and a strong balance sheet but has securities selling at less than a market
multiple (based on normalized earnings) and/or a price earnings multiple at a
discount to its peer group of companies.
Turnaround Situation: When a company has a sound balance sheet but has
securities that are selling at a significant market discount to the Adviser's
estimate of the company's 24 month sustainable earnings.
34
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "price volatility" and
"liquidity risk." PRICE VOLATILITY refers to the possibility that the
value of the Fund's portfolio will change as the prices of its
investments go up or down. This Fund may be subject to greater price
volatility than funds that invest in the securities of large
companies. LIQUIDITY RISK refers to the possibility that the Fund may
lose money or be prevented from earning capital gains if it can not
sell securities at the time and price that is most beneficial to the
Fund. Because the securities of small-size companies may be less
liquid than the securities of large-size companies, the Fund may be
susceptible to liquidity risk more than funds that invest in the
securities of large-sized companies.
The Fund may invest some assets in options. This practice is used
primarily to hedge the Fund's portfolio but may be used to increase
returns; however, such practice sometimes may reduce returns or
increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
35
<PAGE>
. RISK CONDISERATIONS
-------------------
Please consider the following risks before investing in a Fund.
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's
performance or financial position can depress the value of the
issuer's securities. The liquidity in a market for a particular
security will affect its value and may be affected by factors relating
to the issuer, as well as the depth of the market for that security.
Other market risks that can affect value include a market's current
attitudes about types of securities, market reactions to political or
economic events, and tax and regulatory effects (including lack of
adequate regulations for a market or particular type of instrument).
Market restrictions on trading volume can also affect price and
liquidity.
Prices of many securities tend to be more volatile in the short-term.
Therefore an investor who trades frequently or redeems in the short-
term is more likely to incur loss than an investor who holds
investments for the longer term. Lack of diversification in a
portfolio can also increase volatility.
GENERAL INVESTMENT RISK
- -----------------------
Since shares of a Fund represent an investment in securities with fluctuating
market prices, the value of Fund shares will vary as the value of each Fund's
portfolio securities increases or decreases. Therefore, the value of an
investment in a Fund could go down as well as up.
36
<PAGE>
. RISK CONSIDERATIONS
-------------------
FOREIGN Investment in foreign securities involves special risks in addition to
INVESTING the usual risks inherent in domestic investments. These include:
political or economic instability; the unpredictability of
international trade patterns; the possibility of foreign governmental
actions such as expropriation, nationalization or confiscatory
taxation; the imposition or modification of foreign currency or
foreign investment controls; the imposition of withholding taxes on
dividends, interest and gains; price volatility; and fluctuations in
currency exchange rates.
As compared to United States companies, foreign issuers generally
disclose less financial and other information publicly and are subject
to less stringent and less uniform accounting, auditing and financial
reporting standards. Foreign countries typically impose less thorough
regulations on brokers, dealers, stock exchanges, insiders and listed
companies than does the United States, and foreign securities markets
may be less liquid and more volatile than domestic markets.
Investment in foreign securities involves higher costs than investment
in U.S. securities, including higher transaction and custody costs as
well as the imposition of additional taxes by foreign governments. In
addition, security trading practices abroad may offer less protection
to investors such as the Funds. Settlement of transactions in some
foreign markets may be delayed or may be less frequent than in the
U.S., which could affect the liquidity of each Fund's portfolio.
Also, it may be more difficult to obtain and enforce legal judgments
against foreign corporate issuers than against domestic
37
<PAGE>
issuers and it may be impossible to obtain and enforce judgments
against foreign governmental issuers.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and some of the Funds hold various
foreign currencies from time to time, the value of the net assets of
those Funds as measured in United States dollars will be affected
favorably or unfavorably by changes in exchange rates. Generally,
currency exchange transactions will be conducted on a spot (i.e.,
cash) basis at the spot rate prevailing in the currency exchange
market. The cost of currency exchange transactions will generally be
the difference between the bid and offer spot rate of the currency
being purchased or sold. In order to protect against uncertainty in
the level of future foreign currency exchange rates, each Fund is
authorized to enter into certain foreign currency futures and forward
contracts.
The forward currency market for the purchase or sale of U.S. dollars
in most countries is not highly developed, and in certain countries,
there may be no such market. If a devaluation of a currency is
generally anticipated, a Fund may not be able to contract to sell the
currency at an exchange rate more advantageous than that which would
prevail after the anticipated amount of devaluation, particularly in
regards to forward contracts for local Latin American currencies in
view of the relatively small, inactive or even non-existent market for
these contracts. In the event the Funds hold securities denominated
in a currency that suffers a devaluation, the Funds' net asset values
will suffer corresponding reductions. In this regard, in December
1994, the Mexican government determined to allow the Mexican peso to
trade freely against the U.S. dollar rather than within a controlled
band, which action resulted in a significant devaluation of the
Mexican peso against the dollar. Further, in July 1997, the Thai and
Philippine governments allowed the baht and peso, respectively, to
trade freely against the U.S. dollar resulting in a sharp devaluation
of both currencies, and in 1998 Russia did the same, causing a sharp
devaluation of the ruble.
38
<PAGE>
. RISK CONSIDERATIONS
-------------------
FIXED Fixed Income securities are subject to various risks. The two
INCOME primary (but not exclusive) risks affecting fixed income instruments
SECURITIES are "credit risk" and "interest rate risk." These risks can affect a
security's price volatility to varying degrees, depending upon the
nature of the instrument. In addition, the depth and liquidity of
the market for an individual or class of fixed income security can
also affect its price and, hence, the market value of a Fund.
"CREDIT RISK" refers to the likelihood that an issuer will default
in the payment of principal and/or interest on an instrument.
Financial strength and solvency of an issuer are the primary factors
influencing credit risk. In addition, lack of or inadequacy of
collateral or credit enhancements for a fixed income security may
affect its credit risk. Credit risk of a security may change over
its life, and securities which are rated by rating agencies are
often reviewed and may be subject to downgrade.
Each Galileo Equity Fund (except the Enhanced 500 Fund) may invest
in convertible securities rated below investment grade. Generally,
lower-rated debt securities provide a higher yield than higher rated
debt securities of similar maturity but are subject to greater
credit risk than higher rated securities of similar maturity. Such
securities are regarded as predominantly speculative with respect to
the issuer's continuing ability to meet principal and interest
payments. Because investment in lower quality securities involves
greater investment risk, achievement of a Fund's investment
objective will be more dependent on the Adviser's
39
<PAGE>
analysis than would be the case if the Fund were investing in higher
quality bonds. In addition, lower quality securities may be more
susceptible to real or perceived adverse economic and individual
corporate developments than would investment grade bonds. Moreover,
the secondary trading market for lower quality securities may be less
liquid than the market for investment grade bonds. This potential lack
of liquidity may make it more difficult for the Adviser to value
accurately certain portfolio securities.
"INTEREST RATE RISK" refers to the risks associated with market
changes in interest rates. Interest rate changes may affect the value
of a fixed income security directly (especially in the case of fixed
rate securities) and indirectly (especially in the case of adjustable
rate securities). In general, rises in interest rates will negatively
impact the price of fixed rate securities and falling interest rates
will have a positive effect on price. The degree to which a
security's price will change as a result of changes in interest rates
is measured by its "duration." For example, the price of a bond with
a 5 year duration would be expected under normal market conditions to
decrease 5% for every 1% increase in interest rates. Generally,
securities with longer maturities have a greater duration and thus are
subject to greater price volatility from changes in interest rates.
Adjustable rate instruments also react to interest rate changes in a
similar manner although generally to a lesser degree (depending,
however, on the characteristics of the reset terms, including the
index chosen, frequency of reset and reset caps or floors, among other
things).
40
<PAGE>
. RISK CONSIDERATIONS
-------------------
NON- Each of the Galileo Equity Funds is non-diversified for 1940 Act
DIVERSIFIED purposes and as such may invest a larger percentage of its assets in
STATUS individual issuers than a diversified investment company. In this
regard, the Fund is not subject to the general limitation that it
not invest more than 5% of its total assets in the securities of any
one issuer. To the extent the Fund makes investments in excess of 5%
of its assets in a particular issuer, its exposure to credit and
market risks associated with that issuer is increased. However, each
Fund's investments will be limited so as to qualify for the special
tax treatment afforded "regulated investment companies" under the
Internal Revenue Code of 1986, as amended.
41
<PAGE>
. RISK CONSIDERATIONS
-------------------
YEAR 2000 The investment advisory and management services provided by the
Adviser and the services provided to shareholders by the Transfer
Agent depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in
which dates were encoded and calculated. That failure could have a
negative impact on the handling of securities trades, pricing and
account services. The Adviser and the Transfer Agent have been
actively working on necessary changes to their own computer systems to
prepare for the year 2000 and expect that their systems will be
adapted for year 2000 compliance before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that
time.
In addition, it is possible that the markets for securities in which
the Funds invest may be negatively affected by computer failures
throughout the financial services industry commencing January 1, 2000.
Improperly functioning trading systems may result in settlement
problems. In addition, corporate and governmental data processing
errors may result in production problems for individual companies and
create overall economic uncertainties. Earnings of individual issuers
will be affected by remediation costs which may be substantial.
Individual firms may further experience disruptions to their business
due to the failure of their counterparts to address year 2000
problems, or could experience further disruption to the economy at
large, which could adversely affect corporate earnings generally and
the value of their securities. Accordingly, a Fund's portfolio
investments may be negatively affected.
42
<PAGE>
. RISK CONSIDERATIONS
-------------------
EUROPEAN Certain of the Funds will invest in European countries that have
ECONOMIC agreed to enter into the European Monetary Union (EMU). EMU is an
AND effort by certain European countries to, among other things, reduce
MONETARY barriers between countries and eliminate fluctuations in their
UNION currencies. Among other things,
EMU establishes a single European currency (the euro), which will be
introduced on January 1, 1999 and is expected to replace the existing
national currencies of all initial EMU participants by July 1, 2002.
Upon introduction of the euro, certain securities (beginning with
government and corporate bonds) will be redonominated in the euro and,
thereafter will trade and make dividend and other payments only in
euros. Like other investment companies and business organizations,
including the companies in which the Funds invest, the Funds could be
adversely affected: (i) if the euro, or EMU as a whole does not take
affect as planned; (ii) if a participating country withdraws from EMU;
or (iii) if the computing, accounting and trading systems used by the
Funds' service providers, or by other business entities with which the
Funds or their service providers do business, are not capable of
recognizing the euro as a distinct currency at the time of, and
following euro conversion.
43
<PAGE>
. MANAGEMENT OF THE FUNDS
-----------------------
INVESTMENT ADVISER
The Funds' investment adviser is TCW Funds Management, Inc. (the
"Adviser") and is headquartered at 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017. As of October 31, 1998, the
Adviser and its affiliated companies, which provide a variety of
trust, investment management and investment advisory services, had
over [$50 billion] under management or committed for management.
SUB-INVESTMENT ADVISERS
Berkeley Quantitative Advisers, Inc. ("BQA"), Sub-Adviser to the
Enhanced 500 Fund, is headquartered at 1995 University Avenue,
Berkeley, California 94704.
PORTFOLIO MANAGERS
Listed below are the individuals who have been primarily responsible
for the day-to-day portfolio management of the Funds, including a
summary of each person's business experience during the past five
years:
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS(1)
---------- -----------------------
<S> <C>
Christopher J. Ainley Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West. Prior to
joining TCW in 1994 he was a
portfolio manager with Putnam
Investments.
Wendy S. Barker Senior Vice President, the Adviser,
TCW Asset Management Company and
Trust Company of the West.
Glen A. Bickerstaff Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West since May 1998.
Previously, he was senior portfolio
manager and Vice President of
Transamerica Investment Services.
Tyler D. Davis Mr. Davis joined TCW in 1988 after
more than seventeen years as an
Analyst and Portfolio Manager
specializing in the energy, financial
and capital goods
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS (1)
--------- ----------------------
<S> <C>
industries. Previously, he served as
a Director and Partner at Cowen Asset
Management, Beck, Mack & Oliver and
E.M. Warburg Pincus and Co. Prior to
that, he worked at Merrill Lynch
Capital Markets as a Securities
Analyst specializing in energy. Mr. Davis
holds a degree in Mathematics and
Geology from Bowdoin College.
Douglas S. Foreman Group Managing Director and Chief
Investment Officer-U.S. Equities, the
Adviser, TCW Asset Management Company
and Trust Company of the West since
May 1994. Previously, he was a
portfolio manager with Putnam
Investments.
Walter A. French President and Chief Investment
Officer, Berkeley Quantitative
Advisers, Inc.
Nicholas F. Galluccio Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West.
Kevin A. Hunter Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West.
Charles Larson Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West.
Thomas D. Lyon Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West since November,
1997. Previously, he was Vice
President - Portfolio Management with
Transamerica Investment Services.
Thomas K. McKissick Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS (1)
---------- ----------------------
<S> <C>
Susan I. Schottenfeld Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West.
</TABLE>
Advisory and Sub-Advisory Agreements
The Company and the Adviser have entered into an Investment Advisory
and Management Agreement (the "Advisory Agreement"), under the terms
of which the Company has employed the Adviser to manage the investment
of its assets, to place orders for the purchase and sale of its
portfolio securities, to administer its day-to-day operations, and to
be responsible for overall management of the Company's business
affairs, subject to control by the Board of Directors of the Company.
The Adviser also pays certain costs of marketing the Funds, including
sales personnel compensation, from legitimate profits from its
investment advisory fees and other resources available to it. In
addition, the Adviser reimburses third party administrators for
retirement plan shareholder servicing expenses. Under the Advisory
Agreement, the Funds pay to the Adviser as compensation for the
services rendered, facilities furnished, and expenses paid by it the
following fees:
FUND ANNUAL MANAGEMENT FEE
----
(AS PERCENT OF AVERAGE NET ASSET
--------------------------------
VALUE)
-----
Convertible Securities .75%
Select Equities .75%
Earnings Momentum 1.00%
Enhanced 500 .25%
Large Cap Growth .55%
Large Cap Value .55%
Aggressive Growth Equities 1.00%
Small Cap Growth 1.00%
Small Cap Value 1.00%
46
<PAGE>
Value Opportunities Fund 0.80%
The Adviser has retained, at its sole expense, BQA to provide
investment advisory services with respect to the Enhanced 500 Fund.
Under the Sub-Advisory Agreement the Sub-Adviser assists the Adviser
in performing its advisory functions in respect of the Funds.
The Advisory Agreement and Sub-Advisory Agreement provide that the
Adviser and Sub-Adviser, respectively, shall not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund
in connection with the matters to which the agreements relate, except
a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser or Sub-Adviser in the
performance of their duties or from reckless disregard by them of
their duties under each respective agreement.
. MULTIPLE CLASS STRUCTURE
------------------------
Each Fund currently offers two classes of shares, Institutional Class
shares and Class A shares. Shares of each class of a Fund represents
an equal pro rata interest in that Fund and generally gives you the
same voting, dividend, liquidation, and other rights. The
Institutional Class shares are offered at the current net asset value.
The Class A shares are also offered at the current net asset value,
but will be subject to a distribution or service fee imposed under a
distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. Pursuant to the
Distribution Plan, each Fund compensates the Funds' distributor at a
rate equal to 0.25% of the average daily net assets of the Fund
attributable to its Class A shares for distribution and related
services.
47
<PAGE>
YOUR INVESTMENT
. ACCOUNT POLICIES AND SERVICES
-----------------------------
BUYING SHARES
You pay no sales charges to invest in a Fund. Your price for Fund shares is
the Fund's net asset value per share (NAV) which is generally calculated as
of the close of trading on the New York Stock Exchange (usually 4:00 p.m.
Eastern time) every day the exchange is open. Your order will be priced at
the next NAV calculated after your order is accepted by the Fund. Orders
received by a Fund's transfer agent from dealers, brokers or other service
providers after the net asset value (NAV) is determined that day will
receive that NAV if the orders were received by the dealers, brokers or
service providers from their customers prior to such determination and were
transmitted to and received by the transfer agent prior to 8:00 a.m.
Eastern time on the next day. A Fund's investments are valued based on
market value, or where market quotations are not readily available, based
on fair value as determined in good faith by the Fund pursuant to
procedures established by the Fund's board.
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Minimums
Initial Additional
-----------------------------------------------------------------
<S> <C> <C>
All Funds except Money Market Fund
$250,000 $25,000
Money Market Fund
$100,000 $ 1,000
</TABLE>
The TCW Galileo Funds, Inc. may waive the minimum subsequent
investment. All investments must be in U.S. dollars. Third-party
checks, except those payable to an existing shareholder, will
normally not be accepted. If your check or wire does not clear,
you will be responsible for any loss a Fund incurs.
-----------------------------------------------------------------
48
<PAGE>
SELLING SHARES
You may sell shares at any time. Your shares will be sold at the next NAV
calculated after your order is accepted by the Fund's Transfer Agent. Any
certificates representing Fund shares being sold must be returned with your
redemption request. Your order will be processed promptly, and you will
generally receive the proceeds within a week.
Before selling recently purchased shares, please note that if the Fund has
not yet collected payment for the shares you are selling, it may delay
sending the proceeds for up to fifteen business days.
WRITTEN SELL ORDER
Some circumstances require written sell orders, along with signature
guarantees. These include:
. amounts of $100,00 or more
. amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days
. requests to send the proceeds to a payee or address different than what
is on our records
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from
most banks or securities dealers but not from a notary public. Please call
us to ensure that your signature guarantee will be processed correctly.
EXCHANGE PRIVILEGE
You can exchange from one Galileo Fund into another. You can request your
exchange in writing or by phone. Be sure to read the current prospectus for
any Fund into which you are exchanging. Any new account established through
an exchange will have the same privileges as your original account (as long
as they are available).
ACCOUNT STATEMENTS
Every Galileo investor automatically receives regular account statements.
You will also be sent a yearly statement detailing the tax characteristics
of any dividends and distributions you have received.
49
<PAGE>
GENERAL POLICIES
For any Fund, if your account falls below $25,000 as a result of
redemptions and or exchanges for six months or more, the Fund may
close your account and send you the proceeds upon 60 days' written
notice.
Unless you decline telephone privileges on your New Account Form, you
may be responsible for any fraudulent telephone order as long as the
Transfer Agent takes reasonable measures to verify the order.
Each Fund restricts excessive trading (usually defined as more than
four exchanges out of the Fund within a calendar year). You are
limited to one exchange of shares in the same Fund during any 15-day
period except investors in 401(k) and other group retirement accounts
and asset allocation accounts managed by the Adviser or an affiliate.
Each Fund reserves the right to:
. refuse any purchase or exchange request that could adversely affect
a Fund or its operations, including those from any individual or
group who, in the Fund's view, are likely to engage in excessive
trading
. change or discontinue its exchange privilege, or temporarily
suspend this privilege during unusual market conditions
. delay sending out redemption proceeds for up to seven days
(generally applies only in cases of very large redemptions,
excessive trading or during unusual market conditions)
LARGE REDEMPTION AMOUNTS
------------------------
Each Fund also reserves the right to make a "redemption in kind" -- payment
in portfolio securities rather than cash -- if the amount you are redeeming
in any 90-day period is large enough to affect Fund operations (for
example, if it equals more than $250,000 or represents more than 1% of the
Fund's assets).
50
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C>
In Writing
Complete the New Account Form. Mail your New
Account Form and a check to:
Regular Mail
TCW Galileo __________ Fund
DST Systems, Inc. (Same, except that you should include a note
P.O. Box 419951 specifying the Fund name, your account number,
Kansas City, MO 64141-6951 and the name(s) your account is registered in.)
Express, Registered or Certified Mail
TCW Galileo __________ Fund
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- ---------------------------------------------------------------------------------------------------------
By Telephone
WIRE Have your bank send your investment to: (Same)
United Missouri Bank, n.a.
ABA No. 101000695
DST Systems, Inc./AC 9870371553 (for all Galileo
Funds except the Money Market Fund)
DST Systems, Inc./AC 9870371170 (for Money Market
Fund only)
FBO TCW Galileo ______ Fund
(Name on the Fund Account) __________
- ---------------------------------------------------------------------------------------------------------
Via Exchange
Call the Transfer Agent at (800) 248 4486 or the
Investor Relations Department at (800) 386-3825.
The new account will have the same registration as
the account from which you are exchanging.
</TABLE>
If you need help completing the New Account Form Please call the transfer agent
at (800) 248-4486, the Investor Relations Department at TCW Galileo Funds at
(800) FUND TCW (800) 386-3829 or your investment representative at TCW Galileo
Funds.
51
<PAGE>
TO SELL OR EXCHANGE SHARES
By Mail
Write a letter of instruction that includes:
. your name(s) and signature(s) as on
the account form
. your account number
. the Fund name
. the dollar amount you want to sell or exchange
. how and where to send the proceeds
- --------------------------------------------------------------------------------
Obtain a signature guarantee or other documentation, if required (see
"Account Policies - Selling Shares").
Mail your letter of instruction to:
Regular Mail
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- --------------------------------------------------------------------------------
By Telephone
Be sure the Fund has your bank account information on file. Call the Transfer
Agent at (800) 248-4486 to request your transaction. Proceeds will be wired
to your bank.
Telephone redemption requests must be for a minimum of $1,000.
- --------------------------------------------------------------------------------
Systematic Withdrawal Plan Call us to request a form to add the plan.
Complete the form, specifying the amount and frequency of withdrawals you
would like.
Be sure to maintain an account balance of $25,000 or more. Systematic
Withdrawal plans are subject to a minimum annual withdrawal of $500.
- --------------------------------------------------------------------------------
To reach the Transfer Agent, DST Systems, Inc., call toll free in the U.S.
1-800-248-4486
To reach your investment representative or the Investor Relations Department at
TCW Galileo Funds, call toll free in the U.S.
1-800-386-3829
52
<PAGE>
. DISTRIBUTIONS AND TAXES
-----------------------
The amount of dividends of net investment income and distributions of net
realized long and short-term capital gains payable to shareholders will be
determined separately for each Fund. Dividends from the net investment
income of each Fund will be declared and paid annually except for the
Convertible Securities Fund, which will declare and pay dividends
quarterly. The Funds will distribute any net realized long or short-term
capital gains at least annually. Your distributions will be reinvested in
the fund unless you instruct the fund otherwise. There are no fees or sales
charges on reinvestments.
In any fiscal year in which the Funds qualify as regulated investment
companies and distribute to shareholders all of their net investment income
and net capital gains, the Funds are relieved of Federal income tax.
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash - unless you are exempt from taxation or
entitled to tax deferral. Capital gains distributions may be taxable at
different rates depending on the length of time a Fund has held the assets
sold. Early each year, you will be notified as to the amount and Federal
tax status of all distributions paid during the prior year. Distributions
may also be subject to state or local taxes. The tax treatment of
redemptions from a retirement plan account may differ from redemptions from
an ordinary shareholder account. If you redeem shares of a Fund or exchange
them for shares of another Fund, any gain on the transaction may be subject
to tax. You must provide the Funds with a correct taxpayer identification
number (generally your Social Security Number) and certify that you are not
subject to backup withholding. If you fail to do so, the IRS can require
the Funds to withhold 31% of your taxable distributions and redemptions.
Federal law also requires the Funds to withhold 30% or the applicable tax
treaty rate from dividends paid to nonresident alien, non-U.S. partnership
and non-U.S. corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment
in the Fund. Please see the Statement of Additional Information and your
tax adviser for further information.
53
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total return"
shows how much your investment in the Institutional Class shares of the
Fund would have increased (or decreased) during each period, assuming you
had reinvested all dividends and distributions. These figures have been
audited by Deloitte & Touche LLP, whose report, along with Company's
financial statements, are included in the annual report, which is available
upon request.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
TCW GALILEO CONVERTIBLE SECURITIES FUND
1/2/1997
(COMMENCEMENT OF
OPERATIONS)
YEAR ENDED THROUGH
10/31/1998 10/31/1997
---------------------------------------------------------------------------------
<S> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 10.00
---------
Investment operations: 0.31
Investment income - net
Net realized and unrealized gain
on investments 1.43
---------
Total from investment operations 1.74
---------
Distributions:
Dividends from investment (0.33)
income - net
Dividends from net realized gains --
on investments
Distributions in excess of net realized --
gains
Total Distributions
Net asset value, end of period $ 11.41
=========
Total return (%) 17.66%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 0.95%/2/,/3/
Ratio of net investment income to average net assets (%) 3.54%/2/
Portfolio turnover rate (%) 141.43%/1/
Net assets, end of period ($ x 1,000) $ 36,890
</TABLE>
/1/ For the period January 2, 1997 (commencement of operations) to October
31, 1997 and not indicative of a full year's operating results.
/2/ Annualized.
/3/ The Investment Adviser had voluntarily agreed to reduce its fee, or to
pay the operating expenses of the Fund, to the extent necessary to
limit the annual ordinary operating expenses of the Fund to 0.95% of
net assets through December 31, 1997. Had such action not been taken,
total annualized operating expenses as a percentage of average net
assets would have been 1.08% for the period January 2, 1997
(commencement of operations) through October 31, 1997.
54
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total return"
shows how much your investment in the Institutional Class shares of the
Fund would have increased (or decreased) during each period, assuming you
had reinvested all dividends and distributions. These figures have been
audited by Deloitte & Touche LLP, whose report, along with Company's
financial statements, are included in the annual report, which is available
upon request.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
TCW GALILEO SELECT EQUITIES FUND
TEN MONTHS
ENDED
YEAR ENDED OCTOBER 31 OCTOBER 31
1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period ---- $ 15.93 $ 13.69 $ 11.57 $ 11.81
-------- -------- -------- --------
Investment operations: ----
Investment income - net ---- 0.01 0.11 0.06 0.04
Net realized and unrealized gain
(loss) on investments ---- 3.57 2.18 2.11 (0.28)
-------- -------- -------- --------
Total from investment operations ---- 3.58 2.29 2.17 (0.24)
-------- -------- -------- --------
Distributions: ----
Dividends from investment ---- (0.02) (0.05) (0.05) --
income - net
Dividends from net realized gains ---- (0.20) -- -- --
on investments
Dividends in excess of net realized
gains -- -- -- -- --
---- -------- -------- -------- --------
Total Distributions: ---- (0.22) (0.05) (0.05) --
Net asset value, end of period ---- $ 19.29 $ 15.93 $ 13.69 $ 11.57
==== ======== ======== ======== ========
Total return (%) ____ 22.68% 16.79% 18.85% (2.03)%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) ---- 0.83% 0.82% 0.85% 0.91%/2/
Ratio of net investment income to average net ---- 0.08% 0.18% 0.48% 0.44%/2/
assets (%)
Portfolio turnover rate (%) ---- 39.22% 39.58% 53.77% 23.53%/1/
Net assets, end of period ($ x 1,000) ---- $156,113 $231,302 $197,721 $136,122
</TABLE>
/1/ For the ten months ended October 31, 1994 and not indicative of a
full year's operating results.
/2/ Annualized.
55
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total return"
shows how much your investment in the Institutional Class shares of the
Fund would have increased (or decreased) during each period, assuming you
had reinvested all dividends and distributions. These figures have been
audited by Deloitte & Touche LLP, whose report, along with Company's
financial statements, are included in the annual report, which is available
upon request.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
TCW GALILEO EARNINGS MOMENTUM FUND
YEAR ENDED OCTOBER 31
1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of year ---- $ 13.01 $ 11.47 $ 10.00
---- -------- ------- -------
Investment operations:
Investment income (loss) - net ---- (0.12) (0.11) (0.03)
Net realized and unrealized gain
on investments 1.98 1.72 1.51
---- -------- ------- -------
Total from investment operations 1.86 1.61 1.48
---- -------- ------- -------
Distributions:
Dividends from investment ---- -- -- --
income - net
Dividends from net realized gains ---- (1.00) (0.07) (0.01)
on investments
Dividends in excess of net investment -- -- -- (0.01)
income ---- -------- ------- -------
Total Distributions (1.00) (0.07) (0.01)
---- ------- -------
Net asset value, end of period $ $ 13.87 $ 13.01 $ 11.47
==== ======== ======= =======
Total return (%) ---- 15.53% 13.99% 14.76%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.17% 1.13% 1.14%/1/
Ratio of net investment income to average (0.96%) (0.82%) (0.28%)
net assets (%)
Portfolio turnover rate (%) 93.06% 99.03% 85.91%
Net assets, end of year ($ x 1,000) $101,667 $77,994 $63,411
</TABLE>
/1/ The Adviser has voluntarily agreed to reduce its fee from the Fund, or
to pay the operating expenses of the Fund, to the extent necessary to
limit the ordinary operating expenses of the Fund to 1.14% of net
assets through December 31, 1995. Had such action not been taken,
total operating expenses for the fiscal years ended October 31, 1996
and October 31, 1995 would have been 1.14% of average net assets.
56
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total return"
shows how much your investment in the Institutional Class shares of the
Fund would have increased (or decreased) during each period, assuming you
had reinvested all dividends and distributions. These figures have been
audited by Deloitte & Touche LLP, whose report, along with Company's
financial statements, are included in the annual report, which is available
upon request.
---------------------------------------------------------------------------
TCW GALILEO ENHANCED 500 FUND
FIVE MONTHS
ENDED OCTOBER 31, 1998
---------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period
Investment operations:
Investment income - net
Net realized and unrealized gain
(loss) on investments
Total from investment operations
Distributions:
Dividends from investment
income - net
Dividends from net realized gains
on investments
Dividends in excess of net
investment income
Total Distributions:
Net asset value, end of period
Total return (%)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%)
Ratio of net investment income to average net
assets (%)
Portfolio turnover rate (%)
Net assets, end of period ($ x 1,000)
57
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total return"
shows how much your investment in the Institutional Class shares of the
Fund would have increased (or decreased) during each period, assuming you
had reinvested all dividends and distributions. These figures have been
audited by Deloitte & Touche LLP, whose report, along with Company's
financial statements, are included in the annual report, which is available
upon request.
---------------------------------------------------------------------------
TCW GALILEO LARGE CAP GROWTH FUND
FIVE MONTHS
ENDED OCTOBER 31, 1998
---------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period
Investment operations:
Investment income - net
Net realized and unrealized gain
(loss) on investments
Total from investment operations
Distributions:
Dividends from investment
income - net
Dividends from net realized gains
on investments
Total Distributions:
Net asset value, end of period
Total return (%)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%)
Ratio of net investment income to average
net assets (%)
Portfolio turnover rate (%)
Net assets, end of period ($ x 1,000)
58
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total return"
shows how much your investment in the Institutional Class shares of the
Fund would have increased (or decreased) during each period, assuming you
had reinvested all dividends and distributions. These figures have been
audited by Deloitte & Touche LLP, whose report, along with Company's
financial statements, are included in the annual report, which is available
upon request.
---------------------------------------------------------------------------
TCW GALILEO LARGE CAP VALUE FUND
FIVE MONTHS
ENDED OCTOBER 31, 1998
--------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period
Investment operations:
Investment income - net
Net realized and unrealized gain
(loss) on investments
Total from investment operations
Distributions:
Dividends from investment
income - net
Dividends from net realized gains
on investments
Total Distributions:
Net asset value, end of period
Total return (%)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%)
Ratio of net investment income to average
net assets (%)
Portfolio turnover rate (%)
Net assets, end of period ($ x 1,000)
59
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total return"
shows how much your investment in the Institutional Class shares of the
Fund would have increased (or decreased) during each period, assuming you
had reinvested all dividends and distributions. These figures have been
audited by Deloitte & Touche LLP, whose report, along with Company's
financial statements, are included in the annual report, which is available
upon request.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
TCW GALILEO AGGRESSIVE GROWTH EQUITIES FUND
JUNE 3, 1996
(COMMENCEMENT OF
OPERATIONS)
THROUGH
YEAR ENDED OCTOBER 31 OCTOBER 31
1998 1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period ----- $ 9.19 $ 10.00
Investment operations:
Investment income (loss) - net (0.08) (0.03)
Net realized and unrealized gain 0.29 (0.78)
(loss) on investments
Total from investment operations 0.21 (0.81)
Distributions:
Dividends from investment -- --
income - net
Dividends from net realized gains -- --
on investments
Dividends in excess of net investment income -- --
-------- ---------
Total Distributions: -- --
-------- ---------
Net asset value, end of period $ $ 9.40 $ 9.19
===== ======== =========
Total return (%) 2.28% (8.10)%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.12% 1.20%/2/,/3/
Ratio of net investment income to average (0.86)% (0.80)%/2/
net assets (%)
Portfolio turnover rate (%) 50.45% 19.19%/1/
Net assets, end of period ($ x 1,000) $135,850 $ 92,430
</TABLE>
/1/ For the period June 3, 1996 (commencement of operations) through
October 31, 1996 and not indicative of a full year's operating
results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee from the Fund, or
to pay the operating expenses of the Fund, to the extent necessary to
limit the ordinary operating expenses of the Fund to 1.20% of net
assets through December 31, 1996. Had such action not been taken,
total annualized operating expenses for the period June 3, 1996
(commencement of operations) through October 31, 1996.
60
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions.
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
TCW GALILEO SMALL CAP GROWTH FUND
MARCH 31, 1994
(COMMENCEMENT
OF OPERATIONS)
THROUGH
YEAR ENDED OCTOBER 31 OCTOBER 31,
1998 1997 1996 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period ---- $ 17.17 $ 13.53 $ 9.39 $ 10.00
-------- ------- ---------
Investment operations:
Investment income - net ---- (0.15) (0.13) (0.07) (0.04)
Net realized and unrealized gain
(loss) on investments 1.91 4.08 4.72 (0.57)
-------- -------- ------- ---------
Total from investment operations 1.76 3.95 4.65 (0.61)
-------- -------- ------- ---------
Distributions:
Dividends from investment -- (0.01) -- --
income - net
Dividends from net realized gains (0.19) (0.30) (0.51) --
on investments
Dividends in excess of net realized
gains
Total Distributions: (0.19) (0.31) (0.51) --
-------- -------- ------- ---------
Net asset value, end of period $ $ 18.74 $ 17.17 $ 13.53 $ 9.39
==== ======== ======== ======= =========
Total return (%) 10.38% 29.73% 49.89% (6.10)%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net 1.14% 1.14% 1.21%/3/ 1.09%/2/,/3/
assets (%)
Ratio of net investment income to (0.89)% (0.76)% (0.61)% (0.59)%/2/
average net assets (%)
Portfolio turnover rate (%) 60.52% 45.43% 89.73% 88.63%/1/
Net assets, end of period ($ x 1,000) ----- $144,756 $132,444 $66,056 $ 51,089
</TABLE>
/1/ For the period March 1, 1994 (commencement of operations) through
October 31, 1994 and not indicative of a full year's operating
results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee from the Fund, or
to pay the operating expenses of the Fund, to the extent necessary to
limit the ordinary operating expenses of the Fund to 1.09% of net
assets through December 31, 1994. Had such action not been taken,
total annualized operating expenses for the period March 1, 1994
(commencement of operations) through October 31, 1994 would have been
1.39% of average net assets and for the fiscal year ended October 31,
1995, total operating expenses would have been 1.24% of average net
assets.
61
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total return"
shows how much your investment in the Institutional Class shares of the
Fund would have increased (or decreased) during each period, assuming you
had reinvested all dividends and distributions. These figures have been
audited by Deloitte & Touche LLP, whose report, along with Company's
financial statements, are included in the annual report, which is available
upon request.
---------------------------------------------------------------------------
TCW GALILEO VALUE OPPORTUNITIES FUND
COMMENCEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
---------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period
Investment operations:
Investment income - net
Net realized and unrealized gain
(loss) on investments
Total from investment operations
Distributions:
Dividends from investment
income - net
Dividends from net realized gains
on investments
Total Distributions:
Net asset value, end of period
Total return (%)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%)
Ratio of net investment income to average
net assets (%)
Decrease reflected in above expense ratios
due to actions by Dreyfus (%)
Portfolio turnover rate (%)
Net assets, end of period ($ x 1,000)
62
<PAGE>
FOR MORE INFORMATION
TO OBTAIN INFORMATION:
- ---------------------
BY TELEPHONE
Call 1-800-386-3829
BY MAIL Write to:
865 South Figueroa Street
Suite 1800
Los Angeles, California 90017
BY E-MAIL Send your request to
ON THE INTERNET
Text-only versions of Fund documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
You can also obtain copes by visiting the SECs Public Reference Room in
Washington, DC (phone 1-800-SEC-0330), or by sending your request and a
duplicating fee to the SECs Public Reference Section, Washington, DC 20549-6009.
__________________________
__________________________
__________________________
SEC file number: 811-____
More information on these Funds is available free upon request, including the
following:
ANNUAL/SEMIANNUAL REPORT
Describes each Fund's performance, lists portfolio holdings and contains a
letter from each Fund's portfolio-manager discussing recent market conditions,
economic trends and Fund strategies.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about each Fund and its policies. A current SAI is on file
with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
63
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Institutional Class of seven of the
separate investment funds offered by TCW Galileo Funds, Inc., each of which has
different investment objectives and policies. Please read this document
carefully, and keep it for future reference. Sometimes we will refer to the
Funds in this Prospectus as the Galileo International Funds.
TCW GALILEO ASIA PACIFIC EQUITIES FUND
TCW GALILEO EMERGING MARKETS EQUITIES FUND
TCW GALILEO EMERGING MARKETS INCOME FUND
TCW GALILEO EUROPEAN EQUITIES FUND
TCW GALILEO INTERNATIONAL EQUITIES FUND
TCW GALILEO JAPANESE EQUITIES FUND
TCW GALILEO LATIN AMERICA EQUITIES FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
March 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES........................ 3
PRINCIPAL RISKS....................................................... 4
PERFORMANCE SUMMARY................................................... 5
FUND EXPENSES......................................................... 9
EXPENSE EXAMPLE....................................................... 10
TCW GALILEO ASIA PACIFIC EQUITIES FUND
INVESTMENT OBJECTIVES/APPROACH........................................ 11
MAIN RISKS............................................................ 12
TCW GALILEO EMERGING MARKETS EQUITIES FUND
INVESTMENT OBJECTIVES/APPROACH........................................ 14
MAIN RISKS............................................................ 16
TCW GALILEO EMERGING MARKETS INCOME FUND
INVESTMENT OBJECTIVES/APPROACH........................................ 18
MAIN RISKS............................................................ 19
TCW GALILEO EUROPEAN EQUITIES FUND
INVESTMENT OBJECTIVES/APPROACH........................................ 21
MAIN RISKS............................................................ 22
TCW GALILEO INTERNATIONAL EQUITIES FUND
INVESTMENT OBJECTIVES/APPROACH........................................ 24
MAIN RISKS............................................................ 25
TCW GALILEO JAPANESE EQUITIES FUND
INVESTMENT OBJECTIVES/APPROACH........................................ 27
MAIN RISKS............................................................ 28
TCW GALILEO LATIN AMERICA EQUITIES FUND
INVESTMENT OBJECTIVES/APPROACH........................................ 30
MAIN RISKS............................................................ 32
RISK CONSIDERATIONS................................................... 34-45
MANAGEMENT OF THE FUNDS............................................... 46
MULTIPLE CLASS STRUCTURE.............................................. 49
ACCOUNT POLICIES AND SERVICES......................................... 50
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT............................... 53
TO SELL OR EXCHANGE SHARES............................................ 54
DISTRIBUTIONS AND TAXES............................................... 55
FINANCIAL HIGHLIGHTS.................................................. 56-62
FOR MORE INFORMATION.................................................. 63
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
All of the Galileo Institutional Funds are affected by changes in the economy,
or in securities and other markets. There is also the possibility that
investment decisions the Adviser makes will not accomplish what they were
designed to achieve or that companies in which the Funds invest will have
disappointing performance or not pay their debts.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TCW GALILEO FUNDS, INC. INVESTMENT OBJECTIVE PRINCIPAL INVESTMENT STRATEGIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCW Galileo Asia Pacific Equities Fund Long -term capital appreciation Invests in equity securities of companies in
the Asia Pacific Region, except Australia,
Japan and New Zealand, or securities
convertible into such equity securities.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Emerging Markets Equities Fund Long -term capital appreciation Invests in equity securities of companies in
emerging market countries around the world.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Emerging Markets Income Fund High total return from current income and Invests in debt securities issued by
capital appreciation Emerging Market Country governments or their
agencies or instrumentalities or private
corporate issuers.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo European Equities Fund Long -term capital appreciation Invests in equity securities issued by
European companies.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo International Equities Fund Long-term capital appreciation Invests principally in equity markets
outside the U.S. through investment in
shares of the Galileo Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Japanese Equities Fund Long -term capital appreciation Invests in equity securities issued by
Japanese companies.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Latin America Equities Fund Long -term capital appreciation Invests in equity securities issued by Latin
American companies.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Under adverse market conditions, each Fund could invest some or all of its
assets in money market securities. Although the Fund will do this only in
seeking to avoid losses, it could have the effect of reducing the benefit from
any upswing in the market.
3
<PAGE>
PRINCIPAL RISKS
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you and the more you can lose. Since shares of a
Fund represent an investment in securities with fluctuating market prices, the
value of Fund shares will vary as the value of each Fund's portfolio securities
increases or decreases. Therefore, the value of an investment in a Fund could go
down as well as up. All investments are subject to:
. ASSET CLASS RISK
There is the possibility that the returns from the types of securities in
which a Fund invests will underperform returns from the various general
securities markets. Different types of securities tend to go through cycles
of outperformance and underperformance in comparison to the general
securities markets.
. SECURITIES SELECTION RISK
There is the possibility that the specific securities held in the Funds'
portfolio will underperform the other funds in the same asset class or
benchmarks that are representative of the general performance of the asset
class because of the portfolio manager's choice of securities.
. FOREIGN INVESTING RISK
There is the likelihood that foreign investments may be riskier than U.S.
investments because of a lack of political stability, foreign controls on
investment and currency exchange rates, fluctuations in currency exchange
rates, withholding taxes, and lack of adequate company information. Each
Fund is subject to foreign investing risk because it invests primarily in
the assets of foreign governments or companies. Because each Fund (except
the Japanese Equities Fund) invests in securities of emerging market
countries, the risk factors listed above are more likely to occur. In
addition, because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, and the Galileo International
Funds hold various foreign currencies, the value of the net assets of these
Funds as measured in United States dollars will be affected favorably or
unfavorably by changes in exchange rates.
Each Fund may also be subject (in varying degrees) to the following risks:
. LIQUIDITY RISK
There is the possibility that a Fund may lose money or be prevented from
earning capital gains if it can not sell a security at the time and price
that is most beneficial to the Fund. Each Fund is subject to liquidity risk
because foreign securities may be less liquid than U.S. securities.
. PRICE VOLATILITY
There is the possibility that the value of the Fund's portfolio will change
as the prices of its investments go up or down. Although stocks offer the
potential for greater long-term growth than most fixed income securities,
stocks generally have higher short-term volatility. Each Fund (except the
Emerging Markets Income Fund) is subject to this risk. In addition, the
Emerging Markets Income Fund is subject to price volatility because it
invests in low rated emerging market debt.
Because the Galileo International Funds are non-diversified for 1940 Act
purposes, they may invest more than 5% of its total assets in the securities of
any one issuer. Consequently, their exposure to credit and market risks
associated with that issuer is increased.
Your investment is not a bank deposit, and it is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
4
<PAGE>
PERFORMANCE SUMMARY
The two tables below show each Fund's annual returns and its long-term
performance with respect to its Institutional Class shares. The first table
shows you how the Fund's performance has varied from year to year. The second
compares the Fund's performance over time to that of a broad-based securities
index. Both tables assume reinvestment of dividends and distributions. The
performance information includes the performance of each Fund's predecessor
limited partnership, except for the European Equities Fund. As with all mutual
funds, past performance is not a prediction of the future.
Year by year total return (%)
as of December 31 each year*
TCW Galileo Asia Pacific Equities Fund
<TABLE>
<S> <C> <C> <C> <C> <C>
94.20% -22.40% 6.90% 20.40% -31.29% ______%
1993 1994 1995 1996 1997 1998
- ------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
______%
TCW Galileo Emerging Markets Equities Fund
<TABLE>
<S> <C> <C> <C> <C> <C>
61.70% -22.90% -8.90% 16.40% 0.10% ______%
1993 1994 1995 1996 1997 1998
- -----------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
______%
TCW Galileo Emerging Markets Income Fund
<TABLE>
<S> <C> <C>
8.90% 10.42% ______%
1996 1997 1998
- ----------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
______%
5
<PAGE>
TCW Galileo European Equities Fund
______%
1998
------
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
______%
TCW Galileo International Equities Fund
<TABLE>
<S> <C> <C> <C> <C>
3.70% 4.90% 5.10% -0.80% ______%
1994 1995 1996 1997 1998
------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
______%
TCW Galileo Japanese Equities Fund
<TABLE>
<S> <C> <C> <C>
-2.39% -15.13% -45.28% ______%
1995 1996 1997 1998
--------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
______%
TCW Galileo Latin America Equities Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
17.91% 27.94% 53.38% -22.19% -19.72% 24.40% 33.59% ______%
1991 1992 1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
______%
6
<PAGE>
Best and worst quarterly performance during this period
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
FUND PERFORMANCE
- -----------------------------------------------------------------------
<S> <C>
. Asia Pacific Equities Fund
Quarter ending December 31, 1993 51.72% (Best)
Quarter ending December 31, 1997 -31.29% (Worst)
- -----------------------------------------------------------------------
. Emerging Markets Equities Fund
Quarter ending December 31, 1993 42.44% (Best)
Quarter ending September 30, 1998 -16.22% (Worst)
- -----------------------------------------------------------------------
. Emerging Markets Income Fund
Quarter ending June 30, 1997 11.04% (Best)
Quarter ending September 30, 1998 -32.60% (Worst)
- -----------------------------------------------------------------------
. European Equities Fund
Quarter ending March 31, 1998 20.89% (Best)
Quarter ending September 30, 1998 -16.22% (Worst)
- -----------------------------------------------------------------------
. International Equities Fund
Quarter ending March 31, 1998 17.04% (Best)
Quarter ending September 30, 1998 -14.85% (Worst)
- -----------------------------------------------------------------------
. Japanese Equities Fund
Quarter ending June 30, 1997 18.28% (Best)
Quarter ending December 31, 1997 -28.53% (Worst)
- ------------------------------------------------------------------------
. Latin America Equities Fund
Quarter ending March 31, 1992 35.77% (Best)
Quarter ending March 31, 1995 -29.09% (Worst)
- ------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF SINCE
DECEMBER 31 1 YEAR 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
. Asia Pacific Equities Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------
MSCI Far East Free (Ex Japan) ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------
. Emerging Markets Equities Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------
IFC Investable Emerging Markets Total ____% ____% ____% ____%
Return Index
- -------------------------------------------------------------------------------------------------------------
. Emerging Markets Income Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------
J.P. Morgan Emerging Markets Bond Index ____% ____% ____% ____%
Plus
- -------------------------------------------------------------------------------------------------------------
. European Equities Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------
MSCI Europe 15 Index ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------
. International Equities Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------
MSCI EAFE Index ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------
. Japanese Equities Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------
TSE First Section Index ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------
. Latin America Equities Fund ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------
IFC Investable Total Return Latin America ____% ____% ____% ____%
Index
- -------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
FUND EXPENSES
As an investor, you pay certain fees and expenses in connection with the Funds,
which are described in the table below. Annual Fund operating expenses are paid
out of Fund assets, so their effect is included in the share price. The
Institutional Class shares of the Funds have no sales charge (load) or Rule
12b-1 distribution fees.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FEE TABLE
Asia Emerging Emerging European International Japanese Latin America Equities
Pacific Markets Markets Equities Equities Equities
Equities Equities Income
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
FEES
1) Redemption Fees None None None None None None None
2) Exchange Fees None None None None None None None
3) Contingent Deferred None None None None None None None
Sales Load
4) Sales Load on None None None None None None None
Reinvested Dividends
5) Sales Load on None None None None None None None
Purchases
ANNUAL FUND OPERATING
EXPENSES
Management Fees 1.00% 1.00% 0.75% 0.75% -- 0.75% 1.00%
Distribution (12b-1) Fees None None None None None None None
Other Expenses --% --% --% --% --% --% --%
Total Annual Fund --% --% --% --% --% --% --%
Operating Expenses
</TABLE>
9
<PAGE>
EXPENSE EXAMPLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asia Pacific Equities
Emerging Markets Equities
Emerging Markets Income
European Equities
International Equities
Japanese Equities
Latin America Equities
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 Initial
Investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
10
<PAGE>
TCW GALILEO ASIA PACIFIC EQUITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal,
it invests in equity securities of companies in the Asia Pacific
Region ("Asia-Pacific Countries"), except Australia, Japan and New
Zealand. At least 65% of the Fund's total assets will be invested in
equity securities of Asia Pacific Companies, or securities convertible
into such equity securities.
The Fund will generally invest its portfolio securities among at least
three Asia Pacific Countries.
In managing the Fund's investments, the Adviser utilizes an investment
process that incorporates both a "top-down" and "bottom-up" analysis
of the Asia-Pacific Countries. The "top-down" analysis focuses on an
evaluation of the global environment. The Adviser then complements its
"top-down" analysis with a "bottom-up" analysis. The Adviser uses
"bottom-up" analysis to determine country allocation based on
estimated earnings. The key factors used by the Adviser in assessing
the potential for an expansion (rerating) or contraction (derating) of
a stock market's earnings multiple are:
. liquidity
. historical valuations
. the sustainability of economic growth and political environment
The Adviser then performs an industry analysis and screens companies
based on certain quantitative analyses.
TERENCE F. MAHONY IS THE FUND'S PORTFOLIO MANAGER.
CONCEPTS TO UNDERSTAND
----------------------
Asian Pacific Company (i) is organized under the laws of an Asia-
Pacific Country and has a principal office in Asia; or (ii) derives
50% or more of its gross revenues or profits from goods produced or
sold, investments made, or services performed in Asia-Pacific
Countries or has at least 50% of its assets situated in Asia-Pacific
Countries; or (iii) its equity securities are traded principally on a
stock exchange or over-the-counter in an Asia-Pacific country.
11
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "foreign investing risk,"
"liquidity risk" and "price volatility." Because the Fund invests
almost all of its assets in securities issued by foreign companies, it
is subject to FOREIGN INVESTING RISKS. Foreign investing risk refers
to the likelihood that foreign investments may be riskier than U.S.
investments because of many factors, some of which include:
. a lack of political or economic stability
. foreign controls on investment and currency exchange rates
. withholding taxes
. a lack of adequate company information
Because the Fund invests in the securities of emerging market
countries, these risks are more pronounced. In addition, securities
traded only through foreign markets may be more volatile and are often
harder to sell. The Fund also is subject to foreign currency risk.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, the value of the net assets of the
Fund as measured in United States dollars will be affected favorably
or unfavorably by changes in exchange rates. LIQUIDITY RISK refers to
the possibility that the Fund may lose money or be prevented from
earning capital gains if it can not sell a security at the time and
price that is most beneficial to the Fund. Because foreign securities
may be less liquid than U.S. securities, the Fund may be more
susceptible to liquidity risk than funds that invest in U.S.
securities. PRICE VOLATILITY refers to the possibility that the value
of the Fund's portfolio will change as the prices of its investments
go up or down. This Fund may be subject to greater price volatility
than funds that invest in the securities of U.S. companies.
The Fund may invest some assets in foreign currency futures, forward
contracts, options and futures. These practices are used primarily to
hedge the Fund's portfolio but may be used to increase returns;
however, such practices sometimes may reduce returns or increase
volatility.
12
<PAGE>
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
13
<PAGE>
TCW GALILEO EMERGING MARKETS EQUITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal,
it invests primarily in equity securities of companies in Emerging
Market Countries.
The Fund will generally invest its assets among at least five Emerging
Market Countries. At least 65% of its total assets will be invested
in Emerging Market Company equity-related securities.
In managing the Fund's investments, the Adviser utilizes both a "top-
down view" and a "bottom-up analysis". In allocating investments
among Emerging Market Counties, the Adviser attempts to integrate an
assessment of how the global environment affects a particular country,
with an analysis of internal political, market and economic factors.
Among the country economic variables examined are:
. level of economic activity or GDP growth
. level and direction of local inflation
. level and direction of interest rates
. monetary policy and money supply growth
. current account balances and financing requirements
. the pace and degree of privatization
Based on these analyses, the Adviser estimates the overall earnings
growth rate (in local currency and in U.S. dollars) of the corporate
sector within each country. Market valuation levels are examined and
compared with historical levels and the levels of other Emerging
Market Countries that have gone through similar stages of economic
development. These analyses and estimates
CONCEPTS TO UNDERSTAND
- ----------------------
Emerging Market Country is a country that has a developing economy or market and
is considered an emerging or developing country by the International Bank of
Reconstruction and Development (the "World Bank"), as well as Hong Kong, Israel
and Singapore.
Emerging Market Company: (i) is organized under the laws of an Emerging Market
Country and has a principal office in an Emerging Market Country; or (ii)
derives 50% or more of its gross revenues or profits from goods produced or
sold, investments made, or services performed in Emerging Market Countries or
has at least 50% of its assets situated in Emerging Market Countries; or (iii)
its equity securities are traded principally on a stock exchange or over-the-
counter in an Emerging Market Country.
14
<PAGE>
form the basis for a calculation of the expected return for each
market, which is a key element of country allocation. The next step in
the investment decision process is industry analysis within sectors,
which includes assessing the effects of such developments as
privatization programs, infrastructure investment, consumer trends and
government regulation on particular industry sectors. The Adviser also
considers the possible impact of short--term cyclical factors, such as
business and political cycles, on particular industries. These
analyses produce industry weightings for each market.
In selecting Emerging Market Companies for investment, the Adviser
takes into account a variety of factors, including price/earnings
ratio, earnings growth, quality of management, availability of new
products and markets, current and historical stock prices, sales
growth and country factors affecting particular companies.
TERENCE F. MAHONY AND MICHAEL P. REILLY ARE THE FUND'S PORTFOLIO
MANAGERS.
15
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "foreign investing risk,"
"liquidity risk," and "price volatility." Because the Fund invests in
securities issued by foreign companies, it is subject to FOREIGN
INVESTING RISKS. Foreign investing risk refers to the likelihood that
foreign investments may be riskier than U.S. investments because of
many factors, some of which include:
. a lack of political or economic stability
. foreign controls on investment and currency exchange rates
. withholding taxes
. a lack of adequate company information
Because the Fund invests in the securities of emerging market
countries, these risks are more pronounced. In addition, securities
traded only through foreign markets may be more volatile and are often
harder to sell. The Fund also is subject to foreign currency risk.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, the value of the net assets of the
Fund as measured in United States dollars will be affected favorably
or unfavorably by changes in exchange rates. LIQUIDITY RISK refers to
the possibility that the Fund may lose money or be prevented from
earning capital gains if it can not sell a security at the time and
price that is most beneficial to the Fund. Because foreign securities
may be less liquid than U.S. securities, the Fund may be more
susceptible to liquidity risk than funds that invest in U.S.
securities.
PRICE VOLATILITY refers to the possibility that the value of the
Fund's portfolio will change as the prices of its investments go up or
down. This Fund may be subject to greater price volatility than funds
that invest in the securities of U.S. companies.
The Fund may invest some assets in options, futures, foreign currency
futures and forward contracts. These practices are used primarily to
hedge the Fund's portfolio but may be used to increase returns;
however, such practices sometimes may reduce returns or increase
volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will
16
<PAGE>
be secured at all times by cash and other high grade debt obligations.
As with any extension of credit, there are risks of delay in recovery
and in some cases even loss of rights in the collateral should the
borrower fail financially.
17
<PAGE>
TCW GALILEO EMERGING MARKETS INCOME FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks high total return from current income and capital
appreciation. To pursue this goal, it invests at least 65% of its
total assets in debt securities issued or guaranteed by companies,
financial institutions and government entities in Emerging Market
Countries. The debt securities in which the Fund may invest may
consist of securities that are unrated or rated BB or lower by S&P or
Ba or lower by Moody's. Debt securities rated below investment grade
are the equivalent of high yield, high risk bonds, commonly known as
"junk bonds." The Fund will invest in at least four Emerging Market
Countries.
In allocating investments among the various Emerging Market Countries,
the Adviser attempts to analyze internal political, market and
economic factors. The factors include:
. public finances
. monetary policy
. external accounts
. financial markets
. foreign investment regulations
. stability of exchange rate policy and labor
conditions
The Fund may invest up to 20% of its total assets, measured at time of
purchase, in structured investments that may be either subordinated or
unsubordinated, and in indexed debt securities.
JAVIER BAZ AND NATHAN B. SANDLER ARE THE FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
EMERGING MARKET COUNTRY is a country that has a developing economy or
market and is considered an emerging or developing country by the
International Bank of Reconstruction and Developement (the "World
Bank") as well as Hong Kong, Israel and Singapore.
EMERGING MARKET COMPANY (i) is organized under the laws of an Emerging
Market Country and has a principal office in an Emerging Market
Country; or (ii) derives 50% or more of its gross revenues or profits
from goods produced or sold, investments made, or services performed
in Emerging Market Countries or has at least 50% of its assets
situated in Emerging Market Countries; or (iii) its equity securities
are traded principally on a stock exchange or over-the-counter in an
Emerging Market Country.
18
<PAGE>
. MAIN RISKS
----------
The primary risks affecting this Fund are "foreign investing risk,"
"liquidity risk," "credit risk," "interest rate risk," and "price
volatility." Because the Fund invests in securities issued by foreign
governments or companies, it is subject to FOREIGN INVESTING RISKS.
Foreign investing risk refers to the likelihood that foreign
investments may be riskier than U.S. investments because of many
factors, some of which include:
. a lack of political or economic stability
. foreign controls on investment and currency exchange rates
. withholding taxes
. a lack of adequate company information
Because the Fund invests in the securities of emerging market
countries, these risk factors are more pronounced. In addition,
securities traded only through foreign markets may be more volatile
and are often harder to sell. The Fund also is subject to foreign
currency risk. Because foreign securities generally are denominated
and pay dividends or interest in foreign currencies, the value of the
net assets of the Fund as measured in United States dollars will be
affected favorably or unfavorably by changes in exchange rates.
LIQUIDITY RISK refers to the possibility that the Fund may lose money
or be prevented from earning capital gains if it can not sell a
security at the time and price that is most beneficial to the Fund.
Because lower quality securities and foreign securities may be less
liquid than higher quality securities, the Fund may be more
susceptible to liquidity risk than funds that invest in higher quality
or U.S. securities. CREDIT RISK refers to the likelihood that the
Fund could lose money if an issuer is unable to meet its financial
obligations, such as the payment of principal and/or interest on an
instrument, or goes bankrupt. This Fund may be subject to greater
credit risk, because it invests in securities that are below
investment grade and have no minimum credit rating. This is
especially true during periods of economic uncertainty or during
economic downturns. INTEREST RATE RISK refers to the possibility that
the value of the Fund's portfolio investments may fall when interest
rates rise. Changes in interest rates may have a significant effect
on the Fund, because it may hold securities with long terms to
maturity and may use hedging techniques. PRICE VOLATILITY refers to
the possibility that the value of the Fund's portfolio will change as
the value of its investments go up or down. The Fund may be subject
to greater price volatility than funds that invest in the securities
of U.S. companies.
19
<PAGE>
The Fund may invest some assets in options, futures, foreign currency
futures and forward contracts. These practices are used primarily to
hedge the Fund's portfolio but may be used to increase returns;
however, such practices sometimes may reduce returns or increase
volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
20
<PAGE>
TCW GALILEO EUROPEAN EQUITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal,
it invests primarily in the securities of issuers located in Europe.
The Fund invests at least 65% of its total assets in equity securities
issued by European companies. These securities include common and
preferred stocks, rights or warrants to purchase common stock and
convertible debt or equity securities. The Fund invests in companies
based in at least three European Countries.
In managing the Fund's investments, the Adviser seeks to emphasize
companies which are moving towards the North American concept of
shareholder value.
The Adviser also seeks investment opportunities resulting from the
fact that economic ties between the former "Eastern bloc" countries of
Europe and other European countries have been strengthened. The Fund
will not invest more than 30% of its total assets in issuers based in
former "Eastern bloc" countries, or more than 10% of its total assets
in issuers based in any one former "Eastern bloc" country.
JAMES M. BURNS AND SAKER A. NUSSEIBEH ARE THE FUND'S PORTFOLIO
MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
EUROPEAN COMPANY (i) is organized under the laws of a European
country and has a principal office in Europe; or (ii) derives 50% or
more of its gross revenues or profits from goods produced or sold,
investments made, or services performed in European countries or has
at least 50% of its assets situated in Europe; or (iii) its equity
securities are traded principally on a stock exchange or over-the-
counter in a European country.
21
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "foreign investing risk,"
"liquidity risk," and "price volatility." The Fund is subject to
foreign investing risk because it invests in securities issued by
foreign governments or companies. FOREIGN INVESTING RISK refers to
the likelihood that foreign investments may be riskier than U.S.
investments because of many factors, some of which include:
. a lack of political or economic stability
. foreign controls on investment and currency exchange rates
. withholding taxes
. a lack of adequate company information
Because the Fund invests in the securities of emerging market
countries, these risk factors are more pronounced. In addition,
securities traded only through foreign markets may be more volatile
and are often harder to sell. The Fund is also subject to foreign
currency risk. Because foreign securities generally are denominated
and pay dividends or interest in foreign currencies, the value of the
net assets of the Fund as measured in United States dollars will be
affected favorably or unfavorably by changes in exchange rates.
LIQUIDITY RISK refers to the possibility that the Fund may lose money
or be prevented from earning capital gains if it can not sell a
security at the time and price that is most beneficial to the Fund.
Because foreign securities may be less liquid than U.S. securities,
the Fund may be more susceptible to liquidity risk than funds that
invest in U.S. securities. PRICE VOLATILITY refers to the possibility
that the value of the Fund's portfolio will change as the prices of
its investments go up or down. This Fund may be subject to greater
price volatility than funds that invest in the securities of U.S.
companies.
The Fund may invest some assets in options, futures, foreign currency
futures and forward contracts. These practices are used primarily to
hedge the Fund's portfolio but may be used to increase returns;
however, such practices sometimes may reduce returns or increase
volatility.
22
<PAGE>
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
23
<PAGE>
TCW GALILEO INTERNATIONAL EQUITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
This Fund seeks long-term capital appreciation. To pursue its goal,
it invests primarily in equity markets outside the U.S. both in
developed and emerging countries through investment in shares of the
Galileo Funds.
In managing the Fund's assets, the Fund allocates its assets, within
predetermined percentage ranges, among certain of the underlying
Galileo Funds which, except for the TCW Galileo Money Market Fund,
invest predominantly in foreign securities. The Fund will invest in
the following underlying Galileo Funds up to the percentage limits set
forth below:
<TABLE>
<CAPTION>
Fund Investment Limit
(Percent of the
International Equities
Underlying Galileo Funds Fund's Total Assets)
------------------------ ----------------------
<S> <C>
Asia Pacific Equities Fund 50%
Emerging Markets Equities Fund 35%
European Equities Fund 80%
Japanese Equities Fund 75%
Latin America Equities Fund 50%
TCW Galileo Money Market Fund 50%
</TABLE>
The Fund may invest directly in Australian and New Zealand securities.
The Board may alter these percentage limits when it deems
appropriate.
Each underlying Galileo Fund has a specific investment objective,
investment policies and risks. Investors should read the disclosure
contained in this Prospectus regarding each underlying Galileo Fund's
investment objective, policies, permissible investments and risks.
The TCW Galileo Money Market Fund invests in high credit quality,
short-term money market securities.
SAKER A. NUSSEIBEH IS THE FUND'S PORTFOLIO MANAGER.
24
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily shares of other funds.
The primary risks affecting the Fund are "foreign investing risk,"
"liquidity risk" "price volatility," and to a lesser extent, "credit
risk." Because the Fund will invest most of its assets in underlying
Galileo Funds, which invest in securities issued by foreign
governments or companies, it is subject to FOREIGN INVESTING RISKS.
Foreign investing risk refers to the likelihood that foreign
investments may be riskier than U.S. investments because of many
factors, some of which include:
. a lack of political or economic stability
. foreign controls on investment and currency exchange rates
. withholding taxes
. a lack of adequate company information
Because the Fund invests in underlying Galileo Funds, which invest in
the securities of emerging market countries, these risks are more
pronounced. In addition, securities traded only through foreign
markets may be more volatile and are often harder to sell. The Fund
also is subject to foreign currency risk. Because foreign securities
generally are denominated and pay dividends or interest in foreign
currencies, the value of the net assets of those Funds as measured in
United States dollars will be affected favorably or unfavorably by
changes in exchange rates. LIQUIDITY RISK refers to the possibility
that the Fund may lose money or be prevented from earning capital
gains if it can not sell a security at the time and price that is most
beneficial to the Fund. Because foreign securities may be less liquid
than U.S. securities, the Fund may be more susceptible to liquidity
risk than funds that invest in U.S. securities. PRICE VOLATILITY
refers to the possibility that the value of the Fund's portfolio will
change as the value of its investments go up or down. The Fund may be
subject to greater price volatility than funds that invest in the
securities of U.S. companies.
Investing in the underlying Galileo Funds through the Fund involves
certain additional expenses and taxes that would not be present in
direct investments in the underlying Galileo Funds.
The Fund invests in underlying Galileo Funds, which seek to earn
additional income by making loans of their portfolio securities to
brokers, dealers and other financial institutions. The loans will be
secured at all times by cash and other high grade debt obligations.
As with any extension of credit,
25
<PAGE>
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
26
<PAGE>
TCW GALILEO JAPANESE EQUITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal,
it invests at least 65% of its total assets in equity securities
issued by Japanese Companies. These securities include common and
preferred stocks, rights or warrants to purchase common stock and
convertible debt or equity securities.
The Fund may invest up to 25% of its total assets in equity securities
of Japanese Companies traded on the second sections of the main
Japanese exchanges and in the over-the-counter market which generally
are smaller companies. The Fund will invest in companies that the
Adviser believes:
. have potential for good medium term earnings growth
. are undervalued within the Japanese equities market
The Adviser will seek companies that have at least some of the
following characteristics:
. strong balance sheets
. strong management team
. high quality assets
. large market share
The Fund also invests up to 35% of its total assets, measured at time
of purchase, in debt securities of issuers located in Japan or issued
or guaranteed by the Japanese government.
STEPHEN J. HARKER AND PETER A. KIRKMAN ARE THE FUND'S PORTFOLIO
MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
JAPANESE COMPANIES (i) are organized under the laws of Japan and have
a principal office in Japan; or (ii) derive 50% or more of their gross
revenues or profits from goods produced or sold, investments made, or
services performed in Japan or have at least 50% of their assets
situated in Japan; or (iii) have their equity securities traded
principally on a stock exchange or over-the-counter market in Japan.
27
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "foreign investing risk,"
"single country risk," "liquidity risk," "price volatility" and
"credit risk." Because the Fund invests in securities issued by
foreign governments or companies, it is subject to FOREIGN INVESTING
RISKS. Foreign investing risk refers to the likelihood that foreign
investments may be riskier than U.S. investments because of many
factors, some of which include :
. a lack of political or economic stability
. foreign controls on investment and currency exchange rates
. withholding taxes
. a lack of adequate company information
In addition, securities traded only through foreign markets may be
more volatile and are often harder to sell. The Fund also is subject
to foreign currency risk. Because foreign securities generally are
denominated and pay dividends or interest in foreign currencies, the
value of the net assets of those Funds as measured in United States
dollars will be affected favorably or unfavorably by changes in
exchange rates. LIQUIDITY RISK refers to the possibility that the
Fund may lose money or be prevented from earning capital gains if it
can not sell a security at the time and price that is most beneficial
to the Fund. Because foreign securities may be less liquid than U.S.
securities, the Fund may be more susceptible to liquidity risk than
funds that invest in U.S. securities. In addition, because the Fund
may invest in the securities of small-sized companies, these
securities may be less liquid than the securities of large-sized
companies. PRICE VOLATILITY refers to the possibility that the value
of the Fund's portfolio will change as the prices of its investments
go up or down. The Fund may be subject to greater price volatility
than funds that invest in the securities of large U.S. companies. The
Fund is subject to "SINGLE COUNTRY" RISK. As a "single country"
mutual fund, the Fund may exhibit certain speculative characteristics
and thus should not constitute a complete investment program. The
concentration of the Fund's assets in Japanese issuers will subject
the Fund to the risks of adverse social, political or economic events
28
<PAGE>
which occur in Japan. CREDIT RISK refers to the likelihood that the
Fund could lose money if an issuer is unable to meet its financial
obligations, such as the payment of principal and/or interest on an
instrument, or goes bankrupt. The Fund may be subject to substantial
credit risk because it may invest in securities that are below
investment grade.
The Fund may invest some assets in options, futures, foreign currency
futures and forward contracts. It may also sell short securities These
practices are used primarily to hedge the Fund's portfolio but may be
used to increase returns; however, such practices sometimes may reduce
returns or increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
29
<PAGE>
TCW GALILEO LATIN AMERICA EQUITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal,
it invests at least 65% of its total assets in Latin American equity
securities. The Fund invests its assets among at least three Latin
American countries at all times. Typically, 95% of the Fund's
investments will consist of equity securities of issuers in Brazil,
Mexico, Argentina, Chile, Columbia, Peru and Venezuela.
Other Latin American countries in which the Fund may invest are: the
Bahamas, Barbados, Belize, Bolivia, Costa Rica, Dominican Republic,
Ecuador, El Salvador, French Guinea, Guatemala, Guyana, Haiti,
Honduras, Jamaica, the Netherlands, Antilles, Nicaragua, Panama,
Paraguay, Suriname, Trinidad, Tobago, and Uruguay.
The Fund seeks superior returns by investing in countries, or sectors
within countries, exhibiting strong earnings growth potential in U.S.
dollar terms as well as reasonable value. Allocation of assets among
Latin American countries is based on the risk adjusted attractiveness
of each market.
The Adviser carries out both country political and economic analysis
in order to identify attractive investment opportunities. This
analysis involves:
. internal research
. in-country visits with government officials, business leaders, and
private sector consultants
. communicating with multilateral agencies such as the World Bank,
IMF, and IADB
CONCEPTS TO UNDERSTAND
----------------------
LATIN AMERICAN securities include (i) debt or equity securities of
companies organized in a country in Latin America or for which the
principal trading market (the exchange or over-the-counter market in
which the largest portion of the shares of the company's securities
are traded) is located in Latin America, (ii) equity securities of
companies that derive at least 50% of their gross revenues or profits
from either goods produced or services performed in Latin America or
sales made in Latin America, (iii) equity securities in the form of
Depositary Instruments listed on securities exchanges or traded in
other regulated markets in the United States issued by companies which
meet the requirements set forth in clauses (i) and (ii), (iv) debt
securities issued or guaranteed by the government of a country in
Latin America, its agencies or instrumentalities, or the central bank
of such country, and (v) debt securities denominated in a Latin
American currency issued by companies to finance operations in Latin
America.
30
<PAGE>
. in-country visits with the management of companies in which the
Fund invests
The Adviser uses its research to identify countries with:
. declining interest rates
. a reduction in country risk
. strong economic growth
The Adviser seeks to invest in the equity securities of companies
with:
. quality management
. strong earnings growth
. reasonable valuation measures relative to other market proxies
SHANNON M. CALLAN AND MICHAEL P. REILLY ARE THE FUND'S PORTFOLIO
MANAGERS.
31
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "foreign investing risk,"
"liquidity risk," and "price volatility." Because the Fund invests a
portion of its assets in securities issued by foreign governments or
companies, it may be subject to FOREIGN INVESTING RISKS. Foreign
investing risk refers to the likelihood that foreign investments may
be riskier than U.S. investments because of many factors, some of
which include:
. a lack of political or economic stability
. foreign controls on investment and currency exchange rates
. withholding taxes
. a lack of adequate company information
Because the Fund invests in the securities of emerging market
countries, these risks are more pronounced. In addition, securities
traded only through foreign markets may be more volatile and are often
harder to sell. The Fund also is subject to foreign currency risk.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and some of the Funds hold various
foreign currencies from time to time, the value of the net assets of
those Funds as measured in United States dollars will be affected
favorably or unfavorably by changes in exchange rates. LIQUIDITY
RISK refers to the possibility that the Fund may lose money or be
prevented from earning capital gains if it can not sell a security at
the time and price that is most beneficial to the Fund. Because lower
quality securities and foreign securities may be less liquid than
higher quality or U.S. securities, the Fund may be more susceptible to
liquidity risk than funds that invest in higher quality or U.S.
investments. PRICE VOLATILITY refers to the possibility that the
value of the Fund's portfolio will change as the prices of its
investments go up or down. This Fund may be subject to greater price
volatility than funds that invest in the securities of large U.S.
companies.
The Fund may invest some assets in options, futures, foreign currency
futures and forward contracts. These practices are used primarily to
hedge
32
<PAGE>
the Fund's portfolio but may be used to increase returns; however,
such practices sometimes may reduce returns or increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
33
<PAGE>
. RISK CONSIDERATIONS
-------------------
Please consider the following risks before investing in a Fund.
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's
performance or financial position can depress the value of the
issuer's securities. The liquidity in a market for a particular
security will affect its value and may be affected by factors relating
to the issuer, as well as the depth of the market for that security.
Other market risks that can affect value include a market's current
attitudes about type of security, market reactions to political or
economic events, and tax and regulatory effects (including the lack of
adequate regulations for a market or particular type of instrument).
Market restrictions on trading volume can also affect price and
liquidity.
Prices of most securities tend to be more volatile in the short-term.
Therefore, an investor who trades frequently or redeems in the short-
term is more likely to incur loss than an investor who holds
investments for the long term. Lack of diversification in a portfolio
can also increase volatility.
GENERAL INVESTMENT RISK
-----------------------
Since shares of a Fund represent an investment in securities with
fluctuating market prices, the value of Fund shares will vary as
the value of each Fund's portfolio securities increases or decreases.
Therefore, the value of an investment in a Fund could go down as well
as up.
34
<PAGE>
. RISK CONSIDERATIONS
-------------------
FOREIGN Investment in foreign securities involves special risks in addition to
INVESTING the usual risks inherent in domestic investments. These include:
political or economic instability; the unpredictability of
international trade patterns; the possibility of foreign governmental
actions such as expropriation, nationalization or confiscatory
taxation; the imposition or modification of foreign currency or
foreign investment controls; the imposition of withholding taxes on
dividends, interest and gains; price volatility; and fluctuations in
currency exchange rates.
As compared to United States companies, foreign issuers generally
disclose less financial and other information publicly and are subject
to less stringent and less uniform accounting, auditing and financial
reporting standards. Foreign countries typically impose less thorough
regulations on brokers, dealers, stock exchanges, insiders and listed
companies than does the United States. Foreign securities markets may
be less liquid and more volatile than domestic markets. Investment in
foreign securities involves higher costs than investment in U.S.
securities, including higher transaction and custody costs as well as
the imposition of additional taxes by foreign governments. In
addition, security trading practices abroad may offer less protection
to investors such as the Funds. Settlement of transactions in some
foreign markets may be delayed or may be less frequent than in the
U.S., which could affect the liquidity of each Fund's portfolio.
Also, it may be more difficult to obtain and enforce legal judgments
against foreign corporate issuers than against
35
<PAGE>
domestic issuers and it may be impossible to obtain and enforce
judgments against foreign governmental issuers.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and some of the Funds hold various
foreign currencies from time to time, the value of the net assets of
those Funds as measured in United States dollars will be affected
favorably or unfavorably by changes in exchange rates. Generally,
currency exchange transactions will be conducted on a spot (i.e.,
----
cash) basis at the spot rate prevailing in the currency exchange
market. The cost of currency exchange transactions will generally be
the difference between the bid and offer spot rate of the currency
being purchased or sold. In order to protect against uncertainty in
the level of future foreign currency exchange rates, the Galileo
International Funds are authorized to enter into certain foreign
currency futures and forward contracts.
With respect to the Emerging Markets Equities, Emerging Markets
Income, and Latin America Equities Funds, the forward currency market
for the purchase or sale of U.S. dollars in most Latin American
countries is not highly developed, and, in certain countries, there
may be no such market. If a devaluation of a currency is generally
anticipated, the Funds may not be able to contract to sell the
currency at an exchange rate more advantageous than that which would
prevail after the anticipated amount of devaluation, particularly in
regard to forward contracts for local currencies in view of the
relatively small, inactive or even non-existent market for these
contracts. In the event the Funds hold securities denominated in a
currency that suffers a devaluation, the Funds' net asset values will
suffer corresponding reductions. In this regard, in December 1994,
the Mexican government determined to allow the Mexican peso to trade
freely against the U.S. dollar rather than within a controlled band,
which action resulted in a significant devaluation of the Mexican peso
against the dollar. Further, in July 1997, the Thai and Philippine
governments allowed the baht and peso, respectively, to trade freely
against the U.S. dollar resulting in a sharp devaluation of both
currencies, and in 1998 Russia did the same, causing a sharp
devaluation of the ruble.
36
<PAGE>
. RISK CONSIDERATIONS
-------------------
RISKS
ASSOCIATED Investors should recognize that investing in securities of emerging
WITH market countries through investment in the Asia Pacific Equities,
EMERGING Emerging Markets Equities, Emerging Markets Income, European
MARKET Equities, International Equities and Latin America Equities Funds
COUNTRIES involves certain risks, and considerations, including those set forth
below, which are not typically associated with investing in the
United States or other developed countries.
Political and economic structures in many emerging markets countries
may be undergoing significant evolution and rapid development, and
such countries may lack the social, political and economic stability
characteristics of more developed countries. Some of these countries
may have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private
companies.
The securities markets of emerging market countries are substantially
smaller, less developed, less liquid and more volatile than the major
securities markets in the United States and other developed nations.
The limited size of many emerging securities markets and limited
trading volume in issuers compared to the volume of trading in U.S.
securities or securities of issuers in other developed countries
could cause prices to be erratic for reasons apart from factors that
affect the quality of the securities. For example, limited market
size may cause prices to be unduly influenced by traders who control
large positions. Adverse publicity and investors' perceptions,
whether or not based on
37
<PAGE>
fundamental analysis, may decrease the value and liquidity of
portfolio securities, especially in these markets.
In addition, emerging market countries' exchanges and broker-dealers
are generally subject to less government and exchange regulation than
their counterparts in developed countries. Brokerage commissions,
dealer concessions, custodial expenses and other transaction costs may
be higher in emerging markets than in developed countries. As a
result, Funds investing in emerging market countries have operating
expenses that are expected to be higher than other Funds investing in
more established market regions.
Many of the emerging market countries may be subject to a greater
degree of economic, political and social instability than is the case
in the United States, Canada, Australia, New Zealand, Japan and
Western European and certain Asian countries. Such instability may
result from, among other things, (i) popular unrest associated with
demands for improved political, economic and social conditions, and
(ii) internal insurgencies. Such social, political and economic
instability could disrupt the financial markets in which the Asia
Pacific Equities, Emerging Markets Equities, Emerging Markets Income,
International Equities and Latin America Equities Funds invest and
adversely affect the value of a Fund's assets.
In certain emerging market countries governments participate to a
significant degree, through ownership or regulation, in their
respective economies. Action by these governments could have a
significant adverse effect on market prices of securities and payment
of dividends. In addition, most emerging market countries have
experienced substantial, and in some periods extremely high, rates of
inflation. Inflation and rapid fluctuation in inflation rates have
had and may continue to have very negative effects on the economies
and securities markets of certain emerging market countries. In
addition, many emerging market countries are grappling with severe
recession and government instability.
Many of the currencies of emerging market countries have experienced
devaluations relative to the U.S. dollar, and major devaluations have
historically occurred in certain countries. Any devaluations in the
currencies in which portfolio securities are denominated will have a
detrimental impact on Funds investing in emerging market countries.
Many emerging market countries are experiencing currency exchange
problems.
38
<PAGE>
Countries have and may in the future impose foreign currency controls
and repatriation control.
39
<PAGE>
. RISK CONSIDERATIONS
-------------------
FIXED Fixed income securities are subject to various risks. The two
INCOME primary (but not exclusive) risks affecting fixed income
SECURITIES instruments are "credit risk" and "interest rate risk." These risks
can affect a security's price volatility to varying degrees,
depending upon the nature of the instrument. In addition, the depth
and liquidity of the market for an individual or class of fixed
income security can also affect its price and, hence, the market
value of a Fund.
"CREDIT RISK" refers to the likelihood that an issuer will default
in the payment of principal and/or interest on an instrument.
Financial strength and solvency of an issuer are the primary factors
influencing credit risk. In addition, lack of or inadequacy of
collateral or credit enhancements for a fixed income security may
affect credit risk. Credit risk of a security may change over its
life and securities which are rated by rating agencies are often
reviewed and may be subject to downgrades.
The Emerging Markets Income Fund may invest in debt instruments
rated below investment grade. Generally, lower-rated debt securities
provide a higher yield than higher rated debt securities of similar
maturity but are subject to greater credit risk than higher rated
securities of similar maturity. Such securities are regarded as
predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Because investment
in lower quality securities involves greater investment risk,
achievement of a Fund's investment objective will be more dependent
on the Adviser's analysis than would be the case if the Fund were
investing in higher quality bonds. In addition, lower quality
securities may be more susceptible to real or perceived adverse
economic and
40
<PAGE>
individual corporate developments than would investment grade bonds.
Moreover, the secondary trading market for lower quality securities
may be less liquid than the market for investment grade bonds. This
potential lack of liquidity may make it more difficult for the Adviser
to value accurately certain portfolio securities.
"INTEREST RATE RISK" refers to the change in value of debt instruments
associated with changes in interest rates. Interest rate changes may
affect the value of a fixed income security directly (especially in
the case of fixed rate securities) and indirectly (especially in the
case of adjustable rate securities). In general, rises in interest
rates will negatively impact the value of fixed rate securities and
falling interest rates will have a positive effect on value. The
degree to which a security's price will change as a result of changes
in interest rates is measured by its "duration." For example, the
price of a bond with a 5 year duration would be expected under normal
market conditions to decrease 5% for every 1% increase in interest
rates. Generally, securities with longer maturities have a greater
duration and thus are subject to greater price volatility from changes
in interest rates. Adjustable rate instruments also react to interest
rate changes in a similar manner although generally to a lesser degree
(depending, however, on the characteristics of the reset terms,
including the index chosen, frequency of reset and reset caps or
floors, among other things).
41
<PAGE>
. RISK CONSIDERATIONS
-------------------
NON- Each of the Galileo International Funds are non-diversified
DIVERSIFIED for 1940 Act purposes and as such may invest a larger
STATUS percentage of its assets in individual issuers than a
diversified investment company. In this regard, the Fund is
not subject to the general limitation that it not invest more
than 5% of its total assets in the securities of any one
issuer. To the extent the Fund makes investments in excess of
5% of its assets in a particular issuer, its exposure to
credit and market risks associated with that issuer is
increased. However, the Fund's investments will be limited so
as to qualify for the special tax treatment afforded
"regulated investment companies" under the Internal Revenue
Code of 1986, as amended.
42
<PAGE>
. RISK CONSIDERATIONS
YEAR 2000 The investment advisory and management services provided by
the Adviser and the services provided to shareholders by the
Transfer Agent depend on the smooth functioning of their
computer systems. Many computer software systems in use today
cannot recognize the year 2000, but revert to 1900 or some
other date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services.
The Adviser and the Transfer Agent have been actively working
on necessary changes to their own computer systems to prepare
for the year 2000 and expect that their systems will be
adapted for year 2000 compliance before that date, but there
can be no assurance that they will be successful, or that
interaction with other non-complying computer systems will not
impair their services at that time.
In addition, it is possible that the markets for securities in
which the Funds invest may be negatively affected by computer
failures throughout the financial services industry commencing
January 1, 2000. Improperly functioning trading systems may
result in settlement problems. In addition, corporate and
governmental data processing errors may result in production
problems for individual companies and create overall economic
uncertainties. Earnings of individual issuers will be affected
by remediation costs which may be substantial. Individual
firms may further experience disruptions to their business due
to the failure of their counterparts to address year 2000
problems, or could experience further disruption to the
economy at large, which
43
<PAGE>
could adversely affect corporate earnings generally and the
value of their securities. Accordingly, a Fund's portfolio
investments may be negatively affected.
44
<PAGE>
. RISK CONSIDERATIONS
-------------------
EUROPEAN Certain of the Funds will invest in European countries that
ECONOMIC AND have agreed to enter into the European Monetary Union (EMU).
MONETARY UNION EMU is an effort by certain European countries to, among other
things, reduce barriers between countries and eliminate
fluctuations in their currencies. Among other things, EMU
establishes a single European currency (the euro), which will
be introduced on January 1, 1999 and is expected to replace
the existing national currencies of all initial EMU
participants by July 1, 2002. Upon introduction of the euro,
certain securities (beginning with government and corporate
bonds) will be redonominated in the euro and, thereafter will
trade and make dividend and other payments only in euros.
Like other investment companies and business organizations,
including the companies in which the Funds invest, the Funds
could be adversely affected: (i) if the euro, or EMU as a
whole does not take effect as planned; (ii) if a participating
country withdraws from EMU; or (iii) if the computing,
accounting and trading systems used by the Funds' service
providers, or by other business entities with which the Funds
or their service providers do business, are not capable of
recognizing the euro as a distinct currency at the time of,
and following euro conversion.
45
<PAGE>
. MANAGEMENT OF THE FUNDS
-----------------------
INVESTMENT ADVISER
The Funds' investment adviser is TCW Funds Management, Inc.
and is headquartered at 865 South Figueroa Street, Suite 1800,
Los Angeles, California 90017. As of October 31, 1998, the
Adviser and its affiliated companies, which provide a variety
of trust, investment management and investment advisory
services had over [$50 billion] under management or committed
for management.
SUB-INVESTMENT ADVISERS
TCW Asia Limited ("TCW Asia"), Sub-Adviser to the Asia Pacific
Equities and Emerging Markets Equities Funds, is headquartered
at One Pacific Place, 88 Queensway, Hong Kong. TCW London
International, Limited ("TCW London") (regulated by I.M.R.O.),
Sub-Adviser to the Emerging Markets Equities, European
Equities, Japanese Equities and International Equities Funds,
is headquartered at 16 Charles II Street, London, England
SWIY4QV.
PORTFOLIO MANAGERS
Listed below are the individuals who have been primarily
responsible for the day-to-day portfolio management of the
Funds, including a summary of each person's business
experience during the past five years:
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS(1)
---------- ------------------------
<S> <C>
Javier Baz Managing Director and
Chief Investment Officer-
International, the
Adviser, TCW Asset
Management Company and
Trust Company of the West
since January 1994.
Previously Managing
Director, Merrill Lynch
Capital Markets-
International Emerging
Markets Corporate Finance
Group.
James M. Burns Managing Director and
Executive Vice President,
TCW London International
Limited (since August
1993) and Managing
Director, TCW Asset
Management Company since
October 1994. Previously
Managing Director Dillon,
Read International Asset
Management Co. (London).
Shannon M. Callan Managing Director, the
Adviser, TCW Asset
Management Company and
Trust Company of the
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS(1)
---------- ------------------------
<S> <C>
West. Prior to rejoining
the Adviser in 1994,
portfolio manager for
Moore Capital, an
offshore hedge fund.
Prior to 1993 portfolio
manager/analyst for TCW
Asset Management Company.
Stephen J. Harker Managing Director and
Executive Vice President,
TCW London International,
Limited (since January
1994) and Managing
Director, TCW Asset
Management Company (since
October 1994). Previously
Assistant Director and
Fund Manager for
Prudential Portfolio
Managers, Ltd. (England).
Peter A. Kirkman Vice President TCW London
International, Ltd. and
TCW Asset Management
Company since March 1996.
Previously Senior Fund
Manager Prudential
Portfolio Managers, Ltd.
(England).
Terence F. Mahony Managing Director, the
Adviser, TCW Asset
Management Company and
Trust Company of the West
since April 1996.
Previously he was Chief
Investment Officer for
Global Emerging Markets
Equities at HSBC Asset
Management (September
1993 to April 1996) and
prior thereto was a
Director at Baring Asset
Management.
Saker A. Nusseibeh Managing Director and
Executive Vice President,
TCW London International,
Limited and Managing
Director, TCW Asset
Management Company since
July 1996. Previously
Director of Mercury Asset
Management (London).
Michael P. Reilly Managing Director, the
Adviser, TCW Asset
Management Company and
Trust Company of the
West.
Nathan B. Sandler Managing Director, the
Adviser, TCW Asset
Management Company and
Trust Company of the West
since September 1993.
Previously a Principal of
SCS Leveraged Global
Markets, a fixed income
investment Fund.
</TABLE>
ADVISORY AND SUB-ADVISORY AGREEMENTS
The Company and the Adviser have entered into an Investment Advisory
and Management Agreement (the "Advisory Agreement"), under the terms
of
47
<PAGE>
which the Company has employed the Adviser to manage the investment
of its assets, to place orders for the purchase and sale of its
portfolio securities, to administer its day-to-day operations, and to
be responsible for overall management of the Company's business
affairs, subject to control by the Board of Directors of the Company.
The Adviser also pays certain costs of marketing the Funds, including
sales personnel compensation, from legitimate profits from its
investment advisory fees and other resources available to it. In
addition, the Adviser reimburses third party administrators, out of
its own resources, for retirement plan shareholder servicing expenses.
Under the Advisory Agreement, the Funds pay to the Adviser as
compensation for the services rendered, facilities furnished, and
expenses paid by it the following fees:
<TABLE>
<CAPTION>
ANNUAL MANAGEMENT FEE
FUND (AS PERCENT OF AVERAGE NET ASSET VALUE)
---- --------------------------------------
<S> <C>
Asia Pacific Equities 1.00%
Emerging Markets Equities 1.00%
Emerging Markets Income .75%
European Equities .75%
Latin America Equities 1.00%
International Equities -----
Japanese Equities .75%
</TABLE>
The Advisory Agreement for International Equities provides that the
Fund does not pay a direct management fee. However, as a "Fund of
Funds" investing its assets in a mix of other Galileo Funds,
International Equities will bear its proportionate share of the
management fee of any other Fund in which it invests.
The Adviser has retained, at its sole expense, TCW Asia to provide
investment advisory services for the Asia Pacific Equities and
Emerging Markets Equities Funds, and TCW London to provide such
services with respect to the Emerging Markets Equities, European
Equities, International Equities and Japanese Equities Funds. Under
the Sub-Advisory Agreements the Sub-Advisers assist the Adviser in
performing its advisory functions in respect of the Funds.
48
<PAGE>
The Advisory Agreement and Sub-Advisory Agreements provide that the
Adviser and Sub-Advisers, respectively, shall not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund
in connection with the matters to which the agreements relate, except
a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser or Sub-Advisers in the
performance of their duties or from reckless disregard by them of
their duties under each respective agreement.
. MULTIPLE CLASS STRUCTURE
------------------------
Each Fund currently offers two classes of shares, Institutional Class
shares and Class A shares. Shares of each class of a Fund represents
an equal pro rata interest in that Fund and generally gives you the
same voting, dividend, liquidation, and other rights. The
Institutional Class shares are offered at the current net asset value.
The Class A shares are also offered at the current net asset value,
but will be subject to a distribution or service fee imposed under a
distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. Pursuant to the
Distribution Plan, each Fund compensates the Funds' distributor at a
rate equal to 0.25% of the average daily net assets of that Fund
attributable to its Class A shares for distribution and related
services.
49
<PAGE>
YOUR INVESTMENT
. ACCOUNT POLICIES AND SERVICES
-----------------------------
BUYING SHARES
You pay no sales charges to invest in a Fund. Your price for Fund
shares is the Fund's net asset value per share (NAV) which is
generally calculated as of the close of trading on the New York Stock
Exchange (usually 4:00 p.m. Eastern time) every day the exchange is
open. Your order will be priced at the next NAV calculated after your
order is accepted by the Fund. Orders received by a Fund's Transfer
agent from dealers, brokers or other service providers after the NAV
is determined that day will receive that NAV if the orders were
received by the dealers, brokers or service providers from their
customers prior to such determination and were transmitted to and
received by the transfer agent prior to 8:00 a.m. Eastern time on the
next day. A Fund's investments are valued based on market value, or
where market quotations are not readily available, based on fair value
as determined in good faith by the Fund's board.
<TABLE>
<CAPTION>
=================================================================
Minimums
Initial Additional
<S> <C> <C>
All Funds except Money Market
Fund $250,000 $25,000
Money Market Fund $100,000 $ 1,000
TCW Galileo Funds, Inc. may waive the minimum investment. All
investments must be in U.S. dollars. Third-party checks, except those
payable to an existing shareholder, will normally not be accepted. If
your check or wire does not clear, you will be responsible for any
loss a Fund incurs.
</TABLE>
50
<PAGE>
SELLING SHARES
You may sell shares at any time. Your shares will be sold at the next NAV
calculated after your order is accepted by the Fund's transfer agent. Any
certificates representing Fund shares being sold must be returned with your
redemption request. Your order will be processed promptly and you will
generally receive the proceeds within a week.
Before selling recently purchased shares, please note that if the Fund has
not yet collected payment for the shares you are selling, it may delay
sending the proceeds for up to fifteen business days.
WRITTEN SELL ORDER
Some circumstances require written sell orders, along with signature
guarantees. These include:
. amounts of $100,00 or more
. amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days
. requests to send the proceeds to a payee or address different than what
is on our records
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from
most banks or securities dealers but not from a notary public. Please call
us to ensure that your signature guarantee will be processed correctly.
EXCHANGE PRIVILEGE
You can exchange from one Galileo Fund into another. You can request your
exchange in writing or by phone. Be sure to read the current prospectus
for any Fund into which you are exchanging. Any new account established
through an exchange will have the same privileges as your original account
(as long as they are available).
ACCOUNT STATEMENTS
Every Galileo investor automatically receives regular account statements.
You will also be sent a yearly statement detailing the tax characteristics
of any dividends and distributions you have received.
51
<PAGE>
GENERAL POLICIES
For any Fund, if your account falls below $25,000 as a result of
redemptions and or exchanges for six months or more, the Fund may
close your account and send you the proceeds upon 60 days' written
notice.
Unless you decline telephone privileges on your New Account Form, you
may be responsible for any fraudulent telephone order as long as the
Transfer Agent takes reasonable measures to verify the order.
Each Fund restricts excessive trading (usually defined as more than
four exchanges out of the Fund within a calendar year). You are
limited to one exchange of shares in the same Fund during any 15-day
period except investors in the International Equities Fund, 401(k) and
other group retirement accounts, and asset allocation accounts managed
by the Adviser or an affiliate. Each Fund reserves the right to:
. refuse any purchase or exchange request that could adversely affect
a Fund or its operations, including those from any individual or
group who, in the Fund's view, are likely to engage in excessive
trading
. change or discontinue its exchange privilege, or temporarily
suspend this privilege during unusual market conditions
. delay sending out redemption proceeds for up to seven days
(generally applies only in cases of very large redemptions,
excessive trading or during unusual market conditions)
LARGE REDEMPTION AMOUNTS
------------------------
Each Fund also reserves the right to make a "redemption in kind" -
payment in portfolio securities rather than cash - if the amount you
are redeeming in any 90-day period is large enough to affect Fund
operations (for example, if it equals more than $250,000 or represents
more than 1% of the Fund's assets).
52
<PAGE>
<TABLE>
<S> <C>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------
In Writing
Complete the New Account Form. Mail your New (Same, except that you should include a note
Account Form and a check to: specifying the Fund name, your account number, and
the name(s) your account is registered in.)
Regular Mail
TCW Galileo __________ Fund
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
TCW Galileo __________ Fund
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- -------------------------------------------------------------------------------------------------------------------
By Telephone
WIRE Have your bank send your investment to: (Same)
United Missouri Bank, n.a.
ABA No. 101000695
DST Systems, Inc./AC 9870371553 (for all Galileo
Funds except the Money Market Fund)
DST Systems, Inc./AC 9870371170 (for Money
Market Fund only)
FBO TCW Galileo ______ Fund
(Name on the Fund Account) __________
- -------------------------------------------------------------------------------------------------------------------
Via Exchange
Call the Transfer Agent at (800) 248-4486 or the
Investor Relations Department at (800) 386-3829.
The new account will have the same registration as
the account from which you are exchanging.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
If you need help completing the New Account Form, please call the Transfer agent
at (800) 248-4486, the Investor Relations Department at TCW Galileo Funds. at
(800) FUND TCW (800) 386-3829 or your investment representative at TCW Galileo
Funds.
53
<PAGE>
TO SELL OR EXCHANGE SHARES
<TABLE>
<S> <C>
--------------------------------------------------------------- ------------------------
By Mail
Write a letter of instruction that includes: To reach the Transfer
. your account number toll free in the U.S.
. the Fund name
. the dollar amount you want to sell or exchange 1-800-248-4486
. how and where to send the proceeds
--------------------------------------------------------------- To reach your investment
Obtain a signature guarantee or other documentation, if representative or the
required (see "Account Policies -- Selling Shares"). Investor Relations
Department at TCW
May your letter of instruction to: Galileo Funds, call
toll free in the U.S.
Regular Mail
1-800-386-3829
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
---------------------------------------------------------------
By Telephone
Be sure the Fund has your bank account information on file.
Call the Transfer Agent at (800) 248-4486 to request your
transaction. Proceeds will be wired to your bank.
Telephone redemption requests must be for a minimum of $1,000.
---------------------------------------------------------------
SYSTEM WITHDRAWAL PLAN Call us to request a form to add the
plan. Complete the form, specifying the amount and frequency
of withdrawals you would like.
Be sure to maintain an account balance of $25,000 or more.
Systematic Withdrawal plans are subject to a minimum annual
withdrawal of $500.
</TABLE>
54
<PAGE>
. DISTRIBUTIONS AND TAXES
-----------------------
The amount of dividends of net investment income and distributions of net
realized long and short-term capital gains payable to shareholders will be
determined separately for each Fund. Dividends from the net investment
income of the Emerging Markets Income Fund will be declared and paid
monthly. Dividends from the net investment income of each other Fund will
be declared and paid annually. The Funds will distribute any net realized
long or short-term capital gains at least annually. Your distributions
will be reinvested in the fund unless you instruct the fund otherwise.
There are no fees or sales charges on reinvestments.
In any fiscal year in which the Funds qualify as regulated investment
companies and distribute to shareholders all of their net investment income
and net capital gains, the Funds are relieved of Federal income tax.
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash - unless you are exempt from taxation or
entitled to tax deferral. Capital gains distributions may be taxable at
different rates depending on the length of time a Fund has held the assets
sold. Early each year, you will be notified as to the amount and Federal
tax status of all distributions paid during the prior year. Distributions
may also be subject to state or local taxes. The tax treatment of
redemptions from a retirement plan account may differ from redemptions from
an ordinary shareholder account. If you redeem shares of a Fund or
exchange them for shares of another Fund, any gain on the transaction may
be subject to tax. You must provide the Funds with a correct taxpayer
identification number (generally your Social Security Number) and certify
that you are not subject to backup withholding. If you fail to do so, the
IRS can require the Funds to withhold 31% of your taxable distributions and
redemptions. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to nonresident alien, non-
U.S. partnership and non-U.S. corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment
in the Fund. Please see the Statement of Additional Information and your
tax adviser for further information.
55
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions.
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TCW GALILEO ASIA PACIFIC EQUITIES FUND
MARCH 1, 1994
(COMMENCEMENT
OF
OPERATIONS)
THROUGH
YEAR ENDED OCTOBER 31 OCTOBER 31
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 9.61 $ 8.67 $ 10.19 $ 10.00
---------- --------- ----------- -------------
Investment operations:
Investment income (loss) - net (0.01) 0.06 0.06 0.03
Net realized and unrealized gain (2.10) 0.93 (1.19) 0.16
(loss) on investments ---------- --------- ----------- -------------
Total from investment operations (2.11) 0.99 (1.13) 0.19
---------- --------- ----------- -------------
Distributions:
Dividends from investment (0.08) (0.05) (0.01) --
income - net
Dividends from net realized gains -- -- (0.16) --
on investments ---------- --------- -------------
Dividend in excess of net (0.05) -- (0.22) --
investment income ---------- --------- ----------- -------------
Total Distributions (0.13) (0.05) (0.39) --
-------------
Net asset value, end of period $ $ 7.37 $ 9.61 $ 8.67 $ 10.19
========== ========== ========= ========== =============
Total return (%) (22.40)% 11.36% (10.98)% 1.90%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%)
1.49% 1.43% 1.47%/3/ 1.40%/2,3/
Ratio of net investment income (loss) to average net
assets (%) (0.02)% 0.66% 0.74% 0.45%/2/
Portfolio turnover rate (%) 81.92% 84.81% 102.01% 46.75%/1/
Net assets, end of period ($ x 1,000) $ 21,327 $48,266 $ 46,709 $ 54,019
</TABLE>
/1/ For the period March 1, 1994 (commencement of operations) through October
31, 1994 and not indicative of a full year's operating results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 1.40% of net assets through
December 31, 1994. Had such action not been taken, total annualized
operating expenses for the period March 1, 1994 (commencement of
operations) through October 31, 1994 would have been 1.60% of average net
assets and for the fiscal year ended October 31, 1995, total annualized
operating expenses would have been 1.51% of average net assets.
56
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions.
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
TCW GALILEO EMERGING MARKETS EQUITIES FUND
MARCH 1, 1994
(COMMENCEMENT
OF
OPERATIONS)
THROUGH
YEAR ENDED OCTOBER 31 OCTOBER 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 8.18 $ 7.19 $ 9.73 $ 10.00
---------- ---------- ---------- --------------
Investment operations:
Investment income (loss) - net 0.03 0.07 0.04 (0.01)
Net realized and unrealized gain 0.22 0.94 (2.58) (0.26)
(loss) on investments ---------- ---------- ---------- --------------
Total from investment operations 0.25 1.01 (2.54) (0.27)
---------- ---------- ---------- --------------
Distributions:
Dividends from investment (0.11) (0.02) -- --
income - net
Dividends from net realized gains -- -- -- --
on investments
Dividends in excess of net realized -- -- -- --
gains ---------- ---------- ---------- --------------
Total Distributions (0.11) (0.02) (2.54) (0.27)
---------- ---------- ---------- --------------
Net asset value, end of period $ 8.32 $ 8.18 $ 7.19 $ 9.73
---------- ---------- ---------- --------------
Total return (%) 2.82% 14.14% (26.11)% (2.70)%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.50% 1.41% 1.55% 1.70%/2/
Ratio of net investment income (loss) to average net 0.36% 0.82% 0.54% (0.09)%/2/
assets (%)
Portfolio turnover rate (%) 79.80% 83.76% 74.24% 61.28%/1/
Net assets, end of period ($ x 1,000) $47,726 $57,639 $ 51,873 $ 70,212
</TABLE>
/1/ For the period March 1, 1994 (commencement of operations) through October
31, 1994 and not indicative of a full year's operating results.
/2/ Annualized.
57
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions.
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
TCW GALILEO EMERGING MARKETS INCOME FUND
FIVE MONTHS ENDED OCTOBER 31, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period
Investment operations:
Investment income - net
Net realized and unrealized gain
(loss) on investments
Total from investment operations
Distributions:
Dividends from investment
income - net
Dividends from net realized gains
on investments
Total Distributions:
Net asset value, end of period
Total return (%)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%)
Ratio of net investment income to average net assets (%)
Portfolio turnover rate (%)
Net assets, end of period ($ x 1,000)
</TABLE>
58
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions.
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
TCW GALILEO EUROPEAN EQUITIES FUND
ELEVEN MONTHS ENDED OCTOBER 31, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period
Investment operations:
Investment income - net
Net realized and unrealized gain
(loss) on investments
Total from investment operations
Distributions:
Dividends from investment
income - net
Dividends from net realized gains
on investments
Total Distributions:
Net asset value, end of period
Total return (%)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%)
Ratio of net investment income to average net assets (%)
Portfolio turnover rate (%)
Net assets, end of period ($ x 1,000)
</TABLE>
59
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions.
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
TCW GALILEO INTERNATIONAL EQUITIES FUND
YEAR ENDED OCTOBER 31, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period
Investment operations:
Investment income - net
Net realized and unrealized gain
(loss) on investments
Total from investment operations
Distributions:
Dividends from investment
income - net
Dividends from net realized gains
on investments
Total Distributions:
Net asset value, end of period
Total return (%)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%)
Ratio of net investment income to average net
assets (%)
Portfolio turnover rate (%)
Net assets, end of period ($ x 1,000)
</TABLE>
60
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions.
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
TCW GALILEO JAPANESE EQUITIES FUND
YEAR ENDED OCTOBER 31, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period
Investment operations:
Investment income - net
Net realized and unrealized gain
(loss) on investments
Total from investment operations
Distributions:
Dividends from investment
income - net
Dividends from net realized gains
on investments
Total Distributions:
Net asset value, end of period
Total return (%)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%)
Ratio of net investment income to average net
assets (%)
Portfolio turnover rate (%)
Net assets, end of period ($ x 1,000)
</TABLE>
61
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions.
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
TCW GALILEO LATIN AMERICA EQUITIES FUND
TEN MONTHS
YEAR ENDED OCTOBER 31 ENDED
OCTOBER 31,
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period
Investment operations: $10.01 $ 7.92 $ 14.99 $ 15.11
--------- --------- ----------- -------------
Investment income - net 0.11 0.11 0.06 0.01
Net realized and unrealized gain
(loss) on investments (2.50) (2.03) (5.92) (0.13)
Total from investment operations 2.61 2.14 (5.86) (0.12)
--------- --------- ----------- -------------
Distributions:
Dividends from net investment
income (0.11) (0.05) -- --
Dividends from net realized gains
on investments
Dividends in excess of net realized gains -- -- (1.21) --
-------- --------- ----------- -------------
Total Distributions (0.11) (0.05) (1.21) --
--------- --------- ----------- -------------
Net asset value, end of period $ $12.51 $10.01 $ 7.92 $ 14.99
========= ========= ========= =========== ==============
Total return (%) 26.24% 27.08% (40.96)% (0.79)%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%)
1.46% 1.44% 1.58%/3/ 1.36%/2/
Ratio of net investment income to average net
assets (%) 0.87% 1.12% 0.59%/3/ 0.11%/2/
Portfolio turnover rate (%) 21.17% 44.32% 75.62% 143.65%/1/
Net assets, end of period ($ x 1,000)
</TABLE>
1 For the ten months ended October 31, 1994 and not indicative of a full year's
operating results.
2 Annualized.
62
<PAGE>
FOR MORE INFORMATION
To obtain information:
- ---------------------
By telephone
Call 1-800-________
By mail Write to:
By E-mail Send your request to
On the Internet Text-only versions of Fund documents can be viewed online or
downloaded from;
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC 20549-
6009.
__________________________
__________________________
__________________________
SEC file number: 811-____
More information on this Fund is available free upon request, including the
following:
ANNUAL/SEMIANNUAL REPORT
Describes each Fund's performance, lists portfolio holdings and contains a
letter from the Fund's manager discussing recent market conditions, economic
trends and Fund strategies.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Fund and its policies. A current SAI is on file
with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
63
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class A shares of one of the separate
investment funds offered by TCW Galileo Funds, Inc., each of which has different
investment objectives and policies. Please read this document carefully, and
keep it for future reference.
TCW GALILEO AGGRESSIVE GROWTH EQUITIES FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
March 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES.......................... 3
PRINCIPAL RISKS......................................................... 4
PERFORMANCE SUMMARY..................................................... 6
FUND EXPENSES AND EXPENSE EXAMPLE....................................... 8
INVESTMENT OBJECTIVES/APPROACH.......................................... 9
MAIN RISKS.............................................................. 10
RISK CONSIDERATIONS..................................................... 11-18
MANAGEMENT OF THE FUND.................................................. 19
MULTIPLE CLASS STRUCTURE................................................ 20
ACCOUNT POLICIES AND SERVICES........................................... 21
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT................................. 24
TO SELL OR EXCHANGE SHARES.............................................. 25
DISTRIBUTIONS AND TAXES................................................. 26
FINANCIAL HIGHLIGHTS.................................................... 27
FOR MORE INFORMATION.................................................... 28
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
The Fund is affected by changes in the economy, or in securities and other
markets. There is also the possibility that investment decisions the Adviser
makes will not accomplish what they were designed to achieve or that companies
in which the Fund invests will have disappointing performance or not pay their
debts.
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC. INVESTMENT OBJECTIVES PRINCIPAL INVESTMENT STRATEGIES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCW Galileo Aggressive Growth Long-term capital appreciation Invests in equity securities issued by companies that
Equities Fund appear to offer superior growth prospects.
</TABLE>
Under adverse market conditions, the Fund could invest some or all of its assets
in money market securities. Although the Fund would do this only in seeking to
avoid losses, it could have the effect of reducing the benefit from any upswing
in the market.
3
<PAGE>
PRINCIPAL RISKS
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you and the more you can lose. Since shares of the
Fund represent an investment of securities with fluctuating market prices, the
value of Fund shares will vary as the Fund's portfolio securities increase or
decrease. Therefore, the value of an investment in the Fund could go down as
well as up. All investments are subject to:
. ASSET CLASS RISK
There is the possibility that the returns from the types of securities in
which the Fund invests will underperform returns from the various general
securities markets or different asset classes. Different types of
securities tend to go through cycles of outperformance and underperformance
in comparison to the general securities markets.
. SECURITIES SELECTION RISK
There is the possibility that the specific securities held in the Fund's
portfolio will underperform other funds in the same asset class or
benchmarks that are representative of the general performance of the asset
class because of the portfolio manager's choice of securities.
. PRICE VOLATILITY
There is the possibility that the value of the Fund's portfolio will change
as the prices of its investments go up or down. Although stocks offer the
potential for greater long-term growth than most fixed income securities,
stocks generally have higher short-term volatility.
The Fund may also be subject to the following risks:
. LIQUIDITY RISK
There is the possibility that the Fund may lose money or be prevented from
earning capital gains if it can not sell a security at the time and price
that is most beneficial to the Fund. The Fund is subject to liquidity risk
because it invests primarily in securities of medium sized companies.
. FOREIGN INVESTING RISK
There is the likelihood that foreign investments may be riskier than U.S.
investments because of a lack of political stability, foreign controls on
investment and currency exchange rates, fluctuations in currency exchange
rates, withholding taxes, and lack of adequate company information. The
Fund is subject to foreign investing risk because it may invest in
securities issued by foreign governments or companies. In addition, because
foreign securities generally are denominated and pay dividends or interest
in foreign currencies, and the Fund holds various foreign currencies, the
value of the net assets of the Fund as measured in United States dollars
will be affected favorable or unfavorable by changes in exchange rates.
4
<PAGE>
PRINCIPAL RISKS
Because the Fund is non-diversified for 1940 Act purposes, it may invest more
than 5% of its total assets in the securities of any one issuer. Consequently,
its exposure to credit and market risks associated with that issuer is
increased.
Your investment is not a bank deposit, and it is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
5
<PAGE>
PERFORMANCE SUMMARY
The two tables below show the Fund's annual returns and its long-term
performance with respect to its Institutional Class shares (Class A shares of
the Fund commenced operations on March 1, 1999). The first table shows you how
the Fund's performance has varied from year to year. The second compares the
Fund's performance over time to that of a broad-based securities index. Both
tables assume reinvestment of dividends and distributions. The performance
information includes performance of the predecessor limited partnership. As with
all mutual funds, past performance is not a prediction of future results.
Year by year total return (%)
as of December 31 each year*
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
60.66% 12.38% 12.65% ______%
1995 1996 1997 1998
- --------------------------------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December
31, 1998 is: ______%
Best and worst quarterly performance during this period
<TABLE>
<CAPTION>
FUND PERFORMANCE
------------------------------------------------------------------------------------
<S> <C>
. Aggressive Growth Equities Fund
Quarter ending June 30, 1997 23.41% (Best)
Quarter ending March 31, 1997 -19.98% (Worst)
------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF SINCE
DECEMBER 31 1 YEAR 5 YEARS INCEPTION
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
. Aggressive Growth Equities Fund ____% ____% __%
- -----------------------------------------------------------------------------------
S&P 400 Mid-Cap ____% ____% __%
- -----------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
FUND EXPENSES AND EXPENSE EXAMPLE
As an investor, you pay certain fees and expenses in connection with the Fund,
which are described in the table below. Annual Fund operating expenses are paid
out of Fund assets, so their effect is included in the share price. The Class A
shares of the Fund have no sales charge (load), but are subject to Rule 12b-1
distribution fees.
<TABLE>
<CAPTION>
==========================================================================
FEE TABLE
Aggressive Growth Equities
<S> <C>
Shareholder transaction fees
1) Redemption Fees None
2) Exchange Fees None
3) Contingent Deferred Sales Load None
4) Sales Load on Reinvested Dividends None
5) Sales Load on Purchases None
ANNUAL FUND OPERATING EXPENSES
Management Fees 1.00%
Distribution (12b-1) Fees 0.25%
Other Expenses _%
Total Annual Fund Operating Expenses _%
</TABLE>
===============================================================================
EXPENSE EXAMPLE
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Aggressive Growth Equities
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether or not you sold your shares at the end of a
period. Because actual return and expenses will be different, the example is for
comparison purposes only.
8
<PAGE>
TCW Galileo Aggressive Growth Equities Fund
The Fund seeks long-term capital appreciation. To pursue this goal,
the Fund invests in the equity securities of companies that appear to
offer superior growth prospects. These securities include common and
preferred stock and convertible securities. In managing the Fund's
investments, the Adviser will focus on emerging companies that exhibit
this characteristic.
The Adviser utilizes a "bottom-up" approach to identify securities for
investment. First, the Adviser uses quantitative and qualitative
criteria to screen companies. The Adviser then subjects companies
that make it through this screening process to fundamental analysis,
which generally looks for at least some of the following factors:
. a demonstrated record of consistent earnings growth or the
potential to grow earnings
. an ability to earn an attractive return on equity
. a price/earnings ratio which is less than the Adviser's internally
estimated three-year earnings growth rate
. a large and growing market share
. a strong balance sheet
. significant ownership interest by management and a strong
management team.
CHRISTOPHER J. AINLEY AND DOUGLAS S. FOREMAN ARE THE FUND'S PORTFOLIO
MANAGERS.
CONCEPTS TO UNDERSTAND
- ----------------------
EMERGING GROWTH COMPANIES are companies that are likely to show rapid growth
through reinventing an existing industry or pioneering a new industry.
9
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "price volatility" and
"liquidity risk." PRICE VOLATILITY refers to the possibility that the
value of the Fund's portfolio will change as the prices of its
investments go up or down. This Fund may be subject to greater price
volatility than funds that invest in the securities of larger
companies. LIQUIDITY RISK refers to the possibility that the Fund may
lose money or be prevented from earning capital gains if it can not
sell securities at the time and price that is most beneficial to the
Fund. Because the securities of medium-sized companies may be less
liquid than the securities of large-sized companies, the Fund may be
susceptible to liquidity risk more than funds that invest in the
securities of large-sized companies. In addition, the Fund may be
subject to liquidity risk because it may invest in debt instruments
rated below investment grade.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
10
<PAGE>
. RISK CONSIDERATIONS
-------------------
Please consider the following risks before investing in the Fund.
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's
performance or financial position can depress the value of the
issuer's securities. The liquidity in a market for a particular
security will affect its value and may be affected by factors relating
to the issuer, as well as the depth of the market for that security.
Other market risks that can affect value include a market's current
attitudes about types of securities, market reactions to political or
economic events, and tax and regulatory effects (including lack of
adequate regulations for a market or particular type of instrument).
Market restrictions on trading volume can also affect price and
liquidity.
Prices of many securities tend to be more volatile in the short-term.
Therefore an investor who trades frequently or redeems in the short-
term is more likely to incur loss than an investor who holds
investments for the longer term. Lack of diversification in a
portfolio can also increase volatility.
GENERAL INVESTMENT RISK
-----------------------
Since shares of the Fund represent an investment in securities with
fluctuating market prices, the value of Fund shares will vary as the
value of the Fund's portfolio securities increases or decreases.
Therefore, the value of an investment in the Fund could go down as
well as up.
11
<PAGE>
. RISK CONSIDERATIONS
-------------------
FOREIGN Investment in foreign securities involves special risks in addition
INVESTING to the usual risks inherent in domestic investments. These include:
political or economic instability; the unpredictability of
international trade patterns; the possibility of foreign governmental
actions such as expropriation, nationalization or confiscatory
taxation; the imposition or modification of foreign currency or
foreign investment controls; the imposition of withholding taxes on
dividends, interest and gains; price volatility; and fluctuations in
currency exchange rates.
As compared to United States companies, foreign issuers generally
disclose less financial and other information publicly and are subject
to less stringent and less uniform accounting, auditing and financial
reporting standards. Foreign countries typically impose less thorough
regulations on brokers, dealers, stock exchanges, insiders and listed
companies than does the United States, and foreign securities markets
may be less liquid and more volatile than domestic markets. Investment
in foreign securities involves higher costs than investment in United
States securities, including higher transaction and custody costs as
well as the imposition of additional taxes by foreign governments. In
addition, security trading practices abroad may offer less protection
to investors such as the Fund. Settlement of transactions in some
foreign markets may be delayed or may be less frequent than in the
United States, which could affect the liquidity of the Fund's
portfolio. Also, it may be more
12
<PAGE>
difficult to obtain and enforce legal judgments against
foreign corporate issuers than against domestic issuers and it
may be impossible to obtain and enforce judgments against
foreign governmental issuers.
Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, and the Fund
holds various foreign currencies from time to time, the value
of the net assets of the Fund as measured in United States
dollars will be affected favorably or unfavorably by changes
in exchange rates. Generally, currency exchange transactions
will be conducted on a spot (i.e., cash) basis at the spot
rate prevailing in the currency exchange market. The cost of
currency exchange transactions will generally be the
difference between the bid and offer spot rate of the currency
being purchased or sold. In order to protect against
uncertainty in the level of future foreign currency exchange
rates, the Fund is authorized to enter into certain foreign
currency futures and forward contracts.
The forward currency market for the purchase or sale of United
States dollars in most countries is not highly developed, and
in certain countries, there may be no such market. If a
devaluation of a currency is generally anticipated, the Fund
may not be able to contract to sell the currency at an
exchange rate more advantageous than that which would prevail
after the anticipated amount of devaluation, particularly in
regards to forward contracts for local Latin American
currencies in view of the relatively small, inactive or even
non-existent market for these contracts. In the event the Fund
holds securities denominated in a currency that suffers a
devaluation, the Fund's net asset values will suffer
corresponding reductions. In this regard, in December 1994,
the Mexican government determined to allow the Mexican peso to
trade freely against the United States dollar rather than
within a controlled band, which action resulted in a
significant devaluation of the Mexican peso against the
dollar. Further, in July 1997, the Thai and Philippine
governments allowed the baht and peso, respectively, to trade
freely against the United States dollar resulting in a sharp
devaluation of both currencies, and in 1998 Russia did the
same, causing a sharp devaluation of the ruble.
13
<PAGE>
. RISK CONSIDERATIONS
-------------------
FIXED INCOME Fixed income securities are subject to various risks. The two
SECURITIES primary (but not exclusive) risks affecting fixed income
instruments are "credit risk" and "interest rate risk." These
risks can affect a security's price volatility to varying
degrees, depending upon the nature of the instrument. In
addition, the depth and liquidity of the market for an
individual or class of fixed income security can also affect
its price and, hence, the market value of the Fund.
"CREDIT RISK" refers to the likelihood that an issuer will
default in the payment of principal and/or interest on an
instrument. Financial strength and solvency of an issuer are
the primary factors influencing credit risk. In addition, lack
of or inadequacy of collateral or credit enhancements for a
fixed income security may affect its credit risk. Credit risk
of a security may change over its life, and securities which
are rated by rating agencies are often reviewed and may be
subject to downgrade.
The Fund may invest in convertible securities rated below
investment Generally, lower-rated debt securities provide a
higher yield than higher rated debt securities of similar
maturity but are subject to greater credit risk than higher
rated securities of similar maturity. Such securities are
regarded as predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest
payments. Because investment in lower quality securities
involves greater investment risk, achievement of the Fund's
investment objective
14
<PAGE>
will be more dependent on the Adviser's analysis than would be
the case if the Fund were investing in higher quality bonds.
In addition, lower quality securities may be more susceptible
to real or perceived adverse economic and individual corporate
developments than would investment grade bonds. Moreover, the
secondary trading market for lower quality securities may be
less liquid than the market for investment grade bonds. This
potential lack of liquidity may make it more difficult for the
Adviser to value accurately certain portfolio securities.
"INTEREST RATE RISK" refers to the risks associated with
market changes in interest rates. Interest rate changes may
affect the value of a fixed income security directly
(especially in the case of fixed rate securities) and
indirectly (especially in the case of adjustable rate
securities). In general, rises in interest rates will
negatively impact the price of fixed rate securities and
falling interest rates will have a positive effect on price.
The degree to which a security's price will change as a result
of changes in interest rates is measured by its "duration."
For example, the price of a bond with a 5 year duration would
be expected under normal market conditions to decrease 5% for
every 1% increase in interest rates. Generally, securities
with longer maturities have a greater duration and thus are
subject to greater price volatility from changes in interest
rates. Adjustable rate instruments also react to interest rate
changes in a similar manner although generally to a lesser
degree (depending, however, on the characteristics of the
reset terms, including the index chosen, frequency of reset
and reset caps or floors, among other things).
15
<PAGE>
. RISK CONSIDERATIONS
-------------------
NON- The Fund is non-diversified for 1940 Act purposes and as such may
DIVERSI- invest a larger percentage of its assets in individual issuers than a
FIED diversified investment company. In this regard, the Fund is not
STATUS subject to the general limitation that it not invest more than 5% of
its total assets in the securities of any one issuer. To the extent
the Fund makes investments in excess of 5% of its assets in a
particular issuer, its exposure to credit and market risks associated
with that issuer is increased. However, the Fund's investments will be
limited so as to qualify for the special tax treatment afforded
"regulated investment companies" under the Internal Revenue Code of
1986, as amended.
<PAGE>
. RISK CONSIDERATIONS
-------------------
YEAR 2000 The investment advisory and management services provided by the
Adviser and the services provided to shareholders by the Transfer
Agent depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000,
but revert to 1900 or some other date, due to the manner in which
dates were encoded and calculated. That failure could have a negative
impact on the handling of securities trades, pricing and account
services. The Adviser and the Transfer Agent have been actively
working on necessary changes to their own computer systems to prepare
for the year 2000 and expect that their systems will be adapted for
year 2000 compliance before that date, but there can be no assurance
that they will be successful, or that interaction with other non-
complying computer systems will not impair their services at that
time.
In addition, it is possible that the markets for securities in which
the Fund invests may be negatively affected by computer failures
throughout the financial services industry commencing January 1, 2000.
Improperly functioning trading systems may result in settlement
problems. In addition, corporate and governmental data processing
errors may result in production problems for individual companies and
create overall economic uncertainties. Earnings of individual issuers
will be affected by remediation costs which may be substantial.
Individual firms may further experience disruptions to their business
due to the failure of their counterparts to address year 2000
problems, or could experience further disruption to the economy at
large, which could adversely affect corporate earnings generally and
the value of their securities. Accordingly, the Fund's portfolio
investments may be negatively affected.
17
<PAGE>
. RISK CONSIDERATIONS
-------------------
EUROPEAN The Fund may invest in European countries that have agreed to
ECONOMIC AND enter into the European Monetary Union (EMU). EMU is an effort
MONETARY UNION by certain European countries to, among other things, reduce
barriers between countries and eliminate fluctuations in their
currencies. Among other
things, EMU establishes a single European currency (the euro),
which will be introduced on January 1, 1999 and is expected to
replace the existing national currencies of all initial EMU
participants by July 1, 2002. Upon introduction of the euro,
certain securities (beginning with government and corporate
bonds) will be redonominated in the euro and, thereafter will
trade and make dividend and other payments only in euros. Like
other investment companies and business organizations,
including the companies in which the Fund invests, the Fund
could be adversely affected: (i) if the euro, or EMU as a
whole does not take affect as planned; (ii) if a participating
country withdraws from EMU; or (iii) if the computing,
accounting and trading systems used by the Fund's service
providers, or by other business entities with which the Fund
or its service providers do business, are not capable of
recognizing the euro as a distinct currency at the time of,
and following euro conversion.
18
<PAGE>
. MANAGEMENT OF THE FUND
----------------------
INVESTMENT ADVISER
The Fund's investment adviser is TCW Funds Management, Inc. (the
"Adviser") and is headquartered at 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017. As of October 31, 1998, the
Adviser and its affiliated companies, which provide a variety of
trust, investment management and investment advisory services, had
over $50 billion under management or committed for management.
PORTFOLIO MANAGERS
Listed below are the individuals who have been primarily responsible
for the day-to-day portfolio management of the Fund, including a
summary of each person's business experience during the past five
years:
PORTFOLIO BUSINESS EXPERIENCE
Manager(s) During Last Five Years(1)
---------- -------------------------
Christopher J. Ainley Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West. Prior to joining
TCW in 1994 he was a portfolio manager
with Putnam Investments.
Douglas S. Foreman Group Managing Director and Chief
Investment Officer-U.S. Equities, the
Adviser, TCW Asset Management Company
and Trust Company of the West since May
1994. Previously, he was a portfolio
manager with Putnam Investments.
Advisory Agreement
The Company and the Adviser have entered into an Investment Advisory
and Management Agreement (the "Advisory Agreement"), under the terms
of which the Company has employed the Adviser to manage the investment
of its assets, to place orders for the purchase and sale of its
portfolio securities, to administer its day-to-day operations, and to
be responsible for overall management of the Company's business
affairs, subject to control by the Board of Directors of the Company.
The
19
<PAGE>
Adviser also pays certain costs of marketing the Fund, including sales
personnel compensation, from legitimate profits from its investment
advisory fees and other resources available to it. Under the
Advisory Agreement, the Fund pays to the Adviser as compensation for
the services rendered, facilities furnished, and expenses paid by it
the following fees:
FUND ANNUAL MANAGEMENT FEE
----
(AS PERCENT OF NET ASSET VALUE)
-------------------------------
Aggressive Growth Equities 1.00%
The Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which the agreement
relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Adviser in the performance of
its duties or from reckless disregard by it of its duties under the
respective agreement.
. MULTIPLE CLASS STRUCTURE
------------------------
The Fund currently offers two classes of shares, Institutional Class
shares and Class A shares. Shares of each class of the Fund represent
an equal pro rata interest in the Fund and generally gives you the
same voting, dividend, liquidation, and other rights. The
Institutional Class shares are offered at the current net asset value.
The Class A shares are also offered at the current net asset value,
but will be subject to a distribution or service fee imposed under a
distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. Pursuant to the
Distribution Plan, the Fund compensates the Fund's distributor at a
rate equal to 0.25% of the average daily net assets of the Fund
attributable to its Class A shares for distribution and related
services. Because these fees are paid out of the Fund's Class A
assets on an on-going basis, over time, these fees will increase the
cost of your investment and may cost you more than paying other types
of sales charges.
20
<PAGE>
YOUR INVESTMENT
. ACCOUNT POLICIES AND SERVICES
-----------------------------
BUYING SHARES
You pay no sales charges to invest in the Fund. Your price for Fund
shares is the Fund's net asset value per share (NAV) which is
generally calculated as of the close of trading on the New York Stock
Exchange (usually 4:00 p.m. Eastern time) every day the exchange is
open. Your order will be priced at the next NAV calculated after your
order is accepted by the Fund. Orders received by the Fund's Transfer
Agent from dealers, brokers or other service providers after the net
asset value (NAV) is determined that day will receive that NAV if the
orders were received by the dealers, brokers or service providers from
their customers prior to such determination and were transmitted to
and received by the Transfer Agent prior to 8:00 a.m. Eastern time on
the next day. The Fund's investments are valued based on market
value, or where market quotations are not readily available, based on
fair value as determined in good faith by the Fund pursuant to
procedures established by the Fund's board.
==================================================================
Minimums
Initial Additional
------------------------------------------------------------------
Aggressive Growth Equities Fund $2,000 $250
The TCW Galileo Funds, Inc. may waive the minimum subsequent
investment. All investments must be in United States dollars. Third-
party checks, except those payable to an existing shareholder, will
normally not be accepted. If your check or wire does not clear, you
will be responsible for any loss the Fund incurs.
21
<PAGE>
SELLING SHARES
You may sell shares at any time. Your shares will be sold at the next
NAV calculated after your order is accepted by the Fund's Transfer
Agent. Any certificates representing Fund shares being sold must be
returned with your redemption request. Your order will be processed
promptly, and you will generally receive the proceeds within a week.
Before selling recently purchased shares, please note that if the Fund
has not yet collected payment for the shares you are selling, it may
delay sending the proceeds for up to fifteen business days.
WRITTEN SELL ORDER
Some circumstances require written sell orders, along with signature
guarantees. These include:
. amounts of $100,000 or more
. amounts of $1,000 or more on accounts whose address has been
changed within the last 30 days
. requests to send the proceeds to a payee or address different than
what is on our records
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one
from most banks or securities dealers but not from a notary public.
Please call us to ensure that your signature guarantee will be
processed correctly.
EXCHANGE PRIVILEGE
You can exchange from one Class A Galileo Fund into another. You can
request your exchange in writing or by phone. Be sure to read the
current prospectus for any Fund into which you are exchanging. Any
new account established through an exchange will have the same
privileges as your original account (as long as they are available).
THIRD PARTY TRANSACTIONS
If purchases and redemptions of Fund shares are arranged and
settlement is made at an investor's election through a registered
broker-dealer, other than the Fund's distributor, that broker-dealer
may, at its discretion, charge a fee for that service.
ACCOUNT STATEMENTS
Every Galileo investor automatically receives regular account
statements. You will also be sent a yearly statement detailing the
tax characteristics of any dividends and distributions you have
received.
22
<PAGE>
GENERAL POLICIES
If your account falls below $1,000 as a result of redemptions and or
exchanges for six months or more, the Fund may close your account and
send you the proceeds upon 60 days' written notice.
Unless you decline telephone privileges on your New Account Form, you
may be responsible for any fraudulent telephone order as long as the
Transfer Agent takes reasonable measures to verify the order.
The Fund restricts excessive trading (usually defined as more than
four exchanges out of the Fund within a calendar year). You are
limited to one exchange of shares in the Fund during any 15-day period
except investors in 401(k) and other group retirement accounts and
asset allocation accounts managed by the Adviser or an affiliate. The
Fund reserves the right to:
. refuse any purchase or exchange request that could adversely affect
the Fund or its operations, including those from any individual or
group who, in the Fund's view, are likely to engage in excessive
trading
. change or discontinue its exchange privilege, or temporarily
suspend this privilege during unusual market conditions
. delay sending out redemption proceeds for up to seven days
(generally applies only in cases of very large redemptions,
excessive trading or during unusual market conditions)
LARGE REDEMPTION AMOUNTS
------------------------
The Fund also reserves the right to make a "redemption in kind" -
payment in portfolio securities rather than cash - if the amount you
are redeeming in any 90-day period is large enough to affect Fund
operations (for example, if it equals more than $250,000 or represents
more than 1% of the Fund's assets).
23
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
In Writing
Complete the New Account Form. Mail your New
Account Form and a check to:
Regular Mail
TCW Galileo Aggressive Growth Equities Fund (Same, except that you should include a note
DST Systems, Inc. specifying the Fund name, your account number, and
P.O. Box 419951 the name(s) your account is registered in.)
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
TCW Galileo Aggressive Growth Equities Fund
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- --------------------------------------------------------------------------------------------------------------------
By Telephone
WIRE Have your bank send your investment to: (Same)
United Missouri Bank, n.a.
ABA No. 101000695
DST Systems, Inc./AC 9870371553
FBO TCW Galileo Aggressive Growth Equities Fund
(Name on the Fund Account) __________
- --------------------------------------------------------------------------------------------------------------------
Via Exchange
Call the Transfer Agent at (800) 248 4486.
The new account will have the same registration as
the account from which you are exchanging.
</TABLE>
If you need help completing the New Account Form, please call the Transfer
Agent at (800) 248-4486.
24
<PAGE>
TO SELL OR EXCHANGE SHARES
By Mail
Write a letter of instruction that includes:
. your name(s) and signature(s) as on the account form
. your account number
. the Fund name
. the dollar amount you want to sell or exchange how and where to send the
proceeds
- --------------------------------------------------------------------------------
Obtain a signature guarantee or other documentation, if required (see "Account
Policies - Selling Shares").
Mail your letter of instruction to:
Regular Mail
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- --------------------------------------------------------------------------------
By Telephone
Be sure the Fund has your bank account information on file. Call the Transfer
Agent at (800) 248-4486 to request your transaction. Proceeds will be wired to
your bank.
Telephone redemption requests must be for a minimum of $1,000.
- --------------------------------------------------------------------------------
Systematic Withdrawal Plan Call us to request a form to add the plan. Complete
the form, specifying the amount and frequency of withdrawals you would like.
Be sure to maintain an account balance of $2,000 or more. Systematic
Withdrawal plans are subject to a minimum annual withdrawal of $500.
- --------------------------------------------------------------------------------
To reach the Transfer Agent, DST Systems, Inc., call toll free in the U.S.
1-800-248-4486
25
<PAGE>
. DISTRIBUTIONS AND TAXES
-----------------------
The amount of dividends of net investment income and distributions of
net realized long and short-term capital gains payable to shareholders
will be determined separately for the Fund. Dividends from the net
investment income of the Fund will be declared and paid annually. The
Fund will distribute any net realized long or short-term capital gains
at least annually. Your distributions will be reinvested in the Fund
unless you instruct the Fund otherwise. There are no fees or sales
charges on reinvestments.
In any fiscal year in which the Fund qualifies as a regulated
investment company and distributes to shareholders all of its net
investment income and net capital gains, the Fund is relieved of
Federal income tax.
Generally, all dividends and capital gains are taxable whether they
are reinvested or received in cash - unless you are exempt from
taxation or entitled to tax deferral. Capital gains distributions may
be taxable at different rates depending on the length of time the Fund
has held the assets sold. Early each year, you will be notified as to
the amount and Federal tax status of all distributions paid during the
prior year. Distributions may also be subject to state or local
taxes. The tax treatment of redemptions from a retirement plan
account may differ from redemptions from an ordinary shareholder
account. If you redeem shares of the Fund or exchange them for shares
of another Fund, any gain on the transaction may be subject to tax.
You must provide the Fund with a correct taxpayer identification
number (generally your Social Security Number) and certify that you
are not subject to backup withholding. If you fail to do so, the IRS
can require the Fund to withhold 31% of your taxable distributions and
redemptions. Federal law also requires the Fund to withhold 30% or
the applicable tax treaty rate from dividends paid to nonresident
alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
This is a brief summary of some of the tax laws that affect your
investment in the Fund. Please see the Statement of Additional
Information and your tax adviser for further information.
26
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions
(Class A shares of the Fund commenced operations on March 1, 1999).
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
TCW GALILEO AGGRESSIVE GROWTH EQUITIES FUND
JUNE 3, 1996
(COMMENCEMENT
OF OPERATIONS)
YEAR ENDED OCTOBER 31 THROUGH
OCTOBER 31
1998 1997 1996
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period _____ $ 9.19 $ 10.00
Investment operations:
Investment income (loss) - net (0.08) (0.03)
Net realized and unrealized gain 0.29 (0.78)
(loss) on investments
Total from investment operations 0.21 (0.81)
Distributions:
Dividends from investment -- --
income - net
Dividends from net realized gains -- --
on investments
Dividends in excess of net investment income -- --
-------- ---------
Total Distributions: $ -- --
======== ======== =========
Net asset value, end of period $ 9.40 $ 9.19
Total return (%) 2.28% (8.10)%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.12% 1.20%/2/,/3/
Ratio of net investment income to average (0.86)% (0.80)%/2/
net assets (%)
Portfolio turnover rate (%) 50.45% 19.19%/1/
Net assets, end of period ($ x 1,000) $135,850 $ 92,430
</TABLE>
1 For the period June 3, 1996 (commencement of operations) through
October 31, 1996 and not indicative of a full year's operating
results.
2 Annualized.
3 The Adviser has voluntarily agreed to reduce its fee from the Fund,
or to pay the operating expenses of the Fund, to the extent
necessary to limit the ordinary operating expenses of the Fund to
1.20% of net assets through December 31, 1996. Had such action not
been taken, total annualized operating expenses for the period June
3, 1996 (commencement of operations) through October 31, 1996.
27
<PAGE>
FOR MORE INFORMATION
TO OBTAIN INFORMATION:
- ---------------------
BY TELEPHONE
Call
--------------------
BY MAIL Write to:
865 South Figueroa Street
Suite 1800
Los Angeles, California 90017
By E-mail Send your request to:
On the Internet Text-only versions of Fund documents can be viewed online or
downloaded from:
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SECs Public Reference Section, Washington, DC 20549-6009.
__________________________
__________________________
__________________________
SEC file number: 811-____
More information on the Fund is vailable free upon request, including the
following:
ANNUAL/SEMIANNUAL REPORT
Describes the Fund's performance, lists portfolio holdings and contains a letter
from the Fund's portfolio manager discussing recent market conditions, economic
trends and Funds strategies.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Fund and its policies. A current SAI is on file
with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of his prospectus).
28
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class A shares of one of the separate
investment funds offered by TCW Galileo Funds, Inc., each of which has different
investment objectives and policies. Please read this document carefully, and
keep it for future reference.
TCW GALILEO CORE FIXED INCOME FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
March 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES.. 3
PRINCIPAL RISKS................................. 4
PERFORMANCE SUMMARY............................. 6
FUND EXPENSES AND EXPENSE SAMPLE................ 7
INVESTMENT OBJECTIVES/APPROACH.................. 8
MAIN RISKS...................................... 9
RISK CONSIDERATIONS............................. 11-22
MANAGEMENT OF THE FUNDS......................... 23
MULTIPLE CLASS STRUCTURE........................ 25
ACCOUNT POLICIES AND SERVICES................... 26
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT......... 29
TO SELL OR EXCHANGE SHARES...................... 30
DISTRIBUTIONS AND TAXES......................... 31
FINANCIAL HIGHLIGHTS............................ 32
FOR MORE INFORMATION............................ 33
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
- ----------------------------------------------
The Fund is affected by changes in the economy, or in securities and other
markets. Additionally, changes in interest rates will affect not only the
current return on the Fund, but the value of the capital investment will most
likely fluctuate up or down. There is also the possibility that investment
decisions the Adviser makes will not accomplish what they were designed to
achieve or that companies in which the Fund invests will have disappointing
performance or not pay their debts.
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC. INVESTMENT OBJECTIVES PRINCIPAL INVESTMENT STRATEGIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCW Galileo Core Fixed Income Maximize current income and achieve Invests in fixed income securities rated A or
Fund above average total return consistent higher by Moody's and S&P.
with prudent investment management over
a full market cycle
</TABLE>
Under adverse market conditions, the Fund could invest some or all of its assets
in money market securities. Although the Fund would do this only when seeking
to avoid losses, it could have the effect of reducing the benefit from any
upswing in the market.
3
<PAGE>
PRINCIPAL RISKS
- ---------------
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you and the more you can lose. Since shares of the
Fund represent an investment in securities with fluctuating market prices, the
value of fund shares will vary as the value of the Fund's portfolio securities
increases or decreases. Therefore, the value of an investment in the Fund could
go down as well as up. All investments are subject to:
. ASSET CLASS RISK
There is the possibility that the returns from the types of securities in
which the Fund invests will underperform returns from the various general
securities markets or different asset classes. Different types of
securities tend to go through cycles of outperformance and underperformance
in comparison to the general securities markets.
. SECURITIES SELECTION RISK
There is the possibility that the specific securities held in the Fund's
portfolio will underperform the other funds in the same asset class or
benchmarks that are representative of the general performance of the asset
class because of the portfolio manager's choice of securities.
Because the Fund is a fixed-income fund. The Fund is subject (in varying
degrees) to the following additional risks:
. CREDIT RISK
There is the possibility that the Fund could lose money if an issuer is
unable to meet its financial obligations such as the payment of principal
and/or interest on an instrument, or goes bankrupt. The Fund is subject to
credit risk because it invests to some degree in below investment grade
fixed income securities.
. INTEREST RATE RISK
There is the possibility that the value of the Fund's portfolio investments
may fall since fixed income securities generally fall in value when
interest rates rise. The longer the term of a fixed income instrument, the
more sensitive it will be to fluctuations in value from interest rate
changes. Changes in interest rates may have a significant effect on the
Fund because it may hold securities with long terms to maturity.
In the case of mortgage-backed securities, rising interest rates tend to
extend the term to maturity of the securities, making them even more
susceptible to interest rate changes. When interest rates drop, not only
can the value of fixed income securities drop, but the yield can drop,
particularly where the yield on the fixed income securities is tied to
changes in interest rates, such as adjustable mortgages. Also when interest
rates drop, the holdings of mortgage-backed securities by the Fund can
reduce returns if the owners of the underlying mortgages pay off their
mortgages sooner than anticipated since the funds prepaid will have to be
reinvested at the then lower prevailing rates. This is known as prepayment
risk. When interest rates rise, the holdings of mortgage-backed securities
by the Fund can reduce returns if the owners of the underlying mortgages
pay off their mortgages later than anticipated. This is known as extension
risk.
4
<PAGE>
PRINCIPAL RISKS
- ---------------
. JUNK BONDS
These bonds are speculative in nature. They are usually issued by companies
without long tract records of sales and earnings, or by those companies
with questionable credit strength. These bonds are considered "below
investment grade." The Fund may invest in debt instruments rated below
investment grade.
. FOREIGN INVESTING RISK
There is the likelihood that foreign investments may be riskier than U.S.
investments because of a lack of political stability, foreign controls on
investment and currency exchange rates, withholding taxes, and lack of
adequate company information. The Fund is subject to foreign investing risk
because it may invest a portion of its assets in foreign company
securities. If it invests in "emerging markets," and it may, the risk is
even more pronounced. In addition, because foreign securities generally are
denominated and pay dividends or interest in foreign currencies, and the
Fund holds various foreign currencies, the value of the net assets of the
Fund as measured in United States dollars will be affected favorably or
unfavorably by changes in exchange rates.
. LIQUIDITY RISK
There is the possibility that the Fund may lose money or be prevented from
earning capital gains if it can not sell a security at the time and price
that is most beneficial to the Fund. The Fund is subject to liquidity risks
because it invests in high yield bonds, mortgage-backed securities or
foreign or emerging markets securities, which have all experienced periods
of illiquidity.
The Fund may be more susceptible to some of these risks than others, as noted
in the description of the Fund. A more detailed explanation of these risks is
presented under the "Risk Considerations" section at page 11.
Your investment is not a bank deposit, and it is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
5
<PAGE>
PERFORMANCE SUMMARY
- -------------------
The two tables below show the Fund's annual returns and its long-term
performance with respect to its Institutional Class shares (Class A shares of
the Fund commenced operations on March 1, 1999) The first table shows you how
the Fund's performance has varied from year to year. The second compares the
Fund's performance over time to that of a broad based securities market index.
Both tables assume reinvestment of dividends and distributions. The performance
information includes the performance of the predecessor limited partnership. As
with all mutual funds, past performance is not a prediction of future results.
Year by year total return (%)
as of December 31 each year*
<TABLE>
<CAPTION>
TCW Galileo Core Fixed Income Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.82% 16.10% 6.60% 10.65% -7.73% 18.08% 2.03% 8.90% ______%
1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31,
1998 is: __%
Best and worst quarterly performance during this period
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Fund Performance
-------------------------------------------------------------------------
<S> <C>
* Core Fixed Income Fund
Quarter ending June 30, 1995 5.93% (Best)
Quarter ending March 31, 1994 -4.54% (Worst)
-------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURN AS OF
DECEMBER 31 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
. Core Fixed Income Fund __% __% __% __%
----------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index __% __% __% __%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
FUND EXPENSES AND EXPENSE SAMPLE
- --------------------------------
As an investor, you pay certain fees and expenses in connection with the Fund,
which are described in the table below. Annual Fund Operating Expenses are
paid out of Fund assets, so their effect is included in the share price. The
Class A shares of the Fund have no sales charge (load), but are subject to
Rule 12b-1 distribution fees.
<TABLE>
<CAPTION>
FEE TABLE
CORE FIXED INCOME
<S> <C>
Shareholder transaction fees
1) Redemption Fees None
2) Exchange Fees None
3) Contingent Deferred Sales Load None
4) Sales Load on Reinvested Dividends None
5) Sales Load on Purchases None
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.40%
Distribution (12b-1) Fees 0.25%
Other Expenses _%
Total Annual Fund Operating Expenses _%
</TABLE>
--------------------------------------------------------------------
EXPENSE EXAMPLE
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------
CORE FIXED INCOME
This example shows what you could pay in expenses over time. It uses
the same hypothetical conditions other funds use in their
prospectuses: $10,000 Initial Investment, 5% total return each year
and no changes in expenses. The figures shown would be the same
whether or not you sold your shares at the end of a period. Because
actual return and expenses will be different, the example is for
comparison purposes only.
7
<PAGE>
TCW GALILEO CORE FIXED INCOME FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks to provide maximum current income and achieve above
average total return consistent with prudent investment management
over a full market cycle. To pursue this goal, it invests at least
65% of its total assets in fixed income securities rated A or higher
by Moody's and S&P. These securities include U.S. Government
obligations, bonds, notes, debentures, mortgage-backed securities,
asset-backed securities, foreign securities (government and corporate)
and other securities bearing fixed or variable interest rates of any
maturity.
In managing the Fund's investments, the Adviser uses a controlled risk
approach. The techniques of this approach attempt to control the
principal risk components of the fixed income markets. These
components include:
. security selection within a given sector
. relative performance of the various market sectors
. the shape of the yield curve
. fluctuations in the overall level of interest rates
The Adviser also utilizes active asset allocation in managing the
Fund's investments and monitors the duration of the Fund's portfolio
securities to mitigate the Fund's exposure to interest rate risk.
MARK L. ATTANASIO, PHILLIP A. BARACH, WALTER J. BLASBERG, JEFFREY E.
GUNDLACH, AND FREDERICK H. HORTON ARE THE FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
DURATION is often used to measure the potential volatility of a bond's
price: bonds with longer durations are more sensitive to changes in
interest rates, making them more volatile bonds with shorter durations.
Bonds with fixed maturities have a readily determinable duration. Bonds
with uncertain payment schedules, such as mortgage-backed securities, which
can be prepaid, have durations which may vary or lengthen in certain
interest rate environment, making their values even more volatile than they
were when acquired.
8
<PAGE>
. MAIN RISKS
----------
The primary risks affecting this Fund are "credit risk," "interest
rate risk," (including "extension risk" and "prepayment risk")
"foreign investing risk" and "liquidity risk."
CREDIT RISK refers to the likelihood that the Fund could lose money if
an issuer is unable to meet its financial obligations, such as the
payment of principal and/or interest on an instrument, or goes
bankrupt. This Fund invests primarily in high credit quality
securities that have limited susceptibility to this risk. A portion
of the Fund's assets, however, will be invested in low credit quality
securities that may make the Fund more subject to credit risk,
especially during periods of economic uncertainty or during economic
downturns. INTEREST RATE RISK refers to the possibility that the
value of the Fund's portfolio investments may fall since fixed income
securities generally fall in value when interest rates rise. The
longer the term of a fixed income instrument, the more sensitive it
will be to fluctuations in value from interest rate changes. Changes
in interest rates may have a significant effect on this Fund, because
it may hold securities with long terms to maturity and mortgage-backed
securities, including collateralized mortgage obligations and stripped
mortgage securities. Its holding of mortgage-backed securities can
reduce returns if the owners of the underlying mortgages pay off
their mortgages sooner than anticipated when interest rates go down.
Because this Fund may invest in mortgage-backed securities, it may be
subject to extension risk and prepayment risk, which are both a type
of interest rate risk. EXTENSION RISK refers to the possibility that
rising interest rates may cause owners of the underlying mortgages to
pay off their mortgages at a slower than expected rate. This
particular risk may effectively change a security which was considered
short or intermediate term into a long-term security. Long-term
securities generally drop in value more dramatically in response to
rising interest rates than short or intermediate-term securities.
PREPAYMENT RISK refers to the possibility that falling interest rates
may cause owners of the underlying mortgages to pay off their
mortgages at a faster than expected rate. Because the Fund may invest
a portion of its assets in foreign company securities, it may be
subject to FOREIGN INVESTING RISKS. Foreign investing risk refers to
the likelihood that foreign investments may be riskier than U.S.
investments because of many factors, some of which include:
9
<PAGE>
. a lack of political or economic stability
. foreign controls on investment and changes in currency exchange
rates
. withholding taxes
. a lack of adequate company information
The risks of foreign investing are even more pronounced if the Fund
invests in emerging markets. In addition, securities traded only
through foreign markets may be more volatile and are often harder to
sell. Volatility is a way to measure the changes in the price of a
single security or an entire portfolio. Large and frequent price
changes indicate higher volatility, which generally indicates that
there is a greater chance you could lose money over the short term.
The Fund is also subject to foreign currency risk. Because foreign
securities are generally denominated and pay dividends or interest in
foreign currencies, the value of the net assets of the Fund as
measured in the United States dollars will be affected favorably or
unfavorably by changes in exchange rates. LIQUIDITY RISK refers to
the possibility that the Fund may lose money or be prevented from
earning capital gains if it cannot sell a security at the time and
price that is most beneficial to the Fund. Because the Fund invests
in below grade fixed income securities, it is more susceptible to
liquidity risks than funds that invest in higher quality investments.
The Fund may invest some assets in options, futures and foreign
currency futures and forward contracts. These practices are used
primarily to hedge the Fund's portfolio but may also be used to
increase returns; however, such practices sometimes may reduce returns
or increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
10
<PAGE>
. RISK CONSIDERATIONS
-------------------
Please consider the following risks before investing in the Fund.
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's
performance or financial position can depress the value of the
issuer's securities. The liquidity in a market for a particular
security will affect its value and may be affected by factors relating
to the issuer and the depth of the market for that security. Other
market risks that can affect value include a market's current
attitudes about type of security, market reactions to political or
economic events, and tax and regulatory effects (including lack of
adequate regulations for a market or particular type of instrument).
Market restrictions on trading volume can also affect price and
liquidity.
Prices of most securities tend to be more volatile in the short-term.
Therefore an investor who trades frequently or redeems in the short-
term is more likely to incur loss than an investor who holds
investments for the longer term. Lack of diversification in a
portfolio can also increase volatility. A security that is leveraged,
whether explicitly or implicitly, will also tend to be more volatile
in that both gains and losses are intensified by the magnifying
effects of leverage. Certain instruments (such as inverse floaters
and interest-only securities) behave similarly to leveraged
instruments.
GENERAL INVESTMENT RISK
-----------------------
Since shares of a Fund represent an investment in securities with
fluctuating market prices, the value of Fund shares will vary as the value
of each Fund's portfolio securities increases or decreases. Therefore, the
value of an investment in a Fund could go down as well as up. This also
true for funds that invest primarily in fixed income securities. High
credit quality investments also react in value to interest rate changes.
11
<PAGE>
. RISK CONSIDERATIONS
-------------------
FIXED Fixed income securities are subject to various risks. The two
INCOME primary (but not exclusive) risks affecting fixed income instruments
SECURITIES are "credit risk" and "interest rate risk." These risks can affect a
security's price volatility to varying degrees, depending upon the
nature of the instrument. In addition, the depth and liquidity of
the market for an individual or class of fixed income security can
also affect its price and, hence, the market value of a Fund.
"CREDIT RISK" refers to the likelihood that an issuer will default
in the payment of principal and/or interest on an instrument.
Financial strength and solvency of an issuer are the primary factors
influencing credit risk. In addition, lack of or inadequacy of
collateral or credit enhancements for a fixed income security may
affect its credit risk. Credit risk of a security may change over
its life and securities which are rated by rating agencies are often
reviewed and may be subject to downgrades.
The Fund may invest in debt instruments rated below investment
grade. Generally, lower-rated debt securities provide a higher yield
than higher rated debt securities of similar maturity but are
subject to greater credit risk than higher rated securities of
similar maturity. These securities are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet
principal and interest payments. Because investment in lower quality
securities involves greater investment risk, achievement of the
Fund's investment objective will be more dependent on the Adviser's
analysis than would be the case if the Fund were investing in higher
quality bonds. In addition, lower quality
12
<PAGE>
securities may be more susceptible to real or perceived adverse
economic and individual corporate developments than would investment
grade bonds. Moreover, the secondary trading market for lower quality
securities may be less liquid than the market for investment grade
bonds. This potential lack of liquidity may make it more difficult for
the Adviser to value accurately certain portfolio securities.
"INTEREST RATE RISK" refers to the change in value of debt instruments
associated with changes in interest rates. Interest rate changes may
affect the value of a fixed income security directly (especially in
the case of fixed rate securities) and indirectly (especially in the
case of adjustable rate securities). In general, rises in interest
rates will negatively impact the value of fixed rate securities and
falling interest rates will have a positive effect on value. The
degree to which a security's price will change as a result of changes
in interest rates is measured by its "duration." For example, the
price of a bond with a 5 year duration would be expected under normal
market conditions to decrease 5% for every 1% increase in interest
rates. Generally, securities with longer maturities have a greater
duration and thus are subject to greater price volatility from changes
in interest rates. Adjustable rate instruments also react to interest
rate changes in a similar manner although generally to a lesser degree
(depending, however, on the characteristics of the reset terms,
including the index chosen, frequency of reset and reset caps or
floors, among other things).
13
<PAGE>
. RISK CONSIDERATIONS
-------------------
FOREIGN Investment in foreign securities involves special risks in
INVESTING addition to the usual risks inherent in domestic investments. These
include: political or economic instability; the unpredictability of
international trade patterns; the possibility of foreign
governmental actions such as expropriation, nationalization or
confiscatory taxation; the imposition or modification of currency
exchange or foreign investment controls; the imposition of
withholding taxes on dividends, interest and gains; price
volatility; and fluctuations in currency exchange rates. These risks
are more pronounced in emerging market countries.
As compared to United States companies, foreign issuers generally
disclose less financial and other information publicly and are
subject to less stringent and less uniform accounting, auditing and
financial reporting standards. Foreign countries typically impose
less thorough regulations on brokers, dealers, stock exchanges,
insiders and listed companies than does the United States, and
foreign securities markets may be less liquid and more volatile than
domestic markets. Investment in foreign securities involves higher
costs than investment in U.S. securities, including higher
transaction and custody costs as well as the imposition of
additional taxes by foreign governments. In addition, security
trading practices abroad may offer less protection to investors such
as the Fund. Settlement of transactions in some foreign markets may
be delayed or may be less frequent than in the U.S., which could
affect the liquidity of the Fund's portfolio. Also, it may be more
difficult to obtain and enforce legal judgments against foreign
corporate issuers than against
14
<PAGE>
domestic issuers and it may be impossible to obtain and enforce
judgments against foreign governmental issues.
Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, and the Fund holds
various foreign currencies from time to time, the value of the net
assets of the Fund as measured in United States dollars will be
affected favorably or unfavorably by changes in exchange rates.
Generally, currency exchange transactions will be conducted on a
spot (i.e., cash) basis at the spot rate prevailing in the currency
---
exchange market. The cost of currency exchange transactions will
generally be the difference between the bid and offer spot rate of
the currency being purchased or sold. In order to protect against
uncertainty in the level of future foreign currency exchange rates,
the Fund is authorized to enter into certain foreign currency
futures and forward contracts.
With respect to the Fund, the forward currency market for the
purchase or sale of U.S. dollars in some countries is not highly
developed, and in certain countries, there may be no such market. If
a devaluation of a currency is generally anticipated, the Fund may
not be able to contract to sell the currency at an exchange rate
more advantageous than that which would prevail after the
anticipated amount of devaluation, particularly as regards forward
contracts for local currencies in view of the relatively small,
inactive or even non-existent market for these contracts. In the
event the Fund holds securities denominated in a currency that
suffers a devaluation, the Fund's net asset value will suffer
corresponding reductions. In this regard, in December 1994, the
Mexican government determined to allow the Mexican peso to trade
freely against the U.S. dollar rather than within a controlled band,
which resulted in a significant devaluation of the Mexican peso
against the dollar. Further, in July 1997, the Thai and Philippine
governments allowed the baht and peso, respectively, to trade freely
against the U.S. dollar resulting in a sharp devaluation of both
currencies, and in 1998 Russia did the same, causing a sharp
devaluation of the ruble.
15
<PAGE>
. RISK CONSIDERATIONS
-------------------
MORTGAGE-BACKED CREDIT AND MARKET RISKS OF MORTGAGE-BACKED SECURITIES. The
SECURITIES investments by the Fund in fixed rate and floating rate
mortgage-backed securities will entail normal credit risks
(i.e., the risk of non-payment of interest and principal) and
---
market risks (i.e., the risk that interest rates and other
---
factors will cause the value of the instrument to decline).
Many issuers or servicers of mortgage-backed securities
guarantee timely payment of interest and principal on the
securities, whether or not payments are made when due on the
underlying mortgages. This kind of guarantee generally
increases the quality of a security, but does not mean that
the security's market value and yield will not change. Like
bond investments, the value of fixed rate mortgage-backed
securities will tend to rise when interest rates fall, and
fall when rates rise. Floating rate mortgage-backed securities
will generally tend to have minimal changes in price when
interest rates rise or fall, but their current yield will be
affected. The value of all mortgage-backed securities may also
change because of changes in the market's perception of the
creditworthiness of the organization that issued or guarantees
them. In addition, the mortgage-backed securities market in
general may be adversely affected by changes in governmental
legislation or regulation. Fluctuations in the market value of
mortgage-backed securities after their acquisition usually do
not affect cash income from these securities but are reflected
in Fund's net asset value. Factors that could affect the value
of a mortgage-backed security include, among other things, the
types and amounts of insurance which a mortgagor carries, the
amount of time the mortgage loan has been outstanding, the
loan-to-value ratio of
16
<PAGE>
each mortgage and the amount of overcollateralization of a
mortgage pool.
LIQUIDITY RISK OF MORTGAGE-BACKED SECURITIES. The liquidity of
mortgage-backed securities varies by type of security; at
certain times the Fund may encounter difficulty in disposing
of investments. Because mortgage-backed securities may be less
liquid than other securities, the Fund may be more susceptible
to liquidity risks than funds that invest in other securities.
In the past, in stressed markets, certain types of mortgage-
backed securities, such as inverse floaters, and interest-only
securities, suffered periods of illiquidity if disfavored by
the market.
PREPAYMENT, EXTENSION AND REDEMPTION RISKS OF MORTGAGE-BACKED
SECURITIES. Mortgage-backed securities reflect an interest in
monthly payments made by the borrowers who receive the
underlying mortgage loans. Although the underlying mortgage
loans are for specified periods of time, such as 20 or 30
years, the borrowers can, and typically do, pay them off
sooner. When that happens, the mortgage-backed security which
represents an interest in the underlying mortgage loan will be
prepaid. A borrower is more likely to prepay a mortgage which
bears a relatively high rate of interest. This means that in
times of declining interest rates, a portion of the Fund's
higher yielding securities are likely to be redeemed and the
Fund will probably be unable to replace them with securities
having as great a yield. Prepayments can result in lower
yields to shareholders. The increased likelihood of prepayment
when interest rates decline also limits market price
appreciation of mortgage-backed securities. This is known as
prepayment risk. Mortgage-backed securities are also subject
to extension risk. Extension risk is the possibility that
rising interest rates may cause prepayments to occur at a
slower than expected rate. This particular risk may
effectively change a security which was considered short or
intermediate term into a long term security. Long-term return
securities generally fluctuate more widely in response to
changes in interest rates than short or intermediate-term
securities. In addition, a mortgage-backed security may be
subject to redemption at the option of the issuer. If a
mortgage-backed security held by the Fund is called for
redemption, the Fund will be required to permit the issuer to
redeem or "pay-off" the security, which could have an adverse
effect on the Fund's ability to achieve its investment
objective.
17
<PAGE>
COLLATERALIZED MORTGAGE OBLIGATIONS. There are certain risks
associated specifically with collateralized mortgage
obligations ("CMOs.") CMOs are debt obligations collateralized
by mortgage loans or mortgage pass-through securities. The
average life of CMOs is determined using mathematical models
that incorporate prepayment assumptions and other factors that
involve estimates of future economic and market conditions.
These estimates may vary from actual future results,
particularly during periods of extreme market volatility.
Further, under certain market conditions, such as those that
occurred in 1994, the average weighted life of certain CMOs
may not accurately reflect the price volatility of such
securities. For example, in periods of supply and demand
imbalances in the market for such securities and/or in periods
of sharp interest rate movements, the prices of CMOs may
fluctuate to a greater extent than would be expected from
interest rate movements alone. CMOs issued by private entities
are not obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities and are not
guaranteed by any government agency, although the securities
underlying a CMO may be subject to a guarantee. Therefore, if
the collateral securing the CMO, as well as any third party
credit support or guarantees, is insufficient to make payment,
the holder could sustain a loss.
STRIPPED MORTGAGE SECURITIES. Part of the investment strategy
of the Fund involves interest-only Stripped Mortgage
Securities. These investments are highly sensitive to changes
in interest and prepayment rates and tend to be less liquid
than other CMOs. They could sustain significant loss if
prepaid too early.
ADJUSTABLE RATE MORTGAGES. ARMs contain maximum and minimum
rates beyond which the mortgage interest rate may not vary
over the lifetime of the security. In addition, many ARMs
provide for additional limitations on the maximum amount by
which the mortgage interest rate may adjust for any single
adjustment period. Alternatively, certain ARMs contain
limitations on changes in the required monthly payment. In the
event that a monthly payment is not sufficient to pay the
interest accruing on an ARM, any excess interest is added to
the principal balance of the mortgage loan, which is repaid
through future monthly payments. If the monthly payment for
such an instrument exceeds the sum of the interest accrued at
the applicable mortgage interest rate and the principal
payment required at such point to amortize the outstanding
18
<PAGE>
principal balance over the remaining term of the loan, the
excess is utilized to reduce the then-outstanding principal
balance of the ARM.
ASSET-BACKED SECURITIES. Certain asset-backed securities do
not have the benefit of the same security interest in the
related collateral as do mortgage-backed securities; nor are
they provided government guarantees of repayment. Credit card
receivables are generally unsecured, and the debtors are
entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. In addition, some issuers of
automobile receivables permit the servicers to retain
possession of the underlying obligations. If the servicer were
to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that
of the holders of the related automobile receivables.
19
<PAGE>
. RISK CONSIDERATIONS
-------------------
YEAR The investment advisory and management services provided by the
2000 Adviser and the services provided to shareholders by the Transfer
Agent depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the
year 2000, but revert to 1900 or some other date, due to the manner
in which dates were encoded and calculated. That failure could have
a negative impact on the handling of securities trades, pricing and
account services. The Adviser and the Transfer Agent have been
actively working on necessary changes to their own computer systems
to prepare for the year 2000 and expect that their systems will be
adapted for year 2000 compliance before that date, but there can be
no assurance that they will be successful, or that interaction with
other non-complying computer systems will not impair their services
at that time.
In addition, it is possible that the markets for securities in which
the Fund invests may be negatively affected by computer failures
throughout the financial services industry commencing January 1,
2000. Improperly functioning trading systems may result in
settlement problems. In addition, corporate and governmental data
processing errors may result in production problems for individual
companies and create overall economic uncertainties. Earnings of
individual issuers will be affected by remediation costs which may
be substantial. Individual firms may further experience disruptions
to their business due to the failure of their counterparts to
address approaching year 2000 problems, or could experience further
disruption to the economy at large, which could adversely affect
corporate earnings generally and the value of
20
<PAGE>
their securities. Accordingly, the Fund's portfolio investments may
be negatively affected.
21
<PAGE>
. RISK CONSIDERATIONS
-------------------
EUROPEAN The Fund may invest in European countries that have agreed to
ECONOMIC AND enter into the European Monetary Union (EMU). EMU is an effort
MONETARY UNION by certain European countries to, among other things, reduce
barriers between countries and eliminate fluctuations in their
currencies. Among other things, EMU establishes a single
European currency (the euro), which will be introduced on
January 1, 1999 and is expected to replace the existing
national currencies of all initial EMU participants by July 1,
2002. Upon introduction of the euro, certain securities
(beginning with government and corporate bonds) will be
redonominated in the euro and, thereafter will trade and make
dividend and other payments only in euros.
Like other investment companies and business organizations,
including the companies in which the Fund invests, the Fund
could be adversely affected: (i) if the euro, or EMU as a
whole does not take effect as planned; (ii) if a participating
country withdraws from EMU; or (iii) if the computing,
accounting and trading systems used by the Fund's service
providers, or by other business entities with which the Fund
or its service providers do business, are not capable of
recognizing the euro as a distinct currency at the time of,
and following euro conversion.
22
<PAGE>
. MANAGEMENT OF THE FUNDS
-----------------------
INVESTMENT ADVISER
The Fund's investment adviser is TCW Funds Management, Inc. and is
headquartered at 865 South Figueroa Street, Suite 1800, Los Angeles,
California 90017. As of October 31, 1998, the Adviser and its
affiliated companies, which provide a variety of trust, investment
management and investment advisory services, had over $50 billion
under management or committed for management.
PORTFOLIO MANAGERS
Listed below are the individuals who have been primarily responsible
for the day-to-day portfolio management of the Fund, including a
summary of each person's business experience during the past five
years:
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS(1)
---------- -------------------------
Mark L. Attanasio Group Managing Director and Chief
Investment Officer - Below Investment
Grade Fixed Income, the Adviser, TCW
Asset Management Company and Trust
Company of the West since April 1995.
From April 1991 to March 1995 he was
Co-Chief Executive Officer and Chief
Portfolio Strategist of Crescent
Capital Corporation, Los Angeles.
Philip A. Barach Group Managing Director and Chief
Investment Officer - Investment Grade
Fixed Income, the Adviser, TCW Asset
Management Company and Trust Company
of the West.
Walter J. Blasberg Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West since June 1995.
Prior to its acquisition by TCW, he
was President and Chief Executive
Officer of Continental Asset
Management.
Jeffrey E. Gundlach Managing Director and Chairman Multi-
Strategy Fixed Income Committee, the
Adviser, TCW Asset Management Company
23
<PAGE>
and Trust Company of the West.
Frederick H. Horton Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West; Senior Portfolio
Manager for Dewey Square Investors
from June 1992 through September 1993.
ADVISORY AGREEMENTS
The Company and the Adviser have entered into an Investment Advisory
and Management Agreement (the "Advisory Agreement"), under the terms
of which the Company has employed the Adviser to manage the investment
of its assets, to place orders for the purchase and sale of its
portfolio securities, to administer its day-to-day operations, and to
be responsible for overall management of the Company's business
affairs, subject to control by the Board of Directors of the Company.
The Adviser also pays certain costs of marketing the Funds, including
sales personnel compensation, from its legitimate profits from its
investment advisory fees and other resources available to it.
Under the Advisory Agreement, the Fund pays to the Adviser as
compensation for the services rendered, facilities furnished, and
expenses paid by it the following fees:
<TABLE>
<CAPTION>
ANNUAL MANAGEMENT FEE
FUND
----
(AS PERCENT OF AVERAGE
----------------------
NET ASSET VALUE)
----------------
<S> <C>
Core Fixed Income .40%
</TABLE>
The Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which the agreements
relate, except a loss resulting from willful misfeasance, bad faith,
gross negligence on the part of the Adviser in the performance of its
duties or from reckless disregard by them of its duties under each
respective agreement.
24
<PAGE>
. MULTIPLE CLASS STRUCTURE
------------------------
The Fund currently offers two classes of shares, Institutional Class
shares and Class A shares. Shares of each class of the Fund
represents an equal pro rata interest in that Fund and generally gives
you the same voting, dividend, liquidation, and other rights. The
Institutional Class shares are offered at the current net asset value.
The Class A shares are also offered at the current net asset value,
but will be subject to a distribution or service fee imposed under a
distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, by the Fund.
The Distribution Plan allows the Fund to pay distribution and other
fees for the sale of its Class A shares and for services provided to
shareholders. Pursuant to the Distribution Plan, each Fund
compensates the Funds' distributor at a rate equal to 0.25% of the
average daily net assets of the Fund attributable to its Class A
shares. Because these fees are paid out of the Fund's Class A assets
on an on-going basis, over time, these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.
25
<PAGE>
YOUR INVESTMENT
. ACCOUNT POLICIES AND SERVICES
-----------------------------
BUYING SHARES
You pay no sales charges to invest in the Fund. Your price for Fund
shares is the Fund's net asset value per share (NAV) which is
generally calculated as of the close of trading on the New York Stock
Exchange (usually 4:00 p.m. Eastern time) every day the exchange is
open. Your order will be priced at the next NAV calculated after your
order is accepted by the Fund. Orders received by the Fund's Transfer
agent from dealers, brokers or other service providers after the NAV
is determined that day will receive that NAV if the orders were
received by the dealers, brokers or service providers from their
customers prior to such determination and were transmitted to and
received by the transfer agent prior to 8:00 a.m. Eastern time on the
next day. The Fund's investments are valued based on market value, or
where market quotations are not readily available, based on fair value
as determined in good faith by the Fund pursuant to procedures
established by the Fund's Board.
<TABLE>
<CAPTION>
-----------------------------------------------
Minimums
Initial Additional
-----------------------------------------------
<S> <C> <C>
Core Fixed Income $2,000 $250
Fund
</TABLE>
TCW Galileo Funds, Inc. may waive the minimum
investment. All investments must be in U.S.
dollars. Third-party checks, except those payable
to an existing shareholder, will normally not be
accepted. If your check or wire does not clear,
you will be responsible for any loss the Fund
incurs.
26
<PAGE>
SELLING SHARES
You may sell shares at any time. Your shares will be sold at the next
NAV calculated after your order is accepted by the Fund's transfer
agent. Any certificates representing Fund shares being sold must be
returned with your redemption request. Your order will be processed
promptly and you will generally receive the proceeds within a week.
Before selling recently purchased shares, please note that if the Fund
has not yet collected payment for the shares you are selling, it may
delay sending the proceeds for up to fifteen business days.
WRITTEN SELL ORDER
Some circumstances require written sell orders, along with signature
guarantees. These include:
. amounts of $1,000 or more
. amounts of $1,000 or more on accounts whose address has been
changed within the last 30 days
. requests to send the proceeds to a payee or address different than
what is on our records
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one
from most banks or securities dealers but not from a notary public.
Please call us to ensure that your signature guarantee will be
processed correctly.
EXCHANGE PRIVILEGE
You can exchange from one Class A Galileo Fund into another. You can
request your exchange in writing or by phone. Be sure to read the
current prospectus for any Fund into which you are exchanging. Any new
account established through an exchange will have the same privileges
as your original account (as long as they are available).
THIRD PARTY TRANSACTIONS
If purchases and redemptions of Fund shares are arranged and
settlement is made at an investor's election through a registered
broker-dealer, other than the Fund's distributor, that broker-dealer
may, at its discretion, charge a fee for that service.
ACCOUNT STATEMENTS
Every investor automatically receives regular account statements. You
will also be sent a yearly statement detailing the tax characteristics
of any dividends and distributions you have received.
27
<PAGE>
GENERAL POLICIES
If your account falls below $1,000 as a result of redemptions and or
exchanges for six months or more, the Fund may close your account and
send you the proceeds upon 60 days' written notice
Unless you decline telephone privileges on your New Account Form, you
may be responsible for any fraudulent telephone order as long as the
Transfer Agent takes reasonable measures to verify the order.
The Fund restricts excessive trading (usually defined as more than
four exchanges out of the Fund within a calendar year). You are
limited to one exchange of shares in the Fund during any 15-day period
except investors in 401(k) and other group retirement accounts and
asset allocation accounts managed by the Adviser or an affiliate. The
Fund reserves the right to:
. refuse any purchase or exchange request that could adversely affect
the Fund or its operations, including those from any individual or
group who, in the Fund's view, are likely to engage in excessive
trading
. change or discontinue its exchange privilege, or temporarily
suspend this privilege during unusual market conditions
delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions)
LARGE REDEMPTION AMOUNTS
------------------------
The Fund also reserves the right to make a "redemption in kind" -payment in
portfolio securities rather than cash - if the amount you are redeeming in
any 90-day period is large enough to affect Fund operations (for example,
if it equals more than $250,000 or represents more than 1% of the Fund's
assets).
28
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
In Writing
Complete the New Account Form. Mail your New (Same, except that you should include a note
Account Form and a check to: specifying the Fund name, your account number, and
Regular Mail the name(s) your account is registered in.)
TCW Galileo Core Fixed Income Fund
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
TCW Galileo Core Fixed Income Fund
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- ---------------------------------------------------------------------------------------------------------------
By Telephone
WIRE Have your bank send your investment to: (Same)
United Missouri Bank, n.a.
ABA No. 101000695
DST Systems, Inc./AC 9870371553
FBO TCW Galileo Core Fixed Income Fund
(Name on the Fund Account) __________
- ---------------------------------------------------------------------------------------------------------------
Via Exchange
Call the Transfer Agent at (800)248-4486.
The new account will have the same registration as
the account from which you are exchanging.
</TABLE>
If you need help completing the New Account Form, please call the Transfer agent
at (800) 248-4486.
29
<PAGE>
TO SELL OR EXCHANGE SHARES
By Mail
Write a letter of instruction that includes:
. your name(s) and signature(s) as they appear on the
account form
. your account number
. Core Fixed Income Fund
. the dollar amount you want to sell or exchange
how and where to send the proceeds
-------------------------------------------------------
Obtain a signature guarantee or other documentation,
if required (see "Account Policies and Services -
Selling Shares").
Mail your letter of instruction to:
Regular Mail
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- --------------------------------------------------------
By Telephone
Be sure the Fund has your bank account information on
file. Call the Transfer Agent at (800) 248-4486 to
request your transaction. Proceeds will be wired to
your bank.
Telephone redemption requests must be for a minimum
of $1,000.
- --------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN Call us to request a form
to add the plan. Complete the form, specifying the
amount and frequency of withdrawals you would like.
Be sure to maintain an account balance of $2,000
or more. Systematic Withdrawal plans are
subject to a minimum annual withdrawal of $500.
- -------------------------------------------------------
To reach the Transfer Agent at DST
System, Inc., call toll free in the U.S.
1-800-248-4486
30
<PAGE>
. DISTRIBUTIONS AND TAXES
-----------------------
The amount of dividends of net investment income and distributions of
net realized long and short-term capital gains payable to shareholders
will be determined separately for the Fund. Dividends from the net
investment income of the Fund will be declared and paid monthly. The
Fund will distribute any net realized long or short-term capital gains
at least annually. Your distributions will be reinvested in the Fund
unless you instruct the Fund otherwise. There are no fees or sales
charges on reinvestments.
In any fiscal year in which the Fund qualifies as a regulated
investment company and distributes to shareholders all of its net
investment income and net capital gains, the Fund is relieved of
federal income tax.
Generally, all dividends and capital gains are taxable whether they
are reinvested or received in cash- unless you are exempt from
taxation or entitled to tax deferral. Capital gains distributions may
be taxable at different rates depending on the length of time the Fund
has held the assets sold. Early each year, you will be notified as to
the amount and federal tax status of all distributions paid during the
prior year. Distributions may also be subject to state or local
taxes. The tax treatment of redemptions from a retirement plan
account may differ from redemptions from an ordinary shareholder
account. If you redeem shares of the Fund or exchange them for shares
of another Fund, any gain on the transaction may be subject to tax.
You must provide the Funds with a correct taxpayer identification
number (generally your Social Security Number) and certify that you
are not subject to backup withholding. If you fail to do so, the IRS
can require the Fund to withhold 31% of your taxable distributions and
redemptions. Federal law also requires the Fund to withhold 30% or
the applicable tax treaty rate from dividends paid to nonresident
alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
This is a brief summary of some of the tax laws that affect your
investment in the Fund. Please see the Statement of Additional
Information and your tax adviser for further information.
31
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions
(Class A shares of the Fund commenced operations on March 1, 1999).
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TCW GALILEO CORE FIXED INCOME FUND
YEAR ENDED OCTOBER 31 TEN MONTHS
ENDED
1998 1997 1996 1995 10/31/94
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 9.45 $ 9.61 $ 8.94 $ 10.04
------- ------- ---------- --------------
Investment operations:
Investment income - net 0.58 0.55 0.58 0.44
Net realized and unrealized gain 0.19 0.16 0.62 (1.16)/4/
(loss) on investments ------- ------- ---------- --------------
Total from investment operations 0.77 0.39 1.20 (0.72)
------- ------- ---------- --------------
Distributions:
Dividends from net investment income (0.60) (0.55) (0.53) (0.38)
Dividends from net realized gains -- -- -- --
on investments ------- ------- ---------- --------------
Dividends in excess of net realized gain -- -- -- --
------- ------- ---------- --------------
Total Distributions: (0.60) (0.55) (0.53) (0.38)
Net asset value, end of period $ $ 9.62 $ 9.45 $ 9.61 $ 8.94
======== ======= ======= ========== ==============
Total return (%) 8.45% 4.26% 13.92% (7.24)%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 0.93% 0.76% 0.68%/3/ 0.50%/2,3,4/
Ratio of net investment income to average net assets (%) 6.13% 5.85% 6.38% 6.11%/2/
Portfolio turnover rate (%) 142.96% 238.73% 223.78% 208.63%/1/
Net assets, end of period ($ x 1,000) $19,368 $25,006 $36,236 $ 50,153
</TABLE>
/1/ For the ten months ended October 31, 1994, and not indicative of a
full year's operating results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the 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 for the ten months ended October 31, 1994 would have been 0.68%,
for the fiscal year ended October 31, 1995, total operating expenses
would have been 0.72% of average net assets.
/4/ Includes net realized losses on foreign currency transactions/translations.
32
<PAGE>
FOR MORE INFORMATION
TO OBTAIN INFORMATION:
- ----------------------
BY TELEPHONE
Call
---------------
BY MAIL Write to:
TCW Galileo Funds, Inc.
Investor Relations Department
BY E-MAIL Send your request to
On the Internet Text-only versions of Fund documents can be viewed
online or downloaded from;
SEC
http.//www.sec/gov
You can also obtain copies by visiting the SEC's Public Reference Room
in Washington, DC (phone 1-800-SEC-0330) or by sending your request
and a duplicating fee to the SEC's Public Reference Section
Washington, DC 20549-6009.
__________________________
__________________________
__________________________
SEC file number: 811-____
More information on this Fund is available free upon request,
including the following:
ANNUAL/SEMIANNUAL REPORT
Describes the Fund's performance, lists portfolio holdings and
contains a letter from the Fund's manager discussing recent market
conditions, economic trends and Fund strategies.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Fund and its policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is
incorporated by reference (is legally considered part of this
prospectus).
33
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class A shares of one of the separate
investment funds offered by TCW Galileo Funds, Inc., each of which has different
investment objectives and policies. Please read this document carefully, and
keep it for future reference.
TCW GALILEO EUROPEAN EQUITIES FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
March 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES....................... 3
PRINCIPAL RISKS...................................................... 4
PERFORMANCE SUMMARY.................................................. 5
FUND EXPENSES AND EXPENSE EXAMPLE.................................... 7
INVESTMENT OBJECTIVES/APPROACH....................................... 8
MAIN RISKS........................................................... 9
RISK CONSIDERATIONS.................................................. 11-19
MANAGEMENT OF THE FUND............................................... 20
MULTIPLE CLASS STRUCTURE............................................. 22
ACCOUNT POLICIES AND SERVICES........................................ 23
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT.............................. 26
TO SELL OR EXCHANGE SHARES........................................... 27
DISTRIBUTIONS AND TAXES.............................................. 28
FINANCIAL HIGHLIGHTS................................................. 29
FOR MORE INFORMATION................................................. 30
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
The Fund is affected by changes in the economy, or in securities and other
markets. There is also the possibility that investment decisions the Adviser
makes will not accomplish what they were designed to achieve or that companies
in which the Fund invests will have disappointing performance or not pay their
debts.
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC. INVESTMENT OBJECTIVE PRINCIPAL INVESTMENT STRATEGIES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCW Galileo European Equities Fund Long -term capital appreciation Invests in equity securities issued by European
companies.
</TABLE>
Under adverse market conditions, the Fund could invest some or all of its assets
in money market securities. Although the Fund would do this only in seeking to
avoid losses, it could have the effect of reducing the benefit from any upswing
in the market.
3
<PAGE>
PRINCIPAL RISKS
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you and the more you can lose. Since shares of the
Fund represent an investment in securities with fluctuating market prices, the
value of Fund shares will vary as the value of the Fund's portfolio securities
increases or decreases. Therefore, the value of an investment in the Fund could
go down as well as up. All investments are subject to:
. ASSET CLASS RISK
There is the possibility that the returns from the types of securities in
which the Fund invests will underperform returns from the various general
securities markets. Different types of securities tend to go through cycles
of outperformance and underperformance in comparison to the general
securities markets.
. SECURITIES SELECTION RISK
There is the possibility that the specific securities held in the Fund's
portfolio will underperform the other funds in the same asset class or
benchmarks that are representative of the general performance of the asset
class because of the portfolio manager's choice of securities.
. FOREIGN INVESTING RISK
There is the likelihood that foreign investments may be riskier than U.S.
investments because of a lack of political stability, foreign controls on
investment and currency exchange rates, fluctuations in currency exchange
rates, withholding taxes, and lack of adequate company information. The
Fund is subject to foreign investing risk because it invests primarily in
the assets of foreign governments or companies. Because the Fund invests in
securities of emerging market countries, the risk factors listed above are
more likely to occur. In addition, because foreign securities generally are
denominated and pay dividends or interest in foreign currencies, and the
Fund holds various foreign currencies, the value of the net assets of the
Fund as measured in United States dollars will be affected favorably or
unfavorably by changes in exchange rates.
The Fund may also be subject (in varying degrees) to the following risks:
. LIQUIDITY RISK
There is the possibility that the Fund may lose money or be prevented from
earning capital gains if it can not sell a security at the time and price
that is most beneficial to the Fund. The Fund is subject to liquidity risk
because foreign securities may be less liquid than U.S. securities.
. PRICE VOLATILITY
There is the possibility that the value of the Fund's portfolio will change
as the prices of its investments go up or down. Although stocks offer the
potential for greater long-term growth than most fixed income securities,
stocks generally have higher short-term volatility. The Fund is subject to
this risk.
Because the Fund is non-diversified for 1940 Act purposes, it may invest more
than 5% of its total assets in the securities of any one issuer. Consequently,
its exposure to credit and market risks associated with that issuer is
increased.
Your investment is not a bank deposit, and it is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
4
<PAGE>
PERFORMANCE SUMMARY
The two tables below show the Fund's annual return and its long-term performance
with respect to its Institutional Class shares (Class A shares of the Fund
commenced operations on March 1, 1999). Both tables assume reinvestment of
dividends and distributions. The first table shows you the Fund's performance
for the year ended December 31, 1998. The second table gives you some indication
of the risks of an investment in the Fund by comparing the Fund's performance
with a broad-based securities index.
Year by year total return (%)
as of December 31 each year*
__%
98
-------------------------------------
The Fund's total return for the period October 31, 1998 to December 31, 1998
is: __%
Best and worst quarterly performance during this period
-------------------------------------------------------------------
FUND PERFORMANCE
-------------------------------------------------------------------
. European Equities Fund
Quarter ending March 31, 1998 20.89% (Best)
Quarter ending September 30, 1998 -16.22% (Worst)
-------------------------------------------------------------------
5
<PAGE>
- -------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF SINCE
DECEMBER 31 1 YEAR INCEPTION
- -------------------------------------------------------------------
. European Equities Fund ____% ____%
- -------------------------------------------------------------------
MSCI Europe 15 Index ____% ____%
- -------------------------------------------------------------------
6
<PAGE>
FUND EXPENSES AND EXPENSE EXAMPLE
As an investor, you pay certain fees and expenses in connection with the Fund,
which are described in the table below. Annual fund operating expenses are paid
out of Fund assets, so their effect is included in the share price. The Class A
shares of the Fund have no sales charge (load), but are subject to Rule 12b-1
distribution fees.
------------------------------------------------
FEE TABLE
European Equities
SHAREHOLDER TRANSACTION
FEES
1) Redemption Fees None
2) Exchange Fees None
3) Contingent Deferred
Sales Load None
4) Sales Load on
Reinvested Dividends None
5) Sales Load on
Purchases None
ANNUAL FUND OPERATING
EXPENSES
Management Fees 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses -%
Total Annual Fund
Operating Expenses -%
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
European Equities
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
7
<PAGE>
TCW GALILEO EUROPEAN EQUITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal, it
invests primarily in the securities of issuers located in Europe. The Fund
invests at least 65% of its total assets in equity securities issued by
European Companies. These securities include common and preferred stocks,
rights or warrants to purchase common stock and convertible debt or equity
securities. The Fund invests in companies based in at least three European
countries.
In managing the Fund's investments, the Adviser seeks to emphasize
companies which are moving towards the North American concept of
shareholder value.
The Adviser also seeks investment opportunities resulting from the fact
that economic ties between the former "Eastern bloc" countries of Europe
and other European countries have been strengthened. The Fund will not
invest more than 30% of its total assets in issuers based in former
"Eastern bloc" countries, or more than 10% of its total assets in issuers
based in any one former "Eastern bloc" country.
JAMES M. BURNS AND SAKER A. NUSSEIBEH ARE THE FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
EUROPEAN COMPANY (i) is organized under the laws of a European country and
has a principal office in Europe; or (ii) derives 50% or more of its gross
revenues or profits from goods produced or sold, investments made, or
services performed in European countries or has at least 50% of its assets
situated in Europe; or (iii) its equity securities are traded principally
on a stock exchange or over-the-counter in a European country.
8
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the potential
for greater long-term growth than most fixed income securities, stocks
generally have higher short-term volatility.
The primary risks affecting this Fund are "foreign investing risk,"
"liquidity risk," and "price volatility." The Fund is subject to foreign
investing risk because it invests in securities issued by foreign
governments or companies. FOREIGN INVESTING RISK refers to the likelihood
that foreign investments may be riskier than U.S. investments because of
many factors, some of which include:
. a lack of political or economic stability
. foreign controls on investment and currency exchange rates
. withholding taxes
. a lack of adequate company information
Because the Fund invests in the securities of emerging market countries,
these risk factors are more pronounced. In addition, securities traded only
through foreign markets may be more volatile and are often harder to sell.
The Fund also is subject to foreign currency risk. Because foreign
securities generally are denominated and pay dividends or interest in
foreign currencies, the value of the net assets of the Fund as measured in
United States dollars will be affected favorably or unfavorably by changes
in exchange rates. LIQUIDITY RISK refers to the possibility that the Fund
may lose money or be prevented from earning capital gains if it can not
sell a security at the time and price that is most beneficial to the Fund.
Because foreign securities may be less liquid than U.S. securities, the
Fund may be more susceptible to liquidity risk than funds that invest in
U.S. securities. PRICE VOLATILITY refers to the possibility that the value
of the Fund's portfolio will change as the prices of its investments go up
or down. This Fund may be subject to greater price volatility than funds
that invest in the securities of U.S. companies.
The Fund may invest some assets in options, futures and foreign currency
futures and forward contracts. These practices are used primarily to hedge
the Fund's portfolio but may be used to increase returns; however, such
practices sometimes may reduce returns or increase volatility.
9
<PAGE>
The Fund seeks to earn additional income by making loans of its portfolio
securities to brokers, dealers and other financial institutions. The loans
will be secured at all times by cash and other high grade debt obligations.
As with any extension of credit, there are risks of delay in recovery and
in some cases even loss of rights in the collateral should the borrower
fail financially.
10
<PAGE>
. RISK CONSIDERATIONS
-------------------
Please consider the following risks before investing in the Fund.
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's
performance or financial position can depress the value of the
issuer's securities. The liquidity in a market for a particular
security will affect its value and may be affected by factors relating
to the issuer, as well as the depth of the market for that security.
Other market risks that can affect value include a market's current
attitudes about type of security, market reactions to political or
economic events, and tax and regulatory effects (including the lack of
adequate regulations for a market or particular type of instrument).
Market restrictions on trading volume can also affect price and
liquidity.
Prices of most securities tend to be more volatile in the short-term.
Therefore, an investor who trades frequently or redeems in the short-
term is more likely to incur loss than an investor who holds
investments for the long term. Lack of diversification in a portfolio
can also increase volatility.
GENERAL INVESTMENT RISK
-----------------------
Since shares of the Fund represent an investment in securities with
fluctuating market prices, the value of Fund shares will vary as the
value of the Fund's portfolio securities increases or decreases.
Therefore, the value of an investment in the Fund could go down as
well as up.
11
<PAGE>
. RISK CONSIDERATIONS
-------------------
FOREIGN Investment in foreign securities involves special risks in addition
INVESTING to the usual risks inherent in domestic investments. These include:
political or economic instability; the unpredictability of
international trade patterns; the possibility of foreign governmental
actions such as expropriation, nationalization or confiscatory
taxation; the imposition or modification of foreign currency or
foreign investment controls; the imposition of withholding taxes on
dividends, interest and gains; price volatility; and fluctuations in
currency exchange rates.
As compared to United States companies, foreign issuers generally
disclose less financial and other information publicly and are subject
to less stringent and less uniform accounting, auditing and financial
reporting standards. Foreign countries typically impose less thorough
regulations on brokers, dealers, stock exchanges, insiders and listed
companies than does the United States. Foreign securities markets may
be less liquid and more volatile than domestic markets. Investment in
foreign securities involves higher costs than investment in United
States securities, including higher transaction and custody costs as
well as the imposition of additional taxes by foreign governments. In
addition, security trading practices abroad may offer less protection
to investors such as the Fund. Settlement of transactions in some
foreign markets may be delayed or may be less frequent than in the
United States, which could affect the liquidity of the Fund's
portfolio. Also, it may be more difficult to obtain and enforce legal
judgments against foreign corporate issuers
12
<PAGE>
than against domestic issuers and it may be impossible to obtain and
enforce judgments against foreign governmental issuers.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Fund holds various foreign
currencies from time to time, the value of the net assets of the Fund as
measured in United States dollars will be affected favorably or unfavorably
by changes in exchange rates. Generally, currency exchange transactions
will be conducted on a spot (i.e., cash) basis at the spot rate prevailing
----
in the currency exchange market. The cost of currency exchange transactions
will generally be the difference between the bid and offer spot rate of the
currency being purchased or sold. In order to protect against uncertainty
in the level of future foreign currency exchange rates, the Fund is
authorized to enter into certain foreign currency futures and forward
contracts.
The forward currency market for the purchase or sale of United States
dollars in most countries is not highly developed, and in certain
countries, there may be no such market. If a devaluation of a currency is
generally anticipated, the Fund may not be able to contract to sell the
currency at an exchange rate more advantageous than that which would
prevail after the anticipated amount of devaluation. In the event the Fund
holds securities denominated in a currency that suffers a devaluation, the
Fund's net asset values will suffer corresponding reductions. In this
regard, in December 1994, the Mexican government determined to allow the
Mexican peso to trade freely against the United States dollar rather than
within a controlled band, which action resulted in a significant
devaluation of the Mexican peso against the dollar. Further, in July 1997,
the Thai and Philippine governments allowed the baht and peso,
respectively, to trade freely against the United States dollar resulting in
a sharp devaluation of both currencies, and in 1998 Russia did the same,
causing a sharp devaluation of the ruble.
13
<PAGE>
. RISK CONSIDERATIONS
-------------------
RISKS Investors should recognize that investing in securities of emerging
ASSOCIATED market countries involves certain risks, and considerations,
WITH including those set forth below, which are not typically associated
EMERGING with investing in the United States or other developed countries.
MARKET
COUNTRIES Political and economic structures in many emerging evolution markets
countries may be undergoing significant evolutionand rapid
development, and such countries may lack the social, political and
economic stability characteristics of more developed countries. Some
of these countries may have in the past failed to recognize private
property rights and have at times nationalized or expropriated the
assets of private companies.
The securities markets of emerging market countries are substantially
smaller, less developed, less liquid and more volatile than the major
securities markets in the United States and other developed nations.
The limited size of many emerging securities markets and limited
trading volume in issuers compared to the volume of trading in U.S.
securities or securities of issuers in other developed countries
could cause prices to be erratic for reasons apart from factors that
affect the quality of the securities. For example, limited market
size may cause prices to be unduly influenced by traders who control
large positions. Adverse publicity and investors' perceptions,
whether or not based on fundamental analysis, may decrease the value
and liquidity of portfolio securities, especially in these markets.
14
<PAGE>
In addition, emerging market countries' exchanges' and broker-dealers are
generally subject to less government and exchange regulation than their
counterparts in developed countries. Brokerage commissions, dealer
concessions, custodial expenses and other transaction costs may be higher
on emerging markets than in developed countries. As a result, the Fund has
operating expenses that are expected to be higher than other funds
investing in more established market regions.
Many of the emerging market countries may be subject to a greater degree of
economic, political and social instability than is the case in the United
States, Canada, Australia, New Zealand, Japan and Western European and
certain Asian countries. Such instability may result from, among other
things, (i) popular unrest associated with demands for improved political,
economic and social conditions, and (ii) internal insurgencies.
In certain emerging market countries governments participate to a
significant degree, through ownership or regulation, in their respective
economies. Action by these governments could have a significant adverse
effect on market prices of securities and payment of dividends. In
addition, most emerging market countries have experienced substantial, and
in some periods extremely high, rates of inflation. Inflation and rapid
fluctuation in inflation rates have had and may continue to have very
negative effects on the economies and securities markets of certain
emerging market countries. In addition, many emerging market countries are
grappling with severe recession and government instability.
Many of the currencies of emerging market countries have experienced
devaluations relative to the United States dollar, and major devaluations
have historically occurred in certain countries. Any devaluations in the
currencies in which portfolio securities are denominated will have a
detrimental impact on funds investing in emerging market countries. Many
emerging market countries are experiencing currency exchange problems.
Countries have and may in the future impose foreign currency controls and
repatriation control.
15
<PAGE>
. RISK CONSIDERATIONS
-------------------
NON- The Fund is non-diversified for 1940 Act purposes and as such may
DIVERSIFIED invest a larger percentage of its assets in individual issuers than
STATUS a diversified investment company. In this regard, the Fund is not
subject to the general limitation that it not invest more than 5% of
its total assets in the securities of any one issuer. To the extent
the Fund makes investments in excess of 5% of its assets in a
particular issuer, its exposure to credit and market risks
associated with that issuer is increased. However, the Fund's
investments will be limited so as to qualify for the special tax
treatment afforded "regulated investment companies" under the
Internal Revenue Code of 1986, as amended.
16
<PAGE>
. RISK CONSIDERATIONS
-------------------
YEAR 2000 The investment advisory and management services provided by the
Adviser and the services provided to shareholders by the Transfer
Agent depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000,
but revert to 1900 or some other date, due to the manner in which
dates were encoded and calculated. That failure could have a negative
impact on the handling of securities trades, pricing and account
services. The Adviser and the Transfer Agent have been actively
working on necessary changes to their own computer systems to prepare
for the year 2000 and expect that their systems will be adapted for
year 2000 compliance before that date, but there can be no assurance
that they will be successful, or that interaction with other non-
complying computer systems will not impair their services at that
time.
In addition, it is possible that the markets for securities in which
the Fund invests may be negatively affected by computer failures
throughout the financial services industry commencing January 1, 2000.
Improperly functioning trading systems may result in settlement
problems. In addition, corporate and governmental data processing
errors may result in production problems for individual companies and
create overall economic uncertainties. Earnings of individual issuers
will be affected by remediation costs which may be substantial.
Individual firms may further experience disruptions to their business
due to the failure of their counterparts to address
17
<PAGE>
year 2000 problems, or could experience further disruption to the economy
at large, which could adversely affect corporate earnings generally and the
value of their securities. Accordingly, the Fund's portfolio investments
may be negatively affected.
18
<PAGE>
. RISK CONSIDERATIONS
-------------------
EUROPEAN The Fund will invest in European countries that have agreed to enter
ECONOMIC into the European Monetary Union (EMU). EMU is an effort by certain
AND European countries to, among other things, reduce barriers between
MONETARY countries and eliminate fluctuations in their currencies. Among other
UNION things, EMU establishes a single European currency (the euro) , which
will be introduced on January 1, 1999 and is expected to replace the
existing national currencies of all initial EMU participants by July
1, 2002. Upon introduction of the euro, certain securities (beginning
with government and corporate bonds) will be redonominated in the euro
and, thereafter will trade and make dividend and other payments only
in euros.
Like other investment companies and business organizations, including
the companies in which the Fund invests, the Fund could be adversely
affected: (i) if the euro, or EMU as a whole does not take effect as
planned; (ii) if a participating country withdraws from EMU; or (iii)
if the computing, accounting and trading systems used by the Fund's
service providers, or by other business entities with which the Fund
or its service providers do business, are not capable of recognizing
the euro as a distinct currency at the time of, and following euro
conversion.
19
<PAGE>
. MANAGEMENT OF THE FUND
----------------------
INVESTMENT ADVISER
The Fund's investment adviser is TCW Funds Management, Inc. and is
headquartered at 865 South Figueroa Street, Suite 1800, Los Angeles,
California 90017. As of October 31, 1998, the Adviser and its
affiliated companies, which provide a variety of trust, investment
management and investment advisory services had over $50 billion under
management or committed for management.
SUB-INVESTMENT ADVISER
TCW London International, Limited ("TCW London") (regulated by
I.M.R.O.), Sub-Adviser to the European Equities Fund, is headquartered
at 16 Charles II Street, London, England SWIY4QV.
PORTFOLIO MANAGERS
Listed below are the individuals who have been primarily responsible
for the day-to-day portfolio management of the Fund, including a
summary of each person's business experience during the past five
years:
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS(1)
---------- -------------------------
<S> <C>
James M. Burns Managing Director and Executive
Vice President, TCW London
International Limited (since
August 1993) and Managing
Director, TCW Asset Management
Company since October 1994.
Previously Managing Director
Dillon, Read International Asset
Management Co. (London).
Saker A. Nusseibeh Managing Director and Executive
Vice President, TCW London
International, Limited and
Managing Director, TCW Asset
Management Company since July
1996. Previously Director of
Mercury Asset Management
(London).
</TABLE>
ADVISORY AND SUB-ADVISORY AGREEMENTS
The Company and the Adviser have entered into an Investment Advisory
and Management Agreement (the "Advisory Agreement"), under the terms
of which the Company has employed the Adviser to manage the investment
of its assets, to place orders for the purchase and sale of its
portfolio
20
<PAGE>
securities, to administer its day-to-day operations, and to be
responsible for overall management of the Company's business affairs,
subject to control by the Board of Directors of the Company. The
Adviser also pays certain costs of marketing the Fund, including sales
personnel compensation, from legitimate profits from its investment
advisory fees and other resources available to it. Under the Advisory
Agreement, the Fund pays to the Adviser as compensation for the
services rendered, facilities furnished, and expenses paid by it the
following fees:
<TABLE>
<CAPTION>
ANNUAL MANAGEMENT
FEE (AS PERCENT OF
AVERAGE NET ASSET
FUND VALUE)
---- ------
<S> <C>
European Equities .75%
</TABLE>
The Adviser has retained, at its sole expense, TCW London to provide
such investment advisory services for European Equities. Under the
Sub-Advisory Agreement the Sub-Adviser assists the Adviser in
performing its advisory functions in respect of the Fund.
The Advisory Agreement and Sub-Advisory Agreement provide that the
Adviser and Sub-Adviser, respectively, shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the matters to which the agreements relate,
except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser or Sub-Advisers in the
performance of their duties or from reckless disregard by them of
their duties under each respective agreement.
21
<PAGE>
. MULTIPLE CLASS STRUCTURE
------------------------
The Fund currently offers two classes of shares, Institutional Class
shares and Class A shares. Shares of each class of the Fund represent
an equal pro rata interest in the Fund and generally gives you the
same voting, dividend, liquidation, and other rights. The
Institutional Class shares are offered at the current net asset value.
The Class A shares are also offered at the current net asset value,
but will be subject to a distribution or service fee imposed under a
distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. Pursuant to the
Distribution Plan, the Fund compensates its distributor at a rate
equal to 0.25% of the average daily net assets of the Fund
attributable to its Class A shares for distribution and related
services. Because these fees are paid out of the Fund's Class A
assets on an on-going basis, over time, these fees will increase the
cost of your investment and may cost you more than paying other types
of sales charges.
22
<PAGE>
YOUR INVESTMENT
. ACCOUNT POLICIES AND SERVICES
-----------------------------
BUYING SHARES
You pay no sales charges to invest in the Fund. Your price for Fund
shares is the Fund's net asset value per share (NAV) which is
generally calculated as of the close of trading on the New York Stock
Exchange (usually 4:00 p.m. Eastern time) every day the exchange is
open. Your order will be priced at the next NAV calculated after your
order is accepted by the Fund. Orders received by the Fund's Transfer
Agent from dealers, brokers or other service providers after the NAV
is determined that day will receive that NAV if the orders were
received by the dealers, brokers or service providers from their
customers prior to such determination and were transmitted to and
received by the Transfer Agent prior to 8:00 a.m. Eastern time on the
next day. The Fund's investments are valued based on market value, or
where market quotations are not readily available, based on fair value
as determined in good faith by the Fund's board.
<TABLE>
<CAPTION>
========================================================
MINIMUMS
Initial Additional
--------------------------------------------------------
<S> <C> <C>
European Equities Fund $2,000 $250
</TABLE>
TCW Galileo Funds, Inc. may waive the minimum investment. All
investments must be in United States dollars. Third-party checks,
except those payable to an existing shareholder, will normally not be
accepted. If your check or wire does not clear, you will be
responsible for any loss the Fund incurs.
23
<PAGE>
SELLING SHARES
You may sell shares at any time. Your shares will be sold at the next NAV
calculated after your order is accepted by the Fund's Transfer Agent. Any
certificates representing Fund shares being sold must be returned with your
redemption request. Your order will be processed promptly and you will
generally receive the proceeds within a week.
Before selling recently purchased shares, please note that if the Fund has
not yet collected payment for the shares you are selling, it may delay
sending the proceeds for up to fifteen business days.
WRITTEN SELL ORDER
Some circumstances require written sell orders, along with signature
guarantees. These include:
. amounts of $100,000 or more
. amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days
. requests to send the proceeds to a payee or address different than what
is on our records
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from
most banks or securities dealers but not from a notary public. Please call
us to ensure that your signature guarantee will be processed correctly.
EXCHANGE PRIVILEGE
You can exchange from one Class A Galileo Fund into another. You can
request your exchange in writing or by phone. Be sure to read the current
prospectus for any Fund into which you are exchanging. Any new account
established through an exchange will have the same privileges as your
original account (as long as they are available).
THIRD PARTY TRANSACTIONS
If purchases and redemptions of Fund shares are arranged and settlement
made at an investor's election through a registered broker-dealer, other
than the Fund's distributor, that broker-dealer may, at its discretion,
charge a fee for that service.
ACCOUNT STATEMENTS
Every Galileo investor automatically receives regular account statements.
You'll also be sent a yearly statement detailing the tax characteristics of
any dividends and distributions you have received.
24
<PAGE>
GENERAL POLICIES
If your account falls below $1,000 as a result of redemptions and or
exchanges for six months or more, the Fund may close your account and send
you the proceeds upon 60 days' written notice.
Unless you decline telephone privileges on your New Account Form, you may be
responsible for any fraudulent telephone order as long as the Transfer Agent
takes reasonable measures to verify the order.
The Fund restricts excessive trading (usually defined as more than four
exchanges out of the Fund within a calendar year). You are limited to one
exchange of shares in the Fund during any 15-day period except investors in
401(k) and other group retirement accounts and asset allocation accounts
managed by the Adviser or an affiliate. The Fund reserves the right to:
. refuse any purchase or exchange request that could adversely affect the
Fund or its operations, including those from any individual or group who, in
the Fund's view, are likely to engage in excessive trading
. change or discontinue its exchange privilege, or temporarily suspend this
privilege during unusual market conditions
. delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or during
unusual market conditions)
LARGE REDEMPTION AMOUNTS
------------------------
The Fund also reserves the right to make a "redemption in kind" - payment in
portfolio securities rather than cash - if the amount you are redeeming in
any 90-day period is large enough to affect Fund operations (for example, if
it equals more than $250,000 or represents more than 1% of the Fund's
assets).
25
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
--------------------------------------------------------------------------------------------------------------------------
<S> <C>
In Writing
Complete the New Account Form. Mail your New (Same, except that you should include a note
Account Form and a check to: specifying the Fund name, your account number, and
the name(s) your account is registered in.)
Regular Mail
TCW Galileo European Equities Fund
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
TCW Galileo European Equities Fund
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
--------------------------------------------------------------------------------------------------------------------------
By Telephone
WIRE Have your bank send your investment to: (Same)
United Missouri Bank, n.a.
ABA No. 101000695
DST Systems, Inc./AC 9870371553
FBO TCW Galileo European Equities Fund
(Name on the Fund Account) __________
--------------------------------------------------------------------------------------------------------------------------
Via Exchange
Call the Transfer Agent at (800) 248-4486. The new account will
have the same registration as the account from which you are
exchanging.
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
If you need help completing the New Account Form, please call the Transfer
Agent at (800) 248-4486.
26
<PAGE>
<TABLE>
<CAPTION>
TO SELL OR EXCHANGE SHARES
- ------------------------------------------------------------ ---------------------------------
<S> <C>
By Mail
Write a letter of instruction that includes: To reach the Transfer
. your name(s) and signature(s) as on the account form Agent at DST System, Inc., call
. your account number toll free in the U.S.
. the Fund name
. the dollar amount you want to sell or exchange how and 1-800-248-4486
where to send the proceeds
- ------------------------------------------------------------
Obtain a signature guarantee or other documentation, if
required (see "Account Policies -- Selling Shares").
May your letter of instruction to:
Regular Mail
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- ------------------------------------------------------------
By Telephone
Be sure the Fund has your bank account information on file.
Call the Transfer Agent at (800) 248-4486 to request your
transaction. Proceeds will be wired to your bank.
Telephone redemption requests must be for a minimum of $1,000.
--------------------------------------------------------------
SYSTEM WITHDRAWAL PLAN Call us to request a form to add the
plan. Complete the form, specifying the amount and frequency
of withdrawals you would like.
Be sure to maintain an account balance of $2,000 or more.
Systematic Withdrawal plans are subject to a minimum annual
withdrawal of $500.
</TABLE>
27
<PAGE>
. DISTRIBUTIONS AND TAXES
-----------------------
The amount of dividends of net investment income and distributions of net
realized long and short-term capital gains payable to shareholders will be
determined separately for the Fund. Dividends from the net investment
income of the Fund will be declared and paid annually. The Fund will
distribute any net realized long or short-term capital gains at least
annually. Your distributions will be reinvested in the Fund unless you
instruct the Fund otherwise. There are no fees or sales charges on
reinvestments.
In any fiscal year in which the Fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income
and net capital gains, the Fund is relieved of Federal income tax.
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash - unless you are exempt from taxation or
entitled to tax deferral. Capital gains distributions may be taxable at
different rates depending on the length of time the Fund has held the
assets sold. Early each year, you will be notified as to the amount and
Federal tax status of all distributions paid during the prior year.
Distributions may also be subject to state or local taxes. The tax
treatment of redemptions from a retirement plan account may differ from
redemptions from an ordinary shareholder account. If you redeem shares of
the Fund or exchange them for shares of another Galileo Fund, any gain on
the transaction may be subject to tax. You must provide the Fund with a
correct taxpayer identification number (generally your Social Security
Number) and certify that you are not subject to backup withholding. If you
fail to do so, the IRS can require the Fund to withhold 31% of your taxable
distributions and redemptions. Federal law also requires the Fund to
withhold 30% or the applicable tax treaty rate from dividends paid to
nonresident alien, non-U.S. partnership and non-U.S. corporation
shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment
in the Fund. Please see the Statement of Additional Information and your
tax adviser for further information.
28
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total return"
shows how much your investment in the Institutional Class shares of the
Fund would have increased (or decreased) during each period, assuming you
had reinvested all dividends and distributions (Class A shares of the Fund
commenced operations on March 1, 1999). These figures have been audited by
Deloitte & Touche LLP, whose report, along with Company's financial
statements, are included in the annual report, which is available upon
request.
---------------------------------------------------------------------------
TCW GALILEO EUROPEAN EQUITIES FUND
YEAR ENDED OCTOBER 31, 1998
---------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period
Investment operations:
Investment income - net
Net realized and unrealized gain
(loss) on investments
Total from investment operations
Distributions:
Dividends from investment
income - net
Dividends from net realized gains
on investments
Total Distributions:
Net asset value, end of period
Total return (%)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%)
Ratio of net investment income to average
net assets (%)
Portfolio turnover rate (%)
Net assets, end of period ($ x 1,000)
29
<PAGE>
FOR MORE INFORMATION
TO OBTAIN INFORMATION:
- ---------------------
BY TELEPHONE
Call ______________
BY MAIL Write to:
BY E-MAIL Send your request to:
ON THE INTERNET Text-only versions of Fund documents can be viewed online or
downloaded from:
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C. (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section. Washington, D.C. 20549-
6009.
__________________________
__________________________
__________________________
SEC file number: 811-____
More information on this Fund is available free upon request, including the
following:
ANNUAL/SEMIANNUAL REPORT
Describes the Fund's performance, lists portfolio holdings and contains a letter
from the Fund's manager discussing recent market conditions, economic trends and
Fund strategies.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Fund and its policies. A current SAI is on file
with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
30
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class A shares of one of the separate
investment funds offered by TCW Galileo Funds, Inc., each of which has different
investment objectives and policies. Please read this document carefully, and
keep it for future reference.
TCW GALILEO HIGH YIELD BOND FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
March 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES................... 3
PRINCIPAL RISKS.................................................. 4
PERFORMANCE SUMMARY.............................................. 6
FUND EXPENSES AND EXPENSE EXAMPLE................................ 8
INVESTMENT OBJECTIVES/APPROACH................................... 9
MAIN RISKS....................................................... 10
RISK CONSIDERATIONS.............................................. 12-19
MANAGEMENT OF THE FUND........................................... 20
MULTIPLE CLASS STRUCTURE......................................... 21
ACCOUNT POLICIES AND SERVICES.................................... 23
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT.......................... 27
TO SELL OR EXCHANGE SHARES....................................... 28
DISTRIBUTIONS AND TAXES.......................................... 29
FINANCIAL HIGHLIGHTS............................................. 30
FOR MORE INFORMATION............................................. 31
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
The Fund is affected by changes in the economy, or in securities and other
markets. Additionally, changes in interest rates will affect not only the
current return on the Fund, but the value of the capital investment will most
likely fluctuate up or down. There is also the possibility that investment
decisions the Adviser makes will not accomplish what they were designed to
achieve or that companies in which the Fund invests will have disappointing
performance or not pay their debts.
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC. INVESTMENT OBJECTIVES PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCW Galileo High Yield Bond Fund Maximize current income and eve achieve Invests in high yield bonds, commonly known as
above average total return turn "junk" bonds.
consistent with reasonable risk over
a full market cycle
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Under adverse market conditions, the Fund could invest some or all of its
assets in money market securities. Although the Fund would do this only
when seeking to avoid losses, it could have the effect of reducing the
benefit from any upswing in the market.
3
<PAGE>
PRINCIPAL RISKS
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you and the more you can lose. Since shares of the
Fund represent an investment in securities with fluctuating market prices, the
value of fund shares will vary as the value of the Fund's portfolio securities
increases or decreases. Therefore, the value of an investment in the Fund could
go down as well as up. All investments are subject to:
. ASSET CLASS RISK
There is the possibility that the returns from the types of securities in
which the Fund invests will underperform returns from the various general
securities markets or different asset classes. Different types of
securities tend to go through cycles of outperformance and underperformance
in comparison to the general securities markets.
. SECURITIES SELECTION RISK
There is the possibility that the specific securities held in the Fund's
portfolio will underperform the other funds in the same asset class or
benchmarks that are representative of the general performance of the asset
class because of the portfolio manager's choice of securities.
Because the Fund is a fixed income fund, the Fund may also be subject (in
varying degrees) to the following additional risks:
. CREDIT RISK
There is the possibility that the Fund could lose money if an issuer is
unable to meet its financial obligations such as the payment of principal
and/or interest on an instrument, or goes bankrupt. The Fund is subject
to great credit risk because it invests in high yield bond funds, which
are commonly referred to as "junk bonds."
. INTEREST RATE RISK
There is the possibility that the value of the Fund's portfolio investments
may fall since fixed income securities generally fall in value when
interest rates rise. The longer the term of a fixed income instrument, the
more sensitive it will be to fluctuations in value from interest rate
changes. Changes in interest rates may have a significant effect on the
Fund, because the Fund may hold securities with long terms to maturity.
4
<PAGE>
PRINCIPAL RISKS
. JUNK BONDS
These bonds are speculative in nature. They are usually issued by companies
without long track records of sales and earnings, or by those companies
with questionable credit strength. These bonds are considered "below
investment grade." The Fund primarily invests in below investment grade
corporate securities.
. FOREIGN INVESTING RISK
There is the likelihood that foreign investments may be riskier than U.S.
investments because of a lack of political stability, foreign controls on
investment and currency exchange rates, withholding taxes and lack of
adequate company information. The Fund is subject to foreign investing risk
because the Fund may invest a portion of their assets in foreign company
securities. If it invests in "emerging markets," and it may, the risk is
even more pronounced. In addition, because foreign securities generally are
denominated and pay dividends or interest in foreign currencies, the Fund
holds various foreign currencies, the value of the net assets of the Fund
as measured in United States dollars will be affected favorably or
unfavorably by changes in exchange rates.
. LIQUIDITY RISK
There is the possibility that the Fund may lose money or be prevented from
earning capital gains if it can not sell a security at the time and price
that is most beneficial to the Fund. The Fund is subject to liquidity risks
because it invests in high yield bonds, mortgage-backed securities or
foreign or emerging markets securities, which have all experienced periods
of illiquidity.
The Fund may be more susceptible to some of these risks than others, as noted in
the description of the Fund. A more detailed explanation of these risks is
presented under the "Risk Considerations" section at page 12.
Your investment is not a bank deposit, and it is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
5
<PAGE>
PERFORMANCE SUMMARY
The two tables below show the Fund's annual returns and its long-term
performance with respect to its Institutional Class shares (Class A shares of
the Fund commenced operations on March 1, 1999). The first table shows you how
the Fund's performance has varied from year to year. The second compares the
Fund's performance over time to that of a broad-based securities market index.
Both tables assume reinvestment of dividends and distributions. The performance
information includes performance of the predecessor limited partnership. As with
all mutual funds, past performance is not a prediction of future results.
<TABLE>
<CAPTION>
Year by year total return (%)
as of December 31 each year
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.19% -1.51% 30.97% 15.51% 15.48% -0.34% 15.95% 11.96% 12.28% ______%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998
to December 31, 1998 is:____%
Best and worst performance during this period
<TABLE>
<CAPTION>
---------------------------------------------------------
Fund Performance
---------------------------------------------------------
<S> <C>
. High Yield Bond Fund
Quarter ending March 31, 1991 11.94% (Best)
Quarter ending September 30, 1990 -5.32% (Worst)
---------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF SINCE
DECEMBER 31 1 YEAR 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
. High Yield Bond Fund % % % %
- -------------------------------------------------------------------------------------------------------
Salomon Brothers High Yield Cash Pay % % % %
Index
- -------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
FUND EXPENSES AND EXPENSE SAMPLE
As an investor, you pay certain fees and expenses in connection with the Fund,
which are described in the table below. Annual Fund Operating Expenses are paid
out of Fund assets, so their effect is included in the share price. The
Institutional Class shares of the Fund have no sales charge (load) or Rule 12b-1
distribution fees.
================================================================
FEE TABLE
<TABLE>
<CAPTION>
HIGH YIELD BOND
<S> <C>
Shareholder transaction fees
1) Redemption Fees None
2) Exchange Fees None
3) Contingent Deferred Sales Load None
4) Sales Load on Reinvested Dividends None
5) Sales Load on Purchases None
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses _%
Total Annual Fund Operating Expenses _%
</TABLE>
================================================================================
EXPENSE EXAMPLE
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
HIGH YIELD BOND
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether or not you sold your shares at the end of a
period. Because actual return and expenses will be different, the example is for
comparison purposes only.
8
<PAGE>
TCW GALILEO HIGH YIELD BOND FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks to maximize income and achieve above average total
return consistent with reasonable risk over a full market cycle. To
pursue this goal, it invests at least 65% of its total assets in high
yield/below investment grade bonds, commonly known as "junk" bonds.
It also invests in other high yield fixed income securities, including
convertible and nonconvertible debt securities and convertible and
non-convertible preferred stocks.
In managing the Fund's investments, the Adviser places emphasis on
securities at the lower-risk end of the high yield bond/below
investment grade spectrum. These securities are issued by companies
that the Adviser believes have stable to improving business prospects.
The Adviser's investment approach also emphasizes consistent and high
current income. It attempts to reduce the Fund's investment risk
through diversification and by analysis of:
. each issuer
. each issuer's ability to make timely payments of principal and
interest
. broad economic trends and corporate developments
MARK L. ATTANASIO, MARK D. SENKPIEL, AND MELISSA V. WEILER ARE THE
FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
Junk bonds are bonds that have a credit rating of BB or lower by rating
agencies such as Moody's Investors Service, Inc. and Standard & Poor's
Corporation. These bonds are often issued by companies without long track
records of sales and earnings, or by those companies with questionable
credit strength. In the event of a prepayment problem by the issuer of
these bonds, they will only be paid if there is anything left after the
payment of senior debt, such as bank loans and investment grade bonds.
Junk bonds are considered to be mostly speculative in nature. This gives
the Fund more credit risk than Galileo's other fixed income funds, but also
gives it the potential for higher returns.
9
<PAGE>
. MAIN RISKS
----------
The primary risks affecting this Fund are "credit risk," "interest
rate risk," "liquidity risk" and, to a lesser extent, "foreign
investing risk."
CREDIT RISK refers to the likelihood that the Fund could lose money if
an issuer is unable to meet its financial obligations, such as the
payment of principal and/or interest on an instrument, or goes
bankrupt. This Fund is subject to high credit risk, because it
invests primarily in high yield/below investment grade bonds. This is
especially true during periods of economic uncertainty or during
economic downturns. INTEREST RATE RISK refers to the possibility that
the value of the Fund's portfolio investments may fall since fixed
income securities generally fall in value when interest rates rise.
The longer the term of a fixed income instrument, the more sensitive
it will be to fluctuations in value from interest rate changes.
Changes in interest rates may have a significant effect on this Fund,
because it may hold securities with long terms to maturity. LIQUIDITY
RISK refers to the possibility that the Fund may lose money or be
prevented from earning capital gains if it can not sell a security at
the time and price that is most beneficial to the Fund. Because high
yield bonds may be less liquid than higher quality securities, the
Fund may be more susceptible to liquidity risk than funds that invest
in higher quality investments. A security whose credit rating has
been lowered may be particularly difficult to sell. Because the Fund
may invest a portion of its assets in foreign company securities, it
may be subject to FOREIGN INVESTING RISK. Foreign investing risk
refers to the likelihood that foreign investments may be riskier than
U.S. investments because of many factors, some of which include:
. a lack of political or economic stability
. foreign controls on investment and currency exchange rates
. withholding taxes
. a lack of adequate company information
The risks of foreign investing are even more pronounced if the Fund
invests in emerging markets. In addition, securities traded only
through foreign markets may be more volatile and are often harder to
sell. Volatility is a way to measure the changes in the price of a
single security or an entire portfolio. Large and frequent price
changes indicate higher volatility, which generally indicate that
there is a greater chance you could lose money over the short term.
The Fund is also subject to
10
<PAGE>
foreign currency risk. Because foreign securities are generally
denominated and pay dividends or interest in foreign currencies, the
value of the net assets of the Fund as measured in the United States
dollars will be affected favorably or unfavorably by changes in
exchange rates.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high-grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
11
<PAGE>
. RISK CONSIDERATIONS
-------------------
Please consider the following risks before investing in the Fund.
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's
performance or financial position can depress the value of the
issuer's securities. The liquidity in a market for a particular
security will affect its value and may be affected by factors relating
to the issuer and the depth of the market for that security. Other
market risks that can affect value include a market's current
attitudes about type of security, market reactions to political or
economic events, and tax and regulatory effects (including lack of
adequate regulations for a market or particular type of instrument).
Market restrictions on trading volume can also affect price and
liquidity.
Prices of most securities tend to be more volatile in the short-term.
Therefore an investor who trades frequently or redeems in the short-
term is more likely to incur loss than an investor who holds
investments for the longer term. Lack of diversification in a
portfolio can also increase volatility.
GENERAL INVESTMENT RISK
-----------------------
Since shares of the Fund represent an investment in securitiess with
fluctuating market prices, th value of Fund shares will vary as the value
of the Fund's portfolio securities increases and decreases. Therefore, the
value of an investment in the Fund could go down as well as up. This is
also true for funds that invest primarily in fixed income securities. High
credit quality investments also react in value to interest rate changes.
12
<PAGE>
. RISK CONSIDERATIONS
-------------------
FIXED Fixed income securities are subject to various risks. The two
INCOME primary (but not exclusive) risks affecting fixed income instruments
SECURITIES are "credit risk" and "interest rate risk." These risks can affect a
security's price volatility to varying degrees, depending upon the
nature of the instrument. In addition, the depth and liquidity of
the market for an individual or class of fixed income security can
also affect its price and, hence, the market value of a Fund.
"CREDIT RISK" refers to the likelihood that an issuer will default
in the payment of principal and/or interest on an instrument.
Financial strength and solvency of an issuer are the primary factors
influencing credit risk. In addition, lack of or inadequacy of
collateral or credit enhancements for a fixed income security may
affect its credit risk. Credit risk of a security may change over
its life and securities which are rated by rating agencies are often
reviewed and may be subject to downgrades.
The Fund's portfolio consists primarily of below investment grade
corporate securities that are commonly known as junk bonds.
Generally, lower-rated debt securities provide a higher yield than
higher rated debt securities of similar maturity but are subject to
greater credit risk than higher rated securities of similar
maturity. These securities are regarded as predominantly speculative
with respect to the issuer's continuing ability to meet principal
and interest payments. Because investment in lower quality
securities involves greater investment risk, achievement of the
Fund's
13
<PAGE>
investment objective will be more dependent on the Adviser's
analysis than would be the case if the Fund were investing in higher
quality bonds. In addition, lower quality securities may be more
susceptible to real or perceived adverse economic and individual
corporate developments than would investment grade bonds. Moreover,
the secondary trading market for lower quality securities may be
less liquid than the market for investment grade bonds. This
potential lack of liquidity may make it more difficult for the
Adviser to value accurately certain portfolio securities.
"INTEREST RATE RISK" refers to the change in value of debt
instruments associated with changes in interest rates. Interest rate
changes may affect the value of a fixed income security directly
(especially in the case of fixed rate securities) and indirectly
(especially in the case of adjustable rate securities). In general,
rises in interest rates will negatively impact the value of fixed
rate securities and falling interest rates will have a positive
effect on value. The degree to which a security's price will change
as a result of changes in interest rates is measured by its
"duration." For example, the price of a bond with a 5 year duration
would be expected under normal market conditions to decrease 5% for
every 1% increase in interest rates. Generally, securities with
longer maturities have a greater duration and thus are subject to
greater price volatility from changes in interest rates. Adjustable
rate instruments also react to interest rate changes in a similar
manner although generally to a lesser degree (depending, however, on
the characteristics of the reset terms, including the index chosen,
frequency of reset and reset caps or floors, among other things).
14
<PAGE>
. RISK CONSIDERATIONS
-------------------
FOREIGN Investment in foreign securities involves special risks in addition
INVESTING to the usual risks inherent in domestic investments. These include:
political or economic instability; the unpredictability of
international trade patterns; the possibility of foreign
governmental actions such as expropriation, nationalization or
confiscatory taxation; the imposition or modification of currency
exchange or foreign investment controls; the imposition of
withholding taxes on dividends, interest and gains; price
volatility; and fluctuations in currency exchange rates. These risks
are more pronounced in emerging market countries.
As compared to United States companies, foreign issuers generally
disclose less financial and other information publicly and are
subject to less stringent and less uniform accounting, auditing and
financial reporting standards. Foreign countries typically impose
less thorough regulations on brokers, dealers, stock exchanges,
insiders and listed companies than does the United States, and
foreign securities markets may be less liquid and more volatile than
domestic markets. Investment in foreign securities involves higher
costs than investment in U.S. securities, including higher
transaction and custody costs as well as the imposition of
additional taxes by foreign governments. In addition, security
trading practices abroad may offer less protection to investors such
as the Fund. Settlement of transactions in some foreign markets may
be delayed or may be less frequent than in the U.S., which could
affect the liquidity of the Fund's portfolio. Also, it may be more
difficult to obtain and enforce legal judgments against foreign
corporate issuers than against
15
<PAGE>
domestic issuers and it may be impossible to obtain and enforce
judgments against foreign governmental issuers.
Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, and the Fund holds
various foreign currencies from time to time, the value of the net
assets of the Fund as measured in United States dollars will be
affected favorably or unfavorably by changes in exchange rates.
Generally, currency exchange transactions will be conducted on a
spot (i.e., cash) basis
----
at the spot rate prevailing in the currency exchange market. The
cost of currency exchange transactions will generally be the
difference between the bid and offer spot rate of the currency being
purchased or sold.
The forward currency market for the purchase or sale of U.S. dollars
in some countries is not highly developed, and in certain countries,
there may be no such market. If a devaluation of a currency is
generally anticipated, the Fund may not be able to contract to sell
the currency at an exchange rate more advantageous than that which
would prevail after the anticipated amount of devaluation,
particularly as regards forward contracts for local currencies in
view of the relatively small, inactive or even non-existent market
for these contracts. In the event the Fund holds securities
denominated in a currency that suffers a devaluation, the Fund's net
asset value will suffer corresponding reductions. In this regard, in
December 1994, the Mexican government determined to allow the
Mexican peso to trade freely against the U.S. dollar rather than
within a controlled band, which resulted in a significant
devaluation of the Mexican peso against the dollar. Further, in July
1997, the Thai and Philippine governments allowed the baht and peso,
respectively, to trade freely against the U.S. dollar resulting in a
sharp devaluation of both currencies, and in 1998 Russia did the
same, causing a sharp devaluation of the ruble.
16
<PAGE>
. RISK CONSIDERATIONS
-------------------
YEAR The investment advisory and management services provided by the
2000 Adviser and the services provided to shareholders by the Transfer
Agent depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in
which dates were encoded and calculated. That failure could have a
negative impact on the handling of securities trades, pricing and
account services. The Adviser and the Transfer Agent have been
actively working on necessary changes to their own computer systems to
prepare for the year 2000 and expect that their systems will be
adapted for year 2000 compliance before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that
time.
In addition, it is possible that the markets for securities in which
the Fund invests may be negatively affected by computer failures
throughout the financial services industry commencing January 1, 2000.
Improperly functioning trading systems may result in settlement
problems. In addition, corporate and governmental data processing
errors may result in production problems for individual companies and
create overall economic uncertainties. Earnings of individual issuers
will be affected by remediation costs which may be substantial.
Individual firms may further experience disruptions to their business
due to the failure of their counterparts to address approaching year
2000 problems, or could experience further disruption to the economy
at large, which could adversely affect corporate earnings generally
and the value of
17
<PAGE>
their securities. Accordingly, the Fund's portfolio investments may
be negatively affected.
18
<PAGE>
. RISK CONSIDERATIONS
-------------------
EUROPEAN The Fund may invest in European countries that have agreed to enter
ECONOMIC into the European Monetary Union (EMU). EMU is an effort by certain
AND European countries to, among other things, reduce barriers between
MONETARY countries and eliminate fluctuations in their currencies. Among
UNION other things, EMU establishes a single European currency (the euro),
which will be introduced on January 1, 1999 and is expected to
replace the existing national currencies of all initial EMU
participants by July 1, 2002. Upon introduction of the euro, certain
securities (beginning with government and corporate bonds) will be
redonominated in the euro and, thereafter will trade and make
dividend and other payments only in euros.
Like other investment companies and business organizations,
including the companies in which the Fund invests, the Fund could be
adversely affected: (i) if the euro, or EMU as a whole does not take
effect as planned; (ii) if a participating country withdraws from
EMU; or (iii) if the computing, accounting and trading systems used
by the Fund's service providers, or by other business entities with
which the Fund or its service providers do business, are not capable
of recognizing the euro as a distinct currency at the time of, and
following euro conversion.
19
<PAGE>
. MANAGEMENT OF THE FUND
----------------------
INVESTMENT ADVISER
The Fund's investment adviser is TCW Funds Management, Inc. and is
headquartered at 865 South Figueroa Street, Suite 1800, Los Angeles,
California 90017. As of October 31, 1998, the Adviser and its affiliated
companies, which provide a variety of trust, investment management and
investment advisory services, had over $50 billion under management or
committed for management.
PORTFOLIO MANAGERS
Listed below are the individuals who have been primarily responsible for
the day-to-day portfolio management of the Fund, including a summary of
each person's business experience during the past five years:
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS(1)
---------- -------------------------
Mark L. Attanasio Group Managing Director and Chief Investment
Officer - Below Investment Grade Fixed Income, the
Adviser, TCW Asset Management Company and Trust
Company of the West since April 1995. From April
1991 to March 1995 he was Co-Chief Executive
Officer and Chief Portfolio Strategist of Crescent
Capital Corporation, Los Angeles.
Mark D. Senkpiel Senior Vice President, the Adviser, TCW Asset
Management Company and Trust Company of the West
since January 1996. Previously, he was an
Investment Director of Allstate Insurance Company.
Melissa V. Weiler Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of the West
since April 1995. From February 1992 to March 1995
she was a Vice President and Portfolio Manager of
Crescent Capital Corporation, Los Angeles.
20
<PAGE>
ADVISORY AGREEMENT
The Company and the Adviser have entered into an Investment Advisory and
Management Agreement (the "Advisory Agreement"), under the terms of which
the Company has employed the Adviser to manage the investment of its
assets, to place orders for the purchase and sale of its portfolio
securities, to administer its day-to-day operations, and to be responsible
for overall management of the Company's business affairs, subject to
control by the Board of Directors of the Company. The Adviser also pays
certain costs of marketing the Fund, including sales personnel
compensation, from legitimate profits from its investment advisory fees and
other resources available to it. Under the Advisory Agreement, the Fund
pays to the Adviser as compensation for the services rendered, facilities
furnished, and expenses paid by it the following fees:
ANNUAL MANAGEMENT FEE
FUND
----
(AS PERCENT OF NET ASSET VALUE)
-------------------------------
High Yield Bond .75%
The Advisory Agreement provides that the Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the matters to which the agreement relates, except
a loss resulting from willful misfeasance, bad faith, gross negligence on
the part of the Adviser in the performance of its duties or from reckless
disregard by them of its duties under each respective agreement.
. MULTIPLE CLASS STRUCTURE
------------------------
The Fund currently offers two classes of shares, Institutional Class shares
and Class A shares. Shares of each class of the Fund represents an equal
pro rata interest in that Fund and generally gives you the same voting,
dividend, liquidation, and other rights. The Institutional Class shares are
offered at the current net asset value. The Class A shares are also offered
at the current net asset value, but will be subject to a distribution or
21
<PAGE>
service fee imposed under a distribution plan ("Distribution Plan") adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended. Pursuant to the Distribution Plan, the Fund compensates its
distributor at a rate equal to 0.25% of the average daily net assets of the
Fund attributable to its Class A shares for distribution and related
services are paid out of the Fund's Class A shares for distribution and
related services. Because these fees are paid out of the Fund's Class A
assets on an on-going basis, over time, these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges.
22
<PAGE>
YOUR INVESTMENT
. ACCOUNT POLICIES AND SERVICES
-----------------------------
BUYING SHARES
You pay no sales charges to invest in the Fund. Your price for Fund shares
is the Fund's net asset value per share (NAV) which is generally calculated
as of the close of trading on the New York Stock Exchange (usually 4:00
p.m. Eastern time) every day the exchange is open. Your order will be
priced at the next NAV calculated after your order is accepted by the Fund.
Orders received by the Fund's Transfer Agent from dealers, brokers or other
service providers after the NAV is determined that day will receive that
NAV if the orders were received by the dealers, brokers or service
providers from their customers prior to such determination and were
transmitted to and received by the Transfer Agent prior to 8:00 a.m.
Eastern time on the next day. The Fund's investments are valued based on
market value, or where market quotations are not readily available, based
on fair value as determined in good faith by the Fund pursuant to
procedures established by the Fund's Board.
<TABLE>
<CAPTION>
----------------------------------------------------------
Minimums
Initial Additional
----------------------------------------------------------
<S> <C> <C>
High Yield Bond
Fund $2,000 $250
$
TCW Galileo Funds, Inc. may waive the minimum investment.
All investments must be in U.S. dollars. Third-party
checks, except those payable to an existing shareholder,
will normally not be accepted. If your check or wire does
not clear, you will be responsible for any loss the Fund
incurs.
</TABLE>
23
<PAGE>
SELLING SHARES
You may sell shares at any time. Your shares will be sold at the next NAV
calculated after your order is accepted by the Fund's Transfer Agent. Any
certificates representing Fund shares being sold must be returned with your
redemption request. Your order will be processed promptly and you will
generally receive the proceeds within a week.
Before selling recently purchased shares, please note that if the Fund has
not yet collected payment for the shares you are selling, it may delay
sending the proceeds for up to fifteen business days.
WRITTEN SELL ORDER
Some circumstances require written sell orders, along with signature
guarantees. These include:
. amounts of $100,000 or more
. amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days
. requests to send the proceeds to a payee or address different than
what is on our records
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from
most banks or securities dealers but not from a notary public. Please call
us to ensure that your signature guarantee will be processed correctly.
CHECK WRITING PRIVILEGE
You may request checks which may be drawn on your Money Market Fund
account. These checks may be drawn in amounts of $1,000 or more, may be
made payable to the order of any person and may be cashed or deposited. You
can set up this service with your New Account Form or by calling 1-800-386-
3829.
EXCHANGE PRIVILEGE
You can exchange from one Class A Galileo Fund into another. You can
request your exchange in writing or by phone. Be sure to read the current
prospectus for any Fund into which you are exchanging. Any new
24
<PAGE>
account established through an exchange will have the same privileges as
your original account (as long as they are available).
THIRD PARTY TRANSACTIONS
If purchases and redemptions of Fund shares are arranged and settlement is
made at an investor's election through a registered broker-dealer, other
than the Fund's distributor, that broker-dealer may, at its discretion,
charge a fee for that service.
ACCOUNT STATEMENTS
Every investor automatically receives regular account statements. You will
also be sent a yearly statement detailing the tax characteristics of any
dividends and distributions you have received.
GENERAL POLICIES
If your account falls below $1,000 as a result of redemptions and or
exchanges for six months or more, the Fund may close your account and send
you the proceeds upon 60 days' written notice.
Unless you decline telephone privileges on your New Account Form, you may
be responsible for any fraudulent telephone order as long as the Transfer
Agent takes reasonable measures to verify the order.
The Fund restricts excessive trading (usually defined as more than four
exchanges out of the Fund within a calendar year). You are limited to one
exchange of shares in the Fund during any 15-day period except investors in
401(k) and other group retirement accounts and asset allocation accounts
managed by the Adviser or an affiliate. The Fund reserves the right to:
. refuse any purchase or exchange request that could adversely affect the
Fund or its operations, including those from any individual or group who,
in the Fund's view, are likely to engage in excessive trading
. change or discontinue its exchange privilege, or temporarily suspend this
privilege during unusual market conditions delay sending out redemption
proceeds for up to seven days (generally
LARGE REDEMPTION AMOUNTS
- ------------------------
The Fund also reserves the right to make a "redemption in kind" - payment in
portfolio securities rather than cash - if the amount you are redeeming in any
90-day period is large enough to affect Fund operations (for example, if it
equals more than $250,000 or represents more than 1% of the Fund's assets).
25
<PAGE>
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions)
26
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- --------------------------------------------- --------------------------------------------------
<S> <C>
In Writing
Complete the New Account Form. Mail your New (Same, except that you should include a note
Account Form and a check to: specifying the Fund name, your account number, and
Regular Mail the name(s) your account is registered in.)
TCW Galileo High Yield Bond Fund
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
TCW Galileo High Yield Bond Fund
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- --------------------------------------------------------------------------------------------------------
By Telephone
WIRE Have your bank send your investment to: (Same)
United Missouri Bank, n.a.
ABA No. 101000695
DST Systems, Inc./AC 9870371553
FBO TCW Galileo High Yield Bond Fund
(Name on the Fund Account) _________
- --------------------------------------------------------------------------------------------------------
Via Exchange
Call the Transfer Agent at (800)248-4486. The new
account will have the same registration as the
account from which you are exchanging.
</TABLE>
If you need help completing the New Account Form, please call the Transfer Agent
at (800) 248-4486.
27
<PAGE>
TO SELL OR EXCHANGE SHARES
By Mail
Write a letter of instruction that includes:
. your name(s) and signature(s) as they appear on
the account form
. your account number
. the Fund name
. the dollar amount you want to sell or exchange
how and where to send the proceeds
-------------------------------------------------------
Obtain a signature guarantee or other documentation,
if required (see "Account Policies and Services -
Selling Shares").
Mail your letter of instruction to:
Regular Mail
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- ---------------------------------------------------------
By Telephone
Be sure the Fund has your bank account information on
file. Call the Transfer Agent at (800) 248-4486 to
request your transaction. Proceeds will be wired to
your bank.
Telephone redemption requests must be for a minimum
of $1,000.
-------------------------------------------------------
Systematic Withdrawal Plan Call us to request a form
to add the plan. Complete the form, specifying the
amount and frequency of withdrawals you would like.
Be sure to maintain an account balance of $2,000 or
more. Systematic Withdrawal plans are subject to a
minimum annual withdrawal of $500.
- --------------------------------------------------------
To reach the Transfer Agent at DST
System, Inc., call toll free in
the U.S.
1-800-248-4486
28
<PAGE>
. DISTRIBUTIONS AND TAXES
-----------------------
. The amount of dividends of net investment income and distributions of net
realized long and short-term capital gains payable to shareholders will be
determined separately for the Fund. Dividends from the net investment
income of the Fund will be declared and paid monthly. The Fund will
distribute any net realized long or short-term capital gains at least
annually. Your distributions will be reinvested in the fund unless you
instruct the fund otherwise. There are no fees or sales charges on
reinvestments.
. In any fiscal year in which the Fund qualifies as a regulated investment
company and distributes to shareholders all of their net investment income
and net capital gains, the Fund is relieved of federal income tax.
. Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash unless you are exempt from taxation or
entitled to tax deferral. Capital gains distributions may be taxable at
different rates depending on the length of time the Fund has held the
assets sold. Early each year, you will be notified as to the amount and
federal tax status of all distributions paid during the prior year.
Distributions may also be subject to state or local taxes. The tax
treatment of redemptions from a retirement plan account may differ from
redemptions from an ordinary shareholder account. If you redeem shares of
the Fund or exchange them for shares of another fund, any gain on the
transaction may be subject to tax. You must provide the Fund with a correct
taxpayer identification number (generally your Social Security Number) and
certify that you are not subject to backup withholding. If you fail to do
so, the IRS can require the Fund to withhold 31% of your taxable
distributions and redemptions. Federal law also requires the Fund to
withhold 30% or the applicable tax treaty rate from dividends paid to
nonresident alien, non-U.S. partnership and non-U.S. corporation
shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment
in the Fund. Please see the Statement of Additional Information and your
tax adviser for further information.
29
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total return"
shows how much your investment in the Institutional Class shares of the
Fund would have increased (or decreased) during each period, assuming you
had reinvested all dividends and distributions (Class A shares of the Fund
commenced operations on March 1, 1999). These figures have been audited by
Deloitte & Touche LLP, whose report, along with Company's financial
statements, are included in the annual report, which is available upon
request.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TCW GALILEO HIGH YIELD BOND FUND
YEAR ENDED OCTOBER 31 TEN MONTHS
ENDED
1998 1997 1996 1995 10/31/1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 9.77 $ 9.74 $ 9.43 $ 10.12
-------- -------- ------- ---------
Investment operations:
Investment income - net 0.91 0.89 0.92 0.73
Net realized and unrealized gain 0.34 0.03 0.39 (0.77)
(loss) on investments -------- -------- ------- ---------
Total from investment operations 1.25 0.92 1.31 (0.04)
-------- ------- ---------
Distributions:
Dividends from investment (0.91) (0.89) (1.00) (0.65)
income - net
Dividends from net realized gains -- -- -- --
on investments -------- -------- ------- ---------
Distributions in Excess of net Realized -- -- -- --
Gains -------- -------- ------- ---------
Total Distributions (0.91) (0.89) (1.00) (0.65)
Net asset value, end of period $ 10.11 $ 9.77 $ 9.74 $ 9.43
======== ======== ======= =========
Total return (%) 13.26% 9.92% 14.65% (0.34)%1
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .83% .90% .87%3 0.79%2,3
Ratio of net investment income to average net 9.10% 9.21% 9.60% 9.18%2
assets (%)
Portfolio turnover rate (%) 109.45% 82.56% 36.32% 34.01%1
Net assets, end of period ($ x 1,000) $208,761 $183,815 $92,652 $ 90,577
</TABLE>
/1/ For the ten months ended October 31, 1994 and not indicative for a full
year's operating results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 0.79% of net assets through
December 31, 1994. Had such action not been taken, for the ten months ended
October 31, 1994 total annualized operating expenses would have been 0.91%
of average net assets, and for the fiscal year ended October 31, 1995,
total operating expenses would have been 0.88% of average net assets.
30
<PAGE>
FOR MORE INFORMATION
TO OBTAIN INFORMATION:
- ----------------------
BY TELEPHONE
Call
----------------
BY MAIL, Write to:
TCW Galieo Funds, Inc.
Investior Relations Department
BY E-MAIL
Send your request to
ON THE INTERNET
Text-only versions of Fund documents can be viewed online or download from:
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SECs Public Reference Section, Washington, DC 20549-6009.
__________________________
__________________________
__________________________
SEC file number: 811-____
More information on this Fund is available free upon request, including the
following:
ANNUAL/SEMIANNUAL REPORT
Describes the Fund's performance, lists portfolio holdings and contains a letter
from the Fund's manager discussing recent market conditions, economic trends and
Fund strategies.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Fund and its policies. A current SAI is on file
with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
31
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class A shares of one of the separate
investment funds offered by TCW Galileo Funds, Inc., each of which has different
investment objectives and policies. Please read this document carefully, and
keep it for future reference.
TCW GALILEO LARGE CAP GROWTH FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
March 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES.......................... 3
PRINCIPAL RISKS......................................................... 4
PERFORMANCE SUMMARY..................................................... 6
FUND EXPENSES AND EXPENSE EXAMPLE....................................... 8
INVESTMENT OBJECTIVES/APPROACH.......................................... 9
MAIN RISKS.............................................................. 10
RISK CONSIDERATIONS..................................................... 11-19
MANAGEMENT OF THE FUND.................................................. 20
MULTIPLE CLASS STRUCTURE................................................ 21
ACCOUNT POLICIES AND SERVICES........................................... 22
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT................................. 25
TO SELL OR EXCHANGE SHARES.............................................. 26
DISTRIBUTIONS AND TAXES................................................. 27
FINANCIAL HIGHLIGHTS.................................................... 28
FOR MORE INFORMATION.................................................... 29
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
The Fund is affected by changes in the economy, or in securities and other
markets. There is also the possibility that investment decisions the Adviser
makes will not accomplish what they were designed to achieve or that companies
in which the Fund invests will have disappointing performance or not pay their
debts.
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC. INVESTMENT OBJECTIVES PRINCIPAL INVESTMENT STRATEGIES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCW Galileo Large Cap Growth Long-term capital appreciation Invests in equity securities of large capitalization
Fund U.S. companies with above average earnings prospects.
</TABLE>
Under adverse market conditions, the Fund could invest some or all of its assets
in money market securities. Although the Fund would do this only in seeking to
avoid losses, it could have the effect of reducing the benefit from any upswing
in the market.
3
<PAGE>
PRINCIPAL RISKS
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you and the more you can lose. Since shares of the
Fund represent an investment of securities with fluctuating market prices, the
value of Fund shares will vary as the Fund's portfolio securities increase or
decrease. Therefore, the value of an investment in the Fund could go down as
well as up. All investments are subject to:
. ASSET CLASS RISK
There is the possibility that the returns from the types of securities in
which the Fund invests will underperform returns from the various general
securities markets or different asset classes. Different types of
securities tend to go through cycles of outperformance and underperformance
in comparison to the general securities markets.
. SECURITIES SELECTION RISK
There is the possibility that the specific securities held in the Fund's
portfolio will underperform other funds in the same asset class or
benchmarks that are representative of the general performance of the asset
class because of the portfolio manager's choice of securities.
. PRICE VOLATILITY
There is the possibility that the value of the Fund's portfolio will change
as the prices of its investments go up or down. Although stocks offer the
potential for greater long-term growth than most fixed income securities,
stocks generally have higher short-term volatility.
The Fund may also be subject to the following risk:
. FOREIGN INVESTING RISK
There is the likelihood that foreign investments may be riskier than U.S.
investments because of a lack of political stability, foreign controls on
investment and currency exchange rates, withholding taxes, and lack of
adequate company information. The Fund is subject to foreign investing risk
because it may invest a portion of its assets in foreign company
securities. In addition, because foreign securities generally are
denominated and pay dividends or interest in foreign currencies, and the
Fund holds various foreign currencies, the value of the net assets of the
Fund as measured in United States dollars will be affected favorably or
unfavorably by changes in exchange rates.
4
<PAGE>
PRINCIPAL RISKS
Because the Fund is non-diversified for 1940 Act purposes, it may invest more
than 5% of its total assets in the securities of any one issuer. Consequently,
its exposure to credit and market risks associated with that issuer is
increased.
Your investment is not a bank deposit, and it is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
5
<PAGE>
PERFORMANCE SUMMARY
The two tables below show the Fund's annual returns and its long-term
performance with respect to its Institutional Class shares (Class A shares of
the Fund commenced operations on March 1, 1999). The first table shows you how
the Fund's performance has varied from year to year. The second compares the
Fund's performance over time to that of a broad-based securities index. Both
tables assume reinvestment of dividends and distributions. The performance
information includes the performance of the predecessor limited partnership. As
with all mutual funds, past performance is not a prediction of future results.
Year by year total return (%)
as of December 31 each year*
<TABLE>
<S> <C> <C>
8.70% __%
97 98
---------------------------------------------------------
</TABLE>
The Fund's total return for the period October 31, 1998 to December
31, 1998 is: __%
Best and worst quarterly performance during this period
---------------------------------------------------------------
FUND PERFORMANCE
. Large Cap Growth Fund
Quarter ending March 31, 1998 14.54% (Best)
Quarter ending September 30, 1998 -3.81% (Worst)
---------------------------------------------------------------
6
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF SINCE
DECEMBER 31 1 YEAR INCEPTION
- ---------------------------------------------------------------------
<S> <C> <C>
. Large Cap Growth Fund ____% 8.70%
- ---------------------------------------------------------------------
S&P/BARRA Growth Index ____% 9.87%
- ---------------------------------------------------------------------
</TABLE>
7
<PAGE>
FUND EXPENSES AND EXPENSE EXAMPLE
As an investor, you pay certain fees and expenses in connection with the Fund,
which are described in the table below. Annual fund operating expenses are paid
out of Fund assets, so their effect is included in the share price. The Class A
shares of the Fund have no sales charge (load), but are subject to Rule 12b-1
distribution fees.
------------------------------------------------------------------
FEE TABLE
Large Cap Growth
Shareholder transaction fees
1) Redemption Fees None
2) Exchange Fees None
3) Contingent Deferred Sales Load None
4) Sales Load on Reinvested
Dividends None
5) Sales Load on Purchases None
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.55%
Distribution (12b-1) Fees 0.25%
Other Expenses __%
Total Annual Fund Operating
Expenses __%
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Large Cap Growth
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether or not you sold your shares at the end of a
period. Because actual return and expenses will be different, the example is for
comparison purposes only.
8
<PAGE>
TCW GALILEO LARGE CAP GROWTH FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal, it
invests primarily in equity securities of large capitalization U.S.
companies with above-average earnings prospects. It will invest at least
65% of its total assets in companies with a market capitalization of
greater than $3 billion at the time of purchase.
In managing the Fund's investments, the Adviser seeks to invest in
companies that will have reported earnings that exceed analysts'
expectations (i.e., potential for earnings surprises). The Adviser
----
utilizes "bottom-up" fundamental research to identify these companies. The
Adviser performs fundamental research by using techniques such as:
. making company visits
. attending industry conferences
. maintaining communication with company management
The Adviser then uses the information that it has obtained from its
fundamental research to analyze the company's long-term growth potential,
future earnings and cash flow.
The Adviser uses quantitative and qualitative screening criteria to
determine which companies to subject to its fundamental analysis.
WENDY S. BARKER AND DOUGLAS S. FOREMAN ARE THE FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
Large capitalization companies are established companies that are
considered known quantities. Large capitalization companies often have the
resources to weather economic shifts, although they can be slower to
innovate than small companies.
Growth companies are companies exhibiting faster than average gains in
earnings and which are expected to continue to show high level of growth
gain.
9
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risk affecting this Fund is "price volatility." PRICE
VOLATILITY refers to the possibility that the value of the Fund's
portfolio will change as the prices of its investments go up or
down. This Fund may be less susceptible to price volatility risk
because it invests in the securities of large companies. This is
especially true during periods of economic uncertainty or during
economic downturns.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
10
<PAGE>
. RISK CONSIDERATIONS
-------------------
Please consider the following risks before investing in the Fund.
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's
performance or financial position can depress the value of the
issuer's securities. The liquidity in a market for a particular
security will affect its value and may be affected by factors relating
to the issuer, as well as the depth of the market for that security.
Other market risks that can affect value include a market's current
attitudes about types of securities, market reactions to political or
economic events, and tax and regulatory effects (including lack of
adequate regulations for a market or particular type of instrument).
Market restrictions on trading volume can also affect price and
liquidity.
Prices of many securities tend to be more volatile in the short-term.
Therefore an investor who trades frequently or redeems in the short-
term is more likely to incur loss than an investor who holds
investments for the longer term. Lack of diversification in a
portfolio can also increase volatility.
GENERAL INVESTMENT RISK
-----------------------
Since shares of the Fund represent an investment in securities with
fluctuating market prices, the value of Fund shares will vary as the
value of the Fund's portfolio securities increases or decreases.
Therefore, the value of an investment in the Fund could go down as
well up.
11
<PAGE>
. RISK CONSIDERATIONS
-------------------
FOREIGN Investment in foreign securities involves special risks in addition
INVESTING to the usual risks inherent in domestic investments. These include:
political or economic instability; the unpredictability of
international trade patterns; the possibility of foreign governmental
actions such as expropriation, nationalization or confiscatory
taxation; the imposition or modification of foreign currency or
foreign investment controls; the imposition of withholding taxes on
dividends, interest and gains; price volatility; and fluctuations in
currency exchange rates.
As compared to United States companies, foreign issuers generally
disclose less financial and other information publicly and are subject
to less stringent and less uniform accounting, auditing and financial
reporting standards. Foreign countries typically impose less thorough
regulations on brokers, dealers, stock exchanges, insiders and listed
companies than does the United States, and foreign securities markets
may be less liquid and more volatile than domestic markets. Investment
in foreign securities involves higher costs than investment in United
States securities, including higher transaction and custody costs as
well as the imposition of additional taxes by foreign governments. In
addition, security trading practices abroad may offer less protection
to investors such as the Fund. Settlement of transactions in some
foreign markets may be delayed or may be less frequent than in the
United States, which could affect the liquidity of the Fund's
portfolio. Also, it may be more
12
<PAGE>
difficult to obtain and enforce legal judgments against foreign
corporate issuers than against domestic issuers and it may be
impossible to obtain and enforce judgments against foreign
governmental issuers.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Fund holds various foreign
currencies from time to time, the value of the net assets of the Fund
as measured in United States dollars will be affected favorably or
unfavorably by changes in exchange rates. Generally, currency
exchange transactions will be conducted on a spot (i.e., cash) basis
at the spot rate prevailing in the currency exchange market. The cost
of currency exchange transactions will generally be the difference
between the bid and offer spot rate of the currency being purchased or
sold. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Fund is authorized to enter into
certain foreign currency futures and forward contracts.
The forward currency market for the purchase or sale of United States
dollars in most countries is not highly developed, and in certain
countries, there may be no such market. If a devaluation of a
currency is generally anticipated, the Fund may not be able to
contract to sell the currency at an exchange rate more advantageous
than that which would prevail after the anticipated amount of
devaluation. In the event the Fund holds securities denominated in a
currency that suffers a devaluation, the Fund's net asset values will
suffer corresponding reductions. In this regard, in December 1994, the
Mexican government determined to allow the Mexican peso to trade
freely against the United States dollar rather than within a
controlled band, which action resulted in a significant devaluation of
the Mexican peso against the dollar. Further, in July 1997, the Thai
and Philippine governments allowed the baht and peso, respectively, to
trade freely against the United States dollar resulting in a sharp
devaluation of both currencies, and in 1998 Russia did the same,
causing a sharp devaluation of the ruble.
13
<PAGE>
. RISK CONSIDERATIONS
-------------------
FIXED Fixed income securities are subject to various risks. The two
INCOME primary (but not exclusive) risks affecting fixed income
SECURITIES instruments are "credit risk" and "interest rate risk." These risks
can affect a security's price volatility to varying degrees,
depending upon the nature of the instrument. In addition, the depth
and liquidity of the market for an individual or class of fixed
income security can also affect its price and, hence, the market
value of the Fund.
"CREDIT RISK" refers to the likelihood that an issuer will default
in the payment of principal and/or interest on an instrument.
Financial strength and solvency of an issuer are the primary factors
influencing credit risk. In addition, lack of or inadequacy of
collateral or credit enhancements for a fixed income security may
affect its credit risk. Credit risk of a security may change over
its life, and securities which are rated by rating agencies are
often reviewed and may be subject to downgrade.
The Fund may invest in convertible securities rated below investment
grade. Generally, lower-rated debt securities provide a higher yield
than higher rated debt securities of similar maturity but are
subject to greater credit risk than higher rated securities of
similar maturity. Such securities are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet
principal and interest payments. Because investment in lower quality
securities involves greater investment risk, achievement of the
Fund's investment objective
14
<PAGE>
will be more dependent on the Adviser's analysis than would be the
case if the Fund were investing in higher quality bonds. In addition,
lower quality securities may be more susceptible to real or perceived
adverse economic and individual corporate developments than would
investment grade bonds. Moreover, the secondary trading market for
lower quality securities may be less liquid than the market for
investment grade bonds. This potential lack of liquidity may make it
more difficult for the Adviser to value accurately certain portfolio
securities.
"INTEREST RATE RISK" refers to the risks associated with market
changes in interest rates. Interest rate changes may affect the value
of a fixed income security directly (especially in the case of fixed
rate securities) and indirectly (especially in the case of adjustable
rate securities). In general, rises in interest rates will negatively
impact the price of fixed rate securities and falling interest rates
will have a positive effect on price. The degree to which a
security's price will change as a result of changes in interest rates
is measured by its "duration." For example, the price of a bond with
a 5 year duration would be expected under normal market conditions to
decrease 5% for every 1% increase in interest rates. Generally,
securities with longer maturities have a greater duration and thus
are subject to greater price volatility from changes in interest
rates. Adjustable rate instruments also react to interest rate
changes in a similar manner although generally to a lesser degree
(depending, however, on the characteristics of the reset terms,
including the index chosen, frequency of reset and reset caps or
floors, among other things).
15
<PAGE>
. RISK CONSIDERATIONS
-------------------
NON- The Fund is non-diversified for 1940 Act purposes and as such may
DIVERSIFIED invest a larger percentage of its assets in individual issuers than
STATUS a diversified investment company. In this regard, the Fund is not
subject to the general limitation that it not invest more than 5% of
its total assets in the securities of any one issuer. To the extent
the Fund makes investments in excess of 5% of its assets in a
particular issuer, its exposure to credit and market risks
associated with that issuer is increased. However, the Fund's
investments will be limited so as to qualify for the special tax
treatment afforded "regulated investment companies" under the
Internal Revenue Code of 1986, as amended.
16
<PAGE>
. RISK CONSIDERATIONS
-------------------
YEAR The investment advisory and management services provided by the
2000 Adviser and the services provided to shareholders by the Transfer
Agent depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the
year 2000, but revert to 1900 or some other date, due to the manner
in which dates were encoded and calculated. That failure could have
a negative impact on the handling of securities trades, pricing and
account services. The Adviser and the Transfer Agent have been
actively working on necessary changes to their own computer systems
to prepare for the year 2000 and expect that their systems will be
adapted for year 2000 compliance before that date, but there can be
no assurance that they will be successful, or that interaction with
other non-complying computer systems will not impair their services
at that time.
In addition, it is possible that the markets for securities in which
the Fund invests may be negatively affected by computer failures
throughout the financial services industry commencing January 1,
2000. Improperly functioning trading systems may result in
settlement problems. In addition, corporate and governmental data
processing errors may result in production problems for individual
companies and create overall economic uncertainties. Earnings of
individual issuers will be affected by remediation costs which may
be substantial. Individual firms may further experience disruptions
to their business due to the failure of their counterparts to
address year 2000 problems, or could experience further disruption
to the economy at large, which could adversely affect corporate
earnings generally and the
17
<PAGE>
value of their securities. Accordingly, the Fund's portfolio
investments may be negatively affected.
18
<PAGE>
. RISK CONSIDERATIONS
-------------------
EUROPEAN The Fund may invest in European countries that have agreed to enter
ECONOMIC into the European Monetary Union (EMU). EMU is an effort by certain
AND European countries to, among other things, reduce barriers between
MONETARY countries and eliminate fluctuations in their currencies. Among
UNION other things, EMU establishes a single European currency (the euro),
which will be introduced on January 1, 1999 and is expected to
replace the existing national currencies of all initial EMU
participants by July 1, 2002. Upon introduction of the euro, certain
securities (beginning with government and corporate bonds) will be
redonominated in the euro and, thereafter will trade and make
dividend and other payments only in euros. Like other investment
companies and business organizations, including the companies in
which the Fund invests, the Fund could be adversely affected: (i) if
the euro, or EMU as a whole does not take affect as planned; (ii) if
a participating country withdraws from EMU; or (iii) if the
computing, accounting and trading systems used by the Fund's service
providers, or by other business entities with which the Fund or its
service providers do business, are not capable of recognizing the
euro as a distinct currency at the time of, and following euro
conversion.
19
<PAGE>
. MANAGEMENT OF THE FUND
----------------------
INVESTMENT ADVISER
The Fund's investment adviser is TCW Funds Management, Inc. (the
"Adviser") and is headquartered at 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017. As of October 31, 1998, the
Adviser and its affiliated companies, which provide a variety of
trust, investment management and investment advisory services, had
over $50 billion under management or committed for management.
PORTFOLIO MANAGERS
Listed below are the individuals who have been primarily responsible
for the day-to-day portfolio management of the Fund, including a
summary of each person's business experience during the past five
years:
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS(1)
--------- -------------------------
<S> <C>
Wendy S. Barker Senior Vice President, the Adviser, TCW
Asset Management Company and Trust
Company of the West.
Douglas S. Foreman Group Managing Director and Chief
Investment Officer-U.S. Equities, the
Adviser, TCW Asset Management Company and
Trust Company of the West since May 1994.
Previously, he was a portfolio manager
with Putnam Investments.
</TABLE>
ADVISORY AGREEMENT
The Company and the Adviser have entered into an Investment Advisory
and Management Agreement (the "Advisory Agreement"), under the terms
of which the Company has employed the Adviser to manage the investment
of its assets, to place orders for the purchase and sale of its
portfolio securities, to administer its day-to-day operations, and to
be responsible for overall management of the Company's business
affairs, subject to control by the Board of Directors of the Company.
The Adviser also pays certain costs of marketing the Fund, including
sales personnel compensation, from legitimate profits from its
investment
20
<PAGE>
advisory fees and other resources available to it. Under the Advisory
Agreement, the Fund pays to the Adviser as compensation for the
services rendered, facilities furnished, and expenses paid by it the
following fees:
<TABLE>
<CAPTION>
FUND ANNUAL MANAGEMENT FEE
----
(AS PERCENT OF NET ASSET VALUE)
-------------------------------
<S> <C>
Large Cap Growth .55%
</TABLE>
The Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which the agreement
relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Adviser in the performance of
its duties or from reckless disregard by it of its duties under the
respective agreement.
. MULTIPLE CLASS STRUCTURE
------------------------
The Fund currently offers two classes of shares, Institutional Class
shares and Class A shares. Shares of each class of the Fund represent
an equal pro rata interest in the Fund and generally gives you the
same voting, dividend, liquidation, and other rights. The
Institutional Class shares are offered at the current net asset value.
The Class A shares are also offered at the current net asset value,
but will be subject to a distribution or service fee imposed under a
distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. Pursuant to the
Distribution Plan, the Fund compensates the Fund's distributor at a
rate equal to 0.25% of the average daily net assets of the Fund
attributable to its Class A shares for distribution and related
services. Because these fees are paid out of the Fund's Class A
assets on an on-going basis, over time, these fees will increase the
cost of your investment and may cost you more than paying other types
of sales charges.
21
<PAGE>
YOUR INVESTMENT
. ACCOUNT POLICIES AND SERVICES
-----------------------------
BUYING SHARES
You pay no sales charges to invest in the Fund. Your price for Fund
shares is the Fund's net asset value per share (NAV) which is
generally calculated as of the close of trading on the New York Stock
Exchange (usually 4:00 p.m. Eastern time) every day the exchange is
open. Your order will be priced at the next NAV calculated after your
order is accepted by the Fund. Orders received by the Fund's Transfer
Agent from dealers, brokers or other service providers after the net
asset value (NAV) is determined that day will receive that NAV if the
orders were received by the dealers, brokers or service providers from
their customers prior to such determination and were transmitted to
and received by the Transfer Agent prior to 8:00 a.m. Eastern time on
the next day. The Fund's investments are valued based on market
value, or where market quotations are not readily available, based on
fair value as determined in good faith by the Fund pursuant to
procedures established by the Fund's board.
<TABLE>
<CAPTION>
=================================================================
Minimums
Initial Additional
-----------------------------------------------------------------
<S> <C> <C>
Large Cap Growth Fund $2,000 $250
</TABLE>
The TCW Galileo Funds, Inc. may waive the minimum subsequent
investment. All investments must be in United States dollars. Third-
party checks, except those payable to an existing shareholder, will
normally not be accepted. If your check or wire does not clear, you
will be responsible for any loss the Fund incurs.
22
<PAGE>
SELLING SHARES
You may sell shares at any time. Your shares will be sold at the next
NAV calculated after your order is accepted by the Fund's Transfer
Agent. Any certificates representing Fund shares being sold must be
returned with your redemption request. Your order will be processed
promptly, and you will generally receive the proceeds within a week.
Before selling recently purchased shares, please note that if the Fund
has not yet collected payment for the shares you are selling, it may
delay sending the proceeds for up to fifteen business days.
WRITTEN SELL ORDER
Some circumstances require written sell orders, along with signature
guarantees. These include:
. amounts of $100,000 or more
. amounts of $1,000 or more on accounts whose address has been
changed within the last 30 days
. requests to send the proceeds to a payee or address different
than what is on our records
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one
from most banks or securities dealers but not from a notary public.
Please call us to ensure that your signature guarantee will be
processed correctly.
EXCHANGE PRIVILEGE
You can exchange from one Class A Galileo Fund into another. You can
request your exchange in writing or by phone. Be sure to read the
current prospectus for any Fund into which you are exchanging. Any new
account established through an exchange will have the same privileges
as your original account (as long as they are available).
THIRD PARTY TRANSACTIONS
If purchases and redemptions of Fund shares are arranged and
settlement is made at an investor's election through a registered
broker-dealer, other than the Fund's distributor, that broker-dealer
may, at its discretion, charge a fee for that service.
ACCOUNT STATEMENTS
Every Galileo investor automatically receives regular account
statements. You will also be sent a yearly statement detailing the
tax characteristics of any dividends and distributions you have
received.
23
<PAGE>
GENERAL POLICIES
If your account falls below $1,000 as a result of redemptions and or
exchanges for six months or more, the Fund may close your account and
send you the proceeds upon 60 days' written notice.
Unless you decline telephone privileges on your New Account Form, you
may be responsible for any fraudulent telephone order as long as the
Transfer Agent takes reasonable measures to verify the order.
The Fund restricts excessive trading (usually defined as more than
four exchanges out of the Fund within a calendar year). You are
limited to one exchange of shares in the Fund during any 15-day period
except investors in 401(k) and other group retirement accounts and
asset allocation accounts managed by the Adviser or an affiliate. The
Fund reserves the right to:
. refuse any purchase or exchange request that could adversely
affect the Fund or its operations, including those from any
individual or group who, in the Fund's view, are likely to engage
in excessive trading
. change or discontinue its exchange privilege, or temporarily
suspend this privilege during unusual market conditions
. delay sending out redemption proceeds for up to seven days
(generally applies only in cases of very large redemptions,
excessive trading or during unusual market conditions)
LARGE REDEMPTION AMOUNTS
------------------------
The Fund also reserves the right to make a "redemption in kind" --
payment in portfolio securities rather than cash -- if the amount you
are redeeming in any 90-day period is large enough to affect Fund
operations (for example, if it equals more than $250,000 or represents
more than 1% of the Fund's assets).
24
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C>
In Writing
Complete the New Account Form. Mail your
New Account Form and a check to:
Regular Mail
TCW Galileo Large Cap Growth Fund (Same, except that you should include a note
DST Systems, Inc. specifying the Fund name, your account number,
P.O. Box 419951 and the name(s) your account is registered in.)
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
TCW Galileo Large Cap Growth Fund
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- ----------------------------------------------------------------------------------------------------------
By Telephone
WIRE Have your bank send your investment to: (Same)
United Missouri Bank, n.a.
ABA No. 101000695
DST Systems, Inc./AC 9870371553
FBO TCW Galileo Large Cap Growth Fund
(Name on the Fund Account) __________
- ----------------------------------------------------------------------------------------------------------
Via Exchange
Call the Transfer Agent at (800) 248 4486. The new
account will have the same registration as the
account from which you are exchanging.
</TABLE>
If you need help completing the New Account Form, please call the Transfer
Agent at (800) 248-4486.
25
<PAGE>
TO SELL OR EXCHANGE SHARES
<TABLE>
<S> <C>
By Mail To reach the Transfer Agent, DST
Systems, Inc., call toll free in
Write a letter of instruction that includes: the U.S.
. your name(s) and signature(s) as on the account form
. your account number 1-800-248-4486
. the Fund name
. the dollar amount you want to sell or exchange
how and where to send the proceeds
- -------------------------------------------------------
Obtain a signature guarantee or other documentation,
if required (see "Account Policies - Selling
Shares").
Mail your letter of instruction to:
Regular Mail
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- -------------------------------------------------------
By Telephone
Be sure the Fund has your bank account information on
file. Call the Transfer Agent at (800) 248-4486 to
request your transaction. Proceeds will be wired to
your bank.
Telephone redemption requests must be for a minimum
of $1,000.
- -------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN Call us to request a form
to add the plan. Complete the form, specifying the
amount and frequency of withdrawals you would like.
Be sure to maintain an account balance of $2,000 or
more. Systematic Withdrawal plans are subject to a
minimum annual withdrawal of $500.
- -------------------------------------------------------
</TABLE>
26
<PAGE>
. DISTRIBUTIONS AND TAXES
-----------------------
The amount of dividends of net investment income and distributions of
net realized long and short-term capital gains payable to shareholders
will be determined separately for the Fund. Dividends from the net
investment income of the Fund will be declared and paid annually. The
Fund will distribute any net realized long or short-term capital gains
at least annually. Your distributions will be reinvested in the Fund
unless you instruct the Fund otherwise. There are no fees or sales
charges on reinvestments.
In any fiscal year in which the Fund qualifies as a regulated
investment company and distributes to shareholders all of its net
investment income and net capital gains, the Fund is relieved of
Federal income tax.
Generally, all dividends and capital gains are taxable whether they
are reinvested or received in cash - unless you are exempt from
taxation or entitled to tax deferral. Capital gains distributions may
be taxable at different rates depending on the length of time the Fund
has held the assets sold. Early each year, you will be notified as to
the amount and Federal tax status of all distributions paid during the
prior year. Distributions may also be subject to state or local
taxes. The tax treatment of redemptions from a retirement plan
account may differ from redemptions from an ordinary shareholder
account. If you redeem shares of the Fund or exchange them for shares
of another Fund, any gain on the transaction may be subject to tax.
You must provide the Fund with a correct taxpayer identification
number (generally your Social Security Number) and certify that you
are not subject to backup withholding. If you fail to do so, the IRS
can require the Fund to withhold 31% of your taxable distributions and
redemptions. Federal law also requires the Fund to withhold 30% or
the applicable tax treaty rate from dividends paid to nonresident
alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
This is a brief summary of some of the tax laws that affect your
investment in the Fund. Please see the Statement of Additional
Information and your tax adviser for further information.
27
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions
(Class A shares commenced operations on March 1, 1999). These figures
have been audited by Deloitte & Touche LLP, whose report, along with
Company's financial statements, are included in the annual report,
which is available upon request.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
TCW GALILEO LARGE CAP GROWTH FUND
FIVE MONTHS
ENDED OCTOBER 31, 1998
------------------------------------------------------------------------
<S> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period
Investment operations:
Investment income - net
Net realized and unrealized gain
(loss) on investments
Total from investment operations
Distributions:
Dividends from investment
income - net
Dividends from net realized gains
on investments
Total Distributions:
Net asset value, end of period
Total return (%)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%)
Ratio of net investment income to average
net assets (%)
Portfolio turnover rate (%)
Net assets, end of period ($ x 1,000)
</TABLE>
28
<PAGE>
FOR MORE INFORMATION
To obtain information:
- ----------------------
By telephone:
Call
--------------
By mail Write to:
865 South Figueroa Street
Suite 1800
Los Angeles, California 90017
By E-mail Send your request to:
On the Internet Text-only versions of Fund documents can be viewed online or
downloaded from:
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SECs Public Reference Section, Washington DC 20549-6009.
__________________________
__________________________
__________________________
SEC file number: 811-____
More information on the Fund is available free upon request, including the
following:
ANNUAL/SEMIANNUAL REPORT
Describes the Fund's performance, lists portfolio holdings and contains a letter
from the Fund's portfolio manager discussing recent market conditions, economic
trends and Fund strategies.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Fund and its policies. A current SAI is on file
with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
29
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class A shares of one of the separate
investment funds offered by TCW Galileo Funds, Inc., each of which has different
investment objectives and policies. Please read this document carefully, and
keep it for future reference.
TCW GALILEO LARGE CAP VALUE FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
March 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES.. 3
PRINCIPAL RISKS................................. 4
PERFORMANCE SUMMARY............................. 6
FUND EXPENSES AND EXPENSE EXAMPLE............... 8
INVESTMENT OBJECTIVES/APPROACH.................. 9
MAIN RISKS...................................... 10
RISK CONSIDERATIONS............................. 11-18
MANAGEMENT OF THE FUND.......................... 19
MULTIPLE CLASS STRUCTURE........................ 20
ACCOUNT POLICIES AND SERVICES................... 21
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT......... 24
TO SELL OR EXCHANGE SHARES...................... 25
DISTRIBUTIONS AND TAXES......................... 26
FINANCIAL HIGHLIGHTS............................ 27
FOR MORE INFORMATION............................ 28
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
- ----------------------------------------------
The Fund is affected by changes in the economy, or in securities and other
markets. There is also the possibility that investment decisions the Adviser
makes will not accomplish what they were designed to achieve or that companies
in which the Fund invests will have disappointing performance or not pay their
debts.
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC. INVESTMENT OBJECTIVES PRINCIPAL INVESTMENT STRATEGIES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCW Galileo Large Cap Value Fund Long-term capital appreciation Invests in equity securities of companies with a
market capitalization at the time of purchase of
greater than $3 billion.
</TABLE>
Under adverse market conditions, the Fund could invest some or all of its assets
in money market securities. Although the Fund would do this only in seeking to
avoid losses, it could have the effect of reducing the benefit from any upswing
in the market.
3
<PAGE>
PRINCIPAL RISKS
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you and the more you can lose. Since shares of the
Fund represent an investment of securities with fluctuating market prices, the
value of Fund shares will vary as the Fund's portfolio securities increase or
decrease. Therefore, the value of an investment in the Fund could go down as
well as up. All investments are subject to:
. ASSET CLASS RISK
There is the possibility that the returns from the types of securities in
which the Fund invests will underperform returns from the various general
securities markets or different asset classes. Different types of securities
tend to go through cycles of outperformance and underperformance in
comparison to the general securities markets.
. SECURITIES SELECTION RISK
There is the possibility that the specific securities held in the Fund's
portfolio will underperform other funds in the same asset class or benchmarks
that are representative of the general performance of the asset class because
of the portfolio manager's choice of securities.
. PRICE VOLATILITY
There is the possibility that the value of the Fund's portfolio will change
as the prices of its investments go up or down. Although stocks offer the
potential for greater long-term growth than most fixed income securities,
stocks generally have higher short-term volatility.
The Fund may also be subject to the following risk:
. FOREIGN INVESTING RISK
There is the likelihood that foreign investments may be riskier than U.S.
investments because of a lack of political stability, foreign controls on
investment and currency exchange rates, fluctuations in currency exchange
rates, withholding taxes, and lack of adequate company information. The Fund
is subject to foreign investing risk because it may invest in securities
issued by foreign governments or companies. In addition, because foreign
securities generally are denominated and pay dividends or interest in foreign
currencies, and the Fund holds various foreign currencies, the value of the
net assets of the Fund as measured in United States dollars will be affected
favorable or unfavorable by changes in exchange rates.
4
<PAGE>
PRINCIPAL RISKS
Because the Fund is non-diversified for 1940 Act purposes, it may invest more
than 5% of its total assets in the securities of any one issuer. Consequently,
its exposure to credit and market risks associated with that issuer is
increased.
Your investment is not a bank deposit, and it is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
5
<PAGE>
PERFORMANCE SUMMARY
The two tables below show the Fund's annual return and its long-term performance
with respect to its Institutional Class shares (Class A shares of the Fund
commenced operations on March 1, 1999). Both tables assume reinvestment of
dividends and distributions. The first table shows you the Fund's performance
for the year ended December 31, 1998. The second table gives you some indication
of the risks of an investment in the Fund by comparing the Fund's performance
with a broad-based securities index. The performance information includes
performance of the predecessor limited partnership.
Year by year total return (%)
as of December 31 each year*
__%
98
* The Fund's total return for the period October 31, 1998 to December 31, 1998
is: __%.
Best and worst quarterly performance during this period
<TABLE>
<CAPTION>
FUND PERFORMANCE
- ------------------------------------------------------------------------------
<S> <C>
. Large Cap Value Fund
Quarter ending March 31, 1998 10.67% (Best)
Quarter ending September 30, 1998 -10.46% (Worst)
- ------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF SINCE
DECEMBER 31 1 YEAR INCEPTION
- ------------------------------------------------------------------------------
<S> <C> <C>
. Large Cap Value Fund ____% __%
- ------------------------------------------------------------------------------
S&P/BARRA Value Index ____% __%
- ------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
FUND EXPENSES AND EXPENSE EXAMPLE
As an investor, you pay certain fees and expenses in connection with the Fund,
which are described in the table below. Annual fund operating expenses are paid
out of Fund assets, so their effect is included in the share price. The Class A
shares of the Fund have no sales charge (load), but are subject to Rule 12b-1
distribution fees.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FEE TABLE
Large Cap Value
<S> <C>
Shareholder transaction fees
1) Redemption Fees None
2) Exchange Fees None
3) Contingent Deferred Sales Load None
4) Sales Load on Reinvested Dividends None
5) Sales Load on Purchases None
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.55%
Distribution (12b-1) Fees 0.25%
Other Expenses -%
Total Annual Fund Operating Expenses -%
</TABLE>
<TABLE>
<CAPTION>
===============================================================================================================
EXPENSE EXAMPLE
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large Cap Value
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether or not you sold your shares at the end of a
period. Because actual return and expenses will be different, the example is for
comparison purposes only.
8
<PAGE>
TCW GALILEO LARGE CAP VALUE FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal,
the Fund invests primarily in equity securities of large
capitalization companies. The securities include common and preferred
stock and convertible securities. The Fund will invest at least 65% of
its total assets in publicly traded equity securities of companies
with a market capitalization of greater than $3 billion at the time of
purchase. The Fund will invest mostly in "value companies."
In managing the Fund's investments, the Adviser seeks to invest in
attractively valued equity securities of companies where the return on
invested capital is improving. The Adviser utilizes bottom-up
fundamental research to identify these companies. The Adviser performs
fundamental research by
. making company visits
. financial screening to identify companies
. maintaining a disciplined approach to stock selection and portfolio
construction
The Adviser will use both quantitative and qualitative screen-ing
criteria to supplement the scope of fundamental research.
THOMAS K. MCKISSICK IS THE FUND'S PORTFOLIO MANAGER.
CONCEPTS TO UNDERSTAND
----------------------
Large capitalization companies are established companies that are
considered known quantites. Large capitalization companies often have the
resources to weather economic shifts, though they can be slower to innovate
than small companies.
Value companies are companies that appear underpriced according to certain
financial measurements of their intrinsic worth or business prospects (such
as price-to-earnings or price-to-book ratios). Because a stock can remain
undervalued for years, value investors often look for factors that could
trigger a rise in price.
9
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value, sometimes
rapidly and unpredictably. Although stocks offer the potential for greater
long-term growth than most fixed income securities, stocks generally have
higher short-term volatility.
The primary risk affecting this Fund is "price volatility." PRICE VOLATILITY
refers to the possibility that the value of the Fund's portfolio will change
as the prices of its investments go up or down. This Fund may be less
susceptible to price volatility than funds that invest in the securities of
small companies. This is especially true during periods of economic
uncertainty or during economic downturns.
The Fund may invest some assets in options. This practice is used primarily
to hedge the Fund's portfolio but it may be used to increase returns;
however, this practice sometimes may reduce returns or increase volatility.
The Fund seeks to earn additional income by making loans of its portfolio
securities to brokers, dealers and other financial institutions. The loans
will be secured at all times by cash and other high grade debt obligations.
As with any extension of credit, there are risks of delay in recovery and in
some cases even loss of rights in the collateral should the borrower fail
financially.
10
<PAGE>
. RISK CONSIDERATIONS
-------------------
Please consider the following risks before investing in the Fund.
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's
performance or financial position can depress the value of the
issuer's securities. The liquidity in a market for a particular
security will affect its value and may be affected by factors relating
to the issuer, as well as the depth of the market for that security.
Other market risks that can affect value include a market's current
attitudes about types of securities, market reactions to political or
economic events, and tax and regulatory effects (including lack of
adequate regulations for a market or particular type of instrument).
Market restrictions on trading volume can also affect price and
liquidity.
Prices of many securities tend to be more volatile in the short-term.
Therefore an investor who trades frequently or redeems in the short-
term is more likely to incur loss than an investor who holds
investments for the longer term. Lack of diversification in a
portfolio can also increase volatility.
GENERAL INVESTMENT RISK
-----------------------
Since shares of the Fund represent an investment in securities with
fluctuating market prices, the value of Fund shares will vary as the value
of the Fund's portfolio securities increases or decreases. Therefore, the
value of an investment in the Fund could go down as well as up.
11
<PAGE>
. RISK CONSIDERATIONS
-------------------
FOREIGN Investment in foreign securities involves special risks in addition to
INVESTING the usual risks inherent in domestic investments. These include:
political or economic instability; the unpredictability of
international trade patterns; the possibility of foreign governmental
actions such as expropriation, nationalization or confiscatory
taxation; the imposition or modification of foreign currency or
foreign investment controls; the imposition of withholding taxes on
dividends, interest and gains; price volatility; and fluctuations in
currency exchange rates.
As compared to United States companies, foreign issuers generally
disclose less financial and other information publicly and are subject
to less stringent and less uniform accounting, auditing and financial
reporting standards. Foreign countries typically impose less thorough
regulations on brokers, dealers, stock exchanges, insiders and listed
companies than does the United States, and foreign securities markets
may be less liquid and more volatile than domestic markets.
Investment in foreign securities involves higher costs than investment
in United States securities, including higher transaction and custody
costs as well as the imposition of additional taxes by foreign
governments. In addition, security trading practices abroad may offer
less protection to investors such as the Fund. Settlement of
transactions in some foreign markets may be delayed or may be less
frequent than in the United States, which could affect the liquidity
of the Fund's portfolio. Also, it may be more
12
<PAGE>
difficult to obtain and enforce legal judgments against foreign
corporate issuers than against domestic issuers and it may be
impossible to obtain and enforce judgments against foreign
governmental issuers.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Fund holds various foreign
currencies from time to time, the value of the net assets of the Fund
as measured in United States dollars will be affected favorably or
unfavorably by changes in exchange rates. Generally, currency
exchange transactions will be conducted on a spot (i.e., cash) basis
at the spot rate prevailing in the currency exchange market. The cost
of currency exchange transactions will generally be the difference
between the bid and offer spot rate of the currency being purchased or
sold. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Fund is authorized to enter into
certain foreign currency futures and forward contracts.
The forward currency market for the purchase or sale of United States
dollars in most countries is not highly developed, and in certain
countries, there may be no such market. If a devaluation of a
currency is generally anticipated, the Fund may not be able to
contract to sell the currency at an exchange rate more advantageous
than that which would prevail after the anticipated amount of
devaluation. In the event the Fund holds securities denominated in
a currency that suffers a devaluation, the Fund's net asset values
will suffer corresponding reductions. In this regard, in
December 1994, the Mexican government determined to allow the
Mexican peso to trade freely against the United States dollar rather
than within a controlled band, which action resulted in a
significant devaluation of the Mexican peso against the dollar.
Further, in July 1997, the Thai and Philippine governments allowed the
baht and peso, respectively, to trade freely against the United States
dollar resulting in a sharp devaluation of both currencies, and in
1998 Russia did the same, causing a sharp devaluation of the ruble.
13
<PAGE>
. RISK CONSIDERATIONS
-------------------
FIXED Fixed income securities are subject to various risks. The two primary
INCOME (but not exclusive) risks affecting fixed income instruments are
SECURI- "credit risk" and "interest rate risk." These risks can affect a
TIES security's price volatility to varying degrees, depending upon the
nature of the instrument. In addition, the depth and liquidity of the
market for an individual or class of fixed income security can also
affect its price and, hence, the market value of the Fund.
"CREDIT RISK" refers to the likelihood that an issuer will default in
the payment of principal and/or interest on an instrument. Financial
strength and solvency of an issuer are the primary factors influencing
credit risk. In addition, lack of or inadequacy of collateral or
credit enhancements for a fixed income security may affect its credit
risk. Credit risk of a security may change over its life, and
securities which are rated by rating agencies are often reviewed and
may be subject to downgrade.
The Fund may invest in convertible securities rated below investment
grade. Generally, lower-rated debt securities provide a higher yield
than higher rated debt securities of similar maturity but are subject
to greater credit risk than higher rated securities of similar
maturity. Such securities are regarded as predominantly speculative
with respect to the issuer's continuing ability to meet principal and
interest payments. Because investment in lower quality securities
involves greater investment risk, achievement of the Fund's investment
objective
14
<PAGE>
will be more dependent on the Adviser's analysis than would be the
case if the Fund were investing in higher quality bonds. In addition,
lower quality securities may be more susceptible to real or perceived
adverse economic and individual corporate developments than would
investment grade bonds. Moreover, the secondary trading market for
lower quality securities may be less liquid than the market for
investment grade bonds. This potential lack of liquidity may make it
more difficult for the Adviser to value accurately certain portfolio
securities.
"INTEREST RATE RISK" refers to the risks associated with market
changes in interest rates. Interest rate changes may affect the value
of a fixed income security directly (especially in the case of fixed
rate securities) and indirectly (especially in the case of adjustable
rate securities). In general, rises in interest rates will negatively
impact the price of fixed rate securities and falling interest rates
will have a positive effect on price. The degree to which a
security's price will change as a result of changes in interest rates
is measured by its "duration." For example, the price of a bond with
a 5 year duration would be expected under normal market conditions to
decrease 5% for every 1% increase in interest rates. Generally,
securities with longer maturities have a greater duration and thus are
subject to greater price volatility from changes in interest rates.
Adjustable rate instruments also react to interest rate changes in a
similar manner although generally to a lesser degree (depending,
however, on the characteristics of the reset terms, including the
index chosen, frequency of reset and reset caps or floors, among other
things).
15
<PAGE>
. RISK CONSIDERATIONS
-------------------
NON- The Fund is non-diversified for 1940 Act purposes and as such may
DIVERSIFIED invest a larger percentage of its assets in individual issuers than
STATUS a diversified investment company. In this regard, the Fund is not
subject to the general limitation that it not invest more than 5% of
its total assets in the securities of any one issuer. To the extent
the Fund makes investments in excess of 5% of its assets in a
particular issuer, its exposure to credit and market risks
associated with that issuer is increased. However, the Fund's
investments will be limited so as to qualify for the special tax
treatment afforded "regulated investment companies" under the
Internal Revenue Code of 1986, as amended.
16
<PAGE>
. RISK CONSIDERATIONS
-------------------
YEAR 2000 The investment advisory and management services provided by the
Adviser and the services provided to shareholders by the Transfer
Agent depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in
which dates were encoded and calculated. That failure could have a
negative impact on the handling of securities trades, pricing and
account services. The Adviser and the Transfer Agent have been
actively working on necessary changes to their own computer systems to
prepare for the year 2000 and expect that their systems will be
adapted for year 2000 compliance before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that
time.
In addition, it is possible that the markets for securities in which
the Fund invests may be negatively affected by computer failures
throughout the financial services industry commencing January 1, 2000.
Improperly functioning trading systems may result in settlement
problems. In addition, corporate and governmental data processing
errors may result in production problems for individual companies and
create overall economic uncertainties. Earnings of individual issuers
will be affected by remediation costs which may be substantial.
Individual firms may further experience disruptions to their business
due to the failure of their counterparts to address year 2000
problems, or could experience further disruption to the economy at
large, which could adversely affect corporate earnings generally and
the value of their securities. Accordingly, the Fund's portfolio
investments may be negatively affected.
17
<PAGE>
. RISK CONSIDERATIONS
-------------------
EUROPEAN The Fund may invest in European countries that have agreed to enter
ECONOMIC into the European Monetary Union (EMU). EMU is an effort by certain
AND MONET- European countries to, among other things, reduce barriers between
ARY UNION countries and eliminate fluctuations in their currencies. Among other
things, EMU establishes a single European currency (the euro), which
will be introduced on January 1, 1999 and is expected to replace the
existing national currencies of all initial EMU participants by July
1, 2002. Upon introduction of the euro, certain securities (beginning
with government and corporate bonds) will be redonominated in the
euro and, thereafter will trade and make dividend and other payments
only in euros. Like other investment companies and business
organizations, including the companies in which the Fund invests, the
Fund could be adversely affected: (i) if the euro, or EMU as a whole
does not take affect as planned; (ii) if a participating country
withdraws from EMU; or (iii) if the computing, accounting and trading
systems used by the Fund's service providers, or by other business
entities with which the Fund or its service providers do business,
are not capable of recognizing the euro as a distinct currency at the
time of, and following euro conversion.
18
<PAGE>
. MANAGEMENT OF THE FUND
----------------------
INVESTMENT ADVISER
The Fund's investment adviser is TCW Funds Management, Inc. (the
"Adviser") and is headquartered at 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017. As of October 31, 1998, the
Adviser and its affiliated companies, which provide a variety of
trust, investment management and investment advisory services, had
over $50 billion under management or committed for management.
PORTFOLIO MANAGERS
Listed below are the individuals who have been primarily responsible
for the day-to-day portfolio management of the Fund, including a
summary of each person's business experience during the past five
years:
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS(1)
---------- -------------------------
Thomas K. McKissick Managing Director, the Adviser, TCW
Asset Management Company and Trust
Company of the West.
ADVISORY AGREEMENT
The Company and the Adviser have entered into an Investment Advisory
and Management Agreement (the "Advisory Agreement"), under the terms
of which the Company has employed the Adviser to manage the investment
of its assets, to place orders for the purchase and sale of its
portfolio securities, to administer its day-to-day operations, and to
be responsible for overall management of the Company's business
affairs, subject to control by the Board of Directors of the Company.
The Adviser also pays certain costs of marketing the Fund, including
sales personnel compensation, from legitimate profits from its
investment advisory fees and other resources available to it. Under
the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by
it the following fees:
19
<PAGE>
FUND ANNUAL MANAGEMENT FEE
----
(AS PERCENT OF AVERAGE NET ASSET VALUE)
--------------------------------------
Large Cap Value 0.55%
The Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which the agreement
relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Adviser in the performance of
its duties or from reckless disregard by it of its duties under the
respective agreement.
. MULTIPLE CLASS STRUCTURE
------------------------
The Fund currently offers two classes of shares, Institutional Class
shares and Class A shares. Shares of each class of the Fund represent
an equal pro rata interest in the Fund and generally gives you the
same voting, dividend, liquidation, and other rights. The
Institutional Class shares are offered at the current net asset value.
The Class A shares are also offered at the current net asset value,
but will be subject to a distribution or service fee imposed under a
distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. Pursuant to the
Distribution Plan, the Fund compensates the Fund's distributor at a
rate equal to 0.25% of the average daily net assets of the Fund
attributable to its Class A shares for distribution and related
services. Because these fees are paid out of the Fund's Class A
assets on an on-going basis, over time, these fees will increase the
cost of your investment and may cost you more than paying other types
of sales charges.
20
<PAGE>
YOUR INVESTMENT
. ACCOUNT POLICIES AND SERVICES
-----------------------------
BUYING SHARES
You pay no sales charges to invest in the Fund. Your price for Fund
shares is the Fund's net asset value per share (NAV) which is
generally calculated as of the close of trading on the New York Stock
Exchange (usually 4:00 p.m. Eastern time) every day the exchange is
open. Your order will be priced at the next NAV calculated after your
order is accepted by the Fund. Orders received by the Fund's Transfer
Agent from dealers, brokers or other service providers after the net
asset value (NAV) is determined that day will receive that NAV if the
orders were received by the dealers, brokers or service providers from
their customers prior to such determination and were transmitted to
and received by the Transfer Agent prior to 8:00 a.m. Eastern time on
the next day. The Fund's investments are valued based on market
value, or where market quotations are not readily available, based on
fair value as determined in good faith by the Fund pursuant to
procedures established by the Fund's board.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Minimums
Initial Additional
----------------------------------------------------------------------
<S> <C> <C>
Large Cap Value Fund $2,000 $250
</TABLE>
The TCW Galileo Funds, Inc. may waive the minimum subsequent investment. All
investments must be in United States dollars. Third-party checks, except those
payable to an existing shareholder, will normally not be accepted. If your check
or wire does not clear, you will be responsible for any loss the Fund incurs.
21
<PAGE>
SELLING SHARES
You may sell shares at any time. Your shares will be sold at the next
NAV calculated after your order is accepted by the Fund's Transfer
Agent. Any certificates representing Fund shares being sold must be
returned with your redemption request. Your order will be processed
promptly, and you will generally receive the proceeds within a week.
Before selling recently purchased shares, please note that if the Fund
has not yet collected payment for the shares you are selling, it may
delay sending the proceeds for up to fifteen business days.
WRITTEN SELL ORDER
Some circumstances require written sell orders, along with signature
guarantees. These include:
. amounts of $100,000 or more
. amounts of $1,000 or more on accounts whose address has been
changed within the last 30 days
. requests to send the proceeds to a payee or address different than
what is on our records
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one
from most banks or securities dealers but not from a notary public.
Please call us to ensure that your signature guarantee will be
processed correctly.
EXCHANGE PRIVILEGE
You can exchange from one Class A Galileo Fund into another. You can
request your exchange in writing or by phone. Be sure to read the
current prospectus for any Fund into which you are exchanging. Any new
account established through an exchange will have the same privileges
as your original account (as long as they are available).
THIRD PARTY TRANSACTIONS
If purchases and redemptions of Fund shares are arranged and
settlement is made at an investor's election through a registered
broker-dealer, other than the Fund's distributor, that broker-dealer
may, at its discretion, charge a fee for that service.
ACCOUNT STATEMENTS
Every Galileo investor automatically receives regular account
statements. You will also be sent a yearly statement detailing the
tax characteristics of any dividends and distributions you have
received.
22
<PAGE>
GENERAL POLICIES
If your account falls below $1,000 as a result of redemptions and or
exchanges for six months or more, the Fund may close your account and
send you the proceeds upon 60 days' written notice.
Unless you decline telephone privileges on your New Account Form, you
may be responsible for any fraudulent telephone order as long as the
Transfer Agent takes reasonable measures to verify the order.
The Fund restricts excessive trading (usually defined as more than four
exchanges out of the Fund within a calendar year). You are limited to
one exchange of shares in the Fund during any 15-day period except
investors in 401(k) and other group retirement accounts and asset
allocation accounts managed by the Adviser or an affiliate. The Fund
reserves the right to:
. refuse any purchase or exchange request that could adversely affect
the Fund or its operations, including those from any individual or
group who, in the Fund's view, are likely to engage in excessive
trading
. change or discontinue its exchange privilege, or temporarily suspend
this privilege during unusual market conditions
. delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions)
LARGE REDEMPTION
AMOUNTS
- ----------------
The Fund also reserves the right to make a "redemption in kind" - payment in
portfolio securities rather than cash - if the amount you are redeeming in any
90-day period is large enough to affect Fund operations (for example, if it
equals more than $250,000 or represents more than 1% of the Fund's assets).
23
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- ------------------------------------------------------------------------------------------------
<S> <C>
In Writing
Complete the New Account Form. Mail your New
Account Form and a check to:
Regular Mail
TCW Galileo Large Cap Value Fund (Same, except that you should include a note
DST Systems, Inc. specifying the Fund name, your account number,
P.O. Box 419951 and the name(s) your account is registered in.)
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
TCW Galileo Large Cap Value Fund
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- ------------------------------------------------------------------------------------------------
By Telephone
WIRE Have your bank send your investment to: (Same)
United Missouri Bank, n.a.
ABA No. 101000695
DST Systems, Inc./AC 9870371553
FBO TCW Galileo Large Cap Value Fund
(Name on the Fund Account) __________
- ------------------------------------------------------------------------------------------------
Via Exchange
Call the Transfer Agent at (800) 248 4486.
The new account will have the same registration as
the account from which you are exchanging.
- ------------------------------------------------------------------------------------------------
</TABLE>
If you need help completing the New Account Form, please call the Transfer
Agent at (800) 248-4486.
24
<PAGE>
<TABLE>
<CAPTION>
TO SELL OR EXCHANGE SHARES
- -------------------------------------------------------- ----------------------------------------
<S> <C>
By Mail To reach the Transfer Agent, DST
Write a letter of instruction that includes: Systems, Inc., call toll free in
. your name(s) and signature(s) as on the account form the U.S.
. your account number
1-800-248-4486
. the Fund name
. the dollar amount you want to sell or exchange
how and where to send the proceeds
--------------------------------------------------------
Obtain a signature guarantee or other documentation,
if required (see "Account Policies - Selling
Shares").
Mail your letter of instruction to:
Regular Mail
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- --------------------------------------------------------
By Telephone
Be sure the Fund has your bank account information on
file. Call the Transfer Agent at (800) 248-4486 to
request your transaction. Proceeds will be wired to
your bank.
Telephone redemption requests must be for a minimum
of $1,000.
- --------------------------------------------------------
Systematic Withdrawal Plan Call us to request a form to
add the plan. Complete the form, specifying the amount
and frequency of withdrawals you would like.
Be sure to maintain an account balance of $2,000 or
more. Systematic Withdrawal plans are subject to a
minimum annual withdrawal of $500.
- -------------------------------------------------------
</TABLE>
25
<PAGE>
. DISTRIBUTIONS AND TAXES
-----------------------
The amount of dividends of net investment income and distributions of
net realized long and short-term capital gains payable to shareholders
will be determined separately for the Fund. Dividends from the net
investment income of the Fund will be declared and paid annually. The
Fund will distribute any net realized long or short-term capital gains
at least annually. Your distributions will be reinvested in the Fund
unless you instruct the Fund otherwise. There are no fees or sales
charges on reinvestments.
In any fiscal year in which the Fund qualifies as a regulated
investment company and distributes to shareholders all of its net
investment income and net capital gains, the Fund is relieved of
Federal income tax.
Generally, all dividends and capital gains are taxable whether they
are reinvested or received in cash - unless you are exempt from
taxation or entitled to tax deferral. Capital gains distributions may
be taxable at different rates depending on the length of time the Fund
has held the assets sold. Early each year, you will be notified as to
the amount and Federal tax status of all distributions paid during the
prior year. Distributions may also be subject to state or local
taxes. The tax treatment of redemptions from a retirement plan
account may differ from redemptions from an ordinary shareholder
account. If you redeem shares of the Fund or exchange them for shares
of another Fund, any gain on the transaction may be subject to tax.
You must provide the Fund with a correct taxpayer identification
number (generally your Social Security Number) and certify that you
are not subject to backup withholding. If you fail to do so, the IRS
can require the Fund to withhold 31% of your taxable distributions and
redemptions. Federal law also requires the Fund to withhold 30% or
the applicable tax treaty rate from dividends paid to nonresident
alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
This is a brief summary of some of the tax laws that affect your
investment in the Fund. Please see the Statement of Additional
Information and your tax adviser for further information.
26
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions
(Class A shares of the Fund commenced operations on March 1, 1999).
These figures have been audited by Deloitte & Touche LLP, whose
report, along with Company's financial statements, are included in the
annual report, which is available upon request.
----------------------------------------------------------------------
TCW GALILEO LARGE CAP VALUE FUND
FIVE MONTHS
ENDED OCTOBER 31, 1998
----------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period
Investment operations:
Investment income - net
Net realized and unrealized gain
(loss) on investments
Total from investment operations
Distributions:
Dividends from investment
income - net
Dividends from net realized gains
on investments
Total Distributions:
Net asset value, end of period
Total return (%)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%)
Ratio of net investment income to average
net assets (%)
Portfolio turnover rate (%)
Net assets, end of period ($ x 1,000)
27
<PAGE>
FOR MORE INFORMATION
TO OBTAIN INFORMATION:
- -----------------------------
BY TELEPHONE
Call
---------------
BY MAIL Write to:
865 South Figueroa Street
Suite 1800
Los Angeles, California 90017
BY E-MAIL Send your request to:
ON THE INTEREST Text-only
versions of Fund documents can
be viewed online or downloaded
from:
SEC
http://www.sec.gov
You can also obtain copies by
visiting the SEC's Public
Reference Room in Washington,
DC (phone 1-800-SEC-0330) or by
sending you request and a
duplicating fee to the SECs Public
Reference Section, Washington,
DC 20549-6009.
__________________________
__________________________
__________________________
SEC file number: 811-____
More information on the Fund is available free upon request, including the
following:
ANNUAL/SEMIANNUAL REPORT
Describes the Fund's performance, lists portfolio holdings and contains a
letter from the Fund's portfolio manager discussing recent market
conditions, economic trends and Fund strategies.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Fund and its policies. A current SAI is on
file with the Securities and Exchange Commission (SEC) and is incorporated
by reference (is legally considered part of this prospectus).
28
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Institutional Class A shares of one of
the separate investment funds offered by TCW Galileo Funds, Inc., each of which
has different investment objectives and policies. Please read this document
carefully, and keep it for future reference.
TCW GALILEO SELECT EQUITIES FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
March 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES.................. 3
PRINCIPAL RISKS................................................. 4
PERFORMANCE SUMMARY............................................. 6
FUND EXPENSES AND EXPENSE EXAMPLE............................... 8
INVESTMENT OBJECTIVES/APPROACH.................................. 9
MAIN RISKS...................................................... 10
RISK CONSIDERATIONS............................................. 12-20
MANAGEMENT OF THE FUND.......................................... 21
MULTIPLE CLASS STRUCTURE........................................ 22
ACCOUNT POLICIES AND SERVICES................................... 23
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT......................... 26
TO SELL OR EXCHANGE SHARES...................................... 27
DISTRIBUTIONS AND TAXES......................................... 28
FINANCIAL HIGHLIGHTS............................................ 29
FOR MORE INFORMATION............................................ 30
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVES AND PRINCIPLES STRATEGIES
The Fund is affected by changes in the economy, or in securities and other
markets. There is also the possibility that investment decisions the Adviser
makes will not accomplish what they were designed to achieve or that companies
in which the Fund invests will have disappointing performance or not pay their
debts.
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC. INVESTMENT OBJECTIVES PRINCIPAL INVESTMENT STRATEGIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCW Galileo Select Equities Fund Long-term capital appreciation Invests in common stock of large capitalization
companies.
</TABLE>
Under adverse market conditions, the Fund could invest some or all of its assets
in money market securities. Although the Fund would do this only in seeking to
avoid losses, it could have the effect of reducing the benefit from any upswing
in the market.
3
<PAGE>
INVESTMENT OBJECTIVES AND PRINCIPLE STRATEGIES
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you and the more you can lose. Since shares of the
Fund represent an investment of securities with fluctuating market prices, the
value of Fund shares will vary as the Fund's portfolio securities increase or
decrease. Therefore, the value of an investment in the Fund could go down as
well as up. All investments are subject to:
. ASSET CLASS RISK
There is the possibility that the returns from the types of securities in
which the Fund invests will underperform returns from the various general
securities markets or different asset classes. Different types of securities
tend to go through cycles of outperformance and underperformance in
comparison to the general securities markets.
. SECURITIES SELECTION RISK
There is the possibility that the specific securities held in the Fund's
portfolio will underperform other funds in the same asset class or benchmarks
that are representative of the general performance of the asset class because
of the portfolio manager's choice of securities.
. PRICE VOLATILITY
There is the possibility that the value of the Fund's portfolio will change
as the prices of its investments go up or down. Although stocks offer the
potential for greater long-term growth than most fixed income securities,
stocks generally have higher short-term volatility.
The Fund may also be subject (in varying degrees) to the following risks:
. LIQUIDITY RISK
There is the possibility that the Fund may lose money or be prevented from
earning capital gains if it can not sell a security at the time and price
that is most beneficial to the Fund.
. FOREIGN INVESTING RISK
There is the likelihood that foreign investments may be riskier than U.S.
investments because of a lack of political stability, foreign controls on
investment and currency exchange rates, withholding taxes, and lack of
adequate company information. The Fund is subject to foreign investing risk
because it may invest a portion of its assets in foreign company securities.
In addition, because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, and the Fund holds various
foreign currencies, the value of the net assets of the Fund as measured in
United States dollars will be affected favorably or unfavorably by changes in
exchange rates.
4
<PAGE>
PRINCIPAL RISKS
Because the Fund is non-diversified for 1940 Act purposes, it may invest more
than 5% of its total assets in the securities of any one issuer. Consequently,
its exposure to credit and market risks associated with that issuer is
increased.
Your investment is not a bank deposit, and it is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
5
<PAGE>
The two tables below show the Fund's annual returns and its long-term
performance with respect to its Institutional Class shares (Class A shares of
the Fund commenced operations on March 1, 1999). The first table shows you how
the Fund's performance has varied from year to year. The second compares the
Fund's performance over time to that of a broad-based securities index. Both
tables assume reinvestment of dividends and distributions. The performance
information includes the performance of the predecessor limited partnership. As
with all mutual funds, past performance is not a prediction of future results.
Year by year total return (%)
as of December 31 each year*
15.41% 10.35% 22.93% -7.04% 26.45% 20.58% 22.70% _____%
1991 1992 1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------
*The Fund's total return for the period October 31, 1998 to December 31, 1998
is: ______%
Best and worst quarterly performance during this period
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------
. Select Equities Fund
Quarter ending June 30, 1997 18.15% (Best)
Quarter ending September 30, 1998 -6.62% (Worst)
- ----------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF SINCE
DECEMBER 31 1 YEAR 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
. Select Equities Fund ____% ____% __% ____%
- -------------------------------------------------------------------------------------------------------
S&P 500 ____% ____% __% ____%
- -------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
FUND EXPENSES AND EXPENSE EXAMPLE
As an investor, you pay certain fees and expenses in connection with the Fund,
which are described in the table below. Annual Fund operating expenses are paid
out of Fund assets, so their effect is included in the share price. The Class A
shares of the Fund have no sales charge (load), but are subject to or Rule 12b-1
distribution fees.
<TABLE>
<CAPTION>
========================================================================
FEE TABLE
SELECT EQUITIES
<S> <C>
Shareholder transaction fees
1) Redemption Fees None
2) Exchange Fees None
3) Contingent Deferred Sales Load None
4) Sales Load on Reinvested Dividends None
5) Sales Load on Purchases None
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses __%
Total Annual Fund Operating Expenses __%
</TABLE>
<TABLE>
<CAPTION>
================================================================================
EXPENSE EXAMPLE
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Select Equities
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether or not you sold your shares at the end of a
period. Because actual return and expenses will be different, the example is for
comparison purposes only.
8
<PAGE>
TCW Galileo Select Equities Fund
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. Performance should be
measured over a full market cycle.
To pursue this goal, the Fund invests primarily in the common stocks
of larger companies. The investment philosophy underlying our
strategy is a highly focused approach which seeks to achieve superior
long-term returns by owning shares in companies that are believed to
have strong and enduring business models and inherent advantages over
their competitors. In implementing its investment policy, the Fund
may purchase and sell convertible securities and foreign securities.
GLEN A. BICKERSTAFF IS THE FUND'S PORTFOLIO MANAGER.
CONCEPTS TO UNDERSTAND
----------------------
Large capitalization companies are established companies that are
considered known quantities. Large companies often have the resources
to weather economic shifts, though they can be slower to innovate than
small companies.
9
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "price volatility" and
"foreign investing risk." PRICE VOLATILITY refers to the possibility
that the value of the Fund's portfolio will change as the prices of
its investments go up or down. Although the Fund is subject to price
volatility because of its stock investments, it is subject to less
price volatility than funds that invest in the securities of smaller
companies. Because the Fund may invest a portion of its assets in
securities issued by foreign companies, it may be subject to foreign
investing risks. FOREIGN INVESTING RISK refers to the likelihood that
foreign investments may be riskier than U.S. investments because of
many factors, some of which include:
. a lack of political or economic stability
. foreign controls on investment and currency exchange rates
. withholding taxes
. a lack of adequate company information
In addition, securities traded only through foreign markets may be
more volatile and are often harder to sell. Volatility is a way to
measure the changes in the price of a single security or an entire
portfolio. Large and frequent price changes indicate higher
volatility, which generally indicates that there is a greater chance
you could lose money over the short-term. The Fund is also subject to
foreign currency risk. Because foreign securities are generally
denominated and pay dividends or interest in foreign currencies, the
value of the net assets of the Fund as measured in the United States
dollars will be affected favorably or unfavorably by changes in
exchange rates.
The Fund may invest some assets in options, futures and foreign
currency futures and forward contracts. These practices are used
primarily to hedge the Fund's portfolio but may be used to increase
returns; however, such practices sometimes may reduce returns or
increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt
10
<PAGE>
obligations. As with any extension of credit, there are risks of delay
in recovery and in some cases even loss of rights in the collateral
should the borrower fail financially.
11
<PAGE>
. RISK CONSIDERATIONS
-------------------
Please consider the following risks before investing in the Fund.
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's
performance or financial position can depress the value of the
issuer's securities. The liquidity in a market for a particular
security will affect its value and may be affected by factors relating
to the issuer, as well as the depth of the market for that security.
Other market risks that can affect value include a market's current
attitudes about types of securities, market reactions to political or
economic events, and tax and regulatory effects (including lack of
adequate regulations for a market or particular type of instrument).
Market restrictions on trading volume can also affect price and
liquidity.
Prices of many securities tend to be more volatile in the short-term.
Therefore an investor who trades frequently or redeems in the short-
term is more likely to incur loss than an investor who holds
investments for the longer term. Lack of diversification in a
portfolio can also increase volatility.
GENERAL INVESTMENT RISK
-----------------------
Since shares of the Fund represent an investment in securities with
fluctuating market prices, the value of Fund shares will vary as the
value of the Fund's portfolio securities increases or decreases.
Therefore, the value of an investment in the Fund could go down as
well as up.
12
<PAGE>
. RISK CONSIDERATIONS
-------------------
FOREIGN Investment in foreign securities involves special risks in addition
SECURITIES to the usual risks inherent in domestic investments. These include:
political or economic instability; the unpredictability of
international trade patterns; the possibility of foreign governmental
actions such as expropriation, nationalization or confiscatory
taxation; the imposition or modification of foreign currency or
foreign investment controls; the imposition of withholding taxes on
dividends, interest and gains; price volatility; and fluctuations in
currency exchange rates.
As compared to United States companies, foreign issuers generally
disclose less financial and other information publicly and are
subject to less stringent and less uniform accounting, auditing and
financial reporting standards. Foreign countries typically impose
less thorough regulations on brokers, dealers, stock exchanges,
insiders and listed companies than does the United States, and
foreign securities markets may be less liquid and more volatile than
domestic markets. Investment in foreign securities involves higher
costs than investment in U.S. securities, including higher
transaction and custody costs as well as the imposition of additional
taxes by foreign governments. In addition, security trading practices
abroad may offer less protection to investors such as the Fund.
Settlement of transactions in some foreign markets may be delayed or
may be less frequent than in the U.S., which could affect the
liquidity of the Fund's portfolio. Also, it may be more difficult to
13
<PAGE>
obtain and enforce legal judgments against foreign corporate issuers
than against domestic issuers and it may be impossible to obtain and
enforce judgments against foreign governmental issuers.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Fund holds various foreign
currencies from time to time, the value of the net assets of the Fund
as measured in United States dollars will be affected favorably or
unfavorably by changes in exchange rates. Generally, currency
exchange transactions will be conducted on a spot (i.e., cash) basis
at the spot rate prevailing in the currency exchange market. The cost
of currency exchange transactions will generally be the difference
between the bid and offer spot rate of the currency being purchased or
sold. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Fund is authorized to enter into
certain foreign currency futures and forward contracts.
The forward currency market for the purchase or sale of U.S. dollars
in most countries is not highly developed, and in certain countries,
there may be no such market. If a devaluation of a currency is
generally anticipated, the Fund may not be able to contract to sell
the currency at an exchange rate more advantageous than that which
would prevail after the anticipated amount of devaluation. In the
event the Fund holds securities denominated in a currency that suffers
a devaluation, the Fund's net asset values will suffer corresponding
reductions. In this regard, in December 1994, the Mexican government
determined to allow the Mexican peso to trade freely against the U.S.
dollar rather than within a controlled band, which action resulted in
a significant devaluation of the Mexican peso against the dollar.
Further, in July 1997, the Thai and Philippine governments allowed the
baht and peso, respectively, to trade freely against the U.S. dollar
resulting in a sharp devaluation of both currencies, and in 1998
Russia did the same, causing a sharp devaluation of the ruble.
14
<PAGE>
. RISK CONSIDERATIONS
-------------------
FIXED Fixed income securities are subject to various risks. The two primary
INCOME (but not exclusive) risks affecting fixed income instruments are
SECURI- "credit risk" and "interest rate risk." These risks can affect a
TIES security's price volatility to varying degrees, depending upon the
nature of the instrument. In addition, the depth and liquidity of the
market for an individual or class of fixed income security can also
affect its price and, hence, the market value of the Fund.
"CREDIT RISK" refers to the likelihood that an issuer will default in
the payment of principal and/or interest on an instrument. Financial
strength and solvency of an issuer are the primary factors influencing
credit risk. In addition, lack of or inadequacy of collateral or
credit enhancements for a fixed income security may affect its credit
risk. Credit risk of a security may change over its life, and
securities which are rated by rating agencies are often reviewed and
may be subject to downgrade.
The Fund may invest in convertible securities rated below investment
grade. Generally, lower-rated debt securities provide a higher yield
than higher rated debt securities of similar maturity but are subject
to greater credit risk than higher rated securities of similar
maturity. Such securities are regarded as predominantly speculative
with respect to the issuer's continuing ability to meet principal and
interest payments. Because investment in lower quality securities
involves greater investment risk, achievement of the Fund's investment
objective
15
<PAGE>
will be more dependent on the Adviser's analysis than would be the
case if the Fund were investing in higher quality bonds. In addition,
lower quality securities may be more susceptible to real or perceived
adverse economic and individual corporate developments than would
investment grade bonds. Moreover, the secondary trading market for
lower quality securities may be less liquid than the market for
investment grade bonds. This potential lack of liquidity may make it
more difficult for the Adviser to value accurately certain portfolio
securities.
"INTEREST RATE RISK" refers to the risks associated with market
changes in interest rates. Interest rate changes may affect the value
of a fixed income security directly (especially in the case of fixed
rate securities) and indirectly (especially in the case of adjustable
rate securities). In general, rises in interest rates will negatively
impact the price of fixed rate securities and falling interest rates
will have a positive effect on price. The degree to which a
security's price will change as a result of changes in interest rates
is measured by its "duration." For example, the price of a bond with
a 5 year duration would be expected under normal market conditions to
decrease 5% for every 1% increase in interest rates. Generally,
securities with longer maturities have a greater duration and thus are
subject to greater price volatility from changes in interest rates.
Adjustable rate instruments also react to interest rate changes in a
similar manner although generally to a lesser degree (depending,
however, on the characteristics of the reset terms, including the
index chosen, frequency of reset and reset caps or floors, among other
things).
16
<PAGE>
. RISK CONSIDERATIONS
-------------------
NON- The Fund is non-diversified for 1940 Act purposes and as such may
DIVERSIFIED invest a larger percentage of its assets in individual issuers than
STATUS a diversified investment company. In this regard, the Fund is not
subject to the general limitation that it not invest more than 5% of
its total assets in the securities of any one issuer. To the extent
the Fund makes investments in excess of 5% of its assets in a
particular issuer, its exposure to credit and market risks
associated with that issuer is increased. However, the Fund's
investments will be limited so as to qualify for the special tax
treatment afforded "regulated investment companies" under the
Internal Revenue Code of 1986, as amended.
17
<PAGE>
. RISK CONSIDERATIONS
-------------------
YEAR 2000 The investment advisory and management services provided by the
Adviser and the services provided to shareholders by the Transfer
Agent depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in
which dates were encoded and calculated. That failure could have a
negative impact on the handling of securities trades, pricing and
account services. The Adviser and the Transfer Agent have been
actively working on necessary changes to their own computer systems to
prepare for the year 2000 and expect that their systems will be
adapted for year 2000 compliance before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that
time.
In addition, it is possible that the markets for securities in which
the Fund invests may be negatively affected by computer failures
throughout the financial services industry commencing January 1, 2000.
Improperly functioning trading systems may result in settlement
problems. In addition, corporate and governmental data processing
errors may result in production problems for individual companies and
create overall economic uncertainties. Earnings of individual issuers
will be affected by remediation costs which may be substantial.
Individual firms may further experience disruptions to their business
due to the failure of their counterparts to address year 2000
problems, or could experience further disruption to the economy at
large, which could adversely affect corporate earnings generally and
the
18
<PAGE>
value of their securities. Accordingly, the Fund's portfolio
investments may be negatively affected.
19
<PAGE>
. RISK CONSIDERATIONS
-------------------
EUROPEAN The Fund may invest in European countries that have agreed to enter
ECONOMIC into the European Monetary Union (EMU). EMU is an effort by certain
AND European countries to, among other things, reduce barriers between
MONETARY countries and eliminate fluctuations in their currencies. Among other
UNION things, EMU establishes a single European currency (the euro), which
will be introduced on January 1, 1999 and is expected to replace the
existing national currencies of all initial EMU participants by July
1, 2002. Upon introduction of the euro, certain securities (beginning
with government and corporate bonds) will be redonominated in the euro
and, thereafter will trade and make dividend and other payments only
in euros. Like other investment companies and business organizations,
including the companies in which the Fund invests, the Fund could be
adversely affected: (i) if the euro, or EMU as a whole does not take
affect as planned; (ii) if a participating country withdraws from EMU;
or (iii) if the computing, accounting and trading systems used by the
Fund's service providers, or by other business entities with which the
Fund or its service providers do business, are not capable of
recognizing the euro as a distinct currency at the time of, and
following euro conversion.
20
<PAGE>
. MANAGEMENT OF THE FUND
----------------------
INVESTMENT ADVISER
The Fund's investment adviser is TCW Funds Management, Inc. (the
"Adviser") and is headquartered at 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017. As of October 31, 1998, the
Adviser and its affiliated companies, which provide a variety of
trust, investment management and investment advisory services, had
over $50 billion under management or committed for management.
PORTFOLIO MANAGERS
Listed below are the individuals who have been primarily responsible
for the day-to-day portfolio management of the Fund, including a
summary of each person's business experience during the past five
years:
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS(1)
---------- -------------------------
Glen A. Bickerstaff Managing Director, the Adviser,
TCW Asset Management Company and
Trust Company of the West since
May 1998. Previously, he was
senior portfolio manager and Vice
President of Transamerica
Investment Services.
ADVISORY AND SUB-ADVISORY AGREEMENTS
The Company and the Adviser have entered into an Investment Advisory
and Management Agreement (the "Advisory Agreement"), under the terms
of which the Company has employed the Adviser to manage the investment
of its assets, to place orders for the purchase and sale of its
portfolio securities, to administer its day-to-day operations, and to
be responsible for overall management of the Company's business
affairs, subject to control by the Board of Directors of the Company.
The Adviser also pays certain costs of marketing the Fund, including
sales personnel compensation, from legitimate profits from its
investment advisory fees and other resources available to it. Under
the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by
it the following fees:
21
<PAGE>
FUND ANNUAL MANAGEMENT FEE
----
(AS PERCENT OF AVERAGE NET ASSET
--------------------------------
VALUE)
------
Select Equities .75%
The Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which the agreements
relate, except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance of
their duties or from reckless disregard by them of their duties under
each respective agreement.
. MULTIPLE CLASS STRUCTURE
------------------------
The Fund currently offers two classes of shares, Institutional Class
shares and Class A shares. Shares of each class of the Fund
represents an equal pro rata interest in the Fund and generally gives
you the same voting, dividend, liquidation, and other rights. The
Institutional Class shares are offered at the current net asset value.
The Class A shares are also offered at the current net asset value,
but will be subject to a distribution or service fee imposed under a
distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. Pursuant to the
Distribution Plan, the Fund compensates the its distributor at a rate
equal to 0.25% of the average daily net assets of the Fund
attributable to its Class A shares for distribution and related
services. Because these fees are paid out of the Fund's Class A
assets on an on-going basis, over time, these fees will increase the
cost of your investment and may cost you more than paying other types
of sales charges.
22
<PAGE>
YOUR INVESTMENT
. ACCOUNT POLICIES AND SERVICES
-----------------------------
BUYING SHARES
You pay no sales charges to invest in the Fund. Your price for Fund
shares is the Fund's net asset value per share (NAV) which is
generally calculated as of the close of trading on the New York Stock
Exchange (usually 4:00 p.m. Eastern time) every day the exchange is
open. Your order will be priced at the next NAV calculated after your
order is accepted by the Fund. Orders received by the Fund's Transfer
Agent from dealers, brokers or other service providers after the net
asset value (NAV) is determined that day will receive that NAV if the
orders were received by the dealers, brokers or service providers from
their customers prior to such determination and were transmitted to
and received by the Transfer Agent prior to 8:00 a.m. Eastern time on
the next day. The Fund's investments are valued based on market
value, or where market quotations are not readily available, based on
fair value as determined in good faith by the Fund pursuant to
procedures established by the Fund's board.
<TABLE>
<CAPTION>
Minimums
Initial Additional
----------------------------------------------------------------------
<S> <C> <C>
TCW Galileo Select Equities Fund $2,000 $250
The TCW Galileo Funds, Inc. may waive the minimum subsequent
investment. All investments must be in U.S. dollars. Third-party
checks, except those payable to an existing shareholder, will normally
not be accepted. If your check or wire does not clear, you will be
responsible for any loss the Fund incurs.
</TABLE>
23
<PAGE>
SELLING SHARES
You may sell shares at any time. Your shares will be sold at the next
NAV calculated after your order is accepted by the Fund's Transfer
Agent. Any certificates representing Fund shares being sold must be
returned with your redemption request. Your order will be processed
promptly, and you will generally receive the proceeds within a week.
Before selling recently purchased shares, please note that if the Fund
has not yet collected payment for the shares you are selling, it may
delay sending the proceeds for up to fifteen business days.
WRITTEN SELL ORDER
Some circumstances require written sell orders, along with signature
guarantees. These include:
. amounts of $100,00 or more
. amounts of $1,000 or more on accounts whose address has been
changed within the last 30 days
. requests to send the proceeds to a payee or address different than
what is on our records
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one
from most banks or securities dealers but not from a notary public.
Please call us to ensure that your signature guarantee will be
processed correctly.
EXCHANGE PRIVILEGE
You can exchange from one Class A Galileo Fund into another. You can
request your exchange in writing or by phone. Be sure to read the
current prospectus for any Fund into which you are exchanging. Any new
account established through an exchange will have the same privileges
as your original account (as long as they are available).
THIRD PARTY TRANSACTIONS
If purchases and redemptions of Fund shares are arranged and
settlement is made at an investor's election through a registered
broker-dealer, other than the Fund's distributor, that broker-dealer
may, at its discretion, charge a fee for that service.
ACCOUNT STATEMENTS
Every Galileo investor automatically receives regular account
statements. You will also be sent a yearly statement detailing the
tax characteristics of any dividends and distributions you have
received.
24
<PAGE>
GENERAL POLICIES
If your account falls below $1,000 as a result of redemptions and or
exchanges for six months or more, the Fund may close your account and
send you the proceeds upon 60 days' written notice.
Unless you decline telephone privileges on your New Account Form, you
may be responsible for any fraudulent telephone order as long as the
Transfer Agent takes reasonable measures to verify the order.
The Fund restricts excessive trading (usually defined as more than
four exchanges out of the Fund within a calendar year). You are
limited to one exchange of shares in the Fund during any 15-day period
except investors in 401(k) and other group retirement accounts and
asset allocation accounts managed by the Adviser or an affiliate. The
Fund reserves the right to:
. refuse any purchase or exchange request that could adversely affect
the Fund or its operations, including those from any individual or
group who, in the Fund's view, are likely to engage in excessive
trading
. change or discontinue its exchange privilege, or temporarily
suspend this privilege during unusual market conditions
. delay sending out redemption proceeds for up to seven days
(generally applies only in cases of very large redemptions,
excessive trading or during unusual market conditions)
LARGE REDEMPTION AMOUNTS
------------------------
The Fund also reserves the right to make a "redemption in kind"-
payment in portfolio securities rather than cash - if the amount you
are redeeming in any 90-day period is large enough to affect Fund
operations (for example, if it equals more than $250,000 or represents
more than 1% of the Fund's assets.
25
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
In Writing
Complete the New Account Form. Mail your New
Account Form and a check to:
Regular Mail
TCW Galileo Select Equities Fund (Same, except that you should include a note
DST Systems, Inc. specifying the Fund name, your account number, and
P.O. Box 419951 the name(s) your account is registered in.)
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
TCW Galileo Select Equities Fund
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- ----------------------------------------------------------------------------------------------------------------
By Telephone
WIRE Have your bank send your investment to: (Same)
United Missouri Bank, n.a.
ABA No. 101000695
DST Systems, Inc./AC 9870371553
FBO TCW Galileo Select Equities Fund
(Name on the Fund Account) __________
- ----------------------------------------------------------------------------------------------------------------
Via Exchange
Call the Transfer Agent at (800) 248 4486.
The new account will have the same registration as
the account from which you are exchanging.
</TABLE>
If you need help completing the New Account Form, please call the Transfer
Agent at (800) 248-4486.
26
<PAGE>
TO SELL OR EXCHANGE SHARES
By Mail
Write a letter of instruction that includes:
. your name(s) and signature(s) as on the account
form
. your account number
. the Fund name
. the dollar amount you want to sell or exchange
how and where to send the proceeds
- ------------------------------------------------------------
Obtain a signature guarantee or other documentation,
if required (see "Account Policies - Selling Shares").
Mail your letter of instruction to:
Regular Mail
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- ------------------------------------------------------------
By Telephone
Be sure the Fund has your bank account information on
file. Call the Transfer Agent at (800) 248-4486 to
request your transaction. Proceeds will be wired to
your bank.
Telephone redemption requests must be for a minimum
of $1,000.
- ------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN Call us to request a form
to add the plan. Complete the form, specifying the
amount and frequency of withdrawals you would like.
Be sure to maintain an account balance of $2,000 or
more. Systematic Withdrawal plans are subject to a
minimum annual withdrawal of $500.
- ------------------------------------------------------------
To reach the Transfer
Agent, DST Systems,
Inc., call toll free
in the U.S.
1-800-248-4486
27
<PAGE>
. DISTRIBUTIONS AND TAXES
-----------------------
The amount of dividends of net investment income and distributions of
net realized long and short-term capital gains payable to shareholders
will be determined separately for the Fund. Dividends from the net
investment income of the Fund will be declared and paid annually. The
Fund will distribute any net realized long or short-term capital gains
at least annually. Your distributions will be reinvested in the Fund
unless you instruct the Fund otherwise. There are no fees or sales
charges on reinvestments.
In any fiscal year in which the Fund qualifies as a regulated
investment company and distribute to shareholders all of their net
investment income and net capital gains, the Fund is relieved of
Federal income tax.
Generally, all dividends and capital gains are taxable whether they
are reinvested or received in cash - unless you are exempt from
taxation or entitled to tax deferral. Capital gains distributions may
be taxable at different rates depending on the length of time the Fund
has held the assets sold. Early each year, you will be notified as to
the amount and Federal tax status of all distributions paid during the
prior year. Distributions may also be subject to state or local
taxes. The tax treatment of redemptions from a retirement plan
account may differ from redemptions from an ordinary shareholder
account. If you redeem shares of the Fund or exchange them for shares
of another Fund, any gain on the transaction may be subject to tax.
You must provide the Fund with a correct taxpayer identification
number (generally your Social Security Number) and certify that you
are not subject to backup withholding. If you fail to do so, the IRS
can require the Fund to withhold 31% of your taxable distributions and
redemptions. Federal law also requires the Fund to withhold 30% or
the applicable tax treaty rate from dividends paid to nonresident
alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
This is a brief summary of some of the tax laws that affect your
investment in the Fund. Please see the Statement of Additional
Information and your tax adviser for further information.
28
<PAGE>
PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions
(Class A shares commenced operations on March 1, 1999). These figures
have been audited by Deloitte & Touche LLP, whose report, along with
Company's financial statements, are included in the annual report,
which is available upon request.
----------------------------------------------------------------------
<TABLE>
<CAPTION>
TCW GALILEO SELECT EQUITIES FUND
Ten Months
ended
YEAR ENDED OCTOBER 31 October 31
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period ____ $ 15.93 $ 13.69 $ 11.57 $ 11.81
-------- -------- -------- --------
Investment operations: ____
Investment income - net ____ 0.01 0.11 0.06 0.04
Net realized and unrealized gain ____ 3.57 2.18 2.11 (0.28)
(loss) on investments -------- -------- -------- --------
Total from investment operations ____ 3.58 2.29 2.17 (0.24)
-------- -------- -------- --------
Distributions: ____
Dividends from investment ____ (0.02) (0.05) (0.05) --
income - net
Dividends from net realized gains ____ (0.20) -- -- --
on investments
Dividends in excess of net realized ____ -- -- -- --
gains -------- -------- -------- --------
Total Distributions: ____ (0.22) (0.05) (0.05) --
--------
Net asset value, end of period $ ____ $ 19.29 $ 15.93 $ 13.69 $ 11.57
====== ======== ======== ======== ========
Total return (%) ____ 22.68% 16.79% 18.85% (2.03)%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) ____ 0.83% 0.82% 0.85% 0.91%/2/
Ratio of net investment income to average net ____ 0.08% 0.18% 0.48% 0.44%/2/
assets (%)
Portfolio turnover rate (%) ____ 39.22% 39.58% 53.77% 23.53%/1/
Net assets, end of period ($ x 1,000) ____ $156,113 $231,302 $197,721 $136,122
</TABLE>
1 For the ten months ended October 31, 1994 and not indicative of a
full year's operating results.
2 Annualized.
29
<PAGE>
FOR MORE INFORMATION
To obtain information:
- ---------------------
By telephone
Call
-----------------
By mail Write to:
865 South Figueroa Street
Suite 1800
Los Angeles, California 90017
By E-mail Send your request to
On the Internet Text-only versions of Fund documents can be viewed online or
downloaded from:
SEC
http:/www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SECs Public Reference Section, Washington, DC 20549-6009.
__________________________
__________________________
__________________________
SEC file number: 811-____
More information on the Fund is available free upon request, including the
following:
ANNUAL/SEMIANNUAL REPORT
Describes the Fund's performance, lists portfolio holdings and contains a
letter from the Fund's portfolio-manager discussing recent market
conditions, economic trends and Fund strategies.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Fund and its policies. A current SAI is on
file with the Securities and Exchange Commission (SEC) and is incorporated
by reference (is legally considered part of this prospectus).
30
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class A shares of one of the separate
investment funds offered by TCW Galileo Funds, Inc., each of which has different
investment objectives and policies. Please read this document carefully, and
keep it for future reference.
TCW GALILEO SMALL CAP GROWTH FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
March 1, 1999
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES.. 3
PRINCIPAL RISKS................................. 4
PERFORMANCE SUMMARY............................. 6
FUND EXPENSES AND EXPENSE EXAMPLE............... 8
INVESTMENT OBJECTIVES/APPROACH.................. 9
MAIN RISKS...................................... 10
RISK CONSIDERATIONS............................. 11-19
MANAGEMENT OF THE FUND.......................... 20
MULTIPLE CLASS STRUCTURE........................ 21
ACCOUNT POLICIES AND SERVICES................... 22
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT......... 25
TO SELL OR EXCHANGE SHARES...................... 26
DISTRIBUTIONS AND TAXES......................... 27
FINANCIAL HIGHLIGHTS............................ 28
FOR MORE INFORMATION............................ 29
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
The Fund is affected by changes in the economy, or in securities and other
markets. There is also the possibility that investment decisions the Adviser
makes will not accomplish what they were designed to achieve or that companies
in which the Fund invests will have disappointing performance or not pay their
debts.
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC. INVESTMENT OBJECTIVES PRINCIPAL INVESTMENT STRATEGIES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCW Galileo Small Cap Growth Long-term capital appreciation Invests in equity securities issued by companies with
Fund market capitalization of less than $1 billion.
</TABLE>
Under adverse market conditions, the Fund could invest some or all of its assets
in money market securities. Although the Fund would do this only in seeking to
avoid losses, it could have the effect of reducing the benefit from any upswing
in the market.
3
<PAGE>
PRINCIPAL RISKS
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you and the more you can lose. Since shares of the
Fund represent an investment of securities with fluctuating market prices, the
value of Fund shares will vary as the Fund's portfolio securities increase or
decrease. Therefore, the value of an investment in the Fund could go down as
well as up. All investments are subject to:
. ASSET CLASS RISK
There is the possibility that the returns from the types of securities in
which the Fund invests will underperform returns from the various general
securities markets or different asset classes. Different types of securities
tend to go through cycles of outperformance and underperformance in
comparison to the general securities markets.
. SECURITIES SELECTION RISK
There is the possibility that the specific securities held in the Fund's
portfolio will underperform other funds in the same asset class or benchmarks
that are representative of the general performance of the asset class because
of the portfolio manager's choice of securities.
. PRICE VOLATILITY
There is the possibility that the value of the Fund's portfolio will change
as the prices of its investments go up or down. Although stocks offer the
potential for greater long-term growth than most fixed income securities,
stocks generally have higher short-term volatility.
The Fund may also be subject to the following risks:
. LIQUIDITY RISK
There is the possibility that the Fund may lose money or be prevented from
earning capital gains if it can not sell a security at the time and price
that is most beneficial to the Fund. The Fund is subject to liquidity risk
because it invests primarily in securities of small sized companies.
. FOREIGN INVESTING RISK
There is the likelihood that foreign investments may be riskier than U.S.
investments because of a lack of political stability, foreign controls on
investment and currency exchange rates, withholding taxes, and lack of
adequate company information. The Fund is subject to foreign investing risk
because it may invest a portion of its assets in foreign company securities.
In addition, because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, and the Fund holds various
foreign currencies, the value of the net assets of the Fund as measured in
United States dollars will be affected favorably or unfavorably by changes in
exchange rates.
4
<PAGE>
PRINCIPAL RISKS
Because the Fund is non-diversified for 1940 Act purposes, it may invest more
than 5% of its total assets in the securities of any one issuer. Consequently,
its exposure to credit and market risks associated with that issuer is
increased.
Your investment is not a bank deposit, and it is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
5
<PAGE>
PERFORMANCE SUMMARY
The two tables below show the Fund's annual returns and its long-term
performance with respect to its Institutional Class shares (Class A shares of
the Fund commenced operations on March 1, 1999). The first table shows you how
the Fund's performance has varied from year to year. The second compares the
Fund's performance over time to that of a broad-based securities index. Both
tables assume reinvestment of dividends and distributions. The performance
information includes performance of the predecessor limited partnership. As with
all mutual funds, past performance is not a prediction of future results.
<TABLE>
<CAPTION>
Year by year total return (%)
as of December 31 each year*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -11.49% 81.09% 2.74% 13.06% -4.38% 64.29% 17.63% 14.37% ______%
1990 1991 1992 1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998
is: ______%
Best and worst quarterly performance during this period
- --------------------------------------------------------------------------
FUND PERFORMANCE
- ---------------------------------------------------------------------------
* Small Cap Growth Fund
Quarter ending June 30, 1997 28.00% (Best)
Quarter ending September 30, 1998 -22.3% (Worst)
- ---------------------------------------------------------------------------
6
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF SINCE
DECEMBER 31 1 YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Small Cap Growth Fund ____% ____% __%
- ----------------------------------------------------------------------------------------------------------
Russell 2000 Index ____% ____% __%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
FUND EXPENSES AND EXPENSE EXAMPLE
As an investor, you pay certain fees and expenses in connection with the Fund,
which are described in the table below. Annual Fund operating expenses are paid
out of Fund assets, so their effect is included in the share price. The Class A
shares of the Fund have no sales charge (load), but are subject to Rule 12b-1
distribution fees.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
FEE TABLE
Small Cap Growth
<S> <C>
Shareholder transaction fees
1) Redemption Fees None
2) Exchange Fees None
3) Contingent Deferred Sales Load None
4) Sales Load on Reinvested Dividends None
5) Sales Load on Purchases None
ANNUAL FUND OPERATING EXPENSES
Management Fees 1.00%
Distribution (12b-1) Fees 0.25%
Other Expenses -%
Total Annual Fund Operating Expenses -%
</TABLE>
<TABLE>
<CAPTION>
================================================================================
EXPENSE EXAMPLE
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Small Cap Growth
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether or not you sold your shares at the end of a
period. Because actual return and expenses will be different, the example is for
comparison purposes only.
8
<PAGE>
TCW GALILEO SMALL CAP GROWTH FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal, it
invests at least 65% of its total assets in equity securities issued
by companies with market capitalizations at the time of acquisition of
less than $1 billion.
In managing the Fund's investments, the Adviser pursues a small cap
growth investment philosophy. That philosophy consists of fundamental
company-by-company analysis used in conjunction with technical and
quantitative market analysis to screen potential investments and to
continuously monitor securities in the Fund's portfolio.
DOUGLAS S. FOREMAN, CHRISTOPHER J. AINLEY AND CHARLES LARSEN ARE THE
FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
- ----------------------
Small Sized Companies seek long term capital appreciation by focusing on small,
fast-growing companies that offer cutting-edge products, services or
technologies. Because these companies are often in their early stages of
development, their stocks tend to fluctuate more than most other securities.
9
<PAGE>
. MAIN RISKS
----------
The Fund holds primarily stocks, which may go up or down in value,
sometimes rapidly and unpredictably. Although stocks offer the
potential for greater long-term growth than most fixed income
securities, stocks generally have higher short-term volatility.
The primary risks affecting this Fund are "price volatility" and
"liquidity risk." PRICE VOLATILITY refers to the possibility that
the value of the Fund's portfolio will change as the prices of its
investments go up or down. This Fund may be subject to greater price
volatility than funds that invest in the securities of large or
midcap companies. LIQUIDITY RISK refers to the possibility that the
Fund may lose money or be prevented from earning capital gains if it
can not sell securities at the time and price that is most
beneficial to the Fund. Because the securities of small-size
companies may be less liquid than the securities of large-size
companies, the Fund may be more susceptible to liquidity risk than
funds that invest in the securities of large-sized companies.
The Fund may invest some assets in options. This practice is used
primarily to hedge the Fund's portfolio but may be used to increase
returns; however, such practice sometimes may reduce returns or
increase volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and
other high grade debt obligations. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower fail financially.
10
<PAGE>
. RISK CONSIDERATIONS
-------------------
Please consider the following risks before investing in the Fund.
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's
performance or financial position can depress the value of the
issuer's securities. The liquidity in a market for a particular
security will affect its value and may be affected by factors relating
to the issuer, as well as the depth of the market for that security.
Other market risks that can affect value include a market's current
attitudes about types of securities, market reactions to political or
economic events, and tax and regulatory effects (including lack of
adequate regulations for a market or particular type of instrument).
Market restrictions on trading volume can also affect price and
liquidity.
Prices of many securities tend to be more volatile in the short-term.
Therefore an investor who trades frequently or redeems in the short-
term is more likely to incur loss than an investor who holds
investments for the longer term. Lack of diversification in a
portfolio can also increase volatility.
GENERAL INVESTMENT RISK
- -----------------------
Since shares of the Fund represent an investment in securities with fluctuating
market prices, the value of Fund shares will vary as the value of the Fund's
portfolio securities increases or decreases. Therefore, the value of an
investment in the Fund could go down as well as up.
11
<PAGE>
. RISK CONSIDERATIONS
-------------------
FOREIGN
INVESTING Investment in foreign securities involves special risks in addition
to the usual risks inherent in domestic investments. These include:
political or economic instability; the unpredictability of
international trade patterns; the possibility of foreign
governmental actions such as expropriation, nationalization or
confiscatory taxation; the imposition or modification of foreign
currency or foreign investment controls; the imposition of
withholding taxes on dividends, interest and gains; price
volatility; and fluctuations in currency exchange rates.
As compared to United States companies, foreign issuers generally
disclose less financial and other information publicly and are
subject to less stringent and less uniform accounting, auditing and
financial reporting standards. Foreign countries typically impose
less thorough regulations on brokers, dealers, stock exchanges,
insiders and listed companies than does the United States, and
foreign securities markets may be less liquid and more volatile
than domestic markets. Investment in foreign securities involves
higher costs than investment in United States securities, including
higher transaction and custody costs as well as the imposition of
additional taxes by foreign governments. In addition, security
trading practices abroad may offer less protection to investors
such as the Fund. Settlement of transactions in some foreign
markets may be delayed or may be less frequent than in the United
States, which could affect the liquidity of the Fund's portfolio.
Also, it may be more
12
<PAGE>
difficult to obtain and enforce legal judgments against foreign
corporate issuers than against domestic issuers and it may be
impossible to obtain and enforce judgments against foreign
governmental issuers.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Fund holds various foreign
currencies from time to time, the value of the net assets of the Fund
as measured in United States dollars will be affected favorably or
unfavorably by changes in exchange rates. Generally, currency
exchange transactions will be conducted on a spot (i.e., cash) basis
at the spot rate prevailing in the currency exchange market. The cost
of currency exchange transactions will generally be the difference
between the bid and offer spot rate of the currency being purchased or
sold. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Fund is authorized to enter into
certain foreign currency futures and forward contracts.
The forward currency market for the purchase or sale of United States
dollars in most countries is not highly developed, and in certain
countries, there may be no such market. If a devaluation of a
currency is generally anticipated, the Fund may not be able to
contract to sell the currency at an exchange rate more advantageous
than that which would prevail after the anticipated amount of
devaluation. In the event the Fund holds securities denominated in a
currency that suffers a devaluation, the Fund's net asset values will
suffer corresponding reductions. In this regard, in December 1994, the
Mexican government determined to allow the Mexican peso to trade
freely against the United States dollar rather than within a
controlled band, which action resulted in a significant devaluation of
the Mexican peso against the dollar. Further, in July 1997, the Thai
and Philippine governments allowed the baht and peso, respectively, to
trade freely against the United States dollar resulting in a sharp
devaluation of both currencies, and in 1998 Russia did the same,
causing a sharp devaluation of the ruble.
13
<PAGE>
. RISK CONSIDERATIONS
-------------------
FIXED
INCOME
SECURITIES Fixed income securities are subject to various risks. The two
primary (but not exclusive) risks affecting fixed income
instruments are "credit risk" and "interest rate risk." These
risks can affect a security's price volatility to varying
degrees, depending upon the nature of the instrument. In
addition, the depth and liquidity of the market for an individual
or class of fixed income security can also affect its price and,
hence, the market value of the Fund.
"CREDIT RISK" refers to the likelihood that an issuer will
default in the payment of principal and/or interest on an
instrument. Financial strength and solvency of an issuer are
the primary factors influencing credit risk. In addition, lack
of or inadequacy of collateral or credit enhancements for a
fixed income security may affect its credit risk. Credit risk
of a security may change over its life, and securities which are
rated by rating agencies are often reviewed and may be subject
to downgrade.
The Fund may invest in convertible securities rated below
investment grade. Generally, lower-rated debt securities provide
a higher yield than higher rated debt securities of similar
maturity but are subject to greater credit risk than higher rated
securities of similar maturity. Such securities are regarded as
predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Because
investment in lower quality securities involves greater
investment risk, achievement of the Fund's investment objective
14
<PAGE>
will be more dependent on the Adviser's analysis than would be the
case if the Fund were investing in higher quality bonds. In addition,
lower quality securities may be more susceptible to real or perceived
adverse economic and individual corporate developments than would
investment grade bonds. Moreover, the secondary trading market for
lower quality securities may be less liquid than the market for
investment grade bonds. This potential lack of liquidity may make it
more difficult for the Adviser to value accurately certain portfolio
securities.
"INTEREST RATE RISK" refers to the risks associated with market
changes in interest rates. Interest rate changes may affect the value
of a fixed income security directly (especially in the case of fixed
rate securities) and indirectly (especially in the case of adjustable
rate securities). In general, rises in interest rates will negatively
impact the price of fixed rate securities and falling interest rates
will have a positive effect on price. The degree to which a
security's price will change as a result of changes in interest rates
is measured by its "duration." For example, the price of a bond with
a 5 year duration would be expected under normal market conditions to
decrease 5% for every 1% increase in interest rates. Generally,
securities with longer maturities have a greater duration and thus are
subject to greater price volatility from changes in interest rates.
Adjustable rate instruments also react to interest rate changes in a
similar manner although generally to a lesser degree (depending,
however, on the characteristics of the reset terms, including the
index chosen, frequency of reset and reset caps or floors, among other
things).
15
<PAGE>
. RISK CONSIDERATIONS
-------------------
NON-
DIVERSIFIED
STATUS The Fund is non-diversified for 1940 Act purposes and as such may
invest a larger percentage of its assets in individual issuers
than a diversified investment company. In this regard, the Fund
is not subject to the general limitation that it not invest more
than 5% of its total assets in the securities of any one issuer.
To the extent the Fund makes investments in excess of 5% of its
assets in a particular issuer, its exposure to credit and market
risks associated with that issuer is increased. However, the
Fund's investments will be limited so as to qualify for the
special tax treatment afforded "regulated investment companies"
under the Internal Revenue Code of 1986, as amended.
16
<PAGE>
. RISK CONSIDERATIONS
-------------------
YEAR
2000 The investment advisory and management services provided by the
Adviser and the services provided to shareholders by the Transfer
Agent depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the
year 2000, but revert to 1900 or some other date, due to the
manner in which dates were encoded and calculated. That failure
could have a negative impact on the handling of securities trades,
pricing and account services. The Adviser and the Transfer Agent
have been actively working on necessary changes to their own
computer systems to prepare for the year 2000 and expect that
their systems will be adapted for year 2000 compliance before that
date, but there can be no assurance that they will be successful,
or that interaction with other non-complying computer systems will
not impair their services at that time.
In addition, it is possible that the markets for securities in
which the Fund invests may be negatively affected by computer
failures throughout the financial services industry commencing
January 1, 2000. Improperly functioning trading systems may result
in settlement problems. In addition, corporate and governmental
data processing errors may result in production problems for
individual companies and create overall economic uncertainties.
Earnings of individual issuers will be affected by remediation
costs which may be substantial. Individual firms may further
experience disruptions to their business due to the failure of
their counterparts to address year 2000 problems, or could
experience further disruption to the economy at large, which could
adversely affect corporate earnings generally and the
17
<PAGE>
value of their securities. Accordingly, the Fund's portfolio
investments may be negatively affected.
18
<PAGE>
. RISK CONSIDERATIONS
-------------------
EUROPEAN
ECONOMIC
AND MONETARY
UNION The Fund may invest in European countries that have agreed to
enter into the European Monetary Union (EMU). EMU is an effort
by certain European countries to, among other things, reduce
barriers between countries and eliminate fluctuations in their
currencies. Among other things, EMU establishes a single European
currency (the euro), which will be introduced on January 1, 1999
and is expected to replace the existing national currencies of
all initial EMU participants by July 1, 2002. Upon introduction
of the euro, certain securities (beginning with government and
corporate bonds) will be redonominated in the euro and,
thereafter will trade and make dividend and other payments only
in euros. Like other investment companies and business
organizations, including the companies in which the Fund invests,
the Fund could be adversely affected: (i) if the euro, or EMU as
a whole does not take affect as planned; (ii) if a participating
country withdraws from EMU; or (iii) if the computing, accounting
and trading systems used by the Fund's service providers, or by
other business entities with which the Fund or its service
providers do business, are not capable of recognizing the euro as
a distinct currency at the time of, and following euro
conversion.
19
<PAGE>
. MANAGEMENT OF THE FUND
----------------------
INVESTMENT ADVISER
The Fund's investment adviser is TCW Funds Management, Inc. (the
"Adviser") and is headquartered at 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017. As of October 31, 1998, the
Adviser and its affiliated companies, which provide a variety of
trust, investment management and investment advisory services, had
over $50 billion under management or committed for management.
PORTFOLIO MANAGERS
Listed below are the individuals who have been primarily responsible
for the day-to-day portfolio management of the Fund, including a
summary of each person's business experience during the past five
years:
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS(1)
---------- -------------------------
<S> <C>
Christopher J. Ainley Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of
the West. Prior to joining TCW in 1994
he was a portfolio manager with Putnam
Investments.
Douglas S. Foreman Group Managing Director and Chief
Investment Officer-U.S. Equities, the
Adviser, TCW Asset Management Company and
Trust Company of the West since May 1994.
Previously, he was a portfolio manager
with Putnam Investments.
Charles Larsen Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of
the West.
</TABLE>
ADVISORY AGREEMENT
The Company and the Adviser have entered into an Investment Advisory
and Management Agreement (the "Advisory Agreement"), under the terms
of which the Company has employed the Adviser to manage the investment
of its assets, to place orders for the purchase and sale of its
20
<PAGE>
portfolio securities, to administer its day-to-day operations, and to
be responsible for overall management of the Company's business
affairs, subject to control by the Board of Directors of the Company.
The Adviser also pays certain costs of marketing the Fund, including
sales personnel compensation, from legitimate profits from its
investment advisory fees and other resources available to it. Under
the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by
it the following fees:
FUND ANNUAL MANAGEMENT FEE
----
(AS PERCENT OF AVERAGE NET ASSET VALUE)
---------------------------------------
Small Cap Growth 1.00%
The Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which the agreement
relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Adviser in the performance of
its duties or from reckless disregard by it of its duties under the
respective agreement.
. MULTIPLE CLASS STRUCTURE
------------------------
The Fund currently offers two classes of shares, Institutional Class
shares and Class A shares. Shares of each class of the Fund represent
an equal pro rata interest in the Fund and generally gives you the
same voting, dividend, liquidation, and other rights. The
Institutional Class shares are offered at the current net asset value.
The Class A shares are also offered at the current net asset value,
but will be subject to a distribution or service fee imposed under a
distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. Pursuant to the
Distribution Plan, the Fund compensates the Fund's distributor at a
rate equal to 0.25% of the average daily net assets of the Fund
attributable to its Class A shares for distribution and related
services. Because these fees are paid out of the Fund's Class A assets
on an on-going basis, over time, these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.
21
<PAGE>
YOUR INVESTMENT
. ACCOUNT POLICIES AND SERVICES
-----------------------------
BUYING SHARES
You pay no sales charges to invest in the Fund. Your price for Fund
shares is the Fund's net asset value per share (NAV) which is
generally calculated as of the close of trading on the New York Stock
Exchange (usually 4:00 p.m. Eastern time) every day the exchange is
open. Your order will be priced at the next NAV calculated after your
order is accepted by the Fund. Orders received by the Fund's Transfer
Agent from dealers, brokers or other service providers after the net
asset value (NAV) is determined that day will receive that NAV if the
orders were received by the dealers, brokers or service providers from
their customers prior to such determination and were transmitted to
and received by the Transfer Agent prior to 8:00 a.m. Eastern time on
the next day. The Fund's investments are valued based on market
value, or where market quotations are not readily available, based on
fair value as determined in good faith by the Fund pursuant to
procedures established by the Fund's board.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Minimums
Initial Additional
----------------------------------------------------------------------
<S> <C> <C>
Small Cap Growth Fund $2,000 $250
</TABLE>
THE TCW GALILEO FUNDS, INC. MAY WAIVE THE MINIMUM SUBSEQUENT
INVESTMENT. ALL INVESTMENTS MUST BE IN UNITED STATES DOLLARS. THIRD-
PARTY CHECKS, EXCEPT THOSE PAYABLE TO AN EXISTING SHAREHOLDER, WILL
NORMALLY NOT BE ACCEPTED. IF YOUR CHECK OR WIRE DOES NOT CLEAR, YOU
WILL BE RESPONSIBLE FOR ANY LOSS THE FUND INCURS.
22
<PAGE>
SELLING SHARES
You may sell shares at any time. Your shares will be sold at the next
NAV calculated after your order is accepted by the Fund's Transfer
Agent. Any certificates representing Fund shares being sold must be
returned with your redemption request. Your order will be processed
promptly, and you will generally receive the proceeds within a week.
Before selling recently purchased shares, please note that if the Fund
has not yet collected payment for the shares you are selling, it may
delay sending the proceeds for up to fifteen business days.
WRITTEN SELL ORDER
Some circumstances require written sell orders, along with signature
guarantees. These include:
. amounts of $100,000 or more
. amounts of $1,000 or more on accounts whose address has been
changed within the last 30 days
. requests to send the proceeds to a payee or address different
than what is on our records
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one
from most banks or securities dealers but not from a notary public.
Please call us to ensure that your signature guarantee will be
processed correctly.
EXCHANGE PRIVILEGE
You can exchange from one Class A Galileo Fund into another. You can
request your exchange in writing or by phone. Be sure to read the
current prospectus for any Fund into which you are exchanging. Any new
account established through an exchange will have the same privileges
as your original account (as long as they are available).
THIRD PARTY TRANSACTIONS
If purchases and redemptions of Fund shares are arranged and
settlement is made at an investor's election through a registered
broker-dealer, other than the Fund's distributor, that broker-dealer
may, at its discretion, charge a fee for that service.
ACCOUNT STATEMENTS
Every Galileo investor automatically receives regular account
statements. You will also be sent a yearly statement detailing the
tax characteristics of any dividends and distributions you have
received.
23
<PAGE>
GENERAL POLICIES
If your account falls below $1,000 as a result of redemptions and or
exchanges for six months or more, the Fund may close your account and
send you the proceeds upon 60 days' written notice.
Unless you decline telephone privileges on your New Account Form, you
may be responsible for any fraudulent telephone order as long as the
Transfer Agent takes reasonable measures to verify the order.
The Fund restricts excessive trading (usually defined as more than
four exchanges out of the Fund within a calendar year). You are
limited to one exchange of shares in the Fund during any 15-day period
except investors in 401(k) and other group retirement accounts and
asset allocation accounts managed by the Adviser or an affiliate. The
Fund reserves the right to:
. refuse any purchase or exchange request that could adversely
affect the Fund or its operations, including those from any
individual or group who, in the Fund's view, are likely to engage
in excessive trading
. change or discontinue its exchange privilege, or temporarily
suspend this privilege during unusual market conditions
. delay sending out redemption proceeds for up to seven days
(generally applies only in cases of very large redemptions,
excessive trading or during unusual market conditions)
LARGE REDEMPTION AMOUNTS
------------------------
The Fund also reserves the right to make a redemption in kind"-payment in
portfolio securities rather than cash - if the amount you are redeeming in
any 90-day period is large enough to affect Fund operations (for example,
if it equals more than $250,000 or represents more than 1% of the Fund's
assets).
24
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- --------------------------------------------------------------------------------------------------------------
<S> <C>
In Writing
Complete the New Account Form. Mail your New
Account Form and a check to:
Regular Mail
TCW Galileo Small Cap Growth Fund (Same, except that you should include a note
DST Systems, Inc. specifying the Fund name, your account number, and
P.O. Box 419951 the name(s) your account is registered in.)
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
TCW Galileo Small Cap Growth Fund
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- --------------------------------------------------------------------------------------------------------------
By Telephone
WIRE Have your bank send your investment to: (Same)
United Missouri Bank, n.a.
ABA No. 101000695
DST Systems, Inc./AC 9870371553
FBO TCW Galileo Small Cap Growth Fund
(Name on the Fund Account) __________
- --------------------------------------------------------------------------------------------------------------
Via Exchange
Call the Transfer Agent at (800) 248 4486.
The new account will have the same registration as
the account from which you are exchanging.
</TABLE>
If you need help completing the New Account Form, please call the Transfer Agent
at (800) 248-4486.
25
<PAGE>
TO SELL OR EXCHANGE SHARES
By Mail
Write a letter of instruction that includes:
. your name(s) and signature(s) as on the account form
. your account number
. the Fund name
. the dollar amount you want to sell or exchange
how and where to send the proceeds
- ---------------------------------------------------------
Obtain a signature guarantee or other documentation,
if required (see "Account Policies - Selling Shares").
Mail your letter of instruction to:
Regular Mail
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- ---------------------------------------------------------
By Telephone
Be sure the Fund has your bank account information on
file. Call the Transfer Agent at (800) 248-4486 to
request your transaction. Proceeds will be wired to
your bank.
Telephone redemption requests must be for a minimum
of $1,000.
- ---------------------------------------------------------
Systematic Withdrawal Plan Call us to request a form
to add the plan. Complete the form, specifying the
amount and frequency of withdrawals you would like.
Be sure to maintain an account balance of $2,000 or
more. Systematic Withdrawal plans are subject to a
minimum annual withdrawal of $500.
- ---------------------------------------------------------
To reach the Transfer Agent, DST Systems, Inc., call toll
free in the U.S.
1-800-248-4486
26
<PAGE>
. DISTRIBUTIONS AND TAXES
-----------------------
The amount of dividends of net investment income and distributions of
net realized long and short-term capital gains payable to shareholders
will be determined separately for the Fund. Dividends from the net
investment income of the Fund will be declared and paid annually. The
Fund will distribute any net realized long or short-term capital gains
at least annually. Your distributions will be reinvested in the Fund
unless you instruct the Fund otherwise. There are no fees or sales
charges on reinvestments.
In any fiscal year in which the Fund qualifies as a regulated
investment company and distributes to shareholders all of its net
investment income and net capital gains, the Fund is relieved of
Federal income tax.
Generally, all dividends and capital gains are taxable whether they
are reinvested or received in cash - unless you are exempt from
taxation or entitled to tax deferral. Capital gains distributions may
be taxable at different rates depending on the length of time the Fund
has held the assets sold. Early each year, you will be notified as to
the amount and Federal tax status of all distributions paid during the
prior year. Distributions may also be subject to state or local
taxes. The tax treatment of redemptions from a retirement plan
account may differ from redemptions from an ordinary shareholder
account. If you redeem shares of the Fund or exchange them for shares
of another Fund, any gain on the transaction may be subject to tax.
You must provide the Fund with a correct taxpayer identification
number (generally your Social Security Number) and certify that you
are not subject to backup withholding. If you fail to do so, the IRS
can require the Fund to withhold 31% of your taxable distributions and
redemptions. Federal law also requires the Fund to withhold 30% or
the applicable tax treaty rate from dividends paid to nonresident
alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
This is a brief summary of some of the tax laws that affect your
investment in the Fund. Please see the Statement of Additional
Information and your tax adviser for further information.
27
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. "Total
return" shows how much your investment in the Institutional Class
shares of the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions
(Class A shares commenced operations on March 1, 1999). These figures
have been audited by Deloitte & Touche LLP, whose report, along with
Company's financial statements, are included in the annual report,
which is available upon request.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
TCW GALILEO SMALL CAP GROWTH FUND
MARCH 31, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
YEAR ENDED OCTOBER 31 OCTOBER 31
1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period ---- $ 17.17 $ 13.53 $ 9.39 $ 10.00
-------- ------- ---------
Investment operations:
Investment income - net ---- (0.15) (0.13) (0.07) (0.04)
Net realized and unrealized gain 1.91 4.08 4.72 (0.57)
(loss) on investments -------- -------- ------- ---------
Total from investment operations 1.76 3.95 4.65 (0.61)
-------- -------- ------- ---------
Distributions:
Dividends from investment -- (0.01) -- --
income - net
Dividends from net realized gains (0.19) (0.31) (0.51) --
on investments
Dividends in excess of net realized
gains
Total Distributions: (0.19) (0.30) (0.51) --
-------- -------- ------- ---------
Net asset value, end of period $ $ 18.74 $ 17.17 $ 13.53 $ 9.39
===== ======== ======== ======= =========
Total return (%) 10.38% 29.73% 49.89% (6.10)%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net 1.14% 1.14% 1.21%/3/ 1.09%/2/,/3/
assets (%)
Ratio of net investment income to (0.89)% (0.76)% (0.61)% (0.59)%/2/
average net assets (%)
Portfolio turnover rate (%) 60.52% 45.43% 89.73% 88.63%/1/
Net assets, end of period ($ x 1,000) ---- $144,756 $132,444 $66,056 $ 51,089
</TABLE>
/1/ For the period March 1, 1994 (commencement of operations) through
October 31, 1994 and not indicative of a full year's operating
results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee from the
Fund, or to pay the operating expenses of the Fund, to the extent
necessary to limit the ordinary operating expenses of the Fund to
1.09% of net assets through December 31, 1994. Had such action
not been taken, total annualized operating expenses for the
period March 1, 1994 (commencement of operations) through October
31, 1994 would have been 1.39% of average net assets and for the
fiscal year ended October 31, 1995, total operating expenses
would have been 1.24% of average net assets.
28
<PAGE>
FOR MORE INFORMATION
TO OBTAIN INFORMATION:
- ----------------------
BY TELEPHONE
Call
-----------------
BY MAIL Write to:
865 South Figueroa Street
Suite 1800
Los Angeles, California 90017
BY E-MAIL Send your request to:
ON THE INTERNET Text-only versions of Fund documents can be viewed online or
downloaded from:
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SECs Public Reference Section, Washington, DC 20549-6009.
__________________________
__________________________
__________________________
SEC file number: 811-____
More information on the Fund is available free upon request, including the
following:
ANNUAL/SEMIANNUAL REPORT
Describes the Fund's performance, lists portfolio holdings and contains a letter
from the Fund's portfolio manager discussing recent market conditions, economic
trends and Fund strategies.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Fund and its policies. A current SAI is on file
with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
29
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class A shares of one of the separate
investment funds offered by TCW Galileo Funds, Inc., each of which has different
investment objectives and policies. Please read this document carefully, and
keep it for future reference.
TCW GALILEO TOTAL RETURN MORTGAGE-BACKED SECURITIES FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
March 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES......................... 3
PRINCIPAL RISKS........................................................ 4
PERFORMANCE SUMMARY.................................................... 6
FUND EXPENSES AND EXPENSE SAMPLE....................................... 8
INVESTMENT OBJECTIVES/APPROACH......................................... 9
MAIN RISKS............................................................. 10
RISK CONSIDERATIONS.................................................... 12-21
MANAGEMENT OF THE FUND................................................. 22
MULTIPLE CLASS STRUCTURE............................................... 23
ACCOUNT POLICIES AND SERVICES.......................................... 24
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT................................ 27
TO SELL OR EXCHANGE SHARES............................................. 28
DISTRIBUTIONS AND TAXES................................................ 29
FINANCIAL HIGHLIGHTS................................................... 30
TO OBTAIN INFORMATION.................................................. 31
</TABLE>
2
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INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
The Fund is affected by changes in the economy, or in securities and other
markets. Additionally, changes in interest rates will affect not only the
current return on the Fund, but the value of the capital investment will most
likely fluctuate up or down. There is also the possibility that investment
decisions the Adviser makes will not accomplish what they were designed to
achieve or that companies in which the Fund invests will have disappointing
performance or not pay their debts.
<TABLE>
<CAPTION>
TCW GALILEO FUNDS, INC. INVESTMENT OBJECTIVES PRINCIPAL INVESTMENT STRATEGIES
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<S> <C> <C>
TCW Galileo Total Return Maximize current income and achieve Invests in mortgage-backed securities guaranteed by,
Mortgage-Backed above average total return consistent or secured by collateral that is guaranteed by, the
Securities Fund with prudent investment management over United States government, its agencies,
a full market instrumentalities or its sponsored corporations, or
cycle private issued mortgage-backed securities rated Aa
higher by Moody's or AA or higher by S&P.
</TABLE>
Under adverse market conditions, the Fund could invest some or all of its assets
in money market securities. Although the Fund would do this only when seeking to
avoid losses, it could have the effect of reducing the benefit from any upswing
in the market.
3
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PRINCIPAL RISKS
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you and the more you can lose. Since shares of the
Fund represent an investment in securities with fluctuating market prices, the
value of fund will vary as the value of the Fund's portfolio securities
increases or decreases. Therefore, the value of an investment in the Fund could
go down as well as up. All investments are subject to:
. ASSET CLASS RISK
There is the possibility that the returns from the types of securities in
which the Fund invests will underperform returns from the various general
securities markets or different asset classes. Different types of
securities tend to go through cycles of outperformance and underperformance
in comparison to the general securities markets.
. SECURITIES SELECTION RISK
There is the possibility that the specific securities held in the Fund's
portfolio will underperform the other funds in the same asset class or
benchmarks that are representative of the general performance of the asset
class because of the portfolio manager's choice of securities.
Because the Fund is a fixed income fund, the Fund may also be subject (in
varying degrees) to the following additional risks:
. CREDIT RISK
There is the possibility that the Fund could lose money if an issuer is
unable to meet its financial obligations such as the payment of principal
and/or interest on an instrument, or goes bankrupt. The Fund is subject to
some credit risk because it invests in private issued mortgage-backed
securities.
. INTEREST RATE RISK
There is the possibility that the value of the Fund's portfolio investments
may fall since fixed income securities generally fall in value when interest
rates rise. The longer the term of a fixed income instrument, the more
sensitive it will be to fluctuations in value from interest rate changes.
Changes in interest rates may have a significant effect on the Fund, because
it may hold securities with long terms to maturity.
In the case of mortgage-backed securities, rising interest rates tend to
extend the term to maturity of the securities, making them even more
susceptible to interest rate changes. When interest rates drop, not only can
the value of fixed income securities drop, but the yield can drop,
particularly where the yield on the fixed income securities is tied to
changes in interest rates, such as adjustable mortgages. Also when interest
rates drop, the holdings of mortgage-backed securities by the Fund can reduce
returns if the owners of the underlying mortgages pay off their mortgages
sooner than anticipated since the funds prepaid will have to be reinvested at
the then lower prevailing rates. This is known as prepayment risk. When
interest rates rise, the holdings of mortgage-backed securities by this Fund
can reduce returns if the owners of the underlying mortgages pay off their
mortgages later than anticipated. This is known as extension risk.
4
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PRINCIPAL RISKS
. LIQUIDITY RISK
There is the possibility that the Fund may lose money or be prevented from
earning capital gains if it can not sell a security at the time and price
that is most beneficial to the Fund. The Fund is subject to liquidity risks
because it invests in high yield bonds, mortgage-backed securities or
foreign or emerging markets securities, which have all experienced periods
of illiquidity.
A more detailed explanation of these risks is presented under the "Risk
Considerations" section at page 12.
Your investment is not a bank deposit, and it is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
5
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PERFORMANCE SUMMARY
The two tables below show the Fund's annual returns and its long-term
performance with respect to its Institutional Class shares (Class A shares of
the Fund commenced operations on March 1, 1999). The first table shows you how
the Fund's performance has varied from year to year. The second compares the
Fund's performance over time to that of a broad-based securities market index.
Both tables assume reinvestment of dividends and distributions. As with all
mutual funds, past performance is not a prediction of future results.
Year by year total return (%)
as of December 31 each year
3.50% -6.20% 20.80% 5.10% 3.28% ______%
1993 1994 1995 1996 1997 1998
--------------------------------------------
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
______%
Best and worst quarterly performance during this period
-------------------------------------------------------------------
Fund Performance
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* Total Return Mortgage-Backed Securities Fund
Quarter ending June 30, 1995 6.81% (Best)
Quarter ending June 30, 1994 -4.78% (Worst)
-------------------------------------------------------------------
6
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<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF SINCE
DECEMBER 31 1 YEAR 5 YEARS 10 YEARS INCEPTION
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
. Total Return Mortgage-Backed % % % %
Securities Fund
- -----------------------------------------------------------------------------------------------------
Lehman Brothers Mortgage-Backed % % % %
Securities Index
- -----------------------------------------------------------------------------------------------------
</TABLE>
7
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FUND EXPENSES AND EXPENSE SAMPLE
As an investor, you pay certain fees and expenses in connection with the Fund,
which are described in the table below. Annual Fund Operating Expenses are paid
out of Fund assets, so their effect is included in the share price. The Class A
shares of the Fund have no sales charge (load), but are subject to Rule 12b-1
distribution fees.
<TABLE>
<CAPTION>
____________________________________________________________
FEE TABLE
TOTAL RETURN MORTGAGE-
BACKED SECURITIES
<S> <C>
SHAREHOLDER TRANSACTION FEES
1) Redemption Fees None
2) Exchange Fees None
3) Contingent Deferred Sales Load None
4) Sales Load on Reinvested Dividends None
5) Sales Load on Purchases None
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.50%
Distribution (12b-1) Fees 0.25%
Other Expenses -%
Total Annual Fund Operating Expenses -%
</TABLE>
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
TOTAL RETURN MORTGAGE-BACKED
SECURITIES
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether or not you sold your shares at the end of a
period. Because actual return and expenses will be different, the example is for
comparison purposes only.
8
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TCW GALILEO TOTAL RETURN MORTGAGE-BACKED SECURITIES FUND
. INVESTMENT OBJECTIVES/APPROACH
------------------------------
The Fund seeks to maximize current income and achieve above average
total return consistent with prudent investment management over a full
market cycle. To pursue these goals, the Fund invests primarily in
mortgage-backed securities of any maturity or type guaranteed by, or
secured by collateral that is guaranteed by, the United States
Government, its agencies, instrumentalities or its sponsored
corporations (collectively, the "Federal Agencies"), and in privately
issued mortgage-backed securities rated Aa or higher by Moody's or AA
or higher by S&P.
The Fund will invest at least 65% of its assets in mortgage-backed
securities which are guaranteed by, or secured by collateral which is
guaranteed by Federal Agencies. In managing the Fund's investments,
the Adviser seeks to construct a portfolio with a weighted-average
duration for fixed rate securities and a weighted-average reset
frequency for floating rate securities of no more than eight years.
PHILIP A. BARACH, JEFFREY E. GUNDLACH AND FREDERICK H. HORTON ARE THE
FUND'S PORTFOLIO MANAGERS.
CONCEPTS TO UNDERSTAND
----------------------
Duration is often used to measure the potential volatility of a bond's
price: bonds with longer durations are more sensitive to changes in
interest rates, making them more volatile than bonds with shorter
durations. Bonds with fixed maturities have a readily determinable
duration. Bonds with uncertain payment schedules, such as mortgage-backed
securities which can be prepaid, have durations which may vary or lengthen
in certain interest rate environments, making their value even more
volatile than they were when acquired.
Weighted-average duration is the average duration of the securities in the
portfolio weighted by market value.
Weighted average reset frequency is the average time to the next coupon reset
date of the floating rate securities in the portfolio weighted by market value.
9
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. MAIN RISKS
----------
The primary risks affecting this Fund are "credit risk," "interest
rate risk" (including "extension risk" and "prepayment risk"), and
"liquidity risk."
CREDIT RISK refers to the likelihood that the Fund could lose money if
an issuer is unable to meet its financial obligations, such as the
payment of principal and/or interest on an instrument, or goes
bankrupt. The Fund may invest a portion of its assets in mortgage-
backed securities which are not guaranteed by the U.S. Government,
which may make the Fund subject to substantial credit risk. This is
especially true during periods of economic uncertainty or during
economic downturns. INTEREST RATE RISK refers to the possibility that
the value of the Fund's portfolio investments may fall since fixed
income securities generally fall in value when interest rates rise.
The longer the term of a fixed income instrument, the more sensitive
it will be to fluctuations in value from interest rate changes.
Changes in interest rates may have a significant effect on this Fund,
because it may hold securities with long terms to maturity and
mortgage-backed securities, including collateralized mortgage
obligations, and stripped mortgage securities. Because this Fund
invests in mortgage-backed securities, it may be subject to extension
risk and prepayment risk, which are both a type of interest rate risk.
EXTENSION RISK is the possibility that rising interest rates may cause
owners of the underlying mortgages to pay off their mortgages at a
slower than expected rate. This particular risk may effectively change
a security which was considered short or intermediate term into a
long-term security. Long-term securities generally drop in value more
dramatically in response to rising interest rates than short or
intermediate-term securities. PREPAYMENT RISK refers to the
possibility that falling interest rates may cause owners of the
underlying mortgages to pay off their mortgages at a faster than
expected rate. This tends to reduce returns since the funds prepaid
will have to be reinvested at the then lower prevailing rates.
LIQUIDITY RISK refers to the possibility that the Fund may lose money
or be prevented from earning capital gains if it cannot sell a
security at the time and price that is most beneficial to the Fund.
Because mortgage-backed securities may be less liquid than other
securities, the Fund may be more susceptible to liquidity risks than
funds that invest in other securities.
The Fund may invest some assets in inverse floaters and interest-only
and principal-only securities, which are sometimes referred to as
10
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derivatives. These practices may be used to increase returns;
however, such practices sometimes may reduce returns or increase
volatility.
The Fund seeks to earn additional income by making loans of its
portfolio securities to brokers, dealers and other financial
institutions. The loans will be secured at all times by cash and other
high-grade debt obligations. As with any extension of credit, there
are risks of delay in recovery and in some cases even loss of rights
in the collateral should the borrower fail financially.
11
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. RISK CONSIDERATIONS
-------------------
Please consider the following risks before investing in the Fund.
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's
performance or financial position can depress the value of the
issuer's securities. The liquidity in a market for a particular
security will affect its value and may be affected by factors relating
to the issuer and the depth of the market for that security. Other
market risks that can affect value include a market's current
attitudes about type of security, market reactions to political or
economic events, and tax and regulatory effects (including lack of
adequate regulations for a market or particular type of instrument).
Market restrictions on trading volume can also affect price and
liquidity.
Prices of most securities tend to be more volatile in the short-term.
Therefore an investor who trades frequently or redeems in the short-
term is more likely to incur loss than an investor who holds
investments for the longer term. Lack of diversification in a
portfolio can also increase volatility. A security that is leveraged,
whether explicitly or implicitly, will also tend to be more volatile
in that both gains and losses are intensified by the magnifying
effects of leverage. Certain instruments (such as inverse floaters and
interest-only securities) behave similarly to leveraged instruments.
GENERAL INVESTMENT RISK
-----------------------
Since shares of the Fund represent an investment in securities with
fluctuating market prices, the value of Fund shares will vary as the value
of the Fund's portfolio securities increases or decreases. Therefore, the
value of an investment in the Fund could go down as well as up. This is
also true for funds that invest primarily in fixed income securities. High
credit quality investments also react in value to interest rate changes.
12
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. RISK CONSIDERATIONS
-------------------
FIXED Fixed income securities are subject to various risks. The two primary
INCOME (but not exclusive) risks affecting fixed income instruments are
SECURITIES "credit risk" and "interest rate risk." These risks can affect a
security's price volatility to varying degrees, depending upon the
nature of the instrument. In addition, the depth and liquidity of the
market for an individual or class of fixed income security can also
affect its price and, hence, the market value of the Fund.
"CREDIT RISK" refers to the likelihood that an issuer will default in
the payment of principal and/or interest on an instrument. Financial
strength and solvency of an issuer are the primary factors
influencing credit risk. In addition, lack of or inadequacy of
collateral or credit enhancements for a fixed income security may
affect its credit risk. Credit risk of a security may change over its
life and securities which are rated by rating agencies are often
reviewed and may be subject to downgrades.
13
<PAGE>
"INTEREST RATE RISK" refers to the change in value of debt instruments
associated with changes in interest rates. Interest rate changes may
affect the value of a fixed income security directly (especially in
the case of fixed rate securities) and indirectly (especially in the
case of adjustable rate securities). In general, rises in interest
rates will negatively impact the value of fixed rate securities and
falling interest rates will have a positive effect on value. The
degree to which a security's price will change as a result of changes
in interest rates is measured by its "duration." For example, the
price of a bond with a 5 year duration would be expected under normal
market conditions to decrease 5% for every 1% increase in interest
rates. Generally, securities with longer maturities have a greater
duration and thus are subject to greater price volatility from changes
in interest rates. Adjustable rate instruments also react to interest
rate changes in a similar manner although generally to a lesser degree
(depending, however, on the characteristics of the reset terms,
including the index chosen, frequency of reset and reset caps or
floors, among other things).
14
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. RISK CONSIDERATIONS
-------------------
MORTGAGE- CREDIT AND MARKET RISKS OF MORTGAGE-BACKED SECURITIES. The
BACKED investments by the Fund in fixed rate and floating rate mortgage-
SECURITIES backed securities will entail normal credit risks (i.e., the risk of
----
non-payment of interest and principal) and market risks (i.e., the
----
risk that interest rates and other factors will cause the value of
the instrument to decline). Many issuers or
servicers of mortgage-backed securities guarantee timely payment of
interest and principal on the securities, whether or not payments are
made when due on the underlying mortgages. This kind of guarantee
generally increases the quality of a security, but does not mean that
the security's market value and yield will not change. Like bond
investments, the value of fixed rate mortgage-backed securities will
tend to rise when interest rates fall, and fall when rates rise.
Floating rate mortgage-backed securities will generally tend to have
minimal changes in price when interest rates rise or fall, but their
current yield will be affected. The value of all mortgage-backed
securities may also change because of changes in the market's
perception of the creditworthiness of the organization that issued or
guarantees them. In addition, the mortgage-backed securities market
in general may be adversely affected by changes in governmental
legislation or regulation. Fluctuations in the market value of
mortgage-backed securities after their acquisition usually do not
affect cash income from these securities but are reflected in Fund's
net asset value. Factors that could affect the value of a mortgage-
backed security include, among other things, the types and amounts of
insurance which a mortgage carries, the amount of time the mortgage
loan has been outstanding, the loan-to-value ratio of
15
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each mortgage and the amount of overcollateralization of a mortgage
pool.
LIQUIDITY RISK OF MORTGAGE-BACKED SECURITIES. The liquidity of
mortgage-backed securities varies by type of security; at certain
times the Fund may encounter difficulty in disposing of investments.
Because mortgage-backed securities may be less liquid than other
securities, the Fund may be more susceptible to liquidity risks than
funds that invest in other securities. In the past, in stressed
markets, certain types of mortgage-backed securities, such as inverse
floaters, and interest-only securities, suffered periods of
illiquidity if disfavored by the market.
PREPAYMENT, EXTENSION AND REDEMPTION RISKS OF MORTGAGE-BACKED
SECURITIES. Mortgage-backed securities reflect an interest in monthly
payments made by the borrowers who receive the underlying mortgage
loans. Although the underlying mortgage loans are for specified
periods of time, such as 20 or 30 years, the borrowers can, and
typically do, pay them off sooner. When that happens, the mortgage-
backed security which represents an interest in the underlying
mortgage loan will be prepaid. A borrower is more likely to prepay a
mortgage which bears a relatively high rate of interest. This means
that in times of declining interest rates, a portion of the Fund's
higher yielding securities are likely to be redeemed and the Fund will
probably be unable to replace them with securities having as great a
yield. Prepayments can result in lower yields to shareholders. The
increased likelihood of prepayment when interest rates decline also
limits market price appreciation of mortgage-backed securities. This
is known as prepayment risk. Mortgage-backed securities are also
subject to extension risk. Extension risk is the possibility that
rising interest rates may cause prepayments to occur at a slower than
expected rate. This particular risk may effectively change a security
which was considered short or intermediate term into a long-term
security. Long-term securities generally fluctuate more widely in
response to changes in interest rates than short or intermediate-term
securities. In addition, a mortgage-backed security may be subject to
redemption at the option of the issuer. If a mortgage-backed security
held by the Fund is called for redemption, the Fund will be required
to permit the issuer to redeem or "pay-off" the security, which could
have an adverse effect on the Fund's ability to achieve its investment
objective.
16
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COLLATERALIZED MORTGAGE OBLIGATIONS. There are certain risks
associated specifically with collateralized mortgage obligations
("CMOs.") CMOs are debt obligations collateralized by mortgage loans
or mortgage pass-through securities. The average life of CMOs is
determined using mathematical models that incorporate prepayment
assumptions and other factors that involve estimates of future
economic and market conditions. These estimates may vary from actual
future results, particularly during periods of extreme market
volatility. Further, under certain market conditions, such as those
that occurred in 1994, the average weighted life of certain CMOs may
not accurately reflect the price volatility of such securities. For
example, in periods of supply and demand imbalances in the market for
such securities and/or in periods of sharp interest rate movements,
the prices of CMOs may fluctuate to a greater extent than would be
expected from interest rate movements alone. CMOs issued by private
entities are not obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities and are not guaranteed
by any government agency, although the securities underlying a CMO may
be subject to a guarantee. Therefore, if the collateral securing the
CMO, as well as any third party credit support or guarantees, is
insufficient to make payment, the holder could sustain a loss.
STRIPPED MORTGAGE SECURITIES. Part of the investment strategy of the
Total Return Mortgage-Backed Securities Fund involves interest-only
Stripped Mortgage Securities. These investments are highly sensitive
to changes in interest and prepayment rates and tend to be less liquid
than other CMOs. They could sustain significant loss if prepaid too
early.
INVERSE FLOATERS. The Fund invests in inverse floaters, a class of
CMOs with a coupon rate that resets in the opposite direction from the
market rate of interest to which it is indexed such as London
Interbank Offered Rate (LIBOR) or COFI. Any rise in the index rate
(as a consequence of an increase in interest rates) causes a drop in
the coupon rate of an inverse floater while any drop in the index rate
causes an increase in the coupon of an inverse floater. An inverse
floater may behave like a security that is leveraged since its
interest rate usually varies by a magnitude much greater than the
magnitude of the change in the index rate of interest. The "leverage-
like" characteristics inherent in inverse floaters are associated with
greater volatility in their market prices.
17
<PAGE>
ADJUSTABLE RATE MORTGAGES. ARMs contain maximum and minimum rates
beyond which the mortgage interest rate may not vary over the lifetime
of the security. In addition, many ARMs provide for additional
limitations on the maximum amount by which the mortgage interest rate
may adjust for any single adjustment period. Alternatively, certain
ARMs contain limitations on changes in the required monthly payment.
In the event that a monthly payment is not sufficient to pay the
interest accruing on an ARM, any excess interest is added to the
principal balance of the mortgage loan, which is repaid through future
monthly payments. If the monthly payment for such an instrument
exceeds the sum of the interest accrued at the applicable mortgage
interest rate and the principal payment required at such point to
amortize the outstanding principal balance over the remaining term of
the loan, the excess is utilized to reduce the then-outstanding
principal balance of the ARM.
ASSET-BACKED SECURITIES. Certain asset-backed securities do not have
the benefit of the same security interest in the related collateral as
do mortgage-backed securities; nor are they provided government
guarantees of repayment. Credit card receivables are generally
unsecured, and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. In addition, some issuers of
automobile receivables permit the servicers to retain possession of
the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related
automobile receivables.
18
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. RISK CONSIDERATIONS
-------------------
YEAR 2000 The investment advisory and management services provided by the
Adviser and the services provided to shareholders by the Transfer
Agent depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the
year 2000, but revert to 1900 or some other date, due to the manner
in which dates were encoded and calculated. That failure could have
a negative impact on the handling of securities trades, pricing and
account services. The Adviser and the Transfer Agent have been
actively working on necessary changes to their own computer systems
to prepare for the year 2000 and expect that their systems will be
adapted for year 2000 compliance before that date, but there can be
no assurance that they will be successful, or that interaction with
other non-complying computer systems will not impair their services
at that time.
In addition, it is possible that the markets for securities in which
the Fund invests may be negatively affected by computer failures
throughout the financial services industry commencing January 1,
2000. Improperly functioning trading systems may result in
settlement problems. In addition, corporate and governmental data
processing errors may result in production problems for individual
companies and create overall economic uncertainties. Earnings of
individual issuers will be affected by remediation costs which may
be substantial. Individual firms may further experience disruptions
to their business due to the failure of their counterparts to
address approaching year 2000 problems, or could experience further
disruption to the economy at large, which could adversely affect
corporate earnings generally and the value of
19
<PAGE>
their securities. Accordingly, the Fund's portfolio investments may
be negatively affected.
20
<PAGE>
. RISK CONSIDERATIONS
-------------------
EUROPEAN The Fund may invest in European countries that have agreed to enter
ECONOMIC into the European Monetary Union (EMU). EMU is an effort by certain
AND European countries to, among other things, reduce barriers between
MONETARY countries and eliminate fluctuations in their currencies. Among
UNION other things, EMU establishes a single European currency (the
euro), which will be introduced on January 1, 1999 and is expected
to replace the existing national currencies of all initial EMU
participants by July 1, 2002. Upon introduction of the euro,
certain securities (beginning with government and corporate bonds)
will be redonominated in the euro and, thereafter will trade and
make dividend and other payments only in euros.
Like other investment companies and business organizations, including
the companies in which the Fund invests, the Fund could be adversely
affected: (i) if the euro, or EMU as a whole does not take effect as
planned; (ii) if a participating country withdraws from EMU; or (iii)
if the computing, accounting and trading systems used by the Fund's
service providers, or by other business entities with which the Fund
or its service providers do business, are not capable of recognizing
the euro as a distinct currency at the time of, and following euro
conversion.
21
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. MANAGEMENT OF THE FUND
---------------------
INVESTMENT ADVISER
The Fund's investment adviser is TCW Funds Management, Inc. and is
headquartered at 865 South Figueroa Street, Suite 1800, Los Angeles,
California 90017. As of October 31, 1998, the Adviser and its
affiliated companies, which provide a variety of trust, investment
management and investment advisory services, had over $50 billion
under management or committed for management.
PORTFOLIO MANAGERS
Listed below are the individuals who have been primarily responsible
for the day-to-day portfolio management of the Fund, including a
summary of each person's business experience during the past five
years:
<TABLE>
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS(1)
---------- -------------------------
<S> <C>
Philip A. Barach Group Managing Director and Chief Investment
Officer - Investment Grade Fixed Income, the
Adviser, TCW Asset Management Company and
Trust Company of the West.
Jeffrey E. Gundlach Group Managing Director and Chairman
Multi-Strategy Fixed Income Committee, the
Adviser, TCW Asset Management Company and
Trust Company of the West.
Frederick H. Horton Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of the
West; Senior Portfolio Manager for Dewey
Square Investors from June 1992 through
September 1993.
</TABLE>
Advisory Agreement
The Company and the Adviser have entered into an Investment Advisory
and Management Agreement (the "Advisory Agreement"), under the terms
of which the Company has employed the Adviser to manage the investment
of its assets, to place orders for the purchase and sale of its
portfolio securities, to administer its day-to-day operations, and to
be
22
<PAGE>
responsible for overall management of the Company's business affairs,
subject to control by the Board of Directors of the Company. The
Adviser also pays certain costs of marketing the Fund, including sales
personnel compensation, from legitimate profits from its investment
advisory fees and other resources available to it. Under the Advisory
Agreement, the Fund pays to the Adviser as compensation for the
services rendered, facilities furnished, and expenses paid by it the
following fees:
<TABLE>
<CAPTION>
ANNUAL MANAGEMENT FEE
FUND (AS PERCENT OF NET ASSET VALUE)
---- -------------------------------
<S> <C>
Total Return Mortgage-Backed Securities .50%
</TABLE>
The Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which the agreement
relates, except a loss resulting from willful misfeasance, bad faith,
gross negligence on the part of the Adviser in the performance of its
duties or from reckless disregard by them of its duties under the
agreement.
. MULTIPLE CLASS STRUCTURE
------------------------
The Fund currently offers two classes of shares, Institutional Class
shares and Class A shares. Shares of each class of the Fund represent
an equal pro rata interest in that Fund and generally gives you the
same voting, dividend, liquidation, and other rights. The
Institutional Class shares are offered at the current net asset value.
The Class A shares are also offered at the current net asset value,
but will be subject to a distribution or service fee imposed under a
distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. Pursuant to the
Distribution Plan, the Fund compensates its distributor at a rate
equal to 0.25% of the average daily net assets of the Fund
attributable to its Class A shares for distribution and related
services. Because these fees are paid out of the Fund's Class A
assets on an on-going basis, over time, these fees will increase the
cost of your investment and may cost you more than paying other types
of sales charges.
23
<PAGE>
YOUR INVESTMENT
. ACCOUNT POLICIES AND SERVICES
-----------------------------
BUYING SHARES
You pay no sales charges to invest in the Fund. Your price for Fund
shares is the Fund's net asset value per share (NAV) which is
generally calculated as of the close of trading on the New York Stock
Exchange (usually 4:00 p.m. Eastern time) every day the exchange is
open. Your order will be priced at the next NAV calculated after your
order is accepted by the Fund. Orders received by the Fund's Transfer
Agent from dealers, brokers or other service providers after the NAV
is determined that day will receive that NAV if the orders were
received by the dealers, brokers or service providers from their
customers prior to such determination and were transmitted to and
received by the Transfer Agent prior to 8:00 a.m. Eastern time on the
next day. The Fund's investments are valued based on market value, or
where market quotations are not readily available, based on fair value
as determined in good faith by the Fund pursuant to procedures
established by the Fund's Board.
===========================================================
MINIMUMS
Initial Additional
-----------------------------------------------------------
Total Return
Mortgage-Backed
Securities Fund $2,000 $250
TCW Galileo Funds, Inc. may waive the minimum investment. All
investments must be in U.S. dollars. Third-party checks,
except those payable to an existing shareholder, will normally
not be accepted. If your check or wire does not clear, you
will be responsible for any loss the Fund incurs.
24
<PAGE>
SELLING SHARES
You may sell shares at any time. Your shares will be sold at the next
NAV calculated after your order is accepted by the Fund's Transfer
agent. Any certificates representing Fund shares being sold must be
returned with your redemption request. Your order will be processed
promptly and you will generally receive the proceeds within a week.
Before selling recently purchased shares, please note that if the Fund
has not yet collected payment for the shares you are selling, it may
delay sending the proceeds for up to fifteen business days.
WRITTEN SELL ORDER
Some circumstances require written sell orders, along with signature
guarantees. These include:
. amounts of $100,000 or more
. amounts of $1,000 or more on accounts whose address has been
changed within the last 30 days
. requests to send the proceeds to a payee or address different than
what is on our records
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one
from most banks or securities dealers but not from a notary public.
Please call us to ensure that your signature guarantee will be
processed correctly.
CHECK WRITING PRIVILEGE
You may request checks which may be drawn on your Money Market Fund
account. These checks may be drawn in amounts of $1,000 or more, may
be made payable to the order of any person and may be cashed or
deposited. You can set up this service with your New Account Form or
by calling 1-800-386-3829.
EXCHANGE PRIVILEGE
You can exchange from one Class A Galileo Fund into another. You can
request your exchange in writing or by phone. Be sure to read the
current prospectus for any Fund into which you are exchanging. Any new
25
<PAGE>
account established through an exchange will have the same privileges
as your original account (as long as they are available).
THIRD PARTY TRANSACTIONS
If purchase and redemptions of Fund shares are arranged and settlement
is made at an investor's election through a registered broker-dealer,
other than the Fund's distributor, that broker-dealer may, at its
discretion, charge a fee for that service.
ACCOUNT STATEMENTS
Every investor automatically receives regular account statements. You
will also be sent a yearly statement detailing the tax characteristics
of any dividends and distributions you have received.
GENERAL POLICIES
If your account falls below $1,000 as a result of redemptions and or
exchanges for six months or more, the Fund may close your account and
send you the proceeds upon 60 days' written notice
Unless you decline telephone privileges on your New Account Form, you
may be responsible for any fraudulent telephone order as long as the
Transfer Agent takes reasonable measures to verify the order.
The Fund restricts excessive trading (usually defined as more than
four exchanges out of the Fund within a calendar year). You are
limited to one exchange of shares in the Fund during any 15-day period
except investors in 401(k) and other group retirement accounts and
asset allocation accounts managed by the Adviser or an affiliate. The
Fund reserves the right to:
. refuse any purchase or exchange request that could adversely
affect the Fund or its operations, including those from any
individual or group who, in the Fund's view, are likely to engage
in excessive trading
. change or discontinue its exchange privilege, or temporarily
suspend this privilege during unusual market conditions delay
sending out redemption
LARGE REDEMPTION AMOUNTS
------------------------
The Fund also reserves the right to make a "redemption in kind" --payment
in portfolio securities rather than cash -- if the amount you are redeeming
in any 90-day period is large enough to affect Fund operations (for
example, if it equals more than $250,000 or represents more that 1% of the
Fund's assets).
26
<PAGE>
proceeds for up to seven days (generally applies only in cases of very
large redemptions, excessive trading or during unusual market
conditions)
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
In Writing
Complete the New Account Form. Mail your New Account Form and (Same, except that you should include a note
a check to: specifying the Fund name, your account number, and
Regular Mail the name(s) your account is registered in.)
TCW Galileo Total Return Mortgage-Backed Securities Fund
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
TCW Galileo Total Return Mortgage-Backed Securities Fund
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- -------------------------------------------------------------------------------------------------------------------------------
By Telephone
WIRE Have your bank send your investment to: (Same)
United Missouri Bank, n.a.
ABA No. 101000695
DST Systems, Inc./AC 9870371553
FBO TCW Galileo Total Return Mortgage-Backed Securities Fund
(Name on the Fund Account) __________
- -------------------------------------------------------------------------------------------------------------------------------
Via Exchange
Call the Transfer Agent at (800)248-4486. The new account will
have the same registration as the account from which you are
exchanging.
</TABLE>
If you need help completing the New Account Form, please call the Transfer Agent
at (800) 248-4486.
27
<PAGE>
TO SELL OR EXCHANGE SHARES
<TABLE>
<CAPTION>
<S> <C>
By Mail To reach the Transfer Agent at DST
Write a letter of instruction that includes: System, Inc., call toll free in
. your name(s) and signature(s) as they appear on the the U.S.
account form
. your account number 1-800-248-4486
. the Fund name
. the dollar amount you want to sell or exchange
how and where to send the proceeds
- -----------------------------------------------------------
Obtain a signature guarantee or other documentation,
if required (see "Account Policies and Services -
Selling Shares").
Mail your letter of instruction to:
Regular Mail
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
1004 Baltimore, 2nd Floor
Kansas City, MO 64105-2005
- -----------------------------------------------------------
By Telephone
Be sure the Fund has your bank account information on
file. Call the Transfer Agent at (800) 248-4486 to
request your transaction. Proceeds will be wired to
your bank.
Telephone redemption requests must be for a minimum
of $1,000.
- -----------------------------------------------------------
Systematic Withdrawal Plan Call us to request a form
to add the plan. Complete the form, specifying the
amount and frequency of withdrawals you would like.
Be sure to maintain an account balance of $2,000 or
more. Systematic Withdrawal plans are subject to a
minimum annual withdrawal of $500.
- ---------------------------------------------------------------------
</TABLE>
28
<PAGE>
. DISTRIBUTIONS AND TAXES
-----------------------
The amount of dividends of net investment income and distributions of
net realized long and short-term capital gains payable to shareholders
will be determined separately for the Fund. Dividends from the net
investment income of the Fund will be declared and paid monthly. The
Fund will distribute any net realized long or short-term capital gains
at least annually. Your distributions will be reinvested in the Fund
unless you instruct the Fund otherwise. There are no fees or sales
charges on reinvestments.
In any fiscal year in which the Fund qualifies as a regulated
investment company and distribute to shareholders all of its net
investment income and net capital gains, the Fund is relieved of
federal income tax.
Generally, all dividends and capital gains are taxable whether they
are reinvested or received in cash - unless you are exempt from
taxation or entitled to tax deferral. Capital gains distributions may
be taxable at different rates depending on the length of time the Fund
has held the assets sold. Early each year, you will be notified as to
the amount and federal tax status of all distributions paid during the
prior year. Distributions may also be subject to state or local
taxes. The tax treatment of redemptions from a retirement plan
account may differ from redemptions from an ordinary shareholder
account. If you redeem shares of the Fund or exchange them for shares
of another Galileo Fund, any gain on the transaction may be subject to
tax. You must provide the Fund with a correct taxpayer identification
number (generally your Social Security Number) and certify that you
are not subject to backup withholding. If you fail to do so, the IRS
can require the Fund to withhold 31% of your taxable distributions and
redemptions. Federal law also requires the Fund to withhold 30% or
the applicable tax treaty rate from dividends paid to nonresident
alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
This is a brief summary of some of the tax laws that affect your
investment in the Fund. Please see the Statement of Additional
Information and your tax adviser for further information.
29
<PAGE>
. FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand
the Fund's financial performance for the fiscal years indicated.
"Total return" shows how much your investment in the Institutional
Class shares of the Fund would have increased (or decreased) during
each period, assuming you had reinvested all dividends and
distributions (Class A shares of the Fund commenced operations on
March 1, 1998). These figures have been audited by Deloitte & Touche
LLP, whose report, along with Company's financial statements, are
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TCW GALILEO TOTAL RETURN MORTGAGE-BACKED SECURITIES FUND
YEAR ENDED OCTOBER 31 TEN MONTHS
ENDED
1998 1997 1996 1995 10/31/1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 9.56 $ 9.56 $ 8.95 $ 10.07
------- -------- ------- ---------
Investment operations:
Investment income - net 0.75 0.68 0.72 0.63
Net realized and unrealized gain 0.32 0.02 0.71 (1.26)
(loss) on investments ------- -------- ------- ---------
Total from investment operations 1.07 0.70 1.43 (0.63)
------- -------- ------- ---------
Distributions:
Dividends from net investment (0.72) (0.68) (0.82) (0.49)
income
Dividends from net realized gains -- -- -- --
on investments
Distributions in Excess of Net -- (0.02) -- --
Investment Income ------- -------- ------- ---------
Total Distributions: (0.72) (0.70) (0.82) (0.49)
------- -------- ------- ---------
Net asset value, end of period $ $ 9.91 $ 9.56 $ 9.56 $ 8.95
======= ======= ======== ======= =========
Total return (%) 11.66% 7.69% 16.84% (6.39)%/1/
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 0.67% 0.68% 0.68%/3/ 0.65%/2/ /3/
Ratio of net investment income to average net 7.77% 7.15% 7.88% 8.03%/2/
assets (%)
Portfolio turnover rate (%) 16.01% 39.28% 23.76% 36.71%/1/
Net assets, end of period ($ x 1,000) $81,442 $112,260 $80,159 $ 66,632
</TABLE>
/1/ For the ten months ended October 31, 1994 and not indicative of a
full year's operating results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee from the Fund, or to
pay the operating expenses of the Fund, to the extent necessary to limit
the ordinary operating expenses of the Fund to 0.65% of net assets through
December 31, 1994. Had such action not been taken, for the ten months ended
October 31, 1994 total annualized operating expenses would have been 0.78%
of average net assets, and for the fiscal year ended October 31, 1995,
total operating expenses would have been 0.69% of average net assets.
30
<PAGE>
FOR MORE INFORMATION
TO OBTAIN INFORMATION
- ---------------------
BY TELEPHONE
Call
----------------
BY MAIL Write to:
TCW Galileo Funds, Inc.
Investor Relations Department
BY E-MAIL Send your request to
ON THE INTERNET
Text-only versions of Fund documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SECs Public Reference section, Washington, DC 20549-6009.
__________________________
__________________________
__________________________
SEC file number: 811-____
More information on this Fund is available free upon request, including the
following:
ANNUAL/SEMIANNUAL REPORT
Describes the Fund's performance, lists portfolio holdings and contains a letter
from the Fund's manager discussing recent market conditions, economic trends and
Fund strategies.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Fund and its policies. A current SAI is on file
with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
31
<PAGE>
TCW GALILEO FUNDS, INC.
865 SOUTH FIGUEROA STREET, SUITE 1800
LOS ANGELES, CALIFORNIA 90017
(800) FUND TCW
THE GALILEO FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1999
_________________________________
This Statement of Additional Information is not a prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus dated the same date which describes TCW Galileo Money Market Fund;
TCW Galileo Core Fixed Income Fund, TCW Galileo High Yield Bond Funds, TCW
Galileo Total Return Mortgage-Backed Securities Fund, TCW Galileo Mortgage-
Backed Securities Fund (collectively, the "Bond Funds"); TCW Galileo Convertible
Securities Fund, TCW Galileo Select Equities Fund, TCW Earnings Momentum Fund,
TCW Galileo Enhanced 500 Fund, TCW Galileo Large Cap Growth Fund, TCW Galileo
Large Cap Value Fund, TCW Aggressive Growth Equities Fund, TCW Galileo Small Cap
Growth Fund, TCW Galileo Small Cap Value Fund, TCW Galileo Value Opportunities
Fund, TCW Galileo Asia Pacific Equities Fund, TCW Galileo Emerging Markets
Equities Fund, TCW Galileo European Equities Fund, TCW Galileo International
Equities Fund, TCW Galileo Japanese Equities Fund and TCW Galileo Latin America
Equities Fund ("collectively, the "Equity Funds"); and TCW Galileo Emerging
Markets Income Fund. Each Fund offers two classes of shares, Institutional
Class shares and Class A shares. This Statement of Additional Information
should be read in conjunction with the Prospectus. A Prospectus may be obtained
without charge by writing TCW Galileo Funds, Inc., Attention: Investor Relations
Department, 865 South Figueroa Street, Suite 1800, Los Angeles, California 90017
or by calling the Company's Shareholder Relations Department at (800) FUND TCW.
This Statement of Additional Information, although not in itself a prospectus,
is incorporated by reference into the Prospectus in its entirety.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
GENERAL INFORMATION................................................. 1
INVESTMENT PRACTICES................................................ 2
RISK CONSIDERATIONS................................................. 21
INVESTMENT RESTRICTIONS............................................. 37
DIRECTORS AND OFFICERS OF THE COMPANY............................... 39
INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS..................... 43
DISTRIBUTION OF COMPANY SHARES...................................... 45
ADMINISTRATION AGREEMENT............................................ 46
DETERMINATION OF NET ASSET VALUE.................................... 47
HOW TO BUY AND REDEEM SHARES........................................ 47
HOW TO EXCHANGE SHARES.............................................. 47
PURCHASES-IN-KIND................................................... 48
DISTRIBUTIONS AND TAXES............................................. 48
INVESTMENT RESULTS.................................................. 51
ORGANIZATION, SHARES AND VOTING RIGHTS.............................. 54
TRANSFER AGENT AND CUSTODIANS....................................... 55
INDEPENDENT AUDITORS................................................ 55
LEGAL COUNSEL....................................................... 55
FINANCIAL STATEMENTS................................................ 55
</TABLE>
i
<PAGE>
GENERAL INFORMATION
As of November 30, 1998, the following shareholders owned of record 5% or
more (but less than 25%) of the outstanding shares of the following Funds: CORE
FIXED INCOME -- Cedars-Sinai Medical Center (5.65%); HIGH YIELD BOND -- Genesee
County Employees Retirement System (17.37%); Maine State Retirement System
(16.45%) and First Insurance Company of Hawaii (5.70%); TOTAL RETURN MORTGAGE-
BACKED SECURITIES -- General Chemical Pension Plan (14.93%); Fisher Scientific
International (13.84%), TCW Capital Investment Corporation (11.89%); Cedars-
Sinai Medical Center (5.29%) and Curtis Wright Corp. Contributory Retirement
Plan (19.13%); ASIA PACIFIC EQUITIES -- TCW Profit Sharing & Savings Plan
(10.64%); TCW Galileo International Equities Fund (17.91%); Richard & Patricia
Waldron (5.48%) and W.C. Edwards Trust (6.87%); Emerging Markets Equities --
Duke Endowment Trust (10.18%), Cravath Swaine & Moore Retirement Savings Plan
(11.79%) and Salk Institute (7.02%); LATIN AMERICA EQUITIES -- TCW Profit
Sharing and Savings Plan (14.96%), TCW Galileo International Equities Fund, Inc.
(6.08%) and M.K. Douglas (7.80%); EMERGING MARKETS INCOME -- Hilton Charitable
Remainder Trust (21.62%) and TCW Capital Investment Corp. (10.11%); SELECT
EQUITIES -- TCW Global Investment Trust (5.44%), Egleston's Children's Hospital
(7.21%) and The Salk Institute (11.17%); SMALL CAP GROWTH -- University of
Tennessee (8.54%), Fisher Scientific International (6.26%); General Chemical
Pension Plan (6.45%); General Signal Savings Plan (7.64%) and Salem Hospital
Retirement Plan (6.24%); AGGRESSIVE GROWTH EQUITIES -- Tranan Management Corp.
(6.95%), Freedom Communications (5.41%) and Duke Endowment Trust (14.42%);
EARNINGS MOMENTUM -- Duke Endowment Trust (12.73%); McCarthy Trust (7.38%) and
McCarthy Survivors Trust (7.38%); CONVERTIBLE SECURITIES -- Kresge Foundation
(8.59%), Buck Foundation (6.00%) and The Rio Hondo Foundation (8.01%); VALUE
OPPORTUNITIES -- Robson Trust (7.64%); William & Charlene Norred (7.54%);
Collins Management Trust (8.33%); Mead Foundation (5.77%) and Tranan Management
Corp. (19.24%); ENHANCED 500 -- TCW Capital Investment Corp. (6.56%) and
Brazeway Retirement Plan (7.93%); LARGE CAP GROWTH -- Rosenblatt Trust (6.73)%;
LARGE CAP VALUE -- Primm Family Trust (15.65%) and Emett Trust (7.54%);
INTERNATIONAL EQUITIES -- The Salk Institute (8.88%) and First Insurance Company
of Hawaii (14.70%); JAPANESE EQUITIES -- Hilton Charitable Remainder Trust
(16.35%); MONEY MARKET -- Sanwa Bank California (6.12%).
As of November 30, 1998, Ministers and Missionaries Benefit Board owned
53.79% of the outstanding shares of Latin American Equities, 33.05% of the
outstanding shares of Japanese Equities and 60.01% of the outstanding shares of
Core Fixed Income; Hilton Charitable Remainder Trust owned 26.86% of the
outstanding shares of Core Fixed Income and 40.79% of the outstanding shares of
Emerging Markets Equities; Sisters of Charity and United Negro College Fund
owned 41.51% and 46.46%, respectively, of the outstanding shares of Mortgage
Backed Securities; Sobrato Revocable Trust owned 44.71% of the outstanding
shares of Asia Pacific Equities; Duke Endowment Trust owned 28.94% of the
outstanding shares of Select Equities and 57.20% of the outstanding shares of
International Equities; Maine State Retirement System owned 28.89% of the
outstanding shares of Convertible Securities and 32.23% of Emerging Markets
Income; Goldman Sachs Pension Plan owned 37.55% of the outstanding shares of
Earnings Momentum; Carpenters Health and Welfare Trust and The Cain Foundation
<PAGE>
owned 27.18% and 46.88% of Enhanced 500; Mead Foundation owned 63.65% of Large
Cap Growth; The Salk Institute owned 35.71% of Large Cap Value; Claremont
McKenna College owned 25.16% of Emerging Markets Income; Saxon & Co. FBO PNC
owned 30.69% of the outstanding shares of Money Market and the Galileo
International Equities Fund owned 81.25% of the outstanding shares of European
Equities and 41.93% of the outstanding shares of Japanese Equities. As a result
of these holdings, each of these entities may be considered a "control person"
as de fined in the Investment Company Act of 1940 with respect to the Fund in
which it invests. All communications to these shareholders can be addressed to
TCW Funds Management, Inc., 865 South Figueroa Street, 18th Floor, Los Angeles,
California 90017, Attention: Investor Relations Department.
INVESTMENT PRACTICES
STRATEGIES AVAILABLE TO ALL FUNDS
MONEY MARKET INSTRUMENTS. All Funds may invest in money market instruments,
although the Bond Funds, Equity Funds and Emerging Markets Income will generally
do so for defensive or temporary purposes only. These instruments are limited
to:
U.S. Government Securities. Obligations issued or guaranteed as to principal
- --------------------------
and interest by the United States or its agencies (such as the Export-Import
Bank of the United States, Federal Housing Administration and Government
National Mortgage Association) or its instrumentalities (such as the Federal
Home Loan Bank), including Treasury bills, notes and bonds;
Bank Obligations.
- ----------------
(All Funds except Money Market) Obligations including certificates of
deposit, bankers' acceptances, commercial paper (see below) and other debt
obligations of banks subject to regulation by the U.S. Government and having
total assets of $1 billion or more, and instruments secured by such obligations,
not including obligations of foreign branches of domestic banks except as
permitted below.
(Money Market Fund) U.S. dollar denominated instruments issued or
guaranteed by the 50 largest bank holding companies in the United States, in
terms of total assets, their subsidiaries and their London branches. Such bank
obligations may be general obligations of the parent bank holding company or may
be limited to the issuing entity by the terms of the specific obligation or by
government regulation;
Eurodollar Certificates of Deposit. (All Funds) Eurodollar
----------------------------------
certificates of deposit issued by foreign branches of domestic banks having
total assets of $1 billion or more (investments in Eurodollar certificates may
be affected by changes in currency rates or exchange control regulations, or
changes in governmental administration or economic or monetary policy in the
United States and abroad);
2
<PAGE>
Obligations of Savings Institutions. (All Funds) Certificates of
-----------------------------------
deposit of savings banks and savings and loan associations, having total assets
of $1 billion or more (investments in savings institutions above $100,000 in
principal amount are not protected by federal deposit insurance);
Fully Insured Certificates of Deposit. (All Funds except Money
-------------------------------------
Market) Certificates of deposit of banks and savings institutions, having total
assets of less than $1 billion, if the principal amount of the obligation is
insured by the Bank Insurance Fund or the Savings Association Insurance Fund
(each of which is administered by the Federal Deposit Insurance Corporation),
limited to $100,000 principal amount per certificate and to 15% or less of the
Fund's total assets in all such obligations and in all illiquid assets, in the
aggregate;
Commercial Paper. The Money Market Fund, Emerging Markets Income and
----------------
the Bond and Equity Funds may purchase commercial paper rated within the two
highest ratings categories by Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's") or, if not rated, the security is determined
by the Adviser to be of comparable quality.
World Bank Securities. (Money Market Fund) Obligations of the
---------------------
International Bank for Reconstruction and Development, also known as the World
Bank (these obligations are supported by subscribed but unpaid commitments of
member countries, and there is no assurance that these commitments will be
undertaken or complied with in the future).
Money Market Mutual Funds. (All Funds) Shares of United States money
-------------------------
market investment companies not affiliated with the Adviser, subject to
applicable legal restrictions and the Adviser's determination that such
investments are beneficial to the relevant Fund and appropriate in view of such
considerations as yield (taking into account the advisory fees and expenses of
the money market fund), quality and liquidity.
REPURCHASE AGREEMENTS. Repurchase agreements, which may be viewed as a type of
secured lending by a Fund, typically involve the acquisition by a Fund of debt
securities from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The repurchase agreements will provide that the
Fund will sell back to the institution, and that the institution will
repurchase, the underlying security ("collateral") at a specified price and at a
fixed time in the future, usually not more than seven days from the date of
purchase. The collateral will be maintained in a segregated account and, with
respect to United States repurchase agreements, will be marked to market daily
to ensure that the full value of the collateral, as specified in the repurchase
agreement, does not decrease below the repurchase price plus accrued interest.
If such a decrease occurs, additional collateral will be requested and, when
received, added to the account to maintain full collateralization. The Fund will
accrue interest from the institution until the date the repurchase occurs.
Although this date is deemed by each Fund to be the maturity date of a
repurchase agreement, the maturities of the collateral securities are not
subject to any limits and may exceed one year. Repurchase agreements maturing in
more than seven days will be considered illiquid for purposes of the restriction
on each Fund's investment in illiquid and restricted securities.
LENDING OF PORTFOLIO SECURITIES. Each Fund may, consistent with applicable
regulatory requirements, lend their portfolio securities to brokers, dealers and
other financial institutions,
3
<PAGE>
provided such loans are callable at any time by the Funds (subject to the notice
provisions described below), and are at all times secured by cash, bank letters
of credit, other money market instruments rated A-1, P-1 or the equivalent or
securities of the United States Government (or its agencies or
instrumentalities), which are maintained in a segregated account and that are
equal to at least the market value, determined daily, of the loaned securities.
The advantage of such loans is that the Funds continue to receive the income on
the loaned securities while at the same time earning interest on the cash
amounts deposited as collateral, which will be invested in short-term
obligations. A Fund will not lend more than 25% of the value of its total
assets. A loan may be terminated by the borrower on one business day's notice,
or by a Fund on two business day's notice. If the borrower fails to deliver the
loaned securities within two days after receipt of notice, the Fund could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. As with any extension of credit,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower fail financially. However, loans of portfolio
securities will only be made to firms deemed by the Adviser to be creditworthy.
Upon termination of the loan, the borrower is required to return the securities
to the Funds. Any gain or loss in the marketplace during the loan period would
inure to the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will call the loaned securities, to be delivered within one
day after notice, to permit the Fund to vote the securities if the matters
involved would have a material effect on the Fund's investment in such loaned
securities. A Fund will pay reasonable finder's, administrative and custodian
fees in connection with a loan of securities.
STRATEGIES AVAILABLE TO EMERGING MARKETS INCOME, ALL BOND FUNDS AND EQUITY FUNDS
(EXCEPT INTERNATIONAL EQUITIES)
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From time
to time, in the ordinary course of business, any Bond Fund, Equity Fund or
Emerging Markets Income may purchase securities on a when-issued or delayed
delivery basis and may purchase or sell securities on a forward commitment
basis. When such transactions are negotiated, the price is fixed at the time of
the commitment, but delivery and payment can take place a month or more after
the date of the commitment. The securities so purchased or sold are subject to
market fluctuation, and no interest or dividends accrue to the purchaser prior
to the settlement date. While a Fund will only purchase securities on a when-
issued, delayed delivery or forward commitment basis with the intention of
acquiring the securities, the Fund may sell the securities before the settlement
date, if it is deemed advisable. At the time a Fund makes the commitment to
purchase or sell securities on a when-issued, delayed delivery or forward
commitment basis, the Fund will record the transaction and thereafter reflect
the value, each day, of such security purchased or, if a sale, the proceeds to
be received, in determining its net asset value. At the time of delivery of the
securities, the value may be more or less than the purchase or sale price. An
increase in the percentage of a Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value. The Adviser does not believe that any
Fund's net asset value or income will be adversely affected by its purchase of
securities on such basis.
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STRATEGIES AVAILABLE TO CORE FIXED INCOME, TOTAL RETURN MORTGAGE-BACKED
SECURITIES, MORTGAGE-BACKED SECURITIES, MONEY MARKET AND LATIN AMERICA EQUITIES
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve sales by a
Fund of portfolio securities concurrently with an agreement by the Fund to
repurchase the same securities at a later date at a fixed price. Generally, the
effect of such a transaction is that the Fund can recover all or most of the
cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
STRATEGIES AVAILABLE TO EMERGING MARKETS INCOME, ALL BOND FUNDS AND EQUITY FUNDS
(EXCEPT INTERNATIONAL EQUITIES)
WHEN, AS AND IF ISSUED SECURITIES. Emerging Markets Income and the Bond and
Equity Funds (except International Equities) may purchase securities on a "when,
as and if issued" basis under which the issuance of the security depends upon
the occurrence of a subsequent event, such as approval of a merger, corporate
reorganization, leveraged buyout or debt restructuring. The commitment for the
purchase of any such security will not be recognized in the portfolio of the
Fund until the Adviser determines that issuance of the security is probable. At
such time, the Fund will record the transaction and, in determining its net
asset value, will reflect the value of the security daily. At such time, the
Fund will also establish a segregated account with its custodian bank in which
it will continuously maintain cash or U.S. Government Securities or other liquid
portfolio securities equal in value to recognized commitments for such
securities. Settlement of the trade will ordinarily occur within three Business
Days of the occurrence of the subsequent event. Once a segregated account has
been established, if the anticipated event does not occur and the securities are
not issued, the Fund will have lost an investment opportunity. Each Fund may
purchase securities on such basis without limit. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as and
if issued" basis may increase the volatility of its net asset value. The Adviser
does not believe that the net asset value of the Fund will be adversely affected
by its purchase of securities on such basis. Each Fund may also sell securities
on a "when, as and if issued" basis provided that the issuance of the security
will result automatically from the exchange or conversion of a security owned by
the Fund at the time of the sale.
STRATEGIES AVAILABLE TO EMERGING MARKETS INCOME, ALL BOND FUNDS AND EQUITY FUNDS
(EXCEPT ENHANCED 500, AGGRESSIVE GROWTH EQUITIES AND INTERNATIONAL EQUITIES)
OPTIONS. Emerging Markets Income, the Bond Funds and the Equity Funds (except
Enhanced 500, Aggressive Growth Equities and International Equities) may
purchase and write (sell) call and put options, including options listed on U.S.
or foreign securities exchanges or written in over-the-counter transactions
("OTC Options").
Exchange-listed options are issued by the Options Clearing Corporation ("OCC")
(in the U.S.) or other clearing corporation or exchange which assures that all
transactions in such options are properly executed. OTC Options are purchased
from or sold (written) to dealers or financial
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institutions which have entered into direct agreements with a Fund. With OTC
Options, such variables as expiration date, exercise price and premium will be
agreed upon between a Fund and the transacting dealer, without the
intermediation of a third party such as the OCC. If the transacting dealer fails
to make or take delivery of the securities or amount of foreign currency
underlying an option it has written, in accordance with the terms of that
option, a Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction. Each Fund will engage in OTC Option
transactions only with brokers or financial institutions deemed creditworthy by
the Fund's management.
COVERED CALL WRITING. Emerging Markets Income, the Bond Funds and the Equity
Funds (except Enhanced 500, Aggressive Growth Equities and International
Equities) are permitted to write covered call options on securities and (for the
Equity Funds, except Enhanced 500, Aggressive Growth Equities and International
Equities and, for the Bond Funds, Core Fixed Income and Emerging Markets Income)
on the U.S. Dollar and foreign currencies. Generally, a call option is "covered"
if a Fund owns, or has the right to acquire, without additional cash
consideration (or for additional cash consideration held for the Fund by its
custodian in a segregated account) the underlying security (currency) subject to
the option except that in the case of call options on U.S. Treasury bills, a
Fund might own U.S. Treasury bills of a different series from those underlying
the call option, but with a principal amount and value corresponding to the
exercise price and a maturity date no later than that of the security (currency)
deliverable under the call option. A call option is also covered if a Fund holds
a call on the same security as the underlying security (currency) of the written
option, where the exercise price of the call used for coverage is equal to or
less than the exercise price of the call written or greater than the exercise
price of the call written if the marked to market difference is maintained by a
Fund in cash, U.S. Government Securities or other liquid portfolio securities
which a Fund holds in a segregated account maintained with its custodian.
The writer of an option receives from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable a Fund to earn a higher level of current income than it would
earn from holding the underlying securities (currencies) alone. Moreover, the
premium received will offset a portion of the potential loss incurred by the
Fund if the securities (currencies) underlying the option are ultimately sold
(exchanged) by the Fund at a loss. Furthermore, a premium received on a call
written on a foreign currency will ameliorate any potential loss of value on the
portfolio security due to a decline in the value of the currency.
However, during the option period, the covered call writer has, in return for
the premium on the option, given up the opportunity for capital appreciation
above the exercise price should the market price of the underlying security (or
the exchange rate of the currency in which it is denominated) increase, but has
retained the risk of loss should the price of the underlying security (or the
exchange rate of the currency in which it is denominated) decline. The premium
received will fluctuate with varying economic market conditions. If the market
value of the portfolio securities (or the currencies in which they are
denominated) upon which call options have been written increases, a Fund may
receive a lower total return from the portion of its portfolio upon which calls
have been written than it would have had such calls not been written.
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As regards listed options and certain OTC Options, during the option period, a
Fund may be required, at any time, to deliver the underlying security (currency)
against payment of the exercise price on any calls it has written (exercise of
certain listed and OTC Options may be limited to specific expiration dates).
This obligation is terminated upon the expiration of the option period or at
such earlier time when the writer effects a closing purchase transaction. A
closing purchase transaction is accomplished by purchasing an option of the same
series as the option previously written. However, once the Fund has been
assigned an exercise notice, the Fund will be unable to effect a closing
purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on an
outstanding call option, to prevent an underlying security (currency) from being
called, to permit the sale of an underlying security (or the exchange of the
underlying currency) or to enable a Fund to write another call option on the
underlying security (currency) with either a different exercise price or
expiration date or both. A Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the amount of the premium received
on the call option is more or less than the cost of effecting the closing
purchase transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of the
underlying security (currency). Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part or exceeded by a
decline in the market value of the underlying security (currency).
If a call option expires unexercised, a Fund realizes a gain in the amount of
the premium on the option less the commission paid. Such a gain, however, may be
offset by depreciation in the market value of the underlying security (currency)
during the option period. If a call option is exercised, a Fund realizes a gain
or loss from the sale of the underlying security (currency) equal to the
difference between the purchase price of the underlying security (currency) and
the proceeds of the sale of the security (currency) plus the premium received on
the option less the commission paid.
COVERED PUT WRITING. As a writer of a covered put option, a Fund incurs an
obligation to buy the security underlying the option from the purchaser of the
put, at the option's exercise price at any time during the option period, at the
purchaser's election (certain listed and OTC put options written by a Fund will
be exercisable by the purchaser only on a specific date). A put is "covered" if,
at all times, the Fund maintains, in a segregated account maintained on its
behalf at the Fund's custodian, cash, U.S. Government Securities or other liquid
portfolio securities in an amount equal to at least the exercise price of the
option, at all times during the option period. Similarly, a short put position
could be covered by the Fund by its purchase of a put option on the same
security (currency) as the underlying security of the written option, where the
exercise price of the purchased option is equal to or more than the exercise
price of the put written or less than the exercise price of the put written if
the marked to market difference is maintained by the Fund in cash, U.S.
Government Securities or other liquid portfolio securities which the Fund holds
in a segregated account maintained at its custodian. In writing puts, a Fund
assumes the risk of loss should the market value of the underlying security
(currency) decline below the exercise price of the option (any loss being
decreased by the receipt of the premium on the option written). In the case of
listed options, during the option period, the Fund may be required, at any time,
to make
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payment of the exercise price against delivery of the underlying security
(currency). The operation of and limitations on covered put options in other
respects are substantially identical to those of call options.
The Funds will write put options for three purposes: (a) to receive the income
derived from the premiums paid by purchasers; (b) when the Adviser wishes to
purchase the security (or a security denominated in the currency underlying the
option) underlying the option at a price lower than its current market price, in
which case it will write the covered put at an exercise price reflecting the
lower purchase price sought; and (c) to close out a long put option position.
The potential gain on a covered put option is limited to the premium received on
the option (less the commissions paid on the transaction) while the potential
loss equals the differences between the exercise price of the option and the
current market price of the underlying securities (currencies) when the put is
exercised, offset by the premium received (less the commissions paid on the
transaction).
PURCHASING CALL AND PUT OPTIONS. A Fund may purchase a call option in order to
close out a covered call position (see "Covered Call Writing" above), to protect
against an increase in price of a security it anticipates purchasing or, in the
case of a call option on foreign currency, to hedge against an adverse exchange
rate move of the currency in which the security it anticipates purchasing is
denominated vis-a-vis the currency in which the exercise price is denominated.
The purchase of the call option to effect a closing transaction on a call
written over-the-counter may be a listed or an OTC Option. In either case, the
call purchased is likely to be on the same securities (currencies) and have the
same terms as the written option. If purchased over-the-counter, the option
would generally be acquired from the dealer or financial institution which
purchased the call written by the Fund.
A Fund may purchase put options on securities or currencies which it holds in
its portfolio to protect itself against a decline in the value of the security
and to close out written put option positions. If the value of the underlying
security or currency were to fall below the exercise price of the put purchased
in an amount greater than the premium paid for the option, the Fund would incur
no additional loss. In addition, a Fund may sell a put option which it has
previously purchased prior to the sale of the securities (currencies) underlying
such option. Such a sale would result in a net gain or loss depending whether
the amount received on the sale is more or less than the premium and other
transaction costs paid on the put option which is sold. Such gain or loss could
be offset in whole or in part by a change in the market value of the underlying
security (currency). If a put option purchased by a Fund expired without being
sold or exercised, the premium would be lost.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options written
on Treasury bonds and notes tends to center on the most recently auctioned
issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and
options
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representing a full range of expirations will not ordinarily be available for
every issue on which options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from week
to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if a Fund holds a long position in Treasury bills
with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, a Fund will hold the
Treasury bills in a segregated account with its custodian, so that they will be
treated as being covered.
OPTIONS ON FOREIGN CURRENCIES. The Equity Funds (except Enhanced 500, Aggressive
Growth Equities and International Equities), Core Fixed Income and Emerging
Markets Income may purchase and write options on foreign currencies for purposes
similar to those involved with investing in foreign currency forward contracts.
For example, in order to protect against declines in the dollar value of
portfolio securities which are denominated in a foreign currency, a Fund may
purchase put options on an amount of such foreign currency equivalent to the
current value of the portfolio securities involved. As a result, the Fund would
be enabled to sell the foreign currency for a fixed amount of U.S. dollars,
thereby "locking in" the dollar value of the portfolio securities (less the
amount of the premiums paid for the options). Conversely, a Fund may purchase
call options on foreign currencies in which securities it anticipates purchasing
are denominated to secure a set U.S. dollar price for such securities and
protect against a decline in the value of the U.S. dollar against such foreign
currency. Each of these Funds may also purchase call and put options to close
out written option positions.
Each of these Funds may also write call options on foreign currency to protect
against potential declines in its portfolio securities which are denominated in
foreign currencies. If the U.S. dollar value of the portfolio securities falls
as a result of a decline in the exchange rate between the foreign currency in
which it is denominated and the U.S. dollar, then a loss to a Fund occasioned by
such value decline would be ameliorated by receipt of the premium on the option
sold. At the same time, however, the Fund gives up the benefit of any rise in
value of the relevant portfolio securities above the exercise price of the
option and, in fact, only receives a benefit from the writing of the option to
the extent that the value of the portfolio securities falls below the price of
the premium received. A Fund may also write options to close out long call
option positions. A put option on a foreign currency would be written by the
Fund for the same reason it would purchase a call option, namely, to hedge
against an increase in the U.S. dollar value of a foreign security which a Fund
anticipates purchasing. Here, the receipt of the premium would offset, to the
extent of the size of the premium, any increased cost to a Fund resulting from
an increase in the U.S. dollar value of the foreign security. However, a Fund
could not benefit from any decline in the cost of the foreign security which is
greater than the price of the premium received. A Fund may also write options to
close out long put and call option positions.
The markets in foreign currency options are relatively new and a Fund's ability
to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Funds will not purchase
or write such options unless and until, in the opinion of the
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Adviser, the market for them has developed sufficiently to ensure that the risks
in connection with such options are not greater than the risks in connection
with the underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. In addition,
options on foreign currencies are affected by all of those factors which
influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the underlying
currency relative to the U.S. dollar. As a result, the price of the option
position may vary with changes in the value of either or both currencies and
have no relationship to the investment merits of a foreign security, including
foreign securities held in a "hedged" investment portfolio. Because foreign
currency transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the use of foreign currency
options, investors may be disadvantaged by having to deal in an odd lot market
(generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
available is generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller transactions (i.e.,
less than $ l million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To the extent that
the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
STRATEGIES AVAILABLE TO EMERGING MARKETS INCOME, ALL BOND FUNDS AND EQUITY FUNDS
(EXCEPT LARGE CAP GROWTH, AGGRESSIVE GROWTH EQUITIES, SMALL CAP VALUE, VALUE
OPPORTUNITIES AND INTERNATIONAL EQUITIES)
FUTURES CONTRACTS. Emerging Markets Income, the Bond Funds and the Equity Funds
(except Large Cap Growth, Aggressive Growth Equities, Small Cap Value, Value
Opportunities and International Equities) may purchase and sell interest rate,
currency, and index futures contracts ("futures contracts"), on securities
eligible for purchase by the Fund. Subject to certain limitations, a Fund may
enter into futures contracts or options on such contracts to attempt to protect
against possible changes in the market value of securities held in or to be
purchased by the Fund resulting from interest rate or market fluctuations, to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage its
effective maturity or duration, or to establish a position in the derivatives
markets as a temporary substitute for purchasing or selling particular
securities.
To the extent futures positions constitute "bona fide hedge" positions as
defined by the rules and regulations of the Commodity Futures Trading Commission
("CFTC"), there is no overall limitation on the percentage of a Fund's assets
which may be committed to futures contracts and options or futures contracts,
provided the aggregate value of such positions does not exceed the value of such
Fund's portfolio securities. With respect to futures positions that are not
"bona fide hedge" positions, no Fund may enter into futures contracts or related
options if, immediately
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thereafter, the amount of initial margin and premiums for unexpired futures
contracts and options on futures contracts exceeds 5% of the Fund's liquidation
value, after taking into account unrealized profits and losses on such futures
contracts, provided, however, that in the case of an option that is in-the-money
(the exercise price of the call (put) option is less (more) than the market
price of the underlying security) at the time of purchase, the in-the-money
amount may be excluded in calculating the 5%.
A Fund may purchase or sell interest rate futures for the purpose of hedging
some or all of the value of its portfolio securities against changes in
prevailing interest rates or to manage its duration or effective maturity. If
the Adviser anticipates that interest rates may rise and, concomitantly, the
price of certain of its portfolio securities may fall, the Fund may sell futures
contracts. If declining interest rates are anticipated, the Fund may purchase
futures contracts to protect against a potential increase in the price of
securities the Fund intends to purchase. Subsequently, appropriate securities
may be purchased by the Fund in an orderly fashion; as securities are purchased,
corresponding futures positions would be terminated by offsetting sales of
contracts. A Fund may purchase or sell futures on various currencies in which
its portfolio securities are denominated for the purpose of hedging against
anticipated changes in currency exchange rates. A Fund will enter into currency
futures contracts to "lock in" the value of a security purchased or sold in a
given currency vis-a-vis a different currency or to hedge against an adverse
currency exchange rate movement of a portfolio security's denominated currency
vis-a-vis a different currency. Foreign currency futures contracts would be
entered into for the same reason and under the same circumstances as foreign
currency forward contracts. The Adviser will assess such factors as cost
spreads, liquidity and transaction costs in determining whether to utilize
futures contracts or forward contracts in its foreign currency transactions and
hedging strategy.
Initial margin in futures transactions is different from margin in securities
transactions in that initial margin does not involve the borrowing of funds by a
broker's client but is, rather, a good faith deposit on the futures contract
which will be returned to a Fund upon the proper termination of the futures
contract. The margin deposits are marked to market daily and the Fund may be
required to make subsequent deposits of cash or U.S. Government Securities
called "variation margin", with the Fund's futures contract clearing broker,
which are reflective of price fluctuations in the futures contract. Initial
margin requirements are established by the exchanges on which futures contracts
trade and may, from time to time, change. In addition, brokers may establish
margin deposit requirements in excess of those required by the exchanges.
At any time prior to expiration of a futures contract, a Fund may elect to close
the position by taking an opposite position which will operate to terminate the
Fund's position in the futures contract. A final determination of any variation
margin is then made, additional cash is required to be paid by or released to
the Fund and the Fund realizes a loss or gain.
Although many futures contracts call for actual commitment or acceptance of
securities, the contracts usually are closed out before the settlement date
without making or taking delivery. A short futures position is usually closed
out by purchasing futures contracts for the same aggregate amount of the
underlying instruments and with the same delivery date. If the sale price
exceeds the offsetting purchase price, the seller would be paid the difference
and realize a gain. If the offsetting
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purchase price exceeds the sales price, the seller would pay the difference and
would realize a loss. Similarly, a long futures position in usually closed out
by effecting a futures contract sale for the same aggregate amount of the
specific type of security (currency) and the same delivery date. If the
offsetting sales price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss. There is no assurance that a Fund will be able
to enter into a closing transactions.
OPTIONS ON FUTURES CONTRACTS. Emerging Markets Income, the Bond Funds and the
Equity Funds (except Large Cap Growth, Aggressive Growth Equities, Small Cap
Value, Value Opportunities and International Equities) may also purchase and
write call and put options on futures contracts which are traded on an exchange
and enter into closing transactions with respect to such options to terminate an
existing position. An option on a futures contract gives the purchaser the right
(in return for the premium paid) to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the term of the option.
Funds will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, a Fund wished to
protect against an increase in interest rates and the resulting negative impact
on the value of a portion of its fixed-income portfolio, it might write a call
option on an interest rate futures contract, the underlying security of which
correlates with the portion of the portfolio the Fund seeks to hedge. Any
premiums received in the writing of options on futures contracts may, of course,
provide a further hedge against losses resulting from price declines in portions
of a Fund's portfolio.
STRATEGIES AVAILABLE TO HIGH YIELD BOND AND THE EQUITY FUNDS (EXCEPT ENHANCED
500 AND INTERNATIONAL EQUITIES)
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures, notes,
preferred stock or other securities that may be converted into or exchanged for
common stock or other equity securities of the same or a different issuer. The
Funds will only invest in convertible securities that are rated at least B- by
S&P or B3 by Moody's or, if not rated, determined to be of comparable quality by
the Adviser except Emerging Markets Income which can invest in convertible
securities rated lower than B- by S&P or B3 by Moody's or, if not rated,
determined to be of comparable quality by the Adviser. Convertible securities
provide a conversion right for a particular period of time at a specified price
or formula. A convertible security entitles the holder to receive interest paid
or accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Therefore, they generally entail less risk than the corporation's
common stock, although the extent to which such risk is reduced depends in large
measure upon the proximity of its price to its value as a nonconvertible fixed
income security.
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The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege), and
its "conversion value" (the security's worth, at market value, if converted into
the underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors may also have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. To the
extent the market price of the underlying common stock approaches or exceeds the
conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. In addition, a convertible security
generally will sell at a premium over its conversion value determined by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
STRATEGIES AVAILABLE TO CORE FIXED INCOME, ASIA PACIFIC EQUITIES, EMERGING
MARKETS EQUITIES, EMERGING MARKETS INCOME, EUROPEAN EQUITIES AND LATIN AMERICA
EQUITIES
SOVEREIGN DEBT OBLIGATIONS. The Core Fixed Income, Asia Pacific Equities,
Emerging Markets Equities, Emerging Markets Income, European Equities and Latin
America Equities may invest in Sovereign Debt of emerging market countries.
Political conditions, in terms of a country or agency's willingness to meet the
terms of its debt obligations, are of considerable significance. Investors
should be aware that the Sovereign Debt instruments in which these Funds may
invest involve great risk and are deemed to be the equivalent in terms of
quality to securities rated below investment grade by Moody's and S&P.
Sovereign Debt generally offers high yields, reflecting not only perceived
credit risk, but also the need to compete with other local investments in
domestic financial markets. Mexico and certain other emerging market countries
are among the largest debtors to commercial banks and foreign governments. A
foreign debtor's willingness or ability to repay principal and interest due in a
timely manner may be affected by, among other factors, its cash flow situation,
the extent of its foreign reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the foreign debtor's policy towards the
International Monetary Fund and the political constraints to which a sovereign
debtor may be subject. Sovereign debtors may default on their Sovereign Debt.
Sovereign debtors may also be dependent on expected disbursements from foreign
governments, multilateral agencies and others abroad to reduce principal and
interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the sovereign debtor, which may further
impair such debtor's ability or willingness to service its debts.
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In recent years, some of the emerging market countries in which the Funds expect
to invest have encountered difficulties in servicing their Sovereign Debt. Some
of these countries have withheld payments of interest and/or principal of
Sovereign Debt. These difficulties have also led to agreements to restructure
external debt obligations; in particular, commercial bank loans, typically by
rescheduling principal payments, reducing interest rates and extended new
credits to finance interest payments on existing debt. In the future, holders of
Sovereign Debt may be requested to participate in similar reschedulings to such
debt.
The ability or willingness of the governments of Mexico and other emerging
market countries to make timely payments on their Sovereign Debt is likely to be
influenced strongly by a country's balance of trade and its access to trade and
other international credits. A country whose exports are concentrated in a few
commodities could be vulnerable to a decline in the international prices of one
or more of such commodities. Increased protectionism on the part of a country's
trading partners could also adversely affect its exports. Such events could
extinguish a country's trade account surplus, if any. To the extent that a
country receives payment for its exports in currencies other than hard
currencies, its ability to make hard currency payments could be affected.
The occurrence of political, social and diplomatic changes in one or more of the
countries issuing Sovereign Debt could adversely affect the Funds' investments.
The countries issuing such instruments are faced with social and political
issues and some of them have experienced high rates of inflation in recent years
and have extensive internal debt. Among other effects, high inflation and
internal debt service requirements may adversely affect the cost and
availability of future domestic sovereign borrowing to finance governmental
programs, and may have other adverse social, political and economic
consequences. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. There can be no assurance that adverse political changes
will not cause the Funds to suffer a loss of interest or principal on any of its
holdings.
As a result of all of the foregoing, a government obligor may default on its
obligations. If such an event occurs, a Fund may have limited legal recourse
against the issuer and/or guarantor. Remedies must, in some cases, be pursued in
the courts of the defaulting party itself, and the ability of the holder of
foreign government debt securities to obtain recourse may be subject to the
political climate in the relevant country. Bankruptcy, moratorium and other
similar laws applicable to issuers of Sovereign Debt Obligations may be
substantially different from those applicable to issuers of private debt
obligations. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
government debt obligations in the event of default under their commercial bank
loan agreements.
Periods of economic uncertainty may result in the volatility of market prices of
Sovereign Debt and in turn, the Funds' net asset value, to a greater extent than
the volatility inherent in domestic securities. The value of Sovereign Debt will
likely vary inversely with changes in prevailing interest rates, which are
subject to considerable variance in the international market.
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STRATEGIES AVAILABLE TO CORE FIXED INCOME, TOTAL RETURN MORTGAGE-BACKED
SECURITIES AND MORTGAGE-BACKED SECURITIES
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. Core Fixed Income, Total Return
Mortgage-Backed Securities and Mortgage-Backed Securities may invest in mortgage
pass-through securities representing participation interests in pools of
residential mortgage loans purchased from individual lenders by a Federal Agency
or originated by private lenders and guaranteed, to the extent provided in such
securities, by a Federal Agency. Such securities, which are ownership interests
in the underlying mortgage loans, differ from conventional debt securities,
which provide for periodic payment of interest in fixed amounts (usually
semiannually) and principal payments at maturity or on specified call dates.
Mortgage pass-through securities provide for monthly payments (not necessarily
in fixed amounts) that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which the Funds may invest
include those issued or guaranteed by GNMA, FNMA and FHLMC. GNMA certificates
are direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. FNMA is a federally chartered,
privately owned corporation and FHLMC is a corporate instrumentality of the
United States. FNMA and FHLMC certificates are not backed by the full faith and
credit of the United States but the issuing agency or instrumentality has the
right to borrow, to meet its obligations, from an existing line of credit with
the U.S. Treasury. The U.S. Treasury has no legal obligation to provide such
line of credit and may choose not to do so.
Certificates for these types of mortgage-backed securities evidence an interest
in a specific pool of mortgages. These certificates are, in most cases,
"modified pass-through" instruments, wherein the issuing agency guarantees the
payment of principal and interest on mortgages underlying the certificates,
whether or not such amounts are collected by the issuer on the underlying
mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES. CMOs
are debt obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by GNMA, FNMA or FHLMC
certificates, but also may be collateralized by whole loans or private mortgage
pass-through securities (such collateral is collectively hereinafter referred to
as "Mortgage Assets"). Multiclass pass-through securities are equity interests
in a trust composed of Mortgage Assets. Payments of principal of and interest on
the Mortgage Assets, and any reinvestment income thereon, provide the funds to
pay debt service on the CMOs or make scheduled distributions on the multiclass
pass-through securities. CMOs may be issued by Federal Agencies, or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. The issuer of a series of CMOs may elect
to be treated as a Real Estate Mortgage Investment Conduit ("REMIC"). REMICs
include governmental and/or private entities that issue a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to CMOs in
that they issue multiple classes of securities, but unlike CMOs, which are
required to be structured as debt securities, REMICs may be structured as
indirect ownership
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interests in the underlying assets of the REMICs themselves. However, there are
no effects on a Fund from investing in CMOs issued by entities that have elected
to be treated as REMICs, and all future references to CMOs shall also be deemed
to include REMIC.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis. Certain CMOs may have variable or floating interest rates
and others may be Stripped Mortgage Securities.
The principal of and interest on the Mortgage Assets may be allocated among the
several classes of a CMO series in a number of different ways. Generally, the
purpose of the allocation of the cash flow of a CMO to the various classes is to
obtain a more predictable cash flow to certain of the individual tranches than
exists with the underlying collateral of the CMO. As a general rule, the more
predictable the cash flow is on a CMO tranche, the lower the anticipated yield
will be on that tranche at the time of issuance relative to prevailing market
yields on other mortgage-backed securities. As part of the process of creating
more predictable cash flows on most of the tranches in a series of CMOs, one or
more tranches generally must be created that absorb most of the volatility in
the cash flows on the underlying mortgage loans. The yields on these tranches
are generally higher than prevailing market yields on mortgage-backed securities
with similar maturities. As a result of the uncertainty of the cash flows of
these tranches, the market prices of and yield on these tranches generally are
more volatile. The Funds will not invest in CMO and REMIC residuals.
PRIVATE MORTGAGE PASS-THROUGH SECURITIES. Private mortgage pass-through
securities are structured similarly to the GNMA, FNMA and FHLMC mortgage pass-
through securities and are issued by United States and foreign private issuers
such as originators of and investors in mortgage loans, including savings and
loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. These securities usually are
backed by a pool of conventional fixed rate or adjustable rate mortgage loans.
Since private mortgage pass-through securities typically are not guaranteed by
an entity having the credit status of GNMA, FNMA and FHLMC, such securities
generally are structured with one or more types of credit enhancement.
Mortgage-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, those securities may contain
elements of credit support, which fall into two categories: (i) liquidity
protection and (ii) protection against losses resulting from ultimate default by
an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses resulting from default ensures ultimate
payment of the obligations on at least a portion of the assets in the pool. This
protection may be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or
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through a combination of such approaches. The degree of credit support provided
for each issue is generally based on historical information respecting the level
of credit risk associated with the underlying assets. Delinquencies or losses in
excess of those anticipated could adversely affect the return on an investment
in a security. The Funds will not pay any fees for credit support, although the
existence of credit support may increase the price of a security.
STRIPPED MORTGAGE SECURITIES. Stripped Mortgage Securities may be issued by
Federal Agencies, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
Mortgage Securities not issued by Federal Agencies will be treated by the Funds
as illiquid securities so long as the staff of the Securities and Exchange
Commission maintains its position that such securities are illiquid.
Stripped Mortgage Securities usually are structured with two classes that
receive different proportions of the interest and principal distribution on a
pool of mortgage assets. A common type of Stripped Mortgage Security will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). PO classes
generate income through the accretion of the deep discount at which such
securities are purchased, and, while PO classes do not receive periodic payments
of interest, they receive monthly payments associated with scheduled
amortization and principal prepayment from the mortgage assets underlying the PO
class. The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on such security's yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities.
A Fund may purchase Stripped Mortgage Securities for income, or for hedging
purposes to protect the Fund's portfolio against interest rate fluctuations.
For example, since an IO class will tend to increase in value as interest rates
rise, it may be utilized to hedge against a decrease in value of other fixed-
income securities in a rising interest rate environment.
MORTGAGE DOLLAR ROLLS. The Funds may enter into mortgage dollar rolls with a
bank or a broker-dealer. A mortgage dollar roll is a transaction in which a Fund
sells mortgage-related securities for immediate settlement and simultaneously
purchases the same type of securities for forward settlement at a discount.
While the Fund begins accruing interest on the newly purchased securities from
the purchase or trade date, it is able to invest the proceeds from the sale of
its previously owned securities, which will be used to pay for the new
securities, in money market investments until the future settlement date. The
use of mortgage dollar rolls is a speculative technique involving leverage, and
is considered to be a form of borrowing by the Fund.
ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics
similar to mortgage-backed securities but have underlying assets that are not
mortgage loans or interests in
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mortgage loans. Various types of assets, primarily automobile and credit card
receivables, are securitized in pass-through structures similar to mortgage
pass-through structures. In general, the collateral supporting asset-backed
securities is of shorter maturity than mortgage loans and is likely to
experience substantial prepayments. As with mortgage-related securities, asset-
backed securities are often backed by a pool of assets representing the
obligations of a number of different parties and use similar credit enhancement
techniques. The cash flow generated by the underlying assets is applied to make
required payments on the securities and to pay related administrative expenses.
The amount of residual cash flow resulting from a particular issue of asset-
backed or mortgage-backed securities depends on, among other things, the
characteristics of the underlying assets, the coupon rates on the securities,
prevailing interest rates, the amount of administrative expenses and the actual
prepayment experience on the underlying assets. Core Fixed Income, Total Return
Mortgage-Backed Securities and Mortgage-Backed Securities may each invest in any
such instruments or variations as may be developed, to the extent consistent
with its investment objectives and policies and applicable regulatory
requirements.
STRATEGIES AVAILABLE TO TOTAL RETURN MORTGAGE-BACKED SECURITIES AND MORTGAGE-
BACKED SECURITIES
INVERSE FLOATERS. Inverse floaters constitute a class of CMOs with a coupon rate
that moves inversely to a designated index, such as LIBOR or COFI. Inverse
floaters have coupon rates that typically change at a multiple of the changes of
the relevant index rate. Any rise in the index rate (as a consequence of an
increase in interest rates) causes a drop in the coupon rate on an inverse
floater while any drop in the index rate causes an increase in the coupon rate
of an inverse floater. In some circumstances, the coupon on an inverse floater
could decrease to zero. In addition, like most other fixed-income securities,
the value of inverse floaters will decrease as interest rates increase and their
average lives will extend. Inverse floaters exhibit greater price volatility
than the majority of mortgage-backed securities. In addition, some inverse
floaters display extreme sensitivity to changes in prepayments. As a result, the
yield to maturity of an inverse floater is sensitive not only to changes in
interest rates but also to changes in prepayment rates on the related underlying
mortgage assets. As described above, inverse floaters may be used alone or in
tandem with interest-only stripped mortgage instruments. The Adviser believes
that, notwithstanding the fact that inverse floaters exhibit price volatility,
the use of inverse floaters as a component of the Fund's overall portfolio, in
light of the Fund's anticipated portfolio composition in the aggregate, is
compatible with the Fund's objective.
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STRATEGIES AVAILABLE TO THE EQUITY FUNDS (EXCEPT EARNINGS MOMENTUM, ENHANCED
500, AGGRESSIVE GROWTH EQUITIES AND INTERNATIONAL EQUITIES), CORE FIXED INCOME
AND EMERGING MARKETS INCOME
FORWARD CURRENCY TRANSACTIONS. The Equity Funds (except Earnings Momentum,
Enhanced 500, Aggressive Growth Equities and International Equities), Core Fixed
Income and Emerging Markets Income may enter into forward currency transactions.
A foreign currency forward contract involves an obligation to purchase or sell a
specific currency at an agreed future date, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders. A Fund may enter into foreign currency forward
contracts in order to protect against the risk that the U.S. dollar value of the
Fund's dividends, interest and net realized capital gains in local currency will
decline to the extent of any devaluation of the currency during the intervals
between (a) (i) the time the Fund becomes entitled to receive or receives
dividends, interest and realized gains or (ii) the time an investor gives notice
of a requested redemption of a certain amount and (b) the time such amount(s)
are converted into U.S. dollars for remittance out of the particular country or
countries.
At the maturity of a forward contract, a Fund may either accept or make delivery
of the currency specified in the contract or, prior to maturity, enter into a
closing purchase transaction involving the purchase or sale of an offsetting
contract. Closing purchase transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract.
The cost to a Fund of engaging in forward currency transactions may vary with
factors such as the length of the contract period and the market conditions then
prevailing. Because forward currency transactions are usually conducted on a
principal basis, no fees or commissions are involved, although the price charged
in the transaction includes a dealer's markup. The use of forward currency
contracts does not eliminate fluctuations in the underlying prices of the
securities, but it does establish a rate of exchange that can be achieved in the
future. In addition, although forward currency contracts limit the risk of loss
due to a devaluation of the foreign currency in relation to the U.S. dollar,
they also limit any potential gain if that foreign currency appreciates with
respect to the U.S. dollar.
STRATEGIES AVAILABLE TO CONVERTIBLE SECURITIES, LARGE CAP GROWTH AND LARGE CAP
VALUE
SHORT SALES AGAINST THE BOX. The Convertible Securities, Large Cap Growth and
Large Cap Value Funds may from time to time make short sales of securities it
owns or has the right to acquire through conversion or exchange of other
securities it owns. A short sale is "against the box" to the extent that a Fund
contemporaneously owns or has the right to obtain at no added cost securities
identical to those sold short. In a short sale, a Fund does not immediately
deliver the securities sold and does not receive the proceeds from the sale. The
Fund is said to have a short position in the securities sold until it delivers
the securities sold, at which time it receives the proceeds of the sale. When a
short sale transaction is closed out by delivery of the securities, any gain or
loss on the transaction is taxable as a short term capital gain or loss.
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To secure its obligation to deliver the securities sold short, a Fund will
deposit in a separate escrow account with its custodian an equal amount of the
securities sold short or securities convertible into or exchangeable for such
securities. The Fund may close out a short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund may want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
A Fund may make a short sale in order to hedge against market risks when the
Adviser believes that the price of a security may decline, causing a decline in
the value of a security owned by the Fund or a security convertible into or
exchangeable for such security. However, to the extent that in a generally
rising market the Fund maintains short positions in securities rising with the
market, the net asset value of the Fund would be expected to increase to a
lesser extent than the net asset value of an investment company that does not
engage in short sales. A Fund may also make a short sale when it does not want
to sell the security it owns, because, among other reasons, it wishes to defer
recognition of gain or loss for Federal income tax purposes. In such case, any
future losses in the Fund's long position should be reduced by a gain in the
short position. The extent to which such gains or losses are reduced will depend
upon the amount of the security sold short relative to the amount the Fund owns,
either directly or indirectly, and, in the case where the Fund owns convertible
securities, changes in the investment value or conversion premiums.
Additionally, a Fund may use short sales when it is determined that a
convertible security can be bought at a small conversion premium and has a yield
advantage relative to the underlying common stock sold short. The potential risk
in this strategy is the possible loss of any premium over conversion value in
the convertible security at the time of purchase. The purpose of this strategy
is to produce income from the yield advantage and to provide the potential for a
gain should the conversion premium increase.
STRATEGIES AVAILABLE TO ASIA PACIFIC EQUITIES, LATIN AMERICA EQUITIES, EMERGING
MARKETS EQUITIES AND EMERGING MARKETS INCOME
INVESTMENT IN OTHER INVESTMENT VEHICLES. Investment in other investment
companies or similar investment vehicles may be the sole or most practical means
by which a Fund can participate in certain Latin American, Asian and other
emerging securities markets or invest in particular industries within those
markets. Some of these investment vehicles may be closed-end investment
companies which may trade at a discount from their net asset value. Such
investments may involve the payment of substantial premiums above the value of
such issuers' portfolio securities, and are subject to limitations under the
1940 Act (see below) and market availability. There can be no assurance that
vehicles or funds for investing in certain Latin American, Asian and other
Emerging Markets countries will be available for investment, particularly in the
early stages of the Fund's operations. In addition, special tax considerations
may apply. The Funds do not intend to invest in such vehicles or funds unless,
in the judgment of the Adviser, the potential benefits of such investment
justify the payment of any applicable premium or sales charges. As a shareholder
in an investment company, the Funds would bear their ratable share of that
investment company's expenses, including its advisory and administration fees.
At the same time the Fund would continue to pay their own management and
advisory fees and other expenses. Under the 1940 Act, the Funds generally may
invest up to 10% of its total assets in the aggregate in shares of other
investment companies and up to 5% of its total assets in any one investment
company, as long as
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that investment does not represent more than 3% of the voting stock of the
acquired investment company at the time such shares are purchased.
STRATEGIES AVAILABLE TO ASIA PACIFIC EQUITIES, LATIN AMERICA EQUITIES AND
EMERGING MARKETS EQUITIES
INVESTMENT FOR THE PURPOSE OF ACQUIRING CONTROL. The Asia Pacific Equities,
Latin America Equities and Emerging Markets Equities Funds may acquire the
securities of wholly-owned subsidiaries in order to facilitate investing in the
securities of certain foreign issuers. The tax laws of certain countries impose
a capital gains tax on profits derived from securities dispositions. Certain of
these countries have double taxation treaties whereby residents of one country
are exempt from taxation on their investments in the securities of issuers in
another country. The Funds intend to establish wholly-owned subsidiaries in
certain foreign countries to take advantage of these double taxation treaties in
order to avoid the imposition of various taxes, including capital gains
RISK CONSIDERATIONS
The following risk considerations relate to investment practices undertaken by
some or all of the Funds. Generally, since shares of a Fund represent an
investment in securities with fluctuating market prices, shareholders should
understand that the value of their Fund shares will vary as the value of each
Fund's portfolio securities increases or decreases. Therefore, the value of an
investment in a Fund could go down as well as up. There is no guarantee of
successful performance, that a Fund's objective can be achieved or that an
investment in a Fund will achieve a positive return. Each Fund should be
considered as a means of diversifying an investment portfolio and is not in
itself a balanced investment program.
Prospective investors should consider the following risks.
GENERAL
Various market risks can affect the price or liquidity of an issuer's
securities. Adverse events occurring with respect to an issuer's performance or
financial position can depress the value of the issuer's securities. The
liquidity in a market for a particular security will affect its value and may be
affected by factors relating to the issuer, as well as the depth of the market
for that security. Other market risks that can affect value include a market's
current attitudes about type of security, market reactions to political or
economic events, and tax and regulatory effects (including lack of adequate
regulations for a market or particular type of instrument). Market restrictions
on trading volume can also affect price and liquidity.
Certain risks exist because of the composition and investment horizon of a
particular portfolio of securities. Prices of many securities tend to be more
volatile in the short-term and lack of diversification in a portfolio can also
increase volatility. A security that is leveraged, whether explicitly or
implicitly, will also tend to be more volatile in that both gains and losses are
intensified by the magnifying effects of leverage. Certain instruments (such as
inverse floaters)
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behave similarly to leveraged instruments. Generally, such securities contain
formulas requiring recalculation of their interest rates in a manner that
multiplies the change in a market rate.
REPURCHASE AGREEMENTS
In the event of a default or bankruptcy by a selling financial institution under
a repurchase agreement, a Fund will seek to sell the underlying security serving
as collateral. However, this could involve certain costs or delays, and, to the
extent that proceeds from any sale were less than the repurchase price, the Fund
could suffer a loss. Each Fund follows procedures designed to minimize the
risks associated with repurchase agreements, including effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions and specifying the required value of the collateral underlying the
agreement.
REVERSE REPURCHASE AGREEMENTS AND MORTGAGE DOLLAR ROLLS
Reverse repurchase agreements and mortgage dollar rolls involve the risk that
the market value of the securities a Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or mortgage dollar roll files
for bankruptcy or becomes insolvent, the Fund's use of proceeds of the agreement
may be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and mortgage dollar rolls are speculative
techniques involving leverage, and are considered borrowings by the Fund. Under
the requirements of the 1940 Act, the Fund is required to maintain an asset
coverage (including the proceeds of the borrowings) of at least 300% of all
borrowings. None of the Funds authorized to utilize these instruments expects to
engage in reverse repurchase agreements or mortgage dollar rolls (together with
other borrowings of the Fund) with respect to greater than 30% of the Fund's
total assets.
FIXED INCOME SECURITIES
Fixed Income securities are subject to various risks. The two primary (but not
exclusive) risks affecting fixed income instruments are "credit risk" and
"interest rate risk." These risks can affect a security's price volatility to
varying degrees, depending upon the nature of the instrument. In addition, the
depth and liquidity of the market for an individual or class of fixed income
security can also affect its price and, hence, the market value of a Fund.
"Credit risk" refers to the likelihood that an issuer will default in the
payment of principal and/or interest on an instrument. Financial strength and
solvency of an issuer are the primary factors influencing credit risk. In
addition, lack of or inadequacy of collateral or credit enhancements for a fixed
income security may affect its credit risk. Credit risk of a security may
change over its life and securities which are rated by rating agencies are often
reviewed and may be subject to downgrade.
"Interest rate risk" refers to the risks associated with market changes in
interest rates. Interest rate changes may affect the value of a fixed income
security directly (especially in the case of fixed rate securities) and directly
(especially in the case of adjustable rate securities). In general,
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rises in interest rates will negatively impact the price of fixed rate
securities and falling interest rates will have a positive effect on price. The
degree to which a security's price will change as a result of changes in
interest rates is measured by its "duration." For example, the price of a bond
with a 5 year duration would be expected under normal market conditions to
decrease 5% for every 1% increase in interest rates. Generally, securities with
longer maturities have a greater duration and thus are subject to greater price
volatility from changes in interest rates. Adjustable rate instruments also
react to interest rate changes in a similar manner although generally to a
lesser degree (depending, however, on the characteristics of the re-set terms,
including the index chosen, frequency of reset and reset caps or floors, among
other things).
FOREIGN SECURITIES
The Equity Funds, Emerging Markets Income and Core Fixed Income are each
permitted to invest in securities issued by foreign governments or companies and
Convertible Securities and High Yield Bond may invest in securities issued by
foreign companies. Investment in foreign securities involves special risks in
addition to the usual risks inherent in domestic investments. These include:
political or economic instability; the unpredictability of international trade
patterns; the possibility of foreign governmental actions such as expropriation,
nationalization or confiscatory taxation; the imposition or modification of
foreign currency or foreign investment controls; the imposition of withholding
taxes on dividends, interest and gains; price volatility; and fluctuations in
currency exchange rates. As compared to United States companies, foreign issuers
generally disclose less financial and other information publicly and are subject
to less stringent and less uniform accounting, auditing and financial reporting
standards. Foreign countries typically impose less thorough regulations on
brokers, dealers, stock exchanges, insiders and listed companies than does the
United States, and foreign securities markets may be less liquid and more
volatile than domestic markets. Investment in foreign securities involves higher
costs than investment in U.S. securities, including higher transaction and
custody costs as well as the imposition of additional taxes by foreign
governments. In addition, security trading practices abroad may offer less
protection to investors such as the Funds. Settlement of transactions in some
foreign markets may be delayed or may be less frequent than in the U.S., which
could affect the liquidity of each Fund's portfolio. Also, it may be more
difficult to obtain and enforce legal judgments against foreign corporate
issuers than against domestic issuers and it may be impossible to obtain and
enforce judgments against foreign governmental issues.
FOREIGN CURRENCY RISKS
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and some of the Funds hold various foreign
currencies from time to time, the value of the net assets of those Funds as
measured in United States dollars will be affected favorably or unfavorably by
changes in exchange rates. Generally, currency exchange transactions will be
conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
currency exchange market. The cost of currency exchange transactions will
generally be the difference between the bid and offer spot rate of the currency
being purchased or sold. In order to protect against uncertainty in the level of
future foreign currency exchange rates, the Equity Funds, Emerging Markets
Income and Core Fixed Income are authorized to enter into certain foreign
currency forward contracts.
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With respect to Emerging Markets Equities, Emerging Markets Income, Core Fixed
Income and Latin America Equities, the forward currency market for the purchase
or sale of U.S. dollars in most Latin American countries, including Mexico, is
not highly developed, and in certain Latin American countries, there may be no
such market. If a devaluation of a Latin American currency is generally
anticipated, the Fund may not be able to contract to sell the currency at an
exchange rate more advantageous than that which would prevail after the
anticipated amount of devaluation, particularly as regards forward contracts for
local Latin American currencies in view of the relatively small, inactive or
even non-existent market for these contracts. In the event the Funds hold
securities denominated in a currency that suffers a devaluation, the Funds' net
asset values will suffer corresponding reductions. In this regard, in December
1994, the Mexican government determined to allow the Mexican peso to trade
freely against the U.S. dollar rather than within a controlled band, which
action resulted in a significant devaluation of the Mexican peso against the
dollar. Further, in July 1997, the Thai and Philippine governments allowed the
baht and peso, respectively, to trade freely against the U.S. dollar resulting
in a sharp devaluation of both currencies, and in 1998 Russia did the same,
causing a sharp devaluation of the ruble.
RISKS ASSOCIATED WITH EMERGING MARKET COUNTRIES
Investors should recognize that investing in securities of emerging market
countries through investment in the Asia Pacific Equities, Emerging Markets
Equities, Emerging Markets Income, International Equities, Latin America
Equities Funds and European Equities involves certain risks, and considerations,
including those set forth below, which are not typically associated with
investing in the United States or other developed countries.
Political and economic structures in many emerging markets countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristics of more
developed countries. Some of these countries may have in the past failed to
recognize private property rights and have at times nationalized or expropriated
the assets of private companies.
The securities markets of emerging market countries are substantially smaller,
less developed, less liquid and more volatile than the major securities markets
in the United States and other developed nations. The limited size of many
emerging securities markets and limited trading volume in issuers compared to
volume of trading in U.S. securities or securities of issuers in other developed
countries could cause prices to be erratic for reasons apart from factors that
affect the quality of the securities. For example, limited market size may cause
prices to be unduly influenced by traders who control large positions. Adverse
publicity and investors' perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of portfolio securities,
especially in these markets.
In addition, emerging market countries' exchanges' and broker-dealers are
generally subject to less government and exchange regulation than their
counterparts in developed countries. Brokerage commissions, dealer concessions,
custodial expenses and other transaction costs may be higher on emerging markets
than in developed countries. As a result, Funds investing in
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emerging market countries have operating expenses that are expected to be higher
than other funds investing in more established market regions.
Many of the emerging market countries may be subject to greater degree of
economic, political and social instability than is the case in the United
States, Canada, Australia, New Zealand, Japan and Western European and certain
Asian countries. Such instability may result from, among other things, (i)
popular unrest associated with demands for improved political, economic and
social conditions, and (ii) internal insurgencies. Such social, political and
economic instability could disrupt the financial markets in which the Asia
Pacific Equities, Emerging Markets Equities, Emerging Markets Income,
International Equities and Latin America Equities Funds invest and adversely
affect the value of a Fund's assets.
In certain emerging market countries governments participate to a significant
degree, through ownership or regulation, in their respective economies. Action
by these governments could have a significant adverse effect on market prices of
securities and payment of dividends. In addition, most emerging market countries
have experienced substantial, and in some periods extremely high, rates of
inflation. Inflation and rapid fluctuation in inflation rates have had and may
continue to have very negative effects on the economies and securities markets
of certain emerging market countries.
Many of the currencies of emerging market countries have experienced
devaluations relative to the U.S. dollar, and major devaluations have
historically occurred in certain countries. Any devaluations in the currencies
in which portfolio securities are denominated will have a detrimental impact on
Funds investing in emerging market countries. Many emerging market countries are
experienceing currency exchange problems. Countries have and may in the future
impose foreign currency controls and repatriation control.
FUTURES
There are certain risks inherent in the use of futures contracts and options on
futures contracts. Successful use of futures contracts by a Fund is subject to
the ability of the Adviser to correctly predict movements in the direction of
interest rates or changes in market conditions. In addition, there can be no
assurance that there will be a correlation between price movements in the
underlying securities, currencies or index and the price movements in the
securities which are the subject of hedge. Positions in futures contracts and
options on futures contracts may be closed out only on the exchange or board of
trade on which they were entered into, and there can be no assurance that an
active market will exist for a particular contract or option at any particular
time. If a Fund has hedged against the possibility of an increase in interest
rates or a decrease in the value of portfolio securities and interest rates fall
or the value of portfolio securities increase instead, a Fund will lose part or
all of the benefit of the increased value of securities that it has hedged
because it will have offsetting losses in its futures positions. In addition, in
such situations, if a Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements at a time when it is disadvantageous
to do so. These sales of securities may, but will not necessarily, be at
increased prices that reflect the decline in interest rates. While utilization
of futures contracts and options on futures contracts may be advantageous to a
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Fund, if the Fund is not successful in employing such instruments in managing
its investments, the Fund's performance will be worse than if the Fund not make
such investment in futures contracts and options on futures contracts.
OPTIONS
The successful use of options depends on the ability of the Adviser to forecast
interest rate and market movements correctly. For example, if a Fund were to
write a call option based on the Adviser's expectation that the price of the
underlying security would fall, but the price were to rise instead, the Fund
could be required to sell the security upon exercise at a price below the
current market price. Similarly, if a Fund were to write a put option based on
the Adviser's expectation that the price of the underlying security would rise,
but the price were to fall instead, the Fund could be required to purchase the
security upon exercise at a price higher than the current market price.
When it purchases an option, a Fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the Fund
exercises the option or enters into a closing transaction with respect to the
option during the life of the option. If the price of the underlying security
does not rise (in the case of a call) or fall (in the case of a put) to an
extent sufficient to cover the option premium and transaction costs, the Fund
will lose part or all of its investment in the option. This contrasts with an
investment by the Fund in the underlying security, since the Fund will not lose
any of its investment in such security if the price does not change.
The effective use of options also depends on a Fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Although
the Fund will take an option position only if the Adviser believes there is a
liquid secondary market for the option, there is no assurance that the Fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, a Fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A market may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events - such as volume in excess of trading or clearing capability -were to
interrupt its normal operations.
A market may at times find it necessary to impose restrictions on particular
types of options transactions, such as opening transactions. For example, if an
underlying security ceases to meet qualifications imposed by the market or the
Options Clearing Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening transactions in
existing series may be prohibited. If an options market were to become
unavailable, a Fund which holds an option would be able to realize profits or
limit losses only by exercising the option, and a Fund which acted as option
writer would remain obligated under the option until expiration or exercise.
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Special risks are presented by internationally-traded options of the type
certain of the Equity Funds, Emerging Markets Income and Core Fixed Income may
acquire. Because of time differences between the United States and the various
foreign countries, and because different holidays are observed in different
countries, foreign options markets may be open for trading during hours or on
days when U.S. markets are closed. As a result, option premiums may not reflect
the current prices of the underlying interest in the United States.
RISKS ASSOCIATED WITH LOWER RATED SECURITIES
The Convertible Securities and High Yield Bond portfolios consist primarily of
below investment grade corporate securities that are commonly known as junk
bonds. In addition, the Equity Funds may invest in convertible securities and
Asia Pacific Equities, Core Fixed Income, Earnings Momentum, Aggressive Growth
Equities, Emerging Markets Equities, Emerging Markets Income, European Equities
and Latin America Equities may invest in debt instruments rated below investment
grade. Lower rated securities are traded in markets that may be relatively less
liquid and subject to greater changes in liquidity than the markets for higher
rated securities.
High yield/high risk securities can be classified into two categories: (a)
securities issued without an investment grade rating and (b) securities whose
credit ratings have been downgraded below investment grade because of declining
investment fundamentals. The first category includes securities issued by
"emerging credit" companies and companies which have experienced a leveraged
buyout or recapitalization. Although the small and medium size companies that
constitute emerging credit issuers typically have significant operating
histories, these companies generally do not have strong enough operating results
to secure investment grade ratings from the rating agencies. In addition, in
recent years there has been a substantial volume of high yield/high risk
securities issued by companies that have converted from public to private
ownership through leveraged buyout transactions and by companies that have
restructured their balance sheets through leveraged recapitalizations. High
yield/high risk securities issued in these situations are used primarily to pay
existing stockholders for their shares or to finance special dividend
distributions to shareholders. The indebtedness incurred in connection with
these transactions is often substantial and, as a result, often produces highly
leveraged capital structures which present special risks for the holders of such
securities. Also, the market price of such securities may be more volatile to
the extent that expected benefits from the restructuring do not materialize. The
second category of high yield/high risk securities consists of securities of
former investment grade companies that have experienced poor operating
performance due to such factors as cyclical downtrends in their industry, poor
management or increased foreign competition.
Generally, lower-rated debt securities provide a higher yield than higher rated
debt securities of similar maturity but are subject to greater risk of loss of
principal and interest ("credit risk") than higher rated securities of similar
maturity. They are generally considered to be subject to greater risk than
securities with higher ratings particularly in the event of a deterioration of
general economic conditions. The lower ratings of the high yield/high risk
securities which the Fund will purchase reflect a greater possibility that the
financial condition of the issuers, or adverse changes in general economic
conditions, or both, may impair the ability of the issuers to make
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payments of principal and interest. The market value of a single lower-rated
fixed income security may fluctuate more than the market value of higher rated
securities, since changes in the creditworthiness of lower rated issuers and in
market perceptions of the issuers' creditworthiness tend to occur more
frequently and in a more pronounced manner than in the case of higher rated
issuers. High yield/high risk fixed income securities also tend to reflect
individual corporate developments to a greater extent than higher rated
securities. The securities in which the Fund invests are frequently subordinated
to senior indebtedness.
Since the high yield bond market is relatively new, its growth has paralleled a
long economic expansion, and it has not weathered a recession in its present
size and form. An economic downturn or increase in interest rates may result in
a higher incidence of high yield bond defaults and is likely to have a negative
effect on the high yield bond market and on the value of the high yield/high
risk bonds in the Fund's portfolio, as well as on the ability of the bonds'
issuers to repay principal and interest.
The economy and interest rates affect high yield/high risk securities
differently from other securities. The prices of high yield bonds have been
found to be less sensitive to interest rate changes than higher-rated
investments, but more sensitive to adverse economic changes or individual
corporate developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial stress
which would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals, and to obtain
additional financing. If the issuer of a bond owned by the Fund defaults, the
Fund may incur additional expenses to seek recovery. In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of high yield bonds and the Fund's asset value.
Furthermore, the market prices of high yield/high risk bonds structured as zero
coupon or pay-in-kind securities are affected to a greater extent by interest
rate changes and thereby tend to be more volatile than securities which pay
interest periodically and in cash.
To the extent there is a limited retail secondary market for particular high
yield bonds, these bonds may be thinly-traded and the Adviser's ability to
accurately value high yield bonds and the Fund's assets may be more difficult
because there is less reliable, objective data available. In addition, the
Fund's ability to acquire or dispose of the bonds may be negatively-impacted.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds, especially
in a thinly-traded market. To the extent the Fund owns or may acquire illiquid
or restricted high yield bonds, these securities may involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.
Special tax considerations are associated with investing in lower rated debt
securities structured as zero coupon or pay-in-kind securities. The Fund accrues
income on these securities prior to the receipt of cash payments. The Fund must
distribute substantially all of its income to its shareholders to qualify for
pass-through treatment under the tax laws and may, therefore, have to dispose of
its portfolio securities to satisfy distribution requirements.
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Underwriting and dealer spreads associated with the purchase of lower rated
bonds are typically higher than those associated with the purchase of high grade
bonds.
RISKS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES
CREDIT AND MARKET RISKS OF MORTGAGE-BACKED SECURITIES. The investments by Core
Fixed Income, Total Return Mortgage-Backed Securities and Mortgage-Backed
Securities in fixed rate and floating rate mortgage-backed securities will
entail normal credit risks (i.e., the risk of non-payment of interest and
principal) and market risks (i.e., the risk that interest rates and other
factors will cause the value of the instrument to decline). Many issuers or
servicers of mortgage-backed securities guarantee timely payment of interest and
principal on the securities, whether or not payments are made when due on the
underlying mortgages. This kind of guarantee generally increases the quality of
a security, but does not mean that the security's market value and yield will
not change. Like bond investments, the value of fixed rate mortgage-backed
securities will tend to rise when interest rates fall, and fall when rates rise.
Floating rate mortgage-backed securities will generally tend to have minimal
changes in price when interest rates rise or fall. The value of all mortgage-
backed securities may also change because of changes in the market's perception
of the creditworthiness of the organization that issued or guarantees them. In
addition, the mortgage-backed securities market in general may be adversely
affected by changes in governmental legislation or regulation. Fluctuations in
the market value of mortgage-backed securities after their acquisition usually
do not affect cash income from such securities but are reflected in each Fund's
net asset value. The liquidity of mortgage-backed securities varies by type of
security; at certain times a Fund may encounter difficulty in disposing of
investments. Other factors that could affect the value of a mortgage-backed
security include, among other things, the types and amounts of insurance which a
mortgagor carries, the amount of time the mortgage loan has been outstanding,
the loan-to-value ratio of each mortgage and the amount of overcollateralization
of a mortgage pool.
PREPAYMENT AND REDEMPTION RISK OF MORTGAGE-BACKED SECURITIES. Mortgage-backed
securities reflect an interest in monthly payments made by the borrowers who
receive the underlying mortgage loans. Although the underlying mortgage loans
are for specified periods of time, such as 20 or 30 years, the borrowers can,
and typically do, pay them off sooner. In such an event, the mortgage-backed
security which represents an interest in such underlying mortgage loan will be
prepaid. A borrower is more likely to prepay a mortgage which bears a relatively
high rate of interest. This means that in times of declining interest rates, a
portion of the Fund's higher yielding securities are likely to be redeemed and
the Fund will probably be unable to replace them with securities having as great
a yield. Prepayments can result in lower yields to shareholders. The increased
likelihood of prepayment when interest rates decline also limits market price
appreciation of mortgage-backed securities. In addition, a mortgage-backed
security may be subject to redemption at the option of the issuer. If a
mortgage-backed security held by a Fund is called for redemption, the Fund will
be required to permit the issuer to redeem the security, which could have an
adverse effect on the Fund's ability to achieve its investment objective.
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COLLATERALIZED MORTGAGE OBLIGATIONS. There are certain risks associated
specifically with CMOs. CMOs issued by private entities are not obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities and are not guaranteed by any government agency, although the
securities underlying a CMO may be subject to a guarantee. Therefore, if the
collateral securing the CMO, as well as any third party credit support or
guarantees, is insufficient to make payment, the holder could sustain a loss. In
addition, the average life of CMOs is determined using mathematical models that
incorporate prepayment assumptions and other factors that involve estimates of
future economic and market conditions. These estimates may vary from actual
future results, particularly during periods of extreme market volatility.
Further, under certain market conditions, such as those that occurred in 1994,
the average weighted life of certain CMOs may not accurately reflect the price
volatility of such securities. For example, in periods of supply and demand
imbalances in the market for such securities and/or in periods of sharp interest
rate movements, the prices of CMOs may fluctuate to a greater extent than would
be expected from interest rate movements alone.
STRIPPED MORTGAGE SECURITIES. Part of the investment strategy of Core Fixed
Income, Total Return Mortgage-Backed Securities and Mortgage-Backed Securities
involves interest-only Stripped Mortgage Securities. These investments are
highly sensitive to changes in interest and prepayment rates and tend to be less
liquid than other CMOs.
INVERSE FLOATERS. Total Return Mortgage-Backed and Mortgage-Backed Securities
invest in inverse floaters, a class of CMOs with a coupon rate that resets in
the opposite direction from the market rate of interest to which it is indexed
such as LIBOR or COFI. Any rise in the index rate (as a consequence of an
increase in interest rates) causes a drop in the coupon rate of an inverse
floater while any drop in the index rate causes an increase in the coupon of an
inverse floater. An inverse floater may be considered to be leveraged to the
extent that its interest rate varies by a magnitude that exceeds the magnitude
of the change in the index rate of interest. The higher degree of leverage
inherent in inverse floaters is associated with greater volatility in their
market prices.
ADJUSTABLE RATE MORTGAGES. ARMs contain maximum and minimum rates beyond which
the mortgage interest rate may not vary over the lifetime of the security. In
addition, certain ARMs provide for additional limitations on the maximum amount
by which the mortgage interest rate may adjust for any single adjustment period.
Alternatively, certain ARMs contain limitations on changes in the required
monthly payment. In the event that a monthly payment is not sufficient to pay
the interest accruing on an ARM, any such excess interest is added to the
principal balance of the mortgage loan, which is repaid through future monthly
payments. If the monthly payment for such an instrument exceeds the sum of the
interest accrued at the applicable mortgage interest rate and the principal
payment required at such point to amortize the outstanding principal balance
over the remaining term of the loan, the excess is utilized to reduce the then
outstanding principal balance of the ARM.
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ASSET-BACKED SECURITIES. Certain asset-backed securities do not have the benefit
of the same security interest in the related collateral as do mortgage-backed
securities. Credit card receivables are generally unsecured, and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. In addition, some issuers
of automobile receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables.
RATING CATEGORIES
A description of the rating categories as published by Moody's and S&P is set
forth in the Appendix to this Statement of Additional Information. Ratings
assigned by Moody's and/or S&P to securities acquired by a Fund reflect only the
views of those agencies as to the quality of the securities they have undertaken
to rate. It should be emphasized, however, that ratings are relative and
subjective and are not absolute standards of quality. There is no assurance that
a rating assigned initially will not change. A Fund may retain a security whose
rating has changed or has become unrated.
RESTRICTED SECURITIES
Each Fund may invest in securities which are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or which are otherwise not readily marketable.
These securities are generally referred to as private placements or restricted
securities. The Adviser, pursuant to procedures adopted by the Board of
Directors of the Company, will make a determination as to the liquidity of each
restricted security purchased by a Fund. If a restricted security is determined
to be "liquid," it will not be included within the category "illiquid
securities," which under each Bond Fund's and Equity Fund's current policies may
not exceed 15% of the Fund's net assets and which under Money Market's current
policies may not exceed 10% of the Fund's net assets.
Limitations on the resale of restricted securities may have an adverse effect on
their marketability, and may prevent a Fund from disposing of them promptly at
reasonable prices. A Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration. The Securities and Exchange Commission has recently adopted Rule
144A under the Securities Act, which permits each Fund to sell restricted
securities to qualified institutional buyers without limitation. The Rule 144A
marketplace of sellers and qualified institutional buyers is new and still
developing and may take a period of time to develop into a mature liquid market.
As such, the market for certain private placements purchased pursuant to Rule
144A may be initially small or may, subsequent to purchase, become illiquid.
Furthermore, the Adviser may not possess all the information concerning an issue
of securities that it wishes to purchase in a private placement to which it
would normally have had access, had the registration statement necessitated by a
public offering been filed with the Securities and Exchange Commission.
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OPTIONS TRANSACTIONS
The effective use of options also depends on a Fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Prior to
exercise or expiration, an option position can only be terminated by entering
into a closing purchase or sale transaction. If a covered call option writer is
unable to effect a closing purchase transaction or to purchase an offsetting OTC
Option, it cannot sell the underlying security until the option expires or the
option is exercised. Accordingly, a covered call option writer may not be able
to sell an underlying security at a time when it might otherwise be advantageous
to do so. A secured put option writer who is unable to effect a closing purchase
transaction or to purchase an offsetting OTC Option would continue to bear the
risk of decline in the market price of the underlying security until the option
expires or is exercised. In addition, a secured put writer would be unable to
utilize the amount held in cash or U.S. Government Securities or other high
grade short-term obligations as security for the put option for other investment
purposes until the exercise or expiration of the option.
A Fund's ability to close out its position as a writer of an option is dependent
upon the existence of a liquid secondary market. There is no assurance that such
a market will exist, particularly in the case of OTC Options, as such options
will generally only be closed out by entering into a closing purchase
transaction with the purchasing dealer. However, the Fund may be able to
purchase an offsetting option which does not close out its position as a writer
but constitutes an asset of equal value to the obligation under the option
written. If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to maintain
the securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on an
exchange are: (a) insufficient trading interest in certain options; (b)
restrictions on transactions imposed by an exchange; (c) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (d) interruption of the normal
operations on an exchange; (e) inadequacy of the facilities of an exchange or
the OCC or other relevant clearing corporation to handle current trading volume;
or (f) a decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
relevant clearing corporation as a result of trades on that exchange would
generally continue to be exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC Option purchased by a Fund, the
Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by a Fund only with brokers or financial
institutions deemed creditworthy by the Fund's management.
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Each of the exchanges has established limitations governing the maximum number
of options on the same underlying security or futures contract (whether or not
covered) which may be written by a single investor, whether acting alone or in
concert with others (regardless of whether such options are written on the same
or different exchanges or are held or written on one or more accounts or through
one or more brokers). An exchange may order the liquidation of positions found
to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed options
which a Fund may write.
The hours of trading for options may not conform to the hours during which the
underlying securities are traded. To the extent that the option markets close
before the markets for the underlying securities, significant price and rate
movements can take place in the underlying markets that cannot be reflected in
the option markets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
There are certain risks inherent in the use of futures contracts and options on
futures contracts. Successful us of futures contracts by a Fund is subject to
the ability of the Adviser to correctly predict movements in the direction of
interest rates or changes in market conditions. In addition, there can be no
assurance that there will be a correlation between price movements in the
underlying securities, currencies or index and the price movements in the
securities which are the subject of the hedge.
Positions in futures contracts and options on futures contracts may be closed
out only on the exchange or board of trade on which they were entered into, and
there can be no assurance that an active market will exist for a particular
contract or option at any particular time. If a Fund has hedged against the
possibility of an increase in interest rates or a decrease in the value of
portfolio securities and interest rates fall or the value of portfolio
securities increase instead, a Fund will lose part or all of the benefit of the
increased value of securities that it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. These sales of
securities may, but will not necessarily be at increased prices that reflect the
decline in interest rates. While utilization of futures contracts and options on
futures contracts may be advantageous to the Fund, if the Fund is not successful
in employing such instruments in managing the Fund's investments, the Fund's
performance will be worse than if the Fund did not make such investments.
Each Fund will enter into transactions in futures contracts for hedging purposes
only, including without limitation, futures contracts that are "bona fide
hedges" as defined by the CFTC. In connection with the purchase of sale of
futures contracts, a Fund will be required to either (i) segregate sufficient
cash or other liquid assets to cover the outstanding position or (ii) cover the
futures contract by either owning the instruments underlying the futures
contracts or by holding a portfolio of securities with characteristics
substantially similar to the underlying index or stock index comprising the
futures contracts or by holding a separate offsetting option permitting it to
purchase or sell the same futures contract. A call option is "covered" if
written against securities owned by the Fund writing the option or if written
against related securities the Fund holds. A put
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option is "covered" if the Fund writing the option maintains at all time cash,
short-term Treasury obligations or other liquid assets with a value equal to the
option exercise price in a segregated account with the Fund's custodian, or if
it has bought and holds a put on the same security (and on the same amount of
securities) where the exercise price of the put held by the Fund is equal to or
greater than the exercise price of the put written by the Fund.
Exchanges limit the amount by which the price of a futures contract may move on
any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, a Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if a Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, a Fund may be required to
take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
a Fund's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater margin requirements may limit a Fund's ability to enter into certain
commodity transactions on foreign exchanges. Moreover, differences in clearance
and delivery requirements on foreign exchanges may occasion delays in the
settlement of a Fund's transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Similarly, in the event of the bankruptcy, of the writer of an OTC option
purchased by a Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by a Fund only with brokers
or financial institutions deemed creditworthy by the Adviser.
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which a Fund may invest. In the event a liquid
market does not exist, it may not be possible to close out a futures position,
and in the event of adverse price movements, a Fund would continue to be
required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures contracts
are traded may compel or prevent a Fund from closing out a contract which may
result in reduced gain or increased loss to the Fund. The absence of a liquid
market in futures contracts might cause a Fund to make or take delivery of the
underlying securities (currencies) at a time when it may be disadvantageous to
do so.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to a Fund because
the maximum amount at risk is the premium
34
<PAGE>
paid for the options (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures contract
would result in a loss to a Fund notwithstanding that the purchase or sale of a
futures contract would not result in a loss, as in the instance where there is
no movement in the prices of the futures contract or underlying securities
(currencies).
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, a Fund will
not purchase or write options on foreign currency futures contracts unless and
until, in the Adviser's opinion, the market for such options has developed
sufficiently that the risks in connection with such options are not greater than
the risks in connection with transactions in the underlying foreign currency
futures contracts.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated by dividing the lesser of the value of
purchases or sales of portfolio securities for the year by the monthly average
value of portfolio securities. For example, a portfolio turnover rate of 100%
would occur if all of a Fund's securities that are included in the computation
of turnover were replaced once during a period of one year. Securities with
remaining maturities of one year or less at the date of acquisition are excluded
from the calculation.
Certain practices that may be employed by the Funds could result in high
portfolio turnover. For example, portfolio securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what the Adviser believes to be
a temporary disparity in the normal yield relationship between the two
securities. These yield disparities may occur for reasons not directly related
to the investment quality of particular issues or the general movement of
interest rates, such as changes in the overall demand for, or supply of, various
types of securities.
BROKERAGE PRACTICES
The Adviser is responsible for the placement of the Funds' portfolio
transactions and the negotiation of prices and commissions, if any, with respect
to such transactions. Fixed income and unlisted equity securities are generally
purchased from a primary market maker acting as principal on a net basis without
a stated commission but at prices generally reflecting a dealer spread. Listed
equity securities are normally purchased through brokers in transactions
executed on securities exchanges involving negotiated commissions. Both fixed
income and equity securities are also purchased in underwritten offerings at
fixed prices which include discounts to underwriters and/or concessions to
dealers. In placing a portfolio transaction, the Adviser seeks to obtain the
best execution for the Fund, taking into account such factors as price
(including the applicable dealer spread or commission, if any), size of order,
difficulty of execution and operational facilities of the firm involved and the
firm's risk in positioning a block of securities.
35
<PAGE>
Consistent with its policy of securing best execution, in selecting broker-
dealers and negotiating any commissions or prices involved in Fund transactions,
the Adviser considers the range and quality of the professional services
provided by such firms. Brokerage services include the ability to most
effectively execute large orders without adversely impacting markets and
positioning securities in order to enable the Adviser to effect orderly
purchases or sales for a Fund. Accordingly, transactions will not always be
executed at the lowest available commission. In addition, the Adviser may effect
transactions which cause a Fund to pay a commission or net price in excess of a
commission or net price which another broker-dealer would have charged if the
Adviser first determines that such commission or net price is reasonable in
relation to the value of the brokerage and research services provided by the
broker-dealer to the Fund.
Research services include such items as reports on industries and companies,
economic analyses and review of business conditions, portfolio strategy,
analytic computer software, account performance services, computer terminals and
various trading and/or quotation equipment. They also include advice from
broker-dealers as to the value of securities and availability of securities,
buyers, and sellers. In addition, they include recommendations as to purchase
and sale of individual securities and timing of transactions.
Fixed income securities are generally purchased from the issuer or a primary
market maker acting as principal on a net basis with no brokerage commission
paid by the client. Such securities, as well as equity securities, may also be
purchased from underwriters at prices which include underwriting fees.
The Adviser maintains an internal allocation procedure to identify those broker-
dealers who have provided it with research services and endeavors to place
sufficient transactions with them to ensure the continued receipt of research
services the Adviser believes are useful. When the Adviser receives products or
services that are used both for research and other purposes, it makes a good
faith allocation. While the non-research portion will be paid in cash by the
Adviser, the portion attributable to research may be paid through brokerage
commissions.
Research services furnished by broker-dealers may be used in providing services
for any or all of the clients of the Adviser, as well as clients of affiliated
companies, and may be used in connection with accounts other than those which
pay commissions to the broker-dealers providing the research services. During
the fiscal period or year ended October 31, 1998, Convertible Securities, Core
Equities, Earnings Momentum, Aggressive Growth Equities, Small Cap Growth, Asia
Pacific Equities and Latin American Equities directed $___, $_______, $______,
$______, $______, $______ and $______, respectively, in brokerage commissions
because of research services provided.
For the fiscal years ended October 31, 1996, 1997, and 1998 Core Equities, Small
Cap Growth, Earnings Momentum, Asia Pacific Equities, Latin America Equities and
Emerging Markets Equities paid $237,979, $386,378 and $_______; $345,369,
$407,737 and $_______; $399,530, $459,925 and $_______; $470,820, $450,959 and
$_______; $195,703, $200,989 and $_______; $353,334, $431,596, and $_______ in
brokerage commissions, respectively. During the fiscal period June 3, 1996 to
October 31, 1996, Aggressive Growth Equities paid $97,907 in brokerage
36
<PAGE>
commissions and for the fiscal years ended October 31, 1997 and October 31,
1998, paid $334,812 and $________, respectively, in brokerage commissions.
Convertible Securities paid $23,633 in brokerage commissions for the period
January 2, 1997 through October 31, 1997. For the fiscal year ended October 31,
1998, convertible securities paid $________ in brokerage commissions.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 8 below have been adopted by the
Company with respect to the Funds as fundamental policies (except as otherwise
provided in 1). A fundamental policy affecting a particular Fund may not be
changed without the vote of a majority of the outstanding shares of the affected
Fund. Investment restrictions 9 and 10 with respect to a Fund may be changed by
vote of a majority of the Company's Board of Directors at any time.
Investment policies adopted by the Company are:
1. No Fund will borrow money, except that (a) a Fund may borrow from banks for
temporary or emergency (not leveraging) purposes including the meeting of
redemption requests that might otherwise require the untimely disposition
of securities, (b) Core Fixed Income, Total Return Mortgage-Backed
Securities, Mortgage-Backed Securities, Latin America Equities and Money
Market may each enter into reverse repurchase agreements, (c) Core Fixed
Income Total Return Mortgage-Backed Securities and Mortgage-Backed
Securities may utilize mortgage dollar rolls, and (d) each Fund other than
Money Market may enter into futures contracts for hedging purposes subject
to the conditions set forth in paragraph 8 below. The total amount borrowed
by a Fund (including, for this purpose, reverse repurchase agreements and
mortgage dollar rolls) at any time will not exceed 30% (or, in the case of
Money Market, 10%) of the value of the Fund's total assets (including the
amount borrowed) valued at market less liabilities (not including the
amount borrowed) at the time the borrowing is made. As an operating policy,
whenever borrowings pursuant to (a) exceed 5% (or, in the case of Money
Market, 10%) of the value of a Fund's total assets, the Fund will not
purchase any securities.
2. No Fund will issue senior securities as defined in the 1940 Act, provided
that the Funds may (a) enter into repurchase agreements; (b) purchase
securities on a when-issued or delayed delivery basis; (c) purchase or sell
financial futures contracts or options thereon; and (d) borrow money in
accordance with the restrictions described in paragraph 1 above.
3. No Fund will underwrite securities of other companies, except insofar as
the Fund might be deemed to be an underwriter for purposes of the
Securities Act by virtue of disposing of portfolio securities.
4. No Fund will purchase any securities that would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in
the securities of any one particular industry or group of industries,
provided that this limitation shall not apply to any Fund's purchase of
U.S. Government Securities, and, in the case of Money Market, to the
purchase of obligations of domestic branches of United States banks. The
European Equities Fund may invest more than 25% of the value of its total
assets in a single European
37
<PAGE>
country, the International Equities Fund may invest more than 25% of the
value of its total assets in shares of registered investment companies, the
Japanese Equities Fund may invest more than 25% of the value of its total
assets in debt securities issued or guaranteed by the Japanese government
and the Emerging Markets Income Fund may invest more than 25% of the value
of its total assets in debt securities issued or guaranteed by the
governments of Emerging Markets Countries. In determining industry
classifications for foreign issuers, each Fund will use reasonable
classifications that are not so broad that the primary economic
characteristic of the companies in a single class are materially different.
Each Fund will determine such classifications of foreign issuers based on
the issuer's principal or major business activities.
5. No Fund will invest in real estate, real estate mortgage loans, residual
interests in REMICs, oil, gas and other mineral leases (including other
universal exploration or development programs), or real estate limited
partnerships, except that a Fund may purchase securities backed by real
estate or interests therein, or issued by companies, including real estate
investment trusts, which invest in real estate or interests therein, and
except that Core Fixed Income, Total Return Mortgage-Backed Securities and
Mortgage-Backed Securities are not prohibited from investing in real estate
mortgage loans.
6. No Fund may make loans of cash except by purchasing qualified debt
obligations or entering into repurchase agreements.
7. Each Fund may effect short sales of securities or maintain a short position
only if the Fund at the time of sale either owns or has the right to
acquire at no additional cost securities equivalent in kind and amount to
those sold.
8. No Fund will invest in commodities or commodities contracts, except that
each Bond Fund or Equity Fund may enter into futures contracts or purchase
related options thereon if, immediately thereafter, the amount committed to
margin plus the amount paid for premiums for unexpired options on futures
contracts does not exceed 5% of the value of the Fund's total assets, after
taking into account unrealized gains and unrealized losses on such
contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is
less (more) than the market price of the underlying security) at the time
of purchase, the in-the-money amount may be excluded in calculating the 5%.
The entry into foreign currency forward contracts shall not be deemed to
involve investing in commodities.
9. No Fund will purchase securities on margin, except that a Fund may obtain
any short-term credits necessary for clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts and
related options will not be deemed to be a purchase of securities on
margin.
10. No Fund will purchase the securities of an issuer for the purpose of
acquiring control or management thereof except that Asia Pacific Equities,
Emerging Markets Equities and Latin America Equities may acquire the
securities of subsidiaries in order to facilitate investing in the
securities of foreign issuers.
38
<PAGE>
The percentage limitations contained in the restrictions listed above apply,
with the exception of (1), at the time of purchase or initial investment and any
subsequent change in any applicable percentage resulting from market
fluctuations or other changes in total or net assets does not require
elimination of any security from the Fund.
DIRECTORS AND OFFICERS OF THE COMPANY
A board of five directors is responsible for overseeing the Fund's affairs. The
Fund has an executive committee, consisting of Marc I. Stern, Chairman, John C.
Argue and Thomas E. Larkin, which may act for the Board of Directors between
meetings, except where Board action is required by law. The directors and
officers of the Fund, and their business addresses and their principal
occupations for the last five years are set forth below.
<TABLE>
<CAPTION>
Name and Address Principal Occupations and Other Affiliations
- -------------------------------------------------------------
<S> <C>
Marc I. Stern* (54) President and Director, The TCW Group, Inc. (formerly TCW Management
Chairman Company) and the Adviser; Vice Chairman, TCW Asset Management Company;
865 South Figueroa Street Chairman, TCW Americas Development, Inc.; Chairman, TCW Asia Ltd.;
Los Angeles, California 90017 Chairman, TCW London International, Limited (since March 1993) and
Executive Vice President, Trust Company of the West (since May 1993).
Chairman, Apex Mortgage Capital, Inc. (Since October 1997). Trustee,
TCW/DW Mutual Funds (since April 1995). Director of Qualcomm
Incorporated (wireless communications); formerly President of Sun
America, Inc. (financial services company).
Thomas E. Larkin, Jr.* (59) President and Director, Trust Company of the West; Vice Chairman and
Director and President Director, TCW Asset Management Company; Executive Vice President and
865 South Figueroa Street Director, The TCW Group, Inc.; Chairman of the Adviser; Member of the
Los Angeles, California 90017 Board of Trustees of the University of Notre Dame; Director of
Orthopedic Hospital of Los Angeles; Senior Vice President, TCW
Convertible Securities Fund, Inc.; President and Trustee, TCW/DW Mutual
Funds.
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
John C. Argue (67) Of Counsel, Argue Pearson Harbison & Myers (law firm); Director, Avery
Director Dennison Corporation (manufacturer of self-adhesive products and office
801 South Flower Street supplies), CalMat Company (producer of aggregates, asphalt and ready
Los Angeles, California 90017 mixed concrete), Apex Mortgage Capital, Inc. (real estate investment
trust); Nationwide Health Properties, Inc. (real estate investment
trust) and TCW Convertible Securities Fund, Inc.; Advisory Director,
LAACO Ltd. (owner and operator of private clubs and real estate);
Trustee, TCW/DW Mutual Funds.
Norman Barker, Jr. (76) Former Chairman of the Board, First Interstate Bank of California and
Director former Vice Chairman of the Board, First Interstate Bancorp; Director,
707 Wilshire Blvd. American Health Properties, Inc., ICN Pharmaceuticals, Inc., TCW
Los Angeles, CA 90017 Convertible Securities Fund, Inc.; Chairman of the Board, Fidelity
Federal Bank.
Richard W. Call (74) Former President, The Seaver Institute (a private foundation);
800 West 6th Street Director, TCW Convertible Securities Fund, Inc. and The Seaver
Los Angeles, CA 90017 Institute.
</TABLE>
______________________
*Directors who are or may be deemed to be "interested persons" of the Company as
defined in the 1940 Act. Mr. Stern and Mr. Larkin are both officers of the
Adviser.
COMPENSATION OF INDEPENDENT DIRECTORS
The Company pays each Independent Director an annual fee of $35,000 plus a per
meeting fee of $500 for meetings of the Board of Directors or Committees of the
Board of Directors attended by the Director prorated among the Funds. The
Company also reimburses such Directors for travel and other out-of-pocket
expenses incurred by them in connection with attending such meetings. Directors
and officers of the Company who are employed by the Adviser or an affiliated
company thereof receive no compensation nor expense reimbursement from the
Company.
The following table illustrates the compensation paid to the Company's
Independent Directors by the Company for the fiscal year ended October 31, 1998.
40
<PAGE>
Name of Independent Director Aggregate Compensation From the Company
- ----------------------------- ---------------------------------------
John C. Argue [________]
Norman Barker, Jr. [________]
Richard W. Call [________]
The following table illustrates the total compensation paid to Company's
Independent Directors for the calendar year ended December 31, 1998 by the 11
TCW/DW Funds, in the case of Mr. Argue, and the TCW Convertible Securities Fund,
Inc. in the case of Messrs. Barker and Call, as well as from the Company. The
TCW/DW Funds and TCW Convertible Securities Funds, Inc. are included solely
because the Company's Adviser, TCW Funds Management, Inc., also serves as
investment adviser to those investment companies.
<TABLE>
<CAPTION>
Total Cash Compensation
For Service as Director and from the TCW Galileo Funds,
For Service as Trustee and Committee Member of the TCW Inc., 14 TCW/DW Funds, and
Name of Independent Committee Member of 11 Convertible Securities the TCW Convertible
Director TCW/DW Funds Fund, Inc. Securities Fund, Inc.
- --------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
John C. Argue [____] [_____] [_____]
Norman Barker, Jr. -- [_____] [_____]
Richard W. Call -- [_____] [_____]
</TABLE>
The officers of the Company who are not also directors of the Company are:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name and Address with Company During Past 5 Years(1)
- -------------------------------- ---------------------------- ------------------------------------------------------
<S> <C> <C>
Alvin R. Albe, Jr. (44)* Senior Vice President Executive Vice President, Finance and Administration,
The TCW Group, Inc., Trust Company of the West, TCW
Asset Management Company and the Adviser; formerly
President of Oakmont Corporation (investment
management services).
Michael E. Cahill (47)* Senior Vice Managing Director, General Counsel and Secretary, The
President, TCW Group, Inc., Trust
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name and Address with Company During Past 5 Years(1)
- -------------------------------- ---------------------------- ------------------------------------------------------
<S> <C> <C>
General Counsel Company of the West and TCW Asset Management Company;
and Assistant formerly General Counsel and Senior Vice President of
Secretary Act III Communications (media and entertainment business).
Jeffrey Peterson (53)* Senior Vice President Managing Director, Trust Company of the West, TCW
Asset Management Company and the Adviser; President,
TCW Brokerage Services since January 1994; formerly
Managing Director, Kidder Peabody & Co.; Director,
The Presley Companies (publicly-traded home builder).
Philip K. Holl (49)* Secretary Vice President and Associate General Counsel, Trust
Company of the West, TCW Asset Management Company and
the Adviser; Secretary to TCW Convertible Securities
Fund, Inc., formerly General Counsel and Secretary to
The Reserve Group of Mutual Funds (New York).
Peter C. DiBona (40) Treasurer Senior Vice President, Trust Company of the West, TCW Asset
Management Company and the Adviser since July 1994.
Previously, Vice President, U.S. Affinity Investments, L.P.
</TABLE>
__________
(1)Positions with The TCW Group, Inc. and its affiliates may have changed over
time.
*Address is 865 South Figueroa Street, 18th Floor, Los Angeles, California 90017
In addition, Marie M. Bender, Senior Vice President and Associate General
Counsel of Trust Company of the West, TCW Asset Management Company and the
Adviser, and Hilary G.D. Lord, Managing Director and Chief Compliance Officer of
Trust Company of the West, TCW Asset Management Company and the Adviser, are
Assistant Secretaries of the Company. The directors and officers of the Company
collectively own less than 1% of the outstanding shares of any Fund.
42
<PAGE>
INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS
The Company and the Adviser are parties to an Investment Management and Advisory
Agreement ("Advisory Agreement"). The Adviser was organized in 1987 as a
wholly-owned subsidiary of The TCW Group, Inc. (formerly TCW Management
Company). Robert A. Day may be deemed to be a control person of the Adviser by
the virtue of the aggregate ownership of Mr. Day and his family of more than 25%
of the outstanding voting stock of The TCW Group, Inc. Under the Advisory
Agreement, the Company retains the Adviser to manage the investment of its
assets, to place orders for the purchase and sale of its portfolio securities,
to administer its day-to-day operations, and to be responsible for overall
management of the Company's business affairs subject to control by the Board of
Directors of the Company. The Adviser is responsible for obtaining and
evaluating economic, statistical, and financial data and for formulating and
implementing investment programs in furtherance of the Company's investment
objectives.
The Adviser has retained, at its sole expense, two affiliated companies to act
as Sub-Adviser to certain of the Funds. TCW Asia Limited acts as a Sub-Adviser
to the Asia Pacific Equities and Emerging Markets Equities Funds and TCW London
International, Limited (regulated by I.M.R.O.) is a Sub-Adviser to Emerging
Markets Equities, European Equities, Japanese Equities and International
Equities Funds. TCW Asia and TCW London are wholly-owned subsidiaries of The
TCW Group, Inc. The Adviser also has retained Berkeley Quantitative Advisors,
Inc. as Sub-Adviser to the Enhanced 500 Fund (collectively, TCW Asia Limited;
TCW London International, Ltd.; and Berkeley Quantitative Advisers, Inc. are the
"Sub-Advisers"). The Sub-Advisers provide their respective Funds with
investment advice and portfolio management subject to the overall supervision of
the Adviser.
The Adviser furnishes to the Company office space at such places as are agreed
upon from time to time and all office facilities, business equipment, supplies,
utilities and telephone service necessary for managing the affairs and
investments and arranges for officers or employees of the Adviser to serve,
without compensation from the Company, as officers, directors or employees of
the Company if desired and reasonably required by the Company.
The fee allocable to each Fund is calculated daily by applying the annual
management fee percent for the Fund to the Fund's net asset value. The fee is
payable for each calendar month as soon as practicable after the end of that
month. In addition, prior to fiscal year ended October 31, 1998, each Bond and
Equity Fund and Emerging Markets Income reimbursed the Adviser for the costs of
providing accounting services to the Fund, including maintaining the Fund's
financial books and records, calculating its daily net asset value, and
preparing its financial statements, in an amount not exceeding $35,000 for the
applicable fiscal year (subject to any expense limit described below). Money
Market also reimburses the Adviser for the Fund's accounting services, but in an
amount not exceeding 0.10% of the Fund's average daily net assets. The total
amounts paid, exclusive of any expense reimbursement by the Adviser and payment
of any accounting fees by the Funds, for the fiscal years ended October 31,
1996, 1997 and 1998 were: Money Market - $455,000, $592,000 and $_______; High
Yield Bond - $928,000, $1,612,000 and $_______; Core Fixed Income - $127,000,
$77,000 and $_______; Total Return Mortgage-Backed Securities - $413,000,
$512,000 and $_______; Mortgage-Backed - $373,000, $265,000 and $_______; Select
Equities -
43
<PAGE>
$1,549,000, $1,628,000 and $_______; Small Cap Growth - $1,101,000, $1,290,000
and $_______; Earnings Momentum - $742,000, $828,000 and $_______; Asia Pacific
Equities - $490,000, $457,000 and $_______; Emerging Markets Equities -
$541,000, $623,000 and $_______; and Latin America Equities -$614,000, $754,000
and $_______. During the fiscal period ended October 31, 1997 and the fiscal
year ended October 31, 1998, Aggressive Growth Equities paid $1,090,000 and
$_________, respectively in advisory fees. For the fiscal period ended October
31, 1997 and October 31, 1998, Convertible Securities paid $198,000 and
$_______, respectively, in advisory fees.
Except for expenses specifically assumed by the Adviser under the Advisory
Agreement, each Fund bears all expenses incurred in its operations. Fund
expenses include the fee of the Adviser; compensation and expenses of directors
of the Company who are not officers or employees of the Adviser; registration,
filing and other fees in connection with filings with regulatory authorities;
fees and expenses of independent accountants; the expenses of printing and
mailing proxy statements and shareholder reports; custodian and transfer and
dividend disbursing agent charges; brokerage fees and commissions and securities
transaction costs; taxes and corporate fees; legal fees; the fees of any trade
association; the cost of stock certificates, if any, representing shares of the
Fund; the organizational and offering expenses, whether or not advanced by the
Adviser; expenses of shareholder and director meetings; premiums for the
fidelity bond and any errors and omissions insurance; interest and taxes; and
any other ordinary or extraordinary expenses incurred in the course of the
Fund's business.
For the fiscal year ended October 31, 1998, the expenses (annualized) paid by
the Funds, as a percentage of their average daily net assets were: Money Market
- - [0.40%]; High Yield Bond - [0.83%]; Core Fixed Income - [0.93%] (after fee
waiver); Total Return Mortgage-Backed - [0.67%]; Mortgage-Backed - [0.77%];
Convertible Securities - [0.95%] (after expense reimbursement); Select Equities
- - [0.83%]; Aggressive Growth Equities - [1.12%]; Small Cap Growth - [1.14%];
Earnings Momentum - [1.17%]; Asia Pacific Equities - [1.49%]; Emerging Markets
Equities - [1.50%]; and Latin America Equities - [1.46%]. With respect to
Convertible Securities, Enhanced 500, Large Cap Growth, Large Cap Value, Small
Cap Value, Value Opportunities, Money Market, Emerging Markets Income, European
Equities, International Equities and Japanese Equities, the Adviser has agreed
to reduce its investment advisory fee, or to pay the operating expenses for the
Fund, to the extent necessary to limit the Fund's ordinary annual operating
expenses (including amortization of organizational expenses but excluding
brokerage fees and commissions, interest, taxes and certain extraordinary
expenses) to 1.05%, 0.47%, 0.91%, 0.55% (up to $10,000,000 in net assets, 0.91%
thereafter), 1.20%, 1.36%, 0.40%, 1.78%,1.20%, 1.16% and 1.20% respectively, of
their average net value, until October 31, 1999. With respect to Core Fixed
Income, the Adviser has agreed to reduce its investment advisory fee to 0.35% of
the Fund's average daily net assets until [October 31, 1999.]
The Advisory Agreement also provides that each Fund (except for Money Market)
will reimburse the Adviser for the Fund's organizational expenses. Such
organizational expenses will be amortized by each Fund over five years.
44
<PAGE>
The Advisory Agreement was approved by each Fund's initial shareholder and will
continue in effect as to each Fund initially for two years and thereafter from
year to year if such continuance is specifically approved at least annually by
(a) the Board of Directors of the Company or by the vote of a majority of the
outstanding voting securities of the Fund, and (b) vote of a majority of the
directors who are not "interested persons" of the Company or the Adviser (the
Independent Directors), cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated without
penalty at any time on 60 days' written notice, by vote of a majority of the
Board of Directors of the Company or by vote of a majority of the outstanding
voting securities of the Fund. The Advisory Agreement terminates automatically
in the event of assignment.
The Company has acknowledged that the name "TCW" is owned by The TCW Group, Inc.
(formerly, TCW Management Company) ("TCW"), the parent of the Adviser. The
Company has agreed to change its name and the name of the Funds at the request
of TCW if any advisory agreement into which TCW or any of its affiliates and the
Company may enter is terminated.
The Advisory Agreement also provides that, in the event the ordinary business
expenses of the Fund for any fiscal year exceed the most restrictive expense
limitation applicable in the states where a Fund's shares are qualified for
sale, the compensation due the Adviser for such fiscal year shall be reduced by
the amount of such excess. Ordinary business expenses do not include (a)
interest and taxes, (b) brokerage commissions, (c) certain litigation and
indemnification expenses as described in the Advisory Agreement, and (d) other
extraordinary business expenses. The Advisory Agreement and Sub-Advisory
Agreements also provides that the Adviser and Sub-Advisers shall not be liable
to the Company for any actions or omissions if it acted in good faith without
gross negligence, willful misfeasance, bad faith, or from reckless disregard of
their duties.
DISTRIBUTION OF COMPANY SHARES
TCW Brokerage Services ("Distributor") serves as the nonexclusive distributor of
each class of the Company's shares pursuant to an Amended and Restated
Distribution Agreement ("Distribution Agreement") with the Company which is
subject to approval by the Board. The Distribution Agreement is terminable
without penalty, on not less than 60 days' notice, by the Company's Board of
Directors, by vote of holders of a majority of the Company's shares, or by the
Distributor.
The Company offers two classes of shares: Institutional Class shares and Class
A shares. Shares of the Institutional Class are offered primarily for direct
investment by investors such as pension and profit sharing plans, employee
benefit trusts, endowment, foundations, corporations and high net individuals.
Class A shares are offered through firms which are members of the National
Association of Securities Dealers, Inc. ("NASD"), and which have dealer
agreements with the Distributor.
The Company has adopted a Plan Pursuant to Rule 18f-3 under the 1940 Act (" Rule
18f-3 Plan"). Under the Rule 18f-3 Plan, shares of each class of each Fund
represent an equal pro rata interest in such Fund and, generally, have identical
voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications and terms and conditions, except
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that: (a) each class has a different designation; (b) each class of shares bears
any class-specific expenses allocated to it; and (c) each class has exclusive
voting rights on any matter submitted to shareholders that relates solely to its
distribution or service arrangements, and each class has separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class. In addition, each class may have a
differing sales charge structure, and differing exchange and conversion
features.
The Company also has adopted a distribution plan pursuant to Rule 12b-1 under
the 1940 Act ("Distribution Plan") with respect to the Class A shares of each
Fund. Under the terms of the Distribution Plan, each Fund compensates the
Distributor at a rate equal to 0.25% of the average daily net assets of the Fund
attributable to its Class A shares for distribution and related services. The
Distributor may pay any or all of the fee payable to it for distribution and
related services to the firms that are members of the NASD, subject to
compliance by the firms with the terms of the dealer agreement between the firm
and the Distributor. Under the terms of the Distribution Plan, services which a
firm will provide under a dealer agreement may include, but are not limited to,
the following functions: providing facilities to answer questions from
prospective investors about a Fund; receiving and answering correspondence,
including requests for prospectuses and statements of additional information;
preparing, printing and delivering prospectuses and shareholder reports to
prospective shareholders; complying with federal and state securities laws
pertaining to the sale of Class A shares; and assisting investors in completing
application forms and selecting dividend and other account options.
The Distribution Plan provides that it may not be amended to materially increase
the costs which Class A shareholders may bear under the Plan without the
approval of a majority of the outstanding voting securities of Class A, and by
vote of a majority of both (i) the Board of Directors of the Company, and (ii)
those Directors of the Company who are not "interested persons" of the Company
(as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it cast in
person at a meeting called for the purpose of voting on the Plan and any related
amendments.
The Distribution Plan provides that it may not take effect until approved by a
vote of a majority of both (i) the Board of Directors of the Company, and (ii)
those Directors of the Company who are not "interested persons" of the Company
(as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it cast in
person at a meeting called for the purpose of voting on the Plan and any related
amendments. The Administrative Plans were approved by the Trustees, including
the disinterested Trustees, at a meeting held on December 17, 1998.
The Distribution Plan provides that it shall continue in effect so long as such
continuance is specifically approved at least annually by the by a vote of a
majority of both (i) the Board of Directors of the Company, and (ii) those
Directors of the Company who are not "interested persons" of the Company (as
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of the Plan or any agreements related to it cast in person at a
meeting called for the purpose of voting on the Plan and any related amendments.
ADMINISTRATION AGREEMENT
Investors Bank & Trust Company ("Administrator") serves as the administrator of
the Company pursuant to an Administration Agreement. Under the Administration
Agreement, the Administrator will provide certain administrative services to the
Company, including: fund accounting; calculation of the daily net asset value
of each Fund; monitoring the Company's expense accruals; calculating monthly
total return and yield figures; prospectus and statement of additional
information compliance monitoring; preparing certain financial statements of the
Company; and preparing and filing the Company's Form N-SAR. The Administrator
also has a disaster recovery plan to ensure continuity of operations in the
event of a natural disaster.
Under the Administration Agreement, the Administrator is entitled to a fee from
the Company, at an annual rate of: _________________________________.
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DETERMINATION OF NET ASSET VALUE
As discussed in the Prospectus, the Company will not calculate the net asset
value of the Funds on certain holidays, weekends and when there is no activity
in a Fund's shares. On those days, securities held by a Fund may nevertheless
be actively traded, and the value of the Fund's shares could be significantly
affected.
A Fund determines its net asset value per share by subtracting its liabilities
(including accrued expenses and dividends payable) from its total assets (the
market value of the securities the Fund holds plus cash and other assets,
including income accrued but not yet received) and dividing the result by the
total number of shares outstanding.
HOW TO BUY AND REDEEM SHARES
Shares in a Fund may be purchased and redeemed in the manner described in the
Prospectus and in this Statement of Additional Information.
COMPUTATION OF PUBLIC OFFERING PRICES
The Funds offer their shares to the public on a continuous basis. The public
offering price per share of each Fund is equal to its net asset value per share
next computed after receipt of a purchase order. See "Determination of Net
Asset Value", above.
DISTRIBUTIONS IN KIND
If the Board of Directors determines that it would be detrimental to the best
interests of the remaining shareholders of a Fund to make a redemption payment
wholly in cash, the Fund may pay, in accordance with SEC rules, any portion of a
redemption in excess of the lesser of $250,000 or 1% of the Fund's net assets by
distribution in kind of portfolio securities in lieu of cash. Shareholders
receiving distributions in kind may incur brokerage commissions or other costs
when subsequently disposing of shares of those securities.
HOW TO EXCHANGE SHARES
A shareholder may exchange all or part of its shares of one Fund for shares of
another Fund (subject to receipt of any required state securities law clearances
with respect to certain Funds in the shareholder's state of residence). An
exchange of shares is treated for federal income tax purposes as a redemption
(sale) of shares given in exchange by the shareholder, and an exchanging
shareholder may, therefore, realize a taxable gain or loss in connection with
the exchange. See "Distributions and Taxes" below.
The exchange privilege enables a shareholder to acquire shares in a Fund with
different investment objectives or policies when the shareholder believes that a
shift between Funds is an appropriate investment decision.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
and the proceeds are immediately
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invested, at a price as described above, in shares of the Fund being acquired.
The Company reserves the right to reject any exchange request.
As described in the Prospectus, the exchange privilege may be terminated or
revised by the Company.
PURCHASES-IN-KIND
The Funds may, at the sole discretion of the Adviser, accept securities in
exchange for shares of a Fund. Securities which may be accepted in exchange for
shares of any Fund must (1) meet the investment objectives and policies of the
Fund; (2) be acquired for investment and not for resale; (3) be liquid
securities which are not restricted as to transfer either by law or liquidity of
market (determined by reference to liquidity policies established by the Board
of Directors); and (4) have a value which is readily ascertainable as evidenced
by, for example, a listing on a recognized stock exchange.
DISTRIBUTIONS AND TAXES
Each of the Funds intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). A
Fund that is a regulated investment company and distributes to its shareholders
at least 90% of its taxable net investment income (including, for this purpose,
its net realized short-term capital gains) and 90% of its tax-exempt interest
income (reduced by certain expenses), will not be liable for federal income
taxes to the extent its taxable net investment income and its net realized long-
term and short-term capital gains, if any, are distributed to its shareholders.
However, a Fund will be taxed on that portion of taxable net investment income
and long-term and short-term capital gains that it retains. Furthermore, a Fund
will be subject to United States corporate income tax (and possibly state or
local income or franchise tax) with respect to such distributed amounts in any
year that it fails to qualify as a regulated investment company or fails to meet
the 90% distribution requirement.
To qualify as a regulated investment company, in addition to the 90%
distribution requirement described above, a Fund must (a) derive at least 90% of
its gross income from dividends, interest, certain payments with respect to
securities loans and gains from the sale or other disposition of stock or
securities or foreign currencies or other income (including but not limited to
gains from options, futures or forward contracts) derived with respect to its
business in investing in such stock, securities or currencies and (b) diversify
its holdings so that at the end of each fiscal quarter, (i) at least 50% of the
value of the Fund's assets is represented by cash items, U.S. Government
Securities and other securities, limited in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government Securities) or in the securities of two or more issuers (other than
U.S. Government Securities) which the Fund controls (i.e., holds at least 20% of
the combined voting power) and which are engaged in the same or similar trades
or businesses or related trades or businesses.
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With respect to the Equity Funds that invest in foreign currency or forward
foreign exchange contracts, Core Fixed Income and Emerging Markets Income, gains
from such foreign currency and forward foreign exchange contracts relating to
investments in stocks, securities or foreign currencies are considered to be
qualifying income for purposes of the 90% gross income test described in clause
(a) above, provided such gains are directly related to the Fund's principal
business of investing in stock or securities. It is currently unclear, however,
who will be treated as the issuer of certain foreign currency instruments or how
foreign currency contracts will be valued for purposes of the asset
diversification requirements applicable to the Fund described in clause (c)
above. Until such time as these uncertainties are resolved, each Fund will
utilize the more conservative, or limited, definition or approach with respect
to determining permissible investments in its portfolio.
Investments in foreign currencies, forward contracts, options, futures contracts
and options thereon may subject a Fund to special provisions of the Internal
Revenue Code that may affect the character of gains and losses realized by the
Fund (i.e., may affect whether gains or losses are ordinary or capital), may
accelerate recognition of income to a Fund, and may defer Fund losses. These
rules also (a) could require a Fund to mark-to-market certain types of the
positions in its portfolio (i.e., treat them as if they had been closed out in a
fully taxable transaction) and (b) may cause the Fund to recognize income
without receiving cash with which to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for avoiding income
and excise taxes.
As a general rule, a Fund's gain or loss on a sale or exchange of an investment
will be a long-term capital gain or loss if the Fund has held the investment for
more than one year and will be a short-term capital gain or loss if it has held
the investment for one year or less. Furthermore, as a general rule, a
shareholder's gain or loss on a sale or redemption of Fund shares will be a
long-term capital gain or loss if the shareholder has held his or her Fund
shares for more than one year and will be a short-term capital gain or loss if
he or she has held his or her Fund shares for one year or less. For federal,
state and local income tax purposes, an exchange by a shareholder of shares in
one Fund or securities for shares in a Fund will be treated as a taxable sale
for a purchase price equal to the fair market value of the shares received.
Any loss realized on the disposition by a shareholder of its shares in a Fund
will be disallowed to the extent the shares disposed of are replaced with other
Fund shares, including replacement through the reinvesting of dividends and
capital gains distributions in the Fund, within a period (of 61 days) beginning
30 days before and ending 30 days after the disposition of the shares. In such
a case, the basis of the shares acquired will be increased to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of a Fund share
held by the shareholder for six months or less will be treated as a long-term
capital loss to the extent of any distributions of capital gain dividends (as
defined below) received by the shareholder with respect to such share.
While only the Equity Funds expect to realize a significant amount of net long-
term capital gains, any such realized gains will be distributed as described in
the Prospectus. See "Dividends, Distributions and Taxes" in the Prospectus.
Such distributions ("capital gain dividends"), if any, will be taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held Fund shares, and will be designated as capital gain dividends in a
written notice mailed to the
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shareholder after the close of the Fund's prior taxable year. A Fund may be
subject to taxes in foreign countries in which each invests. If such a Fund
invests in an entity which is classified as a "passive foreign investment
company" ("PFIC") for U.S. tax purposes, the application of certain technical
tax provisions applying to such companies could result in the imposition of
federal income tax with respect to such investments at the Fund level which
could not be eliminated by distributions to the shareholders of the Fund. It is
not anticipated that any taxes at the Fund level with respect to investments in
PFICs will be significant.
Under the Internal Revenue Code, a nondeductible excise tax of 4% is imposed on
a Fund to the extent the Fund does not distribute by the end of any calendar
year at least 98% of its ordinary income for that calendar year and at least 98%
of the net amount of its capital gains (both long-term and short-term) for the
one-year period ending on October 31 of such calendar year (or December 31 if
the Fund so elects), plus any undistributed amounts of taxable income for prior
years. For this purpose, however, any income or gain retained by the Fund that
is subject to corporate income tax will be considered to have been distributed
by year-end. Each Fund intends to meet these distribution requirements to avoid
the excise tax liability.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made to
shareholders of record in such a month are treated as paid and are taxable as of
December 31, provided that the Fund pays the dividend during January of the
following year.
If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income, or fails to certify that it
has provided a correct taxpayer identification number and that it is not subject
to "backup withholding," then the shareholder may be subject to a 31% "backup
withholding" tax with respect to (a) taxable dividends and distributions and (b)
the proceeds of any redemptions of Fund shares. An individual's taxpayer
identification number is his social security number. The 31% "backup
withholding" tax is not an additional tax and may be credited against a
taxpayer's regular federal income tax liability.
Dividends to shareholders who are non-resident aliens may be subject to a 30%
United States withholding tax under provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Non-resident shareholders
should consult their own tax advisers.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Internal Revenue Code and Treasury Regulations presently in effect. For
the complete provisions, reference should be made to the pertinent Internal
Revenue Code sections and the Treasury Regulations promulgated thereunder. The
Internal Revenue Code and these Regulations are subject to change by legislative
or administrative action.
Each shareholder will receive annual information from its Fund regarding the tax
status of Fund distributions. Shareholders are urged to consult their attorneys
or tax advisers with respect to the applicability of federal, state, local,
estate and gift taxes and non-U.S. taxes to their investment in the Fund.
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INVESTMENT RESULTS
From time to time, the Company may quote the performance of a Fund in terms of
yield, actual distributions, total return or capital appreciation in reports or
other communications to shareholders or in other published material.
The Bond Funds may quote a 30-day yield figures which is calculated according to
a formula prescribed by the SEC. The formula can be expressed as follows:
YIELD = 2[(a-b) + 1)/6/ - 1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
For the purpose of determining the interest earned (variable "a" in the formula)
on debt obligations that were purchased by one of the Bond Funds at a discount
or premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market values of the debt obligations.
The yield of Money Market is its net income expressed in annualized terms. The
SEC requires by rule that a yield quotation set forth in an advertisement for a
"money market" fund be computed by a standardized method based on a historical
seven calendar day period. The standardized yield is computed by determining
the net change (exclusive of realized gains and losses and unrealized
appreciation and depreciation) in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period, dividing
the net change in account value by the value of the account at the beginning of
the base period return by 365/7. The determination of net change in account
value reflects the value of additional shares purchased with dividends from the
original share, dividends declared on both the original share and such
additional shares, and all fees that are charged to all shareholder accounts, in
proportion to the length of the base period and the Fund's average account size.
Money Market may also calculate its effective yield by compounding the
unannualized base period return (calculated as described above) by adding 1 to
the base period return, raising the sum to a power equal to 365 divided by 7,
and subtracting one.
The yield quoted at any time represents the amount being earned on a current
basis for the indicated period and is a function of the types of instruments in
Money Market, their quality and length of maturity, and the Fund's operating
expenses. The length of maturity for the Fund is the average dollar weighted
maturity of the Fund. This means that the Fund has an average maturity of a
stated
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number of days for all of its issues. The calculation is weighted by the
relative value of the investment.
Each Bond Fund's and Equity Fund's total return may be calculated on an "average
annual total return" basis, and may also be calculated on an "aggregate total
return" basis, for various periods. Average annual total return reflects the
average annual percentage change in the value of an investment in a Fund over
the particular measuring period. Aggregate total return reflects the cumulative
percentage change in value over the measuring period. Average annual total
return figures provided for the Bond Funds and Equity Funds will be computed
according to a formula prescribed by the SEC. The formula for an average annual
total return can be expressed as follows:
P(1+T)n ` ERV
Where:
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV Ending Redeemable Value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year (or other) periods or the life of the
Fund
The formula for calculating aggregate total return can be expressed as follows:
Aggregate Total Return [ (ERV) - 1 ]
---
P
The calculation of average annual total return and aggregate total return
assumes reinvestment of all income dividends and capital gain distributions on
the reinvestment dates during the period and includes all recurring fees charged
to all shareholder accounts.
The ERV assumes complete redemption of the hypothetical investment at the end of
the measuring period and reflects deduction of all nonrecurring charges at the
end of the measuring period covered by the computation. A Fund's net investment
income changes in response to fluctuations in interest rates and the expenses of
the Fund.
A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.
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Investors should recognize that, because the Bond Funds will have a high
component of fixed-income securities, in periods of declining interest rates the
yields of the Bond Funds will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates yields will tend to be somewhat
lower. In addition, when interest rates are falling, the inflow of net new
money to the Bond Funds from the continuous sale of shares will likely be
invested in portfolio instruments producing lower yields than the balance of the
Bond Funds' securities, thereby reducing the current yields of the Bond Funds.
In periods of rising interest rates, the opposite can be expected to occur.
Comparative performance information may be used from time to time in publishing
information about the Company's shares, including data from Lipper Analytical
Services, Inc., CDA Technologies, Inc. or similar independent services which
monitor the performance of mutual funds or with other appropriate indexes of
investment securities. The performance information may also include evaluations
of the Funds published by nationally recognized ranking services and by
financial publications that are nationally recognized, such as Business Week,
Forbes, Fortune, Institutional Investor, Money and The Wall Street Journal. A
Fund may compare its performance to other investments or relevant indexes
including, but not limited to, the following: High Yield Bond -- First Boston
High Yield Index, Salomon Brothers High Yield Cash Pay Index and Lehman Brothers
Government/Corporate Bond Index; High Yield Bond and Core Fixed Income -- Lehman
Brothers Aggregate Bond Index; Core Fixed Income and Total Return Mortgage-
Backed Securities -- Salomon Brothers Broad Investment Grade Index; Total Return
Mortgage-Backed Securities -- Lehman Brothers Mortgage-Backed Securities Index;
Mortgage-Backed Securities -- Salomon Brothers Three Month Treasury Bill
Benchmark and Salomon Brothers One Year U.S. Treasury Bill Index; Convertible
Securities -- First Boston Convertible Index, NASDAQ Composite and Standard &
Poor's 500 w/income; Select Equities -- Standard & Poor's 500; Enhanced 500 --
Standard & Poor's 500; Large Cap Growth -- S&P/BARRA Growth Index; Large Cap
Value -- S&P/BARRA Value Index; Small Cap Growth - National Association of
Securities Dealers Automated Quotations System, Lipper Small Company Gross
Average and Russell 2000; Small Cap Value -- Value Line Index and Russell 2000;
Earnings Momentum -- Standard & Poor's 500, Standard & Poor's Midcap 400, and
the Russell 2000; Aggressive Growth Equities -- Standard & Poor's Midcap 400,
Russell Midcap Index, and the Wilshire Midcap Index; Asia Pacific Equities -
Morgan Stanley Combined Far East ex Japan Index; Emerging Markets Equities -
International Finance Corporation Emerging Markets Equities Total Return
Investable Index; Emerging Markets Income -- Emerging Markets Bond Index Plus;
European Equities -- Morgan Stanley Capital International European Equities 15
Index; International Equities -- Morgan Stanley Combined Far East ex Japan
Index, Morgan Stanley Capital International European Equities and Tokyo Stock
Exchange First Section Index; Japanese Equities -- Tokyo Stock Exchange First
Section Index; Latin America Equities -- Baring Securities Emerging Markets
Equities Index, International Finance Corporation Total Return Latin America
Investable Index, and Morgan Stanley Capital International Latin America Index;
and Money Market -- Donoghue's Money Fund Average J and the average yields
reported by the Bank Rate Monitor for money market deposit accounts offered by
the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical areas.
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ORGANIZATION, SHARES AND VOTING RIGHTS
The Company was incorporated as a Maryland corporation on September 15, 1992 and
is registered with the Securities and Exchange Commission as an open-end,
management investment company. The Company has acknowledged that the name "TCW"
is owned by The TCW Group, Inc. ("TCW"), the parent of the Adviser. The Company
has agreed to change its name and the name of the Funds at the request of TCW if
any advisory agreement into which TCW or any of its affiliates and the Company
may enter is terminated.
The Fund offers two classes of shares: the Institutional Class shares and the
Class A shares. The Institutional Class shares are offered at the current net
asset value. The Class A shares are also offered at the current net asset
value, but will be subject to distribution or service fees imposed under the
Distribution Plan. Shares of each class of a Fund represents an equal
proportionate share in the assets, liabilities, income and expenses of that
Fund and, generally, have identical voting, dividend, liquidation, and other
rights, other than the payment of distribution fees imposed under the
Distribution Plan. All shares issued will be fully paid and nonassessable and
will have no preemptive or conversion rights. Each share has one vote and
fractional shares have fractional votes. As a Maryland corporation, the Company
is not required to hold an annual shareholder meeting in any year in which the
selection of directors is not required to be acted on under the 1940 Act.
Shareholder approval will be sought only for certain changes in the operation of
the Funds and for the election of directors under certain circumstances.
Directors may be removed by a majority of all votes entitled to be cast by
shareholders at a meeting. A special meeting of the shareholders will be called
to elect or remove directors if requested by the holders of ten percent of the
Company's outstanding shares. All shareholders of the Funds will vote together
with all other shareholders of the Funds and with all shareholders of all other
funds that the Company may form in the future on all matters affecting the
Company, including the election or removal of directors. For matters where the
interests of separate Funds or classes of a Fund are not identical, the matter
will be voted on separately by each affected Fund or class. For matters
affecting only one Fund or class of a Fund, only the shareholders of that Fund
or class will be entitled to vote thereon. Voting is not cumulative. Upon
request in writing by ten or more shareholders who have been shareholders of
record for at least six months and hold at least the lesser of shares having a
net asset value of $25,000 or one percent of all outstanding shares, the Company
will provide the requesting shareholders either access to the names and
addresses of all shareholders of record or information as to the approximate
number of shareholders of record and the approximate cost of mailing any
proposed communication to them. If the Company elects the latter procedure, and
the requesting shareholders tender material for mailing together with the
reasonable expenses of the mailing, the Company will either mail the material as
requested or submit the material to the Securities and Exchange Commission for a
determination that the mailing of the material would be inappropriate.
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TRANSFER AGENT AND CUSTODIANS
DST Systems, Inc., P.O. Box 419951, Kansas City, MO 64141-6951, serves as
transfer agent for the Fund. Investors Bank & Trust Company, 200 Clarendon
Street, Boston, Masachusetts 02117, serves as custodian for the Company. Chase
Manhattan Bank, 4 New York Plaza, New York, New York 10004; Morgan Guaranty
Trust Company, 60 Wall Street, New York, New York 10260; and The Bank of New
York, 90 Washington Street, New York, New York 10286 act as limited custodians
under the terms of certain repurchase and futures agreements.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 1000 Wilshire Boulevard, Los Angeles, California 90017
LEGAL COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006-2401
FINANCIAL STATEMENTS
The unaudited and audited financial statements for the period ended April 30,
1998 and October 31, 1998, respectively, including the financial highlights,
appearing in the Company's Semi-Annual Report and Annual Report to shareholders
are incorporated by reference and made a part of this document.
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APPENDIX A
DESCRIPTION OF S&P AND MOODY'S RATINGS
S&P
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Fixed income securities rated AAA, AA, A and BBB are considered investment
grade.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- Rating.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC - The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
A-1
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C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) or MINUS (-) - The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S
AAA - Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt-
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured, interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Fixed income securities which are rated Aaa, Aa, A and Baa are considered
investment grade.
BA - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
A-2
<PAGE>
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the issue ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
A-3
<PAGE>
PART C
======
FORM N-1A
OTHER INFORMATION
ITEM 23. Exhibits
--------
(a)(1) Articles of Incorporation./1/
(a)(2) Articles Supplementary./2/
(a)(3) Articles Supplementary./3/
(a)(4) Articles Supplementary./4/
(a)(5) Articles Supplementary./5/
(a)(6) Articles Supplementary./6/
(a)(7) Form of Articles of Amendment
(a)(8) Form of Articles of Amendment
(a)(9) Form of Articles Supplementary
(b) By-Laws./1/
(c) Not Applicable.
(d)(1) Form of Investment Advisory and Management Agreement between
Registrant and TCW Funds Management, Inc./7/
(d)(2) Form of amended and restated Investment Advisory Agreement
between the Registrant and TCW Funds Management, Inc., as
Advisor./2/
(d)(3) Form of Second Addendum to Investment Advisory and Management
Agreement between Registrant and TCW Funds Management, Inc./3/
(d)(4) Form of Third Addendum to Investment Advisory and Management
Agreement between Registrant and TCW Funds Management, Inc./4/
(d)(5) Form of Sub-Advisory Agreements between TCW Funds Management,
Inc. and TCW Asia Limited and TCW London International
Limited./8/
(d)(6) Form of Fourth Addendum to Investment Advisory Agreement between
Registrant and TCW Funds Management, Inc./9/
<PAGE>
(d)(7) Form of Fifth Addendum to Investment Advisory Agreement between
Registrant and TCW Funds Management, Inc./10/
(d)(8) Form of Sixth and Seventh Addendums to Investment Advisory Agreement
filed between Registrant and TCW Funds Management, Inc./11/
(d)(9) Form of Addendum to Sub-Advisory Agreement between TCW Funds
Management, Inc. and TCW London International Limited./12/
(d)(10) Form of Eight Addendum to Investment Advisory Agreement between
Registrant and TCW Funds Management, Inc./6/
(d)(11) Form of Amended and Restated Investment Advisory and Management
Agreement between Registrant and TCW Funds Management, Inc.
(e)(1) Form of Distribution Agreement between Registrant and TCW Brokerage
Services./13/
(e)(2) Form of Amended and Restated Distribution Agreement between
Registrant and TCW Brokerage Services.
(e)(3) Form of Dealer Agreement between Registrant and TCW Brokerage
Services.
(f) Not Applicable.
(g)(1) Form of Custody Agreement between Registrant and The Bank of New York
Trust Company of California with proposed Fee Schedule./7/
(g)(2) Form of Custody Agreement between Registrant and Investors Bank &
Trust Company
(g) (3) Form of Delegation Agreement between Registrant and Investors Bank &
Trust Company
(h)(1) Form of Transfer Agency Agreement between Registrant and Supervised
Service Company, Inc./14/
(h)(2) Form of Addendum to Transfer Agency Agreement between Registrant and
Supervised Service Company, Inc./14/
(h)(3) Form of Second Addendum to Transfer Agency Agreement between
Registrant and Supervised Service Company, Inc./3/
(h)(4) Form of Third Addendum to Transfer Agency Agreement Registrant and
Supervised Service Company, Inc./4/
(h)(5) Form of Administration Agreement between Registrant and Investors Bank
& Trust Company
-2-
<PAGE>
(h) (6) Form of Securities Lending Agency Agreement between Registrant and
Investors Bank & Trust Company
(i) Opinion of Counsel.
(j) Consent of Deloitte & Touche LLP.
(k) Not applicable.
(l) Not applicable.
(m) Form of Registrant's Class A Shares Distribution Plan
(n) Financial Data Schedules
(o) Form of Plan Pursuant to Rule 18f-3
(p) Copy of Powers of Attorney.
- -----------------------
1. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on September 22, 1992.
2. Incorporated herein by reference to Registrant's Registration Statement on
From N-1A filed on November 26, 1993.
3. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on March 23, 1994.
4. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on August 18, 1994.
5. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on April 21, 1995.
6. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on April 2, 1998.
7. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on February 17, 1993
8. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on December 21, 1995.
9. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on March 5, 1996.
-3-
<PAGE>
10. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on September 19, 1996.
11. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on August 18, 1997.
12. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on October 31, 1997.
13. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on December 10, 1992.
14. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on March 15, 1994.
ITEM 24. Persons Controlled by or Under Common Control with the Registrant
-----------------------------------------------------------------
TCW Funds Management, Inc. (the "Adviser") is a 100% owned subsidiary of The TCW
Group, Inc. (formerly TCW Management Company), a Nevada corporation. Robert A.
Day, who is Chairman of the Board of Directors of the Adviser, may be deemed to
be a control person of the Adviser by virtue of the aggregate ownership of Mr.
Day and his family of more than 25% of the outstanding voting stock of The TCW
Group, Inc. (formerly TCW Management Company).
ITEM 25. Indemnification
---------------
Under Article Eighth, Section (9) of the Company's Articles of Incorporation,
directors and officers of the Company will be indemnified, and will be advanced
expenses, to the fullest extent permitted by Maryland law, but not in violation
of Section 17(i) of the Investment Company Act of 1940. Such indemnification
rights are also limited by Article 9.01 of the Company's Bylaws.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in a successful defense of any action, suit or proceeding or payment
pursuant to any insurance policy) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
-4-
<PAGE>
ITEM 26. Business and other Connections of the Investment Advisor
--------------------------------------------------------
See the Statement of Additional Information and the Adviser's Form ADV (SEC File
No. 801-29075) filed with the Commission, which is hereby incorporated by
reference, for the activities and affiliations of the officers and directors of
the Investment Advisor of the Registrant. Except as so provided, to the
knowledge of Registrant, none of the directors or executive officers of the
Investment Advisor is or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature. In addition to the Funds, the Adviser serves as investment
adviser or sub-adviser to a number of open- and closed-end management investment
companies that are registered under the 1940 Act and to a number of foreign
investment companies.
ITEM 27. Principal Underwriter
---------------------
<TABLE>
<CAPTION>
(a) none
(b) Name and Principal Position(s) and Offices Position(s) and Offices
Business Address with Underwriter with Registrant
================== ======================= =======================
<S> <C> <C>
Alvin R. Albe, Jr. Director Senior Vice President
865 South Figueroa Street and Treasurer
Suite 1800
Los Angelos, California 90017
Michael E. Cahill Director Senior Vice President,
865 South Figueroa Street General Counsel and
Suite 1800 Assistant Secretary
Los Angeles, California, 90017
Jeffrey Peterson President Senior Vice President
865 South Figueroa Street
Suite 1800
Los Angeles, California, 90017
William C. Schubert Vice President and None
865 South Figueroa Street Secretary
Suite 1800
Los Angeles, California, 90017
Philip K. Holl Vice President Secretary
865 South Figueroa Street
Suite 1800
Los Angeles, California, 90017
Peter C. DiBona Chief Financial Officer Treasurer
865 South Figueroa Street and Assistant Treasurer
Suite 1800
Los Angeles, California, 90017
</TABLE>
(c) Not applicable
ITEM 28. Location of Accounts and Records
--------------------------------
Unless otherwise stated below, the books or other documents required
to be maintained by Section 31(a) of the Investment Company Act of 1940 and the
rules promulgated thereunder are in the physical possession of:
-5-
<PAGE>
Treasurer
TCW Galileo Funds, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
<TABLE>
<CAPTION>
RULE LOCATION OF REQUIRED RECORDS
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
31a-l(b)(2)(c) TCW Funds Management, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
31a-l(b)(2)(d) The Bank of New York
Trust Company of California
700 South Flower Street, Suite 200
Los Angeles, California 90017
31a-l(b)(4)-(6) TCW Funds Management, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
31a-1(b)(9)-(11) TCW Funds Management, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
</TABLE>
ITEM 29. Management Services
-------------------
Not applicable
ITEM 30. Undertakings
------------
Not applicable.
-6-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
or Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles and State of California on the 30th day
of December, 1998.
TCW GALILEO FUNDS, INC.
By: /s/ Philip K. Holl
------------------
Philip K. Holl
Secretary
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registration Statement or Amendment has been signed
below by the following persons in the capacities and on the dates indicated.
Signature Date Title
- --------- ---- -----
* December 30, 1998 Chairman and Director
- -----------------
Marc I. Stern
* December 30, 1998 President and Director
- ----------------- (Principal Executive
Thomas E. Larkin, Jr. Officer)
* December 30, 1998 Director
- -----------------
John C. Argue
* December 30, 1998 Director
- -----------------
Norman Barker, Jr.
* December 30, 1998 Director
- -----------------
Richard W. Call
* December 30, 1998 Treasurer (Principal
- ----------------- Financial and Accounting
Peter C. DiBona Officer)
*By: /s/ Philip K. Holl
------------------
Philip K. Holl
Attorney-in-Fact
-7-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
Exhibit (a) (7) Form of Articles of Amendment
Exhibit (a) (8) Form of Articles of Amendment
Exhibit (a) (9) Form of Articles Supplementary
Exhibit (d) (11) Form of Amended and Restated Investment Advisory and
Management Agreement between Registrant and TCW Funds
Management, Inc.
Exhibit (e) (2) Form of Amended and Restated Distribution Agreement between
Registrant and TCW Brokerage Services
Exhibit (e) (3) Form of Dealer Agreement between Registrant and TCW
Brokerage Services
Exhibit (g) (2) Form of Custody Agreement between Registrant Investors
Company Bank & Trust
Exhibit (g) (3) Form of Delegation Agreement between Registrant and
Investors Bank & Trust Company
Exhibit (h) (5) Form of Administration Agreement between Registrant and
Investors Bank & Trust Company
Exhibit (h) (6) Form of Securities Lending Agency Agreement between
Registrant and Investors Bank & Trust Company
Exhibit (i) Opinion of Counsel.
Exhibit (j) Consent of Deloitte & Touche LLP
Exhibit (m) Form of Registrant's Class A Shares Distribution Plan
Exhibit (n) Financial Data Schedules
Exhibit (o) Form of Plan Pursuant to Rule 18f-3
Exhibit (p) Copy of Powers of Attorney
</TABLE>
<PAGE>
EXHIBIT (A)(7)
FORM OF
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
TCW GALILEO FUNDS, INC.
TCW GALILEO FUNDS, INC. a Maryland corporation registered as an open-ended
investment company under the Investment Company Act of 1940, as amended, having
its principal office in the State of Maryland in Baltimore City (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Articles of Incorporation of the Corporation are hereby
amended to rename certain of the classes or series of the Corporation as
follows: TCW Galileo Core Equity Fund is hereby renamed TCW Galileo Core
Equities Fund; TCW Galileo Emerging Markets Fixed Income Total Return Fund is
hereby renamed TCW Galileo Emerging Markets Income Fund; and TCW Galileo Value
Added Fund is hereby renamed TCW Galileo Small Cap Value Fund.
SECOND: The amendment was approved by a majority of the entire Board of
Directors of the Corporation and that the amendment is limited to a change
expressly permitted by Section 2-605 of the Maryland General Corporation Law to
be made without action by the stockholders.
THIRD: The Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940.
IN WITNESS WHEREOF, TCW Galileo Funds Inc. has caused these Articles of
Amendment to be executed by its Senior Vice President and witnessed by its
Secretary on this __day of February, 1999. The Senior Vice President of the
Corporation acknowledge that the Articles of Amendment are the act of the
Corporation, that to best of his knowledge, information and belief, all matters
and facts set forth herein relating to the authorization and approval of these
Articles of Amendment are true in all material respects and that this statement
is made under the penalties of perjury.
TCW Galileo Funds, Inc.
By: ________________________________
[NAME]
[TITLE]
ATTEST: ____________________
[NAME]
[TITLE]
<PAGE>
EXHIBIT (A)(8)
FORM OF
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
TCW GALILEO FUNDS, INC.
TCW GALILEO FUNDS, INC. a Maryland corporation registered as an open-ended
investment company under the Investment Company Act of 1940, as amended, having
its principal office in the State of Maryland in Baltimore City (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Articles of Incorporation of the Corporation are hereby amended
to rename certain of the classes or series of the Corporation as follows: TCW
Galileo Long-Term Mortgage-Backed Securities Fund is hereby renamed TCW Galileo
Total Return Mortgage-Backed Securities Fund; TCW Galileo Core Equities Fund is
hereby renamed TCW Galileo Select Equities Fund; and TCW Galileo Mid-Cap Growth
Fund is hereby renamed TCW Galileo Aggressive Growth Equities Fund.
SECOND: The amendment was approved by a majority of the entire Board of
Directors of the Corporation and that the amendment is limited to a change
expressly permitted by Section 2-605 of the Maryland General Corporation Law to
be made without action by the stockholders.
THIRD: The Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940.
IN WITNESS WHEREOF, TCW Galileo Funds Inc. has caused these Articles of
Amendment to be executed by its Senior Vice President and witnessed by its
Secretary on this___ day of February, 1999. The Senior Vice President of the
Corporation acknowledge that the Articles of Amendment are the act of the
Corporation, that to best of his knowledge, information and belief, all matters
and facts set forth herein relating to the authorization and approval of these
Articles of Amendment are true in all material respects and that this statement
is made under the penalties of perjury.
TCW Galileo Funds, Inc.
By: ________________________________
[NAME]
[TITLE]
ATTEST: ____________________
[NAME]
[TITLE]
<PAGE>
EXHIBIT (A)(9)
FORM OF
ARTICLES SUPPLEMENTARY
TO THE
ARTICLES OF INCORPORATION
OF
TCW GALILEO FUNDS, INC.
TCW GALILEO FUNDS, INC. a Maryland corporation registered as an open-ended
investment company under the Investment Company Act of 1940, as amended, having
its principal office in the State of Maryland in Baltimore City (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: Pursuant to and in accordance with Section 2-105(c) and Section 2-
208.1 of the Maryland General Corporation Law, the Board of Directors of the
Corporation hereby increases the aggregate number of shares of capital stock
that the Corporation has the authority to issue to eighty eight billion
(88,000,000,000) shares, with a par value of $0.001 per share, for an aggregate
par value of eighty eight million dollars ($88,000,000).
(a) Immediately prior to the increase effected by these Articles
Supplementary, the total number of shares of all classes or series
that the Corporation had the authority to issue was forty four billion
(44,000,000,000) shares, with a par value of $0.001 per share, for an
aggregate par value of forty-four million dollars ($44,000,000).
(b) Immediately after the increase effected by these Articles
Supplementary, the total number of shares of all classes and series
that the Corporation has the authority to issue is eighty eight
billion (88,000,000,000) shares, with a par value of $0.001 per share,
for an aggregate par value of eighty eight million dollars
($88,000,000).
SECOND: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article Sixth of its Articles of Incorporation,
the Board of Directors has, by action on December 17, 1998, reclassified the
forty four billion (44,000,000,000) shares that the Corporation previously was
authorized to issue. Of those forty four billion (44,000,000,000) shares:
(a) One billion six hundred and sixty seven million (1,667,000,000)
shares, which were previously classified as TCW Galileo Select
Equities Fund shares, including all of those outstanding at the time
these Articles Supplementary became effective, have been reclassified
as shares of the TCW Galileo Select Equities Fund, Institutional Class
shares;
(b) One billion six hundred and sixty seven million (1,667,000,000)
shares, which were previously classified as Galileo Core Fixed Income
Fund shares, including all of those outstanding at the time these
Articles Supplementary became
<PAGE>
effective, have been reclassified as shares of the TCW Galileo Core
Fixed Income Fund, Institutional Class shares;
(c) One billion six hundred and sixty seven million (1,667,000,000) shares
which were previously classified as TCW Galileo High Yield Bond Fund
shares, including all of those outstanding at the time these Articles
Supplementary became effective, have been reclassified as shares of
the TCW Galileo High Yield Bond Fund, Institutional Class shares;
(d) One billion six hundred and sixty seven million (1,667,000,000) shares
which were previously classified as TCW Galileo Latin America Equities
Fund shares, including all of those outstanding at the time these
Articles Supplementary became effective, have been reclassified as
shares of the TCW Galileo Latin America Equities Fund, Institutional
Class shares;
(e) One billion six hundred and sixty six million (1,666,000,000) shares
which were previously classified as TCW Galileo Total Return Mortgage
Backed Securities Fund shares, including all of those outstanding at
the time these Articles Supplementary became effective, have been
reclassified as shares of the TCW Galileo Total Return Mortgage-Backed
Securities Fund, Institutional Class shares;
(f) One billion six hundred and sixty six million (1,666,000,000) shares
which were previously classified as TCW Galileo Mortgage-Backed
Securities Fund shares, including all of those outstanding at the time
these Articles Supplementary became effective, have been reclassified
as shares of the TCW Galileo Mortgage-Backed Securities Fund,
Institutional Class shares;
(g) One billion six hundred and sixty seven million (1,667,000,000) shares
which were previously classified as TCW Galileo Asia Pacific Equities
Fund shares, including all of those outstanding at the time these
Articles Supplementary became effective, have been reclassified as
shares of the TCW Galileo Asia Pacific Equities Fund, Institutional
Class shares;
(h) One billion six hundred and sixty seven million (1,667,000,000) shares
which were previously classified as TCW Galileo Emerging Markets
Equities Fund shares, including all of those outstanding at the time
these Articles Supplementary became effective, have been reclassified
as shares of the TCW Galileo Emerging Markets Equities Fund,
Institutional Class shares;
(i) One billion six hundred and sixty six million (1,666,000,000) shares
which were previously classified as TCW Galileo Small Cap Growth Fund
shares, including all of those outstanding at the time these Articles
Supplementary became effective, have been reclassified as shares of
the TCW Galileo Small Cap Growth Fund, Institutional Class shares;
2
<PAGE>
(j) Five billion (5,000,000,000) shares which were previously classified
as TCW Galileo Money Market Fund shares, including all of those
outstanding at the time these Articles Supplementary became effective,
have been reclassified as shares of the TCW Galileo Money Market Fund,
Institutional Class shares;
(k) Two billion (2,000,000,000) shares which were previously classified as
TCW Galileo Earnings Momentum Fund shares, including all of those
outstanding at the time these Articles Supplementary became effective,
have been reclassified as shares of the TCW Galileo Earnings Momentum
Fund, Institutional Class shares;
(l) Two billion (2,000,000,000) shares which were previously classified as
TCW Galileo Aggressive Growth Equities Fund shares, including all of
those outstanding at the time these Articles Supplementary became
effective, have been reclassified as shares of the TCW Galileo
Aggressive Growth Equities Fund, Institutional Class shares;
(m) Two billion (2,000,000,000) shares which were previously classified as
TCW Galileo Convertible Securities Fund shares, including all of those
outstanding at the time these Articles Supplementary became effective,
have been reclassified as shares of the TCW Galileo Convertible
Securities Fund, Institutional Class shares;
(n) Two billion (2,000,000,000) shares which were previously classified as
TCW Galileo Value Opportunities Fund shares, including all of those
outstanding at the time these Articles Supplementary became effective,
have been reclassified as shares of the TCW Galileo Value
Opportunities Fund, Institutional Class shares;
(o) Two billion (2,000,000,000) shares which were previously classified as
TCW Galileo European Equities Fund shares, including all of those
outstanding at the time these Articles Supplementary became effective,
have been reclassified as shares of the TCW Galileo European Equities
Fund, Institutional Class shares;
(p) Two billion (2,000,000,000) shares which were previously classified as
TCW Galileo International Equities Fund shares, including all of those
outstanding at the time these Articles Supplementary became effective,
have been reclassified as shares of the TCW Galileo International
Equities Fund, Institutional Class shares;
(q) Two billion (2,000,000,000) shares which were previously classified as
TCW Galileo Japanese Equities Fund shares, including all of those
outstanding at the time these Articles Supplementary became effective,
have been reclassified as shares of the TCW Galileo Japanese Equities
Fund, Institutional Class shares;
(r) Two billion (2,000,000,000) shares which were previously classified as
TCW Galileo Enhanced 500 Fund shares, including all of those
outstanding at the time these Articles Supplementary became effective,
have been reclassified as shares of the TCW Galileo Enhanced 500 Fund,
Institutional Class shares;
3
<PAGE>
(s) Two billion (2,000,000,000) shares which were previously classified as
TCW Galileo Large Cap Growth Fund shares, including all of those
outstanding at the time these Articles Supplementary became effective,
have been reclassified as shares of the TCW Galileo Large Cap Growth
Fund, Institutional Class shares;
(t) Two billion (2,000,000,000) shares which were previously classified as
TCW Galileo Large Cap Value Fund shares, including all of those
outstanding at the time these Articles Supplementary became effective,
have been reclassified as shares of the TCW Galileo Large Cap Value
Fund, Institutional Class shares;
(u) Two billion (2,000,000,000) shares which were previously classified as
TCW Galileo Emerging Markets Income Fund shares, including all of
those outstanding at the time these Articles Supplementary became
effective, have been reclassified as shares of the TCW Galileo
Emerging Markets Income Fund, Institutional Class shares;
(v) Two billion (2,000,000,000) shares which were previously classified as
TCW Galileo Small Cap Value Fund shares, including all of those
outstanding at the time these Articles Supplementary became effective,
have been reclassified as shares of the TCW Galileo Small Cap Value
Fund, Institutional Class shares.
THIRD: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article Sixth of its Articles of Incorporation,
the Board of Directors has duly classified the forty four billion shares of the
capital stock of the Corporation resultant from the increase of authorized
capital effected by these Articles Supplementary as new classes of shares of the
capital stock of the Corporation. Of the forty four billion shares:
(a) One billion six hundred and sixty seven million (1,667,000,000) shares
are designated as TCW Galileo Select Equities Fund, Investor Class (or
Class A) shares;
(b) One billion six hundred and sixty seven million (1,667,000,000) shares
are designated as TCW Galileo Core Fixed Income Fund, Investor Class
(or Class A) shares;
(c) One billion six hundred and sixty seven million (1,667,000,000) shares
are designated as TCW Galileo High Yield Bond Fund, Investor Class (or
Class A) shares;
(d) One billion six hundred and sixty seven million (1,667,000,000) shares
are designated as TCW Galileo Latin America Equities Fund, Investor
Class (or Class A) shares;
4
<PAGE>
(e) One billion six hundred and sixty six million (1,666,000,000) shares
are designated as TCW Galileo Total Return Mortgage-Backed Securities
Fund, Investor Class (or Class A) shares;
(f) One billion six hundred and sixty six million (1,666,000,000) shares
are designated as TCW Galileo Mortgage-Backed Securities Fund,
Investor Class (or Class A) shares;
(g) One billion six hundred and sixty seven million (1,667,000,000) shares
are designated as TCW Galileo Asia Pacific Equities Fund, Investor
Class (or Class A) shares;
(h) One billion six hundred and sixty seven million (1,667,000,000) shares
are designated as TCW Galileo Emerging Markets Equities Fund, Investor
Class (or Class A) shares;
(i) One billion six hundred and sixty six million (1,666,000,000) shares
are designated as TCW Galileo Small Cap Growth Fund, Investor Class
(or Class A) shares;
(j) Five billion (5,000,000,000) shares are designated as TCW Galileo
Money Market Fund, Investor Class (or Class A) shares;
(k) Two billion (2,000,000,000) shares are designated as TCW Galileo
Earnings Momentum Fund, Investor Class (or Class A) shares;
(l) Two billion (2,000,000,000) shares are designated as TCW Galileo
Aggressive Growth Equities Fund, Investor Class (or Class A) shares;
(m) Two billion (2,000,000,000) shares are designated as TCW Galileo
Convertible Securities Fund, Investor Class (or Class A) shares;
(n) Two billion (2,000,000,000) shares are designated as TCW Galileo Value
Opportunities Fund, Investor Class (or Class A) shares;
(o) Two billion (2,000,000,000) shares are designated as TCW Galileo
European Equities Fund, Investor Class (or Class A) shares;
(p) Two billion (2,000,000,000) shares are designated as TCW Galileo
International Equities Fund, Investor Class (or Class A) shares;
(q) Two billion (2,000,000,000) shares are designated as TCW Galileo
Japanese Equities Fund, Investor Class (or Class A) shares;
5
<PAGE>
(r) Two billion (2,000,000,000) shares are designated as TCW Galileo
Enhanced 500 Fund, Investor Class (or Class A) shares;
(s) Two billion (2,000,000,000) shares are designated as TCW Galileo Large
Cap Growth Fund, Investor Class (or Class A) shares;
(t) Two billion (2,000,000,000) shares are designated as TCW Galileo Large
Cap Value Fund, Investor Class (or Class A) shares;
(u) Two billion (2,000,000,000) shares are designated as TCW Galileo
Emerging Markets Income Fund, Investor Class (or Class A) shares;
(v) Two billion (2,000,000,000) shares are designated as TCW Galileo Small
Cap Value Fund, Investor Class (or Class A) shares.
FOURTH: The Institutional Class capital stock and the Investor Class or
Class A capital stock of the Corporation represents interests in the same
investment portfolio of the Corporation. All shares of each particular class of
the Corporation shall represent an equal proportionate interest in that class
and each share of any particular class shall be equal to each other share of
that class. The preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualification and terms and
conditions of redemption of the Institutional Class shares and Investor Class or
Class A shares shall be as set forth in the Corporation's Articles of
Incorporation, as amended, and shall be subject to all provisions of the
Articles of Incorporation relating to shares of the Corporation generally, and
those set forth as follows:
(a) The Institutional Class capital stock of the Corporation shall be
offered at net asset value without the imposition of front-end or
contingent deferred sales charges or Rule 12b-1 distribution fees but may
be subject to any class-specific fees or charges relating to services
offered with respect to this Class as deemed appropriate by the Board of
Directors from time to time; and
(b) The Investor Class or Class A capital stock shall be subject to a
Rule 12b-1 distribution and service fee as determined by the Board of
Directors from time to time, and to any other class-specific fees or
charges relating to services offered with respect to this Class as deemed
appropriate by the Board of Directors from time to time; and
(c) Unless otherwise expressly provided in the Articles of
Incorporation, including any Articles Supplementary creating any class or
series of capital stock, on each matter submitted to a vote of stockholders
of the Corporation, each holder of a share of capital stock of the
Corporation shall be entitled to one vote for each share standing in such
holder's name on the books of the Company, irrespective of the class or
series thereof, and all shares of all classes and series shall vote
together as a single class; provided however, that the holders of shares of
each class shall have (i) exclusive voting rights with respect to
provisions of any distribution plan adopted by the Corporation
6
<PAGE>
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (a "Plan")
applicable to the respective class, and (ii) no voting rights with respect
to provisions of any Plan applicable to the other classes or with regard to
any other matter submitted to a vote of shareholders which does not affect
holders of that respective class.
FIFTH: The Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the 1940 Act.
IN WITNESS WHEREOF, TCW Galileo Funds Inc. has caused these Articles
Supplementary to be executed by its Senior Vice President and witnessed by its
Secretary on this day of , 1999. The Senior Vice President
of the Corporation acknowledge that the Articles Supplementary are the act of
the Corporation, that to best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
these Articles Supplementary are true in all material respects and that this
statement is made under the penalties of perjury.
TCW Galileo Funds, Inc.
By: ________________________________
[NAME]
[TITLE]
ATTEST: ____________________
[NAME]
[TITLE]
7
<PAGE>
EXHIBIT (D) (11)
FORM OF
AMENDED AND RESTATED
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of the ____ day of
_______, 1998 by and between TCW GALILEO FUNDS, INC., a Maryland corporation
(the "Company"), and TCW FUNDS MANAGEMENT, INC., a California corporation (the
"Adviser").
WHEREAS, the Company is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended ("1940 Act");
WHEREAS, the Adviser is engaged in the business of providing
investment advice and is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended;
WHEREAS, the Company wishes to retain the Adviser to render investment
advisory and management services; and
WHEREAS, the Adviser is willing to perform such services.
NOW, THEREFORE, the Company and the Adviser agree as follows:
1. Appointment.
-----------
(a) The Company hereby employs the Adviser to provide investment
advisory and management services for each of the portfolios of the Company
specified in Schedule A, as such Schedule A may be amended from time to time
(each, individually, a "Fund" and, collectively, the "Funds"). This engagement
is for the period and on the terms set forth in this Agreement. The Adviser
hereby accepts such employment and agrees to render the services and to assume
the obligations set forth in this Agreement, for the compensation provided
below.
(b) If the Company establishes one or more portfolios other than the
Funds listed in Schedule A with respect to which it desires to retain the
Adviser to act as investment adviser hereunder, it shall notify the Adviser in
writing. If the Adviser is willing to render such services, it shall notify the
Company in writing, whereupon such portfolio shall become a Fund under this
Agreement and Schedule A shall be amended accordingly. The compensation payable
by such new portfolio to the Adviser shall be agreed to in writing at the time.
(c) The Adviser, subject to the prior approval of the Company's Board
of Directors, may from time to time employ or associate itself with such person
or persons as the Adviser may believe to be particularly fitted to assist it in
the performance of this Agreement, provided, however, that the compensation of
such person or persons shall be paid by the Adviser and that the Adviser shall
be as fully responsible to the Company for the acts and omissions of any sub-
adviser as it is for its own acts and omissions.
<PAGE>
2. Advisory and Management Services. The Adviser, subject to the
--------------------------------
direction and supervision of the Company's Board of Directors and in conformity
with applicable laws, the Company's Articles of Incorporation, Bylaws,
Registration Statement, Prospectus and stated investment objectives, policies
and restrictions, shall:
(a) Manage the investment of each Fund's assets including, by way of
illustration, the evaluation of pertinent economic, statistical, financial and
other data, the determination of the industries and companies to be represented
in that Fund's portfolio, the formulation and implementation of the Fund's
investment program, and the determination from time to time of the securities
and other investments to be purchased, retained or sold by the Fund;
(b) Place orders for the purchase or sale of portfolio securities for
each Fund's account with broker-dealers selected by the Adviser;
(c) Administer the day to day operations of each Fund;
(d) Furnish to the Company office space at such place as may be agreed
upon from time to time, and all office facilities, business equipment, supplies,
utilities and telephone services necessary for managing the affairs and
investments and keeping those accounts and records of the Company and the Funds
that are not maintained by the Company's transfer agent, custodian, accounting
or subaccounting agent, and arrange for officers or employees of the Adviser to
serve, without compensation from the Company, as officers, directors or
employees of the Company, if desired and reasonably required by the Company; and
(e) Pay such expenses as are incurred by it in connection with
providing the foregoing services, except as provided in Section 3 below.
3. Company Expenses. The Company assumes and shall pay or cause to
----------------
be paid all expenses of the Company and the Funds, including, without
limitation: (a) all costs and expenses incident to the public offering of
securities of the Company, including those relating to the registration of its
securities under the Securities Act of 1933, as amended, and any filings
required under state securities laws and any fees payable in connection
therewith; (b) the charges and expenses of any custodian appointed by the
Company for the safekeeping of the cash, portfolio securities and other property
of the Funds; (c) the charges and expenses of independent accountants; (d) the
charges and expenses of stock transfer and dividend disbursing agent or agents
and registrar or registrars appointed by the Company; (e) the charges and
expenses of any accounting or subaccounting agent appointed by the Company to
provide accounting services to the Funds; (f) brokerage commissions, dealer
spreads, and other costs incurred in connection with proposed or consummated
portfolio securities transactions; (g) all taxes, including securities issuance
and transfer taxes, and corporate fees payable by the Company to federal, state,
local or other governmental agencies; (h) the cost and expense of printing and
issuing certificates representing securities of the Company; (i) fees involved
in registering and maintaining registrations of the Company under the 1940 Act;
(j) all expenses of shareholders' and directors' meetings, and of preparing,
printing and mailing proxy statements and reports to shareholders; (k) fees and
expenses of directors of the Company who are not officers or employees of the
Adviser; (l) all fees and expenses incident to the Company's dividend
reinvestment plan;
-2-
<PAGE>
(m) charges and expenses of legal counsel to the independent directors and to
the Company; (n) trade association dues; (o) interest payable on Company
borrowings; (p) any shareholder relations expense; (q) premiums for a fidelity
bond and any errors and omissions insurance maintained by the Company; and (r)
any other ordinary or extraordinary expenses incurred by the Company or the
Funds in the course of their business.
4. Compensation. As compensation for the services performed with
------------
respect to each Fund, the Company shall pay the Adviser as soon as practicable
after the last day of each month a fee for such month computed at an annual rate
specified in Schedule B, as may be amended from time to time.
For the purpose of calculating such fee, the net asset value for a
month shall be the average of the net asset values as determined for each
business day of the month. If this Agreement becomes effective after the first
day of a month, or terminates before the last day of a month, the compensation
provided shall be prorated.
The Company shall also reimburse the Adviser for the organizational
expenses incurred by the Adviser on behalf of each Fund or class thereof. Such
organizational expenses shall be amortized by the Company over five years.
5. Services Not Exclusive. Nothing contained in this Agreement shall
----------------------
prevent the Adviser or any affiliated person of the Adviser from acting as
investment adviser or manager for any other person, firm or corporation
(including any other investment company), whether or not the investment
objectives or policies of any such other person, firm or corporation are similar
to those of a Fund, and shall not in any way bind or restrict the Adviser or any
such affiliated person from buying, selling or trading any securities or
commodities for their own accounts or for the account of others for whom the
Adviser or any such affiliated person may be acting. While information and
recommendations supplied to each Fund shall, in the Adviser's judgment, be
appropriate under the circumstances and in light of the investment objectives
and policies of the Fund, they may be different from the information and
recommendations supplied by the Adviser or its affiliates to other investment
companies, funds and advisory accounts. The Company shall be entitled to
equitable treatment under the circumstances in receiving information,
recommendations and any other services, but the Company recognizes that it is
not entitled to receive preferential treatment as compared with the treatment
given by the Adviser to any other investment company, fund or advisory account.
6. Portfolio Transactions and Brokerage. In placing portfolio
------------------------------------
transactions and selecting brokers or dealers, the Adviser shall endeavor to
obtain on behalf of the Company and the Funds the best overall terms available.
In assessing the best overall terms available for any transaction, the Adviser
shall consider all factors it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
In evaluating the best overall terms available and in selecting the broker or
dealer to execute a particular transaction, the Adviser may also consider the
"brokerage and research services" provided to the Company, the Funds and/or
other accounts
-3-
<PAGE>
over which the Adviser or an affiliate of the Adviser exercises investment
discretion. The Adviser is authorized to pay a broker or dealer which provides
such brokerage and research services a commission for executing a portfolio
transaction for a Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if, but only
if, the Adviser determines in good faith that such commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer viewed in terms of that particular transaction or in terms of
the overall responsibilities of the Adviser to the Company and the Funds.
7. Books and-Records. In compliance with the requirements of Rule
-----------------
3la-3 under the 1940 Act, the Adviser agrees that all records that it maintains
for the Company are the property of the Company and further agrees to surrender
promptly to the Company any of such records upon the Company's request. The
Adviser further agrees to preserve for the periods prescribed by Rule 3la-2
under the 1940 Act the records required to be maintained by Rule 3la-l under the
1940 Act.
8. Limitation of Liability. Neither the Adviser, nor any director,
-----------------------
officer, agent or employee of the Adviser, shall be liable or responsible to the
Company or any of its shareholders for any error of judgment, mistake of law or
any loss arising out of any investment, or for any other act or omission in the
performance by such person or persons of their respective duties, except for
liability resulting from willful misfeasance, bad faith, gross negligence, or
reckless disregard of their respective duties. The Adviser shall be indemnified
by the Company as an agent of the Company in accordance with the terms of
Article Eighth, Section (9) of the Company's Articles of Incorporation.
9. Nature of Relationship. The Company and the Adviser are not
----------------------
partners or joint venturers with each other and nothing herein shall be
construed so as to make them such partners or joint venturers or impose any
liability as such on either of them. The Adviser is an independent contractor
and, except as expressly provided or authorized in this Agreement, shall have no
authority to act for or represent the Company.
10. Duration and Termination. This Agreement shall become effective
------------------------
upon its execution and shall continue in effect until two years from the date
hereof, provided it is approved by the vote of a "majority of the outstanding
voting securities" of the Company. Thereafter, this Agreement shall continue in
effect from year to year, provided its continuance is specifically approved at
least annually (a) by vote of a "majority of the outstanding voting securities"
of the Company or by vote of the Board of Directors of the Company, and (b) by
vote of a majority of the Directors of the Company who are not parties to this
Agreement or "interested persons" of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval. The Company
(either by vote of its Board of Directors or by vote of a "majority of the
outstanding voting securities" of the Company) may, at any time and without
payment of any penalty, terminate this Agreement upon sixty days' written notice
to the Adviser. This Agreement shall automatically and immediately terminate in
the event of its "assignment." The Adviser may terminate this Agreement without
payment of any penalty on sixty days' written notice to the Company.
-4-
<PAGE>
11. Definitions. For the purposes of this Agreement, the terms
-----------
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission, or such interpretive
positions as may be taken by the Commission or its staff under said Act, and the
term "brokerage and research services" shall have the meaning given in the
Securities Exchange Act of 1934, as amended, and the Rules and Regulations
thereunder.
12. Notices. Any notice under this Agreement shall be given in
-------
writing, addressed and delivered to the party to this Agreement entitled to
receive such notice at such address as such party may designate in writing.
13. Applicable Law. This Agreement shall be construed in accordance
--------------
with the laws of the State of California and the applicable provisions of the
1940 Act. To the extent applicable law of the State of California, or any of
the provisions herein, conflict with applicable provisions of the 1940 Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this agreement as of the day and year first above written in Los Angeles,
California.
TCW GALILEO FUNDS, INC.
By_____________________________________
Attest By_____________________________________
[NAME]
[TITLE]
________________________
Secretary
TCW FUNDS MANAGEMENT, INC.
By_____________________________________
[NAME]
[TITLE]
Attest By_____________________________________
[NAME]
[TITLE]
________________________
Secretary
-5-
<PAGE>
SCHEDULE A
Funds
------------------------------------------------------------------
TCW Galileo Money Market Fund
TCW Galileo Emerging Markets Income Fund
TCW Galileo Core Fixed Income Fund
TCW Galileo High Yield Bond Fund
TCW Galileo Total Return Mortgage-Backed Securities Fund
TCW Galileo Mortgage-Backed Securities Fund
TCW Galileo Asia Pacific Equities Fund
TCW Galileo Emerging Markets Equities Fund
TCW Galileo European Equities Fund
TCW Galileo International Equities Fund
TCW Galileo Japanese Equities Fund
TCW Galileo Latin America Equities Fund
TCW Galileo Convertible Securities Fund
TCW Galileo Select Equities Fund
TCW Galileo Earnings Momentum Fund
TCW Galileo Enhanced 500 Fund
TCW Galileo Large Cap Growth Fund
TCW Galileo Large Cap Value Fund
TCW Galileo Aggressive Growth Equities Fund
TCW Galileo Small Cap Growth Fund
TCW Galileo Small Cap Value Fund
TCW Galileo Value Opportunities Fund
-6-
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Annual Fee Rate
(expressed as a
Fund percentage of net assets)
- ------------------------------------------------------------------------------------------------
<S> <C>
TCW Galileo Money Market Fund 0.25%
TCW Galileo Emerging Markets Income Fund 0.75%
TCW Galileo Core Fixed Income Fund 0.40%
TCW Galileo High Yield Bond Fund 0.75%
TCW Galileo Total Return Mortgage-Backed Securities Fund 0.50%
TCW Galileo Mortgage-Backed Securities Fund 0.50%
TCW Galileo Asia Pacific Equities Fund 1.00%
TCW Galileo Emerging Markets Equities Fund 1.00%
TCW Galileo European Equities Fund 0.75%
TCW Galileo International Equities Fund -----
TCW Galileo Japanese Equities Fund 0.75%
TCW Galileo Latin American Equities Fund 1.00%
TCW Galileo Convertible Securities Fund 0.75%
TCW Galileo Select Equities Fund 0.75%
TCW Galileo Earnings Momentum Fund 1.00%
TCW Galileo Enhanced 500 Fund 0.25%
TCW Galileo Large Cap Growth Fund 0.55%
TCW Galileo Large Cap Value Fund 0.55%
TCW Galileo Aggressive Growth Equities Fund 1.00%
TCW Galileo Small Cap Growth Fund 1.00%
TCW Galileo Small Cap Value Fund 1.00%
TCW Galileo Value Opportunities Fund 0.80%
</TABLE>
-7-
<PAGE>
EXHIBIT (E) (2)
FORM OF
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
TCW GALILEO FUNDS, INC.
865 South Figueroa Street
Suite 1800
Los Angeles, CA 90017
December __, 1998
TCW Brokerage Services
865 South Figueroa Street
Suite 1800
Los Angeles, CA 90017
Ladies and Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, TCW Galileo Funds, Inc., a Maryland
corporation (the "Company"), has agreed that you shall be, for the period of
this Agreement, a nonexclusive distributor of shares of the Company.
1. Services as Distributor
-----------------------
1.1 You will act as a nonexclusive agent for the distribution of
shares of each series and class of the Company covered by, and in accordance
with, the registration statement and prospectus then in effect under the
Securities Act of 1933, as amended (the "1933 Act"), and the Investment Company
Act of 1940, as amended (the "1940 Act"), and will transmit promptly any orders
received by you for purchase or redemption of shares of the Company to DST
Systems, Inc. or any successor as Transfer Agent for the Company of which the
Company has notified you in writing.
1.2 You agree to process orders for the sale of shares of each series
and class of the Company, but you shall have no obligation to solicit orders for
the sale of shares of each series or class of the Company.
1.3 You shall act as a nonexclusive distributor of the shares of each
series and class of the Company in compliance with all applicable laws, rules
and regulations, including, without limitation, all rules and regulations made
or adopted pursuant to the 1940 Act by the Securities and Exchange Commission
(the "Commission") or any securities association registered under the Securities
Exchange Act of 1934, as amended.
1.4 Whenever in their judgment such action is warranted by market,
economic of political conditions, or by abnormal circumstances of any kind, the
Company's officers may decline to accept any orders for, or make any sales of,
any shares of any series or class of the
<PAGE>
Company until such time as they deem it advisable to accept such orders and to
make such sales and the Company shall promptly advise you of such determination.
1.5 The Company agrees to pay all costs and expenses in connection
with the registration of the shares of each series and class of the Company
under the 1933 Act and the 1940 Act and all expenses in connection with
maintaining facilities for the issue and transfer of the shares of each series
and class of the Company and for supplying information, prices and other data to
be furnished by the Company hereunder, and all expenses in connection with
preparing, printing and distributing the Company's prospectuses.
1.6 The Company agrees to execute any and all documents and to
furnish any and all information and otherwise to take all actions which may be
reasonably necessary in the discretion of the Company's officers to comply with
state securities laws pertaining to the sale of the shares of each series and
class, and the Company agrees to pay all expenses which may be incurred in
connection with such compliance. You shall pay all expenses connected with your
own qualification as a dealer under state or Federal laws and, except as
otherwise specifically provided in this Agreement, all other expenses incurred
by you in connection with the sale of the shares of each series and class of the
Company as contemplated in this Agreement.
1.7 The Company shall furnish you upon request with: (a) annual
audited reports of the Company's book and accounts made by independent public
accountants regularly retained by the Company; and (b) semi-annual reports
prepared by the Company.
1.8 The Company represents to you that all registration statements
and prospectuses filed by the Company with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act with respect to the shares of any
series and class of the Company have been prepared in conformity with the
requirements of these Acts and rules and regulations of the Commission
thereunder. As used in this Agreement, the terms "registration statement" and
"prospectus" shall mean any registration statement and prospectus filed with the
Commission and any amendments and supplements thereto which at any time shall
have been filed with the Commission. The Company represents and warrants to you
that any registration statement and prospectus, when such registration statement
becomes effective, will contain all statements required to be stated therein in
conformity with the 1933 Act and the 1940 Act and the rules and regulations of
the Commission; that all statements of fact contained in any such registration
statement and prospectus will be true and correct when such registration
statement becomes effective; and that neither any registration statement nor any
prospectus when such registration statement becomes effective will include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
1.9 The Company authorizes you to use any prospectus in the form
furnished to you from time to time, in connection with the sale of the shares of
any series or class of the Company. The Company agrees to indemnify, defend and
hold you, your several officers and directors, and any person who controls you
within the meaning of Section 15 of the 1933 Act free and harmless from and
against any and all claims, demands, liabilities and expenses
-2-
<PAGE>
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which you,
your officers and directors, or any such controlling person, may incur under the
1933 Act or under common law or otherwise, arising out of or based upon any
untrue statement, or alleged untrue statement, of a material fact contained in
any registration statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated in
either any registration statement or any prospectus or necessary to make the
statements in either thereof not misleading; provided, however, that the
Company's agreement to indemnify you, your officers or directors, and any such
controlling person shall not be deemed to cover any claims, demands, liabilities
or expenses arising out of any untrue statement or alleged untrue statement or
omission or alleged omission made in any registration statement or prospectus in
reliance upon and in conformity with written information furnished to the
Company by you specifically for use in the preparation thereof. The Company's
agreement to indemnify you, your officers and directors, and any such
controlling persons is expressly conditioned upon the Company being notified of
any action brought against you, your officers or directors, or any such
controlling person, such notification to be given by letter or by telegram
addressed to the Company at its principal office in Los Angeles, California, as
soon as reasonably practicable after the summons or other first legal process
shall have been served. The failure to so notify the Company of any such action
shall not relieve the Company from any liability which the Company may have to
the person against whom such action is brought by reason of any such untrue, or
alleged untrue, statement or omission, or alleged omission, otherwise than on
account of the Company's indemnity agreement contained in this paragraph 1.9.
The Company will be entitled to assume the defense of any suit brought to
enforce any such claim, demand or liability, but, in such case, such defense
shall be conducted by counsel of good standing chosen by the Company and
approved by you. In the event the Company elects to assume the defense of any
such suit and retain counsel of good standing approved by you, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case the Company does not elect to
assume the defense of any such suit, or in case you reasonably do not approve of
counsel chosen by the Company, the Company will reimburse you, your officers and
directors, or the controlling person or persons named as defendant or defendants
in such suit, for the fees and expenses of any counsel retained by you or them.
The Company's indemnification agreement contained in this paragraph 1.9 and the
Company's representations and warranties in this agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of you, your officers and directors, or any controlling person, and
shall survive the delivery of any shares of the Company. This agreement of
indemnity will inure exclusively to your benefit, to the benefit of your several
officers and directors, and their respective estates, and to the benefit of any
controlling persons and their successors. The Company agrees promptly to notify
you of the commencement of any litigation or proceedings against the Company or
any of its officers or directors in connection with the issue and sale of any of
the Company's shares.
1.10 You agree to indemnify, defend and hold the Company, its several
officers and directors, and any person who controls the Company within the
meaning of Section 15 of the 1933 Act free and harmless from and against any and
all claims, demands, liabilities and
-3-
<PAGE>
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which the
Company, its officers or directors, or any such controlling person, may incur
under the 1933 Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Company, its officers or directors, or
such controlling person resulting from such claims or demands, shall arise out
of or be based upon any untrue, or alleged untrue, statement of a material fact
contained in information furnished in writing by you to the Company specifically
for use in the Company's registration statement and used in the answers to any
of the items of the registration statement or in the corresponding statements
made in the prospectus, or shall arise out of or be based upon any omission, or
alleged omission, to state a material fact in connection with such information
furnished in writing by you to the Company and required to be stated in such
answers or necessary to make such information not misleading. Your agreement to
indemnify the Company, its officers and directors, and any such controlling
person is expressly conditioned on your being notified of any action brought
against the Company, its officers or directors, or any such controlling person,
such notification to be given by letter or telegram addressed to you at your
principal office in Los Angeles, California, as soon as reasonably practicable
after the summons or other first legal process shall have been served. You shall
have the right to control the defense of such action, with counsel of your own
choosing, satisfactory to the Company, if such action is based solely upon such
alleged misstatement or omission on your part, and in any other event the
Company, its officers or directors or such controlling person shall each have
the right to participate in the defense or preparation of the defense of any
such action. The failure to so notify you of any such action shall not relieve
you from any liability which you may have to the Company, its officers or
directors, or to such controlling person by reason of any such untrue, or
alleged untrue, statement or omission, or alleged omission, otherwise than on
account of your indemnity agreement contained in this paragraph 1.10.
1.11 No shares of any series or class of the Company shall be offered
by either you or the Company under any of the provisions of this Agreement and
no orders for the purchase or sale of such shares hereunder shall be accepted by
the Company if and so long as the effectiveness of the registration statement
then in effect or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act or the 1940 Act or if and so long as a current
prospectus as required by Section 10 of the 1933 Act is not on file with the
Commission; provided, however, that nothing contained in this paragraph 1.11
shall in any way restrict or have an application to or bearing upon the
Company's obligation to repurchase shares of the Company from any stockholder in
accordance with the provisions of the Company's prospectus or Articles of
Incorporation.
1.12 The Company agrees to advise you immediately in writing:
(a) of any request by the Securities and Exchange Commission for
amendments to the registration statement or prospectus then in effect or
for additional information;
-4-
<PAGE>
(b) in the event of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or prospectus
then in effect or the initiation of any proceeding for that purpose;
(c) of the happening of any event which makes untrue any statement of
a material fact made in the registration statement or prospectus then in
effect or which requires the making of a change in such registration
statement or prospectus in order to make the statements therein not
misleading; and
(d) of all action of the Commission with respect to any amendments to
any registration statement or prospectus which may from time to time be
filed with the Commission.
Provided, however, that informal action or requests by its staff shall
not be deemed to be action or requests by the Securities and Exchange Commission
for the purpose of this paragraph 1.12.
2. Fees
----
The Company, on behalf of each series, agrees to pay you a fee at the
annual rate of 0.25% per annum of each series' average daily net assets
attributable to its Class A shares for services rendered by you and others with
respect to Class A shares of the Company upon the terms and conditions set forth
in the Class A Distribution Plan set forth as Exhibit A hereto.
3. Term
----
This Agreement shall continue until _________________, ____ and
thereafter shall continue automatically for successive annual periods ending on
[December 31st] of each year, provided such continuance is specifically approved
at least annually by (i) the Company's Board of Directors or (ii) a vote of a
majority (as defined in the 1940 Act) of the Company's outstanding voting
securities, provided that in either event the continuance also is approved by a
majority of the Company's directors who are not "interested persons" (as defined
in the 1940 Act) of any party to this Agreement, by vote case in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable without penalty, on not less than 60 days' notice, by the Company's
Board of Directors, by vote of holders of a majority of the Company's shares, or
by you. This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
4. Governing Law
-------------
This Agreement shall be construed under the laws of the State of
California.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
-5-
<PAGE>
Your very truly,
TCW GALILEO FUNDS, INC.
By: _________________________
By: _________________________
Accepted:
TCW BROKERAGE SERVICES
By: _________________________
By: _________________________
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<PAGE>
EXHIBIT (E)(3)
FORM OF DEALER AGREEMENT
TCW BROKERAGE SERVICES
TCW Brokerage Services ("Distributor") and _________________ ("Dealer")
have agreed that Dealer will participate in the distribution of shares
("Shares") of all the series (as they may exist from time to time) comprising
the TCW Galileo Funds, Inc. (each a "Fund" and collectively the "Funds") and any
classes thereof for which Distributor now or in the future serves as
nonexclusive distributor, subject to the terms of this Dealer Agreement
("Agreement"). Any such additional Funds will be included in this Agreement
upon Distributor's written notification to Dealer.
1. LICENSING
---------
a. Dealer represents and warrants that it is: (i) a broker-dealer
registered with the Securities and Exchange Commission ("SEC"); (ii) a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
and (iii) licensed by the appropriate regulatory agency of each state or other
jurisdiction in which Dealer will offer and sell Shares of the Funds, to the
extent necessary to perform the duties and activities contemplated by this
Agreement.
b. Dealer represents and warrants that each of its partners,
directors, officers, employees, and agents who will be utilized by Dealer with
respect to its duties and activities under this Agreement is either
appropriately licensed or exempt from such licensing requirements by the
appropriate regulatory agency of each state or other jurisdiction in which
Dealer will offer and sell Shares of the Funds.
c. Dealer agrees that: (i) termination or suspension of its
registration with the SEC; (ii) termination or suspension of its membership with
the NASD; or (iii) termination or suspension of its license to do business by
any state or other jurisdiction or federal regulatory agency shall immediately
cause the termination of this Agreement. Dealer further agrees to immediately
notify Distributor in writing of any such action or event.
d. Dealer agrees that this Agreement is in all respects subject to the
Conduct Rules of the NASD and such Conduct Rules shall control any provision to
the contrary in this Agreement.
e. Dealer agrees to be bound by and to comply with all applicable
state and federal laws and all rules and regulations promulgated thereunder
generally affecting the sale or distribution of mutual fund shares.
<PAGE>
2. ORDERS
------
a. Dealer agrees to offer and sell Shares of the Funds (including
those of each of its classes) only at the regular public offering price
applicable to such Shares and in effect at the time of each transaction. The
procedures relating to all orders and the handling of each order (including the
manner of computing the net asset value of Shares and the effective time of
orders received from Dealer) are subject to: (i) the terms of the then current
prospectus and statement of additional information (including any supplements,
stickers or amendments thereto) relating to each Fund, as filed with the SEC
("Prospectus"); (ii) the new account application for each Fund, as supplemented
or amended from time to time; and (iii) Distributor's written instructions and
multiple class pricing procedures and guidelines, as provided to Dealer from
time to time. To the extent that the Prospectus contains provisions that are
inconsistent with this Agreement or any other document, the terms of the
Prospectus shall be controlling.
b. Distributor reserves the right at any time, and without notice to
Dealer, to suspend the sale of Shares or to withdraw or limit the offering of
Shares. Distributor reserves the unqualified right not to accept any specific
order for the purchase or sale of Shares.
c. In all offers and sales of the Shares to the public, Dealer is not
authorized to act as broker or agent for, or employee of, Distributor, any Fund
or any other dealer, and Dealer shall not in any manner represent to any third
party that Dealer has such authority or is acting in such capacity. Rather,
Dealer agrees that it is acting as principal for Dealer's own account or as
agent on behalf of Dealer's customers in all transactions in Shares, except as
provided in Section 3.i. hereof. Dealer acknowledges that it is solely
responsible for all suitability determinations with respect to sales of Shares
of the Funds to Dealer's customers and that Distributor has no responsibility
for the manner of Dealer's performance of, or for Dealer's acts or omissions in
connection with, the duties and activities Dealer provides under this Agreement.
d. All orders are subject to acceptance by Distributor in its sole
discretion and become effective only upon confirmation by Distributor.
e. Distributor agrees that it will accept from Dealer orders placed
through a remote terminal or otherwise electronically transmitted via the
National Securities Clearing Corporation ("NSCC") Fund/Serv Networking program,
provided, however, that appropriate documentation thereof and agreements
relating thereto are executed by both parties to this Agreement, including in
particular the standard NSCC Networking Agreement and any other related
agreements between Distributor and Dealer deemed appropriate by Distributor, and
that all accounts opened or maintained pursuant to that program will be governed
by applicable NSCC rules and procedures. Both parties further agree that, if
the NSCC Fund/Serv Networking program is used to place orders, the standard NSCC
Networking Agreement will control insofar as there is any conflict between any
provision of the Dealer Agreement and the standard NSCC Networking Agreement.
-2-
<PAGE>
3. DUTIES OF DEALER
----------------
a. Dealer agrees to purchase Shares only from Distributor or from
Dealer's customers.
b. Dealer agrees to enter orders for the purchase of Shares only from
Distributor and only for the purpose of covering purchase orders Dealer has
already received from its customers or for Dealer's own bona fide investment.
c. Dealer agrees to date and time stamp all orders received by Dealer
and promptly, upon receipt of any and all orders, to transmit to Distributor all
orders received prior to the time described in the Prospectus for the
calculation of each Fund's net asset value so as to permit Distributor to
process all orders at the price next determined after receipt by Dealer, in
accordance with the Prospectus. Dealer agrees not to withhold placing orders for
Shares with Distributor so as to profit itself as a result of such inaction. d.
Dealer agrees to maintain records of all purchases and sales of Shares
made through Dealer and to furnish Distributor or regulatory authorities with
copies of such records upon request. In that regard, Dealer agrees that, unless
Dealer holds Shares as nominee for its customers or participates in the NSCC
Fund/Serv Networking program, at certain matrix levels, it will provide
Distributor with all necessary information to comply properly with all federal,
state and local reporting requirements and backup and nonresident alien
withholding requirements for its customer accounts including, without
limitation, those requirements that apply by treating Shares issued by the Funds
as readily tradable instruments. Dealer represents and agrees that all Taxpayer
Identification Numbers ("TINs") provided are certified, and that no account that
requires a certified TIN will be established without such certified TIN. With
respect to all other accounts, including Shares held by Dealer in omnibus
accounts and Shares purchased or sold through the NSCC Fund/Serv Networking
program, at certain matrix levels, Dealer agrees to perform all federal, state
and local tax reporting with respect to such accounts, including without
limitation redemptions and exchanges.
e. Dealer agrees to distribute or cause to be delivered to its
customers Prospectuses, proxy solicitation materials and related information and
proxy cards, semi-annual and annual shareholder reports and any other materials
in compliance with applicable legal requirements, except to the extent that
Distributor expressly undertakes to do so in writing.
f. Dealer agrees that if any Share is repurchased by any Fund or is
tendered for redemption within seven (7) business days after confirmation by
Distributor of the original purchase order from Dealer, Dealer shall forfeit its
right to any concession or commission received by Dealer with respect to such
Share and shall forthwith refund to Distributor the full concession allowed to
Dealer or commission paid to Dealer on the original sale. Distributor agrees to
notify Dealer of such repurchase or redemption within a reasonable time after
settlement. Termination or cancellation of this Agreement shall not relieve
Dealer from its obligation under this provision.
-3-
<PAGE>
g. Dealer agrees that payment for Shares ordered from Distributor
shall be in Fed Funds, New York clearinghouse or other immediately available
funds and that such funds shall be received by Distributor by the earlier of:
(i) the end of the third (3rd) business day following Dealer's receipt of the
customer's order to purchase such Shares; or (ii) the settlement date
established in accordance with Rule 15c6-1 under the Securities Exchange Act of
1934, as amended. If such payment is not received by Distributor by such date,
Dealer shall forfeit its right to any concession or commission with respect to
such order, and Distributor reserves the right, without notice, forthwith to
cancel the sale, or, at its option, to sell the Shares ordered back to the Fund,
in which case Distributor may hold Dealer responsible for any loss, including
loss of profit, suffered by Distributor resulting from Dealer's failure to make
payment as aforesaid. If a purchase is made by check, the purchase is deemed
made upon conversion of the purchase instrument into Fed Funds, New York
clearinghouse or other immediately available funds.
h. Dealer agrees that it: (i) shall assume responsibility for any
loss to the Fund caused by a correction to any order placed by Dealer that is
made subsequent to the trade date for the order, provided such order correction
was not based on any negligence on Distributor's part; and (ii) will immediately
pay such loss to the Fund upon notification.
i. Dealer agrees that in connection with orders for the purchase of
Shares on behalf of any IRAs, 401(k) plans or other retirement plan accounts, by
mail, telephone, or wire, Dealer shall act as agent for the custodian or trustee
of such plans (solely with respect to the time of receipt of the application and
payments), and Dealer shall not place such an order with Distributor until it
has received from its customer payment for such purchase and, if such purchase
represents the first contribution to such a retirement plan account, the
completed documents necessary to establish the retirement plan. Dealer agrees to
indemnify Distributor and its affiliates for any claim, loss, or liability
resulting from incorrect investment instructions received by Distributor from
Dealer.
j. Dealer agrees that it will not make any conditional orders for the
purchase or redemption of Shares and acknowledges that Distributor will not
accept conditional orders for Shares.
k. Dealer agrees that all out-of-pocket expenses incurred by it in
connection with its activities under this Agreement will be borne by Dealer.
l. Dealer agrees that it will keep in force appropriate broker's
blanket bond insurance policies covering any and all acts of Dealer's partners,
directors, officers, employees, and agents adequate to reasonably protect and
indemnify the Distributor and the Funds against any loss which any party may
suffer or incur, directly or indirectly, as a result of any action by Dealer or
Dealer's partners, directors, officers, employees, and agents.
m. Dealer agrees that it will maintain the required net capital as
specified by the rules and regulations of the SEC, NASD and other regulatory
authorities.
-4-
<PAGE>
4. DEALER COMPENSATION
-------------------
a. On each purchase of Shares by Dealer from Distributor, the total
sales charges and dealer concessions or commissions, if any, payable to Dealer
shall be as stated on Schedule A to this Agreement, which may be amended by
Distributor from time to time. Distributor reserves the right, without prior
notice, to suspend or eliminate such dealer concession or commissions by
amendment, sticker or supplement to the then current Prospectus for each Fund.
Such sales charges and dealer concessions or commissions, are subject to
reduction under a variety of circumstances as described in each Fund's then
current Prospectus. For an investor to obtain any reduction, Distributor must be
notified at the time of the sale that the sale qualifies for the reduced sales
charge. If Dealer fails to notify Distributor of the applicability of a
reduction in the sales charge at the time the trade is placed, neither
Distributor nor any Fund will be liable for amounts necessary to reimburse any
investor for the reduction that should have been effected. Dealer acknowledges
that no sales charge or concession or commission will be paid to Dealer on the
reinvestment of dividends or capital gains reinvestment or on Shares acquired in
exchange for Shares of another Fund, or class thereof, having the same sales
charge structure as the Fund, or class thereof, from which the exchange was
made, in accordance with the Prospectus.
b. In accordance with the Funds' Prospectuses, Distributor or any
affiliate may, but is not obligated to, make payments to dealers from
Distributor's own resources as compensation for certain sales that are made at
net asset value or payments to dealers that are otherwise not fully compensated
under any Rule 12b-1 Plan, as described in c. below ("Qualifying Sales"). If
Dealer notifies Distributor of a Qualifying Sale, Distributor may make a
contingent advance payment up to the maximum amount available for payment on the
sale. If any of the Shares purchased in a Qualifying Sale are redeemed within
twelve (12) months of the end of the month of purchase, Distributor shall be
entitled to recover any advance payment attributable to the redeemed Shares by
reducing any account payable or other monetary obligation Distributor may owe to
Dealer or by making demand upon Dealer for repayment in cash. Distributor
reserves the right to withhold advances to Dealer, if for any reason Distributor
believes that it may not be able to recover unearned advances from Dealer.
c. With respect to any Fund that offers Shares for which distribution
plans have been adopted under Rule 12b-1 under the Investment Company Act of
1940, as amended ("Rule 12b-1 Plans"), Distributor also is authorized to pay the
Dealer continuing distribution and/or service fees, as specified in Schedule A
and the relevant Fund Prospectus, with respect to Shares of any such Fund, to
the extent that Dealer provides distribution, marketing, administrative and
other services and activities regarding the promotion of such Shares and the
maintenance of related shareholder accounts.
d. In connection with the receipt of distribution fees and/or service
fees under Rule 12b-1 Plans applicable to Shares purchased by Dealer's
customers, Distributor directs Dealer to provide enhanced shareholder services
such as: processing purchase and redemption transactions; establishing
shareholder accounts; and providing certain information and assistance with
respect to the Funds. (Redemption levels of shareholder accounts assigned to
Dealer will be
-5-
<PAGE>
considered in evaluating Dealer's continued ability to receive payments of
distribution and/or service fees.) In addition, Dealer agrees to support
Distributor's marketing efforts by, among other things, granting reasonable
requests for visits to Dealer's office by Distributor's wholesalers and
marketing representatives, including all Funds covered by a Rule 12b-1 Plan on
Dealer's "approved," "preferred" or other similar product lists, if applicable,
and otherwise providing satisfactory product, marketing and sales support.
Further, Dealer agrees to provide Distributor with supporting documentation
concerning the shareholder services provided, as Distributor may reasonably
request from time to time.
e. All Rule 12b-1 Plan distribution and/or servicing fees shall be
based on the value of Shares attributable to Dealer's customers and eligible for
such payment, and shall be calculated on the basis of and at the rates set forth
in the compensation schedule then in effect. Without prior approval by a
majority of the outstanding shares of a Fund, the aggregate annual fees paid to
Dealer pursuant to any Rule 12b-1 Plan shall not exceed the amounts stated as
the "annual maximums" in each Fund's Prospectus, which amount shall be a
specified percent of the value of the Fund's net assets held in Dealer's
customers' accounts that are eligible for payment pursuant to the Rule 12b-1
Plans (determined in the same manner as each Fund uses to compute its net assets
as set forth in its then current Prospectus).
f. The provisions of any Rule 12b-1 Plan between the Funds and the
Distributor shall control over this Agreement in the event of any inconsistency.
Each Rule 12b-1 Plan in effect on the date of this Agreement is described in the
relevant Fund's Statement of Additional Information. Dealer hereby acknowledges
that all payments under Rule 12b-1 Plans are subject to limitations contained in
such Rule 12b-1 Plans and may be varied or discontinued at any time.
5. REDEMPTIONS, REPURCHASES AND EXCHANGES
--------------------------------------
a. The Prospectus for each Fund describes the provisions whereby the
Fund, under all ordinary circumstances, will redeem Shares held by shareholders
on demand. Dealer agrees that it will not make any representations to
shareholders relating to the redemption of their Shares other than the
statements contained in the Prospectus and the underlying organizational
documents of the Fund, to which it refers, and that Dealer will pay as
redemption proceeds to shareholders the net asset value, minus any applicable
deferred sales charge or redemption fee, determined after receipt of the order
as discussed in the Prospectus.
b. Dealer agrees not to repurchase any Shares from its customers at a
price below that next quoted by the Fund for redemption or repurchase, i.e., at
the net asset value of such Shares, less any applicable deferred sales charge,
or redemption fee, in accordance with the Fund's Prospectus. Dealer shall,
however, be permitted to sell Shares for the account of the customer or record
owner to the Funds at the repurchase price then currently in effect for such
Shares and may charge the customer or record owner a fair service fee or
commission for handling the transaction, provided Dealer discloses the fee or
commission to the customer or record owner. Nevertheless, Dealer agrees that it
shall not under any circumstances maintain a secondary market in such
repurchased Shares.
-6-
<PAGE>
c. Dealer agrees that, with respect to a redemption order it has
made, if instructions in proper form, including any outstanding certificates,
are not received by Distributor within the time customary or the time required
by law, the redemption may be canceled forthwith without any responsibility or
liability on Distributor's part or on the part of any Fund, or Distributor, at
its option, may buy the shares redeemed on behalf of the Fund, in which latter
case Distributor may hold Dealer responsible for any loss, including loss of
profit, suffered by Distributor resulting from Distributor's failure to settle
the redemption.
d. Dealer agrees that it will comply with any restrictions and
limitations on exchanges described in each Fund's Prospectus, including any
restrictions or prohibitions relating to frequent purchases and redemptions
(i.e., market timing).
6. MULTIPLE CLASSES OF SHARES
--------------------------
Distributor may, from time to time, provide Dealer with written
guidelines or standards relating to the sale or distribution of Funds offering
multiple classes of Shares with different sales charges and distribution-related
operating expenses.
7. FUND INFORMATION
----------------
a. Dealer agrees that neither it nor any of its partners, directors,
officers, employees, and agents is authorized to give any information or make
any representations concerning Shares of any Fund except those contained in the
Fund's then current Prospectus or in materials provided by Distributor.
b. Distributor will supply to Dealer Prospectuses, reasonable
quantities of sales literature, sales bulletins, and additional sales
information as provided by Distributor. Dealer agrees to use only advertising or
sales material relating to the Funds that: (i) is supplied by Distributor, or
(ii) conforms to the requirements of all applicable laws or regulations of any
government or authorized agency having jurisdiction over the offering or sale of
Shares of the Funds and is approved in writing by Distributor in advance of its
use. Such approval may be withdrawn by Distributor in whole or in part upon
written notice to Dealer, and Dealer shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales bulletins and
advertising. Dealer is not authorized to modify or translate any such materials
without Distributor's prior written consent.
8. SHARES
------
a. Distributor acts solely as agent for the Fund and Distributor shall
have no obligation or responsibility with respect to Dealer's right to purchase
or sell Shares in any state or jurisdiction.
b. Distributor shall periodically furnish Dealer with information
identifying the states or jurisdictions in which it is believed that all
necessary notice, registration or exemptive filings for Shares have been made
under applicable securities laws such that offers
-7-
<PAGE>
and sales of Shares may be made in such states or jurisdictions. Distributor
shall have no obligation to make such notice, registration or exemptive filings
with respect to Shares in any state or jurisdiction.
c. Dealer agrees not to transact orders for Shares in states or
jurisdictions in which it has been informed that Shares may not be sold or in
which it and its personnel are not authorized to sell Shares.
d. Distributor shall have no responsibility, under the laws regulating
the sale of securities in the United States or any foreign jurisdiction, with
respect to the qualification or status of Dealer or Dealer's personnel selling
Fund Shares. Distributor shall not, in any event, be liable or responsible for
the issue, form, validity, enforceability and value of such Shares or for any
matter in connection therewith.
e. Dealer agrees that it will make no offers or sales of Shares in any
foreign jurisdiction, except with the express written consent of Distributor.
9. INDEMNIFICATION
---------------
a. Dealer agrees to indemnify, defend and hold harmless Distributor
and the Funds and their predecessors, successors, and affiliates, each current
or former partner, officer, director, employee, shareholder or agent and each
person who controls or is controlled by Distributor from any and all losses,
claims, liabilities, costs, and expenses, including attorney fees, that may be
assessed against or suffered or incurred by any of them howsoever they arise,
and as they are incurred, which relate in any way to: (i) any alleged violation
of any statute or regulation (including without limitation the securities laws
and regulations of the United States or any state or foreign country) or any
alleged tort or breach of contract, related to the offer or sale by Dealer of
Shares of the Funds pursuant to this Agreement (except to the extent that
Distributor's negligence or failure to follow correct instructions received from
Dealer is the cause of such loss, claim, liability, cost or expense); (ii) any
redemption or exchange pursuant to instructions received from Dealer or its
partners, affiliates, officers, directors, employees or agents; or (iii) the
breach by Dealer of any of its representations and warranties specified herein
or the Dealer's failure to comply with the terms and conditions of this
Agreement, whether or not such action, failure, error, omission, misconduct or
breach is committed by Dealer or its predecessor, successor, or affiliate, each
current or former partner, officer, director, employee or agent and each person
who controls or is controlled by Dealer.
b. Distributor agrees to indemnify, defend and hold harmless Dealer
and its predecessors, successors and affiliates, each current or former partner,
officer, director, employee or agent, and each person who controls or is
controlled by Dealer from any and all losses, claims, liabilities, costs and
expenses, including attorney fees, that may be assessed against or suffered or
incurred by any of them which arise, and which relate to any untrue statement of
or omission to state a material fact contained in the Prospectus or any written
sales literature or other marketing materials provided by the Distributor to the
Dealer, required to be stated therein or necessary to make the statements
therein not misleading.
-8-
<PAGE>
c. Dealer agrees to notify Distributor, within a reasonable time, of
any claim or complaint or any enforcement action or other proceeding with
respect to Shares offered hereunder against Dealer or its partners, affiliates,
officers, directors, employees or agents, or any person who controls Dealer,
within the meaning of Section 15 of the Securities Act of 1933, as amended.
d. Dealer further agrees promptly to send Distributor copies of (i)
any report filed pursuant to NASD Conduct Rule 3070, including, without
limitation quarterly reports filed pursuant to Rule 3070(c), (ii) reports filed
with any other self-regulatory organization in lieu of Rule 3070 reports
pursuant to Rule 3070(e) and (iii) amendments to Dealer's Form BD.
e. Each party's obligations under these indemnification provisions
shall survive any termination of this Agreement.
10. TERMINATION; AMENDMENT
----------------------
a. In addition to the automatic termination of this Agreement
specified in Section 1.c. of this Agreement, each party to this Agreement may
unilaterally cancel its participation in this Agreement by giving thirty (30)
days prior written notice to the other party. In addition, each party to this
Agreement may terminate this Agreement immediately by giving written notice to
the other party of that other party's material breach of this Agreement. Such
notice shall be deemed to have been given and to be effective on the date on
which it was either delivered personally to the other party or any officer or
member thereof, or was mailed postpaid or delivered to a telegraph office for
transmission to the other party's designated person at the addresses shown
herein or in the most recent NASD Manual.
b. This Agreement shall terminate immediately upon the appointment of
a Trustee under the Securities Investor Protection Act or any other act of
insolvency by Dealer.
c. The termination of this Agreement by any of the foregoing means
shall have no effect upon transactions entered into prior to the effective date
of termination and shall not relieve Dealer of its obligations, duties and
indemnities specified in this Agreement. A trade placed by Dealer subsequent to
its voluntary termination of this Agreement will not serve to reinstate the
Agreement. Reinstatement, except in the case of a temporary suspension of
Dealer, will only be effective upon written notification by Distributor.
d. This Agreement is not assignable or transferable and will
terminate automatically in the event of its "assignment," as defined in the
Investment Company Act of 1940, as amended and the rules, regulations and
interpretations thereunder. The Distributor may, however, transfer any of its
duties under this Agreement to any entity that controls or is under common
control with Distributor.
e. This Agreement may be amended by Distributor at any time by
written notice to Dealer. Dealer's placing of an order or accepting payment of
any kind after the
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<PAGE>
effective date and receipt of notice of such amendment shall constitute Dealer's
acceptance of such amendment.
11. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
--------------------------------------------
Distributor represents and warrants that:
a. It is a corporation duly organized and existing and in good
standing under the laws of the state of California and is duly registered or
exempt from registration as a broker-dealer in all states and jurisdictions in
which it provides services as a non-exclusive distributor for the Funds.
b. It is a member in good standing of the NASD.
c. It is empowered under applicable laws and by Distributor's
organizational documents to enter into this Agreement and perform all activities
and services of the Distributor provided for herein and that there are no
impediments, prior or existing, regulatory, self-regulatory, administrative,
civil or criminal matters affecting Distributor's ability to perform under this
Agreement.
d. All requisite actions have been taken to authorize Distributor to
enter into and perform this Agreement.
12. ADDITIONAL DEALER REPRESENTATIONS AND WARRANTIES
------------------------------------------------
In addition to the representations and warranties found elsewhere in
this Agreement, Dealer represents and warrants that:
a. It is duly organized and existing and in good standing under the
laws of the state, commonwealth or other jurisdiction in which Dealer is
organized and that Dealer will not offer Shares of any Fund for sale in any
state or jurisdiction where such Shares may not be legally sold or where Dealer
is not qualified to act as a broker-dealer.
b. It is empowered under applicable laws and by Dealer's
organizational documents to enter into this Agreement and perform all activities
and services of the Dealer provided for herein and that there are no
impediments, prior or existing, regulatory, self-regulatory, administrative,
civil or criminal matters affecting Dealer's ability to perform under this
Agreement.
c. All requisite actions have been taken to authorize Dealer to enter
into and perform this Agreement.
d. It is not, at the time of the execution of this Agreement, subject
to any enforcement or other proceeding with respect to its activities under
state or federal securities laws, rules or regulations.
-10-
<PAGE>
13. SETOFF; DISPUTE RESOLUTION; GOVERNING LAW
-----------------------------------------
a. Should any of Dealer's concession accounts with Distributor have a
debit balance, Distributor shall be permitted to offset and recover the amount
owed from any other account Dealer has with Distributor, without notice or
demand to Dealer.
b. In the event of a dispute concerning any provision of this
Agreement, either party may require the dispute to be submitted to binding
arbitration under the commercial arbitration rules and procedures of the NASD.
The parties agree that, to the extent permitted under such arbitration rules and
procedures, the arbitrators selected shall be from the securities industry.
Judgment upon any arbitration award may be entered by any state or federal court
having jurisdiction.
c. This Agreement shall be governed and construed in accordance with
the laws of the state of California, not including any provision which would
require the general application of the law of another jurisdiction.
14. INVESTIGATIONS AND PROCEEDINGS
------------------------------
The parties to this Agreement agree to cooperate fully in any
securities regulatory investigation or proceeding or judicial proceeding with
respect to each's activities under this Agreement and promptly to notify the
other party of any such investigation or proceeding.
15. CAPTIONS
--------
All captions used in this Agreement are for convenience only, are not
a party hereof, and are not to be used in construing or interpreting any aspect
hereof.
16. ENTIRE UNDERSTANDING
--------------------
This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersedes all previous
agreements. This Agreement shall be binding upon the parties hereto when signed
by Dealer and accepted by Distributor.
17. SEVERABILITY
------------
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law.
If, however, any provision of this Agreement is held under applicable law to be
invalid, illegal, or unenforceable in any respect, such provision shall be
ineffective only to the extent of such invalidity, and the validity, legality
and enforceability of the remaining provisions of this Agreement shall not be
affected or impaired in any way.
-11-
<PAGE>
18. ENTIRE AGREEMENT
----------------
This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersedes all previous
agreements and/or understandings of the parties. This Agreement shall be binding
upon the parties hereto when signed by Dealer and accepted by Distributor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year set forth below.
TCW BROKERAGE SERVICES
By: ___________________________________
Name:___________________________________
Title:__________________________________
Date:___________________________________
DEALER: ________________________________
By: ___________________________________
(Signature)
Name: _________________________________
Title: ________________________________
Address:________________________________
________________________________
________________________________
Telephone: _____________________________
NASD CRD # ____________________________
TCW Dealer # _________________________
(Internal Use Only)
Date: _________________________________
-12-
<PAGE>
SCHEDULE A
On each purchase of Shares by Dealer from Distributor, the Dealer shall receive
the following compensation:
[TO BE PROVIDED]
A-1
<PAGE>
EXHIBIT (G) (2)
FORM OF
CUSTODY AGREEMENT
BETWEEN
TCW GALILEO FUNDS, INC.
AND
INVESTORS BANK & TRUST COMPANY
<PAGE>
FORM OF
CUSTODIAN AGREEMENT
AGREEMENT made as of this ___ day of __________, 199__, between TCW GALILEO
FUNDS, INC., a [company] organized under the laws of the state of [State] (the
"Fund"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the
"Bank").
The Fund, an open-end management investment company on behalf of the
portfolios/series listed on Appendix A hereto (as such Appendix A may be amended
---------- ----------
from time to time) (each a "Portfolio" and collectively, the "Portfolios"),
desires to place and maintain all of its portfolio securities and cash in the
custody of the Bank. The Bank has at least the minimum qualifications required
by Section 17(f)(1) of the Investment Company Act of 1940 (the "1940 Act") to
act as custodian of the portfolio securities and cash of the Fund, and has
indicated its willingness to so act, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
------------------------
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth. For the services rendered pursuant to this
Agreement the Fund agrees to pay to the Bank the fees set forth on Appendix B
----------
hereto.
2. Definitions. Whenever used herein, the terms listed below will
-----------
have the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the
-----------------
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board, and set forth in a
certificate as required by Section 4 hereof.
2.2 Board. Board will mean the Board of Directors or the Board of
-----
Trustees of the Fund, as the case may be.
2.3 Security. The term security as used herein will have the same
--------
meaning assigned to such term in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.4 Portfolio Security. Portfolio Security will mean any security
------------------
owned by the Fund.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
---------------------
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
1
<PAGE>
2.6 Book-Entry System. Book-Entry System shall mean the Federal
-----------------
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
----------
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 Proper Instructions. Proper Instructions shall mean (i)
-------------------
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the Fund
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Fund shall cause all oral instructions to be promptly confirmed in writing.
The Bank shall act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and the sole obligation of the Bank with respect to
any follow-up or confirmatory instruction shall be to make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Fund. The Fund shall be responsible, at
the Fund's expense, for taking any action, including any reprocessing, necessary
to correct any such discrepancy or error, and to the extent such action requires
the Bank to act, the Fund shall give the Bank specific Proper Instructions as to
the action required. Upon receipt by the Bank of an Officers' Certificate as to
the authorization by the Board accompanied by a detailed description of
procedures approved by the Fund, Proper Instructions may include communication
effected directly between electro-mechanical or electronic devices provided that
the Board and the Bank agree in writing that such procedures afford adequate
safeguards for the Fund's assets.
3. Separate Accounts. If the Fund has more than one series or portfolio,
-----------------
the Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon). Unless the context otherwise requires, any reference in this Agreement
to any actions to be taken by the Fund shall be deemed to refer to the Fund
acting on behalf of one or more of its series, any reference in this Agreement
to any assets of the Fund, including, without limitation, any portfolio
securities and cash and earnings thereon, shall be deemed to refer only to
assets of the applicable series, any duty or obligation of the Bank hereunder to
the Fund shall be deemed to refer to duties and obligations with respect to such
individual series and any obligation or liability of the Fund hereunder shall be
binding only with respect to such individual series, and shall be discharged
only out of the assets of such series.
4. Certification as to Authorized Persons. The Secretary or Assistant
--------------------------------------
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the
2
<PAGE>
new, additional or omitted names or signatures. The Bank will be entitled to
rely and act upon any Officers' Certificate given to it by the Fund which has
been signed by Authorized Persons named in the most recent certification
received by the Bank.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
---------------
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Pursuant to the Bank's internal
policies regarding the management of cash accounts, the Bank may segregate
certain portions of the cash of the Fund into a separate savings deposit account
upon which the Bank reserves the right to require seven (7) days notice prior to
withdrawal of cash from such an account. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of common stock of the
Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the
----------------------
Fund, against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the
-----------
repurchase or redemption of common shares of the Fund offered for repurchase or
redemption in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the
----------------------------------
account of the Fund of dividends or other distributions to shareholders as may
from time to time be declared by the Board, interest, taxes, management or
supervisory fees, distribution fees, fees of the Bank for its services hereunder
and reimbursement of the expenses and liabilities of the Bank as provided
hereunder, fees of any transfer agent, fees for legal, accounting, and auditing
services, or other operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection
--------------------------------
with the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund,
------------------
but, in the case of final payment, only upon redelivery to the Bank of any
Portfolio Securities pledged or hypothecated therefor and upon surrender of
documents evidencing the loan;
3
<PAGE>
5.6 Repayment of Cash. To repay the cash delivered to the Fund for
-----------------
the purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions.
-----------------------------
(a) For payments in connection with foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements")which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of
-------------------------
the Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination: Upon the termination of this Agreement as
-----------
hereinafter set forth pursuant to Section 8 and Section 16 of this Agreement.
6. Securities.
----------
6.1 Segregation and Registration. Except as otherwise provided
----------------------------
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and
hold pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
4
<PAGE>
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
------------------
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials delivered to the Bank with respect to such
Securities, such proxies to be executed by the registered holder of such
Securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
6.3 Corporate Action. If at any time the Bank is notified that an
----------------
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Fund of Proper Instructions regarding the Response (the "Response
Deadline"). The Bank shall forward to the Fund via telecopier and/or overnight
courier all notices, information statements or other materials relating to the
Corporate Action promptly after receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after
receipt by the Bank of Proper Instructions from the Fund no later than 5:00 p.m.
on the date specified as the Response Deadline and only if the Bank (or its
agent or subcustodian hereunder) has actual possession of all necessary
Securities, consents and other materials no later than 5:00 p.m. on the date
specified as the Response Deadline.
(b) The Bank shall have no duty to act upon a required Response
if Proper Instructions relating to such Response and all necessary Securities,
consents and other materials are not received by and in the possession of the
Bank no later than 5:00 p.m. on the date specified as the Response Deadline.
Notwithstanding, the Bank may, in its sole discretion, use its best efforts to
act upon a Response for which Proper Instructions and/or necessary Securities,
consents or other materials are received by the Bank after 5:00 p.m. on the date
specified as the Response Deadline, it being acknowledged and agreed by the
parties that any undertaking by the Bank to use its best efforts in such
circumstances shall in no way create any duty upon the Bank to complete such
Response prior to its expiration.
(c) In the event that the Fund notifies the Bank of a Corporate
Action requiring a Response and the Bank has received no other notice of such
Corporate Action, the Response Deadline shall be 48 hours prior to the Response
expiration time set by the depository processing such Corporate Action.
(d) Section 14.3(e) of this Agreement shall govern any Corporate
Action involving Foreign Portfolio Securities held by a Selected Foreign Sub-
Custodian.
5
<PAGE>
6.4 Book-Entry System. Provided (i) the Bank has received a
-----------------
certified copy of a resolution of the Board specifically approving deposits of
Fund assets in the Book-Entry System, and (ii) for any subsequent changes to
such arrangements following such approval, the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to
the Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry the Portfolio Securities which are included
with other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of securities in a
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased
for the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that
payment for securities sold or payment of the initial cash collateral against
the delivery of securities loaned by the Fund has been transferred to the
Account; and
(ii) the making of an entry on the records of the Bank (or
its agent) to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Book-Entry System of transfers of securities for
the account of the Fund shall identify the Fund, be maintained for the Fund by
the Bank and shall be provided to the Fund at its request. The Bank shall send
the Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any
transfers to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
6.5 Use of a Depository. Provided (i) the Bank has received a
-------------------
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like
6
<PAGE>
nature, and to receive and remit to the Bank on behalf of the Fund all income
and other payments thereon and to take all steps necessary and proper in
connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name
of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made
through the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio Securities,
payment will be made only upon delivery of the securities to or for the account
of the Fund and the Fund shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund only upon delivery of the Securities to
or for the account of the Fund; and upon any sale of Portfolio Securities,
delivery of the Securities will be made only against payment therefor or, in the
event Portfolio Securities are loaned, delivery of Securities will be made only
against receipt of the initial cash collateral to or for the account of the
Fund; and
(d) The Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
(ii) Proxy materials received by a Depository with respect
to Portfolio Securities deposited with such Depository are forwarded immediately
to the Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the
---------------------------------------------
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a book-
entry agreement (the "Issuers"). In maintaining procedures for Book-Entry Paper,
the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the Fund
in an account of the Bank that includes only assets held by it for customers;
7
<PAGE>
(b) The records of the Bank with respect to the Fund's purchase
of Book-Entry Paper through the Bank will identify, by book-entry, commercial
paper belonging to the Fund which is included in the Book-Entry System and shall
at all times during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon
the maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund; and
(e) The Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper as the Fund may
reasonably request from time to time.
6.7 Use of Immobilization Programs. Provided (i) the Bank has
------------------------------
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities which are Eurodollar
--------------
CDs may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such Portfolio Securities are identified on the books of the Bank
as belonging to the Fund and that the books of the Bank identify the European
Branch holding such Portfolio Securities. Notwithstanding any other provision of
this Agreement to the contrary, except as stated in the first sentence of this
subsection 6.8, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to the Fund.
6.9 Options and Futures Transactions.
--------------------------------
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
(i) The Bank shall take action as to put options ("puts")
and call options ("calls") purchased or sold (written) by the Fund regarding
escrow or other arrangements (i) in accordance with the provisions of any
agreement entered into upon receipt of Proper Instructions among the Bank, any
broker-dealer registered with the National Association of Securities Dealers,
Inc. (the "NASD"), and, if necessary, the Fund, relating to the compliance with
the rules of the Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or organizations.
(ii) Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Fund.
The Bank
8
<PAGE>
shall have no responsibility for the legality of any put or call purchased or
sold on behalf of the Fund, the propriety of any such purchase or sale, or the
adequacy of any collateral delivered to a broker in connection with an option or
deposited to or withdrawn from a Segregated Account (as defined in subsection
6.10 below). The Bank specifically, but not by way of limitation, shall not be
under any duty or obligation to: (i) periodically check or notify the Fund that
the amount of such collateral held by a broker or held in a Segregated Account
is sufficient to protect such broker or the Fund against any loss; (ii) effect
the return of any collateral delivered to a broker; or (iii) advise the Fund
that any option it holds, has or is about to expire. Such duties or obligations
shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and
futures contracts ("Futures") purchased or sold by the Fund in accordance with
the provisions of any agreement entered into upon the receipt of Proper
Instructions among the Fund, the Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund.
(ii) The responsibilities of the Bank as to futures, puts
and calls traded on commodities exchanges, any Futures Commission Merchant
account and the Segregated Account shall be limited as set forth in subparagraph
(a)(ii) of this Section 6.9 as if such subparagraph referred to Futures
Commission Merchants rather than brokers, and Futures and puts and calls thereon
instead of options.
6.10 Segregated Account. The Bank shall upon receipt of Proper
------------------
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
(i) in accordance with the provisions of any agreement
among the Fund, the Bank and a broker-dealer registered under the Exchange Act
and a member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered Contract Market, or of
any similar organizations regarding escrow or other arrangements in connection
with transactions by the Fund;
(ii) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
(iii) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities
9
<PAGE>
and Exchange Commission relating to the maintenance of Segregated Accounts by
registered investment companies;
(v) for other proper corporate purposes, but only, in the
case of this clause (v), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the executive committee of
the Board signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such Segregated
Account and declaring such purposes to be proper corporate purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited in accordance with
the provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii)
or (a)(iv) above, for sale or delivery to meet the Fund's obligations under
outstanding forward commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or
greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward
commitment or when-issued agreements for the purchase of portfolio securities or
reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those in the
Segregated Account;
(v) for delivery upon settlement of a forward commitment
or when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (a)(v)
above, in accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon
--------------------------------------
receipt of Proper Instructions relating to the purchase by the Fund of interest-
bearing fixed-term and call deposits, transfer cash, by wire or otherwise, in
such amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of the Fund and the responsibility of the Bank therefore
shall be the same as and no greater than the Bank's responsibility in respect of
other Portfolio Securities of the Fund.
6.12 Transfer of Securities. The Bank will transfer, exchange,
----------------------
deliver or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section only upon receipt of
Proper Instructions. The Proper Instructions shall state that such transfer,
exchange or delivery is for a purpose permitted under the terms of this Section
6.12, and shall specify the applicable subsection, or describe the purpose of
the transaction with sufficient particularity to permit the Bank to ascertain
the applicable
10
<PAGE>
subsection. After receipt of such Proper Instructions, the Bank will transfer,
exchange, deliver or release Portfolio Securities only in the following
circumstances:
(a) Upon sales of Portfolio Securities for the account of the
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
or against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale received by the Bank before such payment is made,
as confirmed in the Proper Instructions received by the Bank before such payment
is made;
(b) In exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor, provided, however, that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are received by
the Bank at least two business days prior to the date required for tender, and
unless the Bank (or its agent or subcustodian hereunder) has actual possession
of such Security at least two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their
terms into other securities;
(d) For the purpose of redeeming in-kind shares of the Fund upon
authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender and any loan agreement between the fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for the account of the
lender;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to
a bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided
11
<PAGE>
herein, of adequate collateral as agreed upon from time to time by the Fund and
the Bank, and upon receipt of payment in connection with any repurchase
agreement relating to such securities entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. Redemptions. In the case of payment of assets of the Fund held by the
-----------
Bank in connection with redemptions and repurchases by the Fund of outstanding
common shares, the Bank will rely on notification by the Fund's transfer agent
of receipt of a request for redemption and certificates, if issued, in proper
form for redemption before such payment is made. Payment shall be made in
accordance with the Articles of Incorporation or Declaration of Trust and By-
laws of the Fund (the "Articles"), from assets available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
---------------------------------
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate and the
Bank shall be released from any and all obligations hereunder.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
-------------------------------------------
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name
of the Fund all checks, drafts, or other negotiable or transferable instruments
or other orders for the payment of money received by it for the account of the
Fund and hold for the account of the Fund all income, dividends, interest and
other payments or distributions of cash with respect to the Portfolio Securities
held thereunder;
9.2 Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
12
<PAGE>
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue Code or
the regulations of the Treasury Department issued thereunder, or by the laws of
any state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use reasonable efforts to
------------------------
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal.
11. Maintenance of Records and Accounting Services. The Bank will
----------------------------------------------
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
The Bank shall perform fund accounting and shall keep the books of account
and render statements or copies from time to time as reasonably requested by the
Treasurer or any executive officer of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation and Yield Calculation
-------------------------------------
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
---------------
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a share of capital
stock of the Fund, such determination to be made in accordance with the
provisions of the Articles and By-laws
13
<PAGE>
of the Fund and the Prospectus and Statement of Additional Information relating
to the Fund, as they may from time to time be amended, and any applicable
resolutions of the Board at the time in force and applicable; and promptly to
notify the Fund, the proper exchange and the NASD or such other persons as the
Fund may request of the results of such computation and determination. In
computing the net asset value hereunder, the Bank may rely in good faith upon
information furnished to it by any Authorized Person in respect of (i) the
manner of accrual of the liabilities of the Fund and in respect of liabilities
of the Fund not appearing on its books of account kept by the Bank, (ii)
reserves, if any, authorized by the Board or that no such reserves have been
authorized, (iii) the source of the quotations to be used in computing the net
asset value, (iv) the value to be assigned to any security for which no price
quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and the Bank
shall not be responsible for any loss occasioned by such reliance or for any
good faith reliance on any quotations received from a source pursuant to (iii)
above.
12.2 Yield Calculation. The Bank will compute the performance
------------------
results of the Fund (the "Yield Calculation") in accordance with the provisions
of Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the
"Releases") promulgated by the Securities and Exchange Commission, and any
subsequent amendments to, published interpretations of or general conventions
accepted by the staff of the Securities and Exchange Commission with respect to
such releases or the subject matter thereof ("Subsequent Staff Positions"),
subject to the terms set forth below:
(a) The Bank shall compute the Yield Calculation for the Fund
for the stated periods of time as shall be mutually agreed upon, and communicate
in a timely manner the result of such computation to the Fund.
(b) In performing the Yield Calculation, the Bank will derive
the items of data necessary for the computation from the records it generates
and maintains for the Fund pursuant Section 11 hereof. The Bank shall have no
responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Fund, any of the Fund's designated agents or any of the Fund's designated
third party providers.
(c) At the request of the Bank, the Fund shall provide, and the
Bank shall be entitled to rely on, written standards and guidelines to be
followed by the Bank in interpreting and applying the computation methods set
forth in the Releases or any Subsequent Staff Positions as they specifically
apply to the Fund. In the event that the computation methods in the Releases or
the Subsequent Staff Positions or the application to the Fund of a standard or
guideline is not free from doubt or in the event there is any question of
interpretation as to the characterization of a particular security or any aspect
of a security or a payment with respect thereto (e.g., original issue discount,
participating debt security, income or return of capital, etc.) or otherwise or
as to any other element of the computation which is pertinent to the Fund, the
Fund or its designated agent shall have the full responsibility for making the
determination of how the security or payment is to be treated for purposes of
the computation and how the computation is to be made and shall inform the Bank
thereof on a timely basis. The Bank shall have no responsibility to make
independent determinations with respect to any item which is covered by this
Section, and shall not be responsible for its computations made in accordance
with such determinations so long as such computations are mathematically
correct.
(d) The Fund shall keep the Bank informed of all publicly
available information and of any non-public advice, or information obtained by
the Fund from its independent auditors or by its personnel or the personnel of
its investment adviser, or Subsequent Staff Positions related to the
computations to be undertaken by the Bank pursuant to this Agreement and the
Bank shall not be deemed
14
<PAGE>
to have knowledge of such information (except as contained in the Releases)
unless it has been furnished to the Bank in writing.
13. Additional Services. The Bank shall perform the additional services
-------------------
for the Fund as are set forth on Appendix C hereto. Appendix C may be amended
---------- ----------
from time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Fund, at which time the fees set
forth in Appendix B shall be appropriately increased.
----------
14. Duties of the Bank.
------------------
14.1 Performance of Duties and Standard of Care. In performing its
------------------------------------------
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the purchases thereof or the
propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or
for the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of
the Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the
Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund
or the legality of the distribution of any Portfolio Securities as payment in
kind of such dividend; and
(f) any property or moneys of the Fund unless and until
received by it, and any such property or moneys delivered or paid by it pursuant
to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Articles, By-laws, any federal or state statutes or
any rule or regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the Fund
-------------------------------------------------------------
Held in the United States. The Bank may employ agents of its own selection in
- -------------------------
the performance of its duties hereunder and shall be responsible for the acts
and omissions of such agents as if performed by the Bank hereunder. Without
limiting the foregoing, certain duties of the Bank hereunder may be performed by
one or more affiliates of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians
selected by or at the direction of the Fund, provided that any such subcustodian
meets at least the minimum qualifications required by Section 17(f)(1) of the
1940 Act to act as a custodian of the Fund's assets with respect to
15
<PAGE>
property of the Fund held in the United States. The Bank shall have no liability
to the Fund or any other person by reason of any act or omission of any such
subcustodian and the Fund shall indemnify the Bank and hold it harmless from and
against any and all actions, suits and claims, arising directly or indirectly
out of the performance of any subcustodian. Upon request of the Bank, the Fund
shall assume the entire defense of any action, suit, or claim subject to the
foregoing indemnity. The Fund shall pay all fees and expenses of any
subcustodian.
14.3 Duties of the Bank with Respect to Property of the Fund Held
------------------------------------------------------------
Outsideof the United States.
- ---------------------------
(a) Appointment of Foreign Custody Manager.
--------------------------------------
(i) If the Fund has appointed the Bank Foreign Custody
Manager (as that term is defined in Rule 17f-5 under the 1940 Act), the Bank's
duties and obligations with respect to the Fund's Portfolio Securities and other
assets maintained outside the United States shall be, to the extent not set
forth herein, as set forth in the Delegation Agreement between the Fund and the
Bank (the "Delegation Agreement").
(ii) If the Fund has appointed any other person or entity
Foreign Custody Manager, the Bank shall act only upon Proper Instructions from
the Fund with regard to any of the Fund's Portfolio Securities or other assets
held or to be held outside of the United States, and the Bank shall be without
liability for any Claim (as that term is defined in Section 15 hereof) arising
out of maintenance of the Fund's Portfolio Securities or other assets outside of
the United States. The Fund also agrees that it shall enter into a written
agreement with such Foreign Custody Manager that shall obligate such Foreign
Custody Manager to provide to the Bank in a timely manner all information
required by the Bank in order to complete its obligations hereunder. The Bank
shall not be liable for any Claim arising out of the failure of such Foreign
Custody Manager to provide such information to the Bank.
(b) Segregation of Securities. The Bank shall identify on its
-------------------------
books as belonging to the Fund the Foreign Portfolio Securities held by each
foreign sub-custodian (each an "Eligible Foreign Custodian") selected by the
Foreign Custody Manager, subject to receipt by the Bank of the necessary
information from such Eligible Foreign Custodian if the Foreign Custody Manager
is not the Bank.
(c) Access of Independent Accountants of the Fund. If the Bank
---------------------------------------------
is the Fund's Foreign Custody Manager, upon request of the Fund, the Bank will
use its best efforts to arrange for the independent accountants of the Fund to
be afforded access to the books and records of any foreign banking institution
employed as an Eligible Foreign Custodian insofar as such books and records
relate to the performance of such foreign banking institution with regard to the
Fund's Portfolio Securities and other assets.
(d) Reports by Bank. If the Bank is the Fund's Foreign Custody
---------------
Manager, the Bank will supply to the Fund the reports required under the
Delegation Agreement.
(e) Transactions in Foreign Custody Account. Transactions with
---------------------------------------
respect to the assets of the Fund held by an Eligible Foreign Custodian shall be
effected pursuant to Proper Instructions from the Fund to the Bank and shall be
effected in accordance with the applicable agreement between the Foreign Custody
Manager and such Eligible Foreign Custodian. If at any time any Foreign
Portfolio Securities shall be registered in the name of the nominee of the
Eligible Foreign Custodian, the Fund
16
<PAGE>
agrees to hold any such nominee harmless from any liability by reason of the
registration of such securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for Foreign Portfolio Securities received for
the account of the Fund and delivery of Foreign Portfolio Securities maintained
for the account of the Fund may be effected in accordance with the customary
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such securities from such
purchaser or dealer.
In connection with any action to be taken with respect to
the Foreign Portfolio Securities held hereunder, including, without limitation,
the exercise of any voting rights, subscription rights, redemption rights,
exchange rights, conversion rights or tender rights, or any other action in
connection with any other right, interest or privilege with respect to such
Securities (collectively, the "Rights"), the Bank shall promptly transmit to the
Fund such information in connection therewith as is made available to the Bank
by the Eligible Foreign Custodian, and shall promptly forward to the applicable
Eligible Foreign Custodian any instructions, forms or certifications with
respect to such Rights, and any instructions relating to the actions to be taken
in connection therewith, as the Bank shall receive from the Fund pursuant to
Proper Instructions. Notwithstanding the foregoing, the Bank shall have no
further duty or obligation with respect to such Rights, including, without
limitation, the determination of whether the Fund is entitled to participate in
such Rights under applicable U.S. and foreign laws, or the determination of
whether any action proposed to be taken with respect to such Rights by the Fund
or by the applicable Eligible Foreign Custodian will comply with all applicable
terms and conditions of any such Rights or any applicable laws or regulations,
or market practices within the market in which such action is to be taken or
omitted.
(f) Tax Law. The Bank shall have no responsibility or
-------
liability for any obligations now or hereafter imposed on the Fund or the Bank
as custodian of the Fund by the tax laws of any jurisdiction, and it shall be
the responsibility of the Fund to notify the Bank of the obligations imposed on
the Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S.
jurisdiction, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Eligible Foreign Custodian with regard
to such tax law shall be to use reasonable efforts to assist the Fund with
respect to any claim for exemption or refund under the tax law of jurisdictions
for which the Fund has provided such information.
14.4 Insurance. The Bank shall use the same care with respect to the
---------
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
14.5 Fees and Expenses of the Bank. The Fund will pay or reimburse
-----------------------------
the Bank from time to time for any transfer taxes payable upon transfer of
Portfolio Securities made hereunder, and for all necessary proper disbursements,
expenses and charges made or incurred by the Bank in the performance of this
Agreement (including any duties listed on any Schedule hereto, if any) including
any indemnities for any loss, liabilities or expense to the Bank as provided
above. For the services rendered by the Bank hereunder, the Fund will pay to the
Bank such compensation or fees at such rate and at such times as shall be agreed
upon in writing by the parties from time to time. The Bank will also be entitled
to reimbursement by the Fund for all reasonable expenses incurred in conjunction
with termination of this Agreement.
17
<PAGE>
14.6 Advances by the Bank. The Bank may, in its sole discretion,
--------------------
advance funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by the Fund. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Fund's account with
the Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness a loan made by the Bank to the Fund payable on demand. Such
overdraft shall bear interest at the current rate charged by the Bank for such
loans unless the Fund shall provide the Bank with agreed upon compensating
balances. The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness or to the
extent required by law, whichever is greater, in and to any property at any time
held by it for the Fund's benefit or in which the Fund has an interest and which
is then in the Bank's possession or control (or in the possession or control of
any third party acting on the Bank's behalf). The Fund authorizes the Bank, in
the Bank's sole discretion, at any time to charge any overdraft or indebtedness,
together with interest due thereon, against any balance of account standing to
the credit of the Fund on the Bank's books.
15. Limitation of Liability.
-----------------------
15.1 Notwithstanding anything in this Agreement to the contrary, in
no event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except for any Claim resulting solely from the gross negligence,
willful misfeasance or bad faith of the Bank or any Indemnified Party. Without
limiting the foregoing, neither the Bank nor the Indemnified Parties shall be
liable for, and the Bank and the Indemnified Parties shall be indemnified
against, any Claim arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party in
good faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Board, telegram, telecopier, notice,
request, certificate or other instrument reasonably believed by the Bank to
genuine;
(b) Any act or omission of any subcustodian selected by or at
the direction of the Fund;
(c) Any act or omission of any Foreign Custody Manager other
than the Bank or any act or ommission of any Eligible Foreign Custodian if the
Bank is not the Foreign Custody Manager;
(d) Any Corporate Action, distribution or other event related to
Portfolio Securities which, at the direction of the Fund, have not been
registered in the name of the Bank or its nominee;
(e) Any Corporate Action requiring a Response for which the Bank
has not received Proper Instructions or obtained actual possession of all
necessary Securities, consents or other materials by 5:00 p.m. on the date
specified as the Response Deadline;
(f) Any act or omission of any European Branch of a U.S. banking
institution that is the issuer of Eurodollar CDs in connection with any
Eurodollar CDs held by such European Branch;
18
<PAGE>
(g) Information relied on in good faith by the Bank and supplied
by any Authorized Person in connection with the calculation of (i) the net asset
value and public offering price of the shares of capital stock of the Fund or
(ii) the Yield Calculation; or
(h) Any acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation or computers (hardware or software) and
computer facilities, the unavailability of energy sources and other similar
happenings or events.
15.2 Notwithstanding anything to the contrary in this Agreement, in
no event shall the Bank or the Indemnified Parties be liable to the Fund or any
third party for lost profits or lost revenues or any special, consequential,
punitive or incidental damages of any kind whatsoever in connection with this
Agreement or any activities hereunder.
16. Termination.
-----------
16.1 The term of this Agreement shall be three years commencing upon
the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive one-year terms (each a "Renewal Term")
unless notice of non-renewal is delivered by the non-renewing party to the other
party no later than ninety days prior to the expiration of the Initial Term or
any Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 90 days of receipt of such notice.
(b) Either party may terminate this Agreement during any Renewal
Term upon ninety days written notice to the other party. Any termination
pursuant to this paragraph 16.1(b) shall be effective upon expiration of such
ninety days, provided, however, that the effective date of such termination may
be postponed to a date not more than one hundred twenty days after delivery of
the written notice: (i) at the request of the Bank, in order to prepare for the
transfer by the Bank of all of the assets of the Fund held hereunder; or (ii) at
the request of the Fund, in order to give the Fund an opportunity to make
suitable arrangements for a successor custodian.
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection 16.3, deliver the Portfolio Securities and cash of the
Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$2,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
19
<PAGE>
Fund with the same effect as though selected by the Board. Thereafter, the Bank
shall be released from any and all obligations under this Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement.
16.4 The Fund shall reimburse the Bank for any reasonable expenses
incurred by the Bank in connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of the Bank
relating to its performance of its duties as custodian.
17. Confidentiality. Both parties hereto agree than any non-public
---------------
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
18. Notices. Any notice or other instrument in writing authorized or
-------
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
[ ]
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Geoffrey M. O'Connell, Director - Client
Management
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time designate
in writing.
19. Amendments. This Agreement may not be altered or amended, except by
----------
an instrument in writing, executed by both parties.
20
<PAGE>
20. Parties. This Agreement will be binding upon and shall inure to the
-------
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21. Governing Law. This Agreement and all performance hereunder will be
-------------
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23. Entire Agreement. This Agreement, together with its Appendices,
----------------
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24. Limitation of Liability. The Bank agrees that the obligations assumed
-----------------------
by the Fund hereunder shall be limited in all cases to the assets of the Fund
and that the Bank shall not seek satisfaction of any such obligation from the
officers, agents, employees, trustees, or shareholders of the Fund.
[Remainder of Page Intentionally Left Blank]
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
TCW GALILEO FUNDS, INC.
By:________________________________
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:________________________________
Name:
Title:
22
<PAGE>
APPENDICES
----------
Appendix A........................................... Portfolios
Appendix B........................................... Fee Schedule
23
<PAGE>
EXHIBIT (G)(3)
FORM OF
DELEGATION AGREEMENT
BETWEEN
TCW GALILEO FUNDS, INC.
AND
INVESTORS BANK & TRUST COMPANY
<PAGE>
FORM OF
DELEGATION AGREEMENT
--------------------
AGREEMENT, dated as of __________________, 1998 by and between INVESTORS
BANK & TRUST COMPANY, a Massachusetts trust Company (the "Delegate"), and TWC
GALILEO FUNDS, INC., a _________________________ (the "Fund").
WHEREAS, pursuant to the provisions of Rule 17f-5(b) under the Investment
Company Act of 1940, and subject to the terms and conditions set forth herein,
the Board of Directors of the Fund desires to delegate to the Delegate, and the
Delegate hereby agrees to accept and assume, certain responsibilities described
herein concerning Assets held outside of the United States.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. DEFINITIONS
-----------
Capitalized terms in this Agreement have the following meanings:
a. Assets
------
Assets means any of Fund's investments (including foreign currencies)
for which the primary market is outside the United States, and such cash and
cash equivalents as are reasonably necessary to effect Fund's transactions in
such investments.
b. Authorized Representative
-------------------------
Authorized Representative means any one of the persons who are
empowered, on behalf of the parties to this Agreement, to receive notices from
the other party and to send notices to the other party.
c. Board
-----
Board means the Board of Directors (or the body authorized to exercise
authority similar to that of the board of directors of a corporation) of Fund.
d. Compulsory Securities Depository
--------------------------------
Compulsory Securities Depository means a Securities Depository the use
of which is mandatory (i) by law or regulation; (ii) because securities cannot
be withdrawn from the depository; or (iii) because maintaining securities
outside the Securities Depository is not consistent with prevailing custodial
practices.
e. Country Risk
------------
Country Risk means all factors reasonably related to the systemic risk
of holding assets in a particular country including, but not limited to, such
country's financial infrastructure (including any Securities Depositories
operating in such country); prevailing custody and
<PAGE>
settlement practices; and laws applicable to the safekeeping and recovery of
Assets held in custody.
f. Eligible Foreign Custodian
--------------------------
Eligible Foreign Custodian has the meaning set forth in Rule 17f-
5(a)(1) and shall also include foreign branches of U.S. Banks (as the term "U.S.
Bank" is defined in Rule 17f-5).
g. Foreign Custody Manager
-----------------------
Foreign Custody Manager has the meaning set forth in Rule 17f-5(a)(2).
h. Monitor
-------
Monitor means to re-assess or re-evaluate, at reasonable intervals, a
decision or determination previously made.
i. Securities Depository
---------------------
Securities Depository has the meaning set forth in Rule 17f-5(a)(6).
2. REPRESENTATIONS
---------------
a. Delegate's Representations
--------------------------
Delegate represents that it is a trust company chartered under the
laws of the Commonwealth of Massachusetts. Delegate further represents that the
persons executing this Agreement and any amendment or appendix hereto on its
behalf are duly authorized to so bind the Delegate with respect to the subject
matter of this Agreement.
b. Fund's Representations
----------------------
Fund represents that the Board has determined that it is reasonable to
rely on Delegate to perform the responsibilities delegated by this Agreement.
Fund further represents that the persons executing this Agreement and any
amendment or appendix hereto on its behalf are duly authorized to so bind the
Fund with respect to the subject matter of this Agreement.
3. JURISDICTIONS COVERED
---------------------
a. Initial Jurisdictions
---------------------
The authority delegated by this Agreement applies only with respect to
Assets held in the jurisdictions listed in Appendix A.
----------
b. Added Jurisdictions
-------------------
Jurisdictions may be added to Appendix A by written agreement in the
form of Appendix B. Delegate's responsibility and authority with respect to any
jurisdiction so added
2
<PAGE>
will commence at the later of (i) the time that Delegate's Authorized
Representative and Board's Authorized Representative have both executed a copy
of Appendix B listing such jurisdiction, or (ii) the time that Delegate's
----------
Authorized Representative receives a copy of such fully executed Appendix B.
----------
c. Withdrawn Jurisdictions
-----------------------
Board may withdraw its delegation with respect to any jurisdiction
upon written notice to Delegate. Delegate may withdraw its acceptance of
delegated authority with respect to any jurisdiction upon written notice to
Board. Ten days (or such longer period as to which the parties agree) after
receipt of any such notice by the Authorized Representative of the party other
than the party giving notice, Delegate shall have no further responsibility or
authority under this Agreement with respect to the jurisdiction or jurisdictions
is to which authority is withdrawn.
4. DELEGATION OF AUTHORITY TO ACT AS FOREIGN CUSTODY MANAGER
---------------------------------------------------------
a. Selection of Eligible Foreign Custodians
----------------------------------------
Subject to the provisions of this Agreement and the requirements of
Rule 17f-5 (and any other applicable law), Delegate is authorized and directed
to place and maintain Assets in the care of any Eligible Foreign Custodian or
Custodians selected by Delegate in each jurisdiction to which this Agreement
applies, except that Delegate does not accept such authorization and direction
with regard to Securities Depositories.
b. Contracts With Eligible Foreign Custodians
------------------------------------------
Subject to the provisions of this Agreement and the requirements of
Rule 17f-5 (and any other applicable law), Delegate is authorized to enter into,
on behalf of Fund, such written contracts governing Fund's foreign custody
arrangements with such Eligible Foreign Custodians as Delegate deems
appropriate.
5. MONITORING OF ELIGIBLE FOREIGN CUSTODIANS AND CONTRACTS
-------------------------------------------------------
In each case in which Delegate has exercised the authority delegated under
this Agreement to place Assets with an Eligible Foreign Custodian, Delegate is
authorized to, and shall, on behalf of Fund, establish a system to Monitor the
appropriateness of maintaining Assets with such Eligible Foreign Custodian. In
each case in which Delegate has exercised the authority delegated under this
Agreement to enter into a written contract governing Fund's foreign custody
arrangements, Delegate is authorized to, and shall, on behalf of Fund, establish
a system to Monitor the appropriateness of such contract.
6. GUIDELINES AND PROCEDURES FOR THE EXERCISE OF DELEGATED AUTHORITY
-----------------------------------------------------------------
a. Board's Conclusive Determination Regarding Country Risk
-------------------------------------------------------
In exercising its delegated authority under this Agreement, Delegate
may assume, for all purposes, that Board (or Fund's investment advisor, pursuant
to authority delegated by Board) has considered, and pursuant to its fiduciary
duties to Fund and Fund's shareholders, determined to accept, such Country Risk
as is incurred by placing and maintaining
3
<PAGE>
Assets in the jurisdictions to which this Agreement applies. In exercising its
delegated authority under this Agreement, Delegate may also assume that Board
(or Fund's investment advisor, pursuant to authority delegated by Board) has,
and will continue to, Monitor such Country Risk to the extent Board deems
necessary or appropriate.
Nothing in this Agreement shall require Delegate to make any selection
or to engage in any Monitoring on behalf of Fund that would entail consideration
of Country Risk.
b. Selection of Eligible Foreign Custodians
----------------------------------------
In exercising the authority delegated under this Agreement to place
Assets with an Eligible Foreign Custodian, Delegate shall determine that Assets
will be subject to reasonable care, based on the standards applicable to
custodians in the market in which the Assets will be held, after considering all
factors relevant to the safekeeping of such assets, including, without
limitation;
i. The Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical
protections available for certificated securities (if
applicable), the method of keeping custodial records, and the
security and data protection practices;
ii. Whether the Eligible Foreign Custodian has the financial
strength to provide reasonable care for Assets;
iii. The Eligible Foreign Custodian's general reputation and standing
and, in the case of a Securities Depository, the Securities
Depository's operating history and number of participants;
iv. Whether Fund will have jurisdiction over and be able to enforce
judgments against the Eligible Foreign Custodian, such as by
virtue of the existence of any offices of the Eligible Foreign
Custodian in the United States or the Eligible Foreign
Custodian's consent to service of process in the United States;
v. In the case of an Eligible Foreign Custodian that is a banking
institution or trust company, any additional factors and
criteria set forth in Appendix C to this Agreement; and
----------
c. Evaluation of Written Contracts
-------------------------------
In exercising the authority delegated under this Agreement to enter
into written contracts governing Fund's foreign custody arrangements with an
Eligible Foreign Custodian, Delegate shall determine that such contracts provide
reasonable care for Assets based on the standards applicable to Eligible Foreign
Custodians in the relevant market. In making this determination, Delegate shall
ensure that the terms of such contracts comply with the provisions of Rule 17f-
5(c)(2).
4
<PAGE>
d. Monitoring
----------
In exercising the authority delegated under this Agreement to
establish a system to Monitor the appropriateness of maintaining Assets with an
Eligible Foreign Custodian or the appropriateness of a written contract
governing Fund's foreign custody arrangements, Delegate shall consider any
factors and criteria set forth in Appendix D to this Agreement. If, as a result
----------
of its Monitoring of Eligible Foreign Custodian relationships hereunder or
otherwise, the Delegate determines in its sole discretion that it is in the best
interest of the safekeeping of the Assets to move such Assets to a different
Eligible Foreign Custodian, the Fund shall bear any expense related to such
relocation of Assets.
7. STANDARD OF CARE
----------------
In exercising the authority delegated under this Agreement, Delegate agrees
to exercise reasonable care, prudence and diligence such as a person having
responsibility for the safekeeping of assets of an investment company registered
under the Investment Company Act of 1940 would exercise.
8. REPORTING REQUIREMENTS
----------------------
Delegate agrees to provide written reports notifying Board of the placement
of Assets with a particular Eligible Foreign Custodian and of any material
change in Fund's foreign custody arrangements. Such reports shall be provided
to Board quarterly for consideration at the next regularly scheduled meeting of
the Board or earlier if deemed necessary or advisable by the Delegate in its
sole discretion.
9. PROVISION OF INFORMATION REGARDING COUNTRY RISK
-----------------------------------------------
With respect to the jurisdictions listed in Appendix A, or added thereto
----------
pursuant to Article 3, Delegate agrees to provide annually to Board, such
information relating to Country Risk, if available, as is specified in Appendix
--------
E to this Agreement. Such information relating to Country Risk shall be updated
- -
from time to time as the Delegate deems necessary.
10. LIMITATION OF LIABILITY.
-----------------------
a. Notwithstanding anything in this Agreement to the contrary, in no event
shall the Delegate or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Delegate and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Delegate or any Indemnified Party under
this Agreement, except for any Claim resulting solely from the negligence,
willful misfeasance or bad faith of the Delegate or any Indemnified Party.
Without limiting the foregoing, neither the Delegate nor the Indemnified Parties
shall be liable for, and the Delegate and the Indemnified Parties shall be
indemnified against, any Claim arising as a result of:
i. Any act or omission by the Delegate or any Indemnified Party in
reasonable good faith reliance upon the terms of this Agreement,
any
5
<PAGE>
resolution of the Board, telegram, telecopy, notice, request,
certificate or other instrument reasonably believed by the
Delegate to be genuine;
ii. Any information which the Delegate provides or does not provide
under Section 9 hereof;
iii. Any acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots,
nationalization, expropriation, currency restrictions, acts of
war, civil war or terrorism, insurrection, nuclear fusion,
fission or radiation, the interruption, loss or malfunction of
utilities, transportation or computers (hardware or software)
and computer facilities, the unavailability of energy sources
and other similar happenings or events.
b. Notwithstanding anything to the contrary in this Agreement, in no event
shall the Delegate or the Indemnified Parties be liable to the Fund or any third
party for lost profits or lost revenues or any special, consequential, punitive
or incidental damages of any kind whatsoever in connection with this Agreement
or any activities hereunder.
11. ARBITRATION OF DISPUTES
-----------------------
To the extent permitted by law, all disputes or claims arising under this
Agreement shall be resolved through arbitration. Arbitration under this Article
shall be conducted according to the Commercial Arbitration Rules of the American
Arbitration Association and shall take place in the City of Boston,
Massachusetts. This Article shall be enforced and interpreted exclusively in
accordance with applicable federal law, including the Federal Arbitration Act.
12. EFFECTIVENESS AND TERMINATION OF AGREEMENT
------------------------------------------
This Agreement shall be effective as of the later of the date of execution
on behalf of Board or Delegate and shall remain in effect until terminated as
provided herein. This Agreement may be terminated at any time, without penalty,
by written notice from the terminating party to the non-terminating party.
Termination will become effective 30 days after receipt by the non-terminating
party of such notice.
13. AUTHORIZED REPRESENTATIVES AND NOTICES
--------------------------------------
The respective Authorized Representatives of Fund and Board, and the
addresses to which notices and other documents under this Agreement are to be
sent to each, are as set forth in Appendix F. Any Authorized Representative of
----------
a party may add or delete persons from that party's list of Authorized
Representatives by written notice to an Authorized Representative of the other
party.
14. GOVERNING LAW
-------------
This Agreement shall be constructed in accordance with the laws of the
Commonwealth of Massachusetts without regard to principles of choice of law.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first written
above.
INVESTORS BANK & TRUST COMPANY
BY: ___________________________________
NAME:
TITLE:
TCW GALILEO FUNDS, INC.
BY:____________________________________
NAME:
TITLE:
7
<PAGE>
LIST OF APPENDICES
- ------------------
A -- Jurisdictions Covered
B -- Additional Jurisdictions Covered
C -- Additional Factors and Criteria To Be Applied in the Selection of
Eligible Foreign Custodians That Are Banking Institutions or Trust Companies
D -- Factors and Criteria To Be Applied in Establishing Systems For the
Monitoring of Foreign Custody Arrangements and Contracts
E -- Information Regarding Country Risk
F -- Authorized Representatives
8
<PAGE>
APPENDIX A
----------
JURISDICTIONS COVERED
---------------------
[delete those countries which are not delegated]
Argentina Latvia
Austria Lebanon
Australia Lithuania
Bahrain Luxembourg
Bangladesh Malaysia
Belgium Mauritius
Bermuda Mexico
Botswana Morocco
Brazil Namibia
Bulgaria Netherlands
Canada New Zealand
Chile Norway
China Oman
Colombia Pakistan
Croatia Papau New Guinea
Cyprus Peru
Czech Republic Philippines
Denmark Poland
Ecuador Portugal
Egypt Romania
Estonia Russia
Euroclear Singapore
Finland Slovak Republic
France Slovenia
Germany South Africa
Ghana Spain
Greece Sri Lanka
Hong Kong Swaziland
Hungary Sweden
Iceland Switzerland
India Taiwan
Indonesia Thailand
Ireland Turkey
Israel Ukraine
Italy United Kingdom
Japan Uruguay
Jordan Venezuela
Kazakhstan Zambia
Kenya Zimbabwe
Korea
A-1
<PAGE>
APPENDIX B
----------
ADDITIONAL JURISDICTIONS COVERED
--------------------------------
Pursuant to Article 3 of this Agreement, Delegate and Board agree that the
following jurisdictions shall be added to Appendix A:
[insert additional countries]
INVESTORS BANK & TRUST COMPANY
BY: ___________________________________
NAME:
TITLE:
TCW GALILEO FUNDS, INC.
BY:____________________________________
NAME:
TITLE:
DATE: ______________________________
A-2
<PAGE>
APPENDIX C
----------
ADDITIONAL FACTORS AND CRITERIA TO BE APPLIED
IN THE SELECTION OF ELIGIBLE FOREIGN CUSTODIANS
THAT ARE BANKING INSTITUTIONS OR TRUST COMPANIES
------------------------------------------------
In addition to the factors set forth in Rule 17f-5(c)(1), in selecting
Eligible Foreign Custodians that are banking institutions or trust companies,
Delegate shall consider the following factors, if such information is available
(check all that apply):
_________ None
_________ Other (list below):
A-3
<PAGE>
APPENDIX D
----------
FACTORS AND CRITERIA TO BE APPLIED
IN THE ESTABLISHING SYSTEMS FOR THE MONITORING OF
FOREIGN CUSTODY ARRANGEMENTS AND CONTRACTS
-------------------------------------------
In establishing systems for the Monitoring of foreign custody arrangements
and contracts with Eligible Foreign Custodians, Delegate shall consider the
following factors, if such information is available:
1. Operating performance
2. Established practices and procedures
3. Relationship with market regulators
4. Contingency planning
A-4
<PAGE>
APPENDIX E
----------
INFORMATION REGARDING COUNTRY RISK
----------------------------------
To aid the Board in its determinations regarding Country Risk, Delegate
will furnish Board annually with respect to the jurisdictions specified in
Article 3, the following information:
1. Copy of Addenda or Side Letters to Subcustodian Agreements
2. Legal Opinion, if available, with regard to:
a) Access to books and records by the Fund's accountants
b) Ability to recover assets in the event of bankruptcy of a custodian
c) Ability to recover assets in the event of a loss
d) Likelihood of expropriation or nationalization, if available
e) Ability to repatriate or convert cash or cash equivalents
3. Audit Report
4. Copy of Balance Sheet from Annual Report
5. Summary of Central Depository Information
6. Country Profile Matrix containing market practice for:
a) Delivery versus payment
b) Settlement method
c) Currency restrictions
d) Buy-in practice
e) Foreign ownership limits
f) Unique market arrangements
7. Information Regarding Securities Depositories
a) Whether use is voluntary or compulsory
b) Ownership
c) Operating History
d) Established rules, practices and procedures
e) Membership
f) Financial strength
g) Governing regulatory body
A-5
<PAGE>
APPENDIX F
----------
AUTHORIZED REPRESENTATIVES
--------------------------
The names and addresses of each party's authorized representatives are set forth
below:
A. BOARD
With a copy to:
B. DELEGATE
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02117-9130
Attention: Geoffrey O'Connell, Director, Client Management
Fax: (617) 330-6033
With a copy to:
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02117-9130
Attention: John E. Henry, General Counsel
Fax: (617) 946-1929
A-6
<PAGE>
EXHIBIT (H)(5)
FORM OF
ADMINSTRATION AGREEMENT
BETWEEN
TCW GALILEO FUNDS, INC.
AND
INVESTORS BANK & TRUST COMPANY
<PAGE>
FORM OF
ADMINISTRATION AGREEMENT
AGREEMENT made as of _____________, 199__ by and between TCW GALILEO
FUNDS, INC., a [company]organized under the laws of [State] (the "Fund"), and
INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Bank").
WHEREAS, the Fund, a registered investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), consisting of the separate
portfolios listed on Appendix A hereto; and
----------
WHEREAS, the Fund desires to retain the Bank to render certain
administrative services to the Fund and the Bank is willing to render such
services.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Bank to act as
------------
Administrator of the Fund on the terms set forth in this Agreement. The Bank
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
2. Delivery of Documents. The Fund has furnished the Bank with copies
----------------------
properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Directors authorizing the
appointment of the Bank to provide certain administrative services to the Fund
and approving this Agreement;
(b) The Fund's incorporating documents filed with the state of
[state] on [date] and all amendments thereto (the "Articles");
(c) The Fund's by-laws and all amendments thereto (the "By-Laws");
(d) The Fund's agreements with all service providers which include
any investment advisory agreements, sub-investment advisory agreements, custody
agreements, distribution agreements and transfer agency agreements
(collectively, the "Agreements");
(e) The Fund's most recent Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933 and under the 1940
Act and all amendments thereto; and
(f) The Fund's most recent prospectus and statement of additional
information (the "Prospectus"); and
(g) Such other certificates, documents or opinions as may mutually be
deemed necessary or appropriate for the Bank in the proper performance of its
duties hereunder.
The Fund will immediately furnish the Bank with copies of all
amendments of or supplements to the foregoing. Furthermore, the Fund will
notify the Bank as soon as possible of any matter which may materially affect
the performance by the Bank of its services under this Agreement.
3. Duties of Administrator. Subject to the supervision and direction of
------------------------
the Board of Directors of the Fund, the Bank, as Administrator, will assist in
conducting various aspects of the Fund's administrative operations and
undertakes to perform the services described in Appendix B hereto. The Bank
----------
may, from time to time, perform additional duties and functions which shall be
set forth in an
<PAGE>
amendment to such Appendix B executed by both parties. At such time, the fee
----------
schedule included in Appendix C hereto shall be appropriately amended.
----------
In performing all services under this Agreement, the Bank shall act in
conformity with the Fund's Articles and By-Laws and the 1940 Act, as the same
may be amended from time to time, and the investment objectives, investment
policies and other practices and policies set forth in the Fund's Registration
Statement, as the same may be amended from time to time. Notwithstanding any
item discussed herein, the Bank has no discretion over the Fund's assets or
choice of investments and cannot be held liable for any problem relating to such
investments.
4. Duties of the Fund.
-------------------
(a) The Fund is solely responsible (through its transfer agent or
otherwise) for (i) providing timely and accurate reports ("Daily Sales Reports")
which will enable the Bank as Administrator to monitor the total number of
shares sold in each state on a daily basis and (ii) identifying any exempt
transactions ("Exempt Transactions") which are to be excluded from the Daily
Sales Reports.
(b) The Fund agrees to make its legal counsel available to the Bank
for instruction with respect to any matter of law arising in connection with the
Bank's duties hereunder, and the Fund further agrees that the Bank shall be
entitled to rely on such instruction without further investigation on the part
of the Bank.
5. Fees and Expenses.
------------------
(a) For the services to be rendered and the facilities to be
furnished by the Bank, as provided for in this Agreement, the Fund will
compensate the Bank in accordance with the fee schedule attached as Appendix C
----------
hereto. Such fees do not include out-of-pocket disbursements (as delineated on
the fee schedule or other expenses with the prior approval of the Fund's
management) of the Bank for which the Bank shall be entitled to bill the Fund
separately and for which the Fund shall reimburse the Bank.
(b) The Bank shall not be required to pay any expenses incurred by
the Fund.
6. Limitation of Liability.
------------------------
(a) The Bank, its directors, officers, employees and agents shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the performance of its obligations and duties
under this Agreement, except a loss resulting from willful misfeasance, bad
faith or gross negligence in the performance of such obligations and duties, or
by reason of its reckless disregard thereof. The Fund will indemnify the Bank,
its directors, officers, employees and agents against and hold it and them
harmless from any and all losses, claims, damages, liabilities or expenses
(including legal fees and expenses) resulting from any claim, demand, action or
suit (i) arising out of the actions or omissions of the Fund, including, but not
limited to, inaccurate Daily Sales Reports and misidentification of Exempt
Transactions; (ii) arising out of the offer or sale of any securities of the
Fund in violation of (x) any requirement under the federal securities laws or
regulations, (y) any requirement under the securities laws or regulations of any
state, or (z) any stop order or other determination or ruling by any federal or
state agency with respect to the offer or sale of such securities; or (iii) not
resulting from the willful misfeasance, bad faith or gross negligence of the
Bank in the performance of such obligations and duties or by reason of its
reckless disregard thereof.
(b) The Bank may apply to the Fund at any time for instructions and
may consult counsel for the Fund, or its own counsel, and with accountants and
other experts with respect to any matter arising in connection with its duties
hereunder, and the Bank shall not be liable or accountable for
2
<PAGE>
any action taken or omitted by it in good faith in accordance with such
instruction, or with the opinion of such counsel, accountants, or other experts.
The Bank shall not be liable for any act or omission taken or not taken in
reliance upon any document, certificate or instrument which it reasonably
believes to be genuine and to be signed or presented by the proper person or
persons. The Bank shall not be held to have notice of any change of authority of
any officers, employees, or agents of the Fund until receipt of written notice
thereof has been received by the Bank from the Fund.
(c) In the event the Bank is unable to perform, or is delayed in
performing, its obligations under the terms of this Agreement because of acts of
God, strikes, legal constraint, government actions, war, emergency conditions,
interruption of electrical power or other utilities, equipment or transmission
failure or damage reasonably beyond its control or other causes reasonably
beyond its control, the Bank shall not be liable to the Fund for any damages
resulting from such failure to perform, delay in performance, or otherwise from
such causes.
(d) Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank be liable for special, incidental or consequential damages,
even if advised of the possibility of such damages.
7. Termination of Agreement.
------------------------
(a) The term of this Agreement shall be three years commencing upon
the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive one-year terms (each a "Renewal Term")
unless notice of non-renewal is delivered by the non-renewing party to the other
party no later than ninety days prior to the expiration of the Initial Term or
any Renewal Term, as the case may be.
(i) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the violating party does not
cure such violation within ninety days of receipt of written notice from the
non-violating party of such violation.
(ii) Either party may terminate this Agreement during any
Renewal Term upon ninety days written notice to the other party. Any termination
pursuant to this paragraph 7(a)(ii) shall be effective upon expiration of such
ninety days, provided, however, that the effective date of such termination may
be postponed, at the request of the Fund, to a date not more than one hundred
twenty days after delivery of the written notice in order to give the Fund an
opportunity to make suitable arrangements for a successor administrator.
(b) At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of the Bank
relating to its performance of its duties as Administrator.
8. Miscellaneous.
--------------
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or the Bank shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
3
<PAGE>
To the Bank:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, MA 02117-9130
Attention: Geoffrey M. O'Connell, Director, Client Management
With a copy to: John E. Henry, General Counsel
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable without the written consent of the
other party.
(c) This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, without regard to its conflict of laws
provisions.
(d) This Agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
9. Confidentiality. All books, records, information and data pertaining
----------------
to the business of the other party which are exchanged or received pursuant to
the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person, except
as may be required in the performance of duties hereunder or as otherwise
required by law.
10. Use of Name. The Fund shall not use the name of the Bank or any of
-----------
its affiliates in any prospectus, sales literature or other material relating to
the Fund in a manner not approved by the Bank prior thereto in writing; provided
however, that the approval of the Bank shall not be required for any use of its
name which merely refers in accurate and factual terms to its appointment
hereunder or which is required by the Securities and Exchange Commission or any
state securities authority or any other appropriate regulatory, governmental or
judicial authority; provided further, that in no event shall such approval be
----------------
unreasonably withheld or delayed.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
TCW GALILEO FUNDS, INC.
By:___________________________
Name:
Title:
THE BANK & TRUST COMPANY
By:___________________________
Name:
Title:
5
<PAGE>
Appendices
----------
Appendix A............................... Portfolios
Appendix B............................... Services
Appendix C............................... Fee Schedule
<PAGE>
EXHIBIT (H) (6)
FORM OF
SECURITIES LENDING AGENCY AGREEMENT
BETWEEN
INVESTORS BANK & TRUST COMPANY
AND
TCW GALILEO FUNDS, INC.
<PAGE>
FORM OF
SECURITIES LENDING AGENCY AGREEMENT
AGREEMENT, dated as of June ___, 1998, between _____________ on behalf of
the Portfolios listed on Schedule A, (the "Lender"), and Investors Bank & Trust
Company, a trust company organized and existing under the laws of the
Commonwealth of Massachusetts (the "Bank").
WHEREAS, the Bank currently acts as custodian for securities held by it in
the Account (as defined below) from time to time on behalf of the Lender; and
WHEREAS, the Lender desires to appoint the Bank as its agent for the
purpose of lending securities in the Account as more fully set forth below; and
WHEREAS, the Bank has agreed to act as the Lender's agent for such purpose
pursuant to the terms hereof;
NOW, THEREFORE, for and in consideration of the mutual promises set forth
herein, the parties hereto agree as follows:
1. Definitions.
-----------
Whenever used in this Agreement, unless the context otherwise requires, the
following words shall have the meanings set forth below:
1.1 "Account" shall mean the custodial account or accounts established and
maintained by the Bank on behalf of the Lender for the safekeeping of securities
and monies received by the Bank from time to time.
1.2 "Approved Investment" shall mean any type of security, participation or
interest in property in which Cash Collateral may be invested or reinvested, as
set forth on Schedule I hereto (which may be amended from time to time to add
additional Approved Investments with the written consent of the Bank and the
Lender, or to delete any Approved Investment at the written direction of the
Lender).
1.3 "Authorized Person" shall be any officer of the Lender and any other
person, whether or not any such person is an officer or employee of the Lender,
duly authorized by corporate resolutions of the Board of Directors or Trustees,
as the case may be, of the Lender to give Oral and/or Written Instructions on
behalf of the Lender, such persons to be designated in a Certificate which
contains a specimen signature of such person.
1.4 "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry
system for receiving and delivering Government Securities (as defined herein),
its successors and nominees.
1.5 "Borrower" shall mean any entity named on Schedule II hereto (as such
Schedule may be amended from time to time to add additional Borrowers with the
written consent of the Bank and the Lender, or to delete any Borrower at the
written direction of the Lender) or any affiliate of such named entity.
1.6 "Cash Collateral" shall mean either fed funds or New York Clearing
House funds, as applicable for a particular loan of Securities.
<PAGE>
1.7 "Certificate" shall mean any notice, instruction, schedule or other
instrument in writing, authorized or required by this Agreement to be given to
the Bank, which is actually received by the Bank and signed on behalf of the
Lender by an Authorized Person or a person reasonably believed by the Bank to be
an Authorized Person.
1.8 "Collateral" shall mean Cash Collateral unless the Bank and the Lender
have agreed in writing to additional collateral, including Government Securities
and Letters of Credit.
1.9 "Collateral Account" shall mean an account established and maintained
by the Bank for the purpose of holding Collateral, Cash Collateral and Approved
Investments, interest, dividends and other payments and distributions received
with respect to Collateral and Approved Investments ("Distributions"), and any
Securities Loan Fee paid by Borrowers in connection with Securities loans
hereunder.
1.10 "Depository" shall mean the Depository Trust Company, Participant's
Trust Company, Euroclear, and any other securities depository or clearing agency
(and their respective successors and nominees) authorized under applicable law
or regulation to act as a securities depository or clearing agency, as set forth
on Schedule IV hereto.
1.11 "Government Security" shall mean book-entry Treasury securities (as
defined in Subpart 0 of Treasury Department Circular No. 300, 31 C.F.R. 306) and
any other securities issued or fully guaranteed by the United States government
or any agency or instrumentality of the United States government.
1.12 "Letter of Credit" shall mean a clean, unconditional and irrevocable
letter of credit in favor of the Bank as agent for the Lender issued by a bank
named on Schedule III hereto as may be amended from time to time to add
additional banks by the written consent of the parties hereto, or to delete any
Bank at the written direction of the Lender.
1.13 "Oral Instructions" shall mean verbal instructions actually received
by the Bank from an Authorized Person or from a person reasonably believed by
the Bank to be an Authorized Person.
1.14 "Rebate" shall mean the amount payable by the Lender to a Borrower (as
set forth in a Receipt) in connection with Securities loans at any time
collateralized by Cash Collateral.
1.15 "Receipt" shall mean an advice or confirmation setting forth the terms
of a particular loan of Securities hereunder, including, without limitation, the
Collateral with respect to such loan.
1.16 "Securities Borrowing Agreement" shall mean with, respect to any
Borrower, the agreement pursuant to which the Bank lends securities on behalf of
its customers (including the Lender) to such Borrower as may be amended from
time to time.
1.17 "Securities Loan Fee" shall mean the amount payable by a Borrower to
the Bank pursuant to the applicable Securities Borrowing Agreement in connection
with Securities loans, if any, collateralized by Collateral other than Cash
Collateral.
1.18 "Security" shall mean any Government Securities, non-U.S. securities,
common stock and other equity securities, bonds, debentures, corporate debt
securities, notes, mortgages or other
2
<PAGE>
obligations, and any certificates, warrants or other instruments representing
rights to receive, purchase, or subscribe for the same, or evidencing or
representing any other rights or interests therein, which are available for
lending pursuant to Section 2.2 of this Agreement.
1.19 "Written Instructions" shall mean written communications actually
received by the Bank from an Authorized Person or from a person reasonably
believed by the Bank to be an Authorized Person by letter, memorandum, telegram,
cable, telex, telecopy facsimile, computer, video (CRT) terminal or other on-
line system, or any other method whereby the Bank is able to verify with a
reasonable degree of certainty the identity of the sender of such communications
or the sender is required to provide a password or other identification code.
2. Appointment; Scope of Agency Authority.
--------------------------------------
2.1 Appointment. The Lender hereby appoints the Bank as its agent to lend
-----------
Securities in the Account to Borrowers from time to time as hereinafter set
forth, and the Bank hereby accepts appointment as such agent and agrees to so
act.
2.2 Securities Subject to Lending. The Lender shall keep on file with the
-----------------------------
Bank a list of those securities maintained in the Account which, at the sole
discretion of the Lender, are available for lending pursuant to this Agreement.
Such list may be amended from time to time and at any time by the Lender
pursuant to Written or Oral Instructions, provided however that the Bank is
authorized to enter into a loan pursuant to this Agreement with respect to any
Security appearing on such list, and the only obligation of the Bank with
respect to any Security which has been deleted from such list shall be to
terminate any outstanding loan with respect to such Security in accordance with
the terms of the applicable Securities Borrowing Agreement and to refrain from
lending any such Security in the future unless added back to the list.
2.3 Securities Borrowing Agreement. The Lender hereby acknowledges receipt
------------------------------
of a Securities Borrowing Agreement with respect to each Borrower and authorizes
the Bank to lend Securities in the Account to Borrowers pursuant to such
agreements. The Bank shall promptly provide the Lender with copies of any
material amendments or changes to such agreements. The Lender may elect to
terminate any Borrower from Schedule II if it opposes the change.
2.4 Loan Opportunities. The Lender acknowledges and agrees that the Bank
------------------
shall have the right to decline to make any loans of Securities under any
Securities Borrowing Agreement and to discontinue lending under any Securities
Borrowing Agreement in its sole discretion and without notice to the Lender. The
Lender agrees that it shall have no claim against the Bank based on, or relating
to, loans made for other customers or for the Bank's own account, or loan
opportunities refused hereunder, whether or not the Bank has made fewer or more
loans for any other customer or for the Bank's own account than for the Lender,
and whether or not any loan for another customer or for the Bank's own account,
or the opportunity refused, could have resulted in loans made hereunder.
2.5 Use of Book-Entry System and Depositories. The Lender hereby authorizes
-----------------------------------------
the Bank on a continuous and on-going basis, to deposit in the Book-Entry System
and the applicable Depositories set forth on Schedule IV hereto all Securities
eligible for deposit therein and to utilize the Book-Entry System and
Depositories to the extent possible in connection with its receipt and delivery
of Securities, Collateral, Approved Investments and monies under this Agreement.
Where Securities, Collateral (other than Cash Collateral) and Approved
Investments eligible for deposit in the Book-Entry System or a Depository are
transferred to the Account, the Bank shall identify as belonging to the Lender a
quantity
3
<PAGE>
of securities in a fungible bulk of securities shown on the Bank's account on
the books of the Book-Entry System or the applicable Depository. Securities,
Collateral and Approved Investments deposited in the Book-Entry System or a
Deposit will be represented in accounts which include only assets held by the
Bank for customers, including but not limited to accounts in which the Bank acts
in a fiduciary or agency capacity.
3. Representations and Warranties.
------------------------------
3.1 Lender's Representations The Lender hereby represents and warrants to
------------------------
the Bank, which representations and warranties shall be deemed to be continuing
and to be reaffirmed on any day that a Securities loan hereunder is outstanding,
that:
(a) This Agreement is, and each Securities loan and Approved
Investment will be, legally and validly entered into by the Lender, does not,
and will not, violate any statute, regulation, rule, order or, judgment binding
on the Lender, or any provision of the Lender's charter or by-laws, or any
agreement binding on the Lender or affecting its property, and is enforceable
against the Lender in accordance with its terms, except as may be limited by
bankruptcy, insolvency or similar laws, or by equitable principles relating to
or limiting creditors rights generally;
(b) The person executing this Agreement and all Authorized
Persons acting on behalf of the Lender has and have been duly and properly
authorized to do so;
(c) It is lending Securities as principal for its own account and
it will not transfer, assign or encumber its interest in, or rights with respect
to, any securities loans;
(d) All Securities subject to lending pursuant to Section 2.2 of
this Agreement are free and clear of all liens, claims, security interests and
encumbrances, no such Security subject to lending has been sold and the Lender
has no present intention to sell any of the Securities subject to lending. The
Lender shall promptly delete from the list referenced in Section 2.2 hereof any
and all Securities which are no longer subject to the representations contained
in this sub-paragraph (d).
3.2 Bank's Representations The Bank hereby represents and warrants to the
----------------------
Lender, which representations and warranties shall be deemed to be continuing
and to be reaffirmed on any day that a Securities loan hereunder is outstanding,
that:
(a) This Agreement is legally and validly entered into by the
Bank, does not and will not, violate any statute, regulation, rule, order or,
judgment binding on the Bank, or any provision of the Bank's charter or by-laws,
or any agreement binding on the Bank or affecting its property, and is
enforceable against the Bank in accordance with its terms, except as may be
limited by bankruptcy, insolvency or similar laws, or by equitable principles
relating to or limiting creditors rights generally; and
(b) The person executing this Agreement on behalf of the Bank has
been duly and properly authorized to do so.
4. Securities Lending Transactions.
-------------------------------
4.l Loan Initiation. From time to time the Bank may lend Securities to
---------------
Borrowers and deliver such Securities against receipt of Collateral in
accordance with the applicable Securities Borrowing
4
<PAGE>
Agreement. The Bank shall deliver to the Lender a Receipt in connection with
each loan made hereunder, prior to settlement of such loan.
4.2 Receipt of Collateral; Approved Investments.
-------------------------------------------
(a) For each loan hereunder the Bank shall receive all Collateral
required by the applicable Securities Borrowing Agreement, which for Cash
Collateral shall in no event be equivalent to less than 102% of the market value
of the Securities lent (as determined in accordance with the applicable
Securities Borrowing Agreement), and the Bank is hereby authorized and directed,
without obtaining any further approval from the Lender, to invest and reinvest
all or substantially all of the Cash Collateral received in any Approved
Investment. The Bank shall credit all Collateral, Approved Investments and
Distributions received with respect to Collateral and Approved Investments to
the Collateral Account and mark its books and records to identify the Lender's
ownership thereof as appropriate.
(b) All Approved Investments shall be for the account and risk of
the Lender. To the extent any loss arising out of Approved Investments results
in a deficiency in the amount of Collateral available for return to a Borrower
pursuant to the Securities Borrowing Agreement, the Lender agrees to pay the
Bank on demand cash in an amount equal to such deficiency.
(c) Except as otherwise provided herein, all Collateral, Approved
Investments and Distributions credited to the Collateral Account shall be
controlled by, and subject only to the instructions of, the Bank, and the Bank
shall not be required to comply with any instructions of the Lender with respect
to the same.
4.3 Distribution on Loaned Securities. The Bank shall receive distributions
---------------------------------
paid on loaned Securities from Borrowers and/or issuers in accordance with the
applicable Securities Borrowing Agreement and shall credit all such amounts
received by the Bank to the Account.
4.4 Marks to Market. The Bank shall on each Business Day mark to market in
---------------
U.S. dollars the value of all Securities loaned hereunder and accordingly
receive and release Collateral in accordance with the applicable Securities
Borrowing Agreement.
4.5 Collateral Substitutions. The Bank shall accept substitutions of
------------------------
Collateral in accordance with the applicable Securities Borrowing Agreement and
shall credit all such substitutions to the Collateral Account, provided however
that unless other Collateral has been mutually agreed upon in writing by the
Bank and the Lender, no other Collateral may be substituted for Cash Collateral.
4.6 Termination of Loans. The Bank shall terminate any Securities loan to
--------------------
a Borrower in accordance with the applicable Securities Borrowing Agreement as
soon as practicable after:
(a) receipt by the Bank of a notice of termination pursuant to
the Securities Borrowing Agreement;
(b) receipt by the Bank of Written Instructions instructing it to
terminate a Securities loan;
(c) receipt by the Bank of Written Instructions deleting the
Borrower to whom such loan was made from Schedule II hereto;
5
<PAGE>
(d) upon the Bank's becoming aware of the occurrence of any
default pursuant to the applicable Securities Borrowing Agreement requiring
termination of such loan; or
(e) whenever the Bank, in its sole discretion, elects to
terminate such loan.
4.7 Securities Loan Fee. The Bank shall receive any applicable Securities
-------------------
Loan Fee paid by Borrowers pursuant to the Securities Borrowing Agreement and
credit all such amounts received to the Collateral Account.
4.8 The Borrower's Financial Condition. The Bank has delivered to the
----------------------------------
Lender each of the Borrower's most recent statements that have been made
available to the Bank pursuant to the Securities Borrowing Agreements. The Bank
shall promptly deliver to the Lender all statements and financial information
subsequently delivered to the Bank and required to be furnished to the Bank
under the Securities Borrowing Agreements.
4.9 Transfer Taxes and Necessary Costs. All transfer taxes and necessary
----------------------------------
costs with respect to the transfer of the loaned Securities by the Lender to the
Borrower and the Borrower to the Lender upon the termination of the loan shall
be paid by the Borrower in accordance with the applicable Securities Borrowing
Agreement.
4.10 Remedies Upon Default. In the event of any default by a Borrower under
---------------------
the applicable Securities Borrowing Agreement, the Bank shall use its best
efforts to pursue, on behalf of the Lender, any remedies that the Bank or the
Lender may have under the applicable Securities Borrowing Agreement.
4.11 Bank's Obligation. Except as specifically set forth herein, or in any
-----------------
applicable Securities Borrowing Agreement, the Bank shall have no duty or
obligation to take action to effect payment by a Borrower of any amounts owed by
such Borrower pursuant to the Securities Borrowing Agreement.
5. Concerning the Bank.
-------------------
5.1 Standard of Care: Indemnification.
---------------------------------
(a) It is expressly understood and agreed that in exercising its
rights and performing its obligations hereunder, the Bank owes no fiduciary duty
to the Lender. The Bank shall not be liable for any costs, expenses, damages,
liabilities or claims (including attorneys and accountants fees) incurred by the
Lender, except those costs, expenses, damages, liabilities or claims arising out
of the Bank's negligence, willful misconduct, bad faith, or reckless disregard
of its obligations and duties hereunder. The Bank shall have no obligation
hereunder for costs, expenses, damages, liabilities or claims (including
reasonable attorneys and accountants fees), which are sustained or incurred by
reason of any action or inaction by the Book-Entry System or any Depository or
their respective successors or nominees. In no event shall the Bank be liable
for special, punitive or consequential damages, arising under or in connection
with this Agreement, even if previously informed of the possibility of such
damages.
(b) The Lender agrees to indemnify the Bank and to hold it harmless
from and against any and all costs, expenses, damages, liabilities or claims,
including reasonable fees and expenses of counsel, which the Bank may sustain or
incur or which may be asserted against the Bank by reason of or
6
<PAGE>
as a result of any action taken or omitted by the Bank in connection with or
arising out of the Bank's operating under and in compliance with this Agreement,
except those costs, expenses, damages, liabilities or claims arising out of the
Bank's negligence, bad faith, willful misconduct, or reckless disregard of its
obligations and duties hereunder. The foregoing indemnity shall be a continuing
obligation of the Lender, its successors and assigns, notwithstanding the
termination of any loans hereunder or of this Agreement. Actions taken or
omitted in reasonable reliance upon Oral or Written Instructions, any
Certificate, or upon any information, order, indenture, stock certificate, power
of attorney, assignment, affidavit or other instrument reasonably believed by
the Bank to be genuine or bearing the signature of a person or persons
reasonably believed by the Bank to be genuine or bearing the signature of a
person or persons reasonably believed to be authorized to sign, countersign or
execute the same, shall be presumed to have been taken or omitted in good faith.
5.2 No Obligation to Inquire. Without limiting the generality of the
------------------------
foregoing, the Bank shall be under no obligation to inquire into, and shall not
be liable for, the validity of the issue of any Securities at any time held in
the Account or Approved Investments held in the Collateral Account, or the
legality or propriety of any loans of Securities to Borrowers.
5.3 Advances, Overdrafts and Indebtedness; Security Interest.
--------------------------------------------------------
(a) The Bank may, in its sole discretion, advance funds on behalf of
the Lender in order to pay to Borrowers any Rebates or to return to Borrowers
Cash Collateral to which they are entitled pursuant to the Securities Borrowing
Agreement. The Bank may also, in its sole discretion and as a matter of
bookkeeping convenience, credit the Account with interest, dividends or other
distributions payable on Securities prior to its actual receipt of final payment
therefor and the Lender agrees that such bookkeeping credits may also be
reflected on its books, and otherwise, as "immediately available" or "same day"
funds or by some similar characterization. Notwithstanding any such credit or
characterization, all such credits shall be conditional upon the Bank's actual
receipt of final payment and may be reversed by the Bank to the extent that
final payment is not received. If the Bank, in its sole discretion, permits the
Lender to use funds credited to the Account prior to receipt by the Bank of
final payment thereof, the Lender shall nonetheless, continue to bear the risk
of, and liability for, the Bank's non receipt of final payment in full.
(b) The Lender agrees to repay the Bank on demand the amount of any
advance or credit described in Section 5.3(a) above or any other amount owed by
the Lender hereunder plus accrued interest at a rate per annum (based on a 360-
day year for the actual number of days involved) as agreed to by the parties
from time to time. In order to secure repayment of any credit, advance,
overdraft or other indebtedness of the Lender to the Bank arising hereunder, the
Lender hereby agrees that the Bank shall have a continuing lien and security
interest, to the extent of any such amounts owing, in and to all assets now or
hereafter held in the Account and the Collateral Account, which is then in the
Bank's possession or control or in the possession or control of any third party
acting on the Bank's behalf. In this regard, the Bank shall be entitled to
charge any amounts owed to the Bank hereunder against any balance of account
standing to the credit of the Lender on the Bank's books and, without limiting
the foregoing, to all the rights and remedies of a pledgee under common law and
a secured party under the Massachusetts Uniform Commercial Code and/or any other
applicable laws and/or regulations as then in effect.
(c) The rights of the Bank and the obligations of the Lender under
this Section are absolute and unconditional whether or not the Bank would be
entitled to indemnification pursuant to Section 5.l(b) hereof.
7
<PAGE>
(d) For all purposes of this Agreement, payment with respect to a
transaction will not be "final" until the Bank shall have received immediately
available funds which under applicable law or rule are irreversible, which are
not subject to any security interest, levy or other encumbrance, and which are
specifically applicable, or deemed by the Bank to be specifically applicable, to
such transaction. A debit by the Bank to any other account of the Lender
maintained by the Bank or to an account of any third party to whom or for whose
account Securities have been delivered shall not constitute final payment to the
extent that such debit creates an overdraft or does not otherwise result in the
receipt by the Bank of immediately available, irreversible and unencumbered
funds.
5.4 Advice of Counsel. The Bank may, with respect to questions of law,
-----------------
apply for and obtain the advice and opinion of counsel and shall be fully
protected with respect to anything done or omitted by it in good faith in
conformity with such advice or opinion.
5.5 No Collection Obligations. The Bank shall be under no obligation
-------------------------
or duty to take action to effect collection of any amounts payable in respect of
Securities or Approved Investments if such Securities or Approved Investments
are in default, or if payment is refused after due demand and presentation.
5.6 Pricing Methods. The Bank is authorized to utilize any recognized
---------------
pricing information service or any other means of valuation specified in the
applicable Securities Borrowing Agreement ("Pricing Methods") in order to
perform its valuation responsibilities with respect to loaned Securities,
Collateral and Approved Investments, and the Lender agrees to hold the Bank
harmless from and against any loss or damage suffered or incurred as a result of
errors or omissions of any such Pricing Methods.
5.7 Agent's Fee. In connection with each Securities loan hereunder the
-----------
Lender shall pay to the Bank a fee equal to 60% of (a) net realized income
derived from Approved Investments, plus (b) any Securities Loan Fee paid or
payable by the Borrower, minus (c) any Rebate paid by the Bank to the Borrower.
The Bank is authorized, on a monthly basis, to charge its fee and any other
amounts owed by the Lender hereunder against the Account and/or Collateral
Account.
5.8 Reliance On Certificates and Instructions. The Bank shall be
-----------------------------------------
entitled to rely upon any Certificate, any information contained on any Schedule
hereto as may be amended in accordance with the terms hereof, and Written or
Oral Instruction actually received by the Bank and reasonably believed by the
Bank to be duly authorized and delivered. The Lender agrees to forward to the
Bank Written Instructions confirming Oral Instructions in such manner so that
such Written Instructions are received by the Bank by the close of business of
the same day that such Oral Instructions are given to the Bank. The Lender
agrees that the fact that such confirming Written Instructions are not received
on a timely basis or that contrary instructions are received by the Bank shall
in no way affect the validity or enforceability of the transactions authorized
by the Lender. The Bank will use reasonable efforts to report any subsequently
received contrary instructions. In this regard, the records of the Bank shall be
presumed to reflect accurately any Oral Instructions given by an Authorized
Person or a person reasonably believed by the Bank to be an Authorized Person.
5.9 Disclosure of Account Information. It is understood and agreed
---------------------------------
that the Bank is authorized to supply any information regarding the Account
which is required by any law or governmental regulation now or hereafter in
effect.
8
<PAGE>
5.10 Statements. The Bank will at least daily furnish the Lender with
----------
statements relating to loans hereunder.
5.11 Force Majeure. The Bank shall not be responsible or liable for
-------------
any failure or delay in the performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by acts of God, earthquakes,
fires, floods, storms or other disturbances of nature, epidemics, strikes,
riots, nationalization, expropriation, currency restrictions, acts of war, civil
war or terrorism, insurrection, nuclear fusion, fission or radiation, the
interruption, loss or malfunction of utilities, transportation, the
unavailability of energy sources and other similar happenings or events except
as results from the Bank's own gross negligence.
5.12 No Implied Duties.
-----------------
(a) The Bank shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement and in the applicable Securities Borrowing Agreement, and no
covenant or obligation shall be implied against the Bank in connection with this
Agreement.
(b) The Lender shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied against the
Lender in connection with this Agreement.
6. Termination. This Agreement may be terminated at any time by either party
-----------
upon delivery to the other party of a written notice specifying the date of such
termination, which shall be not less than 60 days after the date of receipt of
such notice. Notwithstanding any such notice, this Agreement shall continue in
full force and effect with respect to all loans of Securities outstanding on the
date of termination.
7. Miscellaneous.
-------------
7.1 Exclusivity. The Lender agrees that it shall not enter into any
-----------
other agreement with any third party whereby such third party is permitted to
make loans on behalf of the Lender of any securities held by the Bank in the
Account from time to time.
7.2 Certificates. The Lender agrees to furnish to the Bank a new
------------
Certificate in the event that any present Authorized Person ceases to be an
Authorized Person or in the event that any other Authorized Persons are
appointed and authorized. Until such new Certificate is received, the Bank shall
be fully protected in acting upon Oral Instructions or signatures of the present
Authorized Persons.
7.3 Notices.
-------
(a) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Bank, shall be sufficiently given
if addressed to the Bank and received by it at its offices at 200 Clarendon
Street, P.O. Box 9130, Boston, Massachusetts 02117-9130, Attention: Securities
Lending Department, , with a copy to: John E. Henry, General Counsel or at such
other place as the Bank may from time to time designate in writing.
(b) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Lender shall be sufficiently given
if addressed to the Lender and mailed or delivered to
9
<PAGE>
it at its offices at _________________________, or at such other place as the
Lender may from time to time designate in writing.
7.4 Cumulative Rights and No Waiver. Each and every right granted to a
-------------------------------
party hereunder or under any other document delivered hereunder or in connection
herewith, or allowed it by law or equity, shall be cumulative and may be
exercised from time to time. No failure on the part of a party to exercise, and
no delay in exercising, any right will operate as a waiver thereof, nor will any
single or partial exercise by a party of any right preclude any other or future
exercise thereof or the exercise of any other right.
7.5 Severability. In case any provision in or obligation under this
------------
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or obligations
shall not in any way be affected or impaired thereby, and if any provision is
inapplicable to any person or circumstances, it shall nevertheless remain
applicable to all other persons and circumstances.
7.6 Amendments. This Agreement may not be amended or modified in any
----------
manner except by a written agreement executed by both parties.
7.7 Successors and Assigns. This Agreement shall extend to and shall
----------------------
be binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by either party
without the written consent of the other.
7.8 Governing Law; Consent to Jurisdiction. This Agreement shall be
--------- ----------------------------
construed in accordance with the laws of the Commonwealth of Massachusetts
without regard to conflict of laws principles thereof. The Lender hereby
consents to the jurisdiction of a state or federal court situated in Boston,
Massachusetts in connection with any dispute arising hereunder.
7.9 No Third Party Beneficiaries. In performing hereunder, the Bank is
----------------------------
acting solely on behalf of the Lender and no contractual or service relationship
shall be deemed to be established hereby between the Bank and any other person.
7.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
7.11 SIPA Notice. THE PROVISIONS OF THE SECURITIES INVESTOR PROTECTION
-----------
ACT OF 1970 MAY NOT PROTECT THE LENDER WITH RESPECT TO LOANS HEREUNDER AND,
THEREFORE, THE COLLATERAL DELIVERED TO THE BANK AS AGENT FOR THE LENDER, MAY
CONSTITUTE THE ONLY SOURCE OF SATISFACTION OF A BORROWER'S OBLIGATION IN THE
EVENT SUCH BORROWER FAILS TO RETURN THE LOANED SECURITIES.
[Remainder of Page Intentionally Left Blank]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective corporate officers, thereunto duly authorized
and their respective corporate seals to be hereunto affixed, as of the day and
year first above written.
[FUND]
By:_____________________________________
Title:
INVESTORS BANK & TRUST COMPANY
By:_____________________________________
Title:
11
<PAGE>
SCHEDULE I
Approved Investments
The Bank is authorized to lend securities versus U.S. Government
Securities.
The Bank is authorized to lend securities versus cash and reinvest the cash
in:
- Bank Deposits
- Money Market Funds
- U.S. Government Securities
- Repurchase Agreements with the below listed firms.
[List Firms]
- Commercial Paper
- Variable Rate Securities
- Floating Rate Securities
- Asset Backed Notes
- Certificates of Deposit
- Bankers Acceptances issued by U.S. or Foreign Banks
- [Others]
By:__________________________
Title:_______________________
Date:________________________
<PAGE>
SCHEDULE II
Approved Borrowers
Bear Stearns & Co. Inc.
BT Alex Brown Inc.
Goldman, Sachs & Co.
Lehman Brothers, Inc.
Merrill Lynch, Pierce, Fenner & Smith, Inc.
Morgan Stanley & Co. Inc. (including Morgan Stanley Securities
Services Inc.)
Prudential Securities, Inc.
Salomon Smith Barney Inc.
[Others]
By:__________________________
Title:_______________________
Date:________________________
<PAGE>
SCHEDULE III
LETTER OF CREDIT BANKS
[To be Determined]
<PAGE>
SCHEDULE IV
DEPOSITORIES
The depositories approved by the Lender pursuant to Rule 17f-5.
<PAGE>
EXHIBIT (I)
DECHERT PRICE & RHOADS
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
(202) 261-3300
December 30, 1998
TCW Galileo Funds
864 south Figueroa Street
Suite 1900
Los Angeles, California 90017
Re: TCW Galileo Funds, Inc.
File Nos. 33-52272 and 811-7170
-------------------------------
In connection with the registration under the Securities Act of 1933,
as amended, of an indefinite number of shares (the "Shares") of common stock of
Class A Shares of each series of the TCW Galileo Funds, Inc. (the
"Corporation"), we have examined such matters as we have deemed necessary to
give this opinion.
On the basis of the foregoing, it is our opinion that, as permitted by
the Corporation's Articles of Incorporation, and assuming that (i) the
Corporation files with the Maryland Department of Assessments and Taxation the
Articles Supplementary, a form of which is filed as Exhibit (a)(9) to Post-
Effective Amendment No. 23 to the Corporation's Registration Statement on Form
N-1A (the "Amendment") and (ii) the Corporation or its agent receives
consideration for such Shares in accordance with the provisions of its Articles
of Incorporation and the terms described in the Amendment, the Shares will be
legally and validly issued, will be fully paid and will be non-assessable by the
Corporation.
We hereby consent to the use of this opinion as an exhibit to the
Amendment and to all references to our firm therein.
Very truly yours,
/s/ Dechert, Price & Rhoads
<PAGE>
EXHIBIT J
INDEPENDENT AUDITORS' CONSENT
TCW GALILEO FUNDS, INC.:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 23 to Registration Statement No. 33-52272 on Form N-1A of our report dated
December 10, 1997, appearing in the Annual Report of the funds comprising TCW
Galileo Funds, Inc. as of and for the respective periods ended October 31, 1997,
and to the reference to us under the headings "Financial Highlights" in the
Prospectus and "Independent Auditors" in the Statement of Additional
Information,which are part of this Registration Statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
December 30, 1998
<PAGE>
EXHIBIT M
TCW GALILEO FUNDS, INC.
FORM OF CLASS A SHARES
DISTRIBUTION PLAN
WHEREAS, TCW Galileo Funds, Inc. (the "Company") is registered as an open-
end management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Company issues shares of capital stock ("shares") in separate
series ("Funds"), with each Fund representing interests in a separate portfolio
of securities and other assets;
WHEREAS, the Company is authorized to issue shares of the Funds in separate
classes of shares, one of which is designated Class A (the "Class A" shares);
WHEREAS, certain shareholders of the Company may require distribution and
related services that are in addition to services required by other
shareholders, and the provision of such services to shareholders requiring these
services may benefit such shareholders and facilitate their ability to invest in
the Funds;
WHEREAS, issuance of shares of the Funds in a class subject to a fee for
the Funds' cost of providing distribution and shareholder services would
allocate the Funds' expense of rendering such services to the shareholders who
receive such additional services;
WHEREAS, the Funds with respect to their Class A shares intend to enter
into Selected Dealer Agreements ("Agreements") pursuant to this Distribution
Plan (the "Plan") with various service organizations ("Service Organizations"),
either directly or through the Funds' principal underwriter, TCW Brokerage
Services (the "Distributor"), pursuant to which the Service Organization will
make available or offer Class A shares of the Funds for sale to the public;
WHEREAS, the Funds have adopted a multiple class plan pursuant to Rule l8f-
3 under the 1940 Act, to permit the issuance of shares in different classes; and
WHEREAS, the Board of Directors of the Company has determined that there is
a reasonable likelihood that the Plan will benefit the Funds and their
shareholders;
NOW THEREFORE, the Company hereby adopts this Distribution Plan on the
following terms and conditions:
1. As compensation for services provided in respect of Class A shares the
Company will pay the Distributor a fee at an annual rate of 0.25% of the average
daily net assets of each Fund attributable to the Class A shares. Such fee
shall be accrued daily and paid [quarterly].
2. The Distributor may pay any or all of the fee payable to it for
distribution and shareholder services to a Service Organization, subject to
compliance by the Service Organization with the terms of the Agreement between
the Service Organization and the Distributor.
3. Services which a Service Organization will provide under an Agreement
may include, but are not limited to, the following functions: providing
facilities to answer questions from prospective investors about the Funds;
receiving and answering correspondence, including requests
1
<PAGE>
for prospectuses and statements of additional information; preparing, printing
and delivering prospectuses and shareholder reports to prospective shareholders;
complying with federal and state securities laws pertaining to the sale of Class
A shares; and assisting investors in completing application forms and selecting
dividend and other account options. In addition, Service Organizations can
provide their endorsement of the Class A shares of a Fund to their clients,
members or customers as an inducement to invest in the Funds.
4. The Plan shall not take effect with respect to a Fund until it has
been approved by a vote of at least a majority (as defined in the 1940 Act) of
the outstanding voting securities of Class A of that Fund. With respect to the
submission of the Plan for such a vote, it shall have been effectively approved
with respect to a Fund if a majority of the outstanding voting securities of
Class A of the Fund votes for approval of the Plan, notwithstanding that the
matter has not been approved by a majority of the outstanding voting securities
of Class A of any other Fund.
5. The Plan shall not take effect until it has been approved, together
with any related agreements and supplements, by votes of a majority of both (a)
the Board of Directors of the Company, and (b) those Directors of the Company
who are not "interested persons" (as defined in the 1940 Act) and have no direct
or indirect financial interest in the operation of the Plan or any agreements
related to it (the "Plan Directors"), cast in person at a meeting (or meetings)
called for the purpose of voting on the Plan and such related agreements.
6. The Plan shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in paragraph 7.
7. Any person authorized to direct the disposition of monies paid or
payable by Class A pursuant to the Plan or any related agreement shall provide
to the Company's Board of Directors, and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
8. Any agreement related to the Plan shall be in writing and shall
provide: (a) that such agreement may be terminated at any time as to a Fund,
without payment of any penalty, by vote of a majority of the Plan Directors or
by vote of a majority of the outstanding voting securities of Class A of a Fund,
on not more than sixty (60) days' written notice to any other party to the
agreement; and (b) that such agreement shall terminate automatically in the
event of its assignment.
9. The Plan may be amended at any time with respect to a Fund by the
Board of Directors, provided that (a) any amendment to increase materially the
costs which the Class A shares may bear for distribution pursuant to the Plan
shall be effective only upon approval by a vote of a majority of the outstanding
voting securities of the Class A of the Fund, and (b) any material amendments of
the terms of the Plan shall become effective only upon approval as provided in
paragraph 7 hereof.
10. While the Plan is in effect, the selection and nomination of Directors
who are not interested persons (as defined in the 1940 Act) of the Company shall
be committed to the discretion of the Directors who are not interested persons.
11. The Company shall preserve copies of the Plan, any related agreement
and any report made pursuant to paragraph 9 hereof, for a period of not less
than six (6) years from the date of the
2
<PAGE>
Plan, such agreement or report, as the case may be, the first two (2) years of
which shall be in an easily accessible place.
IN WITNESS WHEREOF, the Company has adopted this Distribution Plan
effective as of the 17th day of December, 1998.
TCW GALILEO FUNDS, INC.
By:__________________________________
TITLE:
3
<PAGE>
EXHIBIT O
TCW GALILEO FUNDS, INC.
(the "Company")
TCW GALILEO MONEY MARKET FUND
TCW GALILEO EMERGING MARKETS INCOME FUND
TCW GALILEO CORE FIXED INCOME FUND
TCW GALILEO HIGH YIELD BOND FUND
TCW GALILEO TOTAL RETURN MORTGAGE-BACKED SECURITIES FUND
TCW GALILEO MORTGAGE-BACKED SECURITIES FUND
TCW GALILEO ASIA PACIFIC EQUITIES FUND
TCW GALILEO EMERGING MARKETS EQUITIES FUND
TCW GALILEO EUROPEAN EQUITIES FUND
TCW GALILEO INTERNATIONAL EQUITIES FUND
TCW GALILEO JAPANESE EQUITIES FUND
TCW GALILEO LATIN AMERICA EQUITIES FUND
TCW GALILEO CONVERTIBLE SECURITIES FUND
TCW GALILEO SELECT EQUITIES FUND
TCW GALILEO EARNINGS MOMENTUM FUND
TCW GALILEO ENHANCED 500 FUND
TCW GALILEO LARGE CAP GROWTH FUND
TCW GALILEO LARGE CAP VALUE FUND
TCW GALILEO AGGRESSIVE GROWTH EQUITIES FUND
TCW GALILEO SMALL CAP GROWTH FUND
TCW GALILEO SMALL CAP VALUE FUND
TCW GALILEO VALUE OPPORTUNITIES FUND
(THE "FUNDS")
FORM OF PLAN PURSUANT TO RULE 18F-3
UNDER THE
INVESTMENT COMPANY ACT OF 1940
THE PLAN
--------
I. Introduction
------------
As required by Rule 18f-3 under the Investment Company Act of 1940, as
amended ("1940 Act"), this Plan describes the multi-class system for the Funds,
including the separate class arrangements for shareholder services and/or the
distribution of shares, the method for allocating expenses to classes and any
related conversion features or exchange privileges applicable to the classes.
<PAGE>
Upon the effective date of this Plan, the Company, on behalf of the Funds,
elects to offer multiple classes of shares of each of the Funds, as described
herein, pursuant to Rule 18f-3 and this Plan.
II. The Multi-Class System
----------------------
Each of the Funds shall offer two classes of shares: Institutional Class
shares and Investor Class or Class A shares ("Class A" shares). Shares of each
class of a Fund shall represent an equal pro rata interest in that Fund and,
--- ----
generally, shall have identical voting, dividend, liquidation, and other rights,
preferences, powers, restrictions, limitations, qualifications and terms and
conditions, except that: (a) each class shall have a different designation; (b)
each class of shares shall bear any Class Expenses, as defined in Section C,
below; (c) each class shall have exclusive voting rights on any matter submitted
to shareholders that relates solely to its distribution arrangement; and (d)
each class shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class. In addition, Institutional Class and Class A shares shall have
the features described in Sections A, B, C and D, below.
A. Sales Charge and Distribution Fee Structure
-------------------------------------------
1. Institutional Class Shares. Institutional Class shares of each
--------------------------
Fund shall be offered at the then-current net asset value as disclosed in the
current prospectus for that Fund, including any prospectus supplements.
Institutional Class shares shall generally not be subject to front-end or
contingent deferred sales charges provided, however, that such charges may be
imposed in such cases as the Board of Directors of the Company ("Board") may
approve and as disclosed in a prospectus or prospectus supplement for a Fund.
Institutional Class shares will not, unlike the Class A shares, pay fees under a
Rule 12b-1 Plan (as defined below).
2. Class A Shares. Class A shares of each Fund shall be offered at
--------------
the then-current net asset value. Class A shares shall generally not be subject
to front-end or contingent deferred sales charges, provided, however, that such
charges may be imposed in such cases as the Board may approve and as disclosed
in a prospectus or prospectus supplement for a Fund. The Funds have adopted a
Plan pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1 Plan") under which
Class A shares of each Fund pay a Rule 12b-1 or service fee, equal to 0.25% of
the average daily net assets represented by shares attributable to that Class to
the Funds' distributor for specified services. Class A shares shall be
distinguished from the Institutional Class shares by the payment of the Rule
12b-1 fee.
B. Allocation of Income and Expenses
---------------------------------
1. General
-------
The gross income, realized and unrealized capital gains and
losses and expenses (other than Class Expenses, as defined below) of each Fund
shall be allocated to each class on the basis of its net asset value relative to
the net asset value of the Fund. Expenses to be
2
<PAGE>
so allocated also include expenses of the Company that are not attributable to a
particular Fund or class of a Fund ("Company Expenses") and expenses of the
particular Fund that are not attributable to a particular class of the Fund
("Fund Expenses"). Company Expenses include, but are not limited to, Board of
Director's fees, insurance costs and certain legal fees. Fund Expenses include,
but are not limited to, certain registration fees, advisory fees, custodial
fees, and other expenses relating to the management of the Fund's assets.
2. Class Expenses
--------------
Expenses attributable to a particular class ("Class Expenses")
shall be limited to: (a) payments pursuant to the Rule 12b-1 Plan for that
class; (b) transfer agent fees attributable to that class; (c) printing and
postage expenses related to preparing and distributing material such as
shareholder reports, prospectuses and proxy materials to current shareholders of
that class; (d) registration fees for shares of that class; (e) the expense of
administrative personnel and services as required to support the shareholders of
that class; (f) litigation or other legal expenses relating solely to that
class; and (g) Board of Director's fees incurred as a result of issues relating
to that class. Expenses described in (a) of this paragraph must be allocated to
the class for which they are incurred. All other expenses described in this
paragraph may be allocated as Class Expenses, but only if the officers of the
Company have determined, subject to Board approval or ratification, which of
such categories of expenses will be treated as Class Expenses, consistent with
applicable legal principles under the 1940 Act and the Internal Revenue Code of
1986, as amended ("Code").
In the event a particular expense is no longer reasonably
allocable by class or to a particular class, it shall be treated as a Company
Expense or Fund Expense, and in the event a Company Expense or Fund Expense
becomes allocable at a different level, including as a Class Expense, it shall
be so allocated, subject to compliance with Rule 18f-3 and to approval or
ratification by the Board.
The initial determination of expenses that will be allocated as
Class Expenses and any subsequent changes thereto shall be reviewed and approved
by the Board and by a majority of the Board who are not "interested persons" of
the Company, as defined in the 1940 Act.
3. Waivers or Reimbursements of Expenses
-------------------------------------
Expenses may be waived or reimbursed by the Funds' adviser, the
Funds' distributors or any other provider of services to a Fund or the Company
without the prior approval of the Board.
C. Exchange and Conversion Privileges
----------------------------------
1. Exchange
--------
Shareholders of a Fund may exchange shares of a particular class
for shares of the same class of any other fund advised by the Funds' investment
adviser at relative
3
<PAGE>
net asset value and with no initial sales charge or contingent deferred sales
charge, provided the shares to be acquired in the exchange are qualified for
sale in the shareholder's state of residence and subject to the applicable
requirements as to minimum amount and such other terms as may be set forth in
the Funds' prospectuses.
2. Conversion
----------
Shares of a Fund may convert from one class to another as
provided in the Funds' prospectuses or a supplement to a prospectus.
D. Board Review
------------
1. Initial Approval
----------------
The Board, including a majority of the Directors who are not
interested persons (as defined in the 1940 Act) of the Company or a Fund
("Independent Directors"), at a meeting held on December 17, 1998, initially
approved the Plan based on a determination that the Plan, including the expense
allocation, is in the best interests of each class and Fund individually and of
the Company. Their determination was based on their review of information
furnished to them which they deemed reasonably necessary and sufficient to
evaluate the Plan.
2. Approval of Amendments
----------------------
The Plan may not be amended materially unless the Board,
including a majority of the Independent Directors, have found that the proposed
amendment, including any proposed related expense allocation, is in the best
interests of each class and Fund individually and of the Company. Such finding
shall be based on information requested by the Board and furnished to them which
the Board deems reasonably necessary to evaluate the proposed amendment.
3. Periodic Review
---------------
The Board shall review reports of expense allocations and such
other information as they request at such times, or pursuant to such schedule,
as they may determine consistent with applicable legal requirements.
E. Contracts
---------
Any agreement related to a class arrangement shall require the parties
thereto to furnish to the Board, upon their request, such information as is
reasonably necessary to permit the Board to evaluate the Plan or any proposed
amendment.
4
<PAGE>
F. Amendments
----------
The Plan may not be amended to modify materially its terms unless such
amendment has been approved in the manner specified in Section D.2 of the Plan.
Effective Date: December 17, 1998
5
<PAGE>
EXHIBIT (P)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Michael Cahill, Philip Holl and Paul Webber, and each of them, his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to TCW Galileo Funds, Inc. and any amendment
or supplements thereto, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Marc I. Stern
- -----------------
February 1, 1995
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Michael Cahill, Philip Holl and Paul Webber, and each of them, his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to TCW Galileo Funds, Inc. and any amendment
or supplements thereto, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Thomas E. Larkin, Jr.
- -------------------------
February 1, 1995
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Michael Cahill, Philip Holl and Paul Webber, and each of them, his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to TCW Galileo Funds, Inc. and any amendment
or supplements thereto, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ John C. Argue
- -----------------
February 1, 1995
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Michael Cahill, Philip Holl and Paul Webber, and each of them, his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to TCW Galileo Funds, Inc. and any amendment
or supplements thereto, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Norman Barker, Jr.
- ----------------------
February 1, 1995
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Michael Cahill, Philip Holl and Paul Webber, and each of them, his true and
lawful attorney-in-fact as agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to TCW Galileo Funds, Inc. and any amendment
or supplements thereto, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Richard W. Call
- -------------------
February 1, 1995
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Alvin R. Albe, Jr., Michael E. Cahill and Philip K. Holl, and each of them, his
true and lawful attorney-in-fact as agent with full power of substitution and
resubstitution for him in his name, place, and stead, to sign any and all
registration statements applicable to TCW Galileo Funds, Inc. and any amendment
or supplements thereto, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Peter C. DiBona
- -------------------
December 21, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> TCW GALILEO CORE EQUITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 103,677
<INVESTMENTS-AT-VALUE> 147,502
<RECEIVABLES> 429
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 147,931
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 312
<TOTAL-LIABILITIES> 312
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51,274
<SHARES-COMMON-STOCK> 9,071
<SHARES-COMMON-PRIOR> 8,091
<ACCUMULATED-NII-CURRENT> 211
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 52,309
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 43,825
<NET-ASSETS> 147,619
<DIVIDEND-INCOME> 603
<INTEREST-INCOME> 27
<OTHER-INCOME> 0
<EXPENSES-NET> 584
<NET-INVESTMENT-INCOME> 46
<REALIZED-GAINS-CURRENT> 30,860
<APPREC-INCREASE-CURRENT> (6,787)
<NET-CHANGE-FROM-OPS> 24,119
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 37,055
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,516
<NUMBER-OF-SHARES-REDEEMED> 4,123
<SHARES-REINVESTED> 2,587
<NET-CHANGE-IN-ASSETS> (8,494)
<ACCUMULATED-NII-PRIOR> 165
<ACCUMULATED-GAINS-PRIOR> 58,504
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 511
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 584
<AVERAGE-NET-ASSETS> 140,033
<PER-SHARE-NAV-BEGIN> 19.29
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 2.73
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 5.76
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.27
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> TCW GALILEO LATIN AMERICA EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 24,371
<INVESTMENTS-AT-VALUE> 32,800
<RECEIVABLES> 337
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,137
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 136
<TOTAL-LIABILITIES> 136
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,373
<SHARES-COMMON-STOCK> 2,439
<SHARES-COMMON-PRIOR> 4,425
<ACCUMULATED-NII-CURRENT> 1,060
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,861)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,429
<NET-ASSETS> 33,001
<DIVIDEND-INCOME> 432
<INTEREST-INCOME> 24
<OTHER-INCOME> 0
<EXPENSES-NET> 288
<NET-INVESTMENT-INCOME> 168
<REALIZED-GAINS-CURRENT> 5,597
<APPREC-INCREASE-CURRENT> (3,167)
<NET-CHANGE-FROM-OPS> 2,598
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 781
<NUMBER-OF-SHARES-REDEEMED> 2,767
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (22,335)
<ACCUMULATED-NII-PRIOR> 892
<ACCUMULATED-GAINS-PRIOR> (14,458)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 207
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 288
<AVERAGE-NET-ASSETS> 41,955
<PER-SHARE-NAV-BEGIN> 12.51
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.94
<PER-SHARE-DIVIDEND> 0.0
<PER-SHARE-DISTRIBUTIONS> 0.0
<RETURNS-OF-CAPITAL> 0.0
<PER-SHARE-NAV-END> 13.53
<EXPENSE-RATIO> 1.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> TCW GALILEO CORE FIXED INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 42,806
<INVESTMENTS-AT-VALUE> 43,158
<RECEIVABLES> 1,019
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 44,177
<PAYABLE-FOR-SECURITIES> 22
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 296
<TOTAL-LIABILITIES> 318
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,994
<SHARES-COMMON-STOCK> 4,549
<SHARES-COMMON-PRIOR> 2,013
<ACCUMULATED-NII-CURRENT> 516
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,003)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 352
<NET-ASSETS> 43,859
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,240
<OTHER-INCOME> 0
<EXPENSES-NET> 132
<NET-INVESTMENT-INCOME> 1,108
<REALIZED-GAINS-CURRENT> 214
<APPREC-INCREASE-CURRENT> (93)
<NET-CHANGE-FROM-OPS> 1,229
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,165
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,451
<NUMBER-OF-SHARES-REDEEMED> 983
<SHARES-REINVESTED> 68
<NET-CHANGE-IN-ASSETS> 24,491
<ACCUMULATED-NII-PRIOR> 573
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3,217
<GROSS-ADVISORY-FEES> 65
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 132
<AVERAGE-NET-ASSETS> 35,476
<PER-SHARE-NAV-BEGIN> 9.62
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.64
<EXPENSE-RATIO> 0.70
<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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 191,629
<INVESTMENTS-AT-VALUE> 195,445
<RECEIVABLES> 6,164
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 201,609
<PAYABLE-FOR-SECURITIES> 618
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,853
<TOTAL-LIABILITIES> 2,471
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 192,993
<SHARES-COMMON-STOCK> 19,870
<SHARES-COMMON-PRIOR> 20,647
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 214
<ACCUMULATED-NET-GAINS> 2,543
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,816
<NET-ASSETS> 199,138
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,065
<OTHER-INCOME> 0
<EXPENSES-NET> 862
<NET-INVESTMENT-INCOME> 9,203
<REALIZED-GAINS-CURRENT> 2,556
<APPREC-INCREASE-CURRENT> (724)
<NET-CHANGE-FROM-OPS> 11,035
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,499
<DISTRIBUTIONS-OF-GAINS> 2,884
<DISTRIBUTIONS-OTHER> 214
<NUMBER-OF-SHARES-SOLD> 4,598
<NUMBER-OF-SHARES-REDEEMED> 6,505
<SHARES-REINVESTED> 1,130
<NET-CHANGE-IN-ASSETS> (9,623)
<ACCUMULATED-NII-PRIOR> 296
<ACCUMULATED-GAINS-PRIOR> 2,871
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 862
<AVERAGE-NET-ASSETS> 205,987
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 0.09
<PER-SHARE-DIVIDEND> 0.48
<PER-SHARE-DISTRIBUTIONS> 0.15
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.02
<EXPENSE-RATIO> 0.84
<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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 45,584
<INVESTMENTS-AT-VALUE> 44,454
<RECEIVABLES> 516
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 44,970
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 295
<TOTAL-LIABILITIES> 295
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,928
<SHARES-COMMON-STOCK> 4,626
<SHARES-COMMON-PRIOR> 5,701
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,654
<ACCUMULATED-NET-GAINS> (5,469)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,130)
<NET-ASSETS> 44,675
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,357
<OTHER-INCOME> 0
<EXPENSES-NET> 207
<NET-INVESTMENT-INCOME> 1,150
<REALIZED-GAINS-CURRENT> (14)
<APPREC-INCREASE-CURRENT> 205
<NET-CHANGE-FROM-OPS> 1,341
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,150
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 435
<NUMBER-OF-SHARES-SOLD> 1,605
<NUMBER-OF-SHARES-REDEEMED> 2,835
<SHARES-REINVESTED> 155
<NET-CHANGE-IN-ASSETS> (10,632)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 1,219
<OVERDIST-NET-GAINS-PRIOR> 5,455
<GROSS-ADVISORY-FEES> 133
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 207
<AVERAGE-NET-ASSETS> 53,155
<PER-SHARE-NAV-BEGIN> 9.70
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> 0.29
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.66
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 90,563
<INVESTMENTS-AT-VALUE> 92,640
<RECEIVABLES> 709
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 93,349
<PAYABLE-FOR-SECURITIES> 3,049
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 740
<TOTAL-LIABILITIES> 3,789
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 87,306
<SHARES-COMMON-STOCK> 9,222
<SHARES-COMMON-PRIOR> 8,219
<ACCUMULATED-NII-CURRENT> 343
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (166)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,077
<NET-ASSETS> 89,560
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,020
<OTHER-INCOME> 0
<EXPENSES-NET> 280
<NET-INVESTMENT-INCOME> 3,740
<REALIZED-GAINS-CURRENT> (204)
<APPREC-INCREASE-CURRENT> (1066)
<NET-CHANGE-FROM-OPS> 2,470
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,684
<DISTRIBUTIONS-OF-GAINS> 435
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,256
<NUMBER-OF-SHARES-REDEEMED> 655
<SHARES-REINVESTED> 402
<NET-CHANGE-IN-ASSETS> 8,118
<ACCUMULATED-NII-PRIOR> 287
<ACCUMULATED-GAINS-PRIOR> 473
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 207
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 280
<AVERAGE-NET-ASSETS> 83,321
<PER-SHARE-NAV-BEGIN> 9.91
<PER-SHARE-NII> 0.44
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> 0.48
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.71
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> TCW GALILEO SMALL CAP GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 81,907
<INVESTMENTS-AT-VALUE> 137,519
<RECEIVABLES> 202
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 137,723
<PAYABLE-FOR-SECURITIES> 440
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 183
<TOTAL-LIABILITIES> 623
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,620
<SHARES-COMMON-STOCK> 6,652
<SHARES-COMMON-PRIOR> 7,724
<ACCUMULATED-NII-CURRENT> (3,115)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,983
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 55,612
<NET-ASSETS> 137,100
<DIVIDEND-INCOME> 88
<INTEREST-INCOME> 47
<OTHER-INCOME> 0
<EXPENSES-NET> 757
<NET-INVESTMENT-INCOME> (622)
<REALIZED-GAINS-CURRENT> 12,423
<APPREC-INCREASE-CURRENT> 9,088
<NET-CHANGE-FROM-OPS> 20,889
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 8,673
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,412
<NUMBER-OF-SHARES-REDEEMED> 2,981
<SHARES-REINVESTED> 497
<NET-CHANGE-IN-ASSETS> (7,656)
<ACCUMULATED-NII-PRIOR> (2,493)
<ACCUMULATED-GAINS-PRIOR> 11,233
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 686
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 757
<AVERAGE-NET-ASSETS> 139,085
<PER-SHARE-NAV-BEGIN> 18.74
<PER-SHARE-NII> (.08)
<PER-SHARE-GAIN-APPREC> 3.05
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.10
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.61
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> TCW GALILEO EMERGING MARKETS FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 32,382
<INVESTMENTS-AT-VALUE> 36,167
<RECEIVABLES> 686
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 36,854
<PAYABLE-FOR-SECURITIES> 445
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 123
<TOTAL-LIABILITIES> 568
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,113
<SHARES-COMMON-STOCK> 4,238
<SHARES-COMMON-PRIOR> 5,738
<ACCUMULATED-NII-CURRENT> 385
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,997)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,785
<NET-ASSETS> 36,286
<DIVIDEND-INCOME> 480
<INTEREST-INCOME> 97
<OTHER-INCOME> 0
<EXPENSES-NET> 302
<NET-INVESTMENT-INCOME> 275
<REALIZED-GAINS-CURRENT> (1,977)
<APPREC-INCREASE-CURRENT> 2,486
<NET-CHANGE-FROM-OPS> 784
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 301
<NUMBER-OF-SHARES-REDEEMED> 1,801
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (11,440)
<ACCUMULATED-NII-PRIOR> 110
<ACCUMULATED-GAINS-PRIOR> (5,020)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 206
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 302
<AVERAGE-NET-ASSETS> 41,797
<PER-SHARE-NAV-BEGIN> 8.32
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> .19
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.56
<EXPENSE-RATIO> 1.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> TCW GALILEO ASIA PACIFIC EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 13,188
<INVESTMENTS-AT-VALUE> 12,645
<RECEIVABLES> 303
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,949
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 93
<TOTAL-LIABILITIES> 93
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,279
<SHARES-COMMON-STOCK> 2,289
<SHARES-COMMON-PRIOR> 2,892
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 217
<ACCUMULATED-NET-GAINS> (2,663)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (543)
<NET-ASSETS> 12,856
<DIVIDEND-INCOME> 75
<INTEREST-INCOME> 93
<OTHER-INCOME> 0
<EXPENSES-NET> 152
<NET-INVESTMENT-INCOME> 16
<REALIZED-GAINS-CURRENT> (4,496)
<APPREC-INCREASE-CURRENT> 2,799
<NET-CHANGE-FROM-OPS> (1,681)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,235
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,325
<NUMBER-OF-SHARES-REDEEMED> 2,317
<SHARES-REINVESTED> 389
<NET-CHANGE-IN-ASSETS> (8,471)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,068
<OVERDISTRIB-NII-PRIOR> 233
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 68
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 152
<AVERAGE-NET-ASSETS> 14,004
<PER-SHARE-NAV-BEGIN> 7.37
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> (0.62)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.14
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.62
<EXPENSE-RATIO> 2.22
<AVG-DEBT-OUTSTANDING> 0
<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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 199,066
<INVESTMENTS-AT-VALUE> 199,066
<RECEIVABLES> 803
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 199,869
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,156
<TOTAL-LIABILITIES> 1,156
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 198,713
<SHARES-COMMON-STOCK> 198,713
<SHARES-COMMON-PRIOR> 222,771
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 198,713
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,657
<OTHER-INCOME> 0
<EXPENSES-NET> 535
<NET-INVESTMENT-INCOME> 7,122
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,122
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,122
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,195,920
<NUMBER-OF-SHARES-REDEEMED> 1,224,414
<SHARES-REINVESTED> 4,436
<NET-CHANGE-IN-ASSETS> (24,058)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 339
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 542
<AVERAGE-NET-ASSETS> 273,524
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .026
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .026
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> TCW GALILEO EARNINGS MOMENTUM FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 44,109
<INVESTMENTS-AT-VALUE> 59,917
<RECEIVABLES> 741
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,658
<PAYABLE-FOR-SECURITIES> 425
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 106
<TOTAL-LIABILITIES> 531
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,828
<SHARES-COMMON-STOCK> 4,253
<SHARES-COMMON-PRIOR> 7,327
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,982
<ACCUMULATED-NET-GAINS> 11,473
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,808
<NET-ASSETS> 60,127
<DIVIDEND-INCOME> 26
<INTEREST-INCOME> 13
<OTHER-INCOME> 0
<EXPENSES-NET> 451
<NET-INVESTMENT-INCOME> (412)
<REALIZED-GAINS-CURRENT> 9,765
<APPREC-INCREASE-CURRENT> (4,569)
<NET-CHANGE-FROM-OPS> 4,784
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 6,157
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4
<NUMBER-OF-SHARES-REDEEMED> 3,585
<SHARES-REINVESTED> 507
<NET-CHANGE-IN-ASSETS> 41,540
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,865
<OVERDISTRIB-NII-PRIOR> 1,570
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 384
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 451
<AVERAGE-NET-ASSETS> 78,579
<PER-SHARE-NAV-BEGIN> 13.87
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> 1.26
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.92
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.14
<EXPENSE-RATIO> 1.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> TCW GALILEO MID-CAP GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 65,412
<INVESTMENTS-AT-VALUE> 100,704
<RECEIVABLES> 795
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 101,500
<PAYABLE-FOR-SECURITIES> 496
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 308
<TOTAL-LIABILITIES> 804
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,348
<SHARES-COMMON-STOCK> 8,592
<SHARES-COMMON-PRIOR> 14,451
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,777
<ACCUMULATED-NET-GAINS> 9,833
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35,292
<NET-ASSETS> 100,696
<DIVIDEND-INCOME> 69
<INTEREST-INCOME> 6
<OTHER-INCOME> 0
<EXPENSES-NET> 637
<NET-INVESTMENT-INCOME> (562)
<REALIZED-GAINS-CURRENT> 20,956
<APPREC-INCREASE-CURRENT> 2,720
<NET-CHANGE-FROM-OPS> 23,114
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 573
<NUMBER-OF-SHARES-REDEEMED> 6,432
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (35,154)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 1,215
<OVERDIST-NET-GAINS-PRIOR> 11,123
<GROSS-ADVISORY-FEES> 554
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 637
<AVERAGE-NET-ASSETS> 112,612
<PER-SHARE-NAV-BEGIN> 9.40
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> 2.37
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.72
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> TCW GALILEO CONVERTIBLE SECURITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 31,683
<INVESTMENTS-AT-VALUE> 36,556
<RECEIVABLES> 911
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 37,469
<PAYABLE-FOR-SECURITIES> 998
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 78
<TOTAL-LIABILITIES> 1076
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,886
<SHARES-COMMON-STOCK> 3,129
<SHARES-COMMON-PRIOR> 3,233
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 179
<ACCUMULATED-NET-GAINS> 1,813
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,873
<NET-ASSETS> 36,393
<DIVIDEND-INCOME> 219
<INTEREST-INCOME> 486
<OTHER-INCOME> 0
<EXPENSES-NET> 176
<NET-INVESTMENT-INCOME> 529
<REALIZED-GAINS-CURRENT> 1,450
<APPREC-INCREASE-CURRENT> 1,638
<NET-CHANGE-FROM-OPS> 3,617
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 710
<DISTRIBUTIONS-OF-GAINS> 2,114
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 259
<NUMBER-OF-SHARES-REDEEMED> 591
<SHARES-REINVESTED> 228
<NET-CHANGE-IN-ASSETS> (497)
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> 2,477
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 126
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 176
<AVERAGE-NET-ASSETS> 34,545
<PER-SHARE-NAV-BEGIN> 11.41
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 1.10
<PER-SHARE-DIVIDEND> 0.24
<PER-SHARE-DISTRIBUTIONS> 0.75
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.63
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> TCW GALILEO EUROPEAN EQUITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 48,310
<INVESTMENTS-AT-VALUE> 62,559
<RECEIVABLES> 752
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 63,317
<PAYABLE-FOR-SECURITIES> 1,764
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 87
<TOTAL-LIABILITIES> 1,851
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46,399
<SHARES-COMMON-STOCK> 4,829
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 57
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 761
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,249
<NET-ASSETS> 61,466
<DIVIDEND-INCOME> 6
<INTEREST-INCOME> 287
<OTHER-INCOME> 0
<EXPENSES-NET> 236
<NET-INVESTMENT-INCOME> 57
<REALIZED-GAINS-CURRENT> 761
<APPREC-INCREASE-CURRENT> 10,804
<NET-CHANGE-FROM-OPS> 11,622
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,910
<NUMBER-OF-SHARES-REDEEMED> 81
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 61,466
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 165
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 236
<AVERAGE-NET-ASSETS> 44,230
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 2.72
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.73
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> TCW GALILEO JAPANESE EQUITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 12,687
<INVESTMENTS-AT-VALUE> 11,121
<RECEIVABLES> 562
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,689
<PAYABLE-FOR-SECURITIES> 287
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 66
<TOTAL-LIABILITIES> 393
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,067
<SHARES-COMMON-STOCK> 1,321
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 73
<ACCUMULATED-NET-GAINS> (5,092)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,566)
<NET-ASSETS> 11,336
<DIVIDEND-INCOME> 12
<INTEREST-INCOME> 17
<OTHER-INCOME> 0
<EXPENSES-NET> 50
<NET-INVESTMENT-INCOME> (21)
<REALIZED-GAINS-CURRENT> (5,092)
<APPREC-INCREASE-CURRENT> 3,861
<NET-CHANGE-FROM-OPS> (1,292)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 52
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,607
<NUMBER-OF-SHARES-REDEEMED> 293
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 11,336
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 31
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 81
<AVERAGE-NET-ASSETS> 8,542
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> (1.33)
<PER-SHARE-DIVIDEND> 0.07
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.58
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> TCW GALILEO INTERNATIONAL EQUITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 69,403
<INVESTMENTS-AT-VALUE> 79,951
<RECEIVABLES> 23
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79,982
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24
<TOTAL-LIABILITIES> 24
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,438
<SHARES-COMMON-STOCK> 6,848
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 253
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (281)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,548
<NET-ASSETS> 79,958
<DIVIDEND-INCOME> 280
<INTEREST-INCOME> 21
<OTHER-INCOME> 0
<EXPENSES-NET> 48
<NET-INVESTMENT-INCOME> 253
<REALIZED-GAINS-CURRENT> (281)
<APPREC-INCREASE-CURRENT> 10,548
<NET-CHANGE-FROM-OPS> 10,520
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,155
<NUMBER-OF-SHARES-REDEEMED> 307
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 79,958
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 48
<AVERAGE-NET-ASSETS> 53,845
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.64
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.68
<EXPENSE-RATIO> .16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 17
<NAME> TCW GALILEO VALUE OPPORTUNITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 38,432
<INVESTMENTS-AT-VALUE> 41,513
<RECEIVABLES> 287
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,804
<PAYABLE-FOR-SECURITIES> 207
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59
<TOTAL-LIABILITIES> 266
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,028
<SHARES-COMMON-STOCK> 3,778
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 20
<ACCUMULATED-NET-GAINS> 1,449
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,081
<NET-ASSETS> 41,538
<DIVIDEND-INCOME> 181
<INTEREST-INCOME> 39
<OTHER-INCOME> 0
<EXPENSES-NET> 199
<NET-INVESTMENT-INCOME> 21
<REALIZED-GAINS-CURRENT> 1,449
<APPREC-INCREASE-CURRENT> 2,189
<NET-CHANGE-FROM-OPS> 3,659
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 41
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,681
<NUMBER-OF-SHARES-REDEEMED> 907
<SHARES-REINVESTED> 4
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</TABLE>
