<PAGE>
Registration No. 33-52272 and 811-7170
As filed with the Securities and Exchange Commission on March 1, 1999
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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. 24 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 27 [X]
(Check appropriate box or boxes)
TCW Galileo Funds, Inc
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(Exact Name of Registrant as Specified in Charter)
865 South Figueroa Street, Suite 1800
Los Angeles, California 90017
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(Address of Principal Executive Offices)
(213) 244-0000
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(Registrant's Telephone Number, including Area Code)
Philip K. Holl, Esq.
Secretary
865 South Figueroa Street, Suite 1800,
Los Angeles, California 90017
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b) of Rule
485
[_] on ____________ pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a) (1) of Rule
485
[_] 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
Page
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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............................. 11
MAIN RISKS................................................. 12
TCW GALILEO CORE FIXED INCOME FUND
INVESTMENT OBJECTIVES/APPROACH............................. 13
MAIN RISKS................................................. 14
TCW GALILEO MORTGAGE-BACKED SECURITIES FUND
INVESTMENT OBJECTIVES/APPROACH............................. 16
MAIN RISKS................................................. 17
TCW GALILEO TOTAL RETURN MORTGAGE-BACKED SECURITIES FUND
INVESTMENT OBJECTIVES/APPROACH............................. 19
MAIN RISKS................................................. 20
TCW GALILEO HIGH YIELD BOND FUND
INVESTMENT OBJECTIVES/APPROACH............................. 22
MAIN RISKS................................................. 23
RISK CONSIDERATIONS........................................ 25
MANAGEMENT OF THE FUNDS.................................... 37
MULTIPLE CLASS STRUCTURE................................... 39
ACCOUNT POLICIES AND SERVICES.............................. 40
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT.................... 44
TO SELL OR EXCHANGE SHARES................................. 45
DISTRIBUTIONS AND TAXES.................................... 46
FINANCIAL HIGHLIGHTS....................................... 47
FOR MORE INFORMATION....................................... 52
2
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INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
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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, short-term money
and liquidity market securities.
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TCW Galileo Core Fixed Income Maximize current income and achieve Invests in fixed income securities rated A
Fund above average total return consistent 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 Maximum current income Invests in mortgage-backed securities guaranteed
Securities Fund by, or secured by collateral which is guaranteed
by, the United States 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.
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TCW Galileo Total Return Maximize current income and achieve Invests in mortgage-backed securities guaranteed
Mortgage-Backed Securities Fund above average total return consistent by, or secured by collateral that is guaranteed
with prudent investment management over by, the United States government, its agencies,
a full market cycle 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.
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TCW Galileo High Yield Maximize current income and achieve Invests in high yield bonds, commonly known as
Bond Fund above average total return turn "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
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PRINCIPAL RISKS
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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:
. MARKET 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
This 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
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PRINCIPAL RISKS
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. 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 may hold various foreign currencies,
the value of the net assets of these Funds as measured in U.S. dollars can 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 cannot 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.
. PREPAYMENT RISK
. EXTENSION RISK
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 25.
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
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PERFORMANCE SUMMARY
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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 the performance of predecessor limited
partnerships of each Fund, which were managed by an affiliate of TCW Funds
Management, INC., using the same investment strategy as the Funds. The
performance of the partnerships were calculated using performance standards
applicable to private investment partnerships, which take into account all
elements of total return and reflect the deduction of all fees and expenses of
operation, except for the Money Market and Total Return Mortgage-Backed
Securities Funds. The predecessor limited partnerships were not registered under
the Investment Company Act of 1940 ("1940 Act") and, therefore, were not subject
to certain investment restrictions imposed by the 1940 Act. If the limited
partnerships had been registered under the 1940 Act and Subchapter M of the
Internal Revenue Code of 1986 as amended, their performance might have been
adversely affected. 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% 5.25%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
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*The Fund's total return for the period October 31, 1998 to December 31,
1998 is 0.81%
TCW Galileo Core Fixed Income Fund
7.82% 16.10% 6.60% 10.65% -7.73% 18.08% 2.03% 8.90% 9.04%
1990 1991 1992 1993 1994 1995 1996 1997 1998
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*The Fund's total return for the period October 31, 1998 to December 31,
1998 is 1.34%
TCW Galileo Mortgage-Backed Securities Fund
8.94% 11.07% 6.34% 4.53% -0.44% 11.58% 7.31% 6.81% 4.09%
1990 1991 1992 1993 1994 1995 1996 1997 1998
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*The Fund's total return for the period October 31, 1998 to December 31,
1998 is 0.40%
6
<PAGE>
TCW Galileo Total Return Mortgage-Backed Securities Fund
3.50% -6.20% 20.80% 5.10% 11.90% 7.23%
1993 1994 1995 1996 1997 1998
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*The Fund's total return for the period October 31, 1998 to December 31,
1998 is 0.50%
TCW Galileo High Yield Bond Fund
<TABLE>
<CAPTION>
<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% 2.27%
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 3.20%
Best and worst quarterly performance during this period
Fund Performance
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. Money Market Fund
Quarter ending June 30, 1989 2.38% (Best)
Quarter ending December 31, 1993 0.72% (Worst)
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. Core Fixed Income Fund
Quarter ending June 30, 1995 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)
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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)
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. 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
DECEMBER 31 1 YEAR 5 YEARS 10 YEARS* SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
. Money Market Fund 5.3% 5.1% 5.6% 5.7%
- -----------------------------------------------------------------------------------------------------
Salomon Brothers 3-Month T-Bill 5.2% 5.1% 5.4% 5.5%
Index
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. Core Fixed Income Fund 9.0% 5.7% N/A 7.7%
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Lehman Brothers Aggregate Bond 8.7% 7.3% N/A 8.7%
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. Mortgage-Backed Securities Fund 4.1% 5.8% N/A 6.7%
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Salomon Brothers 1-Year Treasury 5.9% 5.7% N/A 6.1%
Index
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. Total Return Mortgage-Backed 7.2% 7.4% N/A 7.3%
Securities Fund
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Lehman Brothers Mortgage-Backed 7.5% 7.2% N/A 6.9%
Securities Index
- -----------------------------------------------------------------------------------------------------
. High Yield Bond Fund 2.3% 8.2% N/A 10.4%
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Salomon Brothers High Yield Cash 4.4% 9.1% N/A 10.6%
Pay Index
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</TABLE>
- --------------
* No Fund, other than the Money Market Fund, has an operating history of ten
years or greater.
8
<PAGE>
FUND EXPENSES AND EXPENSE EXAMPLE
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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
TOTAL RETURN
CORE FIXED MORTGAGE-BACKED MORTGAGE-BACKED HIGH YIELD
MONEY MARKET INCOME SECURITIES SECURITIES BOND
<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 0.16% 0.22% 0.33% 0.20% 0.10%
Total Annual Fund Operating Expenses 0.41%/1/ 0.62% 0.83% 0.70% 0.85%
</TABLE>
1 The Adviser voluntarily agreed to reduce its fee or to pay the operating
expenses of the Fund to reduce Annual Fund Operating Expenses to 0.40% of Net
Assets through October 31, 1998.
9
<PAGE>
EXPENSE EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
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 higher or lower, the Example
is for comparison purposes only.
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------
MONEY MARKET $42 $132 $230 $ 518
CORE FIXED INCOME 63 199 346 774
HIGH YIELD BOND 87 271 471 1,049
TOTAL RETURN MORTGAGE- 72 224 390 871
BACKED SECURITIES
MORTGAGE-BACKED SECURITIES 85 265 460 1,025
10
<PAGE>
TCW GALILEO MONEY MARKET FUND
INVESTMENT OBJECTIVES/APPROACH
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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.
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
11
<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 liquid 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.
12
<PAGE>
TCW GALILEO CORE FIXED INCOME FUND
INVESTMENT OBJECTIVES/APPROACH
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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.
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 (except when maintaining a temporary defensive
position) at least 65% of the value 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 AND JEFFREY E. GUNDLACH ARE THE FUND'S
PORTFOLIO MANAGERS.
13
<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. Debt
securities that are rated below investment grade are considered to be
speculative. Those securities rated below investment grade are also commonly
known as "junk" 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 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.
14
<PAGE>
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
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 liquid 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.
The Fund may engage in active portfolio management which may result in increased
Fund transaction expenses and have tax consequences, such as increased realized
gains, for investors.
15
<PAGE>
TCW GALILEO MORTGAGE-BACKED SECURITIES FUND
INVESTMENT OBJECTIVES/APPROACH
- ------------------------------
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.
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 (except when maintaining a temporary defensive position) at
least 65% of the value of its total 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.
16
<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.
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<PAGE>
The Fund may invest some assets in inverse floaters and interest-only and
principal-only securities, which are sometimes referred to as derivatives. These
practices may reduce returns or increase volatility and may be very sensitive to
changes in interest 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 liquid 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.
The Fund may engage in active portfolio management which may result in increased
Fund transaction expenses and have tax consequences, such as increased realized
gains, for investors.
18
<PAGE>
TCW GALILEO TOTAL RETURN MORTGAGE-BACKED SECURITIES FUND
INVESTMENT OBJECTIVES/APPROACH
- ------------------------------
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,
marking 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.
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 (except when maintaining a temporary defensive position) at
least 65% of the value of its total 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.
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<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
20
<PAGE>
derivatives. These practices may be used to increase returns; however, such
practices sometimes may reduce returns or increase volatility and may be very
sensitive to changes in interest 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 liquid 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.
The Fund may engage in active portfolio management which may result in increased
Fund transaction expenses and have tax consequences such as increased realized
gains for investors.
21
<PAGE>
TCW GALILEO HIGH YIELD BOND FUND
INVESTMENT OBJECTIVES/APPROACH
- ------------------------------
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 give it
the potential for higher returns.
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 (except when maintaining a temporary defensive position) at least 65%
of the value 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.
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.
22
<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. Debt securities that are rated below investment grade are considered to
be speculative. Those securities rated below investment grade are also commonly
known as "junk" 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 cannot 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
23
<PAGE>
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 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 liquid 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.
The Fund may engage in active portfolio management which may result in increased
Fund transaction expenses and have tax consequences such as increased realized
gains for investors.
24
<PAGE>
RISK CONSIDERATIONS
- -------------------
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.
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. The fewer
the number of issuers in which a Fund invests, the greater the potential
volatility of its portfolio. 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.
The Adviser may temporarily invest up to 100% of the Fund's assets in high
quality, short-term money market instruments if it believes adverse economic or
market conditions, such as excessive volatility or sharp market declines,
justify taking a defensive investment posture. If the Fund attempts to limit
investment risk by temporarily taking a defensive investment position, it may be
unable to pursue its investment objective during that time, and it may miss out
on some or all of an upswing in the securities markets.
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<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 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
26
<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).
27
<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
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
28
<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 may hold various foreign
currencies from time to time, the value of the net assets of those Funds as
measured in United States dollars can 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. However,
it is not obligated to do so and, depending on the availability and cost of
these devices, the Fund may be unable to use foreign currency futures and
forward contracts to protect against currency uncertainty. Please see the
Statement of Additional Information for further information.
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.
29
<PAGE>
RISK CONSIDERATIONS
- -------------------
MORTGAGE-BACKED SECURITIES
- --------------------------
CREDIT AND MARKET RISKS OF MORTGAGE-BACKED SECURITIES. The investments by Core
Fixed Income 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 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.
30
<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
31
<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 may
be highly sensitive to changes in interest and tend to be less
liquid than other CMOs. In addition, prepayments of the underlying mortgages
likely would lower the Funds' returns from stripped securities they hold.
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
32
<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.
33
<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. The Adviser has been, and is currently in contact with,
each of its External Service Providers to evaluate their readiness for the year
2000. The Adviser has requested each of its External Service Providers to either
(i) prepare a description of its process for identifying date sensitive areas,
its approach for implementing changes, its testing methodology, along with its
timetable for completion, or (ii) certify as to its year 2000 compliance.
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
34
<PAGE>
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.
35
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RISK CONSIDERATIONS
- -------------------
EUROPEAN ECONOMIC AND MONETARY UNION
- ------------------------------------
Certain of the Funds will 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 was 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.
36
<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
December 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:
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS*
- ---------- ----------------------
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.
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.
37
<PAGE>
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS*
- ---------- ----------------------
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.
*Positions with the TCW Group, Inc. and its affiliates may have changed over
time.
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, 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 may reimburse 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:
Annual Management Fee
(As Percent of Average
FUND Net Asset Value)
- ---- ----------------------
Money Market .25%
38
<PAGE>
Core Fixed Income .40%
Mortgage-Backed Securities .50%
Total Return Mortgage-Backed Securities .50%
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 a 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 the
Adviser of its duties under the agreement.
MULTIPLE CLASS STRUCTURE
- ------------------------
Each Fund currently offers two classes of shares, Institutional Class shares and
Class N 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 N shares are also offered at the current net
asset value, but will be subject to fees 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 N shares for distribution and
related services. Because these fees are paid out of the Fund's Class N 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.
39
<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
for the day is determined will receive that same day's NAV if the orders were
received by the dealers, brokers or service providers from their customers prior
to 4:00 p.m. 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 and subsequent
investments. 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.
40
<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 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 800-386-3829.
EXCHANGE PRIVILEGE
You can exchange from one Class I 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).
41
<PAGE>
THIRD PARTY TRANSACTION
You may buy and redeem Fund shares through certain broker-dealers and financial
organizations and their authorized intermediaries. 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.
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).
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, investors in 401(k) and other group
42
<PAGE>
retirement accounts, investors who purchase shares through certain broker-
dealers 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)
43
<PAGE>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- --------------------------------------------------------------------------------
In Writing
Complete the New Account Form. (Same, except that you should include
Mail your New a note specifying the Fund name, your
Account Form and a check to: 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.
330 W. 9th Street
Poindexter Building, 1st 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)
(Fund Account Number)
- --------------------------------------------------------------------------------
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.
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.
44
<PAGE>
TO SELL OR EXCHANGE SHARES
By Mail To reach the Transfer
Write a letter of instruction that includes: Agent at DST Systems,
Inc., call toll free in
. your name(s) and signature(s) as they the U.S.
appear on the account form (800) 248-4486
. 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
the U.S.
Mail your letter of instruction to: (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.
330 W. 9th Street
Poindexter Building, 1st 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.
- ----------------------------------------------
45
<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.
46
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
The financial highlights table is intended to help you understand the Fund's
financial performance for the fiscal years indicated. Certain information
reflects financial results for a single Fund share. "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
<S> <C> <C> <C> <C> <C>
TEN MONTHS
ENDED
YEAR ENDED OCTOBER 31 10/31
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---- ---- ---- ---- -----
Investment operations:
Investment income - net 0.0519 0.0516 0.0509 0.0549 0.0304
Total from investment operations
Distributions:
Dividends from net investment (0.0519) (0.0516) (0.0509) (0.0549) (0.0304)
income -------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return (%) 5.31% 5.29% 5.21% 5.67% 3.04%/1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $242,451 $222,771 $233,671 $ 86,302 $124,392
Ratio of expenses to average net assets/3/ (%) 0.40% 0.40% 0.40% 0.40% 0.40%/2/
Ratio of net income to average net assets (%) 5.19% 5.17% 5.04% 5.49% 3.65%/2/
</TABLE>
/1/ For the ten months ended October 31, 1994 and not indicative of
full year's operating results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee, or to pay the
operating expenses of the Fund, to the extent necessary to limit the
annual ordinary operating expenses of the Fund to 0.40% of net assets
through December 31, 1998. Had such action not been taken, total
annualized operating expenses as a percentage of average net assets
would have been 0.41% for the fiscal year ended October 31, 1998, 0.44%
for the fiscal year ended October 31, 1996, 0.46% for the fiscal year
ended October 31, 1995 and 0.68% for the ten months ended October 31,
1994.
47
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
The financial highlights table is intended to help you understand the Fund's
financial performance for the fiscal years indicated. Certain information
reflects financial results for a single Fund share. "Total return" shows how
much your investment in the Institutional Class shares of the Fund would have
increased (or decreased) during each period, assuming you had reinvested all
dividends and distributions. These figures have been audited by Deloitte &
Touche LLP, whose report, along with Company's financial statements, are
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
TCW GALILEO CORE FIXED INCOME FUND
<S> <C> <C> <C> <C> <C>
TEN MONTHS
ENDED
Year Ended October 31 10/31
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period $ 9.62 $ 9.45 $ 9.61 $ 8.94 $ 10.04
-------- ------- ------- ------- -------
Investment operations:
Investment income - net 0.55 0.58 0.55 0.58 0.44
Net realized and unrealized gain 0.29 0.19 0.16 0.62 (1.16)
(loss) on investments -------- ------- ------- ------- -------
Total from investment operations 0.84 0.77 0.39 1.20 (0.72)
-------- ------- ------- ------- -------
Distributions:
Dividends from net investment (0.57) (0.60) (0.55) (0.53) (0.38)
income
Dividends from net realized gains -- -- -- -- --
on investments
Dividends in excess of net -- -- -- -- --
realized gains -------- ------- ------- ------- --------
Total Distributions (0.57) (0.60) (0.55) (0.53) (0.38)
-------- ------- ------- ------- --------
Net asset value, end of period $ 9.89 $ 9.62 $ 9.45 $ 9.61 $ 8.94
======== ======= ======= ======= ========
Total return (%) 9.02% 8.45% 4.26% 13.92% (7.24)%/1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $162,996 $19,368 $25,006 $36,236 $ 50,153
Ratio of expenses to average net assets (%) 0.62% 0.93% 0.76% 0.68%/3/ 0.50%/2,3/
Ratio of net income to average net assets (%) 5.60% 6.13% 5.85% 6.38% 6.11%/2/
Portfolio turnover rate (%) 272.77% 142.96% 238.73% 223.78% 208.63%/1/
</TABLE>
/1/ For the ten months ended October 31, 1994, and not indicative of a
full year's operating results.
/2/ Annualized.
/3/ The 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.
48
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
The financial highlights table is intended to help you understand the Fund's
financial performance for the fiscal years indicated. Certain information
reflects financial results for a single Fund share. "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
<S> <C> <C> <C> <C> <C>
TEN MONTHS
ENDED
YEAR ENDED OCTOBER 31 10/31
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period $ 9.70 $ 9.67 $ 9.58 $ 9.41 $ 9.86
------- ------- ------- ------- ---------
Investment operations:
Investment income - net 0.35 0.58 0.51 0.67 0.42
Net realized and unrealized gain 0.10 0.05 0.22 0.25 (0.48)
(loss) on investments ------- ------- ------- ------- ---------
Total from investment operations 0.45 0.63 0.73 0.92 (0.06)
------- ------- ------- ------- ---------
Distributions:
Dividends from net investment (0.11) (0.38) (0.46) (0.71) (0.39)
income
Dividends from net realized gains -- -- -- -- --
on investments
Dividends from Paid-in-Capital (0.44)
Dividends in excess of net -- (0.22) (0.18) (0.04) --
realized gains on investment ------- ------- ------- ------- ---------
Total Distributions (0.55) (0.60) (0.64) (0.75) (0.39)
------- ------- ------- ------- ---------
Net asset value, end of period $ 9.60 $ 9.70 $ 9.67 $ 9.58 $ 9.41
======= ======= ======= ======= =========
Total return (%) 4.73% 6.71% 7.86% 10.16% (0.61)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $43,639 $55,307 $61,835 $81,366 $ 134,948
Ratio of expenses to average net assets (%) 0.83% 0.77% 0.69% 0.61%/3/ 0.55%/2,3/
Ratio of net income to average net assets (%) 3.61% 6.00% 5.34% 7.13% 5.18%/2/
Portfolio turnover rate (%) 68.40% 109.91% 54.10% 37.83% 65.54%/1/
</TABLE>
/1/ For the ten months ended October 31, 1994 and not indicative of a
full year's operating results.
/2/ Annualized.
/3/ The 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
total annualized operating expenses would have been 0.62% of average
net assets and for the fiscal year ended October 31, 1995, total
operating expense would have been 0.63% of average net assets.
49
<PAGE>
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"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
(formerly TCW Galileo Long-Term Mortgage-Backed Securities Fund)
<S> <C> <C> <C> <C> <C>
TEN MONTHS
ENDED
YEAR ENDED OCTOBER 31 10/31
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period $ 9.91 $ 9.56 $ 9.56 $ 8.95 $ 10.07
-------- ------- -------- ------- --------
Investment operations:
Investment income - net 0.84 0.75 0.68 0.72 0.63
Net realized and unrealized gain (0.07) 0.32 0.02 0.71 (1.26)
(loss) on investments -------- ------- -------- ------- --------
Total from investment operations 0.77 1.07 0.70 1.43 (0.63)
-------- ------- -------- ------- --------
Distributions:
Dividends from net investment (0.86) (0.72) (0.68) (0.82) (0.49)
income
Dividends from net realized gains (0.05) -- -- -- --
on investments
Distributions in Excess of Net (0.01) -- (0.02) -- --
Investment Income -------- ------- -------- ------- --------
Total Distributions (0.92) (0.72) (0.70) (0.82) (0.49)
-------- ------- -------- ------- --------
Net asset value, end of period $ 9.76 $ 9.91 $ 9.56 $ 9.56 $ 8.95
======== ======= ======== ======= ========
Total return (%) 8.20% 11.66% 7.69% 16.84% (6.39)%/1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $101,501 $81,442 $112,260 $80,159 $66,632
Ratio of expenses to average net assets (%) 0.70% 0.67% 0.68% 0.68%/3/ 0.65%/2,3/
Ratio of net income to average net assets (%) 8.52% 7.77% 7.15% 7.88% 8.03%/2/
Portfolio turnover rate (%) 27.95% 16.01% 39.28% 23.76% 36.71%/1/
</TABLE>
1 For the ten months ended October 31, 1994 and not indicative of a
full year's operating results.
2 Annualized.
3 The Adviser has voluntarily agreed to reduce its fee from the Fund,
or to pay the operating expenses of the Fund, to the extent necessary
to limit the ordinary operating expenses of the Fund to 0.65% of net
assets through December 31, 1994. Had such action not been taken,
for the ten months ended October 31, 1994 total annualized operating
expenses would have been 0.78% of average net assets, and for the
fiscal year ended October 31, 1995, total operating expenses would
have been 0.69% of average net assets.
50
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
The financial highlights table is intended to help you understand the Fund's
financial performance for the fiscal years indicated. Certain information
reflects financial results for a single Fund share. "Total return" shows how
much your investment in the Institutional Class shares of the Fund would have
increased (or decreased) during each period, assuming you had reinvested all
dividends and distributions. These figures have been audited by Deloitte &
Touche LLP, whose report, along with Company's financial statements, are
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
TCW GALILEO HIGH YIELD BOND FUND
<S> <C> <C> <C> <C> <C>
TEN MONTHS
ENDED
YEAR ENDED OCTOBER 31 10/31
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period $ 10.11 $ 9.77 $ 9.74 $ 9.43 $ 10.12
-------- -------- -------- ------- -------
Investment operations:
Investment income - net 0.88 0.91 0.89 0.92 0.73
Net realized and unrealized gain (0.74) 0.34 0.03 0.39 (0.77)
(loss) on investments -------- -------- -------- ------- -------
Total from investment operations 0.14 1.25 0.92 1.31 (0.04)
-------- -------- -------- ------- -------
Distributions:
Dividends from net investment (0.89) (0.91) (0.89) (1.00) (0.65)
income
Dividends from net realized gains (0.15) -- -- -- --
on investments
Distributions in Excess of Net (0.01) -- -- -- --
Realized Gains -------- -------- -------- ------- -------
Total Distributions (1.05) (0.91) (0.89) (1.00) (0.65)
-------- -------- -------- ------- -------
Net asset value, end of period $ 9.20 $ 10.11 $ 9.77 $ 9.74 $ 9.43
======== ======== ======== ======= =======
Total return (%) 1.18% 13.26% 9.92% 14.65% (0.34)%/1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $165,702 $208,761 $183,815 $92,652 $90,577
Ratio of expenses to average net assets (%) 0.85% 0.83% 0.90% 0.87%/3/ 0.79%/2,3/
Ratio of net income to average net assets (%) 8.89% 9.10% 9.21% 9.60% 9.18%/2/
Portfolio turnover rate (%) 92.24% 109.45% 82.56% 36.32% 34.01%/1/
</TABLE>
1 For the ten months ended October 31, 1994 and not indicative 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.
51
<PAGE>
FOR MORE INFORMATION
<TABLE>
<CAPTION>
<S> <C>
To obtain information: TCW Galileo Funds, Inc.
__________________________ SEC file number: 811-7170
By telephone: More information on this Fund is available free upon request,
Call 1-800-FUNDTCW (386-3829) including the following:
By mail: Write to:
Annual/semiannual Report
TCW Galileo Funds, Inc.
c/o DST Systems, Inc. Describes the Fund's performance, lists portfolio holdings and
P.O. Box 419951 contains a letter from the Fund's manager discussing recent
Kansas City, MO 64141-6951 market conditions, economic trends and Fund strategies.
On the Internet Text-only
versions of Fund documents can Statement of Additional Information (SAI)
be viewed online or downloaded
from: Provides more details about the Fund and its policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is
SEC incorporated by reference (is legally considered part of this
http://www.sec.gov prospectus).
TCW
http://www.tcwgroup.com
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, 450 5th Street, N.W.
Washington, DC 20649-6009.
</TABLE>
52
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Institutional Class shares of nine 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 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.............................................................. 11
EXPENSE EXAMPLE............................................................ 12
TCW Galileo Convertible Securities Fund
INVESTMENT OBJECTIVES/APPROACH............................................. 13
MAIN RISKS................................................................. 14
TCW Galileo Select Equities Fund
INVESTMENT OBJECTIVES/APPROACH............................................. 16
MAIN RISKS................................................................. 17
TCW Galileo Earnings Momentum Fund
INVESTMENT OBJECTIVES/APPROACH............................................. 19
MAIN RISKS................................................................. 20
TCW Galileo Large Cap Growth Fund
INVESTMENT OBJECTIVES/APPROACH............................................. 22
MAIN RISKS................................................................. 23
TCW Galileo Large Cap Value Fund
INVESTMENT OBJECTIVES/APPROACH............................................. 24
MAIN RISKS................................................................. 25
TCW Galileo Aggressive Growth Equities Fund
INVESTMENT OBJECTIVES/APPROACH............................................. 26
MAIN RISKS................................................................. 27
TCW Galileo Small Cap Growth Fund
INVESTMENT OBJECTIVES/APPROACH............................................. 28
MAIN RISKS................................................................. 29
TCW Galileo Small Cap Value Fund
INVESTMENT OBJECTIVES/APPROACH............................................. 30
MAIN RISKS................................................................. 31
TCW Galileo Value Opportunities Fund
INVESTMENT OBJECTIVES/APPROACH............................................. 32
MAIN RISKS................................................................. 33
RISK CONSIDERATIONS........................................................ 34
MANAGEMENT OF THE FUNDS.................................................... 43
MULTIPLE CLASS STRUCTURE................................................... 47
ACCOUNT POLICIES AND SERVICES.............................................. 48
TO OPEN AN ACCOUNT/TO ADD TO AN ACCOUNT.................................... 52
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
TO SELL OR EXCHANGE SHARES................................................. 53
DISTRIBUTIONS AND TAXES.................................................... 54
FINANCIAL HIGHLIGHTS....................................................... 55
FOR MORE INFORMATION....................................................... 63
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
- --------------------------------------------------------------------------------
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 Large Cap Growth Fund Long-term capital appreciation Invests in equity securities of large
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 Fund Long-term capital appreciation Invests in equity securities issued by
companies that appear to offer
superior growth prospects.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Small Cap Growth Fund Long-term capital appreciation Invests in equity securities issued by
small capitalization growth companies.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Small Cap Value Fund Long-term capital appreciation Invests in equity securities issued by
small capitalization value companies.
- ------------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Value Opportunities Fund Long-term capital appreciation Invests in equity securities of
companies with market capitalizations
between $500 million and $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>
- --------------------------------------------------------------------------------
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 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:
. MARKET 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 cannot 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 foreign company
securities. In addition, because foreign securities generally are denominated
and pay dividends or interest in foreign currencies, and each Fund may hold
various foreign currencies, the value of the net assets of these Funds as
measured in U.S. dollars can be affected favorably or unfavorably 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 34.
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
market index. Both tables assume reinvestment of dividends and distributions.
The performance information includes the performance of predecessor limited
partnerships of each Fund, which were managed by an affiliate of TCW Funds
Management, INC., using the same investment strategy as the Funds. The
performance of the partnerships were calculated using performance standards
applicable to private investment partnerships, which take into account all
elements of total return and reflect the deduction of all fees and expenses of
operation, except for the Money Market and Total Return Mortgage-Backed
Securities Funds. The predecessor limited partnerships were not registered under
the Investment Company Act of 1940 ("1940 Act") and, therefore, were not subject
to certain investment restrictions imposed by the 1940 Act. If the limited
partnerships had been registered under the 1940 Act and Subchapter M of the
Internal Revenue Code of 1986 as amended, their performance might have been
adversely affected. 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 Convertible Securities Fund
<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% 12.52%
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: 10.8%
<TABLE>
<CAPTION>
TCW Galileo Select Equities Fund
<S> <C> <C> <C> <C> <C> <C> <C>
15.41% 10.35% 22.93% -7.04% 26.45% 20.58% 22.70% 37.97%
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: 17.7%
<TABLE>
<CAPTION>
TCW Galileo Earnings Momentum Fund
<S> <C> <C> <C> <C> <C>
23.95% -5.70% 26.43% 10.56% 9.94% 7.45%
1993 1994 1995 1996 1997 1998
----------------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to
December 31, 1998 is: 25.9%
7
<PAGE>
<TABLE>
<CAPTION>
TCW Galileo Large Cap Growth Fund
<S> <C>
8.70% 59.15%
1997 1998
--------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to
December 31, 1998 is: 22.0%
<TABLE>
<CAPTION>
TCW Galileo Large Cap Value Fund
<S> <C>
18.99%
1998
------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to
December 31, 1998 is: 8.4%
<TABLE>
<CAPTION>
TCW Galileo Aggressive Growth Equities Fund
<S> <C> <C> <C>
60.66% 12.38% 12.65% 63.30%
1995 1996 1997 1998
--------------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to
December 31, 1998 is: 39.6%
<TABLE>
<CAPTION>
TCW Galileo Small Cap Growth Fund
<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% 20.26%
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: 29.1%
<TABLE>
<CAPTION>
TCW Galileo Value Opportunities Fund
<S> <C> <C>
8.50% 17.10% 0.30%
1996 1997 1998
----------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to
December 31, 1998 is: 8.5%
8
<PAGE>
Best and worst quarterly performance during this period
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Fund Performance
- ---------------------------------------------------------------------------------------------------
<S> <C>
. Convertible Securities Fund
Quarter ending December 31, 1998 15.30% (Best)
Quarter ending September 30, 1998 -10.34% (Worst)
- ---------------------------------------------------------------------------------------------------
. Select Equities Fund
Quarter ending December 31, 1998 24.30% (Best)
Quarter ending September 30, 1998 -6.62% (Worst)
- ---------------------------------------------------------------------------------------------------
. Earnings Momentum Fund
Quarter ending June 30, 1997 29.40% (Best)
Quarter ending September 30, 1998 -24.71% (Worst)
- ---------------------------------------------------------------------------------------------------
. Large Cap Growth Fund
Quarter ending December 31, 1998 29.50% (Best)
Quarter ending September 30, 1998 -3.81% (Worst)
- ---------------------------------------------------------------------------------------------------
. Large-Cap Value Fund
Quarter ending December 31, 1998 20.90% (Best)
Quarter ending September 30, 1998 -10.46% (Worst)
- ---------------------------------------------------------------------------------------------------
. Aggressive Growth Equities Fund
Quarter ending December 31, 1998 47.80% (Best)
Quarter ending March 31, 1997 -12.10% (Worst)
- ---------------------------------------------------------------------------------------------------
. Small Cap Growth Fund
Quarter ending December 31, 1998 31.40% (Best)
Quarter ending September 30, 1998 -22.30% (Worst)
- ---------------------------------------------------------------------------------------------------
. Value Opportunities Fund
Quarter ending December 31, 1998 28.60% (Best)
Quarter ending September 30, 1998 -21.00% (Worst)
- ---------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Average annual total return as of Since
December 31 1 year 5 years inception
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
. Convertible Securities Fund 12.5% 12.0% 13.5%
- ----------------------------------------------------------------------------------------
First Boston Convertible Securities 6.5% 10.8% 12.3%
Index
- ----------------------------------------------------------------------------------------
. Select Equities Fund 38.0% 19.1% 19.4%
- ----------------------------------------------------------------------------------------
S&P 500 28.6% 24.1% 20.2%
- ----------------------------------------------------------------------------------------
. Earnings Momentum Fund 7.5% 9.3% 12.3%
- ----------------------------------------------------------------------------------------
Russell 2000 Index -2.6% 11.6% 13.5%
- ----------------------------------------------------------------------------------------
. Large Cap Growth Fund 59.1% N/A 43.0%
- ----------------------------------------------------------------------------------------
S&P/BARRA Growth Index 42.2% N/A 33.7%
- ----------------------------------------------------------------------------------------
. Large Cap Value Fund 19.0% N/A 18.4%
- ----------------------------------------------------------------------------------------
S&P/BARRA Value Index 14.7% N/A 15.8%
- ----------------------------------------------------------------------------------------
. Aggressive Growth Fund 63.3% N/A 34.2%
- ----------------------------------------------------------------------------------------
S&P 400 Mid-Cap 19.1% N/A 23.2%
- ----------------------------------------------------------------------------------------
. Small Cap Growth Fund 20.3% 20.5% 19.2%
- ----------------------------------------------------------------------------------------
Russell 2000 Index -2.6% 11.9% 12.5%
- ----------------------------------------------------------------------------------------
. Value Opportunities Fund 0.3% N/A 11.8%
- ----------------------------------------------------------------------------------------
Wilshire Mid-Cap 750 4.3% N/A 15.4%
- ----------------------------------------------------------------------------------------
</TABLE>
10
<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
Convertible Select Earnings Large Cap Large Cap Aggressive
Securities Equities Momentum Growth Value Growth
Equities
<S> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction Fees
1) Redemption None None None None None None
Fees
2) Exchange Fees None None None None None None
3) Contingent None None None None None None
Deferred 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 0.75% 0.75% 1.00% 0.55% 0.55% 1.00%
Fees
Distribution (12b-1) None None None None None None
Fees
Other Expenses 0.41% 0.11% 0.27% 1.98% 1.93% 0.17%
Total Annual 1.16%/1/ 0.86% 1.27% 2.53%/2/ 2.48%/3/ 1.17%
Fund Operating
Expenses
<CAPTION>
==============================================================================
FEE TABLE
Small Cap Small Cap Value
Growth Value Opportunities
<S> <C> <C> <C>
Shareholder
Transaction Fees
1) Redemption None None None
Fees
2) Exchange Fees None None None
3) Contingent None None None
Deferred Sales
Load
4) Sales Load on None None None None
Reinvested
Dividends
5) Sales Load on None None None None
Purchases
Annual Fund
Operating Expenses
Management 1.00% 1.00% 0.80%
Fees
Distribution (12b-1) None None None
Fees
Other Expenses 0.13% 0.20% 0.36%
Total Annual 1.13% 1.20%/4/ 1.16%
Fund Operating
Expenses
</TABLE>
1 The Adviser voluntarily agreed to reduce its fee or to pay the operating
expenses of the Fund to reduce Annual Fund Operating Expenses to 1.05% of
Net Assets through October 31, 1998.
2 The Adviser voluntarily agreed to reduce its fee or to pay the operating
expenses of the Fund to reduce Annual Fund Operating Expenses to 0.91% of
Net Assets through October 31, 1998.
3 The Adviser voluntarily agreed to reduce its fee or to pay the operating
expenses of the Fund to reduce Annual Fund Operating Expenses to 0.55% of
Net Assets through October 31, 1998.
4 Estimated. Fund has no operating history.
11
<PAGE>
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
Expense Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
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 higher or lower, the example
is for comparison purposes only.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convertible Securities $118 $368 $ 638 $1,409
Select Equities 88 274 475 1,061
Earnings Momentum 129 403 697 1,534
Large Cap Growth 256 788 1,345 2,866
Large Cap Value 251 773 1,321 2,816
Aggressive Growth Equities 119 372 644 1,420
Small Cap Growth 115 359 622 1,375
Small Cap Value 126 392 679 1,503
Value Opportunities 118 368 638 1,409
</TABLE>
12
<PAGE>
TCW Galileo Convertible Securities Fund
LOGO INVESTMENT OBJECTIVES/APPROACH
- ----------------------------------------
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 primarily 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 or if unrated
are deemed of comparable quality by the Adviser. These securities are considered
to be mostly speculative in nature.
The Fund seeks high total return from current income and capital
appreciation. To pursue this goal, the Fund (except when maintaining a
temporary defensive position) invests at least 65% of the value 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.
13
<PAGE>
LOGO 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
invests in convertible debt securities that are below investment
grade. Debt securities that are rated below investment grade are
considered to be speculative. These securities rated below investment
grade are also commonly known as "junk" bonds. 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 cannot 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
14
<PAGE>
. 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.
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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences such as
increased realized gains for investors.
15
<PAGE>
TCW Galileo Select Equities Fund
LOGO INVESTMENT OBJECTIVES/APPROACH
- ----------------------------------------
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 tank than small companies.
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. Except when maintaining a temporary defensive
position, the Fund anticipates that at least 65% of the value of its
total assets will be invested in equity securities of these companies.
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.
16
<PAGE>
LOGO 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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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
17
<PAGE>
be secured at all times by cash and liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences such as
increased realized gains for investors.
18
<PAGE>
TCW Galileo Earnings Momentum Fund
LOGO INVESTMENT OBJECTIVES/APPROACH
- ----------------------------------------
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.
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
Richard C. Farra, Charles Larsen and Lisa Zeller are the Fund's
portfolio managers.
19
<PAGE>
LOGO 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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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 cannot 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.
20
<PAGE>
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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences, such as
increased realized gains, for investors
21
<PAGE>
TCW Galileo Large Cap Growth Fund
LOGO INVESTMENT OBJECTIVE/APPROACH
- ---------------------------------------
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.
The Fund seeks long-term capital appreciation. To pursue this goal,
the Fund invests primarily in equity securities of large
capitalization U.S. companies with above-average earnings prospects.
It will invest (except when maintaining temporary defensive position)
at least 65% of the value 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.
22
<PAGE>
LOGO 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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences, such as
increased realized gains for investors.
23
<PAGE>
TCW Galileo Large Cap Value Fund
LOGO INVESTMENT OBJECTIVES/APPROACH
- ----------------------------------------
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.
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 (except when
maintaining temporary defensive position) at least 65% of the value
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 using techniques such as:
. 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.
24
<PAGE>
LOGO 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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences such as
increased realized gains for investors.
25
<PAGE>
TCW Galileo Aggressive Growth Equities Fund
LOGO INVESTMENT OBJECTIVES/APPROACH
- ----------------------------------------
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.
The Fund seeks long-term capital appreciation. To pursue this goal,
the Fund anticipates that at least 65% of the value of its total
assets will be invested (except when maintaining a temporary defensive
position) in equity securities in issuers which are characterized as
"growth" companies according to criteria established by the Adviser.
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.
26
<PAGE>
LOGO 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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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 cannot
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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences, such as
increased realized gains for investors.
27
<PAGE>
TCW Galileo Small Cap Growth Fund
LOGO INVESTMENT OBJECTIVES/APPROACH
- ----------------------------------------
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.
The Fund seeks long-term capital appreciation. To pursue this goal, it
invests (except when maintaining a temporary defensive position) at
least 65% of the value of its total assets in equity securities issued
by companies with market capitalizations, at the time of acquisition,
within the capitalization range of the companies comprising the
Standard & Poor's Small Cap 600 Index.
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, Nicholas J. Capuano and
Charles Larsen are the Fund's portfolio managers.
28
<PAGE>
LOGO 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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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 cannot
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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences, such
as increased realized gains, for investors.
29
<PAGE>
TCW Galileo Small Cap Value Fund
LOGO INVESTMENT OBJECTIVES/APPROACH
- ----------------------------------------
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.
The Fund seeks long-term capital appreciation. To pursue this goal, it
invests (except when maintaining a temporary defensive position) at
least 65% of the value of its total assets in equity securities issued
by value companies with market capitalizations, at the time of
acquisition, within the range of the companies comprising the Standard
& Poor's Small Cap 600 Index. 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.
30
<PAGE>
LOGO 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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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 cannot
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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences, such as
increased realized gains, for investors.
31
<PAGE>
TCW Galileo Value Opportunities Fund
LOGO INVESTMENT OBJECTIVES/APPROACH
- ----------------------------------------
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.
The Fund seeks long-term capital appreciation. To pursue this goal,
the Fund invests (except when maintaining a temporary defensive
position) at least 65% of the value of its total assets in equity
securities of companies with market capitalizations between $500
million and $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.
32
<PAGE>
LOGO 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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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 cannot
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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences, such as
increased realized gains, for investors.
33
<PAGE>
LOGO RISK CONSIDERATIONS
- -----------------------------
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.
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. The fewer the number of issuers in
which a Fund invests, the greater the potential volatility of its
portfolio.
The Adviser may temporarily invest up to 100% of a Fund's assets in
high quality, short-term money market instruments if it believes
adverse economic or market conditions, such as excessive volatility or
sharp market declines, justify taking a defensive investment posture.
If a Fund attempts to limit investment risk by temporarily taking a
defensive investment position, it may be unable to pursue its
investment objective during that time, and it may miss out on some or
all of an upswing in the securities markets.
34
<PAGE>
LOGO 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 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
35
<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. However, it is not obligated to do so and, depending on
the availability and cost of these services, the Fund may be unable to
use foreign currency futures and forward contracts to protect against
currency uncertainty. Please see the Statement of Additional
Information for further information.
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.
36
<PAGE>
LOGO 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 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 may invest in convertible securities rated
below investment grade. Debt securities that are rated below
investment grade are considered to be speculative. Those securities
rated below investment grade are also 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.
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
37
<PAGE>
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 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).
38
<PAGE>
LOGO RISK CONSIDERATIONS
- -----------------------------
Non-Diversified Status
- ----------------------
Each of the Galileo Equity Funds 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, 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.
39
<PAGE>
LOGO 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. The Adviser has been, and is currently in contact with, each of
its External Service Providers to evaluate their readiness for the
year 2000. The Adviser has requested each of its External Service
Providers to either (i) prepare a description of its process for
identifying date sensitive areas, its approach for implementing
changes, its testing methodology, along with its timetable for
completion, or (ii) certify as to its year 2000 compliance.
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
40
<PAGE>
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.
41
<PAGE>
LOGO RISK CONSIDERATIONS
- -----------------------------
European Economic and Monetary Union
- --------------------------------------
Certain of the Funds will 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 was 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)
have been redonominated in the euro and, thereafter 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;
(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.
42
<PAGE>
LOGO 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 December 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*
---------- ----------------------
<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.
Nicholas J. Capuano Senior Vice President, the Adviser, TCW
Asset Management Company and Trust
Company of the West.
Tyler D. Davis Mr. Davis joined TCW in 1998 after more
than seventeen years as an Analyst and
Portfolio Manager specializing in the
energy, financial and capital goods
industries. Previously, he served as a
Director and Partner at Cowen Asset
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Portfolio Business Experience
Manager(s) During Last Five Years*
---------- ----------------------
<S> <C>
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.
Richard C. Farra Senior Vice President, the Adviser, TCW
Asset Management Company and Trust
Company of the West. Previously, he was
managing director of the Domestic Equity
Group of Arco Investment Management
Company, a subsidiary of Arco.
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.
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 Larsen Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of
the West.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Portfolio Business Experience
Manager(s) During Last Five Years*
---------- ----------------------
<S> <C>
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.
Susan I. Schottenfeld Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of
the West.
Lisa Zeller Senior Vice President, the Adviser, TCW
Asset Management Company and Trust
Company of the West.
</TABLE>
* Positions with the TCW Group, Inc. and its affiliates may have
changed over time.
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, 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 may reimburse
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:
<TABLE>
<CAPTION>
Annual Management Fee
(As Percent of Average
Fund Net Asset Value)
---- ----------------
<S> <C>
Convertible Securities .75%
Select Equities .75%
</TABLE>
45
<PAGE>
<TABLE>
<S> <C>
Earnings Momentum 1.00%
Large Cap Growth .55%
Large Cap Value .55%
Aggressive Growth Equities 1.00%
Small Cap Growth 1.00%
Small Cap Value 1.00%
Value Opportunities Fund 0.80%
</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 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 the Adviser of its duties
under the agreement.
46
<PAGE>
LOGO MULTIPLE CLASS STRUCTURE
- ----------------------------------
Each Fund currently offers two classes of shares, Institutional Class
shares and Class N shares. Shares of each class of a Fund represents
an equal pro rata interest in that Fund and generally give you the
same voting, dividend, liquidation, and other rights. The
Institutional Class shares are offered at the current net asset value.
The Class N shares are also offered at the current net asset value,
but will be subject to fees 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 N shares for distribution and related
services. Because these fees are paid out of the Fund's Class N 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.
47
<PAGE>
Your Investment
LOGO 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
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 NAV for the day is
determined will receive that same day's NAV if the orders were
received by the dealers, brokers or service providers from their
customers prior to 4:00 P.M. 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
<TABLE>
<CAPTION>
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 and subsequent
investments. 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 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 I 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 Transaction
You may buy and redeem Fund shares through certain broker-dealers and
financial organizations and their authorized intermediaries. 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.
49
<PAGE>
Account statements
Every Fund 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.
50
<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.
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).
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, investors who
purchase shares through certain broker-dealers 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)
51
<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 (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 __________ Fund
DST Systems, Inc.
330 W. 9th Street
Poindexter Building, 1st 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)
(Fund Account Number)
- ---------------------------------------------------------------------------------------------------------------
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.
52
<PAGE>
<TABLE>
<CAPTION>
TO SELL OR EXCHANGE SHARES
<S> <C>
By Mail To reach the Transfer
Write a letter of instruction that Agent, DST Systems, Inc.,
includes: call toll free in the U.S.
. your name(s) and signature(s) as on
the account form (800) 248-4486
. 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 - Selling Shares"). Department at TCW Galileo
Mail your letter of instruction to: Funds, call toll free in
the U.S.
Regular Mail
DST Systems, Inc. (800) 386-3829
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
330 W. 9th Street
Poindexter Building, 1st 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.
- ------------------------------------------
</TABLE>
53
<PAGE>
LOGO 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.
54
<PAGE>
LOGO FINANCIAL HIGHLIGHTS
- ------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"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
Year (Commencement
Ended of Operations)
10/31 through 10/31
1998 1997
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Per-Share Data ($)
Net asset value, beginning of period $ 11.41 $ 10.00
------- -------
Investment operations:
Investment income - net 0.37 0.31
Net realized and unrealized gain
on investments (0.08) 1.43
------- -------
Total from investment operations 0.29 1.74
------- -------
Distributions:
Dividends from investment (0.37) (0.33)
income - net
Dividends from net realized gains (0.75) --
on investments
Distributions in excess of net realized --
gains (0.05)
------- -------
Total Distributions (1.17) (0.33)
------- -------
Net asset value, end of period $ 10.53 $ 11.41
======= =======
Total return (%) 2.69% 17.66%
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $27,388 $36,890
Ratio of expenses to average net assets (%) 1.05%/3/ 0.95%/2,3/
Ratio of net income to average net assets (%) 3.34% 3.54%/2/
Portfolio turnover rate (%) 139.65% 141.43%/1/
</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 and 1.05%
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 1.51% for the period January
2, 1997 (commencement of operations) through October 31, 1997 and
1.16% for the year ended October 31, 1998.
55
<PAGE>
LOGO FINANCIAL HIGHLIGHTS
- ------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"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
(formerly TCW Galileo Core Equities Fund)
Ten
Months
ended
Year Ended October 31 10/31
1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per-Share Data ($)
Net asset value, beginning of period $ 19.29 $ 15.93 $ 13.69 $ 11.57 $ 11.81
-------- -------- -------- -------- --------
Investment operations:
Investment income (loss) - (0.02) 0.01 0.11 0.06 0.04
net
Net realized and unrealized 3.38 3.57 2.18 2.11 (0.28)
gain (loss) on investments -------- -------- -------- -------- --------
Total from investment operations 3.36 3.58 2.29 2.17 (0.24)
-------- -------- -------- -------- --------
Distributions:
Dividends from investment -- (0.02) (0.05) (0.05) --
income - net
Dividends from net realized (5.76) (0.20) -- -- --
gains on investments
Dividends in excess of net -- -- -- -- --
realized gains -------- -------- -------- -------- --------
Total Distributions (5.76) (0.22) (0.05) (0.05) --
-------- -------- -------- -------- --------
Net asset value, end of period $ 16.89 $ 19.29 $ 15.93 $ 13.69 $ 11.57
======== ======== ======== ======== ========
Total return (%) 23.83% 22.68% 16.79% 18.85% (2.03)%/1/
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $184,865 $156,113 $231,302 $197,721 $136,122
Ratio of expenses to average net
assets (%) 0.86% 0.83% 0.82% 0.85% 0.91%/2/
Ratio of net income (loss) to average
net assets (%) (0.14)% 0.08% 0.18% 0.48% 0.44%/2/
Portfolio turnover rate (%) 103.51% 39.22% 39.58% 53.77% 23.53%/1/
</TABLE>
/1/ For the ten months ended October 31, 1994 and not indicative of a
full year's operating results.
/2/ Annualized.
56
<PAGE>
LOGO FINANCIAL HIGHLIGHTS
- ------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"Total return" shows how much your investment in the Institutional
Class shares of the Fund would have increased (or decreased) during
each period, assuming you had reinvested all dividends and
distributions. These figures have been audited by Deloitte & Touche
LLP, whose report, along with Company's financial statements, are
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
TCW Galileo Earnings Momentum Fund
Year Ended October 31
1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per-Share Data ($)
Net asset value, beginning of year $ 13.87 $ 13.01 $ 11.47 $ 10.00
------- -------- ------- -------
Investment operations:
Investment income (loss) - net (0.14) (0.12) (0.11) (0.03)
Net realized and unrealized gain (2.20) 1.98 1.72 1.51
on investments ------- -------- ------- -------
Total from investment operations (2.34) 1.86 1.61 1.48
------- -------- ------- -------
Distributions
Dividends from investment -- -- -- --
income - net
Dividends from net realized gains (0.97) (1.00) (0.07) (0.01)
on investments
Dividends in excess of net investment -- -- -- (0.01)
income ------- -------- ------- -------
Total Distributions (0.97) (1.00) (0.07) (0.01)
------- -------- ------- -------
Net asset value, end of period $ 10.56 $ 13.87 $ 13.01 $ 11.47
======= ======== ======= =======
Total return (%) (17.76)% 15.53% 13.99% 14.76%
Ratios/Supplemental Data
Net assets, end of year ($ x 1,000) $32,299 $101,667 $77,994 $63,411
Ratio of expenses to average net 1.27% 1.17% 1.13% 1.14%/1/
assets (%)
Ratio of net income (loss) to average net (1.10)% (0.96%) (0.82%) (0.28%)
assets (%)
Portfolio turnover rate (%) 51.25% 93.06% 99.03% 85.91%
</TABLE>
/1/ The Adviser has voluntarily agreed to reduce its fee from the
Fund, or to pay the operating expenses of the Fund, to the extent
necessary to limit the ordinary operating expenses of the Fund to
1.14% of net assets through December 31, 1995. Had such action
not been taken, total operating expenses for the fiscal years
ended October 31, 1996 and October 31, 1995 would have been 1.14%
of average net assets.
57
<PAGE>
LOGO FINANCIAL HIGHLIGHTS
- ------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"Total return" shows how much your investment in the Institutional
Class shares of the Fund would have increased (or decreased) during
each period, assuming you had reinvested all dividends and
distributions. These figures have been audited by Deloitte & Touche
LLP, whose report, along with Company's financial statements, are
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
TCW Galileo Large Cap Growth Fund
June 3, 1998
(Commencement of Operations)
through October 31, 1998
---------------------------------------------------------------------------------------
<S> <C>
Per-Share Data ($)
Net asset value, beginning of period $10.00
------
Investment operations:
Investment income - net --
Net realized and unrealized gain
(loss) on investments 1.18
------
Total from investment operations 1.18
------
Distributions:
Dividends from investment --
income - net
Dividends from net realized --
gains on investments
Total Distributions --
------
Net asset value, end of period $11.18
======
Total return (%) 11.80%/1/
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $7,800
Ratio of expenses to average net assets (%) 0.91%/2,3/
Ratio of net income (loss) to average net
assets (%) (0.07)%/2/
Portfolio turnover rate (%) 50.76%/1/
</TABLE>
/1/ For the period June 3, 1998 (commencement of operations) through
October 31, 1998 and not indicative of a full year's operating
results.
/2/ Annualized.
/3/ The Adviser has voluntarily agreed to reduce its fee, or to pay
the operating expenses of the Fund, to the extent necessary to
limit ordinary operating expenses of the Fund to 0.91% of net
assets through December 31, 1998. Had such action not been
taken, total annualized operating expenses for the period June
3, 1998 (commencement of operations) through October 31, 1998
would have been 2.53% of average net assets.
58
<PAGE>
LOGO FINANCIAL HIGHLIGHTS
- ------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"Total return" shows how much your investment in the Institutional
Class shares of the Fund would have increased (or decreased) during
each period, assuming you had reinvested all dividends and
distributions. These figures have been audited by Deloitte & Touche
LLP, whose report, along with Company's financial statements, are
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
TCW Galileo Large Cap Value Fund
June 3, 1998
(Commencement of Operations)
through October 31, 1998
----------------------------------------------------------------------------------------
<S> <C>
Per-Share Data ($)
Net asset value, beginning of period $10.00
------
Investment operations:
Investment income - net 0.04
Net realized and unrealized gain
(loss) on investments 0.08
------
Total from investment operations 0.12
------
Distributions:
Dividends from investment --
income - net
Dividends from net realized --
gains on investments ------
Total Distributions --
------
Net asset value, end of period $10.12
======
Total return (%) 1.20%/3/
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $7,505
Ratio of expenses to average net assets (%) 0.55%/1,2/
Ratio of net income (loss) to average net
assets (%) 1.04%/1/
Portfolio turnover rate (%) 83.84%/3/
</TABLE>
/1/ Annualized.
/2/ The Adviser has voluntarily agreed to reduce its fee, or to pay
the operating expenses of the Fund, to the extent necessary to
limit ordinary operating expenses of the Fund to 0.55% of net
assets through December 31, 1998. Had such action not been
taken, total annualized operating expenses for the period June
3, 1998 (commencement of operations) through October 31, 1998
would have been 2.48% of average net assets.
/3/ For the period June 3, 1998 (commencement of operations) and not
indicative of a full year's operating results.
59
<PAGE>
LOGO FINANCIAL HIGHLIGHTS
- ------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"Total return" shows how much your investment in the Institutional
Class shares of the Fund would have increased (or decreased) during
each period, assuming you had reinvested all dividends and
distributions. These figures have been audited by Deloitte & Touche
LLP, whose report, along with Company's financial statements, are
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
TCW Galileo Aggressive Growth Equities Fund
(formerly TCW Galileo Mid-Cap Growth Fund)
June 3, 1996
(Commencement
of Operations)
through
Year Ended October 31 10/31
1998 1997 1996
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per-Share Data ($)
Net asset value, beginning of period $ 9.40 $ 9.19 $ 10.00
------- -------- ---------
Investment operations:
Investment income (loss) - net (0.11) (0.08) (0.03)
Net realized and unrealized gain
(loss) on investments 2.06 0.29 (0.78)
------- -------- ---------
Total from investment operations 1.95 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 $ 11.35 $ 9.40 $ 9.19
======= ======== =========
Total return (%) 20.74% 2.28% (8.10)%/1/
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $84,904 $135,850 $ 92,430
Ratio of expenses to average net 1.17% 1.12% 1.20%/2,3/
assets (%)
Ratio of net income (loss) to average net
assets (%) (1.03)% (0.86)% (0.80)%/2/
Portfolio turnover rate (%) 55.36% 50.45% 19.19%/1/
</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>
LOGO FINANCIAL HIGHLIGHTS
- ------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"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 10/31
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per-Share Data ($)
Net asset value, beginning of period $ 18.74 $ 17.17 $ 13.53 $ 9.39 $ 10.00
-------- -------- -------- ------- ---------
Investment operations:
Investment income (loss) - net (0.18) (0.15) (0.13) (0.07) (0.04)
Net realized and unrealized gain (0.90) 1.91 4.08 4.72 (0.57)
(loss) on investments -------- -------- -------- ------- ---------
Total from investment operations (1.08) 1.76 3.95 4.65 (0.61)
-------- -------- -------- ------- ---------
Distributions:
Dividends from investment -- -- (0.01) -- --
income - net
Dividends from net realized (1.18) (0.19) (0.30) (0.51) --
gains on investments
Dividends in excess of net -- -- -- -- --
realized gains -------- -------- -------- ------- ---------
Total Distributions: (1.18) (0.19) (0.31) (0.51) --
-------- -------- -------- ------- ---------
Net asset value, end of period $ 16.48 $ 18.74 $ 17.17 $ 13.53 $ 9.39
======== ======== ======== ======= =========
Total return (%) (5.98)% 10.38% 29.73% 49.89% (6.10)%/1/
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $116,050 $144,756 $132,444 $66,056 $ 51,089
Ratio of expenses to average net 1.13% 1.14% 1.14% 1.21%3 1.09%/2,3/
assets (%)
Ratio of net income (loss) to average net (0.95)% (0.89)% (0.76)% (0.61)% (0.59)%/2/
assets (%)
Portfolio turnover rate (%) 63.67% 60.52% 45.43% 89.73% 88.63%/1/
</TABLE>
/1/ For the period March 1, 1994 (commencement of operations) through
October 31, 1994 and not indicative of a full year's operating
results.
/2/ Annualized.
/3/ The 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>
LOGO FINANCIAL HIGHLIGHTS
- ------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"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 Value Opportunities Fund
November 3, 1997
(Commencement of Operations)
through October 31, 1998
----------------------------------------------------------------------------------------
<S> <C>
Per-Share Data ($)
Net asset value, beginning of period $ 10.00
-------
Investment operations:
Investment income (loss) - net --
Net realized and unrealized gain (0.75)
(loss) on investments -------
Total from investment operations (0.75)
-------
Distributions:
Dividends from investment income - net --
Dividends from net realized gains on --
investments
Dividends in excess of net realized gains (0.01)
-------
Total Distributions (0.01)
-------
Net asset value, end of period $ 9.24
=======
Total return (%) (7.49)%/1/
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $28,634
Ratio of expenses to average net assets (%) 1.16%/2/
Ratio of net income to average net assets (%) 0.05%/2/
Portfolio turnover rate (%) 97.30%/1/
</TABLE>
/1/ For the period November 3, 1997 (commencement of operations)
through October 31, 1998 and not indicative of a full year's
operating results.
/2/ Annualized.
62
<PAGE>
For More Information
<TABLE>
<CAPTION>
<S> <C>
To obtain information: TCW Galileo Funds, Inc.
_______________________________ SEC file number: 811-7170
By telephone: More information on these Funds is available free upon request,
Call: 1-800 FUNDTCW (386-3829) including the following:
By mail: Write to:
Annual/Semiannual Report
TCW Galileo Funds, Inc.
c/o DST System, Inc. Describes each Fund's performance, lists portfolio holdings and
P.O. Box 419951 contains a letter from each Fund's portfolio-manager discussing
Kansas City, MO 64141-6951 recent market conditions, economic trends and Fund strategies.
On the Internet: Text-only
versions of Fund documents filed Statement of Additional Information (SAI)
with the SEC can be viewed online
or downloaded from: Provides more details about each Fund and its policies. A current SAI
SEC is on file with the Securities and Exchange Commission (SEC) and is
http://www.sec.gov incorporated by reference (is legally considered part of this
prospectus).
TCW
http://www.tcwgroup.com
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, 450 5/th/ Street, N.W.,
Washington, DC 20549-6009.
</TABLE>
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
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
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 Invests in debt securities issued by
and 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:
. MARKET 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 cannot 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>
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 partnerships, which were managed by an affiliate of TCW Funds
Management, INC., using the same investment strategy as the Funds. The
performance of the partnerships were calculated using performance standards
applicable to private investment partnerships, which take into account all
elements of total return and reflect the deduction of all fees and expenses of
operation, except for the European Equities Fund. The predecessor limited
partnerships were not registered under the Investment Company Act of 1940 ("1940
Act") and, therefore, were not subject to certain investment restrictions
imposed by the 1940 Act. If the limited partnerships had been registered under
the 1940 Act and Subchapter M of the Internal Revenue Code of 1986 as amended,
their performance might have been adversely affected. 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
94.20% -22.40% 6.90% 20.40% -35.30% -2.19%
1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------
* The Fund's total return for the period October 31, 1998 to December 31, 1998
is 6.4%
TCW Galileo Emerging Markets Equities Fund
61.70% -22.90% -8.90% 16.40% 0.10% -33.60%
1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
* The Fund's total return for the period October 31, 1998 to December 31, 1998
is 2.2%
TCW Galileo Emerging Markets Income Fund
8.90% 10.42% -23.71%
1996 1997 1998
- ----------------------------------
* The Fund's total return for the period October 31, 1998 to December 31, 1998
is 8.7%
5
<PAGE>
TCW Galileo European Equities Fund
25.45%
1998
------
* The Fund's total return for the period October 31, 1998 to December 31, 1998
is 9.2%
TCW Galileo International Equities Fund
3.70% 4.90% 5.10% -0.80% 20.85%
1994 1995 1996 1997 1998
- -----------------------------------------------------------
* The Fund's total return for the period October 31, 1998 to December 31, 1998
is 9.3%
TCW Galileo Japanese Equities Fund
- -2.39% -15.13% -45.28% 31.30%
1995 1996 1997 1998
- --------------------------------------------------
* The Fund's total return for the period October 31, 1998 to December 31, 1998
is 12.2%
TCW Galileo Latin America Equities Fund
17.91% 27.94% 53.38% -22.19% -19.72% 24.40% 33.59% -38.59%
1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------
* The Fund's total return for the period October 31, 1998 to December 31, 1998
is -2.7%
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 -24.90% (Worst)
- ---------------------------------------------------------------
* Emerging Markets Income Fund
Quarter ending December 31, 1998 18.60% (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 December 31, 1998 18.70% (Best)
Quarter ending September 30, 1998 -14.85% (Worst)
- ---------------------------------------------------------------
* Japanese Equities Fund
Quarter ending December 31, 1998 27.90% (Best)
Quarter ending December 31, 1997 -28.53% (Worst)
- ---------------------------------------------------------------
* Latin America Equities Fund
Quarter ending December 31, 1993 35.90% (Best)
Quarter ending March 31, 1995 -29.09% (Worst)
- ---------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN SINCE
AS OF DECEMBER 31 1 YEAR 5 YEARS INCEPTION
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. Asia Pacific Equities Fund -2.2% -8.8% 3.6%
- ---------------------------------------------------------------------------------------------
MSCI Far East Free (Ex Japan) -7.4% -13.8% -2.3%
- ---------------------------------------------------------------------------------------------
. Emerging Markets Equities Fund -33.6% -11.5% -2.3%
- ---------------------------------------------------------------------------------------------
IFC Investable Emerging Markets Total -22.0% -10.1% -1.0%
Return Index
- ---------------------------------------------------------------------------------------------
. Emerging Markets Income Fund -23.7% N/A -3.6%
- ---------------------------------------------------------------------------------------------
J.P. Morgan Emerging Markets Bond -14.4% N/A 4.3%
Index Plus
- ---------------------------------------------------------------------------------------------
. European Equities Fund 25.4% N/A 23.4%
- ---------------------------------------------------------------------------------------------
MSCI Europe 15 Index 28.9% N/A 30.0%
- ---------------------------------------------------------------------------------------------
. International Equities Fund 20.8% 6.5% 7.9%
- ---------------------------------------------------------------------------------------------
MSCI EAFE Index 20.3% 9.5% 10.9%
- ---------------------------------------------------------------------------------------------
. Japanese Equities Fund 31.3% N/A -13.2%
- ---------------------------------------------------------------------------------------------
TSE First Section Index 7.8% N/A -11.9%
- ---------------------------------------------------------------------------------------------
. Latin America Equities Fund -38.6% -8.6% 5.3%
- ---------------------------------------------------------------------------------------------
IFC Investable Total Return -35.6% -6.0% 8.0%
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
Pacific Markets Markets Equities Equities Equities America
Equities Equities Income Equities
<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 Reinvested None None None None None None None
Dividends
5) Sales Load on Purchases None None None None None None None
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 1.48% 0.70% 0.78% 0.31% 0.17% 0.76% 0.64%
Total Annual Fund 2.48% 1.70% 1.53% 1.06% 0.17% 1.51%/1/ 1.64%
Operating Expenses
</TABLE>
1. The Adviser voluntarily agreed to reduce its fee or to pay the operating
expenses of the Fund to reduce Annual Fund Operating Expenses 1.20% of Net
Assets through October 31, 1998.
9
<PAGE>
EXPENSE EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
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 higher or lower, the example
is for comparison purposes only.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asia Pacific Equities $251 $773 $1,321 $2,816
Emerging Markets Equities 173 536 923 2,009
Emerging Markets Income 156 483 834 1,824
European Equities 108 337 585 1,294
International Equities 17 55 96 217
Japanese Equities 154 477 824 1,802
Latin America Equities 167 517 892 1,944
</TABLE>
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 value of the Fund's total assets will be
invested (except when maintaining a temporary defensive position) 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.
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.
Terence F. Mahony is the Fund's Portfolio Manager.
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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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 cannot 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
12
<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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences, such as
increased realized gains, for investors.
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 the value of its total assets will
be invested (except when maintaining a temporary defensive position)
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
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 or any affiliate thereof (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>
development. These analyses and estimates form the basis for a
calculation of the expected return for each market, which is a key
element of country allocation. The next step in the investment
decision process is industry analysis within sectors, which includes
assessing the effects of such developments as privatization programs,
infrastructure investments, consumer trends and government regulation
on particular industry sectors. The Adviser attempts to identify the
sectors that would benefit from structural changes. The Adviser also
considers the possible impact of short-term cyclical factors, such as
business and political cycles, on particular industries. These
analyses produce industry weightings for each market.
In selecting Emerging Market Companies for investment, the Adviser
takes into account a variety of factors, including price/earnings
ratio, earnings growth, quality of management, availability of new
products and markets, current and historical stock prices, sales
growth and country factors affecting particular companies.
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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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 cannot 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
16
<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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences, such as
increased realized gains, for investors.
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 (except when maintaining
a temporary defensive position) at least 65% of the value 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 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 Development or any affiliate thereof (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 cannot 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. Debt securities
that are rated below investment grade are considered to be
speculative. Those securities rated below investment grade are also
commonly known as "junk" 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 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
19
<PAGE>
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. issuers.
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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences, such as
increased realized gains, for investors.
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 (except when maintaining a temporary defensive position)
at least 65% of the value 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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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 cannot 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
22
<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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences, such as
increased realized gains, for investors.
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
(except when maintaining a temporary defensive position) 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%
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 cannot 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 liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences, such as
increased realized gains, for investors.
26
<PAGE>
TCW GALILEO JAPANESE EQUITIES FUND
INVESTMENT OBJECTIVES/APPROACH
The Fund seeks long-term capital appreciation. To pursue this goal, it
invests (except when maintaining a temporary defensive position) at
least 65% of the value 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 the value 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 may invest up to 35% of its total assets in debt
securities of issuers located in Japan or issued or guaranteed by the
Japanese government.
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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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 cannot
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
28
<PAGE>
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 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. Debt securities that are rated below
investment grade are considered to be speculative. Those securities
rated below investment grade are also commonly known as "junk" bonds.
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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences, such as
increased realized gains, for investors.
29
<PAGE>
TCW GALILEO LATIN AMERICA EQUITIES FUND
INVESTMENT OBJECTIVES/APPROACH
The Fund seeks long-term capital appreciation. To pursue this goal, it
invests (except when maintaining a temporary defensive position) at
least 65% of the value 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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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 cannot 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.
32
<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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences, such as
increased realized gains, for investors.
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. The fewer the number of issuers in
which a Fund invests, the greater the potential volatility of its
portfolio.
The Adviser may temporarily invest up to 100% of the Fund's assets in
high quality, short-term money market instruments if it believes
adverse economic or market conditions, such as excessive volatility or
sharp market declines, justify taking a defensive investment posture.
If the Fund attempts to limit investment risk by temporarily taking a
defensive investment position, it may be unable to pursue its
investment objective during that time, and it may miss out on some or
all of an upswing in the securities markets.
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
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. 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
Foreign Investing
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. However, they are not
obligated to do so and, depending on the availability and cost of
these devices, the Funds may be unable to use foreign currency futures
and forward contracts to protect against currency uncertainty. Please
see the Statement of Additional Information for further information.
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
Investors should recognize that investing in securities of emerging
market countries through investment in the Asia Pacific Equities,
Emerging Markets Equities, Emerging Markets Income, European Equities,
International Equities and Latin America Equities Funds involves
certain risks, and considerations, including those set forth below,
which are not typically associated with investing in the United States
or other developed countries.
Political and economic structures in many emerging markets countries
may be undergoing significant evolution and rapid development, and
such countries may lack the social, political and economic stability
characteristics of more developed countries. Some of these countries
may have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private
companies.
The securities markets of emerging market countries are substantially
smaller, less developed, less liquid and more volatile than the major
securities markets in the United States and other developed nations.
The limited size of many emerging securities markets and limited
trading volume in issuers compared to 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
Risks Associated With Emerging Market Countries
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 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 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. Debt securities that are rated below
investment grade are considered to be speculative. Those securities
rated below investment grade are also 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.
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
Fixed Income Securities
40
<PAGE>
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).
41
<PAGE>
RISK CONSIDERATIONS
Each of the Galileo International Funds are 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.
Non-Diversified Status
42
<PAGE>
RISK CONSIDERATIONS
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. The Adviser has been, and is currently in contact with, each of
its External Service Providers to evaluate their readiness for the
year 2000. The Adviser has requested each of its External Service
Providers to either; (i) prepare a description of its process for
identifying date sensitive areas, its approach for implementing
changes, its testing methodology, along with its timetable for
completion, or (ii) certify as to its year 2000 compliance.
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
Year 2000
43
<PAGE>
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.
44
<PAGE>
RISK CONSIDERATIONS
Certain of the Funds will 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 was 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)
have been redonominated in the euro and, thereafter 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 (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.
European Economic and Monetary Union
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 December 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*
- ---------- -------------------------
<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>
PORTFOLIO BUSINESS EXPERIENCE
MANAGER(S) DURING LAST FIVE YEARS*
- ---------- -------------------------
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.
*Positions with the TCW Group, Inc. and its affiliates may have changed over
time.
ADVISORY AGREEMENT
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, 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 may reimburse
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:
Annual Management Fee
Fund (As Percent of Average Net Asset Value)
- ---- ---------------------------------------
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%
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.
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<PAGE>
The Advisory 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 N 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 N shares are also offered at the current net asset value,
but will be subject to fees 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 N shares for distribution and related
services. Because these fees are paid out of the Fund's Class N 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.
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 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 for the day is determined will receive that same day's NAV if
the orders were received by the dealers, brokers or service providers from
their customers prior to 4:00 p.m. 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 and subsequent investments. 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>
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<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 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 I 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
You may buy and redeem Fund shares through certain broker-dealers and
financial organizations and their authorized intermediaries. If purchases
and redemptions of Fund shares are arranged and settlement is made at an
investors 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.
51
<PAGE>
ACCOUNT STATEMENTS
Every Fund 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, 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
for the International Equities Fund, 401(k) and other group retirement
accounts, investors who purchase shares through certain broker-dealers 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>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
<S> <C>
In Writing
Complete the New Account Form. (Same, except that you should include a note
Mail your New 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 International Fund
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
TCW Galileo International Fund
DST Systems, Inc.
330 W. 9th Street
Poindexter Building, 1st 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)
(Fund Account Number)
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 name(s) and signature(s) as on the account form Agent at DST Systems, Inc., call
. your account number toll free in the U.S.
. the Fund name
. the dollar amount you want to sell or exchange (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
May your letter of instruction to: Department at TCW
Galileo Funds, call
Regular Mail toll free in the U.S.
DST Systems, Inc. (800) 386-3829
P.O. Box 419951
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
DST Systems, Inc.
330 W. 9th Street
Poindexter Building, 1st 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. Certain
information reflects financial results for a single Fund share. "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
YEAR ENDED OCTOBER 31 OPERATIONS)
THROUGH OCTOBER 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 7.37 $ 9.61 $ 8.67 $ 10.19 $ 10.00
-------- -------- ------- -------- ---------
Investment operations:
Investment income (loss) - net 0.02 (0.01) 0.06 0.06 0.03
Net realized and unrealized gain (1.04) (2.10) 0.93 (1.19) 0.16
(loss) on investments and foreign -------- -------- ------- -------- ---------
currency
Total from investment operations (1.02) (2.11) 0.99 (1.13) 0.19
-------- -------- ------- -------- ---------
Distributions:
Dividends from investment
income - net -- (0.08) (0.05) (0.01) --
Dividends from net realized gains
on investments (1.26) -- -- (0.16) --
---------
Dividends in excess of net
investment income -- (0.05) -- (0.22) --
-------- -------- ------- -------- ---------
Total Distributions (1.26) (0.13) (0.05) (0.39) --
-------- -------- ------- -------- ---------
Net asset value, end of period $ 5.09 $ 7.37 $ 9.61 $ 8.67 $ 10.19
======== ======== ======= ======== =========
Total return (%) (14.80)% (22.40)% 11.36% (10.98)% 1.90%/1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $ 8,482 $ 21,327 $48,266 $ 46,709 $ 54,019
Ratio of expenses to average net assets (%) 2.48% 1.49% 1.43% 1.47%/3/ 1.40%/2/,/3/
Ratio of net income (loss) to average net assets (%) 0.36% (0.02)% 0.66% 0.74% 0.45%/2/
Portfolio turnover rate (%) 190.33% 81.92% 84.81% 102.01% 46.75%/1/
</TABLE>
/1/ For the period March 1, 1994 (commencement of operations) through
October 31, 1994 and not indicative of a full year's operating
results.
/2/ Annualized.
/3/ The 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. Certain
information reflects financial results for a single Fund share. "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
YEAR ENDED OCTOBER 31 OPERATIONS) THROUGH
OCTOBER 31,
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 8.32 $ 8.18 $ 7.19 $ 9.73 $ 10.00
-------- ------- ------- -------- ---------
Investment operations:
Investment income (loss) - net 0.09 0.03 0.07 0.04 (0.01)
Net realized and unrealized gain (2.83) 0.22 0.94 (2.58) (0.26)
(loss) on investments and -------- ------- ------- -------- ---------
foreign currency
Total from investment operations (2.74) 0.25 1.01 (2.54) (0.27)
-------- ------- ------- -------- ---------
Distributions:
Dividends from investment (0.01) (0.11) (0.02) -- --
income - net
Dividends from net realized gains -- -- -- -- --
on investments
Dividends in excess of net -- -- -- -- --
realized gains -------- ------- ------- -------- ---------
Total Distributions (0.01) (0.11) (0.02) -- --
-------- ------- ------- -------- ---------
Net asset value, end of period $ 5.57 $ 8.32 $ 8.18 $ 7.19 $ 9.73
======== ======= ======= ======== =========
Total return (%) (32.97)% 2.82% 14.14% (26.11)% (2.70)%/1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $ 18,763 $47,726 $57,639 $ 51,873 $ 70,212
Ratio of expenses to average net assets (%) 1.70% 1.50% 1.41% 1.55% 1.70%/2/
Ratio of net income to average net assets (%) 1.15% 0.36% 0.82% 0.54% (0.09)%/2/
Portfolio turnover rate (%) 102.28% 79.80% 83.76% 74.24% 61.28%/1/
</TABLE>
/1/ For the period March 1, 1994 (commencement of operations) through
October 31, 1994 and not indicative of a full year's operating
results.
/2/ Annualized.
57
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"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
JUNE 3, 1998
(COMMENCEMENT OF OPERATIONS) THROUGH
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<S> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period $ 10.00
----------
Investment operations:
Investment income - net 0.37
Net realized and unrealized gain (3.41)
(loss) on investments and foreign ----------
currency
Total from investment operations (3.04)
----------
Distributions:
Dividends from investment (0.37)
income - net
Dividends from net realized gains --
on investments
Dividends in Excess of Net Investment Income (0.01)
----------
Total Distributions (0.38)
----------
Net asset value, end of period $6.58
==========
Total return (%) (30.67)%/1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $ 30,090
Ratio of expenses to average net assets (%) 1.53%/2/
Ratio of net income to average net assets (%) 11.90%/2/
Portfolio turnover rate (%) 68.46%/1/
</TABLE>
/1/ For the period June 3, 1998 (commencement of operations) through
October 31, 1998 and not indicative of a full year's operating
results.
/2/ Annualized.
58
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share. "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
NOVEMBER 3, 1997 (COMMENCEMENT OF
OPERATIONS) THROUGH OCTOBER 31, 1998
- -------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C>
Net asset value, beginning of period $ 10.00
--------
Investment operations:
Investment income - net 0.06
Net realized and unrealized gain 1.64
(loss) on investments and foreign --------
currency
Total from investment operations 1.70
--------
Distributions:
Dividends from investment --
income - net
Dividends from net realized gains --
on investments
Total Distributions --
--------
Net asset value, end of period $ 11.70
========
Total return (%) 17.00%/1/
========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $ 63,994
Ratio of expenses to average net assets (%) 1.06%/2/
Ratio of net income to average net assets (%) 0.52%/2/
Portfolio turnover rate (%) 72.05%/1/
</TABLE>
/1/ For the period November 3, 1997 (commencement of operations)
through October 31, 1998 and not indicative of a full year's
operating results.
/2/ Annualized.
59
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share. "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
NOVEMBER 3, 1997 (COMMENCEMENT OF
OPERATIONS) THROUGH OCTOBER 31, 1998
- ---------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C>
Net asset value, beginning of period $ 10.00
--------
Investment operations:
Investment income - net 0.05
Net realized and unrealized gain 0.70
(loss) on investments --------
Total from investment operations 0.75
--------
Distributions:
Dividends from investment --
income - net
Dividends from net realized gains --
on investments
Total Distributions --
--------
Net asset value, end of period $ 10.75
========
Total return (%) 7.50%/1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $ 74,853
Ratio of expenses to average net assets (%) 0.17%/2/
Ratio of net income to average net assets (%) 0.50%/2/
Portfolio turnover rate (%) 21.12%/1/
</TABLE>
/1/ For the period November 3, 1997 (commencement of operations)
through October 31, 1998 and not indicative of a full year's
operating results.
/2/ Annualized.
60
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share. "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
NOVEMBER 3, 1997 (COMMENCEMENT OF OPERATIONS)
THROUGH OCTOBER 31, 1998
- -------------------------------------------------------------------------------
PER-SHARE DATA ($)
<S> <C>
Net asset value, beginning of period $ 10.00
----------
Investment operations:
Investment income (loss) - net (0.04)
Net realized and unrealized gain (1.46)
(loss) on investments and foreign ----------
currency
Total from investment operations (1.50)
Distributions:
Dividends from investment (0.07)
income - net
Dividends from net realized gains --
on investments
Total Distributions (0.07)
----------
Net asset value, end of period $ 8.43
==========
Total return (%) (14.88)%/1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 28,648
Ratio of expenses to average net assets (%) 1.20%/2/,/3/
Ratio of net income to average net assets (%) (0.48)%/2/
Portfolio turnover rate (%) 178.53%/1/
</TABLE>
/1/ For the period November 3, 1997 (commencement of operations) through
October 31, 1998 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
ordinary operating expenses of the Fund to 1.20% of net assets through
December 31, 1998. Had such action not been taken, total annualized
operating expenses for the period November 3, 1997 (commencement of
operations) through October 31, 1998 would have been 1.51% 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. Certain
information reflects financial results for a single Fund share. "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 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
Investment operations: $ 12.51 $ 10.01 $ 7.92 $ 14.99 $ 15.11
-------- ------- ------- -------- ---------
Investment income - net 0.13 0.11 0.11 0.06 0.01
Net realized and unrealized gain
(loss) on investments and foreign (3.80) 2.50 2.03 (5.92) (0.13)
currency -------- ------- ------- -------- ---------
Total from investment operations (3.67) 2.61 2.14 (5.86) (0.12)
-------- ------- ------- -------- ---------
Distributions:
Dividends from investment
income - net (0.27) (0.11) (0.05) -- --
Dividends from net realized gains -- -- -- -- --
on investments
Dividends in excess of net
realized gains -- -- -- (1.21) --
-------- ------- ------- -------- ---------
Total Distributions (0.27) (0.11) (0.05) (1.21) --
-------- ------- ------- -------- ---------
Net asset value, end of period $ 8.57 $ 12.51 $ 10.01 $ 7.92 $ 14.99
======== ======= ======= ======== =========
Total return (%) (29.95)% 26.24% 27.08% (40.96)% (0.79)%/1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $ 11,796 $55,336 $68,323 $ 38,942 $ 122,610
Ratio of expenses to average net assets (%)
1.64% 1.46% 1.44% 1.58% 1.36%/2/
Ratio of net income to average net assets (%)
1.13% 0.87% 1.12% 0.59% 0.11%/2/
Portfolio turnover rate (%) 32.33% 21.17% 44.32% 75.62% 143.65%/1/
</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
<TABLE>
<CAPTION>
To obtain information: TCW Galileo Funds, Inc.
- -------------------------------
<S> <C>
By telephone SEC file number: 811-7170
Call 1-800-FUNDTCW (386-3829)
More information on this Fund is
By mail: available free upon request, including
c/o DST Systems the following:
P.O. Box 419951
Kansas City, MO 64141-6951
ANNUAL/SEMIANNUAL REPORT
On the internet Text-only
versions of Fund documents Describes each Fund's performance, lists
filed with the SEC can be portfolio holdings and contains a letter
viewed online or downloaded from: from the Fund's manager discussing
SEC recent market conditions, economic
http://www.sec.gov trends and Fund strategies.
TCW
http://www.tcwgroup.com
STATEMENT OF ADDITIONAL INFORMATION
(SAI)
You can also obtain copies by Provides more details about the Fund and
visiting the SEC's Public its policies. A current SAI is on file
Reference Room in Washington, DC with the Securities and Exchange
(phone 1-800-SEC-0330) or by Commission (SEC) and is incorporated by
sending your request and a reference (is legally considered part of
duplicating fee to the SEC: this prospectus).
Public Reference Section,
450 Fifth Street
Washington, DC 20549-6009
</TABLE>
63
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class N 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
Page
----
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES............................. 3
PRINCIPAL RISKS............................................................ 4
PERFORMANCE SUMMARY........................................................ 6
FUND EXPENSES AND EXPENSE EXAMPLE.......................................... 8
INVESTMENT OBJECTIVES/APPROACH............................................. 9
MAIN RISKS................................................................. 11
RISK CONSIDERATIONS........................................................ 12
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
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 Equities Fund Long-term capital appreciation Invests in equity securities issued by companies
that 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:
. MARKET 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 cannot 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 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 may hold various foreign currencies, the value of
the net assets of the Fund as measured in U.S. dollars can 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 N 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, which
was managed by a predecessor of TCW Funds Management, Inc. using the same
investment strategy as the Fund. The performance of the partnership was
calculated using performance standards applicable to private investment
partnerships which take into account all elements of total return and reflect
the deduction of all fees and expenses of operation. The predecessor limited
partnership, was not registered under the Investment Company Act of 1940 ("1940
Act") and therefore, was not subject to certain investment restrictions imposed
by the 1940 Act and Subchapter M of the Internal Revenue Code of 1986, as
amended. If the limited partnership had been registered under the 1940 Act its
performance could have been adversely affected. 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*
---------------------------------------------------------
60.66% 12.38% 12.65% 63.30%
1995 1996 1997 1998
---------------------------------------------------------
*The Fund's total return for the period October 31, 1998
to December 31, 1998 is: 39.6%
Best and worst quarterly performance during this period
FUND PERFORMANCE
---------------------------------------------------------
* Aggressive Growth Equities Fund
Quarter ending December 31, 1998 47.80% (Best)
Quarter ending March 31, 1997 -12.10% (Worst)
---------------------------------------------------------
6
<PAGE>
AVERAGE ANNUAL TOTAL RETURN AS OF SINCE
DECEMBER 31 1 YEAR INCEPTION
- --------------------------------------------------------------------
* Aggressive Growth Equities Fund 63.3% 34.2%
- --------------------------------------------------------------------
S&P 400 Mid-Cap 19.1% 23.2%
- --------------------------------------------------------------------
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 N
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 0.17%
Total Annual Fund Operating Expenses 1.42%
</TABLE>
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
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 higher or lower, the Example
is for comparison purposes only.
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Aggressive Growth Equities $145 $449 $776 $1,702
8
<PAGE>
TCW GALILEO AGGRESSIVE GROWTH EQUITIES FUND
INVESTMENT OBJECTIVES/APPROACH
- ------------------------------
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.
The Fund seeks long-term capital appreciation. To pursue this goal, the Fund
anticipates that at least 65% of the value of its total assets will be invested
in equity securities (except when maintaining a temporary defensive position) of
issuers, which are characterized as "growth" companies according to criteria
established by the Adviser. 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.
9
<PAGE>
Christopher J. Ainley and Douglas S. Foreman are the Fund's
portfolio managers.
10
<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. In addition, the Fund may hold convertible debt
securities. Many convertible debt securities are rated below investment grade
and are considered speculative by rating agencies as to repayment of principal
and interest.
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 cannot
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 liquid 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. The
Fund may engage in active portfolio management which may result in increased
Fund transaction expenses and have tax consequences such as increased realized
gains for investors.
11
<PAGE>
- --------------------------------------------------------------------------------
RISK CONSIDERATIONS
- -------------------
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.
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. The fewer
the number of issuers in which a Fund invests, the greater the potential
volatility of its portfolio.
The Adviser may temporarily invest up to 100% of the Fund's assets in high
quality, short-term money market instruments if it believes adverse economic or
market conditions, such as excessive volatility or sharp market declines,
justify taking a defensive investment posture. If the Fund attempts to limit
investment risk by temporarily taking a defensive investment position, it may be
unable to pursue its investment objective during that time, and it may miss out
on some or all of an upswing in the securities markets.
12
<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 U.S. 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 U.S., 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
13
<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 may hold various foreign currencies
from time to time, the value of the net assets of the Fund as measured in United
States dollars can 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. However, it is not obligated to do so, and,
depending on the availability and cost of these devices, the Fund may be unable
to use foreign currency futures and forward contracts to protect against
currency uncertainty. Please see Statement of Additional Information for further
information.
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, 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 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 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.
14
<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. Debt
securities that are rated below investment grade are considered to be
speculative; they are also 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. Such securities are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest
15
<PAGE>
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 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-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.
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. The Adviser has been, and is currently, in contact with
each of its External Service Providers to evaluate their readiness for the year
2000. The Adviser has requested each of its External Service Providers to either
(i) prepare a description of its process for identifying date sensitive areas,
its approach for implementing changes, its testing methodology, along with its
timetable for completion, or (ii) certify as to its year 2000 compliance.
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
18
<PAGE>
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.
19
<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 was 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) have been redonominated in the
euro and, thereafter 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 December 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*
- ------------------------- ------------------------------------------
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.
*Positions with the TCW Group, Inc and its affiliates may have changed over
time.
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, 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.
21
<PAGE>
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
(As Percent of
FUND 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 the
Adviser of its duties under the agreement.
MULTIPLE CLASS STRUCTURE
- ------------------------
The Fund currently offers two classes of shares, Institutional Class shares and
Class N 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 N shares are also offered at the current net
asset value, but will be subject to fees 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 N shares for distribution and
related services. Because these fees are paid out of the Fund's Class N 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 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 for the day
is determined, will receive that same day's NAV if the orders were received by
the dealers, brokers or service providers from their customers prior to 4:00
p.m. 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 IRA Additional
------------------------------------------------------------------------
Aggressive Growth Equities Fund $2,000 $250 $250
The TCW Galileo Funds, Inc. may waive the minimum initial 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.
AUTOMATIC INVESTMENT PLAN ($100 MINIMUM)
- ----------------------------------------
You may arrange to make investments on a regular basis through automatic
deductions from your bank checking account. Please call (800) 248-4486 for more
information and an enrollment form.
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 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 N 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
You may buy and redeem Fund shares through certain broker-dealers and financial
organizations and their authorized intermediaries. 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.
24
<PAGE>
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.
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.
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).
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, investors who purchase shares
through certain broker dealers, 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).
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 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.
330 W. 9th Street
Poindexter Building, 1st 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)
(Fund Account Number)
- ---------------------------------------------------- --------------------------------------------------
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
<TABLE>
<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 (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.
330 W. 9th Street
Poindexter Building, 1st 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>
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 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. Certain information
reflects financial results for a single Fund share. "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 N 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
(formerly TCW Galileo Mid-Cap Growth Fund)
JUNE 3, 1996
(COMMENCEMENT OF
OPERATIONS) THROUGH
YEAR ENDED OCTOBER 31 10/31
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per-Share Data ($)
Net asset value, beginning of period $ 9.40 $ 9.19 $ 10.00
------- -------- ---------
Investment operations:
Investment income (loss) - net (0.11) (0.08) (0.03)
Net realized and unrealized gain 2.06 0.29 (0.78)
(loss) on investments ------- -------- ---------
Total from investment operations 1.95 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 $ 11.35 $ 9.40 $ 9.19
======= ======== =========
Total return (%) 20.74% 2.28% (8.10)%/1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $84,904 $135,850 $ 92,430
Ratio of expenses to average net assets (%) 1.17% 1.12% 1.20%/2,3/
Ratio of net income to average (1.03)% (0.86)% (0.80)%/2/
net assets (%)
Portfolio turnover rate (%) 55.36% 50.45% 19.19%/1/
</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 would have been 1.27% of average net assets.
29
<PAGE>
For More Information
<TABLE>
<CAPTION>
<S> <C>
To obtain information: TCW Galileo Funds, Inc.
__________________________ SEC file number: 811-7170
By telephone: More information on the Fund is available free upon request,
Call 1 (800) FUNDTCW (386-3829) including the following:
By mail write to:
Annual/Semiannual Report
TCW Galileo Funds, Inc.
c/o DST Systems, Inc. Describes the Fund's performance, lists portfolio holdings and
P.O. Box 419951 contains a letter from the Fund's portfolio manager discussing
Kansas City, MO 64141-6951 recent market conditions, economic trends and Fund strategies.
On the Internet: Text-only
versions of Fund documents filed Statement of Additional Information (SAI)
with the SEC can be viewed online
or downloaded from: Provides more details about the Fund and its policies. A current SAI
SEC is on file with the Securities and Exchange Commission (SEC) and is
http://www.sec.gov incorporated by reference (is legally considered part of this
prospectus).
TCW
hhtp://www.tcwgroup.com
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, 450 Fifth Street, N.W.,
Washington, DC 20549-6009.
</TABLE>
30
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class N 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
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 in value. Therefore, the value of an investment in the
Fund could go down as well as up. All investments are subject to:
. MARKET 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 will
underperform 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, fluctuations in currency exchange
rates withholding taxes, and a 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 may hold various foreign
currencies, the value of the net assets of the Fund as measured in U.S.
dollars can 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 cannot 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 N 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, which
was managed by a predecessor of TCW Funds Management, Inc. using the same
investment strategy as the Fund. The performance of the partnership was
calculated using performance standards applicable to private investment
partnerships which take into account all elements of total return and reflect
the deduction of all fees and expenses of operation. The predecessor limited
partnership, was not registered under the Investment Company Act of 1940 ("1940
Act") and therefore, was not subject to certain investment restrictions imposed
by the 1940 Act and Subchapter M of the Internal Revenue Code of 1986, as
amended. If the limited partnership had been registered under the 1940 Act its
performance could have been adversely affected. 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 Core Fixed Income Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7.82% 16.10% 6.60% 10.65% -7.73% 18.08% 2.03% 8.90% 9.04%
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: 1.34%
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 Since inception
total return as of 1 year 5 years
December 31
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. Core Fixed Income Fund 9.0% 5.7% 7.7%
- ---------------------------------------------------------------------------------------------
Lehman Brothers 8.7% 7.3% 8.7%
Aggregate
Bond
- ---------------------------------------------------------------------------------------------
</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 N
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 0.22%
Total Annual Fund Operating Expenses 0.87%
</TABLE>
===============================================================================
Expense Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
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 higher or lower, the Example
is for comparison purposes only.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Core Fixed Income $89 $278 $482 $1,073
</TABLE>
7
<PAGE>
TCW Galileo Core Fixed Income Fund
LOGO INVESTMENT OBJECTIVES/APPROACH
- ----------------------------------------
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.
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 (except
when maintaining a temporary defensive position) at least 65% of the
value 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 and Jeffrey E. Gundlach are the
Fund's portfolio managers.
8
<PAGE>
LOGO 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 subject to greater credit risk,
especially during periods of economic uncertainty or during economic
downturns. Debt securities that are rated below investment grade are
considered to be speculative. Securities rated below investment grade
are also known as "junk" 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. 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
9
<PAGE>
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
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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased fund transaction expenses and have tax consequences such as
increased realized gains.
10
<PAGE>
================================================================================
LOGO RISK CONSIDERATIONS
- -----------------------------
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 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.
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 long term. The fewer the number of issuers in
which the Fund invests, the greater the potential volatility of its
portfolio. 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.
The Adviser may temporarily invest up to 100% of the Fund's assets in
high quality, short-term money market instruments if it believes
adverse economic or market conditions, such as excessive volatility or
sharp market declines, justify taking a defensive investment posture.
If the Fund attempts to limit investment risk by temporarily taking a
defensive investment position, it may be unable to pursue its
investment objective during that time, and it may miss out on some or
all of an upswing in the securities markets.
11
<PAGE>
LOGO 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 downgrades.
The Fund may invest in debt instruments rated below investment grade.
Debt securities that are rated below investment grade are considered
to be speculative; they are also 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 investment
objective will be more dependent
12
<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).
13
<PAGE>
LOGO 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 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 may hold various
foreign currencies from time to time, the value of the net assets of
the Fund as measured in United States dollars can 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. However, it is not obligated to do so and, depending on the
availability and cost of these devices, the Fund may be unable to use
foreign currency futures and forward contracts to protect against
currency uncertainty. Please see the Statement of Additional
Information for further information.
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>
LOGO RISK CONSIDERATIONS
- -----------------------------
Mortgage-Backed Securities
- ----------------------------
Credit and Market Risks of Mortgage-Backed Securities. The
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 the 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 may be highly sensitive to changes in interest
and tend to be less liquid than other CMOs. In addition, prepayments
of the underlying mortgages likely would lower the Fund's return from
stripped securities it holds.
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>
LOGO 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. Such a 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. The Adviser has been, and is currently in contact with each of
its External Service Providers to evaluate their readiness for the
year 2000. The Adviser has requested each of its External Service
Providers to either; (i) prepare a description of its process for
identifying date sensitive areas, its approach for implementing
changes, its testing methodology, along with its timetable for
completion, or (ii) certify its year 2000 compliance.
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
20
<PAGE>
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, the Fund's portfolio
investments may be negatively affected.
21
<PAGE>
LOGO 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
was 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) have been redonominated in the
euro and, thereafter 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;
(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>
LOGO MANAGEMENT OF THE FUNDS
- ---------------------------------
Investment Adviser
The Fund's investment adviser is TCW Funds Management, Inc.
("Adviser") and is headquartered at 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017. As of December 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*
---------- ----------------------
<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, CA.
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.
</TABLE>
*Positions with the TCW Group, Inc. and its affiliates may have changed over
time.
23
<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, 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 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
(As Percent of Average
Fund 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 the Adviser of its duties under
the agreement.
24
<PAGE>
LOGO MULTIPLE CLASS STRUCTURE
- ----------------------------------
The Fund currently offers two classes of shares, Institutional Class
shares and Class N shares. Shares of each class of the Fund
represents an equal pro rata interest in that Fund and generally give
you the same voting, dividend, liquidation, and other rights. The
Institutional Class shares are offered at the current net asset value.
The Class N shares are also offered at the current net asset value,
but will be subject to fees 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 N shares and for services provided to
shareholders. 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 N shares. Because
these fees are paid out of the Fund's Class N 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
LOGO 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
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 for the
day is determined, will receive that same day's NAV if the orders were
received by the dealers, brokers or service providers from their
customers prior to 4:00 p.m. 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
<TABLE>
<CAPTION>
Initial IRA Additional
<S> <C> <C>
Core Fixed Income Fund $2,000 $250 $250
</TABLE>
TCW Galileo Funds, Inc. may waive the minimum initial 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.
AUTOMATIC INVESTMENT PLAN ($100 MINIMUM)
You may arrange to make investments on a regular basis through automatic
deductions from your bank checking account. Please call (800) 248-4486 for
more information and an enrollment form.
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 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 N 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
You may buy and redeem Fund shares through certain broker-dealers and
financial organizations and their authorized intermediaries. 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
27
<PAGE>
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.
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).
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,
investors who purchase shares through certain broker-dealers, 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 individuals or
groups 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)
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 specifying
Account Form and a check to: the Fund name, your account number, and the name(s) your
Regular Mail 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.
330 W. 9th Street
Poindexter Building, 1st 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)
(Fund Account Number)
- -----------------------------------------------------------------------------------------------------------------------
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>
<TABLE>
<CAPTION>
TO SELL OR EXCHANGE SHARES
<S> <C>
To reach the Transfer Agent, DST
By Mail Systems, Inc., call toll free in the
Write a letter of instruction that includes: U.S.
. your name(s) and signature(s) as they appear
on the account form (800) 248-4486
. 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.
330 W. 9th Street
Poindexter Building, 1st 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 (10,000)
or more. Systematic Withdrawal plans are subject to a minimum
annual withdrawal of $500.
- -------------------------------------------------------------
</TABLE>
30
<PAGE>
LOGO 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>
LOGO FINANCIAL HIGHLIGHTS
- ------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"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 N 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
Ten
Months
Year Ended October 31 Ended
1998 1997 1996 1995 10/31/94
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per-Share Data ($)
Net asset value, beginning of period $ 9.62 $ 9.45 $ 9.61 $ 8.94 $ 10.04
-------- ------- ------- ------- -------
Investment operations:
Investment income - net 0.55 0.58 0.55 0.58 0.44
Net realized and unrealized gain 0.29 0.19 0.16 0.62 (1.16)
(loss) on investments -------- ------- ------- ------- -------
Total from investment operations 0.84 0.77 0.39 1.20 (0.72)
-------- ------- ------- ------- -------
Distributions:
Dividends from net investment income (0.57) (0.60) (0.55) (0.53) (0.38)
Dividends from net realized gains -- -- -- -- --
on investments
Dividends in excess of net realized gain -- -- -- -- --
-------- ------- ------- ------- -------
Total Distributions (.057) (0.60) (0.55) (0.53) (0.38)
======== ======= ======= ======= =======
Net asset value, end of period $ 9.89 $ 9.62 $ 9.45 $ 9.61 $ 8.94
======== ======= ======= ======= =======
Total return (%) 9.02% 8.45% 4.26% 13.92% (7.24)%/1/
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $162,996 $19,368 $25,006 $36,236 $50,153
Ratio of expenses to average net assets (%) 0.62% 0.93% 0.76% 0.68%/3/ 0.50%/2,3/
Ratio of net income to average net assets (%) 5.60% 6.13% 5.85% 6.38% 6.11%/2/
Portfolio turnover rate (%) 272.77% 142.96% 238.73% 223.78% 208.63%/1/
</TABLE>
/1/ For the ten months ended October 31, 1994, and not indicative of
a full year's operating results.
/2/ Annualized.
/3/ The 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.
32
<PAGE>
For More Information
<TABLE>
<S> <C>
To obtain information: TCW Galileo Funds, Inc.
_____________________________ SEC file number: 811-7170
By telephone: More information on this Fund is available free upon request,
Call 1 (800) FUNDTCW including the following:
(386-3829)
Annual/Semiannual Report
By mail write to:
Describes the Fund's performance, lists portfolio holdings and
TCW Galileo Funds, Inc. contains a letter from the Fund's manager discussing recent market
c/o DST Systems, Inc. conditions, economic trends and Fund strategies.
P.O. Box 419951
Kansas City, MO 64141-6951 Statement of Additional Information (SAI)
On the Internet: Text-only Provides more details about the Fund and its policies. A current SAI
versions of Fund documents filed is on file with the Securities and Exchange Commission (SEC) and is
with the SEC can be viewed online incorporated by reference (is legally considered part of this
or downloaded from: prospectus).
SEC
http://www.sec.gov TCW
TCW
http://www.tcwgroup.com
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, 450 Fifth Street, N.W.,
Washington, DC 20549-6009.
</TABLE>
33
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class N 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
1
<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
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:
. MARKET 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 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 cannot 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 returns and its long-term
performance with respect to its Institutional Class shares (Class N 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, which
was managed by a predecessor of TCW Funds Management, Inc. using the same
investment strategy as the Fund. The performance of the partnership was
calculated using performance standards applicable to private investment
partnerships which take into account all elements of total return and reflect
the deduction of all fees and expenses of operation. The predecessor limited
partnership, was not registered under the Investment Company Act of 1940 ("1940
Act") and therefore, was not subject to certain investment restrictions imposed
by the 1940 Act and Subchapter M of the Internal Revenue Code of 1986, as
amended. If the limited partnership had been registered under the 1940 Act its
performance could have been adversely affected. 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*
25.45%
1998
---------------------------------------------------------
The Fund's total return for the period October 31, 1998 to
December 31, 1998 is: 9.2%
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 SINCE
RETURN AS OF DECEMBER 31 1 YEAR INCEPTION
- ----------------------------------------------------------------
* European Equities Fund 25.4% 23.4%
- ----------------------------------------------------------------
MSCI Europe 15 Index 28.9% 30.0%
- ----------------------------------------------------------------
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 N
shares of the Fund have no sales charge (load), but are subject to Rule 12b-1
distribution fees.
<TABLE>
<CAPTION>
FEE TABLE
European Equities
SHAREHOLDER TRANSACTION FEES
<S> <C>
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 0.31%
Total Annual Fund Operating Expenses 1.31%
</TABLE>
- -------------------------------------------------------------------------------
EXPENSE EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
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 higher or lower, the Example
is for comparison purposes only.
<TABLE>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
European Equities $133 $415 $718 $1,579
</TABLE>
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 (except when maintaining temporary defensive position) at
least 65% of the value 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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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 U.S. 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 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
9
<PAGE>
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
liquid 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.
The fund may engage in active portfolio management which may result in
increased fund transaction expenses and have tax consequences such as
increased realized gains for investors.
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. The fewer the number of issuers in
which a Fund invests, the greater the potential volatility of its
portfolio.
The Adviser may temporarily invest up to 100% of the Fund's assets in
high quality, short-term money market instruments if it believes
adverse economic or market conditions, such as excessive volatility or
sharp market declines, justify taking a defensive investment posture.
If the Fund attempts to limit investment risk by temporarily taking a
defensive investment position, it may be unable to pursue its
investment objective during that time, and it may miss out on some or
all of an upswing in the securities markets.
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. 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 U.S. 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 further
foreign currency exchange rates, the Fund is authorized to enter into
certain foreign currency futures and forward contracts. However, it is
not obligated to do so and, depending on the availability and cost of
these services, the Fund may be unable to use foreign currency futures
and forward contracts to protect against currency uncertainty. Please
see the Statement of Additional Information for further information.
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 the 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.
13
<PAGE>
RISK CONSIDERATIONS
RISKS ASSOCIATED WITH EMERGING MARKET COUNTRIES
Investors should recognize that investing in securities of emerging
market 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 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 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. Countries have and may in the future impose foreign currency
controls and repatriation control.
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. The Adviser has been, and is currently in contact with each of
its External Service Providers to evaluate their readiness for the
year 2000. The Adviser has requested each of its External Service
Providers to either; (i) prepare a description of its process for
identifying date sensitive areas, its approach for implementing
changes, its testing methodology, along with its timetable for
completion, or (ii) certify its year 2000 compliance.
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
17
<PAGE>
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.
18
<PAGE>
RISK CONSIDERATIONS
EUROPEAN ECONOMIC AND MONETARY UNION
The Fund will 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
was 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) have been redonominated in the
euro and, thereafter 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;
(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 December 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 MANAGER(S) BUSINESS EXPERIENCE
DURING LAST FIVE YEARS*
<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>
* Positions with the TCW Group, Inc. and its affiliates may have
changed over time.
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
20
<PAGE>
of its assets, to place orders for the purchase and sale of its
portfolio securities, 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
FUND OF AVERAGE NET ASSET VALUE)
<S> <C>
European Equities 75%
</TABLE>
The Adviser has retained, at its sole expense, TCW London to provide
investment advisory services for the Fund. 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 agreement relates,
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 the Adviser
or Sub-Adviser of their duties under the agreements.
21
<PAGE>
MULTIPLE CLASS STRUCTURE
The Fund currently offers two classes of shares, Institutional Class
shares and Class N 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 N shares are also offered at the current net asset value,
but will be subject to fees 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 N shares for distribution and related
services. Because these fees are paid out of the Fund's Class N 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 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 for the day
is determined will receive that same day's NAV if the orders were received by
the dealers, brokers or service providers from their customers prior to 4:00
p.m. 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 pursuant to
procedures established by the Fund's board.
- ------------------------------------------------------------------
Minimums
Initial IRA Additional
- ------------------------------------------------------------------
European Equities Fund $2,000 $250 $250
TCW Galileo Funds, Inc. may waive the minimum initial 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.
- ------------------------------------------------------------------
Automatic Investment Plan ($100 Minimum)
You may arrange to make investments on a regular basis through automatic
deductions from your bank checking account. Please call (800) 248-4486 for more
information and an enrollment form.
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 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 N 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
You may buy and redeem Fund shares through certain broker-dealers and financial
organizations and their authorized intermediaries. 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.
24
<PAGE>
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).
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.
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, investors who purchase shares
through certain broker-dealers 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).
25
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
<S> <C>
In Writing (Same, except that you should include a note
Complete the New Account Form. specifying the Fund name, your account number, and
Mail your New Account Form and a check to: 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.
330 W. 9th Street
Poindexter Building, 1st 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)
(Fund Account Number)
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 Systems, Inc., call
. your account number toll free in the U.S.
. the Fund name
. the dollar amount you want to sell or exchange (800) 248-4486
. 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.
330 W. 9th Street
Poindexter Building, 1st 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. Certain
information reflects financial results for a single Fund share.
"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 N 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
<TABLE>
<CAPTION>
NOVEMBER 3, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
OCTOBER 31, 1998
- -------------------------------------------------------------------------
<S> <C>
Per-Share Data ($)
Net asset value, beginning of period
Investment operations: $ 10.00
--------
Investment income - net 0.06
Net realized and unrealized gain (loss) on
investments and foreign currency 1.64
--------
Total from investment operations 1.70
Distributions:
Dividends from investment income - net --
Dividends from net realized gains on investments --
Total Distributions --
--------
Net asset value, end of period $ 11.70
Total return (%) 17.00%/1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $ 63,994
Ratio of expenses to average net assets (%) 1.06%/2/
Ratio of net income to average net assets (%) 0.52%/2/
Portfolio turnover rate (%) 72.05%/1/
</TABLE>
/1/ For the period November 3, 1997 (commencement of operations) through
October 31, 1998 and not indicative of full year's operating results.
/2/ Annualized.
29
<PAGE>
For More Information
<TABLE>
<S> <C>
To obtain information: TCW Galileo Funds, Inc.
_____________________________ SEC file number: 811-7170
By telephone: More information on this Fund is available free upon request,
Call: 1 (800) FUNDTCW (386-3829) including the following:
By mail write to: Annual/Semiannual report
TCW Galileo Funds, Inc. Describes the Fund's performance, lists portfolio holdings and
c/o DST Systems Inc. contains a letter from the Fund's manager discussing recent market
P.O. Box 419951 conditions, economic trends and Fund strategies.
Kansas City, MO 64141-6951
On the Internet: Text-only Statement of Additional Information (SAI)
versions of Fund documents filed
with the SEC can be viewed online Provides more details about the Fund and its policies. A current SAI
or downloaded from: is on file with the Securities and Exchange Commission (SEC) and is
SEC incorporated by reference (is legally considered part of this
http://www.sec.gov prospectus).
TCW
http://www.tcwgroup.com
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, 450 Fifth Street, N.W.,
Washington, DC 20549-6009.
</TABLE>
30
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class N 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
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>
<S> <C>
TCW Galileo Funds, Inc. Investment Objectives Principal Investment Strategies
- ----------------------------------------------------------------------------------------------------------------------------------
TCW Galileo High Yield Bond Fund Maximize current income and 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:
. MARKET 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, 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 a portion
of its assets in foreign company securities. If it invests in emerging
markets countries, and it may, these risks are more pronounced. In
addition, because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, and the Fund may hold various
foreign currencies, the value of the net assets of the Fund as measured in
U.S. dollars can 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 cannot 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 N 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, which
was managed by a predecessor of TCW Funds Management, Inc. using the same
investment strategy as the Fund. The performance of the partnership was
calculated using performance standards applicable to private investment
partnerships which take into account all elements of total return and reflect
the deduction of all fees and expenses of operation. The predecessor limited
partnership, was not registered under the Investment Company Act of 1940 ("1940
Act") and therefore, was not subject to certain investment restrictions imposed
by the 1940 Act and Subchapter M of the Internal Revenue Code of 1986, as
amended. If the limited partnership had been registered under the 1940 Act its
performance could have been adversely affected. 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>
4.19% -1.51% 30.97% 15.51% 15.48% -0.34% 15.95% 11.96% 12.28% 2.27%
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: 3.20%
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 inception
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
. High Yield Bond Fund 2.3% 8.2% 10.4%
- ---------------------------------------------------------------------------
Salomon Brothers High Yield Cash 4.4% 9.1% 10.6%
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.
<TABLE>
<CAPTION>
FEE TABLE
High Yield Bond
Shareholder Transaction Fees
<S> <C>
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 0.10%
Total Annual Fund Operating Expenses 1.10%
</TABLE>
Expense Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
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 higher or lower, the Example
is for comparison purposes only.
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------
High Yield Bond $112 $350 $606 $1,340
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 (except when maintaining a temporary defensive position) at least 65%
of the value 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 non-convertible debt securities.
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. Debt securities that are rated below investment grade are considered to
be speculative; they are also commonly known as "junk" 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 cannot 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
10
<PAGE>
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 denominated and pay
dividends or interest in foreign currencies, the value of the net assets of the
Fund as measured in the U.S. 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 liquid 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.
The Fund may engage in active portfolio management which may result in increased
Fund transaction expenses and have tax consequences such as increased realized
gains for investors.
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. The fewer
the number of issuers in which a Fund invests, the greater the potential
volatility of its portfolio.
The Adviser may temporarily invest up to 100% of the Fund's assets in high
quality, short-term money market instruments if it believes adverse economic or
market conditions, such as excessive volatility or sharp market declines,
justify taking a defensive investment posture. If the Fund attempts to limit
investment risk by temporarily taking a defensive investment position, it may be
unable to pursue its investment objective during that time, and it may miss out
on some or all of an upswing in the securities markets.
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
<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 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 investment objective will be more
dependent on the Adviser's analysis than would be the
13
<PAGE>
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 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
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 may hold various foreign currencies
from time to time, the value of the net assets of the Fund as measured in U.S.
dollars can 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 foreign currency futures and forward
contracts. However, it is not obligated to do so and, depending on the
availability and cost of these devices, the Fund may be unable to use foreign
currency futures and forward contract to protest against currency uncertainty.
Please see the Statement of Additional Information for further information.
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 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. The Adviser has been, and is currently in contact with,
each of its External Service Providers to evaluate their readiness for the year
2000. The Adviser has requested each of its External Service Providers to either
(i) prepare a description of its process for identifying date sensitive areas,
its approach for implementing changes, its testing methodology, along with its
timetable for completion, or (ii) certify as to its year 2000 compliance.
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
17
<PAGE>
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, 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 was 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) have been redonominated in
the euro and, thereafter 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; (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*
- ---------- ----------------------
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.
*Positions with the TCW Group, Inc. and its affiliates may have changed over
time.
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, 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 the
Adviser of its duties under the agreement.
. MULTIPLE CLASS STRUCTURE
- --------------------------
The Fund currently offers two classes of shares, Institutional Class shares and
Class N 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 N shares are also offered at the current net
asset value, but will be subject to fees 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 N shares for distribution and
related services are paid out of the
21
<PAGE>
Fund's Class N shares for distribution and related services. Because these fees
are paid out of the Fund's Class N 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 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 for the day
is determined, will receive that same day's NAV if the orders were received by
the dealers, brokers or service providers from their customers prior to 4:00
p.m. 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 IRA Additional
<S> <C> <C> <C>
High Yield Bond Fund $2,000 $250 $250
</TABLE>
TCW Galileo Funds, Inc. may waive the minimum initial 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.
Automatic Investment Plan ($100 Minimum)
You may arrange to make investments on a regular basis through automatic
deductions from your bank checking account. Please call (800) 248-4486 for more
information and an enrollment form.
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 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 N 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
24
<PAGE>
new account established through an exchange will have the same privileges as
your original account (as long as they are available).
Third Party Transactions
You may buy and redeem Fund shares through certain broker-dealers and financial
organizations and their authorized intermediaries. 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.
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).
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, investors who purchase shares
through certain broker-dealers, and asset allocation accounts managed by the
Adviser or an affiliate. The Fund reserves the right to:
25
<PAGE>
. 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)
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.
330 W. 9th Street
Poindexter Building, 1st 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)
(Fund account Number)
- ------------------------------------------------------------------------------------------------------
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: Systems, Inc., call toll free in
. your name(s) and signature(s) as they appear on the the U.S.
account form (800) 248-4486
. 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.
330 W. 9th Street
Poindexter Building, 1st 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 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. Certain information
reflects financial results for a single Fund share. "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 N 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
Ten Months
Year Ended October 31 Ended
1998 1997 1996 1995 10/31/94
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per-Share Data ($)
Net asset value, beginning of period $ 10.11 $ 9.77 $ 9.74 $ 9.43 $ 10.12
-------- -------- -------- ------- ---------
Investment operations:
Investment income - net 0.88 0.91 0.89 0.92 0.73
Net realized and unrealized gain (0.74) 0.34 0.03 0.39 (0.77)
(loss) on investments -------- -------- -------- ------- ---------
Total from investment operations 0.14 1.25 0.92 1.31 (0.04)
-------- -------- -------- ------- ---------
Distributions:
Dividends from investment (0.89) (0.91) (0.89) (1.00) (0.65)
income - net
Dividends from net realized gains (0.15) -- -- -- --
on investments
Distributions in Excess of Net (0.01) -- -- -- --
Realized Gains -------- -------- -------- ------- ---------
Total Distributions (1.05) (0.91) (0.89) (1.00) (0.65)
-------- -------- -------- ------- ---------
Net asset value, end of period $ 9.20 $ 10.11 $ 9.77 $ 9.74 $ 9.43
======== ======== ======== ======= =========
Total return (%) 1.18% 13.26% 9.92% 14.65% (0.34)%/1/
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $165,202 $208,761 $183,815 $92,652 $ 90,577
Ratio of expenses to average net assets (%) 0.85% .83% .90% .87%/3/ 0.79%/2,3/
Ratio of net income to average net assets (%) 8.89% 9.10% 9.21% 9.60% 9.18%/2/
Portfolio turnover rate (%) 92.24% 109.45% 82.56% 36.32% 34.01%/1/
</TABLE>
/1/ For the ten months ended October 31, 1994 and not indicative 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
<TABLE>
<S> <C>
To obtain information: TCW Galileo Funds, Inc.
______________________________ SEC file number: 811-7170
By telephone: More information on this Fund is available free upon request,
Call 1 (800) FUNDTCW (386-3829) including the following:
By mail write to: Annual/Semiannual Report:
TCW Galileo Funds, Inc. Describes the Fund's performance, lists portfolio holdings and
c/o DST Systems, Inc. contains a letter from the Fund's manager discussing recent market
P.O. Box 419951 conditions, economic trends and Fund strategies.
Kansas City, MO 64141-6901
Statement of Additional Information (SAI):
On the Internet: Text-only
versions of Fund documents filed Provides more details about the Fund and its policies. A current SAI
with the SEC can be viewed online is on file with the Securities and Exchange Commission (SEC) and is
or downloaded from: incorporated by reference (is legally considered part of this
SEC prospectus).
http://www.sec.gov
TCW
http://www.tcwgroup.com
You can also obtain copies by
visiting the SEC's Public Reference
Room in Washington, DC (phone
800-SEC-0330) or by sending
your request and a duplicating fee
to the SEC's Public Reference
Section, 450 Fifth Street, N.W.,
Washington, DC 20549-6009
</TABLE>
31
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class N 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
Page
----
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
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
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 large capitalization
value 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 Fund's portfolio securities increase or
decrease in value. Therefore, the value of an investment in the Fund could go
down as well as up. All investments are subject to:
. MARKET 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 a 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 may hold various foreign currencies, the value of
the net assets of the Fund as measured in U.S. dollars can 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 N 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, which
was managed by a predecessor of TCW Funds Management, Inc. using the same
investment strategy as the Fund. The performance of the partnership was
calculated using performance standards applicable to private investment
partnerships which take into account all elements of total return and reflect
the deduction of all fees and expenses of operation. The predecessor limited
partnership, was not registered under the Investment Company Act of 1940 ("1940
Act") and therefore, was not subject to certain investment restrictions imposed
by the 1940 Act and Subchapter M of the Internal Revenue Code of 1986, as
amended. If the limited partnership had been registered under the 1940 Act its
performance could have been adversely affected. 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*
18.99%
1998
-----------------------------
*The Fund's total return for the period October 31, 1998 to December 31, 1998
is: 8.4%.
Best and worst quarterly performance during this period
- --------------------------------------------------------------------------------
. Large Cap Value Fund
Quarter ending December 31, 1998 20.90% (Best)
Quarter ending September 30, 1998 -10.46% (Worst)
- --------------------------------------------------------------------------------
6
<PAGE>
Average annual total return as of Since
December 31 1 year inception
- --------------------------------------------------------------------------------
. Large Cap Value Fund 19.0% 18.4%
- --------------------------------------------------------------------------------
S&P/BARRA Value Index 14.7% 15.8%
- --------------------------------------------------------------------------------
7
<PAGE>
Funds 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 N
shares of the Fund have no sales charge (load), but are subject to Rule 12b-1
distribution fees.
------------------------------------------------------------
FEE TABLE
LARGE CAP VALUE
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 1.93%
Total Annual Fund Operating Expenses 2.73%
__________________
1. The Adviser voluntarily agreed to reduce its fee or to pay the operating
expenses of the Fund to reduce Annual Fund operating expenses to 0.55% of
Net Assets through October 31, 1998.
- -------------------------------------------------------------------------------
EXPENSE EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
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 higher or lower, the Example
is for comparison purposes only.
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Large Cap Value $ 276 $ 847 $ 1,445 $ 3,061
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 (except when
maintaining a temporary defensive position) at least 65% of the
value 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 using techniques such as:
. 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 its 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.
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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences such as
increased realized gains for investors.
10
<PAGE>
- --------------------------------------------------------------------------------
RISK CONSIDERATION
- ------------------
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. The fewer the number of issuers in
which the Fund invests, the greater the potential volatility of its
portfolio.
TCW may temporarily invest up to 100% of the Fund's assets in high
quality, short-term money market instruments if it believes adverse
economic or market conditions, such as excessive volatility or sharp
market declines, justify taking a defensive investment posture. If the
Fund attempts to limit investment risk by temporarily taking a
defensive investment position, it may be unable to pursue its
investment objective during that time, and it may miss out on some or
all of an upswing in the securities markets.
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 U.S., 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
U.S., 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 may hold various
foreign currencies from time to time, the value of the net assets of
the Fund as measured in U.S. dollars can 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. However, it is
not obligated to do so and, depending on the availability and cost of
these devices, the Fund may be unable to use foreign currency futures
and forward contracts to protect against currency uncertainty. Please
see the Statement of Additional Information for further information.
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 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 United States
dollar resulting in a sharp devaluation of both currencies. In 1998
Russia did the same, causing a sharp devaluation of the ruble.
13
<PAGE>
RISK CONSIDERATIONS
- -------------------
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.
Fixed Income Securities
- -----------------------
"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. Debt securities that are rated below investment grade are
considered to be speculative; they are also 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. Such securities are regarded as predominantly speculative
with respect to the issuer's continuing ability to meet principal and
interest
14
<PAGE>
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 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. Such a 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. The Adviser has been, and is currently in contact with, each of
its External Service Providers to evaluate their readiness for the
year 2000. The Adviser has requested each of its External Service
Providers to either (i) prepare a description of its process for
identifying date sensitive areas, its approach for implementing
changes, and its testing methodology, along with its timetable for
completion, or (ii) certified its year 2000 compliance.
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. Corporate and governmental data processing errors may
result in production problems for individual companies and create
overall economic uncertainties. Earnings of individual
17
<PAGE>
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.
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
was 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) have been redenominated 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;
(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:
Portfolio Business Experience
Manager(s) During Last Five Years*
---------- ----------------------
Thomas K. McKissick Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of
the West.
*Positions with the TCW Group, Inc. and its affiliates may have
changed over time.
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, 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:
20
<PAGE>
Annual Management Fee
(As Percent of Average
Fund 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 the Adviser of its duties
under the agreement.
. MULTIPLE CLASS STRUCTURE
The Fund currently offers two classes of shares, Institutional Class
shares and Class N 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 N shares are also offered at the current net asset value,
but will be subject to fees 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 N shares for distribution and related
services. Because these fees are paid out of the Fund's Class N
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
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 for the
day is determined, will receive that same day's NAV if the orders were
received by the dealers, brokers or service providers from their
customers prior to 4:00 p.m. 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 IRA Additional
------------------------------------------------------------------
Large Cap Value Fund $2,000 $250 $250
The TCW Galileo Funds, Inc. may waive the minimum initial 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.
Automatic Investment Plan ($100 Minimum)
You may arrange to make investments on a regular basis through
automatic deductions from your bank checking account. Please call
(800) 248-4486 for more information and an enrollment form.
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 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 N 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
You may buy and redeem Fund shares through certain broker-dealers and
financial organizations and their authorized intermediaries. 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.
23
<PAGE>
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.
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, investors who purchase shares
through certain broker-dealers 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 Value 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 Large Cap Value Fund
DST Systems, Inc.
330 W. 9th Street
Poindexter Building, 1st 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)
(Fund Account Number)
- -------------------------------------------------------------------------------------------------------------------
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 (800) 248-4486
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.
330 W. 9th Street
Poindexter Building, 1st 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. Certain
information reflects financial results for a single Fund share.
"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 N 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 Large Cap Value Fund
June 3, 1998
(commencement of operations
through October 31, 1998
- -------------------------------------------------------------------------------------------
Per-Share Data ($)
<S> <C>
Net asset value, beginning of period $ 10.00
-----
Investment operations:
Investment income - net 0.04
Net realized and unrealized gain
(loss) on investments 0.08
-----
Total from investment operations 0.12
-----
Distributions:
Dividends from investment
income - net --
Dividends from net realized
gains on investments --
Total Distributions --
---------
Net asset value, End of period $ 10.12
=========
Total return (%) 1.20% /3/
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $ 7,505
Ratio of expenses to average net assets (%)
0.55%/1,2/
Ratio of net income to average net assets (%)
1.04%/1/
Portfolio turnover rate (%) 83.84/3/
</TABLE>
/1/ Annualized.
/2/ The Adviser has voluntarily agreed to reduce its fee, or to pay
the operating expenses of the Fund, to the extent necessary to
limit ordinary operating expenses of the Fund to 0.55% of net
assets through December 31, 1998. Had such action not been taken,
total annualized operating expenses for the period June 3, 1998
(commencement of operations) through October 31, 1998 would have
been 2.48% of average net assets.
/3/ For the period June 3, 1998 (commencement of operations) and not
indicative of a full year's operating results.
28
<PAGE>
For More Information
<TABLE>
<S> <C>
To obtain information: TCW Galileo Funds, Inc.
- --------------------------- SEC file number: 811-7170
By telephone: More information on the Fund is available free upon request,
Call 1 (800) FUNDTCW (386-3829) including the following:
By mail write to: Annual/Semiannual Report
TCW Galileo Funds, Inc. Describes the Fund's performance, lists portfolio holdings and
c/o DST Systems, Inc. contains a letter from the Fund's portfolio manager discussing
P.O. Box 419951 recent market conditions, economic trends and Fund strategies.
Kansas City, MO 64141-6951
Statement of Additional Information (SAI)
On the Internet: Text-only
versions of the Fund documents filed Provides more details about the Fund and its policies. A current SAI
with the SEC can be viewed online is on file with the Securities and Exchange Commission (SEC) and is
or downloaded from: incorporated by reference (is legally considered part of this
SEC prospectus).
http://www.sec.gov
TCW
http://www.tcwgroup.com
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, 450 Fifth Street, N.W.,
Washington, DC 20549-5009.
</TABLE>
29
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class N 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
<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
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>
<S> <C> <C>
TCW Galileo Funds, Inc. Investment Objectives Principal Investment Strategies
- ----------------------------------------------------------------------------------------------------------------------------------
TCW Galileo Small Cap Growth Long-term capital appreciation Invests in equity securities issued by small
Fund capitalization growth 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 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:
. MARKET RISK
There is the possibility that the returns from the types of securities in
which the Fund invests will under perform 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 cannot 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, fluctuation in 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, the Fund may hold various foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars can 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 N 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, which
was managed by a predecessor of TCW Funds Management, Inc. using the same
investment strategy as the Fund. The performance of the partnership was
calculated using performance standards applicable to private investment
partnerships which take into account all elements of total return and reflect
the deduction of all fees and expenses of operation. The predecessor limited
partnership, was not registered under the Investment Company Act of 1940 ("1940
Act") and therefore, was not subject to certain investment restrictions imposed
by the 1940 Act and Subchapter M of the Internal Revenue Code of 1986, as
amended. If the limited partnership had been registered under the 1940 Act its
performance could have been adversely affected. 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>
-11.49% 81.09% 2.74% 13.06% -4.38% 64.29% 17.63% 14.37% 20.26%
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: 29.1%
Best and worst quarterly performance during this period
<TABLE>
<CAPTION>
Fund Performance
----------------------------------------------------------
<S> <C>
Small Cap Growth Fund
Quarter ending December 31, 1998 31.40% (Best)
Quarter ending September 30, 1998 -22.30% (Worst)
----------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Average annual total return as of Since
December 31 1 year 5 years inception
---------------------------------------------------------------
<S> <C> <C> <C>
. Small Cap Growth Fund 20.3% 20.5% 19.2%
---------------------------------------------------------------
Russell 2000 Index -2.6% 11.9% 12.5%
---------------------------------------------------------------
</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 N
shares of the Fund have no sales charge (load), but are subject to Rule 12b-1
distribution fees.
<TABLE>
<CAPTION>
FEE TABLE
<S> <C>
Small 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 1.00%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.13%
Total Annual Fund Operating
Expenses 1.38%
</TABLE>
Expense Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
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 higher or lower, the example
is for comparison purposes only.
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Small Cap Growth $141 $437 $755 $1,637
8
<PAGE>
TCW Galileo Small Cap Growth Fund
. INVESTMENT OBJECTIVES/APPROACH
- --------------------------------
The Fund seeks long-term capital appreciation. To pursue this goal, it invests
(except when maintaining a temporary defensive position) at least 65% of the
value of its total assets in equity securities issued by companies with market
capitalizations, at the time of acquisition, within the capitalization range of
the companies comprising the Standard & Poor's Small Cap 600 Index.
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, Nicholas J. Capuano 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. In addition, the Fund may hold convertible debt
securities. Many convertible debt securities are rated below investment grade
and are considered speculative by rating agencies as to repayment of principal
and interest.
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 cannot 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 liquid 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.
The Fund may engage in active portfolio management which may result in increased
fund transaction expenses and have tax consequences such as increased realized
gains for investors.
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. The fewer
the number of issuers in which a Fund invests, the greater the potential
volatility of its portfolio.
The Adviser may temporarily invest up to 100% of the Fund's assets in high
quality, short-term money market instruments if it believes adverse economic or
market conditions, such as excessive volatility or sharp market declines,
justify taking a defensive investment posture. If the Fund attempts to limit
investment risk by temporarily taking a defensive investment position, it may be
unable to pursue its investment objective during that time and it may miss out
on some or all of an upswing in the securities markets.
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 U.S., 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 U.S., 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 may hold various foreign currencies
from time to time, the value of the net assets of the Fund as measured in United
States dollars can 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. However, it is not obligated to do so and,
depending on the availability and cost of these devices, the Fund may be unable
to use foreign currency futures and forward contracts to protect against
currency uncertainty. Please see the State of Additional Information for further
information.
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
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 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.
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. Debt
securities that are rated below investment grade are considered to be
speculative; they are also 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. Such securities are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest
14
<PAGE>
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 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. Such a 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. The Adviser has been, and is currently in contact with,
each of its External Service Providers to evaluate their readiness for the year
2000. The Adviser has requested each of its External Service Providers to either
(i) prepare a description of its process for identifying date sensitive areas,
its approach for implementing damages, its testing methodology, along with its
timetable for completion, or (ii) certify its year 2000 compliance.
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 on 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
17
<PAGE>
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.
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 was 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) have been redonominated in the
euro and, thereafter 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; (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 December 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*
- ---------- ----------------------
<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.
Nicholas J. Capuano 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.
Charles Larsen Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of
the West.
</TABLE>
*Positions with the TCW Group, Inc., and its affiliates may have changed over
time.
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, 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
(As Percent of Average
Fund 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 the
Adviser of its duties under the agreement.
.MULTIPLE CLASS STRUCTURE
- -------------------------
The Fund currently offers two classes of shares, Institutional Class shares and
Class N 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 N shares are also offered at the current net
asset value, but will be subject fees 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 N shares for distribution and
related services. Because these fees are paid out of the Fund's Class N 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 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 for the day
is determined, will receive that same day's NAV if the orders were received by
the dealers, brokers or service providers from their customers prior to 4:00
p.m. 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 IRA Additional
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Cap Growth Fund
$2,000 $250 $250
</TABLE>
The TCW Galileo Funds, Inc. may waive the minimum initial 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.
Automatic Investment Plan ($100 Minimum)
You may arrange to make investments on a regular basis through automatic
deductions from your bank checking account. Please call (800) 248-4486 for more
information and an enrollment form.
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 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 N 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
You may buy and redeem Fund shares through certain broker-dealers and financial
organizations and their authorized.intermediaries. 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.
23
<PAGE>
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).
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.
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, investors who purchase shares
through certain broker-dealers 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
24
<PAGE>
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 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.
330 W. 9th Street
Poindexter Building, 1st 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)
(Fund Account Number)
- -------------------------------------------------------------------------------------------------------------
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.
330 W. 9th Street
Poindexter Building, 1st 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.
(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. Certain information
reflects financial results for a single Fund share. "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 N 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 10/31
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per-Share Data ($)
Net asset value, beginning of period $ 18.74 $ 17.17 $ 13.53 $ 9.39 $ 10.00
-------- -------- -------- ------- ---------
Investment operations:
Investment income (loss) - net (0.18) (0.15) (0.13) (0.07) (0.04)
Net realized and unrealized gain (0.90) 1.91 4.08 4.72 (0.57)
(loss) on investments -------- -------- -------- ------- ---------
Total from investment operations (1.08) 1.76 3.95 4.65 (0.61)
-------- -------- -------- ------- ---------
Distributions:
Dividends from investment -- -- (0.01) -- --
income - net
Dividends from net realized gains (1.18) (0.19) (0.30) (0.51) --
on investments
Dividends in excess of net --
realized gains -------- -------- -------- ------- ---------
Total Distributions (1.18) (0.19) (0.31) (0.51) --
-------- -------- -------- ------- ---------
Net asset value, end of period $ 16.48 $ 18.74 $ 17.17 $ 13.53 $ 9.39
======== ======== ======== ======= =========
Total return (%) (5.98)% 10.38% 29.73% 49.89% (6.10)%/1/
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $116,050 $144,756 $132,444 $66,056 $ 51,089
Ratio of expenses to average net 1.13% 1.14% 1.14% 1.21%/3/ 1.09%/2,3/
assets (%)
Ratio of net income (loss) to average net (0.95)% (0.89)% (0.76)% (0.61)% (0.59)%/2/
assets (%)
Portfolio turnover rate (%) 63.67% 60.52% 45.43% 89.73% 88.63%/1/
</TABLE>
/1/ For the period March 1, 1994 (commencement of operations) through October
31, 1994 and not indicative of a full year's operating results.
/2/ Annualized.
/3/ The 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
<TABLE>
<S> <C>
To obtain information: TCW Galileo Funds, Inc.
__________________________ SEC file number: 811-7170
By telephone: More information on the Fund is available free upon request,
Call 1 (800) FUNDTCW (386-3829) including the following:
By mail write to: Annual/Semiannual Report
TCW Galileo Funds, Inc. Describes the Fund's performance, lists portfolio holdings and
c/o DST Systems, Inc. contains a letter from the Fund's portfolio manager discussing recent
P.O. Box 419951 market conditions, economic trends and Fund strategies.
Kansas City, MO 64141-6951
Statement of Additional Information (SAI)
On the internet: Text-only
versions of Fund documents filed Provides more details about the Fund and its policies. A current SAI
with the SEC can be viewed online is on file with the Securities and Exchange Commission (SEC) and is
or downloaded from: incorporated by reference (is legally considered part of this
SEC prospectus).
http://www.sec.gov
TCW
http://www.tcwgroup.com
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, 450 Fifth Street, N.W.,
Washington, DC 20549-6009.
</TABLE>
29
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class N 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
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 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 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>
- --------------------------------------------------------------------------------
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:
. MARKET 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 cannot 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 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 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 may hold various foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars can be
affected favorably or unfavorably by changes in exchange rates.
4
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
Because the Fund is non-diversified for purposes of the Investment Company Act
of 1940, as amended (the "1940 Act") 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 N 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, which
was managed by a predecessor of TCW Funds Management, Inc. using the same
investment strategy as the Fund. The performance of the partnership was
calculated using performance standards applicable to private investment
partnerships which take into account all elements of total return and reflect
the deduction of all fees and expenses of operation. The predecessor limited
partnership, was not registered under the Investment Company Act of 1940 ("1940
Act") and therefore, was not subject to certain investment restrictions imposed
by the 1940 Act and Subchapter M of the Internal Revenue Code of 1986, as
amended. If the limited partnership had been registered under the 1940 Act its
performance could have been adversely affected. 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>
15.41% 10.35% 22.93% -7.04% 26.45% 20.58% 22.70% 37.97%
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: 17.7%
Best and worst quarterly performance during this period
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Fund Performance
- ------------------------------------------------------------------------
<S> <C>
* Select Equities Fund
Quarter ending December 31, 1998 24.30% (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 inception
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Select Equities Fund 38.0% 19.1% 19.4%
- ----------------------------------------------------------------------------------------
S&P 500 28.6% 24.1% 20.2%
- ----------------------------------------------------------------------------------------
</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 N
shares of the Fund have no sales charge (load), but are subject to 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 0.11%
Total Annual Fund Operating Expenses 1.11%
</TABLE>
- --------------------------------------------------------------------------------
Expense Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
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 higher or lower, the example
is for comparison purposes only.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Select Equities $113 $353 $612 $1,352
</TABLE>
8
<PAGE>
TCW Galileo Select Equities Fund
LOGO INVESTMENT OBJECTIVES/APPROACH
- ---------------------------------------
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.
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. Except when maintaining a temporary defensive
position, the Fund anticipates that at least 65% of the value of its
total assets will be invested in equity securities of these companies.
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.
9
<PAGE>
LOGO 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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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 U.S. 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.
10
<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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased fund transaction expenses and have tax consequences such as
increased realized gain for investors.
11
<PAGE>
LOGO RISK CONSIDERATIONS
- -----------------------------
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.
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. The fewer the number of issuers in
which a Fund invests, the greater the potential volatility of its
portfolio.
The Adviser may temporarily invest up to 100% of the Fund's assets in
high quality, short-term money market instruments if it believes
adverse economic or market conditions, such as excessive volatility or
sharp market declines, justify taking a defensive investment posture.
If the Fund attempts to limit investment risk by temporarily taking a
defensive investment position, it may be unable to pursue its
investment objective during that time, and it may miss out on some or
all of an upswing in the securities markets.
12
<PAGE>
LOGO RISK CONSIDERATIONS
- -----------------------------
Foreign Securities
- ------------------
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 U.S. 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
13
<PAGE>
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 may hold various
foreign currencies from time to time, the value of the net assets of
the Fund as measured in U.S. dollars can 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. However, it is
not obligated to do so and, depending on the availability and cost of
these devices, the Fund may be unable to use foreign currency futures
and forward contracts to protect against currency uncertainty. Please
see the Statement of Additional Information for further
information.
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>
LOGO 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. Debt securities that are rated below investment grade are
considered to be speculative; they are also 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. 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
15
<PAGE>
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 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>
LOGO 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.
17
<PAGE>
LOGO 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. The Adviser has been, and is currently in contact with each of
its External Service Providers to evaluate their readiness for the
year 2000. The Adviser has requested each of its External Service
Providers to either (i) prepare a description of its process for
identifying date sensitive areas, its approach for implementing
changes, its testing methodology, along with its timetable for
completion, or (ii) certify as to its year 2000 compliance.
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.
18
<PAGE>
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.
19
<PAGE>
LOGO 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
was 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) have been redenominated in the
euro and, thereafter 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 (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>
LOGO 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 December 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 During Last Five Years*
------- ----------------------
<S> <C>
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.
</TABLE>
*Positions with the TCW Group, Inc., and its affiliates may have
changed over time.
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, 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>
<TABLE>
<CAPTION>
Annual Management Fee
(As Percent of Average
Fund Net Asset Value)
---- ----------------
<S> <C>
Select Equities .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 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 the Adviser of its duties
under the agreement.
LOGO MULTIPLE CLASS STRUCTURE
- ----------------------------------
The Fund currently offers two classes of shares, Institutional Class
shares and Class N 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 N shares are also offered at the current net asset value,
but will be subject to fees imposed under a distribution plan
("Distribution Plan") adopted pursuant to Rule 12b-1 under the 1940
Act. 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 N shares for distribution and
related services. Because these fees are paid out of the Fund's Class
N 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
LOGO 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
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 for the
day is determined, will receive that same day's NAV if the orders were
received by the dealers, brokers or service providers from their
customers prior to 4:00 p.m. 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
<TABLE>
<CAPTION>
Initial IRA Additional
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
TCW Galileo Select Equities Fund $2,000 $250 $250
</TABLE>
The TCW Galileo Funds, Inc. may waive the minimum initial 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.
AUTOMATIC INVESTMENT PLAN
You may arrange to make investments on a regular basis through
automatic deductions from your bank checking account. Please call
(800) 248-4486 for more information and an enrollment form.
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 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 N 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
You may buy and redeem Fund shares through certain broker-dealers and
financial organizations and their authorized intermediaries. 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.
24
<PAGE>
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.
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.
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).
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, investors who purchase shares
through certain broker-dealers 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)
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.
330 W. 9th Street
Poindexter Building, 1st 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)
(Fund Account Number)
- -----------------------------------------------------------------------------------------------------------------------
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 To reach the Transfer Agent, DST
Write a letter of instruction that includes: Systems, Inc., call toll free in the
. your name(s) and signature(s) as on the account form U.S.
. your account number
. the Fund name (800) 248-4486
. 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.
330 W. 9th Street
Poindexter Building, 1st 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>
27
<PAGE>
LOGO DISTRIBUTION 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>
LOGO FINANCIAL HIGHLIGHTS
- ------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"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 N 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
(formerly TCW Galileo Core Equities Fund)
Ten
Months
Ended
Year Ended October 31 10/31
1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per-Share Data ($)
Net asset value, beginning of period $ 19.29 $ 15.93 $ 13.69 $ 11.57 $ 11.81
------- -------- -------- -------- --------
Investment operations:
Investment income (loss) - 0.02 0.01 0.11 0.06 0.04
net
Net realized and unrealized 3.38 3.57 2.18 2.11 (0.28)
gain (loss) on investments ------- -------- -------- -------- --------
Total from investment operations 3.36 3.58 2.29 2.17 (0.24)
------- -------- -------- -------- --------
Distributions:
Dividends from investment -- (0.02) (0.05) (0.05) --
income - net
Dividends from net realized 5.76 (0.20) -- -- --
gains on investments
Dividends in excess of net -- -- -- -- --
realized gains -------- -------- -------- --------
Total Distributions (5.76) (0.22) (0.05) (0.05) --
------- -------- -------- -------- --------
Net asset value, end of period $ 16.89 $ 19.29 $ 15.93 $ 13.69 $ 11.57
======= ======== ======== ======== ========
Total return (%) 23.83% 22.68% 16.79% 18.85% (2.03)%
Ratios/Supplemental Data
Net assets, end of period $184.85 $156,113 $231,302 $197,721 $136,122
($ x 1,000)
Ratio of expenses to average net assets (%) 0.86% 0.83% 0.82% 0.85% 0.91%/2/
Ratio of net income to average net assets (%) (0.14)% 0.08% 0.18% 0.48% 0.44%/2/
Portfolio turnover rate (%) 103.51% 39.22% 39.58% 53.77% 23.53%/1/
</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
<TABLE>
<S> <C>
To obtain information: TCW Galileo Funds, Inc.
______________________________ SEC file number: 811-7170
By telephone: More information on the Fund is available free upon request,
Call (800) FUNDTCW (386-3829) including the following:
Write To: Annual/Semiannual Report
c/o DST System, Inc., Describes the Fund's performance, lists portfolio holdings
P.O. Box 419951 and contains a letter from the Fund's portfolio-manager discussing
Kansas City, MO 64141-6951 recent market conditions, economic trends and Fund strategies.
By mail: Statement of Additional Information (SAI)
TCW Galileo Funds, Inc. Provides more details about the Fund and its policies. A current SAI
865 South Figueroa Street is on file with the Securities and Exchange Commission (SEC) and is
Suite 1800 incorporated by reference (is legally considered part of this
Los Angeles, CA 90017 prospectus).
On the Internet: Text-only
versions of Fund documents filed
with the SEC can be viewed online
or downloaded from:
SEC
http://www.sec.gov
tcw
http://www.tcwgroup.com
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, 450 Fifth Street, N.W.,
Washington, DC 20549-6009.
</TABLE>
30
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class N 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
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
Fund capitalization 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:
. MARKET 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 a lack of adequate company information. The
Fund is subject to foreign investing risk because it may invest in foreign
company securities. In addition, because foreign securities generally are
denominated and pay dividends or interest in foreign currencies, and the Fund
may hold various foreign currencies, the value of the net assets of the Fund
as measured in U.S. dollars can 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 N 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, which
was managed by a predecessor of TCW Funds Management, Inc. using the same
investment strategy as the Fund. The performance of the partnership was
calculated using performance standards applicable to private investment
partnerships which take into account all elements of total return and reflect
the deduction of all fees and expenses of operation. The predecessor limited
partnership, was not registered under the Investment Company Act of 1940 ("1940
Act") and therefore, was not subject to certain investment restrictions imposed
by the 1940 Act and Subchapter M of the Internal Revenue Code of 1986, as
amended. If the limited partnership had been registered under the 1940 Act its
performance could have been adversely affected. 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>
8.70% 59.15%
1997 1998
- ----------------------------------------------------------------
</TABLE>
The Fund's total return for the period October 31, 1998 to
December 31, 1998 is: 22.0%
Best and worst quarterly performance during this period
<TABLE>
- --------------------------------------------------------------------------------
Fund Performance
- --------------------------------------------------------------------------------
<S> <C>
* Large Cap Growth Fund
Quarter ending December 31, 1998 29.50% (Best)
Quarter ending September 30, 1998 -3.81% (Worst)
- --------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Average annual total return as of Since
December 31 1 year inception
- --------------------------------------------------------------------------------
<S> <C> <C>
* Large Cap Growth Fund 59.1% 43.0%
- --------------------------------------------------------------------------------
S&P/BARRA Growth Index 42.2% 33.7%
- --------------------------------------------------------------------------------
</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 N
shares of the Fund have no sales charge (load), but are subject to Rule 12b-1
distribution fees.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FEE TABLE
<S> <C>
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 1.98%
Total Annual Fund Operating 2.78%
Expenses1
</TABLE>
1 The Adviser voluntarily agreed to reduce its fees or to pay the operating
expenses of the Fund to reduce Annual Fund Operating Expenses to 0.91% of Net
Assets through October 31, 1998.
- --------------------------------------------------------------------------------
Expense Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
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 higher or lower, the Example
is for comparison purposes only.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Large Cap Growth $281 $862 $1,469 $3,109
</TABLE>
8
<PAGE>
TCW Galileo Large Cap Growth Fund
LOGO INVESTMENT OBJECTIVES/APPROACH
------------------------------
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.
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
(except when maintaining a temporary defensive position) at least 65%
of the value of 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.
9
<PAGE>
LOGO 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. In
addition, the Fund may hold convertible debt securities. Many
convertible debt securities are rated below investment grade and are
considered speculative by rating agencies as to repayment of principal
and interest.
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
liquid 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.
The Fund may engage in active portfolio management which may result in
increased Fund transaction expenses and have tax consequences such as
increased realized gains for investors.
10
<PAGE>
- --------------------------------------------------------------------------------
LOGO RISK CONSIDERATIONS
-------------------
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.
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 The fewer the number of issuers in
which a Fund invests, the greater the potential volatility of its
portfolio.
The Adviser may temporarily invest up to 100% of the Fund's assets in
high quality, short-term money market instruments if it believes
adverse economic or market conditions, such as excessive volatility or
sharp market declines, justify taking a defensive investment posture.
If the Fund attempts to limit investment risk by temporarily taking a
defensive investment position, it may be unable to pursue its
investment objective during that time, and it may miss out on some or
all of an upswing in the securities markets.
11
<PAGE>
LOGO 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 U.S. 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 U.S., 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
U.S., which could affect the liquidity of the Fund's portfolio. Also,
it may be more difficult to obtain and enforce legal
12
<PAGE>
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 may hold various
foreign currencies from time to time, the value of the net assets of
the Fund as measured in U.S. dollars can 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. However, it is
not obligated to do so and, depending on the availability and cost of
these devices, the Fund may be unable to use foreign currency futures
and forward contracts to protect against currency uncertainty. Please
see the Statement of Additional Information for further
information.
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 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>
LOGO 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. Debt securities that are rated below investment grade are
considered to be speculative; they are also 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. 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
14
<PAGE>
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 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>
LOGO 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>
LOGO 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. The Adviser has been, and is currently in contact with each of
its External Service Providers to evaluate their readiness for the
year 2000. The Adviser has requested each of its External Service
Providers to either (i) prepare a description of its process for
identifying date sensitive areas, its approach for implementing
changes, its testing methodology, along with its timetable for
completion, or (ii) certify as to its year 2000 compliance.
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.
17
<PAGE>
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.
18
<PAGE>
LOGO 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
was 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) have been 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;
(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>
LOGO 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 December 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*
- ---------- ----------------------
<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>
* Positions with the TCW Group, Inc., and its affiliates may have changed over
time.
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, 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:
20
<PAGE>
<TABLE>
<CAPTION>
Annual Management Fee
Fund (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 the Adviser of its duties
under the agreement.
LOGO MULTIPLE CLASS STRUCTURE
------------------------
The Fund currently offers two classes of shares, Institutional Class
shares and Class N 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 N shares are also offered at the current net asset value,
but will be subject to fees 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 N shares for distribution and related
services. Because these fees are paid out of the Fund's Class N
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
LOGO 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
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 for the
day is determined that day will receive that same day's NAV if the
orders were received by the dealers, brokers or service providers from
their customers prior to 4:00 p.m. 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 IRA Additional
- --------------------------------------------------------------------------------
<S> <C> <C>
Large Cap Growth Fund $2,000 $250 $250
</TABLE>
The TCW Galileo Funds, Inc. may waive the minimum initial 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.
AUTOMATIC INVESTMENT PLAN ($100 MINIMUM)
You may arrange to make investments on a regular basis through automatic
deductions from your bank checking account. Please call (800) 248-4486 for
more information and an enrollment form.
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 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 N 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
You may buy and redeem Fund shares through certain broker-dealers and
financial organizations and their authorized intermediaries. 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.
23
<PAGE>
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).
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.
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, investors who purchase shares
through certain broker-dealers 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)
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 specifying
DST Systems, Inc. the Fund name, your account number, and the name(s) your
P.O. Box 419951 account is registered in.)
Kansas City, MO 64141-6951
Express, Registered or Certified Mail
TCW Galileo Large Cap Growth Fund
DST Systems, Inc.
330 W. 9th Street
Poindexter Building, 1st 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)
(Fund Account Number)
- --------------------------------------------------------------------------------------------------------------------
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
Write a letter of instruction that includes: Systems, Inc., call toll free in the
. your name(s) and signature(s) as on the account form U.S.
. your account number (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.
330 W. 9th Street
Poindexter Building, 1st 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>
LOGO 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>
LOGO FINANCIAL HIGHLIGHTS
--------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"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 N 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
June 3, 1998
(commencement of operations)
through October 31, 1998
- -----------------------------------------------------------------------------------------------
<S> <C>
Per-Share Data ($)
Net asset value, beginning of period $ 10.00
---------
Investment operations:
Investment income - net --
Net realized and unrealized gain
(loss) on investments 1.18
---------
Total from investment operations 1.18
---------
Distributions
Dividends from investment
income - net --
Dividends from net realized gains
on investments --
Total Distributions: --
---------
Net asset value, end of period $ 11.18
=========
Total return (%) 11.80%/1/
=========
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $ 7,800
Ratio of expenses to average net assets (%) 0.91%/2,3/
Ratio of net income to average net assets (%) (0.07)%/2/
Portfolio turnover rate (%) 50.76%/1/
</TABLE>
/1/ For the period June 3, 1998 (commencement of operations) to October 31,
1998 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 0.91% of net assets
through December 31, 1998. Had such action not been taken, total annualized
operating expenses for the period June 3, 1998 (commencement of operations)
through October 31, 1998 would have been 2.53% of average net assets.
28
<PAGE>
For More Information
<TABLE>
<S> <C>
To obtain information: TCW Galileo Funds, Inc.
___________________________ SEC file number: 811-7170
By telephone: More information on the Fund is available free upon request,
Call (800) FUNDTCW (386-3829) including the following:
By mail write to: Annual/Semiannual Report
TCW Galileo Funds, Inc. Describes the Fund's performance, lists portfolio holdings and
c/o DST Systems, Inc. contains a letter from the Fund's portfolio manager discussing recent market
P.O. Box 419951 conditions, economic trends and Fund strategies.
Kansas City, MO 64141-6951
Statement of Additional Information (SAI)
On the Internet: Text-only
versions of Fund documents filed Provides more details about the Fund and its policies. A current SAI
with the SEC can be viewed online is on file with the Securities and Exchange Commission (SEC) and is
or downloaded from: incorporated by reference (is legally considered part of this
SEC prospectus).
http://www.sec.gov
TCW
http://www.tcwgroup.com
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, 450 Fifth Street, N.W.,
Washington, DC 20549-6009.
</TABLE>
29
<PAGE>
TCW GALILEO FUNDS, INC.
This prospectus tells you about the Class N 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>
<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
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.................................................... 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 Total Return Maximize current income and achieve Invests in mortgage-backed securities guaranteed
Mortgage-Backed Securities Fund above average total return consistent by, or secured by collateral that is guaranteed
with prudent investment management over by, the United States government, its agencies,
a full market cycle 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.
</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 in value. Therefore, the value of an investment in the
Fund could go down as well as up. All investments are subject to:
. MARKET 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
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
. LIQUIDITY RISK
There is 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. The Fund is subject to liquidity risks
because it invests in mortgage-backed securities, which have 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
<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 N 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, which
was managed by a predecessor of TCW Funds Management, Inc. using the same
investment strategy as the Fund. The performance of the partnership was
calculated using performance standards applicable to private investment
partnerships which take into account all elements of total return and reflect
the deduction of all fees and expenses of operation. The predecessor limited
partnership, was not registered under the Investment Company Act of 1940 ("1940
Act") and therefore, was not subject to certain investment restrictions imposed
by the 1940 Act and Subchapter M of the Internal Revenue Code of 1986, as
amended. If the limited partnership had been registered under the 1940 Act its
performance could have been adversely affected. 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>
3.50% -6.20% 20.80% 5.10% 11.90% 7.23%
1993 1994 1995 1996 1997 1998
-----------------------------------------------------
</TABLE>
*The Fund's total return for the period October 31, 1998 to December 31, 1998 is
0.50%
Best and worst quarterly performance during this period
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Fund Performance
- --------------------------------------------------------------------------------------------------------------
<S> <C>
. Total Return Mortgage-Backed Securities Fund
Quarter ending June 30, 1995 6.81% (Best)
Quarter ending June 30, 1994 -4.78% (Worst)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Average annual total return as of Since
December 31 1 year 5 years inception
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
. Total Return Mortgage-Backed 7.2% 7.4% 7.3%
Securities Fund
- ---------------------------------------------------------------------------------------
Lehman Brothers Mortgage-Backed 7.5% 7.2% 6.9%
Securities 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 N
shares of the Fund have no sales charge (load), but are subject to Rule 12b-1
distribution fees.
- --------------------------------------------------------------------------------
FEE TABLE
<TABLE>
<CAPTION>
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 0.20%
Total Annual Fund Operating Expenses 0.95%
</TABLE>
- --------------------------------------------------------------------------------
Expense Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
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 higher or lower, the Example
is for comparison purposes only.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return Mortgage-Backed
Securities $97 $303 $525 $1,166
</TABLE>
8
<PAGE>
TCW Galileo Total Return Mortgage-Backed Securities Fund
[LOGO] INVESTMENT OBJECTIVES/APPROACH
------------------------------
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 readliy 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.
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 (except when maintaining a temporary defensive
position) at least 65% of the value of its total 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.
9
<PAGE>
[LOGO] 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
<PAGE>
derivatives. These practices may be used to increase returns;
however, such practices sometimes may reduce returns or increase
volatility and may be very sensitive to changes in interest
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 liquid 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.
The fund may engage in active portfolio management which may result in
increased fund transaction expenses and have tax consequences such as
increased realized gains for investors.
11
<PAGE>
- --------------------------------------------------------------------------------
-----------------------
[LOGO] RISK CONSIDERATIONS
-----------------------
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.
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. The fewer the number of issuers in
which a Fund invests, the greater the potential volatility of its
portfolio. Lack of diversification in a portfolio can also increase
volatility and may be very sensitive to changes in interest
values.
The Adviser may temporarily invest up to 100% of the Fund's assets in high
quality, short-term money market instruments if it believes adverse economic or
market conditions, such as excessive volatility or sharp market declines,
justify taking a defensive investment posture. If the Fund attempts to limit
investment risk by temporarily taking a defensive investment position, it may be
unable to pursue its investment objective during that time, and it may miss out
on some or all of an upswing in the securities markets.
12
<PAGE>
[LOGO] 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 downgrades.
"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%
13
<PAGE>
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>
[LOGO] RISK CONSIDERATIONS
-----------------------
Mortgage-Backed Securities
- --------------------------
Credit and Market Risks of Mortgage-Backed Securities. The
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 the 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
<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 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
<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
Total Return Mortgage-Backed Securities Fund involves interest-only
Stripped Mortgage Securities. These investments may be highly
sensitive to changes in interest and tend to be less liquid than
other CMOs. In addition, prepayments of the underlying mortgages
likely would lower the Fund's returns from stripped securities it
holds.
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
<PAGE>
[LOGO] 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. Such a 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. The Adviser has been, and is currently, in contact with each of
its External Service Providers to evaluate their readiness for the
year 2000. The Adviser has requested each of its External Service
Providers to either; (i) prepare a description of its process for
identifying date sensitive areas, its approach for implementing
changes its testing methodology, along with its timetable for
completion, or (ii) certify its year 2000 compliance.
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
19
<PAGE>
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, the Fund's portfolio
investments may be negatively affected.
20
<PAGE>
[LOGO] 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 December 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*
---------- ----------------------
<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>
* Positions with the TCW Group, Inc. and its affiliates may have
changed over time.
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, and to be responsible for overall management of
the
21
<PAGE>
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
Fund 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 the Adviser of its duties under
the agreement.
[LOGO] MULTIPLE CLASS STRUCTURE
----------------------------
The Fund currently offers two classes of shares, Institutional Class
shares and Class N 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 N shares are also offered at the current net asset value,
but will be subject to service fees 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 N shares for distribution and related
services. Because these fees are paid out of the Fund's Class N
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
[LOGO] 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
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 for the
day is determined, will receive that same day's NAV if the orders were
received by the dealers, brokers or service providers from their
customers prior to 4:00 p.m. 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
<TABLE>
<CAPTION>
Initial IRA Additional
- --------------------------------------------------------------------------------
<S> <C> <C>
Total Return Mortgage-Backed Securities Fund $2,000 $250 $250
</TABLE>
TCW Galileo Funds, Inc. may waive the minimum initial 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.
AUTOMATIC INVESTMENT PLAN ($100 MINIMUM)
You may arrange to make investments on a regular basis through automatic
deductions from your bank checking account. Please call (800) 248-4486 for more
information and an enrollment form.
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 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 N 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).
24
<PAGE>
Third Party Transactions
You may buy and redeem Fund shares through certain broker-dealers and
financial organizations and their authorized intermediaries. 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.
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).
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,
investors who purchase shares through certain broker-dealers 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
25
<PAGE>
. 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)
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------
<S> <C>
In Writing
Complete the New Account Form. Mail your (Same, except that you should include a note
New 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 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.
330 W. 9th Street
Poindexter Building, 1st 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)
(Fund Account Number)
- ----------------------------------------------------------------------------------------------------
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 To reach the Transfer Agent at DST
Write a letter of instruction that includes: Systems, Inc., call toll free in
. your name(s) and signature(s) as they appear on the the U.S.
account form (800) 248-4486
. 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.
330 W. 9th Street
Poindexter Building, 1st 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>
27
<PAGE>
[LOGO] 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.
28
<PAGE>
[LOGO] FINANCIAL HIGHLIGHTS
--------------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the fiscal years indicated. Certain
information reflects financial results for a single Fund share.
"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 N 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
(formerly TCW Galileo Long-Term Mortgage-Backed Securities Fund)
Ten Months
Ended
Year Ended October 31 10/31
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per-Share Data ($)
Net asset value, beginning of period $ 9.91 $ 9.56 $ 9.56 $ 8.95 $ 10.07
-------- ------- -------- ------- ---------
Investment operations:
Investment income - net 0.84 0.75 0.68 0.72 0.63
Net realized and unrealized gain (0.07) 0.32 0.02 0.71 (1.26)
(loss) on investments -------- ------- -------- ------- ---------
Total from investment operations 0.77 1.07 0.70 1.43 (0.63)
-------- ------- -------- ------- ---------
Distributions:
Dividends from net investment (0.86) (0.72) (0.68) (0.82) (0.49)
income
Dividends from net realized gains (0.05) -- -- -- --
on investments
Distributions in Excess of Net (0.01) -- (0.02) -- --
Investment Income -------- ------- -------- ------- ---------
Total Distributions (0.92) (0.72) (0.70) (0.82) (0.49)
-------- ------- -------- ------- ---------
Net asset value, end of period $ 9.76 $ 9.91 $ 9.56 $ 9.56 $ 8.95
======== ======= ======== ======= =========
Total return (%) 8.20% 11.66% 7.69% 16.84% (6.39)%/1/
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $101,501 $81,442 $112,260 $80,159 $ 66,632
Ratio of expenses to average net assets (%) 0.70% 0.67% 0.68% 0.68%/3/ 0.65%/2,3/
Ratio of net income to average net assets (%) 8.52% 7.77% 7.15% 7.88% 8.03%/2/
Portfolio turnover rate (%) 27.95% 16.01% 39.28% 23.76% 36.71%/1/
</TABLE>
/1/ For the ten months ended October 31, 1994 and not indicative of a full
year's operating results.
/2/ Annualized.
/3/ The 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
29
<PAGE>
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
<TABLE>
<CAPTION>
<S> <C>
To obtain information: TCW Galileo Funds, Inc.
_______________________________ SEC file number: 811-7170
By telephone: More information on this Fund is available free upon request,
Call (800) FUNDTCW (386-3824) including the following:
By mail write to: Annual/Semiannual Report
c/o DST Systems, Inc. Describes the Fund's performance, lists portfolio holdings and
P.O. Box 419951 contains a letter from the Fund's manager discussing recent market
Kansas City, MO 64141-6951 conditions, economic trends and Fund strategies.
On the Internet: Text-only
versions of Fund documents filed Statement of Additional Information (SAI)
with the SEC can be viewed online
or downloaded from: Provides more details about the Fund and its policies. A current SAI
SEC is on file with the Securities and Exchange Commission (SEC) and is
http://www.sec.gov incorporated by reference (is legally considered part of this
prospectus).
TCW
http://www.tcwgroup.com
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, 450 Fifth Street, N.W.,
Washington, DC 20549-6009.
</TABLE>
<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 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 N 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>
<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.......................... 47
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 January 31, 1999, the following shareholders owned of record 5% or
more (but less than 25%) of the outstanding shares of the following Funds: Core
Fixed Income -- Hilton Charitable Remainder Trust -- (21.85%) and Cedars-Sinai
Medical Center (5.81%); High Yield Bond -- Genesee County Employees Retirement
System (17.67%); Maine State Retirement System (18.80%) Collins Investments Inc.
(5.18%) and First Insurance Company of Hawaii (6.29%); Total Return Mortgage-
Backed Securities -- General Chemical Pension Plan (15.98%); Fisher Scientific
International (15.34%), TCW Capital Investment Corporation (5.31%); Cedars-Sinai
Medical Center (5.66%); St. Vincents Medical Center (9.22%) and Curtis Wright
Corp. Contributory Retirement Plan (20.47%); Asia Pacific Equities -- TCW Profit
Sharing & Savings Plan (11.81%); TCW Galileo International Equities Fund
(18.86%); and W.C. Edwards Trust (7.23%); Emerging Markets Equities -- Cravath
Swaine & Moore Retirement Savings Plan (12.00%) and Salk Institute (8.10%);
Latin America Equities -- TCW Galileo International Equities Fund, Inc.
(19.07%); Kravis Foundation (13.28%)' Gibson Co. Profit Sharing Plan (5.98%) and
C.A. Hills (6.14%); Emerging Markets Income -- Hilton Charitable Remainder Trust
(18.33%); Select Equities -- TCW Global Investment Trust (5.04%), Egleston's
Children's Hospital (7.74%); Duke Endowment Trust (24.94%) and The Salk
Institute (10.46%); Small Cap Growth -- University of Tennessee (9.48%), Fisher
Scientific International (6.96%); General Chemical Pension Plan (8.75%); General
Signal Savings Plan (5.31%) and Salem Hospital Retirement Plan (6.64%);
Aggressive Growth Equities -- Tranan Management Corp. (7.91%), Freedom
Communications (6.16%), Santa Barbara Foundation (5.55%) and Duke Endowment
Trust (11.87%); Earnings Momentum -- Duke Endowment Trust (15.96%); McCarthy
Trust (8.35%) and McCarthy Survivors Trust (8.35%); Convertible Securities --
Buck Foundation (6.22%) and Maine State Retirement System (18.43%); Value
Opportunities -- Robson Trust (7.81%); William & Charlene Norred (7.80%);
Collins Management Trust (8.62%); Mead Foundation (5.97%) Kravis Foundation
(5.25%) and Tranan Management Corp. (19.90%); Large Cap Growth -- TCW Capital
Investment Corporation (19.23%) and Rosenblatt Trust (6.86)%; Large Cap Value --
Primm Family Trust (5.19%); International Equities -- The Salk Institute (9.32%)
and First Insurance Company of Hawaii (13.19%); Japanese Equities -- Hilton
Charitable Remainder Trust (20.59%); Money Market -- Sanwa Bank California
(5.48%).
As of January 31, 1999, Ministers and Missionaries Benefit Board owned
29.70% of the outstanding shares of Japanese Equities and 46.20% of the
outstanding shares of Core Fixed Income; Hilton Charitable Remainder Trust owned
38.90% of the outstanding shares of Emerging Markets Equities; Sisters of
Charity and United Negro College Fund owned 40.88% and 46.56%, respectively, of
the outstanding shares of Mortgage-Backed Securities; Sobrato Revocable Trust
owned 47.10% of the outstanding shares of Asia Pacific Equities; Duke Endowment
Trust owned 43.97% of the outstanding shares of Large Cap Value and 64.13% of
the outstanding shares of International Equities; Maine State Retirement System
owned 44.07% of Emerging Markets Income; Goldman Sachs Pension Plan owned 42.49%
of the outstanding shares of Earnings Momentum; Mead Foundation owned 64.96% of
Large Cap Growth; The Salk Institute owned 32.41% of Large Cap Value; Claremont
McKenna College owned 31.15% of Emerging Markets Income; Saxon & Co. FBO PNC
owned 33.15% of the outstanding shares
<PAGE>
of Money Market and the Galileo International Equities Fund owned 85.73% of the
outstanding shares of European Equities and 48.45% of the outstanding shares of
Japanese Equities. As a result of these holdings, each of these entities may be
considered a "control person" as defined in the Investment Company Act of 1940
with respect to the Fund in which it invests. All communications to these
shareholders can be addressed to TCW Funds Management, Inc., 865 South Figueroa
Street, 18th Floor, Los Angeles, California 90017, Attention: Investor Relations
Department.
INVESTMENT PRACTICES
In attempting to achieve its investment objective, a Fund may utilize, among
others, one or more of the strategies or securities set forth below. The Funds
may, in addition, invest in other instruments (including derivative investments)
or use other investment strategies that are developed or become available in the
future and that are consistent with their objectives and restrictions. Certain
of the Funds, for purposes of calculating certain guidelines, will utilize
the previous month-end capitalization range of various securities indices.
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
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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 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.
Other Short-Term Obligations. (All Funds). Debt securities that have
----------------------------
a remaining maturity of 397 days or less and that have a long-term rating within
the three highest ratings categories by S&P or Moody's.
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
3
<PAGE>
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, 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.
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.
4
<PAGE>
When, As and If Issued Securities. Emerging Markets Income and the Bond and
Equity Funds may purchase securities on a "when, as and if issued" basis under
which the issuance of the security depends upon the occurrence of a subsequent
event, such as approval of a merger, corporate reorganization, leveraged buyout
or debt restructuring. The commitment for the purchase of any such security
will not be recognized in the portfolio of the Fund until the Adviser determines
that issuance of the security is probable. At such time, the Fund will record
the transaction and, in determining its net asset value, will reflect the value
of the security daily. At such time, the Fund will also establish a segregated
account with its custodian bank in which it will continuously maintain cash or
U.S. Government Securities or other liquid portfolio securities equal in value
to recognized commitments for such securities. Settlement of the trade will
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 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 Aggressive Growth Equities and International Equities)
Options. Emerging Markets Income, the Bond Funds and the Equity Funds (except
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 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
5
<PAGE>
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 Aggressive Growth Equities and International Equities) are
permitted to write covered call options on securities and (for the Equity Funds,
except 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.
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
6
<PAGE>
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 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.
7
<PAGE>
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 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
8
<PAGE>
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 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 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.
9
<PAGE>
The value of a foreign currency option depends upon the value of the underlying
currency relative to the U.S. dollar. As a result, the price of the option
position may vary with changes in the value of either or both currencies and
have no relationship to the investment merits of a foreign security, including
foreign securities held in a "hedged" investment portfolio. Because foreign
currency transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the use of foreign currency
options, investors may be disadvantaged by having to deal in an odd lot market
(generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
available is generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller transactions (i.e.,
less than $ l million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To the extent that
the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
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 thereafter, the amount of initial margin and premiums
for unexpired futures contracts and options on futures contracts exceeds 5% of
the Fund's liquidation value, after taking into account unrealized profits and
losses on such futures contracts, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
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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 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.
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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
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 invest primarily 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 a substantial portion of its assets 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.
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
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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.
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.
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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, Aggressive
Growth Equities and International Equities), Core Fixed Income and Emerging
Markets Income
Forward Currency Transactions. The Equity Funds (except Earnings Momentum,
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.
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
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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 that investment does not represent more than 3% of the
voting stock of the acquired investment company at the time such shares are
purchased.
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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. Certain Galileo Funds are not diversified. Non-diversified
Funds are not subject to certain regulatory limits, including limits on the size
of their positions in individual issuers. To the extent such funds exceed these
limits, they will be more exposed to risks of particular issuers than a
diversified fund. Such funds will, however, comply with the diversification
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended.
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
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effects of leverage. Certain instruments (such as inverse floaters) behave
similarly to leveraged instruments. Generally, such securities contain formulas
requiring recalculation of their interest rates in a manner that multiplies the
change in a market rate.
Repurchase Agreements
In the event of a default or bankruptcy by a selling financial institution under
a repurchase agreement, a Fund will seek to sell the underlying security serving
as collateral. However, this could involve certain costs or delays, and, to the
extent that proceeds from any sale were less than the repurchase price, the Fund
could suffer a loss. Each Fund follows procedures designed to minimize the
risks associated with repurchase agreements, including effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions and specifying the required value of the collateral underlying the
agreement.
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
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fixed rate securities) and directly (especially in the case of adjustable rate
securities). In general, rises in interest rates will negatively impact the
price of fixed rate securities and falling interest rates will have a positive
effect on price. The degree to which a security's price will change as a result
of changes in interest rates is measured by its "duration." For example, the
price of a bond with a 5 year duration would be expected under normal market
conditions to decrease 5% for every 1% increase in interest rates. Generally,
securities with longer maturities have a greater duration and thus are subject
to greater price volatility from changes in interest rates. Adjustable rate
instruments also react to interest rate changes in a similar manner although
generally to a lesser degree (depending, however, on the characteristics of the
re-set terms, including the index chosen, frequency of reset and reset caps or
floors, among other things).
Foreign Securities
The Equity Funds, 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
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and Core Fixed Income are authorized to enter into certain foreign currency
future and forward contracts. However, it is not obligated to do so and,
depending on the availability and cost of these devices, the Fund may be unable
to use them to protect against currency risk. While foreign currency future and
forward contracts may be available, the cost of these instruments may be
prohibitively expensive so that the Fund may not to be able to effectively use
them
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.
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In addition, emerging market countries' exchanges' and broker-dealers are
generally subject to less government and exchange regulation than their
counterparts in developed countries. Brokerage commissions, dealer concessions,
custodial expenses and other transaction costs may be higher 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 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 experiencing 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
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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 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
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which holds an option would be able to realize profits or limit losses only by
exercising the option, and a Fund which acted as option writer would remain
obligated under the option until expiration or exercise.
Special risks are presented by internationally-traded options of the type
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
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risk than securities with higher ratings particularly in the event of a
deterioration of general economic conditions. The lower ratings of the high
yield/high risk securities which the Fund will purchase reflect a greater
possibility that the financial condition of the issuers, or adverse changes in
general economic conditions, or both, may impair the ability of the issuers to
make payments of principal and interest. The market value of a single lower-
rated fixed income security may fluctuate more than the market value of higher
rated securities, since changes in the creditworthiness of lower rated issuers
and in market perceptions of the issuers' creditworthiness tend to occur more
frequently and in a more pronounced manner than in the case of higher rated
issuers. High yield/high risk fixed income securities also tend to reflect
individual corporate developments to a greater extent than higher rated
securities. The securities in which the Fund invests are frequently subordinated
to senior indebtedness.
Since the high yield bond market is relatively new, its growth has paralleled a
long economic expansion, and it has not weathered a recession in its present
size and form. An economic downturn or increase in interest rates may result in
a higher incidence of high yield bond defaults and is likely to have a negative
effect on the high yield bond market and on the value of the high yield/high
risk bonds in the Fund's portfolio, as well as on the ability of the bonds'
issuers to repay principal and interest.
The economy and interest rates affect high yield/high risk securities
differently from other securities. The prices of high yield bonds have been
found to be less sensitive to interest rate changes than higher-rated
investments, but more sensitive to adverse economic changes or individual
corporate developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial stress
which would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals, and to obtain
additional financing. If the issuer of a bond owned by the Fund defaults, the
Fund may incur additional expenses to seek recovery. In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of high yield bonds and the Fund's asset value.
Furthermore, the market prices of high yield/high risk bonds structured as zero
coupon or pay-in-kind securities are affected to a greater extent by interest
rate changes and thereby tend to be more volatile than securities which pay
interest periodically and in cash.
To the extent there is a limited retail secondary market for particular high
yield bonds, these bonds may be thinly-traded and the Adviser's ability to
accurately value high yield bonds and the Fund's assets may be more difficult
because there is less reliable, objective data available. In addition, the
Fund's ability to acquire or dispose of the bonds 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
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the receipt of cash payments. The Fund must distribute substantially all of its
income to its shareholders to qualify for pass-through treatment under the tax
laws and may, therefore, have to dispose of its portfolio securities to satisfy
distribution requirements.
Underwriting and dealer spreads associated with the purchase of lower rated
bonds are typically higher than those associated with the purchase of high grade
bonds.
Risks Associated With Mortgage-Backed Securities
Credit and Market Risks of Mortgage-Backed Securities. The investments by Core
Fixed Income, 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
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the security, which could have an adverse effect on the Fund's ability to
achieve its investment objective.
Collateralized Mortgage Obligations. There are certain risks associated
specifically with CMOs. CMOs issued by private entities are not obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities and are not guaranteed by any government agency, although the
securities underlying a CMO may be subject to a guarantee. Therefore, if the
collateral securing the CMO, as well as any third party credit support or
guarantees, is insufficient to make payment, the holder could sustain a loss.
In addition, the average life of CMOs is determined using mathematical models
that incorporate prepayment assumptions and other factors that involve estimates
of future economic and market conditions. These estimates may vary from actual
future results, particularly during periods of extreme market volatility.
Further, under certain market conditions, such as those that occurred in 1994,
the average weighted life of certain CMOs may not accurately reflect the price
volatility of such securities. For example, in periods of supply and demand
imbalances in the market for such securities and/or in periods of sharp interest
rate movements, the prices of CMOs may fluctuate to a greater extent 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.
31
<PAGE>
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.
32
<PAGE>
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 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 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
33
<PAGE>
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. High portfolio turnover can result in increased
transaction costs for shareholders. High turnover generally results from the
adviser's effort to maximize return for a particular period.
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. Consistent with the Conduct Rules
of the National Association of Securities Dealers, Inc., and subject to seeking
the most favorable price and execution available and other such polices as the
Board of Directors may determine, the Adviser may consider sales of shares of a
Fund as a factor in the selection of broker-dealers to execute the Fund's
portfolio transactions. 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 $320, $163,360, $33,336,
$41,125, $50,359, $130,521 and $134,153, respectively, in brokerage commissions
because of research services provided. For the fiscal period November 3, 1997
through October 31, 1998, value opportunities paid $101,544 in brokerage
commission because of research services provided for the fiscal period June 3,
1998 through October 31, 1998 large cap growth and large cap value paid $5,706
and $13,026, respectively, in brokerage commissions because of research service
provided.
For the fiscal years ended October 31, 1996, 1997, and 1998 Select Equities
(formerly Core Equities), Small Cap Growth, Earnings Momentum, Asia Pacific
Equities, Latin America Equities
36
<PAGE>
and Emerging Markets Equities paid $237,979, $386,378 and $400,294; $345,369,
$407,737 and $522,397; $399,530, $459,925 and $341,560; $470,820, $450,959 and
$131,072; $195,703, $200,989 and $149,624; $353,334, $431,596, and $244,289 in
brokerage commissions, respectively. During the fiscal period June 3, 1996 to
October 31, 1996, Aggressive Growth Equities paid $97,907 in brokerage
commissions and for the fiscal years ended October 31, 1997 and October 31,
1998, paid $334,812 and $421,362, 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 $36,732 in brokerage commissions.
For the fiscal period November 3, 1997 through October 31, 1998, Value
Opportunities, European Equities and Japanese Equities paid $195,577, $210,724
and $221, 146, respectively, in brokerage commissions. For the fiscal period
June 3, 1998 through October 31, 1998, Large Cap Growth and Large Cap Value paid
$10, 324 and $19,695, respectively, 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.
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<PAGE>
3. No Fund will underwrite securities of other companies, except insofar as the
Fund might be deemed to be an underwriter for purposes of the Securities Act
by virtue of disposing of portfolio securities.
4. No Fund will purchase any securities that would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in
the securities of any one particular industry or group of industries,
provided that this limitation shall not apply to any Fund's purchase of U.S.
Government Securities, and, in the case of Money Market, to the purchase of
obligations of domestic branches of United States banks. The European
Equities Fund may invest more than 25% of the value of its total assets in a
single European country, the International Equities Fund may invest more
than 25% of the value of its total assets in shares of registered investment
companies, 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
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<PAGE>
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.
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.
Name and Address Principal Occupations and Other Affiliations
- -------------------------------------------------------------
<TABLE>
<S> <C>
Marc I. Stern* (54) President and Director, The TCW Group, Inc. (formerly TCW Management
Chairman Company); Chairman, the Adviser; President and Vice Chairman, TCW Asset
865 South Figueroa Street Management Company; Chairman, TCW Americas Development, Inc.; Chairman,
Los Angeles, California 90017 TCW Asia Ltd.; Chairman, TCW London International, Limited (since
March 1993) and Executive Vice President, Trust Company of the West
(since May 1993). Chairman, Apex Mortgage Capital, Inc. (Since October
1997). Trustee, TCW/DW Mutual Funds (since April 1995). Director of
Qualcomm Incorporated (wireless communications); formerly President of
Sun America, Inc. (financial services company).
Thomas E. Larkin, Jr.* (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.; Vice Chairman of the Adviser; Member of
Los Angeles, California 90017 the Board of Trustees of the University of
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
Notre Dame; Director of Orthopedic Hospital of Los Angeles; Senior Vice
President, TCW Convertible Securities Fund, Inc.; President and Trustee,
TCW/DW Mutual Funds.
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), Apex Mortgage Capital, Inc. (real estate investment trust);
Los Angeles, California 90017 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>
<TABLE>
<CAPTION>
Name of Independent Director Aggregate Compensation From the Company
- ----------------------------- ---------------------------------------
<S> <C>
John C. Argue $39,500
Norman Barker, Jr. $39,500
Richard W. Call $39,500
</TABLE>
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. Argue, 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., 11 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 $62,331 $10,500 $112,331
Norman Barker, Jr. -- $12,750 $ 52,250
Richard W. Call -- $12,000 $ 51,500
</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. (45)* Senior Vice President President, the Adviser and TCW Investment Management
Company; Executive Vice President, Finance and
Administration, The TCW Group, Inc., Trust Company of
the West, and TCW Asset Management Company.
Michael E. Cahill (48)* Senior Vice Managing Director, General Counsel and Secretary, The
President, TCW Group, Inc., Trust Company of the West and TCW
General Asset
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name and Address with Company During Past 5 Years(1)
---------------- ---------------- ----------------------
<S> <C> <C>
Counsel Management Company; formerly General Counsel
and Assistant and Senior Vice President of Act III Communications
Secretary (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 Senior 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.
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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. (collectively, TCW Asia Limited and TCW London International,
Ltd. 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 $678,000; High
Yield Bond - $928,000, $1,612,000 and $1,530,000; Core Fixed Income - $127,000,
$77,000 and $229,000; Total Return Mortgage-Backed Securities - $413,000,
$512,000 and $439,000; Mortgage-Backed - $373,000, $265,000 and $250,000; Select
Equities - $1,549,000, $1,628,000 and $1,150,000; Small Cap Growth - $1,101,000,
$1,290,000 and $1,313,000; Earnings Momentum - $742,000, $828,000 and $594,000;
Asia Pacific Equities - $490,000, $457,000 and
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$112,000; Emerging Markets Equities - $541,000, $623,000 and $327,000; and Latin
America Equities -$614,000, $754,000 and $313,000. During the fiscal period
ended October 31, 1997 and the fiscal year ended October 31, 1998, Aggressive
Growth Equities paid $1,090,000 and $1,002,000, respectively in advisory fees.
For the fiscal period ended October 31, 1997 and October 31, 1998, Convertible
Securities paid $198,000 and $237,000, respectively, in advisory fees. During
the fiscal period November 3, 1997 to October 31, 1998 Value Opportunities paid
$274,000 in advisory fees, European Equities paid $412,000 in advisory fees and
Japanese Equities paid $116,000 in advisory fees. During the fiscal period June
3, 1998 to October 31, 1998, Large Cap Growth paid $17,000 in advisory fees,
Large Cap Value paid $19,000 in advisory fees and Emerging Markets Income paid
$71,000 in advisory fees.
Except for expenses specifically assumed by the Adviser under the Advisory
Agreement, each Fund bears all expenses incurred in its operations. Fund
expenses include the fee of the Adviser; compensation and expenses of directors
of the Company who are not officers or employees of the Adviser; registration,
filing and other fees in connection with filings with regulatory authorities;
fees and expenses of independent accountants; the expenses of printing and
mailing proxy statements and shareholder reports; custodian and transfer and
dividend disbursing agent charges; brokerage fees and commissions and securities
transaction costs; taxes and corporate fees; legal fees; the fees of any trade
association; the cost of stock certificates, if any, representing shares of the
Fund; the organizational and offering expenses, whether or not advanced by the
Adviser; expenses of shareholder and director meetings; premiums for the
fidelity bond and any errors and omissions insurance; interest and taxes; and
any other ordinary or extraordinary expenses incurred in the course of the
Fund's business.
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% (after expense reimbursement); High Yield Bond - 0.85%; Core Fixed
Income - 0.62% (after fee waiver); Total Return Mortgage-Backed - 0.70%;
Mortgage-Backed - 0.83%; Convertible Securities - 1.05% (after expense
reimbursement); Select Equities - 0.86%; Aggressive Growth Equities - 1.17%;
Small Cap Growth - 1.13%; Earnings Momentum - 1.27%; Asia Pacific Equities -
2.48%; Emerging Markets Equities - 1.70%; and Latin America Equities - 1.64%.
For the fiscal period November 3, 1997 through October 31, 1998, the expenses
(annualized) paid by Value Opportunities, European Equities, International
Equities and Japanese Equities were: 1.16%, 1.06%, 0.17% and 1.20% (after
expense reimbursement), respectively. For the fiscal period June 3, 1998
through October 31, 1998, the expenses (annualized) paid by Large Cap Growth,
Large Cap Value and Emerging Markets Income were: 0.91% (after expense
reimbursement), 0.55% (after expense reimbursement) and 1.53%, respectively.
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.
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
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<PAGE>
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 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
N 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 N 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 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 N shares of each
Fund. Under the terms of the
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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 N
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
N 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 N shareholders may bear under the Plan without the
approval of a majority of the outstanding voting securities of Class N, 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.
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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 the Company's Form N-SAR.
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
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as a redemption (sale) of shares given in exchange by the shareholder, and an
exchanging shareholder may, therefore, realize a taxable gain or loss in
connection with the exchange. See "Distributions and Taxes" below.
The exchange privilege enables a shareholder to acquire shares in a Fund with
different investment objectives or policies when the shareholder believes that a
shift between Funds is an appropriate investment decision.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
and the proceeds are immediately invested, at a price as described above, in
shares of the Fund being acquired. The Company reserves the right to reject any
exchange request.
As described in the Prospectus, the exchange privilege may be terminated or
revised by the Company.
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
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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.
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
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realized by a shareholder on the sale of a Fund share held by the shareholder
for six months or less will be treated as a long-term capital loss to the extent
of any distributions of capital gain dividends (as defined below) received by
the shareholder with respect to such share.
While only the Equity Funds expect to realize a significant amount of net long-
term capital gains, any such realized gains will be distributed as described in
the Prospectus. See "Dividends, Distributions and Taxes" in the Prospectus.
Such distributions ("capital gain dividends"), if any, will be taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held Fund shares, and will be designated as capital gain dividends in a
written notice mailed to the shareholder after the close of the Fund's prior
taxable year. A Fund may be subject to taxes in foreign countries in which each
invests. If such a Fund invests in an entity which is classified as a "passive
foreign investment company" ("PFIC") for U.S. tax purposes, the application of
certain technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the Fund
level which could not be eliminated by distributions to the shareholders of the
Fund. It is not anticipated that any taxes at the Fund level with respect to
investments in PFICs will be significant.
Under the Internal Revenue Code, a nondeductible excise tax of 4% is imposed on
a Fund to the extent the Fund does not distribute by the end of any calendar
year at least 98% of its ordinary income for that calendar year and at least 98%
of the net amount of its capital gains (both long-term and short-term) for the
one-year period ending on October 31 of such calendar year (or December 31 if
the Fund so elects), plus any undistributed amounts of taxable income for prior
years. For this purpose, however, any income or gain retained by the Fund that
is subject to corporate income tax will be considered to have been distributed
by year-end. Each Fund intends to meet these distribution requirements to avoid
the excise tax liability.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made to
shareholders of record in such a month are treated as paid and are taxable as of
December 31, provided that the Fund pays the dividend during January of the
following year.
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
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should be made to the pertinent Internal Revenue Code sections and the Treasury
Regulations promulgated thereunder. The Internal Revenue Code and these
Regulations are subject to change by legislative or administrative action.
Each shareholder will receive annual information from its Fund regarding the tax
status of Fund distributions. Shareholders are urged to consult their attorneys
or tax advisers with respect to the applicability of federal, state, local,
estate and gift taxes and non-U.S. taxes to their investment in the Fund.
INVESTMENT RESULTS
From time to time, the Company may quote the performance of a Fund in terms of
yield, actual distributions, total return or capital appreciation in reports or
other communications to shareholders or in other published material.
The Bond Funds may quote a 30-day yield figures which is calculated according to
a formula prescribed by the SEC. The formula can be expressed as follows:
YIELD = 2[(a-b) + 1)/6/ - 1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
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
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charged to all shareholder accounts, in proportion to the length of the base
period and the Fund's average account size. Money Market may also calculate its
effective yield by compounding the unannualized base period return (calculated
as described above) by adding 1 to the base period return, raising the sum to a
power equal to 365 divided by 7, and subtracting one.
The yield quoted at any time represents the amount being earned on a current
basis for the indicated period and is a function of the types of instruments in
Money Market, their quality and length of maturity, and the Fund's operating
expenses. The length of maturity for the Fund is the average dollar weighted
maturity of the Fund. This means that the Fund has an average maturity of a
stated number of days for all of its issues. The calculation is weighted by the
relative value of the investment.
Each Bond Fund's and Equity Fund's total return may be calculated on an "average
annual total return" basis, and may also be calculated on an "aggregate total
return" basis, for various periods. Average annual total return reflects the
average annual percentage change in the value of an investment in a Fund over
the particular measuring period. Aggregate total return reflects the cumulative
percentage change in value over the measuring period. Average annual total
return figures provided for the Bond Funds and Equity Funds will be computed
according to a formula prescribed by the SEC. The formula for an average annual
total return can be expressed as follows:
P(1+T)/n/ ` ERV
Where:
P = 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.
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A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.
Investors should recognize that, because the Bond Funds will have a high
component of fixed-income securities, in periods of declining interest rates the
yields of the Bond Funds will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates yields will tend to be somewhat
lower. In addition, when interest rates are falling, the inflow of net new
money to the Bond Funds from the continuous sale of shares will likely be
invested in portfolio instruments producing lower yields than the balance of the
Bond Funds' securities, thereby reducing the current yields of the Bond Funds.
In periods of rising interest rates, the opposite can be expected to occur.
Comparative performance information may be used from time to time in publishing
information about the Company's shares, including data from Lipper Analytical
Services, Inc., CDA Technologies, Inc., or similar independent services which
monitor the performance of mutual funds or with other appropriate indexes of
investment securities. The performance information may also include evaluations
of the Funds published by nationally recognized ranking services and by
financial publications that are nationally recognized, such as Business Week,
Forbes, Fortune, Institutional Investor, Money and 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; 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
53
<PAGE>
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.
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 N shares. The Institutional Class shares are offered at the current net
asset value. The Class N 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.
54
<PAGE>
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, Massachusetts 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.
55
<PAGE>
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
<PAGE>
C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) - The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
Moody's
Aaa - Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt-
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured, interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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
<TABLE>
<CAPTION>
ITEM 23. Exhibits
--------
<S> <C>
(a)(1) Form of Articles of Incorporation./1/
(a)(2) Form of Articles Supplementary./2/
(a)(3) Form of Articles Supplementary./3/
(a)(4) Form of Articles Supplementary./4/
(a)(5) Form of Articles Supplementary./5/
(a)(6) Form of Articles Supplementary./6/
(a)(7) Form of Articles of Amendment./15/
(a)(8) Form of Articles of Amendment./15/
(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/
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(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./15/
(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./15/
(e)(3) Form of Dealer Agreement between Registrant and TCW Brokerage
Services./15/
(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./15/
(g) (3) Form of Delegation Agreement between Registrant and Investors Bank &
Trust Company./15/
(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./15/
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
(h) (6) Form of Securities Lending Agency Agreement between Registrant and
Investors Bank & Trust Company/15/
(i) Opinion of Counsel./15/
(j) Consent of Deloitte & Touche LLP.
(k) Not applicable.
(l) Not applicable.
(m) Form of Registrant's Class N Shares Distribution Plan/15/
(27) Financial Data Schedules
(o) Form of Plan Pursuant to Rule 18f-3/15/
(p) Copy of Powers of Attorney./15/
- -----------------------
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-
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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.
15. Incorporated herein by reference to Registrant's Registration Statement on Form N1A
filed on December 30, 1998.
</TABLE>
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 certifies that it meets all of the
requirements for effectiveness of this Registration Statement under Rule
485(b) under the Securities Act and has duly caused this Registration Statement
or Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles and State of California on the 1st day
of March, 1999.
TCW GALILEO FUNDS, INC.
By: /s/ Philip K. Holl
------------------
Philip K. Holl
Secretary
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registration Statement or Amendment has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Date Title
- --------- ---- -----
<S> <C> <C>
* March 1, 1999 Chairman and Director
- -----------------
Marc I. Stern
* March 1, 1999 President and Director
- ----------------- (Principal Executive
Thomas E. Larkin, Jr. Officer)
* March 1, 1999 Director
- -----------------
John C. Argue
* March 1, 1999 Director
- -----------------
Norman Barker, Jr.
* March 1, 1999 Director
- -----------------
Richard W. Call
* March 1, 1999 Treasurer (Principal
- ----------------- Financial and Accounting
Peter C. DiBona Officer)
</TABLE>
*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) (9) Form of Articles Supplementary
Exhibit (j) Consent of Deloitte & Touche LLP
Exhibit (27) Financial Data Schedules
</TABLE>
<PAGE>
EXHIBIT 99.A9
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 N) 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 N) 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 N) 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 N) shares;
(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 N) shares;
4
<PAGE>
(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 N) 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 N) 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 N) 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 N) shares;
(j) Five billion (5,000,000,000) shares are designated as TCW Galileo
Money Market Fund, Investor Class (or Class N) shares;
(k) Two billion (2,000,000,000) shares are designated as TCW Galileo
Earnings Momentum Fund, Investor Class (or Class N) shares;
(l) Two billion (2,000,000,000) shares are designated as TCW Galileo
Aggressive Growth Equities Fund, Investor Class (or Class N) shares;
(m) Two billion (2,000,000,000) shares are designated as TCW Galileo
Convertible Securities Fund, Investor Class (or Class N) shares;
(n) Two billion (2,000,000,000) shares are designated as TCW Galileo Value
Opportunities Fund, Investor Class (or Class N) shares;
(o) Two billion (2,000,000,000) shares are designated as TCW Galileo
European Equities Fund, Investor Class (or Class N) shares;
(p) Two billion (2,000,000,000) shares are designated as TCW Galileo
International Equities Fund, Investor Class (or Class N) shares;
(q) Two billion (2,000,000,000) shares are designated as TCW Galileo
Japanese Equities Fund, Investor Class (or Class N) shares;
(r) Two billion (2,000,000,000) shares are designated as TCW Galileo
Enhanced 500 Fund, Investor Class (or Class N) shares;
(s) Two billion (2,000,000,000) shares are designated as TCW Galileo Large
Cap Growth Fund, Investor Class (or Class N) shares;
5
<PAGE>
(t) Two billion (2,000,000,000) shares are designated as TCW Galileo Large
Cap Value Fund, Investor Class (or Class N) shares;
(u) Two billion (2,000,000,000) shares are designated as TCW Galileo
Emerging Markets Income Fund, Investor Class (or Class N) shares;
(v) Two billion (2,000,000,000) shares are designated as TCW Galileo Small
Cap Value Fund, Investor Class (or Class N) shares.
FOURTH: The Institutional Class capital stock and the Investor Class or
Class N 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 N 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.
FIFTH: The Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the 1940 Act.
SIXTH: The Amendment to the Articles Supplementary of the Corporation as
hereinabove set forth shall be effective on Thursday, February 25, 1999 as of
4:30 p.m.
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 23rd day of February, 1999. The Senior Vice President of the
Corporation acknowledges 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:________________________________
Alvin R. Albe, Jr.,
Senior Vice President
ATTEST:____________________
Philip K. Holl
Secretary
6
<PAGE>
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
INDEPENDENT AUDITORS' CONSENT
TCW Galileo Funds, Inc.:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 24 to Registration Statement No. 33-52272 on Form N-1A of our report dated
December 22, 1998 appearing in the Annual Report of the funds comprising TCW
Galileo Funds, Inc. as of and for the respective periods ended October 31, 1998
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.
/s/ Deloitte & Touche LLP
February 26, 1999
Los Angeles, California
<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
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<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
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<TABLE> <S> <C>
<PAGE>
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<NAME> TCW GALILEO VALUE OPPORTUNITIES FUND
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<S> <C>
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