<PAGE>
Registration Nos. 33-52272
811-7170
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 17, 2000
=============================================================================
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. 26 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 29 [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, CA 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, CA 90017
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[_] Immediately upon filing pursuant to paragraph (b) of Rule 485
[_] on __________, 2000 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on __________, 2000 pursuant to paragraph (a)(1) of Rule 485
[X] 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 Class N shares of four of the separate
investment funds offered by TCW Galileo Funds, Inc., (collectively the "Funds")
each of which has different investment objectives and policies that are designed
to meet different investment goals. Please read this document carefully before
investing, and keep it for future reference.
TCW Galileo Analyst Growth Fund
TCW Galileo Growth & Income Fund
TCW Galileo Health Sciences Fund
TCW Galileo Technology 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.
November 1, 2000
LOGO
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TABLE OF CONTENTS
<TABLE>
<S> <C>
General Fund Information
Investment Objectives and Principal Strategies................... 3
Principal Risks.................................................. 3
Fund Expenses and Expense Example................................ 5
TCW Galileo Analyst Growth Fund
Investment Objectives/Approach................................... 7
Main Risks....................................................... 8
TCW Galileo Growth & Income Fund
Investment Objectives/Approach................................... 9
Main Risks....................................................... 10
TCW Galileo Health Sciences Fund
Investment Objectives/Approach................................... 11
Main Risks....................................................... 12
TCW Galileo Technology Fund
Investment Objectives/Approach................................... 14
Main Risks....................................................... 15
Risk Considerations.............................................. 17
Management of the Funds.......................................... 23
Multiple Class Structure......................................... 25
Your Investment
Account Policies and Services.................................... 25
To Open an Account/To Add to an Account.......................... 27
To Sell or Exchange Shares....................................... 29
Distributions and Taxes.......................................... 30
For More Information
</TABLE>
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General Fund Information
------------------------
Investment Objectives and Principal Strategies
All of the Galileo 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 Analyst Growth Fund Long-term capital appreciation Invests in equity securities issued
by companies that are believed to
have superior growth prospects.
TCW Galileo Growth & Income Fund Maximize current income and provide Invests in high yield/below
potential for capital appreciation investment grade bonds and
convertible securities.
TCW Galileo Health Sciences Fund Long-term capital appreciation Invests in equity securities of
companies principally engaged in the
development, production or
distribution of products or services
relating to "health sciences."
TCW Galileo Technology Fund Long-term capital appreciation Invests in the equity securities of
companies with superior earnings
growth prospects engaged in the
technology, telecommunications and
information industries.
</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.
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 individual Fund shares will vary as each Fund's portfolio securities
increase or decrease in value. 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.
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. 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 a 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 a Fund. A Fund may be subject to liquidity risk
because it invests primarily in securities of medium and small sized
companies; high yield bonds; or foreign securities, which have all
experienced periods of illiquidity.
. 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. A Fund
that invests primarily in the assets of foreign companies or a portion of
its assets in foreign company securities may be subject to foreign
investing risk. If a Fund invests in "emerging markets," the risk is even
more pronounced. In addition, because foreign securities generally are
denominated and pay dividends or interest in foreign currencies, and a Fund
may hold various foreign currencies, the value of the net assets of a Fund
as measured in U.S. dollars can be affected favorably or unfavorably by
changes in exchange rates.
. 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 Growth & Income
Fund may be subject to greater credit risk since it invests in high yield
bonds, which are commonly referred to as "junk bonds."
. INTEREST RATE RISK
There is the possibility that the value of Growth & Income 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 a Fund because it may hold securities with long terms to
maturity.
. 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 Growth & Income Fund primarily invests in high yield/below
investment grade bonds.
2
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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 17. Each of the Funds
is non-diversified for Investment Company Act of 1940 ("1940 Act") purposes, and
may invest more than 5% of its total assets in the securities of any one issuer.
Consequently, each Fund's 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.
Performance Summary
The Funds do not have a full calendar year of performance. Thus, no bar charts
or annual return tables are included for the Funds.
Fund Expenses and Expense Example
As an investor, you pay certain fees and expenses in connection with the Funds,
which are described in the table below. Annual Fund operating expenses are paid
out of Fund assets, so their effect is included in the share price. The Class N
shares of the Funds have no sales charge (load), but are subject to Rule 12b-1
distribution fees.
FEE TABLE
<TABLE>
<CAPTION>
Analyst Growth & Health
Growth Income Sciences Technology
Fund Fund Fund Fund
Shareholder Transaction Fees
<S> <C> <C> <C> <C>
1) Redemption Fees..................... None None None None
2) Exchange Fees....................... None None None None
3) Contingent Deferred Sales Load...... None None None None
4) Sales Load on Reinvested None None None None
Dividends...........................
5) Sales Load on Purchases............. None None None None
Annual Fund Operating Expenses
Management Fees...................... 0.90% 0.75% 0.90% 1.00%
Distribution (12b-1) Fees............ 0.25% 0.25% 0.25% 0.25%
Other Expenses....................... 0.45% 0.42% 0.53% 0.46%
Total Annual Fund Operating.......... 1.60%/(1)/ 1.42%/(2)/ 1.68%/(3)/ 1.71%/(4)/
Expenses...........................
</TABLE>
_____________________________________
(1) Ordinary operating expenses capped so as not to exceed the trailing monthly
expense ratio average for comparable funds calculated by Lipper Analytical
Services, Inc. through October 31, 2001.
(2) Ordinary operating expenses capped so as not to exceed the trailing monthly
expense ratio average for comparable funds calculated by Lipper Analytical
Services, Inc. through October 31, 2001.
(3) Ordinary operating expenses capped so as not to exceed the trailing monthly
expense ratio average for comparable funds calculated by Lipper Analytical
Services, Inc. through October 31, 2001.
(4) Ordinary operating expenses capped so as not to exceed the trailing monthly
expense ratio average for comparable funds calculated by Lipper Analytical
Services, Inc. through October 31, 2001.
3
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EXPENSE EXAMPLE
This Example is intended to help you compare the cost of investing in a 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
------ ------- ------- --------
Analyst Growth.................... $163 $505 $871 $1,900
Growth & Income................... $145 $449 $776 $1,702
Health Sciences................... $171 $530 $913 $1,987
Technology........................ $174 $539 $928 $2,019
4
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U.S. Equities
TCW Galileo Analyst Growth Fund
Investment Objectives/Approach
The Fund seeks long-term capital appreciation. To pursue this goal, the
Fund invests at least 65% of the value of its total assets in the equity
securities of companies which are believed to have superior growth prospects.
These equity securities include common and preferred stocks, convertible
securities and rights or warrants to purchase common or preferred stock. The
Fund may also invest in foreign securities listed on a U.S. exchange or in the
form of depositary receipts such as ADRs.
Concepts to understand
----------------------
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 generally invests in a portfolio with at least 30 issuers selected
by the TCW Equity Research Group. The TCW Equity Research Group provides
comprehensive and in-depth knowledge about general markets and specific
companies. The Fund will invest in the best ideas of each analyst in the TCW
Equity Research Group. The Fund seeks to minimize sector and capitalization risk
by diversifying across market sectors and market capitalization ranges.
Brian M. Beitner is the Fund's portfolio manager.
5
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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. 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 that is most beneficial to the Fund. 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
. withholding taxes
. a lack of adequate company information
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.
6
<PAGE>
TCW Galileo Growth & Income Fund
Investment Objectives/Approach
The Fund seeks to achieve above average total return by maximizing income
and providing a potential for capital appreciation. The Fund seeks to achieve
this objective by investing as least 65% of its total assets in high yield/below
investment grade bonds, commonly known as "junk" bonds and convertible
securities. The Fund may invest in foreign securities.
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.
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.
In managing the Fund's high yield investments, the Adviser places emphasis
on securities at the lower-risk end of the below investment grade spectrum.
These securities are issued by companies that the Adviser believes have stable
to improving business prospects. The Adviser's approach with respect to high
yield securities also emphasizes consistent and high current income. It
attempts to reduce the Fund's high yield bond 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
The Adviser considers the following factors when determining which
convertible securities to select:
. the Adviser's own evaluations of the credit worthiness 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
. whether the securities have protection conditions
. the prices of the securities relative to other comparative securities
. the diversification of the Fund's investments
. the ratings assigned to the securities
James M. Hassett, Kevin A. Hunter, Thomas D. Lyon, Mark D. Senkpiel and
Melissa V. Weiler are the Fund's portfolio managers.
7
<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 and convertible securities. 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. 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 repayment 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. 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 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
The Fund holds 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 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.
8
<PAGE>
TCW Galileo Health Sciences Fund
Investment Objectives/Approach
The Fund seeks long-term capital appreciation. The Fund seeks to achieve
this investment objective by investing at least 65% of the value of its total
assets in the equity securities of companies throughout the world that are
principally engaged in the development, production or distribution of products
or services relating to the "health sciences". Health science companies include
among others:
. hospitals, clinical test laboratories, convalescent and mental health
care facilities and home care businesses;
. pharmaceutical companies and companies involved in biotechnology,
medical diagnostics, biochemicals, and nuclear research and
development;
. companies that produce and manufacture medical, dental and optical
supplies and equipment;
. companies that provide services to health care companies; and
. HMOs and other health insurance companies.
Concepts to understand
----------------------
Concentration of investments in a small number of issuers, industries or
foreign currencies increases risk. A Fund that invests in a relatively small
number of issuers or concentrates its investments in a particular industry is
more susceptible to risks associated with a single economic, political or
regulatory occurrence than a more diversified portfolio might be.
Equity securities include common and preferred stocks, convertible
securities and rights or warrants to purchase common or preferred stock. The
Fund may invest in foreign securities.
Husam H. Nazer is the Fund's portfolio manager.
9
<PAGE>
Main Risks
The Fund holds primarily stocks, which may go up or down in value, sometimes
rapidly and unpredictably. Although stocks offer the potential for greater long-
term growth than most fixed income securities, stocks generally have higher
short-term volatility. The 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 "concentration risk," "price
volatility risk," "liquidity risk" and "foreign investing risk."
Concentration risk refers to the fact that the Fund is focused in the health
services industry and is less diversified than stock funds investing in a
broader range of industries, and therefore, could experience significant
volatility. It may invest a considerable portion of assets in companies in the
same business, such as pharmaceuticals, or in related businesses, such as
hospital management and managed care.
Developments that could adversely affect the Fund's share price include:
- increased competition within the health care industry;
- changes in legislation or government regulations;
- reductions in government funding;
- product liability or other litigation; and
- the obsolescence of popular products.
The level of risk will be increased to the extent that the Fund has significant
exposure to small or unseasoned companies (those with less than a three-year
operating history), which may not have established products or more experienced
management.
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 securities
of companies in a variety of market sectors or 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 and small-
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. 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
. withholding taxes
. a lack of adequate company information
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
10
<PAGE>
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>
TCW Galileo Technology Fund
Investment Objectives/Approach
The Fund seeks long-term capital appreciation. The Fund seeks to achieve
its objective by investing at least 65% of the value of its total assets in the
equity securities of companies with superior earnings growth prospects that
engage in the technology, telecommunications and information industries. It is
intended that the Fund will invest in knowledge and information intensive
companies including companies in technology, communications, telecommunications,
Internet, video, electronics, office and factory automation and robotics. Equity
securities include common and preferred stocks, convertible securities and
rights or warrants to purchase common or preferred stock. The Fund may invest in
foreign securities.
Concepts to understand
----------------------
Concentration of investments in a small number of issuers, industries or
foreign currencies increases risk. A Fund that invests in a relatively small
number of issuers or concentrates its investments in a particular industry is
more susceptible to risks associated with a single economic, political or
regulatory occurrence than a more diversified portfolio might be.
Technology Companies are companies in technology, communications,
telecommunications, Internet, video, electronics, office and factory automation
and robotics.
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, Wendy S. Barker and Douglas S. Foreman are the
Fund's portfolio managers.
12
<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 "concentration risk", "price
volatility risk," "liquidity risk" and "foreign investing risk".
Concentration risk refers to the fact that the Fund has focused its investment
in common stocks of companies in the technology industry. Therefore, the Fund is
considered to be concentrated in the technology industry, its primary risk. A
portfolio concentrated in a single industry may present more risk than a
portfolio broadly diversified over several industries. As a sector Fund that
invests in technology companies, the Fund is subject to the risks associated
with this industry sector. This makes the Fund more vulnerable to price changes
of securities of issuers in technology related industries and factors that
affect the technology industry than a mutual fund that invests in securities of
companies in a variety of sectors.
Investments in the technology industry include the risk that certain high
technology products and services are subject to competitive pressures and
aggressive pricing. Technology products are also dependent on innovation in
their industry with the accompanying risk that new products will not meet
expectations or even reach the marketplace. Technology related companies are
strongly affected by worldwide scientific or technological developments. As a
result, their products may rapidly become obsolete. Technology companies are
generally subject to the risks of rapidly changing technologies; short product
life cycles; fierce competition; aggressive pricing and reduced profit margins;
the loss of patent, copyright and trademark protections; cyclical market
patterns; evolving industry standards and frequent new product introductions.
Technology companies may be smaller and less experienced companies, with limited
product lines, markets or financial resources and fewer experienced management
or marketing personnel. Technology company stocks, especially those which are
Internet-related, have experienced extreme price and volume fluctuations that
are often unrelated to their operating performance. Also, the stocks of many
Internet companies have exceptionally high price-to-earnings ratios with little
or no earnings histories.
An additional 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 subject to greater
price volatility than funds that invest in securities of companies in a variety
of market sectors or 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 and small-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.
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
. withholding taxes
. a lack of adequate company information
13
<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
gains for investors.
14
<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 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 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.
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.
General Investment Risk
-----------------------
Since shares of a Fund represent an investment in securities with fluctuating
market prices, the value of a Fund's 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.
15
<PAGE>
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. These risks are more pronounced in emerging market
countries.
Foreign Investing
-----------------
Investing in foreign securities involves risks in addition to the risks
associated with domestic securities. An additional risk is currency risk.
While the price of a Fund's shares is quoted in U.S. dollars, a Fund generally
converts U.S. dollars to a foreign market's local currency to purchase a
security in that market. If the value of that local currency falls relative to
the dollar, the U.S. dollar value of the foreign currency will decrease.
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 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 a 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
issuers.
Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, and the Funds
may hold various foreign currencies from time to time, the
value of the net assets of a 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 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.
16
<PAGE>
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.
Fixed Income Securities
-----------------------
Fixed income securities are subject to two primary types of risk: credit risk
and interest rate risk.
"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 Funds may invest in convertible securities rated below
investment grade. The Growth & Income Fund invests
primarily in debt instruments and convertible securities
rated below investment grade. Debt instruments 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 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).
17
<PAGE>
The Health Sciences and Technology Funds are also subject to "concentration
risk". "Concentration risk" refers to focusing investment in the securities of
industry-specific issuers that could produce more volatile performance and
greater risk relative to funds that invest in numerous sectors or industries.
The more concentrated a fund's holdings are, the more likely it is that a
sector's or industry's poor performance will hurt the fund significantly.
Concentration
-------------
Concentration means limiting investing to particular sectors or industries.
18
<PAGE>
The Funds are non-diversified for 1940 Act purposes and as such may invest a
larger percentage of their assets in individual issuers than a diversified
investment company.
To the extent each 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, a 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
----------------------
Because a relatively higher percentage of the non-diversified Funds' assets may
be invested in the securities of a limited number of issuers, these Funds may be
more susceptible to any single economic, political or regulatory occurrence than
a diversified fund.
19
<PAGE>
The Funds 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
European Economic and Monetary Union
------------------------------------
Many European countries have adopted or are in the process of adopting a single
European currency referred to as the euro. The consequences of the euro
conversion are unclear and may adversely affect the value and/or increase the
volatility of securities held by the Fund.
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 invests, the
Funds could be adversely affected: (i) if the euro, or EMU
as a whole does not take affect as planned; (ii) if a
participating country withdraws from EMU; or (iii) if the
computing, accounting and trading systems used by the Funds'
service providers, or by other business entities with which
the Funds or their service providers do business, are not
capable of recognizing the euro as a distinct currency at
the time of, and following euro conversion.
20
<PAGE>
Management of the Funds
Investment Adviser
The Funds' investment adviser is TCW Investment Management Company (the
"Adviser") and is headquartered at 865 South Figueroa Street, Suite 1800, Los
Angeles, California 90017. As of June 30, 2000, the Adviser and its affiliated
companies, which provide a variety of trust, investment management and
investment advisory services, had approximately $80 billion under management or
committed to management.
Portfolio Managers
Listed below are the individuals who have been primarily responsible for the
day-to-day portfolio management of Funds, including a summary of each person's
business experience during the past five years:
Portfolio Manager(s) Business Experience During Last Five Years*
Analyst Growth Fund
Brian M. Beitner Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of the West
since November 1998. Previously, Senior Vice
President of Scudder Kemper Investments.
Growth & Income Fund
James M. Hassett Senior Vice President, 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.
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.
Mark D. Senkpiel Managing Director, 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.
Health Sciences Fund
Husam H. Nazer Vice President, the Adviser, TCW Asset
Management Company and Trust Company of the
West.
Technology Fund
Christopher J. Ainley Managing Director, the Adviser, TCW Asset
Management Company and Trust Company of the
West.
21
<PAGE>
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.
*Positions with the TCW Group, Inc. and its affiliates may have changed over
time.
22
<PAGE>
Advisory Agreement
The Funds and the Adviser have entered into an Investment Advisory and
Management Agreement (the "Advisory Agreement"), under the terms of which the
Funds have 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 Funds' business affairs, subject to
control by the Board of Directors. 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.
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>
Fund Annual Management Fee (As Percent of Average Net Asset Value)
---- ------------------------------------------------------------
<S> <C>
Analyst Growth 0.90%
Growth & Income 0.75%
Health Sciences 0.90%
Technology 1.00%
</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 Funds 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 Funds are authorized to issue two classes of shares, Institutional Class
shares and Class N shares. Shares of each class of a Fund represent 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 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, each Fund compensates the Funds' distributor
at a rate equal to 0.25% of the average daily net asset 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.
Your Investment
Account Policies and Services
Buying shares
You pay no sales charges to invest in a Fund. Your price for a Fund's 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 a Fund. Orders received by the Funds' 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 generally prior
to 8:00 a.m. Eastern time on the next day. A Funds' 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 Funds pursuant to procedures
established by the Funds' Board.
23
<PAGE>
Minimums
Initial IRA Additional
All Funds $ 2,000 $500 $250
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 a 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 enrollment form.
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 a 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 (800)
248-4486 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 a Fund's shares through certain broker-dealers and
financial organizations and their authorized intermediaries. If purchases and
redemptions of a Fund's 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 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
If your non-retirement account falls below $1,000 as a result of redemptions and
or exchanges for six months or more, a 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 Funds also reserve 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 a Fund's assets).
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).
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
In Writing
Complete the New Account Form. Mail
your New Account Form and a check
made payable to TCW Galileo
__________________________ Fund to:
Via Regular Mail (Same, except that you should
TCW Galileo Funds, Inc. include a note specifying the
DST Systems, Inc. Fund name, your account number,
P.O. Box 419951 and the name(s) your account is
Kansas City, MO 64141-6951 registered in.)
Via Express, Registered or Certified Mail
TCW Galileo Funds, Inc.
25
<PAGE>
DST Systems, Inc.
330 W. 9th Street
Poindexter Building, 1st Floor
Kansas City, MO 64105-2005
By Telephone
Please contact the Investor Relations Department at
(800) FUND TCW (386-3829) for a New Account Form.
Wire: Have your bank send your investment to: (Same)
United Missouri Bank of Kansas City, N.A.
ABA No. 101000695
DST Systems, Inc./AC 9870371553
FBO TCW Galileo _______________________
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.
If you need help completing the New Account Form, please call the Transfer Agent
at (800) 248-4486.
26
<PAGE>
TO SELL OR EXCHANGE SHARES
By Mail
Write a letter of instruction that includes:
. your name(s) and signature(s) as they appear on the account form
. your account number
. the Fund name
. the dollar amount you want to sell or exchange
. how and where to send the proceeds
Obtain a signature guarantee or other documentation, if required (see
"Account Policies and Services-Selling Shares").
Mail your letter of instruction to:
Via Regular Mail
TCW Galileo Funds, Inc.
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Via Express, Registered or Certified Mail
TCW Galileo Funds, Inc.
DST Systems, Inc.
330 W. 9th Street
Poindexter Building, 1st Floor
Kansas City, MO 64105-2005
By Telephone
Be sure the Funds have your bank account information on file. Call
the Transfer Agent at (800) 248-448. 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 (800) 248-4486 to request a form
to add the plan. Complete the form, specifying the amount and
frequency of withdrawals you would like.
Be sure to maintain an account balance of $2,000 or more.
Systematic Withdrawal plans are subject to a minimum annual
withdrawal of $500.
To reach the Transfer Agent at DST Systems, Inc., call toll
free in the U.S.
(800) 248-4486
Outside the U.S.
(816) 843-7166 (collect)
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 each Fund. Dividends from the net investment income of
a Fund will be declared and paid annually. Each Fund will distribute any net
realized long or short-term capital gains at least annually. Your distributions
will be reinvested in the same Fund unless you instruct the Fund otherwise.
There are no fees or sales charges on reinvestments.
In any fiscal year in which a 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 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 Funds. Please see the Statement of Additional Information and your tax
adviser for further information.
28
<PAGE>
FOR MORE INFORMATION
--------------------
For all shareholder account information such as transactions and account
inquiries:
Call (800) 248-4486
For information regarding the TCW Galileo Funds, Inc.:
Call (800) FUND TCW (386-3829)
In writing:
TCW Galileo Funds, Inc.
c/o DST System, Inc.,
P.O. Box 419951
Kansas City, MO 64141-6951
On the Internet:
TCW GALILEO FUNDS, INC.
http://www.tcwgalileofunds.com
You may visit the SEC's website at http://www.sec.gov to view text only versions
------------------
of Fund documents filed with the SEC. 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 or by electronic
request at the following e-mail address: www. [email protected].
TCW Galileo Funds, Inc.
SEC file number: 811-7170
More information on the Funds is available free upon
request, including the following:
Annual / Semi-Annual Report
Describes the Funds' performance, lists portfolio holdings
and contains a letter from the Funds' portfolio managers
discussing recent market conditions, economic trends and
Fund strategies.
Statement of Additional Information (SAI)
Provides more details about the Funds and their policies. A
current SAI is on file with the Securities and Exchange
Commission (SEC) and is incorporated by reference and is
legally considered part of this prospectus.
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., (collectively the "Funds")
each of which has different investment objectives and policies that are designed
to meet different investment goals. Please read this document carefully before
investing, and keep it for future reference.
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.
November 1, 2000
LOGO
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
General Fund Information
<S> <C>
Investment Objectives and Principal Strategies 2
Principal Risks 2
Performance Summary 4
Fund Expenses and Expense Example 6
TCW Galileo Value Opportunities Fund
Investment Objectives/Approach 7
Main Risks 7
Risk Considerations 9
Management of the Fund 11
Multiple Class Structure 11
Your Investment
Account Policies and Services 12
To Open an Account/To Add to an Account 14
To Sell or Exchange Shares 15
Distributions and Taxes 16
Financial Highlights 17
For More Information 18
</TABLE>
<PAGE>
General Fund Information
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 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, 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.
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 individual 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 (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 it
invests primarily in securities of medium and small sized companies.
2
<PAGE>
FOREIGN INVESTING RISK
There is the likelihood that foreign investments may be riskier than U.S.
investments because of a lack of political stability, foreign controls on
investment and currency exchange rates, fluctuations in currency exchange rates,
withholding taxes, and lack of adequate company information. The Fund is
subject to foreign investing risk because it may invest in 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.
A more detailed explanation of these risks is presented under the "Risk
Considerations" section at page [__]. The Fund is non-diversified for
Investment Company Act of 1940 (''1940 Act'') purposes, and may invest more than
5% of its total assets in the securities of any one issuer. Consequently, the
Fund's 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.
3
<PAGE>
Performance Summary
The bar chart and table below show summary performance information for the Fund.
The information provides some indication of the risks of investing in the Fund
by showing how the Fund's performance has varied from year to year and how the
Fund's average annual returns compare with the returns of a broad-based
securities market index. The bar chart and table assume reinvestment of
dividends and distributions. The performance information includes performance
of a predecessor limited partnership of the Fund which was managed by an
affiliate of TCW Investment Management Company using the same investment
strategy as the Fund's. 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 1940 Act and, therefore, was not subject to certain
investment restrictions imposed by the 1940 Act. If the limited partnership had
been registered under the 1940 Act and Subchapter M of the Internal Revenue Code
of 1986, as amended, its performance might have been adversely affected. As
with all mutual funds, past performance is not a prediction of future results.
The bar chart and table show performance of the Fund's Institutional Class I
Shares, which are offered in a different prospectus. This is because the Fund
has not offered Class N shares for a full calendar year. Although Class N and
Institutional Class I shares would have similar annual returns (because all the
Fund's shares represent interests in the same portfolio of securities), Class N
performance would be lower than Institutional Class performance because of the
higher expenses paid by Class N shares.
[PERFORMANCE GRAPH APPEARS HERE]
TCW GALILEO VALUE OPPORTUNITIES FUND
<TABLE>
<CAPTION>
Measurement Period TCW
(Fiscal Year Covered) GALILEO
------------------- -------
<S> <C>
FYE 1997 $17.08%
FYE 1998 $ 0.30%
FYE 1999 $25.06%
</TABLE>
* The Fund's total return for the period January 1, 2000 to September 30,
2000 is %.
4
<PAGE>
Best and worst quarterly performance during this period
<TABLE>
<CAPTION>
Fund Performance
<S> <C> <C>
. Value Opportunities Fund
Quarter ended December 31, 1998 28.55% (Best)
Quarter ended September 30, 1998 -21.03% (Worst)
Average annual total return as of December 31, 1999 1 year 5 years From Inception
. Value Opportunities Fund 25.06% N/A 15.86%
Wilshire Mid-Cap 750 26.65% N/A 18.84%
</TABLE>
5
<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>
Value Opportunities Fund
<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. 0.80%
Distribution (12b-1) Fees. 0.25%
Other Expenses. 0.46%
Total Annual Fund Operating 1.51%
Expenses.
</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>
$154 $477 $823 $1,802
</TABLE>
6
<PAGE>
TCW Galileo Value Opportunities Fund
Investment Objectives/Approach
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.
Concepts to understand
----------------------
Undervalued Assets: When a company's securities are selling below probable
liquidation values, net working capital or tangible book value.
Undervalued Growth Potential: When a company has a strong potential growth rate
and a strong balance sheet but has securities selling at less than a market
multiple (based on normalized earnings) and/or a price earnings multiple at a
discount to its peer group of companies.
Turnaround Situation: When a company has a sound balance sheet but has
securities that are selling at a significant market discount to the Adviser's
estimate of the company's 24 month sustainable earnings.
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.
In managing the Fund's investments, the Adviser looks to
invest the Fund's assets in the equity securities of
companies that are in one or more of the following
situations:.
. have undervalued assets.
. have undervalued 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. Galluccio and Susan I. Schottenfeld are the
Fund's portfolio managers.
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.
7
<PAGE>
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 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.
8
<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 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 a 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.
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 the Fund's 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.
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. These risks are more pronounced in emerging market
countries.
Foreign Investing
-----------------
Investing in foreign securities involves risks in addition to the risks
associated with domestic securities. An additional risk is currency risk.
While the price of the Fund's shares is quoted in U.S. dollars, the Fund
generally converts U.S. dollars to a foreign market's local currency to purchase
a security in that market. If the value of that local currency falls relative
to the dollar, the U.S. dollar value of the foreign currency will decrease.
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
9
<PAGE>
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 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.
Non-Diversified Status
----------------------
Because a relatively higher percentage of the non-diversified Fund's assets may
be invested in the securities of a limited number of issuers, the Fund may be
more susceptible to any single economic, political or regulatory occurrence than
a diversified fund.
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 is 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 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.
European Economic and Monetary Union
------------------------------------
Many European countries have adopted or are in the process of adopting a single
European currency referred to as the euro. The consequences of the euro
conversion are unclear and may adversely affect the value and/or increase the
volatility of securities held by the Fund.
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 Funds' 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.
10
<PAGE>
Management of the Fund
Investment Adviser
The Fund's investment adviser is TCW Investment Management Company (the
''Adviser'') and is headquartered at 865 South Figueroa Street, Suite 1800, Los
Angeles, California 90017. As of June 30, 2000, the Adviser and its affiliated
companies, which provide a variety of trust, investment management and
investment advisory services, had approximately $80 billion under management or
committed to 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 Manager(s) Business Experience During Last Five Years*
<S> <C>
Value Opportunities Fund
Nicholas F. Galluccio 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.
</TABLE>
*Positions with the TCW Group, Inc. and its affiliates may have changed over
time.
Advisory Agreement
The Fund and the Adviser have entered into an Investment Advisory and Management
Agreement (the ''Advisory Agreement''), under the terms of which the Fund 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 Fund's business affairs, subject to control by the
Board of Directors. 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 an annual
management fee at the rate of 0.80% of the Fund's average net asset value.
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 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 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 1940 Act.
Pursuant to the Distribution Plan, each 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.
11
<PAGE>
Your Investment
Account Policies and Services
Buying shares
You pay no sales charges to invest in the Fund. Your price for the Fund's
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
generally 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>
$2,000 $500 $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 enrollment form.
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 (800)
248-4486 to ensure that your signature guarantee will be processed correctly.
12
<PAGE>
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 the Fund's shares through certain broker-dealers and
financial organizations and their authorized intermediaries. If purchases and
redemptions of the Fund's 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 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
If your non-retirement 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 a 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
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.
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).
13
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
In Writing
<S> <C>
Complete the New Account Form. Mail your New Account Form
and a check made payable to TCW Galileo Value
Opportunities Fund to:
Via Regular Mail
TCW Galileo Funds, Inc. (Same, except that you should include a note specifying
DST Systems, Inc. the Fund name, your account number, and the name(s)
P.O. Box 419951 your account is registered in.)
Kansas City, MO 64141-6951
Via Express, Registered or Certified Mail
TCW Galileo Funds, Inc.
DST Systems, Inc.
330 W. 9th Street
Poindexter Building, 1st Floor
Kansas City, MO 64105-2005
By Telephone
Please contact the Investor Relations Department at(800)
FUND TCW (386-3829) for a New Account Form.
Wire: Have your bank send your investment to: (Same)
United Missouri Bank of Kansas City, N.A.
ABA No. 101000695
DST Systems, Inc./AC 9870371553
FBO TCW Galileo _______________________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.
14
<PAGE>
TO SELL OR EXCHANGE SHARES
By Mail
Write a letter of instruction that includes:
Your name(s) and signature(s) as they appear on the account form
Your account number
The Fund name
The dollar amount you want to sell or exchange
How and where to send the proceeds
Obtain a signature guarantee or other documentation, if required (see
''Account Policies and Services--Selling Shares'').
Mail your letter of instruction to:
Via Regular Mail
TCW Galileo Funds, Inc.
DST Systems, Inc.
P.O. Box 419951
Kansas City, MO 64141-6951
Via Express, Registered or Certified Mail
TCW Galileo Funds, Inc.
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 (800) 248-4486 to request a form to add
the plan. Complete the form, specifying the amount and frequency of
withdrawals you would like.
Be sure to maintain an account balance of $2,000 or more. Systematic
Withdrawal plans are subject to a minimum annual withdrawal of $500.
To reach the Transfer Agent at DST Systems, Inc., call toll
free in the U.S.
(800) 248-4486
Outside the U.S.
(816) 843-7166 (collect)
15
<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 same 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.
16
<PAGE>
Financial Highlights
The financial data included in the table below have been derived from financial
statements of the Institutional shares of the Fund. Because the N Shares is a
new class and did not commence operations until November 1, 2000 there are no
financial data to be presented in this Prospectus for the N Shares. The figures
for the periods ended October 31 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. This information should be read
in conjunction with the Fund's latest financial statements and notes thereto,
which are included in the Statement of Additional Information, for the Class I
shares a copy of which may be obtained at no charge by calling the Fund. Further
information about the performance of the Fund is contained in the Annual Report
and Semi-Annual Report of the Class I shares of the Fund, a copy of which may
also be obtained at no charge by calling the Fund.
TCW Galileo Value Opportunities Fund
<TABLE>
<CAPTION>
November 3, 1997
(Commencement of
6 Months Ended Year Ended Operations) through
April 30, 2000/3/ October 31, 1999 October 31, 1998
----------------- ----------------- ----------------
<S> <C> <C> <C>
Per-Share Data ($)
Net asset value, beginning of period $ 11.23 $ 9.24 $ 10.00
--------------------------------------------------------------
Investment operations:
Investment income (loss)--net 0.01 (0.01) --
Net realized and unrealized gain (loss) on 2.59 2.00 (0.75)
investments
--------------------------------------------------------------
Total from investment operations 2.60 1.99 (0.75)
--------------------------------------------------------------
Distributions:
Dividends from net investment income -- -- --
Dividends from net realized gains on investments (1.21) -- --
Dividends in excess of net investment income -- -- (0.01)
--------------------------------------------------------------
Total Distributions (1.21) -- (0.01)
--------------------------------------------------------------
Net asset value, end of period $ 12.62 $ 11.23 $ 9.24
==============================================================
Total return (%) 25.09%/4/ 21.54% (7.49)%/1/
Ratios/Supplemental Data
Net assets, end of period ($ x 1,000) $ 33,838 $30,238 $ 28,634
Ratio of expenses to average net assets 1.22%/2/ 1.18% 1.16%/2/
Ratio of net income (loss) to average net assets 0.11%/2/ (0.10)% 0.05%/2/
Portfolio turnover rate 67.22%/4/ 140.07% 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.
/3/Unaudited.
/4/For the six months ended April 30, 2000 and not indicative of a full year's
operating results.
17
<PAGE>
For More Information
For all shareholder account information such as transactions and account
inquiries:
Call (800) 248-4486
For information regarding the TCW Galileo Funds, Inc.:
Call (800) FUND TCW (386-3829)
In writing:
TCW Galileo Funds, Inc.
c/o DST System, Inc.,
P.O. Box 419951
Kansas City, MO 64141-6951
On the Internet:
TCW GALILEO FUNDS, INC.
http://www.tcwgalileofunds.com
You may visit the SEC's website at http://www.sec.gov to view text only versions
of Fund documents filed with the SEC. 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 or by electronic
request at the following e-mail address: www. [email protected].
TCW Galileo Funds, Inc.
SEC file number: 811-7170
More information on the Fund is available free upon request,
including the following:
Annual / Semi-Annual Report
Describes the Fund's performance, lists portfolio holdings
and contains a letter from the Fund's portfolio manager
discussing recent market conditions, economic trends and
Fund strategies.
Statement of Additional Information (SAI)
Provides more details about the Fund and its policies. A
current SAI is on file with the Securities and Exchange
Commission (SEC) and is incorporated by reference and is
legally considered part of this prospectus.
18
<PAGE>
TCW GALILEO FUNDS, INC.
865 South Figueroa Street, Suite 1800
Los Angeles, California 90017
(800) FUND TCW
STATEMENT OF ADDITIONAL INFORMATION
November 1, 2000
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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 Analyst Growth Fund,
TCW Galileo Growth & Income Fund, TCW Galileo Health Sciences Fund and, TCW
Galileo Technology Fund and the Class N shares of TCW Galileo Value
Opportunities Fund. Each Fund has established two classes of shares,
Institutional Class I shares and Class N shares. The Class I shares of TCW
Galileo Value Opportunities Fund are offered by means of a separate Prospectus
and Statement of Additional Information. 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 Investor Relations
Department at (800) FUND TCW. This Statement of Additional Information, although
not in itself a prospectus, is incorporated by reference into the Prospectus in
its entirety.
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TABLE OF CONTENTS
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INVESTMENT PRACTICES.............................................. 1
RISK CONSIDERATIONS............................................... 12
INVESTMENT RESTRICTIONS........................................... 24
DIRECTORS AND OFFICERS OF THE COMPANY............................. 25
INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS................... 30
DISTRIBUTION OF COMPANY SHARES.................................... 31
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............... 32
ADMINISTRATION AGREEMENT.......................................... 32
CODE OF ETHICS.................................................... 33
DETERMINATION OF NET ASSET VALUE.................................. 33
HOW TO BUY AND REDEEM SHARES...................................... 33
HOW TO EXCHANGE SHARES............................................ 34
PURCHASES-IN-KIND................................................. 34
DISTRIBUTIONS AND TAXES........................................... 35
INVESTMENT RESULTS................................................ 38
ORGANIZATION, SHARES AND VOTING RIGHTS............................ 39
TRANSFER AGENT AND CUSTODIANS..................................... 40
INDEPENDENT AUDITORS.............................................. 41
LEGAL COUNSEL..................................................... 41
FINANCIAL STATEMENTS.............................................. 40
DESCRIPTION OF S&P AND MOODY'S RATINGS............................ A-1
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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. The
Funds, for purposes of calculating certain comparative guidelines, will utilize
the previous month-end range.
Strategies Available to All Funds
Money Market Instruments. All Funds may invest in money market instruments and
will generally do so for defensive or temporary purposes only. These instruments
include, but are not limited to:
U.S. Government Securities. Obligations issued or guaranteed as to
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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. Obligations including certificates of deposit,
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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.
Eurodollar Certificates of Deposit. Eurodollar certificates of
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deposit issued by foreign branches of domestic banks having total assets of $1
billion or more (investments in Eurodollar certificates may be affected by
changes in currency rates or exchange control regulations, or changes in
governmental administration or economic or monetary policy in the United States
and abroad);
Obligations of Savings Institutions. Certificates of deposit of
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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. Certificates of deposit of
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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
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within the two highest ratings categories by Standard & Poor's Corporation
("S&P") or Moody's Investors
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Service, Inc. ("Moody's") or, if not rated, the security is determined by the
Adviser to be of comparable quality.
Money Market Mutual Funds. Shares of United States money market
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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. Debt securities that have a remaining
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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 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.
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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, the Funds 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.
When, As and If Issued Securities. The 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
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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.
Options. The Funds (except Value Opportunities) 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 transacting dealer fails to make or take delivery of the
securities or amount of foreign currency underlying an option it has written, in
accordance with the terms of that option, a Fund would lose the premium paid for
the option as well as any anticipated benefit of the transaction. Each Fund will
engage in OTC Option transactions only with brokers or financial institutions
deemed creditworthy by the Fund's management.
Covered Call Writing. The Funds (except Value Opportunities) are permitted to
write covered call options on securities, 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)
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increase, but has retained the risk of loss should the price of the underlying
security (or the exchange rate of the currency in which it is denominated)
decline. The premium received will fluctuate with varying economic market
conditions. If the market value of the portfolio securities (or the currencies
in which they are denominated) upon which call options have been written
increases, a Fund may receive a lower total return from the portion of its
portfolio upon which calls have been written than it would have had such calls
not been written.
As regards listed options and certain OTC Options, during the option period, a
Fund may be required, at any time, to deliver the underlying security (currency)
against payment of the exercise price on any calls it has written (exercise of
certain listed and OTC Options may be limited to specific expiration dates).
This obligation is terminated upon the expiration of the option period or at
such earlier time when the writer effects a closing purchase transaction. A
closing purchase transaction is accomplished by purchasing an option of the same
series as the option previously written. However, once the Fund has been
assigned an exercise notice, the Fund will be unable to effect a closing
purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on an
outstanding call option, to prevent an underlying security (currency) from being
called, to permit the sale of an underlying security (or the exchange of the
underlying currency) or to enable a Fund to write another call option on the
underlying security (currency) with either a different exercise price or
expiration date or both. A Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the amount of the premium received
on the call option is more or less than the cost of effecting the closing
purchase transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of the
underlying security (currency). Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part or exceeded by a
decline in the market value of the underlying security (currency).
If a call option expires unexercised, a Fund realizes a gain in the amount of
the premium on the option less the commission paid. Such a gain, however, may be
offset by depreciation in the market value of the underlying security (currency)
during the option period. If a call option is exercised, a Fund realizes a gain
or loss from the sale of the underlying security (currency) equal to the
difference between the purchase price of the underlying security (currency) and
the proceeds of the sale of the security (currency) plus the premium received on
the option less the commission paid.
Covered Put Writing. As a writer of a covered put option, a Fund incurs an
obligation to buy the security underlying the option from the purchaser of the
put, at the 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
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to or more than the exercise price of the put written or less than the exercise
price of the put written if the marked to market difference is maintained by the
Fund in cash, U.S. Government Securities or other liquid portfolio securities
which the Fund holds in a segregated account maintained at its custodian. In
writing puts, a Fund assumes the risk of loss should the market value of the
underlying security (currency) decline below the exercise price of the option
(any loss being decreased by the receipt of the premium on the option written).
In the case of listed options, during the option period, the Fund may be
required, at any time, to make payment of the exercise price against delivery of
the underlying security (currency). The operation of and limitations on covered
put options in other respects are substantially identical to those of call
options.
The Funds will write put options for three purposes: (a) to receive the income
derived from the premiums paid by purchasers; (b) when the Adviser wishes to
purchase the security (or a security denominated in the currency underlying the
option) underlying the option at a price lower than its current market price, in
which case it will write the covered put at an exercise price reflecting the
lower purchase price sought; and (c) to close out a long put option position.
The potential gain on a covered put option is limited to the premium received on
the option (less the commissions paid on the transaction) while the potential
loss equals the differences between the exercise price of the option and the
current market price of the underlying securities (currencies) when the put is
exercised, offset by the premium received (less the commissions paid on the
transaction).
Purchasing Call and Put Options. A Fund may purchase a call option in order to
close out a covered call position (see "Covered Call Writing" above), to protect
against an increase in price of a security it anticipates purchasing or, in the
case of a call option on foreign currency, to hedge against an adverse exchange
rate move of the currency in which the security it anticipates purchasing is
denominated vis-a-vis the currency in which the exercise price is denominated.
The purchase of the call option to effect a closing transaction on a call
written over-the-counter may be a listed or an OTC Option. In either case, the
call purchased is likely to be on the same securities (currencies) and have the
same terms as the written option. If purchased over-the-counter, the option
would generally be acquired from the dealer or financial institution which
purchased the call written by the Fund.
A Fund may purchase put options on securities or currencies which it holds in
its portfolio to protect itself against a decline in the value of the security
and to close out written put option positions. If the value of the underlying
security or currency were to fall 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 Foreign Currencies. The Funds (except Value Opportunities) may
purchase and write options on foreign currencies for purposes similar to those
involved with investing in foreign
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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.
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
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to deal in an odd lot market (generally consisting of transactions of less than
$1 million) for the underlying foreign currencies at prices that are less
favorable than for round lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
available is generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller transactions (i.e.,
less than $ l million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To the extent that
the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
Futures Contracts. The Funds (except Value Opportunities) may purchase and sell
interest rate, currency, and index futures contracts ("futures contracts"), on
securities eligible for purchase by the Fund. Subject to certain limitations, a
Fund may enter into futures contracts or options on such contracts to attempt to
protect against possible changes in the market value of securities held in or to
be purchased by the Fund resulting from interest rate or market fluctuations, to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage its
effective maturity or duration, or to establish a position in the derivatives
markets as a temporary substitute for purchasing or selling particular
securities.
To the extent futures positions constitute "bona fide hedge" positions as
defined by the rules and regulations of the Commodity Futures Trading Commission
("CFTC"), there is no overall limitation on the percentage of a Fund's assets
which may be committed to futures contracts and options or futures contracts,
provided the aggregate value of such positions does not exceed the value of such
Fund's portfolio securities. With respect to futures positions that are not
"bona fide hedge" positions, no Fund may enter into futures contracts or related
options if, immediately thereafter, the amount of initial margin and premiums
for unexpired futures contracts and options on futures contracts exceeds 5% of
the Fund's liquidation value, after taking into account unrealized profits and
losses on such futures contracts, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
A Fund may purchase or sell interest rate futures for the purpose of hedging
some or all of the value of its portfolio securities against changes in
prevailing interest rates or to manage its duration or effective maturity. If
the Adviser anticipates that interest rates may rise and, concomitantly, the
price of certain of its portfolio securities may fall, the Fund may sell futures
contracts. If declining interest rates are anticipated, the Fund may purchase
futures contracts to protect against a potential increase in the price of
securities the Fund intends to purchase. Subsequently, appropriate securities
may be purchased by the Fund in an orderly fashion; as securities are purchased,
corresponding futures positions would be terminated by offsetting sales of
contracts. A Fund may purchase or sell futures on various currencies in which
its portfolio securities are denominated for the purpose of hedging against
anticipated changes in currency exchange rates. A Fund will enter into currency
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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.
Options on Futures Contracts. The Funds (except Value Opportunities) 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
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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.
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.
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 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.
Forward Currency Transactions. The Funds (except Value Opportunities) 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.
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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.
Short Sales Against the Box. The 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 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
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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.
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
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.
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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.
Fixed Income Securities
Fixed Income securities are subject to various risks. The two primary (but not
exclusive) risks affecting fixed income instruments are "credit risk" and
"interest rate risk." These risks can affect a security's price volatility to
varying degrees, depending upon the nature of the instrument. In addition, the
depth and liquidity of the market for an individual or class of fixed income
security can also affect its price and, hence, the market value of a Fund.
"Credit risk" refers to the likelihood that an issuer will default in the
payment of principal and/or interest on an instrument. Financial strength and
solvency of an issuer are the primary factors influencing credit risk. In
addition, lack of or inadequacy of collateral or credit enhancements for a fixed
income security may affect its credit risk. Credit risk of a security may change
over its life and securities which are rated by rating agencies are often
reviewed and may be subject to downgrade.
"Interest rate risk" refers to the risks associated with market changes in
interest rates. Interest rate changes may affect the value of a fixed income
security directly (especially in the case of fixed rate securities) and directly
(especially in the case of adjustable rate securities). In general, rises in
interest rates will negatively impact the price of fixed rate securities and
falling interest rates will have a positive effect on price. The degree to which
a security's price will change as a result of changes in interest rates is
measured by its "duration." For example, the price of a bond with a 5 year
duration would be expected under normal market conditions to decrease 5% for
every 1% increase in interest rates. Generally, securities with longer
maturities have a greater duration and thus are subject to greater price
volatility from changes in interest rates. Adjustable rate instruments also
react to interest rate changes in a similar manner although generally to a
lesser degree (depending, however, on the characteristics of the re-set terms,
including the index chosen, frequency of reset and reset caps or floors, among
other things).
Foreign Securities
The Funds 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
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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 Funds, 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
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
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will have offsetting losses in its futures positions. In addition, in such
situations, if a Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements at a time when it is disadvantageous to
do so. These sales of securities may, but will not necessarily, be at increased
prices that reflect the decline in interest rates. While utilization of futures
contracts and options on futures contracts may be advantageous to a Fund, if the
Fund is not successful in employing such instruments in managing its
investments, the Fund's performance will be worse than if the Fund not make such
investment in futures contracts and options on futures contracts.
Options
The successful use of options depends on the ability of the Adviser to forecast
interest rate and market movements correctly. For example, if a Fund were to
write a call option based on the Adviser's expectation that the price of the
underlying security would fall, but the price were to rise instead, the Fund
could be required to sell the security upon exercise at a price below the
current market price. Similarly, if a Fund were to write a put option based on
the Adviser's expectation that the price of the underlying security would rise,
but the price were to fall instead, the Fund could be required to purchase the
security upon exercise at a price higher than the current market price.
When it purchases an option, a Fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the Fund
exercises the option or enters into a closing transaction with respect to the
option during the life of the option. If the price of the underlying security
does not rise (in the case of a call) or fall (in the case of a put) to an
extent sufficient to cover the option premium and transaction costs, the Fund
will lose part or all of its investment in the option. This contrasts with an
investment by the Fund in the underlying security, since the Fund will not lose
any of its investment in such security if the price does not change.
The effective use of options also depends on a Fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Although
the Fund will take an option position only if the Adviser believes there is a
liquid secondary market for the option, there is no assurance that the Fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, a Fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A market may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events - such as volume in excess of trading or clearing capability -were to
interrupt its normal operations.
A market may at times find it necessary to impose restrictions on particular
types of options transactions, such as opening transactions. For example, if an
underlying security ceases to meet qualifications imposed by the market or the
Options Clearing Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening transactions in
existing series may be prohibited. If an options market were to become
unavailable, a Fund which holds an option would be able to realize profits or
limit losses only by exercising the option, and a Fund which acted as option
writer would remain obligated under the option until expiration or exercise.
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Special risks are presented by internationally-traded options of the type
certain of the Equity Funds, Emerging Markets Income and Core Fixed Income may
acquire. Because of time differences between the United States and the various
foreign countries, and because different holidays are observed in different
countries, foreign options markets may be open for trading during hours or on
days when U.S. markets are closed. As a result, option premiums may not reflect
the current prices of the underlying interest in the United States.
Risks Associated With Lower Rated Securities
The Growth & Income Fund's investment portfolio consists primarily of below
investment grade corporate securities that are commonly known as junk bonds.
High yield/high risk securities can be classified into two categories: (a)
securities issued without an investment grade rating and (b) securities whose
credit ratings have been downgraded below investment grade because of declining
investment fundamentals. The first category includes securities issued by
"emerging credit" companies and companies which have experienced a leveraged
buyout or recapitalization. Although the small and medium size companies that
constitute emerging credit issuers typically have significant operating
histories, these companies generally do not have strong enough operating results
to secure investment grade ratings from the rating agencies. In addition, in
recent years there has been a substantial volume of high yield/high risk
securities issued by companies that have converted from public to private
ownership through leveraged buyout transactions and by companies that have
restructured their balance sheets through leveraged recapitalizations. High
yield/high risk securities issued in these situations are used primarily to pay
existing stockholders for their shares or to finance special dividend
distributions to shareholders. The indebtedness incurred in connection with
these transactions is often substantial and, as a result, often produces highly
leveraged capital structures which present special risks for the holders of such
securities. Also, the market price of such securities may be more volatile to
the extent that expected benefits from the restructuring do not materialize. The
second category of high yield/high risk securities consists of securities of
former investment grade companies that have experienced poor operating
performance due to such factors as cyclical downtrends in their industry, poor
management or increased foreign competition.
Generally, lower-rated debt securities provide a higher yield than higher rated
debt securities of similar maturity but are subject to greater risk of loss of
principal and interest ("credit risk") than higher rated securities of similar
maturity. They are generally considered to be subject to greater risk than
securities with higher ratings particularly in the event of a deterioration of
general economic conditions. The lower ratings of the high yield/high risk
securities which the Fund will purchase reflect a greater possibility that the
financial condition of the issuers, or adverse changes in general economic
conditions, or both, may impair the ability of the issuers to make 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
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greater extent than higher rated securities. The securities in which the Fund
invests are frequently subordinated to senior indebtedness.
Since the high yield bond market is relatively new, its growth has paralleled a
long economic expansion, and it has not weathered a recession in its present
size and form. An economic downturn or increase in interest rates may result in
a higher incidence of high yield bond defaults and is likely to have a negative
effect on the high yield bond market and on the value of the high yield/high
risk bonds in the Fund's portfolio, as well as on the ability of the bonds'
issuers to repay principal and interest.
The economy and interest rates affect high yield/high risk securities
differently from other securities. The prices of high yield bonds have been
found to be less sensitive to interest rate changes than higher-rated
investments, but more sensitive to adverse economic changes or individual
corporate developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial stress
which would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals, and to obtain
additional financing. If the issuer of a bond owned by the Fund defaults, the
Fund may incur additional expenses to seek recovery. In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of high yield bonds and the Fund's asset value.
Furthermore, the market prices of high yield/high risk bonds structured as zero
coupon or pay-in-kind securities are affected to a greater extent by interest
rate changes and thereby tend to be more volatile than securities which pay
interest periodically and in cash.
To the extent there is a limited retail secondary market for particular high
yield bonds, these bonds may be thinly-traded and the Adviser's ability to
accurately value high yield bonds and the Fund's assets may be more difficult
because there is less reliable, objective data available. In addition, the
Fund's ability to acquire or dispose of the bonds may be negatively-impacted.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds, especially
in a thinly-traded market. To the extent the Fund owns or may acquire illiquid
or restricted high yield bonds, these securities may involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.
Special tax considerations are associated with investing in lower rated debt
securities structured as zero coupon or pay-in-kind securities. The Fund
accrues income on these securities prior to the receipt of cash payments. The
Fund must distribute substantially all of its income to its shareholders to
qualify for pass-through treatment under the tax laws and may, therefore, have
to dispose of its portfolio securities to satisfy distribution requirements.
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.
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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 Fund's current policies may not exceed 15% of the
Fund's net assets.
Limitations on the resale of restricted securities may have an adverse effect on
their marketability, and may prevent a Fund from disposing of them promptly at
reasonable prices. A Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration. The Securities and Exchange Commission has recently adopted Rule
144A under the Securities Act, which permits each Fund to sell restricted
securities to qualified institutional buyers without limitation. The Rule 144A
marketplace of sellers and qualified institutional buyers is new and still
developing and may take a period of time to develop into a mature liquid market.
As such, the market for certain private placements purchased pursuant to Rule
144A may be initially small or may, subsequent to purchase, become illiquid.
Furthermore, the Adviser may not possess all the information concerning an issue
of securities that it wishes to purchase in a private placement to which it
would normally have had access, had the registration statement necessitated by a
public offering been filed with the Securities and Exchange Commission.
Options Transactions
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.
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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.
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.
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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 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
20
<PAGE>
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 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
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<PAGE>
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. It is anticipated that each of the Funds will have a
portfolio turnover of approximately 100% for its fiscal year ending October 31,
2001.
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.
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
22
<PAGE>
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 such as corporate
administration or marketing, 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.
In an effort to achieve efficiencies in execution and reduce trading costs, the
Adviser and its affiliates frequently (though not always) execute securities
transactions on behalf of a number of accounts at the same time, generally
referred to as "block trades". When executing block trades, securities are
allocated using procedures that the Advisers consider fair and equitable.
When a small number of shares are allocated to the Adviser and its affiliates in
a public offering, allocations may be done disproportionately, taking into
consideration performance and resulting lot sizes. In some cases, various forms
of pro rata allocations are used and, in other cases, random allocation
processes are used. More particularized allocations may result from
considerations such as lot size, cash availability, diversification or
concentration requirements and investment objectives, restrictions and time
horizons.
23
<PAGE>
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, and (b) each Fund 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 at any time will not exceed 30% 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% of the value of a Fund's total assets, the Fund will not
purchase any securities.
2. No Fund will issue senior securities as defined in the 1940 Act, provided
that the Funds may (a) enter into repurchase agreements; (b) purchase
securities on a when-issued or delayed delivery basis; (c) purchase or sell
financial futures contracts or options thereon; and (d) borrow money in
accordance with the restrictions described in paragraph 1 above.
3. No Fund will underwrite securities of other companies, except insofar as
the Fund might be deemed to be an underwriter for purposes of the
Securities Act by virtue of disposing of portfolio securities.
4. No Fund will purchase any securities that would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in
the securities of any one particular industry or group of industries,
provided that this limitation shall not apply to any Fund's purchase of
U.S. Government Securities and will not apply to the Health Sciences and
Technology Funds. In determining industry classifications for foreign
issuers, each Fund will use reasonable classifications that are not so
broad that the primary economic characteristics 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.
24
<PAGE>
6. No Fund may make loans of cash except by purchasing qualified debt
obligations or entering into repurchase agreements.
7. Each Fund may effect short sales of securities or maintain a short position
only if the Fund at the time of sale either owns or has the right to
acquire at no additional cost securities equivalent in kind and amount to
those sold.
8. No Fund will invest in commodities or commodities contracts, except that
each Bond Fund or Equity Fund may enter into futures contracts or purchase
related options thereon if, immediately thereafter, the amount committed to
margin plus the amount paid for premiums for unexpired options on futures
contracts does not exceed 5% of the value of the Fund's total assets, after
taking into account unrealized gains and unrealized losses on such
contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is
less (more) than the market price of the underlying security) at the time
of purchase, the in-the-money amount may be excluded in calculating the 5%.
The entry into foreign currency forward contracts shall not be deemed to
involve investing in commodities.
9. No Fund will purchase securities on margin, except that a Fund may obtain
any short-term credits necessary for clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts and
related options will not be deemed to be a purchase of securities on
margin.
10. No Fund will purchase the securities of an issuer for the purpose of
acquiring control or management thereof except that Asia Pacific Equities,
Emerging Markets Equities and Latin America Equities may acquire the
securities of subsidiaries in order to facilitate investing in the
securities of foreign issuers.
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 seven 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.
25
<PAGE>
Name and Address Principal Occupations and Other Affiliations
-------------------------------------------------------------
<TABLE>
<S> <C>
Marc I. Stern* (56) President and Director, The TCW Group, Inc. (formerly TCW
Chairman Management Company); Chairman, the Adviser; President and
865 South Figueroa Street Vice Chairman, TCW Asset Management Company; Chairman, TCW
Los Angeles, California 90017 Americas Development, Inc.; Chairman, TCW London
International, Limited and Executive Vice President, Trust
Company of the West. Chairman, Apex Mortgage Capital, Inc.
(Since October 1997). Director of Qualcomm Incorporated
(wireless communications); formerly President of Sun
America, Inc. (financial services company).
Alvin R. Albe* (47) President and Director of the Adviser and Executive Vice
Director and President President and Director of TCW Asset Management Company and
865 South Figueroa Street Trust Company of the West. Mr. Albe is also Executive Vice
Los Angeles, California 90017 President of the TCW Group, Inc. Prior to joining The TCW
Group, Inc. and its affiliates and subsidiaries ("TCW") in
1991, Mr. Albe was President of Oakmont Corporation, a
privately held corporation which administers and manages
assets for several families and individuals.
Thomas E. Larkin, Jr.* (61) President and Director, Trust Company of the West; Vice
Director Chairman and Director, TCW Asset Management Company;
865 South Figueroa Street Executive Vice President and Director, The TCW Group, Inc.;
Los Angeles, California 90017 Vice Chairman of the Adviser; Member of the Board of
Trustees of the University of Notre Dame; Director of
Orthopedic Hospital of Los Angeles; Senior Vice President,
TCW Convertible Securities Fund, Inc.
</TABLE>
______________________
* Directors who are or may be deemed to be "interested persons" of the
Company as defined in the 1940 Act. Messrs. Stern Albe and Larkin are
officers of the Adviser.
26
<PAGE>
<TABLE>
<S> <C>
John C. Argue (68) Former Senior Partner and Of Counsel, Argue Pearson Harbison
Director & Myers (law firm); Director, Avery Dennison Corporation
444 South Flower Street (manufacturer of self-adhesive products and office
Los Angeles, California 90071 supplies), Apex Mortgage Capital, Inc. (real estate
investment trust); Nationwide Health Properties, Inc. (real
estate investment trust) and TCW Convertible Securities
Fund, Inc.; He is Chairman of the Rose Hills Foundation, the
Amateur Athletic Foundation and the University of Southern
California Board of Trustees.
Norman Barker, Jr. (78) Former Chairman of the Board, First Interstate Bank of
Director California and former Vice Chairman of the Board, First
9601 Wilshire Blvd. Interstate Bancorp; Director, Bank Plus Corp., ICN
Beverly Hills, CA 90210 Pharmaceuticals, Inc., and TCW Convertible Securities Fund,
Inc
Richard W. Call (76) Former President, The Seaver Institute (a private
Director foundation); Director, TCW Convertible Securities Fund, Inc.
c/o Mayer, Brown & Platt and The Seaver Institute.
Counsel to the Independent Directors
1675 Broadway
New York, NY 10019
Matthew K. Fong (45) Since 1999 Mr. Fong has been Of Counsel to the Los Angeles
Director based law firm of Sheppard, Mullin, Richter & Hamilton.
333 South Hope Street From 1995 to 1998, Mr. Fong served as State Treasurer for
Los Angeles, CA 90071 the State of California. From 1991 to 1994, Mr. Fong was
Vice Chairman of the California State Board of Equalization,
California's elected tax agency. Mr. Fong is a director of
ESS Technology, Inc. and American National Title and serves
as a Regent of Pepperdine University and the Los Angeles
Children's Hospital. Mr. Fong is also a Lt. Colonel in the
U.S. Air Force Reserves.
</TABLE>
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.
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<PAGE>
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, 1999.
Name of Independent Director Aggregate Compensation From the Company
---------------------------- ---------------------------------------
John C. Argue $40,500
Norman Barker, Jr. $40,500
Richard W. Call $40,500
Matthew K. Fong $19,500
The following table illustrates the total compensation paid to Company's
Independent Directors for the calendar year ended December 31, 1999 by the TCW
Convertible Securities Fund, Inc. in the case of Messrs. Argue, Barker and Call,
as well as from the Company. TCW Convertible Securities Funds, Inc. is included
solely because the Company's Adviser, TCW Investment Management Company also
serves as its investment adviser.
Total Cash
----------
For Service as Director Compensation from
----------------------- -----------------
and Committee TCW Galileo Funds,
------------- -----------------
Member of the TCW Inc. and TCW
----------------- ------------
Name of Independent Convertible Securities Convertible Securities
------------------- ---------------------- ----------------------
Director Fund, Inc. Fund, Inc.
----------------- ----------------- -----------------
John C. Argue $11,250 $51,750
Norman Barker, Jr. $12,750 $53,250
Richard W. Call $12,750 $53,250
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<PAGE>
The officers of the Company who are not also directors of the Company are:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
---------------- -----------------------
Name and Address with Company During Past 5 Years(1)
---------------- ------------ ----------------------
<S> <C> <C>
Michael E. Cahill (49)* Senior Vice Managing Director, General Counsel and
President, Secretary, the Adviser, The TCW Group, Inc.,
General Trust Company of the West and TCW Asset
Counsel Management Company; formerly General Counsel
and Assistant and Senior
Secretary Vice President of Act III Communications
(media and entertainment business).
Jeffrey Peterson (54)* Senior Vice President Managing Director, Trust Company of the West,
TCW Asset Management Company and the Adviser;
President, TCW Brokerage Services.
Philip K. Holl (50)* 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.
Peter C. DiBona (42) Treasurer Senior Vice President, Trust Company of the
West, TCW Asset Management Company and the
Adviser.
</TABLE>
_______________________
(1) Positions with The TCW Group, Inc. and its affiliates may have changed over
time.
* Address is 865 South Figueroa Street, 18th Floor, Los Angeles, California
90017
In addition, Hilary G.D. Lord, Managing Director and Chief Compliance Officer of
Trust Company of the West, TCW Asset Management Company and the Adviser, is an
Assistant Secretary of the Company. The directors and officers of the Company
collectively own less than 1% of the outstanding shares of any Fund.
29
<PAGE>
INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS
The Company and the Adviser are parties to an Investment Management and Advisory
Agreement ("Advisory Agreement"). The Adviser was organized in 1987 as a wholly-
owned subsidiary of The TCW Group, Inc. 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 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. The annual management fee (as a percentage of average asset value) is as
follows: Analyst Growth Fund - 0.90%; Growth & Income Fund - 0.75%; Health
Sciences Fund - 0.90%; Technology Fund - 1.00%; and Value Opportunities - 0.80%.
Except for expenses specifically assumed by the Adviser under the Advisory
Agreement, each Fund bears all expenses incurred in its operations. Fund
expenses include the fee of the Adviser; compensation and expenses of directors
of the Company who are not officers or employees of the Adviser; registration,
filing and other fees in connection with filings with regulatory authorities;
fees and expenses of independent accountants; the expenses of printing and
mailing proxy statements and shareholder reports; custodian and transfer and
dividend disbursing agent charges; brokerage fees and commissions and securities
transaction costs; taxes and corporate fees; legal fees; the fees of any trade
association; the cost of stock certificates, if any, representing shares of the
Fund; the organizational and offering expenses, whether or not advanced by the
Adviser; expenses of shareholder and director meetings; premiums for the
fidelity bond and any errors and omissions insurance; interest and taxes; and
any other ordinary or extraordinary expenses incurred in the course of the
Fund's business.
The Advisory Agreement also provides that each Fund 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 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
30
<PAGE>
approved at least annually by (a) the Board of Directors of the Company or by
the vote of a majority of the outstanding voting securities of the Fund, and (b)
vote of a majority of the directors who are not "interested persons" of the
Company or the Adviser (the Independent Directors), cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Agreement may be
terminated without penalty at any time on 60 days' written notice, by vote of a
majority of the Board of Directors of the Company or by vote of a majority of
the outstanding voting securities of the Fund. The Advisory Agreement terminates
automatically in the event of assignment.
The Company has acknowledged that the name "TCW" is owned by The TCW Group, Inc.
(formerly, TCW Management Company) ("TCW"), the parent of the Adviser. The
Company has agreed to change its name and the name of the Funds at the request
of TCW if any advisory agreement into which TCW or any of its affiliates and the
Company may enter is terminated.
The Advisory Agreement and also provides that the Adviser 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 its
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 I 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 and other financial intermediaries.
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
31
<PAGE>
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 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 was approved by the Company's Board of Directors on
December 17, 1998 and 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.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 31, 2000, TCW Investment Management Company owned 100% of the
outstanding shares of Class N of each Fund.
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.
CODE OF ETHICS
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<PAGE>
The Adviser is subject to the Code of Ethics with respect to investment
transactions in which the Adviser's officers, directors and certain other
persons have a beneficial interest to avoid any actual or potential conflict or
abuse of their fiduciary position. The Code of Ethics contains several
restrictions and procedures designed to eliminate conflicts of interest
including: (a) pre-clearance of non-exempt personal investment transactions; (b)
quarterly reporting of personal securities transactions; (c) a prohibition
against personally acquiring securities in an initial public offering, entering
into uncovered short sales and writing uncovered options; (d) a seven day "black
out period" prior or subsequent to a Fund transaction during which portfolio
managers are prohibited from making certain transactions in securities which are
being purchased or sold by a client of such manager; (e) a prohibition, with
respect to certain investment personnel, from profiting in the purchase and
sale, or sale and purchase, of the same (or equivalent) securities within 60
calendar days; and (f) a prohibition against acquiring any security which is
subject to firm wide or, if applicable, a department restriction of the Adviser.
The Code of Ethics provides that exemptive relief may be given from certain of
its requirements, upon application.
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.
Use of Sub-Transfer Agency Accounting or Administrative Services
Certain financial intermediaries have contracted with the Distributor to perform
certain sub-transfer agent accounting or administrative services for certain
clients or retirement plan investors who have invested in the Company. In
consideration of the provision of these sub-transfer agency accounting or
administrative services, the financial intermediaries will receive sub-transfer
agency accounting or administrative fees.
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.
33
<PAGE>
Distributions in Kind
If the Board of Directors determines that it would be detrimental to the best
interests of the remaining shareholders of a Fund to make a redemption payment
wholly in cash, the Fund may pay, in accordance with SEC rules, any portion of a
redemption in excess of the lesser of $250,000 or 1% of the Fund's net assets by
distribution in kind of portfolio securities in lieu of cash. Shareholders
receiving distributions in kind may incur brokerage commissions or other costs
when subsequently disposing of shares of those securities.
HOW TO EXCHANGE SHARES
A shareholder may exchange all or part of its shares of one Fund for shares of
another Fund (subject to receipt of any required state securities law clearances
with respect to certain Funds in the shareholder's state of residence). An
exchange of shares is treated for federal income tax purposes as a redemption
(sale) of shares given in exchange by the shareholder, and an exchanging
shareholder may, therefore, realize a taxable gain or loss in connection with
the exchange. See "Distributions and Taxes" below.
The exchange privilege enables a shareholder to acquire shares in a Fund with
different investment objectives or policies when the shareholder believes that a
shift between Funds is an appropriate investment decision.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
and the proceeds are immediately invested, at a price as described above, in
shares of the Fund being acquired. The Company reserves the right to reject any
exchange request.
As described in the Prospectus, the exchange privilege may be terminated or
revised by the Company.
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-
34
<PAGE>
exempt interest income (reduced by certain expenses), will not be liable for
federal income taxes to the extent its taxable net investment income and its net
realized long-term and short-term capital gains, if any, are distributed to its
shareholders. However, a Fund will be taxed on that portion of taxable net
investment income and long-term and short-term capital gains that it retains.
Furthermore, a Fund will be subject to United States corporate income tax (and
possibly state or local income or franchise tax) with respect to such
distributed amounts in any year that it fails to qualify as a regulated
investment company or fails to meet the 90% distribution requirement.
To qualify as a regulated investment company, in addition to the 90%
distribution requirement described above, a Fund must: (a) derive at least 90%
of its gross income from dividends, interest, certain payments with respect to
securities loans and gains from the sale or other disposition of stock or
securities or foreign currencies or other income (including but not limited to
gains from options, futures or forward contracts) derived with respect to its
business in investing in such stock, securities or currencies, and (b) diversify
its holdings so that at the end of each fiscal quarter, (i) at least 50% of the
value of the Fund's assets is represented by cash items, U.S. Government
Securities and other securities, limited in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government Securities) or in the securities of two or more issuers (other than
U.S. Government Securities) which the Fund controls (i.e., holds at least 20% of
the combined voting power) and which are engaged in the same or similar trades
or businesses or related trades or businesses.
If the Funds invest in foreign currency or forward foreign exchange contracts,
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.
35
<PAGE>
As a general rule, a Fund's gain or loss on a sale or exchange of an investment
will be a long-term capital gain or loss if the Fund has held the investment for
more than one year and will be a short-term capital gain or loss if it has held
the investment for one year or less. Furthermore, as a general rule, a
shareholder's gain or loss on a sale or redemption of Fund shares will be a
long-term capital gain or loss if the shareholder has held his or her Fund
shares for more than one year and will be a short-term capital gain or loss if
he or she has held his or her Fund shares for one year or less. For federal,
state and local income tax purposes, an exchange by a shareholder of shares in
one Fund or securities for shares in a Fund will be treated as a taxable sale
for a purchase price equal to the fair market value of the shares received.
Any loss realized on the disposition by a shareholder of its shares in a Fund
will be disallowed to the extent the shares disposed of are replaced with other
Fund shares, including replacement through the reinvesting of dividends and
capital gains distributions in the Fund, within a period (of 61 days) beginning
30 days before and ending 30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be increased to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of a Fund share
held by the shareholder for six months or less will be treated as a long-term
capital loss to the extent of any distributions of capital gain dividends (as
defined below) received by the shareholder with respect to such share.
Any realized gains will be distributed as described in the Prospectus. See
"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.
In computing its net taxable (and distributable) income and/or gains, a Fund may
choose to take a dividend paid deduction for a portion of the proceeds paid to
redeeming shareholders. This method (sometimes referred to as "equalization")
would permit the Fund to avoid distributing to continuing shareholders taxable
dividends representing earnings included in the net asset value of shares
redeemed. Using this method will not affect the Fund's total return. Since there
are some unresolved technical tax issues relating to use of equalization by a
fund, there can be no assurance that the Internal Revenue Service will agree
with the Fund's methodology and/or calculations which could possibly result in
the imposition of tax, interest or penalties on the Fund. It should also be
noted that a recent proposal submitted to Congress as part of President
Clinton's proposed Budget would (if enacted) limit the use of equalization for
taxable years beginning after the date of enactment.
36
<PAGE>
Under the Internal Revenue Code, a nondeductible excise tax of 4% is imposed on
a Fund to the extent the Fund does not distribute by the end of any calendar
year at least 98% of its ordinary income for that calendar year and at least 98%
of the net amount of its capital gains (both long-term and short-term) for the
one-year period ending on October 31 of such calendar year (or December 31 if
the Fund so elects), plus any undistributed amounts of taxable income for prior
years. For this purpose, however, any income or gain retained by the Fund that
is subject to corporate income tax will be considered to have been distributed
by year-end. Each Fund intends to meet these distribution requirements to avoid
the excise tax liability.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made to
shareholders of record in such a month are treated as paid and are taxable as of
December 31, provided that the Fund pays the dividend during January of the
following year.
If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income, or fails to certify that it
has provided a correct taxpayer identification number and that it is not subject
to "backup withholding," then the shareholder may be subject to a 31% "backup
withholding" tax with respect to: (a) taxable dividends and distributions, and,
(b) the proceeds of any redemptions of Fund shares. An individual's taxpayer
identification number is his social security number. The 31% "backup
withholding" tax is not an additional tax and may be credited against a
taxpayer's regular federal income tax liability.
Dividends to shareholders who are non-resident aliens may be subject to a 30%
United States withholding tax under provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Non-resident shareholders
should consult their own tax advisers.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Internal Revenue Code and Treasury Regulations presently in effect. For
the complete provisions, reference should be made to the pertinent Internal
Revenue Code sections and the Treasury Regulations promulgated thereunder. The
Internal Revenue Code and these Regulations are subject to change by legislative
or administrative action.
Each shareholder will receive annual information from its Fund regarding the tax
status of Fund distributions. Shareholders are urged to consult their attorneys
or tax advisers with respect to the applicability of federal, state, local,
estate and gift taxes and non-U.S. taxes to their investment in the Fund.
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.
37
<PAGE>
The Growth & Income Fund 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 the Growth & Income Fund 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.
Each 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 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 ]
---
38
<PAGE>
P
The calculation of average annual total return and aggregate total return
assumes reinvestment of all income dividends and capital gain distributions on
the reinvestment dates during the period and includes all recurring fees charged
to all shareholder accounts.
The ERV assumes complete redemption of the hypothetical investment at the end of
the measuring period and reflects deduction of all nonrecurring charges at the
end of the measuring period covered by the computation. A Fund's net investment
income changes in response to fluctuations in interest rates and the expenses of
the Fund.
A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.
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:
Analyst Growth - Russell 3000 Growth Index; Growth & Income - Lipper Flexible
-------
Funds Index; Health Sciences - Lipper Health/Biotechnology Funds Index; and
------
Technology - Lipper Science & Technology Fund average; Value Opportunities -
------
Russell Midcap Value Index..
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 Funds offers two classes of shares: the Institutional Class (Class I) 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
39
<PAGE>
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.
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, Two California Plaza, 350 South Grand Ave., Los Angeles,
California 90071-3462.
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 Institutional Class of
Value Opportunities Fund for the period ended April 30, 2000 and October 31,
1999, respectively, including the financial
40
<PAGE>
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.
41
<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
ITEM 23. Exhibits
--------
(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./10/
(a)(8) Form of Articles of Amendment./10/
(a)(9) Form of Articles Supplementary./11/
(a)(10) Form of Articles Supplementary
(b)(1) By-Laws./1/
(b)(2) Amendment No. 1 to By-Laws./12/
(c) Not Applicable.
<PAGE>
(d) (1) Form of Amended and Restated Investment Advisory and Management
Agreement between Registrant and TCW Funds Management, Inc./10/
(d) (2) Amendment No. 1 to Amended and Restated Investment Advisory and
Management Agreement between Registrant and TCW Investment Management
Company
(d) (3) Form of Sub-Advisory Agreement between TCW Funds Management, Inc. and
TCW London International Limited./7/
(d) (4) Form of Addendum to Sub-Advisory Agreement between TCW Funds
Management, Inc. and TCW London International Limited./8/
(d) (5) Form of Amendment No. 1 to Sub-Advisory between TCW Funds Management,
Inc. and TCW London International Limited. /12/
(e) (1) Form of Amended and Restated Distribution Agreement between
Registrant and TCW Brokerage Services./10/
(e) (2) Form of Dealer Agreement between Registrant and TCW Brokerage
Services./10/
(f) Not Applicable.
(g)(1) Form of Custody Agreement between Registrant and Investors Bank &
Trust Company./10/
(g) (2) Form of Delegation Agreement between Registrant and Investors Bank &
Trust Company./10/
(h)(1) Form of Transfer Agency Agreement between Registrant and Supervised
Service Company, Inc./9/
(h)(2) Form of Addendum to Transfer Agency Agreement between Registrant and
Supervised Service Company, Inc./9/
(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./10/
(h) (6) Form of Securities Lending Agency Agreement between Registrant and
Investors Bank & Trust Company./10/
-2-
<PAGE>
(i) Opinion of Counsel.
(j) Consent of Deloitte & Touche LLP.
(k) Not applicable.
(l) Not applicable.
(m) Form of Registrant's Class N Shares Distribution Plan./10/
(n) Form of Plan Pursuant to Rule 18f-3./10/
(p) Codes of Ethics
(q) Power of Attorney /12/
-----------------------
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 December 21, 1995.
8. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on October 31, 1997.
9. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on March 15, 1994.
10. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on December 30, 1998.
-3-
<PAGE>
11. Incorporated herein by reference to Registrant's Registration Statement in
Form N-1A filed on March 1, 1999.
12. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on February 29, 2000.
-4-
<PAGE>
ITEM 24. Persons Controlled by or Under Common Control with the Registrant
-----------------------------------------------------------------
TCW Investment Management Company (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.
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.
-5-
<PAGE>
ITEM 27. Principal Underwriter
---------------------
(a) none
<TABLE>
<CAPTION>
(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 President and Director
865 South Figueroa Street
Suite 1800
Los Angeles, 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:
-6-
<PAGE>
Treasurer
TCW Galileo Funds, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
Rule Location of Required Records
--------------------------------------------------------------------------------
31a-l(b)(2)(c) N/A
31a-l(b)(2)(d) Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
TCW Brokerage Services
865 South Figueroa Street
Los Angeles, CA 90017
31a-l(b)(4)-(6) TCW Investment Management Company
865 South Figueroa Street
Los Angeles, CA 90017
31a-1(b)(9)-(11) TCW Investment Management Company
865 South Figueroa Street
Los Angeles, CA 90017
ITEM 29. Management Services
-------------------
Not applicable
ITEM 30. Undertakings
------------
Not applicable.
-7-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles and State of California on the 17/th/ day of August, 2000.
TCW GALILEO FUNDS, INC.
By: /s/ Philip K. Holl
------------------
Philip K. Holl
Secretary
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registration Statement or Amendment has been signed
below by the following persons in the capacities and on the dates indicated.
Signature Date Title
--------- ---- -----
* August 17, 2000 Chairman and Director
-----------------------
Marc I. Stern
* August 17, 2000 President and Director
-----------------------
Alvin R. Albe, Jr. (Principal Executive Officer)
* August 17, 2000 Director
-----------------------
Thomas E. Larkin, Jr.
* August 17, 2000 Director
-----------------------
John C. Argue
* August 17, 2000 Director
-----------------------
Norman Barker, Jr.
* August 17, 2000 Director
-----------------------
Richard W. Call
* August 17, 2000 Director
-----------------------
Matthew K. Fong
* August 17, 2000 Treasurer (Principal Financial
-----------------------
Peter C. DiBona and Accounting Officer)
-8-
<PAGE>
*By: /s/ Philip K. Holl
------------------
Philip K. Holl
Attorney-in-Fact
-9-
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description
-------------- -----------
Exhibit (a) (10) Form of Articles Supplementary
Exhibit (d) (2) Amendment No. 1 to Amended and Restated Investment Advisory
and Management Agreement between Registrant and Company
Restated Investment Advisory and TCW Investment Management
Company
Exhibit (i) Opinion of Counsel
Exhibit (j) Consent of Deloitte & Touche LLP
Exhibit (p) Code of Ethics
