TCW GALILEO FUNDS INC, 497, 2000-11-03

TCW GALILEO FUNDS INC
497, 2000-11-03

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TCW GALILEO FUNDS, INC.

865 South Figueroa Street, Suite 1800
Los Angeles, California 90017
(800) FUND TCW

STATEMENT OF ADDITIONAL INFORMATION
November 1, 2000

_________________________________

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................................. 40
LEGAL COUNSEL........................................ 41
FINANCIAL STATEMENTS................................. 41
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
--------------------------
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,
----------------
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
----------------------------------
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
-----------------------------------
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
-------------------------------------
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 net assets in all such obligations
and in all illiquid assets, in the aggregate;

Commercial Paper. The Funds may purchase commercial paper rated
----------------
within the two highest ratings categories by Standard & Poor's Corporation
("S&P") or Moody's Investors

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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
-------------------------
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
----------------------------
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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<PAGE>

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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<PAGE>

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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<PAGE>

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.

12
<PAGE>

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
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<PAGE>

of foreign governmental actions such as expropriation, nationalization or
confiscatory taxation; the imposition or modification of foreign currency or
foreign investment controls; the imposition of withholding taxes on dividends,
interest and gains; price volatility; and fluctuations in currency exchange
rates. As compared to United States companies, foreign issuers generally
disclose less financial and other information publicly and are subject to less
stringent and less uniform accounting, auditing and financial reporting
standards. Foreign countries typically impose less thorough regulations on
brokers, dealers, stock exchanges, insiders and listed companies than does the
United States, and foreign securities markets may be less liquid and more
volatile than domestic markets. Investment in foreign securities involves higher
costs than investment in U.S. securities, including higher transaction and
custody costs as well as the imposition of additional taxes by foreign
governments. In addition, security trading practices abroad may offer less
protection to investors such as the Funds. Settlement of transactions in some
foreign markets may be delayed or may be less frequent than in the U.S., which
could affect the liquidity of each Fund's portfolio. Also, it may be more
difficult to obtain and enforce legal judgments against foreign corporate
issuers than against domestic issuers and it may be impossible to obtain and
enforce judgments against foreign governmental issues.

Foreign Currency Risks

Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and some of the Funds hold various foreign
currencies from time to time, the value of the net assets of those Funds as
measured in United States dollars will be affected favorably or unfavorably by
changes in exchange rates. Generally, currency exchange transactions will be
conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
currency exchange market. The cost of currency exchange transactions will
generally be the difference between the bid and offer spot rate of the currency
being purchased or sold. In order to protect against uncertainty in the level
of future foreign currency exchange rates, the 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

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<PAGE>

portfolio securities and interest rates fall or the value of portfolio
securities increase instead, a Fund will lose part or all of the benefit of the
increased value of securities that it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements at a time when it is disadvantageous to do so. These sales of
securities may, but will not necessarily, be at increased prices that reflect
the decline in interest rates. While utilization of futures contracts and
options on futures contracts may be advantageous to a 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

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<PAGE>

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.

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 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

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<PAGE>

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.

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.

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<PAGE>

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.

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

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<PAGE>

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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<PAGE>

Futures Contracts and Options on Futures

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

21
<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 which will invest more than 25% of their assets in
industries in the health sciences and technology sectors, respectively. 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.

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.

<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.

27
<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.

<TABLE>
<CAPTION>
Name of Independent Director Aggregate Compensation From the Company
---------------------------- ---------------------------------------
<S> <C>
John C. Argue $40,500

Norman Barker, Jr. $40,500

Richard W. Call $40,500

Matthew K. Fong $19,500
</TABLE>

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.

<TABLE>
<CAPTION>
For Service as Director Total Cash Compensation
and Committee Member of from TCW Galileo Funds,
the TCW Convertible Inc. and TCW
Name of Independent Securities Convertible Securities
Director Fund, Inc. Fund, Inc.
------------------- ------------------------ ------------------------
<S> <C> <C>
John C. Argue $11,250 $51,750

Norman Barker, Jr. $12,750 $53,250

Richard W. Call $12,750 $53,250
</TABLE>

28
<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 Senior
and Assistant Vice President of Act III Communications
Secretary (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 November 1, 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.

32
<PAGE>

CODE OF ETHICS

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.

33
<PAGE>

Computation of Public Offering Prices

The Funds offer their shares to the public on a continuous basis. The public
offering price per share of each Fund is equal to its net asset value per share
next computed after receipt of a purchase order. See "Determination of Net
Asset Value", above.

Distributions in Kind

If the Board of Directors determines that it would be detrimental to the best
interests of the remaining shareholders of a Fund to make a redemption payment
wholly in cash, the Fund may pay, in accordance with SEC rules, any portion of a
redemption in excess of the lesser of $250,000 or 1% of the Fund's net assets by
distribution in kind of portfolio securities in lieu of cash. Shareholders
receiving distributions in kind may incur brokerage commissions or other costs
when subsequently disposing of shares of those securities.

HOW TO EXCHANGE SHARES

A shareholder may exchange all or part of its shares of one Fund for shares of
another Fund (subject to receipt of any required state securities law clearances
with respect to certain Funds in the shareholder's state of residence). An
exchange of shares is treated for federal income tax purposes as a redemption
(sale) of shares given in exchange by the shareholder, and an exchanging
shareholder may, therefore, realize a taxable gain or loss in connection with
the exchange. See "Distributions and Taxes" below.

The exchange privilege enables a shareholder to acquire shares in a Fund with
different investment objectives or policies when the shareholder believes that a
shift between Funds is an appropriate investment decision.

Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
and the proceeds are immediately invested, at a price as described above, in
shares of the Fund being acquired. The Company reserves the right to reject any
exchange request.

As described in the Prospectus, the exchange privilege may be terminated or
revised by the Company.

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.

34
<PAGE>

DISTRIBUTIONS AND TAXES

Each of the Funds intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). A
Fund that is a regulated investment company and distributes to its shareholders
at least 90% of its taxable net investment income (including, for this purpose,
its net realized short-term capital gains) and 90% of its tax-exempt interest
income (reduced by certain expenses), will not be liable for federal income
taxes to the extent its taxable net investment income and its net realized long-
term and short-term capital gains, if any, are distributed to its shareholders.
However, a Fund will be taxed on that portion of taxable net investment income
and long-term and short-term capital gains that it retains. Furthermore, a Fund
will be subject to United States corporate income tax (and possibly state or
local income or franchise tax) with respect to such distributed amounts in any
year that it fails to qualify as a regulated investment company or fails to meet
the 90% distribution requirement.

To qualify as a regulated investment company, in addition to the 90%
distribution requirement described above, a Fund must: (a) derive at least 90%
of its gross income from dividends, interest, certain payments with respect to
securities loans and gains from the sale or other disposition of stock or
securities or foreign currencies or other income (including but not limited to
gains from options, futures or forward contracts) derived with respect to its
business in investing in such stock, securities or currencies, and (b) diversify
its holdings so that at the end of each fiscal quarter, (i) at least 50% of the
value of the Fund's assets is represented by cash items, U.S. Government
Securities and other securities, limited in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government Securities) or in the securities of two or more issuers (other than
U.S. Government Securities) which the Fund controls (i.e., holds at least 20% of
the combined voting power) and which are engaged in the same or similar trades
or businesses or related trades or businesses.

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

35
<PAGE>

capital), may accelerate recognition of income to a Fund, and may defer Fund
losses. These rules also (a) could require a Fund to mark-to-market certain
types of the positions in its portfolio (i.e., treat them as if they had been
closed out in a fully taxable transaction) and (b) may cause the Fund to
recognize income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the distribution requirements for
avoiding income and excise taxes.

As a general rule, a Fund's gain or loss on a sale or exchange of an investment
will be a long-term capital gain or loss if the Fund has held the investment for
more than one year and will be a short-term capital gain or loss if it has held
the investment for one year or less. Furthermore, as a general rule, a
shareholder's gain or loss on a sale or redemption of Fund shares will be a
long-term capital gain or loss if the shareholder has held his or her Fund
shares for more than one year and will be a short-term capital gain or loss if
he or she has held his or her Fund shares for one year or less. For federal,
state and local income tax purposes, an exchange by a shareholder of shares in
one Fund or securities for shares in a Fund will be treated as a taxable sale
for a purchase price equal to the fair market value of the shares received.

Any loss realized on the disposition by a shareholder of its shares in a Fund
will be disallowed to the extent the shares disposed of are replaced with other
Fund shares, including replacement through the reinvesting of dividends and
capital gains distributions in the Fund, within a period (of 61 days) beginning
30 days before and ending 30 days after the disposition of the shares. In such
a case, the basis of the shares acquired will be increased to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of a Fund share
held by the shareholder for six months or less will be treated as a long-term
capital loss to the extent of any distributions of capital gain dividends (as
defined below) received by the shareholder with respect to such share.

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

36
<PAGE>

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.

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.

37
<PAGE>

INVESTMENT RESULTS

From time to time, the Company may quote the performance of a Fund in terms of
yield, actual distributions, total return or capital appreciation in reports or
other communications to shareholders or in other published material.

The 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

38
<PAGE>

ERV Ending Redeemable Value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year (or other) periods or the life
of the Fund

The formula for calculating aggregate total return can be expressed as follows:

Aggregate Total Return [ ( ERV ) - 1 ]
---
P

The calculation of average annual total return and aggregate total return
assumes reinvestment of all income dividends and capital gain distributions on
the reinvestment dates during the period and includes all recurring fees charged
to all shareholder accounts.

The ERV assumes complete redemption of the hypothetical investment at the end of
the measuring period and reflects deduction of all nonrecurring charges at the
end of the measuring period covered by the computation. A Fund's net investment
income changes in response to fluctuations in interest rates and the expenses of
the Fund.

A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.

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.

39
<PAGE>

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 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

PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809, serves as transfer agent
for the Company. 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 Avenue, Los
Angeles, California 90071-3462

40
<PAGE>

LEGAL COUNSEL

Dechert, 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 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