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

                      STATEMENT OF ADDITIONAL INFORMATION
                                August 6, 2001

                              ___________________

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 each of the separate investment
series (each, a "Fund") of TCW Galileo Funds, Inc. This Statement of Additional
Information should be read in conjunction with the Prospectus of each Fund. 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 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.


                               TABLE OF CONTENTS

                                                                          
INVESTMENT PRACTICES........................................................   1
RISK CONSIDERATIONS.........................................................  17
PORTFOLIO TURNOVER..........................................................  29
BROKERAGE PRACTICES.........................................................  29
INVESTMENT RESTRICTIONS.....................................................  31
DIRECTORS AND OFFICERS OF THE COMPANY.......................................  34
INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS.............................  38
DISTRIBUTION OF COMPANY SHARES..............................................  41
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.........................  43
ADMINISTRATION AGREEMENT....................................................  46
CODE OF ETHICS..............................................................  46
DETERMINATION OF NET ASSET VALUE............................................  46
HOW TO BUY AND REDEEM SHARES................................................  46
HOW TO EXCHANGE SHARES......................................................  48
PURCHASES-IN-KIND...........................................................  48
DISTRIBUTIONS AND TAXES.....................................................  49
INVESTMENT RESULTS..........................................................  51
ORGANIZATION, SHARES AND VOTING RIGHTS......................................  53
TRANSFER AGENT AND CUSTODIANS...............................................  54
INDEPENDENT AUDITORS........................................................  54
LEGAL COUNSEL...............................................................  54
FINANCIAL STATEMENTS........................................................  54
DESCRIPTION OF S&P AND MOODY'S RATINGS...................................... A-1




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 and Investments 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

                                       1


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.  A 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.

                                       2


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 insure 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 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.

                                       3


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 Fund may use short sales when it is determined that a
convertible security can be bought at a small conversion premium and has a yield
advantage relative to the underlying common stock sold short. The potential risk
in this strategy is the possible loss of any premium over conversion value in
the convertible security at the time of purchase. The purpose of this strategy
is to produce income from the yield advantage and to provide the potential for a
gain should the conversion premium increase.

Strategies and Investments Available to All Funds (Except Aggressive Growth
Equities, Small Cap Value, Value Opportunities and Money Market)

Options.  The Funds (except Aggressive Growth Equities, Small Cap Value, Value
Opportunities and Money Market) 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

                                       4


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 Aggressive Growth Equities, Small Cap
Value, Value Opportunities and Money Market) 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) 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.

                                       5


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.  The Funds (except Aggressive Growth Equities, Small Cap
Value, Value Opportunities and Money Market) are permitted to write covered put
options.  As a writer of a covered put option, a Fund incurs an obligation to
buy the security underlying the option from the purchaser of the put, at the
option's exercise price at any time during the option period, at the purchaser's
election (certain listed and OTC put options written by a Fund will be
exercisable by the purchaser only on a specific date).  A put is "covered" if,
at all times, the Fund maintains, in a segregated account maintained on its
behalf at the Fund's custodian, cash, U.S. Government Securities or other liquid
portfolio securities in an amount equal to at least the exercise price of the
option, at all times during the option period.  Similarly, a short put position
could be covered by the Fund by its purchase of a put option on the same
security (currency) as the underlying security of the written option, where the
exercise price of the purchased option is equal to or more than the exercise
price of the put written or less than the exercise price of the put written if
the marked to market difference is maintained by the Fund in cash, U.S.
Government Securities or other liquid portfolio securities which the Fund holds
in a segregated account maintained at its custodian. In writing puts, a Fund
assumes the risk of loss should the market value of the underlying security
(currency) decline below the exercise price of the option (any loss being
decreased by the receipt of the premium on the option written). In the case of
listed options, during the option period, the Fund may be required, at any time,
to make payment of the exercise price against delivery of the underlying
security (currency). The operation of and limitations on covered put options in
other respects are substantially identical to those of call options.

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

                                       6


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.  The Funds (except Aggressive Growth Equities,
Small Cap Value, Value Opportunities and Money Market) 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.

Futures Contracts.  The Funds (except Aggressive Growth Equities, Small Cap
Value, Value Opportunities and Money Market) 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%.

                                       7


A Fund may purchase or sell interest rate futures for the purpose of hedging
some or all of the value of its portfolio securities against changes in
prevailing interest rates or to manage its duration or effective maturity. If
the Adviser anticipates that interest rates may rise and, concomitantly, the
price of certain of its portfolio securities may fall, the Fund may sell futures
contracts. If declining interest rates are anticipated, the Fund may purchase
futures contracts to protect against a potential increase in the price of
securities the Fund intends to purchase. Subsequently, appropriate securities
may be purchased by the Fund in an orderly fashion; as securities are purchased,
corresponding futures positions would be terminated by offsetting sales of
contracts. A Fund may purchase or sell futures on various currencies in which
its portfolio securities are denominated for the purpose of hedging against
anticipated changes in currency exchange rates. A Fund will enter into currency
futures contracts to "lock in" the value of a security purchased or sold in a
given currency vis-a-vis a different currency or to hedge against an adverse
currency exchange rate movement of a portfolio security's denominated currency
vis-a-vis a different currency. Foreign currency futures contracts would be
entered into for the same reason and under the same circumstances as foreign
currency forward contracts. The Adviser will assess such factors as cost
spreads, liquidity and transaction costs in determining whether to utilize
futures contracts or forward contracts in its foreign currency transactions and
hedging strategy.

Initial margin in futures transactions is different from margin in securities
transactions in that initial margin does not involve the borrowing of funds by a
broker's client but is, rather, a good faith deposit on the futures contract
which will be returned to a Fund upon the proper termination of the futures
contract. The margin deposits are marked to market daily and the Fund may be
required to make subsequent deposits of cash or U.S. Government Securities
called "variation margin", with the Fund's futures contract clearing broker,
which are reflective of price fluctuations in the futures contract. Initial
margin requirements are established by the exchanges on which futures contracts
trade and may, from time to time, change. In addition, brokers may establish
margin deposit requirements in excess of those required by the exchanges.

At any time prior to expiration of a futures contract, a Fund may elect to close
the position by taking an opposite position which will operate to terminate the
Fund's position in the futures contract.  A final determination of any variation
margin is then made, additional cash is required to be paid by or released to
the Fund and the Fund realizes a loss or gain.

Although many futures contracts call for actual commitment or acceptance of
securities, the contracts usually are closed out before the settlement date
without making or taking delivery. A short futures position is usually closed
out by purchasing futures contracts for the same aggregate amount of the
underlying instruments and with the same delivery date. If the sale price
exceeds the offsetting purchase price, the seller would be paid the difference
and realize a gain. If the offsetting purchase price exceeds the sales price,
the seller would pay the difference and would realize a loss. Similarly, a long
futures position in usually closed out by effecting a futures contract sale for
the same aggregate amount of the specific type of security (currency) and the
same delivery date. If the offsetting sales price exceeds the purchase price,
the purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no assurance
that a Fund will be able to enter into a closing transactions.

Options on Futures Contracts.  The Funds (except Aggressive Growth Equities,
Small Cap Value, Value Opportunities and Money Market) 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

                                       8


the right (in return for the premium paid) to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the term of
the option.

Funds will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, a Fund wished to
protect against an increase in interest rates and the resulting negative impact
on the value of a portion of its fixed-income portfolio, it might write a call
option on an interest rate futures contract, the underlying security of which
correlates with the portion of the portfolio the Fund seeks to hedge. Any
premiums received in the writing of options on futures contracts may, of course,
provide a further hedge against losses resulting from price declines in portions
of a Fund's portfolio.

Strategies and Investments Available to the Equity Funds (except Aggressive
Growth Equities, Small Cap Value and Value Opportunities), International Funds
and Core Fixed Income

Options on Foreign Currencies.  The Equity Funds (except Aggressive Growth
Equities, Small Cap Value and Value Opportunities), the International Funds and
Core Fixed Income may purchase and write options on foreign currencies for
purposes similar to those involved with investing in foreign currency forward
contracts. For example, in order to protect against declines in the dollar value
of portfolio securities which are denominated in a foreign currency, a Fund may
purchase put options on an amount of such foreign currency equivalent to the
current value of the portfolio securities involved. As a result, the Fund would
be enabled to sell the foreign currency for a fixed amount of U.S. dollars,
thereby "locking in" the dollar value of the portfolio securities (less the
amount of the premiums paid for the options). Conversely, a Fund may purchase
call options on foreign currencies in which securities it anticipates purchasing
are denominated to secure a set U.S. dollar price for such securities and
protect against a decline in the value of the U.S. dollar against such foreign
currency. Each of these Funds may also purchase call and put options to close
out written option positions.

Each of these Funds may also write call options on foreign currency to protect
against potential declines in its portfolio securities which are denominated in
foreign currencies. If the U.S. dollar value of the portfolio securities falls
as a result of a decline in the exchange rate between the foreign currency in
which it is denominated and the U.S. dollar, then a loss to a Fund occasioned by
such value decline would be ameliorated by receipt of the premium on the option
sold. At the same time, however, the Fund gives up the benefit of any rise in
value of the relevant portfolio securities above the exercise price of the
option and, in fact, only receives a benefit from the writing of the option to
the extent that the value of the portfolio securities falls below the price of
the premium received. A Fund may also write options to close out long call
option positions. A put option on a foreign currency would be written by the
Fund for the same reason it would purchase a call option, namely, to hedge
against an increase in the U.S. dollar value of a foreign security which a Fund
anticipates purchasing. Here, the receipt of the premium would offset, to the
extent of the size of the premium, any increased cost to a Fund resulting from
an increase in the U.S. dollar value of the foreign security. However, a Fund
could not benefit from any decline in the cost of the foreign security which is
greater than the price of the premium received. A Fund may also write options to
close out long put and call option positions.

                                       9


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 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.

Forward Currency Transactions.  The Equity Funds (except Aggressive Growth
Equities, Small Cap Value, and Value Opportunities), International Funds and
Core Fixed Income may enter into forward currency transactions.  A foreign
currency forward contract involves an obligation to purchase or sell a specific
currency at an agreed future date, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
currency traders.  A Fund may enter into foreign currency forward contracts in
order to protect against the risk that the U.S. dollar value of the Fund's
dividends, interest and net realized capital gains in local currency will
decline to the extent of any devaluation of the currency during the intervals
between (a) (i) the time the Fund becomes entitled to receive or receives
dividends, interest and realized gains or (ii) the time an investor gives notice
of a requested redemption of a certain amount and (b) the time such amount(s)
are converted into U.S. dollars for remittance out of the particular country or
countries.

At the maturity of a forward contract, a Fund may either accept or make delivery
of the currency specified in the contract or, prior to maturity, enter into a
closing purchase transaction involving the purchase or sale of an offsetting
contract.  Closing purchase transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract.

                                       10


The cost to a Fund of engaging in forward currency transactions may vary with
factors such as the length of the contract period and the market conditions then
prevailing. Because forward currency transactions are usually conducted on a
principal basis, no fees or commissions are involved, although the price charged
in the transaction includes a dealer's markup. The use of forward currency
contracts does not eliminate fluctuations in the underlying prices of the
securities, but it does establish a rate of exchange that can be achieved in the
future. In addition, although forward currency contracts limit the risk of loss
due to a devaluation of the foreign currency in relation to the U.S. dollar,
they also limit any potential gain if that foreign currency appreciates with
respect to the U.S. dollar.

Strategies and Investments Available to the Equity Funds, International Funds
and High Yield Bond

Convertible Securities.  The Equity Funds, International Funds and High Yield
Bond may acquire 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.

Strategies Available to Core Fixed Income, Asia Pacific Equities, Emerging
Markets Equities, Emerging Markets Income, European Equities and Select
International Equities.

Sovereign Debt Obligations of Emerging Market Countries.  Core Fixed Income,
Asia Pacific Equities, Emerging Markets Equities, Emerging Markets Income,
European Equities and Select International Equities may invest in sovereign debt
of emerging market countries.  Political

                                       11


conditions, in terms of a country or agency's willingness to meet the terms of
its debt obligations, are considerable significance. Investors should be aware
that the sovereign debt instruments in which these Funds may invest involve
great risk and are deemed to be the equivalent in terms of quality to securities
rated below investment grade by Moody's and S&P.

Sovereign debt generally offers high yields, reflecting not only perceived
credit risk, but also the need to compete with other local investments in
domestic financial markets. Mexico and certain other emerging market countries
are among the largest debtors to commercial banks and foreign governments. A
foreign debtor's willingness or ability to repay principal and interest due in a
timely manner may be affected by, among other factors, its cash flow situation,
the extent of its foreign reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the foreign debtor's policy towards the
International Monetary Fund and the political constraints to which a sovereign
debtor may be subject. Sovereign debtors may default on their sovereign debt.
Sovereign debtors may also be dependent on expected disbursements from foreign
governments, multilateral agencies and others abroad to reduce principal and
interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the sovereign debtor, which may further
impair such debtor's ability or willingness to service its debts.

In recent years, some of the emerging market countries in which the Funds expect
to invest have encountered difficulties in servicing their sovereign debt. Some
of these countries have withheld payments of interest and/or principal of
sovereign debt. These difficulties have also led to agreements to restructure
external debt obligations; in particular, commercial bank loans, typically by
rescheduling principal payments, reducing interest rates and extended new
credits to finance interest payments on existing debt. In the future, holders of
sovereign debt may be requested to participate in similar rescheduling to such
debt.

The ability or willingness of the governments of Mexico and other emerging
market countries to make timely payments on their sovereign debt is likely to be
influenced strongly by a country's balance of trade and its access to trade and
other international credits. A country whose exports are concentrated in a few
commodities could be vulnerable to a decline in the international prices of one
or more of such commodities. Increased protectionism on the part of a country's
trading partners could also adversely affect its exports. Such events could
extinguish a country's trade account surplus, if any. To the extent that a
country receives payment for its exports in currencies other than hard
currencies, its ability to make hard currency payments could be affected.

The occurrence of political, social and diplomatic changes in one or more of the
countries issuing Sovereign Debt could adversely affect the Funds' investments.
The countries issuing such instruments are faced with social and political
issues and some of them have experienced high rates of inflation in recent years
and have extensive internal debt. Among other effects, high inflation and
internal debt service requirements may adversely affect the cost and
availability of future domestic sovereign borrowing to finance governmental
programs, and may have other adverse social, political and economic
consequences. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to services
their sovereign debt.

                                       12


There can be assurance that adverse political changes will not cause the Funds
to suffer a loss of interest or principal on any of its holdings.

As a result of all of the foregoing, a government obligor may default on its
obligations. If such an event occurs, a Fund may have limited legal recourse
against the issuer and/or guarantor. Remedies must, in some cases, be pursued in
the courts of the defaulting party itself, and the ability of the holder of
foreign government debt securities to obtain recourse may be subject to the
political climate in the relevant country. Bankruptcy, moratorium and other
similar laws applicable to issuers of sovereign debt obligations may be
substantially different from those applicable to issuers of private debt
obligations. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
government debt obligations in the event of default under their commercial bank
loan agreements.

Periods of economic uncertainty may result in the volatility of market prices of
sovereign debt and in turn, the Funds' net asset value, to a greater extent than
the volatility inherent in domestic securities. The value of sovereign debt will
likely vary inversely with changes in prevailing interest rates, which are
subject to considerable variance in the international market.

Strategies Available to Core Fixed Income, Mortgage-Backed Securities and Total
Return Mortgage-Backed Securities

Guaranteed Mortgage Pass-Through Securities. Core Fixed Income, Mortgage-Backed
Securities and Total Return Mortgage-Backed Securities may invest in mortgage
pass-through securities representing participation interests in pools of
residential mortgage loans purchased from individual lenders by an agency,
instrumentality or sponsored corporation of the United States government
("Federal Agency") or originated by private lenders and guaranteed, to the
extent provided in such securities, by a Federal Agency. Such securities, which
are ownership interests in the underlying mortgage loans, differ from
conventional debt securities, which provide for periodic payment of interest in
fixed amounts (usually semiannually) and principal payments at payments (not
necessarily in fixed amounts) that are a "pass-through" of the monthly interest
and principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans, net of any fees paid to the guarantor of
such securities and the servicer of the underlying mortgage loans.

The guaranteed mortgage pass-through securities in which the Funds may invest
include those issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC"). GNMA certificates are direct
obligations of the U.S. Government and, as such, are backed by the "full faith
and credit" of the United States. FNMA is a federally chartered, privately owned
corporation and FHLMC is a corporate instrumentality of the United States. FNMA
and FHLMC certificates are not backed by the full faith and credit of the United
States but the issuing agency or instrumentality has the right to borrow, to
meet its obligations, from an existing line of credit with the U.S. Treasury.
The U.S. Treasury has no legal obligation to provide such line of credit and may
choose not to do so.

Certificates for these types of mortgage-backed securities evidence an interest
in a specific pool of mortgages.  These certificates are, in most cases,
"modified pass-through" instruments, wherein the issuing agency guarantees the
payment of principal and interest on mortgages underlying the certificates,
whether or not such amounts are collected by the issuer on the underlying
mortgages.

                                       13


Collateralized Mortgage Obligations ("CMOs") and Multiclass Pass-Through
Securities. CMOs are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized by GNMA,
FNMA or FHLMC certificates, but also may be collateralized by whole loans or
private mortgage pass-through securities (such collateral is collectively
hereinafter referred to as "Mortgage Assets"). Multiclass pass-through
securities are equity interests in a trust composed of Mortgage Assets. Payments
of principal of and interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multiclass pass-through securities. CMOs may be issued by
Federal Agencies, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. The issuer
of a series of CMOs may elect to be treated as a Real Estate Mortgage Investment
Conduit ("REMIC"). REMICs include governmental and/or private entities that
issue a fixed pool of mortgages secured by an interest in real property. REMICs
are similar to CMOs in that they issue multiple classes of securities, but
unlike CMOs, which are required to be structured as debt securities, REMICs may
be structured as indirect ownership interests in the underlying assets of the
REMICs themselves. However, there are no effects on a Fund from investing in
CMOs issued by entities that have elected to be treated as REMICs, and all
future references to CMOs shall also be deemed to include REMIC.

In a CMO, a series of bonds or certificates is issued in multiple classes.  Each
class of CMOs, often referred to as a "tranche", is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis. Certain CMOs may have variable or floating interest rates
and others may be Stripped Mortgage Securities.

The principal of and interest on the Mortgage Assets may be allocated among the
several classes of a CMO series in a number of different ways. Generally, the
purpose of the allocation of the cash flow of a CMO to the various classes is to
obtain a more predictable cash flow to certain of the individual tranches than
exists with the underlying collateral of the CMO. As a general rule, the more
predictable the cash flow is on a CMO tranche, the lower the anticipated yield
will be on that tranche at the time of issuance relative to prevailing market
yields on other mortgage-backed securities. As part of the process of creating
more predictable cash flows on most of the tranches in a series of CMOs, one or
more tranches generally must be created that absorb most of the volatility in
the cash flows on the underlying mortgage loans. The yields on these tranches
are generally higher than prevailing market yields on mortgage-backed securities
with similar maturities. As a result of the uncertainty of the cash flows of
these tranches, the market prices of and yield on these tranches generally are
more volatile. The Funds will not invest in CMO and REMIC residuals.

Private Mortgage Pass-Through Securities. Private mortgage pass-through
securities are structured similarly to the GNMA, FNMA and FHLMC mortgage pass-
through securities and are issued by United States and foreign private issuers
such as originators of and investors in mortgage loans, including savings and
loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. These securities usually are
backed by a pool of conventional fixed rate or adjustable rate mortgage loans.
Since private mortgage pass-through securities typically are not guaranteed by
an entity having the credit status of GNMA,

                                       14


FNMA and FHLMC, such securities generally are structured with one or more types
of credit enhancement.

Mortgage-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, those securities may contain
elements of credit support, which fall into two categories: (i) liquidity
protection and (ii) protection against losses resulting from ultimate default by
an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses resulting from default ensures ultimate
payment of the obligations on at least a portion of the assets in the pool. This
protection may be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of such
approaches. The degree of credit support provided for each issue is generally
based on historical information respecting the level of credit risk associated
with the underlying assets. Delinquencies or losses in excess of those
anticipated could adversely affect the return on an investment in a security.
The Funds will not pay any fees for credit support, although the existence of
credit support may increase the price of a security.

Stripped Mortgage Securities.  Stripped Mortgage Securities may be issued by
Federal Agencies, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
Mortgage Securities not issued by Federal Agencies will be treated by the Funds
as illiquid securities so long as the staff of the Securities and Exchange
Commission maintains its position that such securities are illiquid.

Stripped Mortgage Securities usually are structured with two classes that
receive different proportions of the interest and principal distribution of a
pool of mortgage assets. A common type of Stripped Mortgage Security will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). PO classes
generate income through the accretion of the deep discount at which such
securities are purchased, and, while PO classes do not receive periodic payments
of interest, they receive monthly payments associated with scheduled
amortization and principal prepayment from the mortgage assets underlying the PO
class. The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on such security's yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments or principal, the Fund may fail
to fully recoup its initial investment in these securities.

A Fund may purchase Stripped Mortgage Securities for income, or for hedging
purposes to protect the Fund's portfolio against interest rate fluctuations. For
example, since an IO class will tend to increase in value as interest rates
rise, it may be utilized to hedge against a decrease in value of other fixed-
income securities in a rising interest rate environment.

Mortgage Dollar Rolls.  The Funds may enter into mortgage dollar with a bank or
a broker-dealer.  A mortgage dollar roll is a transaction in which a Fund sells
mortgage-related securities for immediate settlement and simultaneously
purchases the same type of securities for forward

                                       15


settlement at a discount. While the Fund begins accruing interest on the newly
purchased securities from the purchase or trade date, it is able to invest the
proceeds from the sale of its previously owned securities, which will be used to
pay for the new securities, in money market investments until future settlement
date. The use of mortgage dollar rolls is a speculative technique involving
leverage, and is considered to be a form of borrowing by the Fund.

Asset-Backed Securities.  Asset-backed securities have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in  mortgage loans.  Various types of
assets, primarily automobile and credit cards receivables, are securitized in
pass-through structures similar to mortgage pass-through structures.  In
general, the collateral supporting asset-backed securities is of a shorter
maturity than mortgage loans and is likely to experience substantial
prepayments.  As with mortgage-related securities, asset-backed securities are
often backed by a pool of assets representing the obligations of a number of
different parties and use similar credit enhancement techniques.  The cash flow
generated by the underlying assets is applied to make required payments on the
securities and to pay related administrative expenses.  The amount of residual
cash flow resulting from a particular issue of asset-backed or mortgage-backed
securities depends on, among other things, the characteristics of the underlying
assets, the coupon rates on the securities, prevailing interest rates, the
amount of administrative expenses and the actual prepayment experience on the
underlying assets.  Core Fixed Income, Mortgage-Backed Securities and Total
Return Mortgage-Backed Securities may each invest in any such instruments or
variations as may be developed, to the extent consistent with its investment
objectives and policies and applicable regulatory requirements.

Strategies Available to Core Fixed Income, Money Market, Mortgage-Backed
Securities and Total Return Mortgage-Backed Securities

Reverse Repurchase Agreements.  Reverse repurchase agreements involve sales by a
Fund of portfolio securities concurrently with an agreement by the Fund to
repurchase the same securities at a later date at a fixed price.  Generally, the
effect of such a transaction is that the Fund can recover all or most of the
cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities.  Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of otherwise obtaining the cash.

Strategies and Investments Available to Mortgage-Backed Securities and Total
Return Mortgage-Backed Securities

Inverse Floaters.  Inverse floaters constitute a class of CMOs with a coupon
rate that moves inversely to a designated index, such as LIBOR (London Interbank
Offered Rate) or 11th District Cost of Funds index (COFI"). Inverse floaters
have coupon rates that typically change at a multiple of the changes of the
relevant index rate. Any rise in the index rate (as a consequence of an increase
in interest rates) causes a drop in the coupon rate on an inverse floater while
any drop in the index rate causes an increase in the coupon rate of an inverse
floater. In some circumstances, the coupon on an inverse floater could decrease
to zero. In addition, like most other fixed-income securities, the value of
inverse floaters will decrease as interest rates increase and their average
lives will extend. Inverse floaters exhibit greater price volatility than the
majority of mortgage-backed securities. In addition, some inverse floaters
display extreme sensitivity to changes in prepayments. As a result, the yield to
maturity of an inverse floater is sensitive not only to changes in interest
rates but also to

                                       16


changes in prepayment rates on the related underlying mortgage assets. As
described above, inverse floaters may be used alone or in tandem with interest-
only stripped mortgage instruments.

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. The Equity and International 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.  The Funds will, however, comply with the
diversification requirements of Subchapter M of the Internal Revenue Code of
1986, as amended.  A security that is leveraged, whether explicitly or
implicitly, will also tend to be more volatile in that both gains and losses are
intensified by the multiplier effect of leverage.  Certain securities (such as
inverse floaters) behave similarly to leveraged securities.  Generally, these
types of securities contain formulas requiring recalculation of their interest
rates in a manner that multiplies the change in a market rate.

                                       17


Investment in Small and Medium Capitalization Companies

Investing in the equity securities of small and medium capitalization companies
involves additional risks compared to investing in large capitalization
companies.  Compared to large companies, these companies may have more limited
product lines and capital resources; have less established markets for their
products; have earnings that are more sensitive to changes in the economy,
competition and technology and be more dependent upon key members of management.

The market value of the common stock of small and medium capitalization
companies may be more volatile, particularly in response to company
announcements or industry events; have less active trading markets and be harder
to sell at the time and prices that the Adviser considers appropriate.

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 financial institutions and
specifying the required value of the collateral underlying the agreement.

Reverse Repurchase Agreements and Mortgage Dollar Rolls

Reverse repurchase agreements and mortgage dollar rolls involve the risk that
the market value of the securities a Fund is obligated to repurchase under the
agreement may decline below the repurchase price.  In the event the buyer of
securities under a reverse repurchase agreement or mortgage dollar roll files
for bankruptcy or becomes insolvent, the Fund's use of proceeds of the agreement
may be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and mortgage dollar rolls are speculative
techniques involving leverage, and are considered borrowings by the Fund.  Under
the requirements of the 1940 Act, the Fund is required to maintain an asset
coverage (including the proceeds of the borrowings) of at least 300% of all
borrowings.  None of the Funds authorized to utilize these instruments expects
to engage in reverse repurchase agreements or mortgage dollar rolls (together
with other borrowings of the Fund) with respect to greater than 30% of the
Fund's total assets.

Fixed Income Securities

Fixed Income securities are subject to various risks.  The two primary (but not
exclusive) risks affecting fixed income instruments are "credit risk" and
"interest rate risk."  These risks can affect a security's price volatility to
varying degrees, depending upon the nature of the instrument.  In addition, the
depth and liquidity of the market for an individual or class of fixed income
security can also affect its price and, hence, the market value of a Fund.

                                       18


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

Foreign Currency Risks

Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and certain of the Funds, particularly the
International Funds, hold various foreign currencies from time to time, the
value of the net assets of those Funds as measured in United States

                                       19


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

With respect to Core Fixed Income, Emerging Markets Equities, Emerging Markets
Income and Select International Equities, the forward currency market for the
purchase or sale of U.S. dollars in most Latin American countries, including
Mexico, is not highly developed, and in certain Latin American countries, there
may be no such market.  If a devaluation of a Latin American currency is
generally anticipated, a Fund may not be able to contract to sell the currency
at an exchange rate more advantageous than that which would prevail after the
anticipated amount of devaluation, particularly as regards forward contracts for
local Latin American currencies in view of the relatively small, inactive or
even non-existent market for these contracts.  In the event the Funds hold
securities denominated in a currency that suffers a devaluation, the Funds' net
asset values will suffer corresponding reductions.  In this regard, in December
1994, the Mexican government determined to allow the Mexican peso to trade
freely against the U.S. dollar rather than within a controlled band, which
action resulted in a significant devaluation of the Mexican peso against the
dollar.  Further, in July 1997, the Thai and Philippine governments allowed the
baht and peso, respectively, to trade freely against the U.S. dollar resulting
in a sharp devaluation of both currencies, and in 1998 Russia did the same,
causing a sharp devaluation of the ruble.

Risks Associated With Emerging Market Countries

Investors should recognize that investing in securities of emerging market
countries through investment in Asia Pacific Equities, Emerging Markets
Equities, Emerging Markets Income, European Equities and Select International
Equities involves certain risks, and considerations, including those set forth
below, which are not typically associated with investing in the United States or
other developed countries.

Political and economic structures in many emerging markets countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristics of more
developed countries.  Some of these countries may have in the past failed to
recognize private property rights and have at times nationalized or expropriated
the assets of private companies.

The securities markets of emerging market countries are substantially smaller,
less developed, less liquid and more volatile than the major securities markets
in the United States and other developed nations. The limited size of many
emerging securities markets and limited trading volume in issuers compared to
volume of trading in U.S. securities or securities of issuers in other developed
countries could cause prices to be erratic for reasons apart from factors that
affect the quality of the securities. For example, limited market size may cause
prices to be unduly influenced by traders who control large positions. Adverse
publicity and investors'

                                       20


perceptions, whether or not based on fundamental analysis, may decrease the
value and liquidity of portfolio securities, especially in these markets.

In addition, emerging market countries' exchanges and broker-dealers are
generally subject to less government and exchange regulation than their
counterparts in developed countries.  Brokerage commissions, dealer concessions,
custodial expenses and other transaction costs may be higher in emerging markets
than in developed countries.  As a result, Funds investing in emerging market
countries have operating expenses that are expected to be higher than other
funds investing in more established market regions.

Many of the merging market countries may be subject to greater degree of
economic, political and social instability than is the case in the United
States, Canada, Australia, New Zealand, Japan and Western European and certain
Asian countries.  Such instability may result from, among other things, (i)
popular unrest associated with demands for improved political, economic and
social conditions, and (ii) internal insurgencies.  Such social, political and
economic instability could disrupt the financial markets in which the
International Funds invest and adversely affect the value of a Fund's assets.

In certain emerging market countries governments participate to a significant
degree, through ownership or regulation, in their respective economies. Action
by these governments could have a significant adverse effect on market prices of
securities and payment of dividends. In addition, most emerging market countries
have experienced substantial, and in some periods extremely high, rates of
inflation. Inflation and rapid fluctuation in inflation rates have had and may
continue to have very negative effects on the economies and securities markets
of certain emerging market countries.

Many of the currencies of emerging market countries have experienced
devaluations relative to the U.S. dollar, and major devaluations have
historically occurred in certain countries. Any devaluations in the currencies
in which portfolio securities are denominated will have a detrimental impact on
Funds investing in emerging market countries. Many emerging market countries are
experiencing currency exchange problems. Countries have and may in the future
impose foreign currency controls and repatriation control.

Risks Associated With Lower Rated Securities

Each of the Funds may invest in convertible securities.  A portion of the
convertible securities may be rated below investment grade.  High Yield Bond
will invest in securities rated below investment grade.  Securities rated below
investment grade are commonly known as "junk bonds" and have speculative
characteristics.

High yield securities or "junk bonds" 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 securities issued
by companies that have converted from public to private ownership through

                                       21


leveraged buyout transactions and by companies that have restructured their
balance sheets through leveraged recapitalizations. High yield 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
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 securities
which the Funds 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 debt 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 debt securities also
tend to reflect individual corporate developments to a greater extent than
higher rated securities. The securities in which the Funds invest are frequently
subordinated to senior indebtedness.

The economy and interest rates affect high yield 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 a 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 a Fund's asset value. Furthermore, the
market prices of high yield 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 a Fund's assets may be more difficult
because there is less reliable, objective data available. In addition, a 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 a 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.

                                       22


Special tax considerations are associated with investing in lower rated debt
securities structured as zero coupon or pay-in-kind securities. The Funds accrue
income on these securities prior to the receipt of cash payments. The Funds 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.

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, 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.  Securities eligible for resale pursuant to Rule 144A under the
Securities Act, and determined to be liquid pursuant to the procedures discussed
in the following paragraph, are not subject to the foregoing restriction.
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.

Rule 144A permits the Funds to sell restricted securities to qualified
institutional buyers without limitation. The Adviser, pursuant to procedures
adopted by the Board of Directors, 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", the security will not be included within the category
"illiquid securities". However, investing in Rule 144A securities could have the
effect of increasing the level of a Fund's illiquidity to the extent the Fund,
at a particular point in time, may be unable to find qualified institutional
buyers interested in purchasing such securities.

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,

                                       23


there can be no assurance that there will be a correlation between price
movements in the underlying securities, currencies or index and the price
movements in the securities which are the subject of hedge. Positions in futures
contracts and options on futures contracts may be closed out only on the
exchange or board of trade on which they were entered into, and there can be no
assurance that an active market will exist for a particular contract or option
at any particular time. If a Fund has hedged against the possibility of an
increase in interest rates or a decrease in the value of portfolio securities
and interest rates fall or the value of portfolio securities increase instead, a
Fund will lose part or all of the benefit of the increased value of securities
that it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if a Fund has insufficient cash, it
may have to sell securities to meet daily variation margin requirements at a
time when it is disadvantageous to do so. These sales of securities may, but
will not necessarily, be at increased prices that reflect the decline in
interest rates. While utilization of futures contracts and options on futures
contracts may be advantageous to a 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 Transactions

The effective use of options also depends on a Fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so.  Prior
to exercise or expiration, an option position can only be terminated by entering
into a closing purchase or sale transaction.  If a covered call option writer is
unable to effect a closing purchase transaction or to purchase an offsetting OTC
Option, it cannot sell the underlying security until the option expires or the
option is exercised.  Accordingly, a covered call option writer may not be able
to sell an underlying security at a time when it might otherwise be advantageous
to do so.  A secured put option writer who is unable to effect a closing
purchase transaction or to purchase an offsetting OTC Option would continue to
bear the risk of decline in the market price of the underlying security until
the option expires or is exercised.

In addition, a secured put writer would be unable to utilize the amount held in
cash or U.S. Government Securities or other high grade short-term obligations as
security for the put option for other investment purposes until the exercise or
expiration of the option.

A Fund's ability to close out its position as a writer of an option is dependent
upon the existence of a liquid secondary market.  There is no assurance that
such a market will exist, particularly in the case of OTC Options, as such
options will generally only be closed out by entering into a closing purchase
transaction with the purchasing dealer.  However, the Fund may be able to
purchase an offsetting option which does not close out its position as a writer
but constitutes an asset of equal value to the obligation under the option
written.  If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to maintain
the securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).

Among the possible reasons for the absence of a liquid secondary market on an
exchange are: (a) insufficient trading interest in certain options; (b)
restrictions on transactions imposed by an exchange; (c) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (d) interruption of the normal
operations on an exchange; (e) inadequacy of the facilities of an exchange or
the OCC or other relevant clearing corporation to handle current trading volume;
or (f) a decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the

                                       24


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.

Futures Contracts and Options on Futures

There are certain risks inherent in the use of futures contracts and options on
futures contracts.  Successful use of futures contracts by a Fund is subject to
the ability of the Adviser to correctly predict movements in the direction of
interest rates or changes in market conditions.  In addition, there can be no
assurance that there will be a correlation between price movements in the
underlying securities, currencies or index and the price movements in the
securities which are the subject of the hedge.

Positions in futures contracts and options on futures contracts may be closed
out only on the exchange or board of trade on which they were entered into, and
there can be no assurance that an active market will exist for a particular
contract or option at any particular time.  If a Fund has hedged against the
possibility of an increase in interest rates or a decrease in the value of
portfolio securities and interest rates fall or the value of portfolio
securities increase instead, a Fund will lose part or all of the benefit of the
increased value of securities that it has hedged because it will have offsetting
losses in its futures positions.  In addition, in such situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so.  These sales of
securities may, but will not necessarily be at increased prices that reflect the
decline in interest rates.  While utilization of futures contracts and options
on futures contracts may be advantageous to the Fund, if the Fund is not
successful in employing such instruments in managing the Fund's investments, the
Fund's performance will be worse than if the Fund did not make such investments.

                                       25


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 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

                                       26


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 connection with such options are not greater than
the risks in connection with transactions in the underlying foreign currency
futures contracts.

Risks Associated With Mortgage-Backed Securities

Credit and Market Risks of Mortgage-Backed Securities. Investments by Core Fixed
Income, Mortgage-Backed Securities and Total Return Mortgage-Backed Securities
in fixed rate and floating rate mortgage-backed securities will entail normal
credit risks (i.e., the risk of non-payment of interest and principal) and
market risks (i.e., the risk that interest rates and other factors will cause
the value of the instrument to decline). Many issuers or servicers of mortgage-
backed securities guarantee timely payment of interest and principal on the
securities, whether or not payments are made when due on the underlying
mortgages. This kind of guarantee generally increases the quality of a security,
but does not mean that the security's market value and yield will not change.
Like other bond investments, the value of fixed rate mortgage-backed securities
will tend to rise when interest rates fall, and fall when rates rise. Floating
rate mortgage-backed securities will generally tend to have minimal changes in
price when interest rates rise or fall. The value of all mortgage-backed
securities may also change because of changes in the market's perception of the
creditworthiness of the organization that issued or guarantees them. In
addition, the mortgage-backed securities market in general may be adversely
affected by changes in governmental legislation or regulation. Fluctuations in
the market value of mortgage-backed securities after their acquisition usually
do not affect cash income from such securities but are reflected in each Fund's
net asset value. The liquidity of mortgage-backed securities varies by type of
security; at certain times a Fund may encounter difficulty in disposing of
investments. Other factors that could affect the value of a mortgage-backed
security include, among other things, the types and amounts of insurance which a
mortgagor carries, the amount of time the mortgage loan has been outstanding,
the loan-to-value ratio of each mortgage and the amount of overcollateralization
of a mortgage pool.

Prepayment and Redemption Risk of Mortgage-Backed Securities.  Mortgage-backed
securities reflect an interest in monthly payments made by the borrowers who
receive the underlying mortgage loans. Although the underlying mortgage loans
are for specified periods of time, such as 20 or 30 years, the borrowers can,
and typically do, pay them off sooner.  In such

                                       27


an event, the mortgage-backed security which represents an interest in such
underlying mortgage loan will be prepaid.  A borrower is more likely to prepay a
mortgage which bears a relatively high rate of interest.  This means that in
times of declining interest rates, a portion of a Fund's higher yielding
securities are likely to be redeemed and the Fund will probably be unable to
replace them with securities having as great a yield.  Prepayments can result in
lower yields to shareholders.  The increased likelihood of prepayments when
interest rates decline also limits market price appreciation of mortgage-backed
securities.  In addition, a mortgage-backed security may be subject to
redemption at the option of the issuer.  If a mortgage-backed security held by a
Fund is called for redemption, the Fund will be required to permit the issuer to
redeem the security, which could have an adverse effect on the Fund's ability to
achieve its investment objective.

Collateralized Mortgage Obligations ("CMOs").  There are certain risks
associated specifically with CMOs.  CMOs issued by private entities are not
obligations issued or guaranteed by the United States Government, its agencies
or instrumentalities and are not guaranteed by any government agency, although
the securities underlying a CMO may be subject to a guarantee.  Therefore, if
the collateral securing the CMO, as well as any third party credit support or
guarantees, is insufficient to make payment, the holder could sustain a loss.
In addition, the average life of CMOs is determined using mathematical models
that incorporate prepayment assumptions and other factors that involve estimates
of future economic and market conditions.  These estimates may vary from actual
future results, particularly during periods of extreme market volatility.
Further, under certain market conditions, such as those that occurred in 1994,
the average weighted life of certain CMOs may not accurately reflect the price
volatility of such securities.  For example, in periods of supply and demands
imbalances in the market for such securities and/or in periods of sharp interest
rate movements, the prices of CMOs may fluctuate to a greater extent than would
be expected from interest rate movements alone.

Stripped Mortgage Securities.  Part of the investment strategy of Core Fixed
Income, Mortgage-Backed Securities and Total Return Mortgage-Backed Securities
may involve the purchase of interest-only Stripped Mortgage Securities.  These
investments are highly sensitive to changes in interest and prepayment rates and
tend to be less liquid than other CMOs.

Inverse Floaters.  Mortgage-Backed Securities and Total Return Mortgage-Backed
Securities invest in inverse floaters, a class of CMOs with a coupon rate that
resets in the opposite direction from the market rate of interest to which it is
indexed such as LIBOR or COFI.  Any rise in the index rate (as a consequence of
an increase in interest rates) causes a drop in the coupon rate of an inverse
floater.  An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest.  The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in their market prices.

Adjustable Rate Mortgages ("ARMs").  ARMs contain maximum and minimum rates
beyond which the mortgage interest rate may not vary over the lifetime of the
security. In addition, certain ARMs provide for additional limitations on the
minimum amount by which the mortgage

                                       28


interest rate may adjust for any single adjustment period. Alternatively,
certain ARMs contain limitations on changes in the required monthly payment. In
the event that a monthly payment is not sufficient to pay the interest accruing
on an ARM, any such excess interest is added to the principal balance of the
mortgage loan, which is repaid through future monthly payments. If the monthly
payment for such an instrument exceeds the sum of the interest accrued at the
applicable mortgage interest rate and the principal payment required at such
point to amortize the outstanding principal balance over the remaining term of
the loan, the excess is utilized to reduce the then outstanding principal
balance of the ARM.

Asset-Backed Securities.  Certain asset-backed securities do not have the
benefit of the same security interest in the related collateral as do mortgage-
backed securities. Credit card receivables are generally unsecured, and the
debtors are entitled to the protection of a number of state and federal consumer
credit laws, many of which give such debtors the right to set off certain
amounts owned on the credit cards, thereby reducing the balance due. In
addition, some issuers of automobile receivables permit the servicers to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related automobile
receivables.

PORTFOLIO TURNOVER

The portfolio turnover rate is calculated by dividing the lesser of the value of
purchases or sales of portfolio securities for the year by the monthly average
value of portfolio securities. For example, a portfolio turnover rate of 100%
would occur if all of a Fund's securities that are included in the computation
of turnover were replaced once during a period of one year. Securities with
remaining maturities of one year or less at the date of acquisition are excluded
from the calculation.

Certain practices that may be employed by the Funds could result in high
portfolio turnover. For example, portfolio securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what the Adviser believes to be
a temporary disparity in the normal yield relationship between the two
securities. These yield disparities may occur for reasons not directly related
to the investment quality of particular issues or the general movement of
interest rates, such as changes in the overall demand for, or supply of, various
types of securities. High portfolio turnover can result in increased transaction
costs for shareholders. High turnover generally results from the Adviser's
effort to maximize return for a particular period.

BROKERAGE PRACTICES

The Adviser is responsible for the placement of the Funds' portfolio
transactions and the negotiation of prices and commissions, if any, with respect
to such transactions. Fixed income and unlisted equity securities are generally
purchased from a primary market maker acting as principal on a net basis without
a stated commission but at prices generally reflecting a dealer spread. Listed
equity securities are normally purchased through brokers in transactions
executed on securities exchanges

                                       29


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 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

                                       30


services.  During the fiscal year ended October 31, 2000, Aggressive Growth
Equities, Convertible Securities, Earnings Momentum, Large Cap Growth, Large Cap
Value, Select Equities, Small Cap Growth, Value Opportunities, Emerging Markets
Equities and Japanese Equities paid $3,833, $9,900, $2,188, $2,292, $45,397,
$258,549, $6,045, $66,389, $6,325 and $99 respectively, in brokerage commissions
to brokers because of research services provided.

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.

For the fiscal years ended October 31, 1998, 1999 and 2000, Aggressive Growth
Equities, Convertible Securities, Earnings Momentum, Select Equities, Small Cap
Growth, Asia Pacific Equities and Emerging Markets Equities paid $421,362,
$372,463 and $261,531; $36,732, $261,448 and $408,081; $341,560, $220,249 and
$134,923; $400,294; $326,907 and $673,447; $552,397, $610,412 and $709,703;
$131,072, $414,037 and $111,941; and $244,289, $211,626 and $227,056,
respectively, in brokerage commissions.

For the fiscal period November 3, 1997 through October 31, 1998 and fiscal years
ended October 31, 1999 and 2000, Value Opportunities, European Equities,
International Equities and Japanese Equities paid $195,577, $233,315 and
$245,053; $210,724, $371,228 and $271,814; 0, $8,297 and $4,656; and $221,146,
$627,925 and $520,769; respectively, in brokerage commissions.  For the fiscal
period June 4, 1998 through October 31, 1998 and fiscal years ended October 31,
1999 and 2000, Large Cap Growth and Large Cap Value paid $10,324, $33,164 and
$54,991; and $19,695, $253,309 and $256,137, respectively, in brokerage
commissions.

INVESTMENT RESTRICTIONS

The investment restrictions numbered 1 through 8 below have been adopted 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 Board of
Directors at any time.

1.   No Fund will borrow money, except that (a) a Fund may borrow from banks for
     temporary or emergency (not leveraging) purposes including the meeting of
     redemption requests that might otherwise require the untimely disposition
     of securities, (b) Core Fixed Income, Mortgage-Backed Securities, Total
     Return Mortgage-Backed Securities

                                       31


     and Money Market may each enter into reverse repurchase agreements, (c)
     Core Fixed Income, Mortgage-Backed Securities and Total Return Mortgage-
     Backed Securities may utilize mortgage dollar rolls, and (d) each Fund
     other than Money Market may enter into futures contracts for hedging
     purposes subject to the conditions set forth in paragraph 8 below. The
     total amount borrowed by a Fund (including, for this purpose, reverse
     repurchase agreements and mortgage dollar rolls) at any time will not
     exceed 30% (or, in the case of Money Market, 10%) of the value of the
     Fund's total assets (including the amount borrowed) valued at market less
     liabilities (not including the amount borrowed) at the time the borrowing
     is made. As an operating policy, whenever borrowings pursuant to (a) exceed
     5% (or, in the case of Money Market, 10%) of the value of a Fund's total
     assets, the Fund will not purchase any securities.

2.   No Fund will issue senior securities as defined in the 1940 Act, provided
     that the Funds may (a) enter into repurchase agreements; (b) purchase
     securities on a when-issued or delayed delivery basis; (c) purchase or sell
     financial futures contracts or options thereon; and (d) borrow money in
     accordance with the restrictions described in paragraph 1 above.

3.   No Fund will underwrite securities of other companies, except insofar as
     the Fund might be deemed to be an underwriter for purposes of the
     Securities Act by virtue of disposing of portfolio securities.

4.   No Fund will purchase any securities that would cause 25% or more of the
     value of the Fund's total assets at the time of purchase to be invested in
     the securities of any one particular industry or group of industries,
     provided that this limitation shall not apply to any Fund's purchase of
     U.S. Government Securities, and, in the case of Money Market, to the
     purchase of obligations of domestic branches of United States banks. Health
     Sciences and Technology will invest more than 25% of their assets in
     industries in the health sciences and technology sectors, respectively.
     European Equities may invest more than 25% of the value of its total assets
     in a single European country, Japanese Equities may invest more than 25% of
     the value of its total assets in debt securities issued or guaranteed by
     the Japanese government and Emerging Markets Income may invest more than
     25% of the value of its total assets in debt securities issued or
     guaranteed by governments of Emerging Markets Countries. In determining
     industry classifications for foreign issuers, each Fund will use reasonable
     classifications that are not so broad that the primary economic
     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 and
     except that Core Fixed Income, Mortgage-Backed Securities and Total Return
     Mortgage-Backed Securities are not prohibited from investing in real estate
     loans.

                                       32


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 each
     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 initial purchase or investment.
Subsequent changes in relative size of a portfolio position due to market
fluctuations or other changes in total or net assets, including market
fluctuations occurring during the execution of a purchase or sale order for a
Fund, do not require elimination of any security from the Fund.

For purposes of applying the terms of investment restriction number 4, the
Adviser will, on behalf of each Fund, make reasonable determinations as to the
appropriate industry classification to assign to each issuer of securities in
which the Fund invests.  As a general matter, an "industry" is considered to be
a group of companies whose principal activities, products or services offered
give them a similar economic risk profile vis a vis issuers active in other
sectors of the economy.  The definition of what constitutes a particular
"industry" is therefore an evolving one, particularly for issuers in industries
or sectors within industries that are new or are undergoing rapid development.
Some issuers could reasonably fall within more than one industry category.  For
example, some companies that sell goods over the Internet (including issuers of
securities in which the Funds invest) were initially classified as Internet
companies, but over time have evolved the economic risk profiles of retail
companies. The Adviser will use its best efforts to assign each issuer to the
category which it believes is most appropriate.

                                       33


DIRECTORS AND OFFICERS OF THE COMPANY

A board of eight directors is responsible for overseeing the Funds' affairs. An
executive committee, consisting of Marc I. Stern, Chairman, John C. Argue and
Thomas E. Larkin, Jr. which may act for the Board of Directors between meetings,
except where Board action is required by law.  The directors and officers of the
Funds, and their business addresses and their principal occupations for the last
five years are set forth below.

Name and Address Principal Occupations and Other Affiliations
- -------------------------------------------------------------

Marc I. Stern* (57)                 President and Director, The TCW Group, Inc.
Chairman                            Chairman, the Adviser; President and Vice
865 South Figueroa Street           Chairman, TCW Asset Management Company
Los Angeles, California 90017       and Trust Company of the West; Chairman, TCW
                                    London International, Limited; Chairman,
                                    Apex Mortgage Capital, Inc. (Since October
                                    1997); and Director of Qualcomm Incorporated
                                    (wireless communications).

Thomas E. Larkin, Jr.* (61)         Vice Chairman, Trust Company of the West;
Director                            TCW Asset Management Company; The TCW Group
865 South Figueroa Street           Inc., and the Adviser; Member of the Board
Los Angeles, California 90017       of Trustees of the University of Notre Dame
                                    Director of Orthopedic Hospital of Los
                                    Angeles; Senior Vice President, TCW
                                    Convertible Securities Fund, Inc.

John C. Argue (68)                  Former Senior Partner and Of Counsel,
Director                            Argue Pearson Harbison & Myers (law firm);
444 South Flower Street             Director, Avery Dennison Corporation
Los Angeles, California 90071       (manufacturer of self-adhesive products and
                                    office 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.

__________________

Directors who are or may be deemed to be "interested persons" of the Company as
defined in the 1940 Act. Messrs. Stern and Larkin are officers of the Adviser.

                                       34


Norman Barker, Jr. (78)             Former Chairman of the Board, First
Director                            Interstate Bank of California and
9601 Wilshire Blvd.                 former Vice Chairman of the Board, First
Beverly Hills, CA 90210             Interstate Bancorp; Director, Bank Plus
                                    Corp., ICN Pharmaceuticals, Inc., and TCW
                                    Convertible Securities Fund, Inc

Richard W. Call (76)                Former President, The Seaver Institute (a
Director                            private foundation); Director, TCW
c/o Mayer, Brown & Platt            Convertible Securities Fund, Inc. and The
Counsel to the Independent          Seaver Institute.
Directors
1675 Broadway
New York, NY 10019


Matthew K. Fong (45)                Since 1999 Mr. Fong has been Of Counsel to
Director                            the Los Angeles based law firm of Sheppard,
333 South Hope Street               Mullin, Richter & Hamilton.  From 1995 to
Los Angeles, CA 90071               1998, Mr.  Fong served as State Treasurer
                                    for 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.

John A. Gavin (70)                  Founder and, since 1968, Chairman of Gamma
Director                            Holdings (international capital consulting
c/o Mayer, Brown & Platt            firm); Member of the Latin American Strategy
Counsel to the Independent          Board of Hicks, Muse, Tate & Furst
Directors                           (leveraged buyout firm); Director,
1675 Broadway                       International WireGroup (electrical wire
New York, NY 10019                  manufacturer), KKCF,Inc. (home furnishings
                                    manufacturer, TCW Convertible Securities
                                    Fund, Inc. (closed end fund), and Apex
                                    Mortgage Capital, Inc. (a REIT); Trustee
                                    and director of certain Merrill Lynch
                                    mutual funds. From 1981 to 1986, Mr. Gavin
                                    was the United States Ambassador to Mexico.

Patrick C. Haden                    Since 1997, General Partner, Riordan, Lewis
Director                            & Haden (a venture capital firm); Director,
Riordan, Lewis & Haden              Tetra Tech, Inc. (environmental consulting);
300 South Grand Avenue              Elkay Plastics Co. Inc., Financial Pacific
Los Angeles, CA 90071               Insurance Group, Inc. TCW Convertible
                                    Securities Fund, Inc. (closed end fund),
                                    and Indy Mac Mortgage Holdings (mortgage
                                    banking).

Compensation of Independent Directors

TCW Galileo Funds, Inc. ("Company") pays each Independent Director an annual fee
of $35,000 plus a per meeting fee of $500 for meetings of the Board of Directors
or Committees of the Board of Directors attended by the Director prorated among
the Funds.  The Company also reimburses such Directors for travel and other out-
of-pocket expenses incurred by them in connection with attending such meetings.
Directors and officers of the Company who are employed by the Adviser or an
affiliated company thereof receive no compensation nor expense reimbursement
from the Company.

                                       35


The following table illustrates the compensation paid to the Company's
Independent Directors by the Company for the fiscal year ended October 31, 2000.

Name of Independent Director        Aggregate Compensation From the Company
- ----------------------------        ---------------------------------------

John C. Argue                                      $ 38,000
Norman Barker, Jr.                                 $ 38,000
Richard W. Call                                    $ 37,500
Matthew K. Fong                                    $ 38,000

The following table illustrates the total compensation paid to Company's
Independent Directors for the calendar year ended December 31, 2000 by the TCW
Convertible Securities Fund, Inc. in the case of Messrs. Argue, Barker and Call,
as well as from the Company.  TCW Convertible Securities Funds, Inc. is included
solely because the Company's Adviser, TCW Investment Management Company also
serves as its investment adviser.

                                                           Total Cash
                         For Service as Director        Compensation from
                                 and Committee            TCW Galileo Funds,
                               Member of the TCW            Inc. and TCW
 Name of Independent        Convertible Securities     Convertible Securities
       Director                   Fund, Inc.                  Fund, Inc.
       --------                   ----------                  ----------

John C. Argue                       $12,000                     $50,000
Norman Barker, Jr.                  $12,750                     $50,750
Richard W. Call                     $11,250                     $48,750

                                       36


The officers of the Company who are not also directors of the Company are:



                                             Position(s)                        Principal Occupation(s)
                                             -----------                        -----------------------
     Name and Address                           Held                            During Past 5 Years(1)
     ----------------                           ----                            ----------------------
                                                with
                                                -----
                                               Company
                                               -------
                                                            
Alvin R. Albe, Jr. (48)*                  President               President and Director, the Adviser; Executive Vice
                                                                  President and Director of TCW Asset Management
                                                                  Company and Trust Company of the West; Executive
                                                                  Vice President, The TCW Group, Inc.

Michael E. Cahill (50)*                   Senior Vice             Managing Director, General Counsel and Secretary,
                                          President,              the Adviser, The TCW Group, Inc., Trust Company of
                                          General                 the West and TCW Asset Management Company.
                                          Counsel
                                          and Assistant
                                          Secretary

Charles W. Baldiswieler (43)*             Senior Vice President   Managing Director, the Adviser, Trust Company of the
                                                                  West and TCW Asset Management Company.

Ronald R. Redell (30)*                    Senior Vice President   Senior Vice President, the Adviser, Trust Company of
                                                                  the West and TCW Asset Management Company since
                                                                  August, 2000.  Previously, National Sales Manager
                                                                  with RS Investment Management (formerly Robertson
                                                                  Stephens).

Philip K. Holl (51)*                      Secretary               Senior Vice President and Associate General Counsel,
                                                                  the Adviser, Trust Company of the West and TCW Asset
                                                                  Management Company; Secretary to TCW Convertible
                                                                  Securities Fund, Inc.

Peter C. DiBona (43)                      Treasurer               Senior Vice President, the Adviser, Trust Company of
                                                                  the West and TCW Asset Management Company; Treasurer
                                                                  to TCW Convertible Securities Fund, Inc.


________________

(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 and George N. Winn, Vice President of the
Adviser, Trust Company of the West and TCW Asset Management Company, is an
Assistant Treasurer of the Company. The directors and officers of the Company
collectively own less than 1% of the outstanding shares of any Fund.

                                       37


INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS

TCW Galileo Funds, Inc. (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. Societe Generale Asset Management S.A. may be deemed to be a control person
of the Adviser by reason of its ownership of more than 25% of the outstanding
voting stock of the TCW Group, Inc. Societe Generale Asset Management S.A. is a
wholly owned subsidiary of Societe Generale S.A., France's second largest public
bank. 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 may reimburse third parties for shareholder
servicing expenses provided the Class I shares from its investment advisory fees
and other resources available to it.

The Adviser has retained, at its sole expense, TCW London International, Limited
(regulated by I.M.R.O.) to act as a sub-adviser to Asia Pacific Equities,
Emerging Markets Equities, European Equities, Japanese Equities and Select
International Equities.  TCW London International, Limited  (the "Sub-Adviser")
is a wholly-owned subsidiary of The TCW Group, Inc.  The Sub-Adviser provides
the Fund with investment advice and portfolio management services subject to the
overall supervision of the Adviser.

The Adviser furnishes to the Company office space at such places as are agreed
upon from time to time and all office facilities, business equipment, supplies,
utilities and telephone service necessary for managing the affairs and
investments and arranges for officers or employees of the Adviser to serve,
without compensation from the Company, as officers, directors or employees of
the Company if desired and reasonably required by the Company.

The fee allocable to each Fund is calculated daily by applying the annual
investment advisory 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:

Equity Funds

       Aggressive Growth Equities                        1.00%
       Convertible Securities                            0.75%
       Earnings Momentum                                 1.00%
       Flexible Income                                   0.75%
       Focused Large Cap Value                           0.65%
       Growth Insights                                   0.90%
       Health Sciences                                   0.90%
       Large Cap Growth                                  0.55%
       Large Cap Value                                   0.55%

                                       38


       Select Equities                                   0.75%
       Small Cap Growth                                  1.00%
       Small Cap Value                                   1.00%
       Technology                                        1.00%
       Value Opportunities                               0.80%

Fixed Income Funds

       Money Market                                      0.25%
       Core Fixed Income                                 0.40%
       High Yield Bond                                   0.75%
       Mortgage-Backed Securities                        0.50%*
       Total Return Mortgage-Backed Securities           0.50%

*The Adviser has voluntarily waived a portion of its advisory fee reducing it to
0.35% through December 31, 2001.

International Funds

       Asia Pacific Equities                             1.00%
       Emerging Markets Equities                         1.00%
       Emerging Markets Income                           0.75%
       European Equities                                 0.75%
       Japanese Equities                                 0.75%
       Select International Equities                     0.75%

The Adviser has agreed to reduce its investment advisory fee or to pay the
ordinary operating expenses of a Fund to the extent necessary to limit the
Fund's ordinary operating expenses to an amount not to exceed the trailing
monthly expense ratio average for comparable funds as calculated by Lipper Inc.

Prior to the fiscal year October 31, 1998, each Fund reimbursed the Adviser for
the costs of providing accounting services to the Fund, including maintaining
the Fund's financial books and records, calculating its daily net asset value,
and preparing its financial statements, in an amount not exceeding $35,000 for
the applicable fiscal year.  Money Market also reimbursed the Adviser for
accounting services, but in an amount not exceeding 0.10% of its average daily
net assets.  The total amounts paid, exclusive of any expense reimbursement by
the Adviser and payment of any accounting fees by the Funds, for the fiscal year
ended October 31, 1998 were:  Aggressive Growth Equities - $1,002,000;
Convertible Securities - $237,000; Earnings Momentum - $594,000; Select Equities
- - $1,150,000; Small Cap Growth - $1,313,000; Money Market - $678,000; Core Fixed
Income - $229,000; High Yield Bond -  $1,530,000; Mortgage-Backed Securities -
$250,000; Total Return Mortgage-Backed Securities - $439,000; Asia Pacific
Equities -$112,000; and Emerging Markets Equities - $327,000.  During the fiscal
period November 3, 1997 to October 31, 1998,

                                       39


Value Opportunities paid $274,000 in advisory fees, European Equities paid
$412,000 in advisory fees and Japanese Equities paid $116,000 in advisory fees.
During the fiscal period June 3, 1998 to October 31, 1998, Large Cap Growth paid
$17,000 in advisory fees, Large Cap Value paid $19,000 in advisory fees and
Emerging Markets Income paid $71,000 in advisory fees.

For the fiscal year ended October 31, 1999, the total amounts paid in advisory
fees, exclusive of any expense reimbursement by the Adviser, were: Aggressive
Growth Equities - $1,384,000; Convertible Securities - $330,000; Earnings
Momentum - $280,000; Large Cap Growth - $97,000; Large Cap Value - $330,000;
Select Equities - $1,824,000; Small Cap Growth - $1,706,000; Value Opportunities
- - $235,000; Money Market - $541,000; Core Fixed Income - $307,000; High Yield
Bond - $1,553,000; Mortgage-Backed Securities - $232,000; Total Return Mortgage-
Backed Securities - $470,000; Asia Pacific Equities - $143,000; Emerging Markets
Equities - $212,000; Emerging Markets Income - $464,000; European Equities -
$593,000; and Japanese Equities - $371,000.

For the fiscal year ended October 31, 2000, the total amounts paid in advisory
fees, exclusive of any expense reimbursement by the Adviser, were:  Aggressive
Growth Equities - $2,744,000; Convertible Securities - $463,000; Earnings
Momentum - $304,000; Large Cap Growth - $166,000; Large Cap Value - $487,000;
Select Equities - $3,770,000; Small Cap Growth - $4,430,000; Value Opportunities
- - $311,000; Money Market - $591,000; Core Fixed Income - $239,000; High Yield
Bond - $1,544,000; Mortgage-Backed Securities - $322,000; Total Return Mortgage-
Backed Securities - $408,000; Asia Pacific Equities - $190,000; Emerging Markets
Equities - $570,000; Emerging Markets Income - $782,000; European Equities -
$528,000; and Japanese Equities - $392,000.  During the fiscal period June 14,
2000 to October 31, 2000, Small Cap Value paid $3,000 in advisory fees.

Except for expenses specifically assumed by the Adviser under the Advisory
Agreement, each Fund bears all expenses incurred in its operations.  Fund
expenses include the fee of the Adviser; expenses of the Plan of Distribution
pursuant to Rule 12b-1; compensation and expenses of directors who are not
officers or employees of the Adviser; registration, filing and other fees in
connection with filings with states and other 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 costs of the administrator and fund accountant; 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; the cost and expense of printing, including
typesetting, and distributing prospectuses and supplements thereto the Fund's
shareholders; 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 12b-1 fees relating to the
Investor Class (or Class N) or the Advisor Class shares will be directly
allocated to that class.

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.

                                       40


The Advisory and Sub-Advisory Agreements were approved by each Fund's
shareholders and will continue in effect as to each Fund initially for two years
and thereafter from year to year if such continuance is specifically approved at
least annually by (a) the Board of Directors of the Company or by the vote of a
majority of the outstanding voting securities of the Fund, and (b) vote of a
majority of the directors who are not "interested persons" of the Company or the
Adviser (the Independent Directors), cast in person at a meeting called for the
purpose of voting on such approval.  The Advisory and Sub-Advisory Agreements
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 and
Sub-Advisory Agreements terminate automatically in the event of their
assignment.

The Company has acknowledged that the name "TCW" is owned by The TCW Group, Inc.
("TCW"), the parent of the Adviser.  The Company has agreed to change its name
and the name of the Funds at the request of TCW if any advisory agreement into
which TCW or any of its affiliates and the Company may enter is terminated.

The Advisory and Sub-Advisory Agreements and also provides that the Adviser and
Sub-Adviser shall not be liable to the Company for any actions or omissions if
they acted in good faith without gross negligence, willful misfeasance, bad
faith, or from reckless disregard of their duties.

DISTRIBUTION OF COMPANY SHARES

TCW Brokerage Services ("Distributor") serves as the nonexclusive distributor of
each class of the Company's shares pursuant to an Amended and Restated
Distribution Agreement ("Distribution Agreement") with the Company which is
subject to approval by the Board.  The Distribution Agreement is terminable
without penalty, on not less than 60 days' notice, by the Company's Board of
Directors, by vote of holders of a majority of the Company's shares, or by the
Distributor.

The Company offers three classes of shares: Institutional Class shares, Investor
Class  (or Class N) shares and Advisor Class shares.  Institutional Class shares
are offered primarily for direct investment by investors. Investor Class (or
Class N) shares are primarily 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 and Advisor
Class shares are offered through institutional channels such as retirement plans
and 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 Investor (or Class N)
shares of each Fund.  Under the terms of the Distribution Plan, each Fund
compensates the Distributor at a rate equal to 0.25% of the

                                       41


average daily net assets of the Fund attributable to its Investor (or Class N)
shares and Advisor Class 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
Investor Class (or Class N) shares or Advisor Class shares; and assisting
investors in completing application forms and selecting dividend and other
account options.

For the fiscal year ended October 31, 2000 the Investor Class (or Class N)
shares of the Funds paid the following amounts pursuant to the Distribution
Plan: Aggressive Growth Equities - $55,232; Large Cap Growth - $633; Large Cap
Value -$1,985; Select Equities - $151,946; Small Cap Growth - $107,881; Core
Fixed Income - $206; High Yield Bond - $8,718; Total Return Mortgage-Backed
Securities- $92; and European Equities - $753.

The Distribution Plan provides that it may not be amended to materially increase
the costs which the Investor Class (or Class N) or Advisor Class shareholders
may bear under the Plan without the approval of a majority of the outstanding
voting securities the Investor Class (or Class N) or the Advisor Class, 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.

                                       42


CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES


The following persons owned 5% or more of the Class I shares of the Company as
of August 1, 2001:

Money Market - Saxon and Co., P.O. Box 7780-1888, Philadelphia, PA  19182-0001
- ------------
(19.11%); TCW Capital Investment Corporation (12.24%); and Childrens Hospital of
Los Angeles, P.O. Box 54700, Los Angeles, CA  90054-0700 (8.75%).  Core Fixed
                                                                   ----------
Income - Bank of America Custodian Hilton Charitable Remainder Trust, P.O. Box
- ------
831575, Dallas, TX  75283-1575 (22.19%); Mead Foundation, P.O. Box 2218, Napa,
CA  94558-0221 (10.62%); Cedars - Sinai Medical Center, 8700 Beverly Boulevard,
Los Angeles, CA  90048-1804 (9.98%); Saint Johns Health Center Foundation, 1328
22nd Street, Santa Monica, CA  90404-2032 (9.53%); and Gould Foundation, 101
Convention Center, Las Vegas, NV  89109-2095 (7.32%).  High Yield Bond - Maine
                                                       ---------------
State Retirement System, State Office Building, Augusta, ME 04333-0001 (32.57%);
City of Tallahassee, 300 S. Adams Street, Tallahassee, FL 32301-1731 (9.94%);
and First Insurance Company of Hawaii, c/o Conning Asset Management Co., 700
Market Street, St. Louis, MO 63101-1829 (6.18%). Mortgage-Backed Securities- MAC
                                                 --------------------------
& Co., c/o Mellon Bank, P.O. Box 3198, Pittsburgh, PA 15530-3198 (48.32%) and
United Negro College Fund, P.O. Box 10444, Fairfax, VA 22031-8044 (40.66%).
Total Return Mortgage-Backed Securities - MAC & Co, c/o Mellon Bank, P.O. Box
- ---------------------------------------
3198, Pittsburgh, PA 15230-3198 (50.05%); BOST & Co., c/o Mellon Bank, P.O. Box
15230, Pittsburgh, PA 15230-3198 (24.81%); and Cedars - Sinai Medical Center
Defined Benefit Pension Plan 8700 Beverly Boulevard, Los Angeles, CA 90048-1804
(7.35%). Asia Pacific Equities - Northern Trust Co. Custodian FBO Sobrato
         ---------------------
Development Co., P. O. Box 92956, Chicago, IL 60675-0001 (82.86%) Emerging
                                                                  --------
Markets Equities - Salk Institute, P.O. Box 85800, San Diego, CA 92186-5800
- ----------------
(17.37%); Worcester Polytechnic Institute, 100 Institute Road, Worcester, MA
01609-2247 (16.65%); Bank of America Custodian Hilton Charitable Remainder
Trust, P.O. Box 831575, Dallas, TX 75283-1575 (15.72%); City of Southfield Fire
and Police Retirement System, 26000 Evergreen Road, Southfield, MI 48076-4453
(13.70%); Chase Manhattan Bank Custodian Via Health Pension Plan, P.O. Box 1412,
Rochester, NY 14603-1412 (11.18%); and Fleet National Bank Custodian University
of Massachusetts, P.O. Box 92800, Rochester, NY 14692-8900 (6.19%); Emerging
                                                                    --------
Markets Income - Maine State Retirement System, State Office Building, Augusta,
- --------------
ME 04333-0001 (36.90%); Bank of America Custodian Hilton Remainder Trust, P.O.
Box 831575, Dallas, TX 75283-1575 (14.73%); University of Pittsburgh Endowment
Fund, 2409 Cathedral of Learning, Pittsburgh, PA 15260 (9.61%); City of
Tallahasse, 300 S. Adams Street, Tallahassee, FL 32301-1731 (14.21%); Kresge
Foundation, 3215 W. Big Beaver Road, Troy, MI 48084-2818 (7.41%); and Hook
Investments LLC, 5810 E. Skelley Drive, Tulsa, OK 74135-6431 (7.72%). European
                                                                      --------
Equities; Northern Trust Co. Custodian Modern Woodmen of America, P.O. Box
- --------
92956, Chicago 60675-2956 (37.79%); Wilmington Trust Co. Custodian Global
Investment Trust, 1100 Market Street, Wilmington, DE 19890-60001 (28.22%); and
Donohue Living Trust, c/o Trust Company of the West 865 S. Figueroa Street,
Suite 1800, Los Angeles, CA 90017-2543 (6.41%); Japanese Equities - Bank of
                                                -----------------
America Custodian Hilton Charitable Remainder Trust, P.O. Box 831575, Dallas, TX
75283-1575 (85.57%). Select International Equities - First Insurance Company of
                     -----------------------------
Hawaii, c/o Coming Asset Management Co., 700 Market Street, St. Louis, MO 63101-
1829 (16.40%); Salk Institute, P.O. Box 85800, San Diego, CA 92186-5800
(33.97%); Buck Foundation, c/o Trust Company of the West, 865 South Figueroa
Street, Suite 1800; Los Angeles, CA 90017-2543 (12.52%); and Northern Trust Co.
Custodian McCarthy

                                       43


Revocable Trust, P.O. Box 92956, Chicago, IL 60675-2956 (8.95%). Aggressive
                                                                  ----------
Growth Equities - Charles Schwab & Co., Inc. Reinvest Account, 101 Montgomery
- ---------------
Street, San Francisco, CA 94104-4122 (6.60%) and BNY Western Trust Company
Custodian Santa Barbara Cottage Hospital, 700 S. Flower Street, Los Angeles, CA
90017-4104 (9.75%). Convertible Securities - Maine State Retirement System,
                     ----------------------
State Office Building, Augusta, ME 04333-0001 (24.72%); City of Tallahassee,
300 S. Adams Street, Tallahassee, FL 32301-1731 (9.10%); Donohue Living Trust
c/o Trust Company of the West, 865 South Figueroa Street, Suite 1800, Los
Angeles, CA 90017-2593 (6.35%); Buck Foundation, c/o Trust Company of the West,
865 South Figueroa Street, Los Angeles, CA 90017-2543 (9.19%); and Kresge
Foundation, 3215 W. Big Beaver Road, Troy, MI 48084-2818 (6.17%). Earnings
                                                                   --------
Momentum - State Street Bank Trustee Goldman Sachs Pension Plan, 200 Newport
- --------
Avenue, North Quincy, MA 02170 (55.02%); Whitney Museum of American Art, 945
Madison Avenue, New York, NY 10021-2701 (30%); and United Jewish Communities,
111 Eighth Avenue, New York, NY 1011-5201 (33.07%). Large Cap Growth -
                                                    ----------------
Carpenters Health & Welfare Trust, 520 S. Virgil Avenue, Los Angeles, CA 90020-
1405 (45.96%); Sema & Corp 12 E. 49th St. New York, NY 10166 (13.24%) Donaldson
Lufkin Jenrette Securities Corporation, P.O. Box 2052, Jersey City, NJ 07303-
9998 (7.71%); Rosenblatt Family Trust, 706 Park Ln., Montecito, CA 93108-1418
(5.28%); and TCW Capital Investment Corporation, 865 South Figueroa Street,
Suite 1800, Los Angeles, CA 90017-2593 (5.14%); Large Cap Value - Salk
                                                ---------------
Institute, P.O. Box 85800, San Diego, CA 92186-5800 (13.12%); Charles Schwab &
Co. Inc. Reinvest Account, 101 Montgomery Street, San Francisco, CA 94104-4122
(19.24%); Barnett Charitable Trust, 5815 Live Oak Rd., Lakeland, FL 33813
(13.69%); Bank of America Custodian Hilton Charitable Remainder Trust, P.O. Box
831575, Dallas, TX 75283-1575 (8.62%); and Mac & Co. c/o Mellon Bank, P.O. Box
3198, Pittsburgh, PA 15230-3198 (6.69%). Select Equities -Charles Schwab & Co.
                                         ---------------
Inc. Reinvest Account, 101 Montgomery Street, San Francisco, CA 94104-4122
(25.91%). Small Cap Growth -The University of Tennessee, Office of the
          ----------------
Treasurer, Knoxville, TN 37996-0001 (8.16%). Small Cap Value - JP Morgan/Chase
                                             ---------------
Custodian The Animal Medical Center, York New Plaza, New York, NY 10004
(65.33%); TCW Investment Management Company, 865 South Figueroa Street, Suite
1800, Los Angeles, CA 90017-2593 (13.73%) and Nicola F. Galluccio c/o Trust
Company of the West, 865 South Figueroa Street, Suite 1800, Los Angeles, CA
90017-2593 (13.25%). Value Opportunities - Tifkat, L.P., ARCO Center, Los
Angeles, CA 90017-2551 (5.20%); BOST & Co., c/o Mellon Bank, P.O. Box 3198,
Pittsburgh, PA 15230-3198 (5.23%); and Charles Schwab & Co., Reinvest Account,
101 Montgomery street, San Francisco, CA 94104-4172 (13.27%).

The following persons owned 5% or more of the Investor (or Class N) shares of
the Company as of August 1, 2001:

Core Fixed Income - Charles Schwab & Co Inc. Reinvest Account, 101 Montgomery
- -----------------
Street, San Francisco, CA 94104-4122 (35.42%) and Donaldson Lufkin Jenrette
Securities Corporation Inc., P.O. Box 2052, Jersey City, NJ. 07303-2052
(31.31%). High Yield Bond - Charles Schwab & Co. Inc. Reinvest Account, 101
           ---------------
Montgomery Street, San Francisco, CA 94104-4122 (70.28%) and National Financial
Services Corp. FBO Customers, 200 Liberty Street, New York, NY 10281-1003
(21.43%). Total Return Mortgage-Backed Securities - National Financial Services
           ---------------------------------------
Corp. FBO Customers, 200 Liberty Street, New York, NY 10281-1003 (61.48%);
Charles Schwab & Co. Inc. Reinvest Account, 101 Montgomery Street, San

                                       44


Francisco, CA  94104-4122 (8.87%); and Michael Brandt, 3210 Grandview Boulevard,
Madison, WI  53713-3440 (7.81%).  European Equities - PaineWebber FBO Bishop
                                  -----------------
Institutional Investors, c/o Millenium, 666 5th Avenue, New York, NY 10103-0001
(57.44%); Bear Stearns Securities Corp; 1 Metrotech Center North, Brooklyn, NY
11207-3859 (20.17%); and PaineWebber FBO Adelia Inc., c/o Millenium, 666 5th
Avenue, New York, NY 10103-0001 (14.75%); (45.94%). Aggressive Growth Equities -
                                                    --------------------------
Fidelity Investments Institutional Operations Co. Custodian FBO Certain Employee
Benefit Plans, 100 Magellan Way, Covington, KY 41015-1987 (58.11%) and Charles
Schwab & Co. Inc. Reinvest Account, 101 Montgomery Street, San Francisco, CA
94104-4122 (16.95%). Flexible Income - TCW Capital Investment Corporation, 865
                     ---------------
South Figueroa Street, Suite 1800, Los Angeles, CA 90017-2543 (100%). Focused
                                                                      -------
Large Cap Value - TCW Investment Management Company, 865 South Figueroa Street,
- ---------------
Suite 1800, Los Angeles, CA 900172543 (100%). Growth Insights - Lombos Holdings
Ltd., P.O. Box 829, Charles House, St. Helier, Jersey, Channel Islands JE4OVE
(69.89%) and TCW Capital Investment Corporation, 865 South Figueroa Street,
Suite 1800, Los Angeles, CA 90017-2543 (30.11%). Health Sciences - TCW Capital
                                                 ---------------
Investment Corporation, 865 Figueroa Street, Suite 1800 Los Angeles, CA 90017-
2543 (100%). Large Cap Growth - Charles Schwab & Co Inc. Reinvest Account, 101
             ----------------
Montgomery Street, San Francisco, CA 94104-4122 (23.20%); National Financial
Services Corp. FBO Customers, 200 Liberty Street, New York NY 10281-1003
(36.73%); Jane Rush, 6378 FM #545, Anna, TX 75409 (6.68%); and Tucker Anthony
Inc. Custodian Jeffrey Kelley IRA, 45789 Turtlehead Drive, Plymouth, MI 48170-
3655 (5.83%). Large Cap Value - Charles Schwab & Co. Inc. Reinvest Account, 101
              ---------------
Montgomery Street, San Francisco, CA 94104-4122 (96.62%). Select Equities -
                                                          ---------------
Charles Schwab & Co. Inc. Reinvest Account, 101 Montgomery Street, San
Francisco, CA 94104-4122 (52.33%); IMS & Co. FBO Customers, P.O. Box 3865,
Englewood, CO 80155-3865 (6.53%); and Smith Barney Corp. Trust Co. Ttee, Two
Tower Center, P.O. Box 1063, East Brunswick, NJ 08816-1063 (5.31%). Small Cap
                                                                    ---------
Growth - Fidelity Investments Institutional Operations Co. Custodian FBO Certain
- ------
Employee Benefit Plans, 100 Magellan Way, Covington, KY 41015-1987 (26.16%);
Charles Schwab & Co Inc. Reinvest Account, 101 Montgomery Street, San Francisco,
CA 94104-4122 (22.29%); National Financial Services Corp. FBO Customers, 200
Liberty Street, New York, NY 10281-1003 (6.29%); Merrill Lynch Pierce Fenner &
Smith, Inc. FBO Clients, 4800 Deer Lake Drive, Jacksonville, FL 32246-6484
(22.29%); and Prudential Securities FBO Clients, 1 New York Plaza, New York, NY
10292-0001 (5.85%). Technology - Douglas S. Foreman c/o Trust Company of the
                    ----------
West, 865 Figueroa Street, Suite 1800, Los Angeles, CA 90017-2543 (57.37%); TCW
Capital Investment Corporation, 865 South Figueroa Street, Suite 1800, Los
Angeles, CA 9017-2543 (22.41%); and Sanwa Bank Cust. Ellison IRA, 865 South
Figueroa Street, Suite 2100 Los Angeles, CA 90017-2543 (8.93%). Value
                                                                -----
Opportunities - Charles Schwab & Co., Inc. Reinvest Account, 101 Montgomery
- -------------
Street, San Francisco, CA 94104-4122 (42.14%); IMS & Co. FBO Customers, P.O. Box
3865, Englewood, CO 80155-3865 (7.64%); National Financial Services Corp. FBO
Customers, 200 Liberty Street, New York, NY 10281-1003 (17.31%); and National
Investor Services Corp. FBO Customers, 55 Water Street, New York, NY 10041-3299
(10.21%).

                                       45


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.  The Administrator receives an
administration fee based on the assets of the Company as follows:  0.0375% of
the first $750 million in assets; 0.0300% of the next $750 million in assets;
and 0.0200% thereafter.

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.

                                       46


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.

Purchases Through Broker-Dealers and Financial Organizations

Shares of the Funds may be purchased and redeemed through certain broker-dealers
and financial organizations and their authorized intermediaries.  If purchases
and redemption's of a Fund's shares are arranged and settlement is made at an
investor's election through a registered broker-dealer, other than the
Distributor, the broker-dealer may in its discretion, charge a fee for that
service.

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.

Redemption/Exchange Fee

In general, shares of the Asia Pacific Equities, European Equities, and Japanese
Equities Funds may be exchanged or redeemed at net asset value.  However, shares
of the Asia Pacific Equities, European Equities, and Japanese Equities Funds
held less than 90 days are redeemable at a price equal to 99% of the then net
asset value per share.  This 1% discount, referred to in the Funds' Prospectus
and this Statement of Additional Information as a redemption/exchange fee,
directly affects the amount a shareholder who is subject to the discount
receives upon exchange or redemption.  It is intended to encourage long-term
investment in the funds, to avoid transaction and other expenses caused by early
redemptions and to facilitate portfolio management.  The fee is not a deferred
sales charge, is not a commission paid to the Adviser or its affiliates, and
does not benefit the Adviser in any way.  The Company reserves the right to
modify the terms of or terminate this fee in any way.  The redemption discount
will not be applied to (a) a redemption of shares in the Asia Pacific Equities,
European Equities, and Japanese Equities Funds outstanding for 90 days or more,
(b) shares purchased through certain retirement plans, including 401(k) plans,
403(b) plans, Keogh accounts, and Profit Sharing and Money Purchase Pension
Plans, (c) a redemption of reinvestment shares (i.e., shares purchased through
the reinvestment of dividends or capital gains distributions paid by a fund),
(d) a redemption of shares due to the death of the registered shareholder of a
fund account, or due to the death of all registered shareholders of a fund
account with more than one registered shareholder, (i.e., joint tenant account),
or (e) a redemption of shares by the Company upon exercise of its right to
liquidate accounts falling below the minimum account size by reason of
shareholder redemptions.  For this purpose and without regard to be shares
actually redeemed, shares will be treated as redeemed as

                                       47


follows: first, reinvestment shares; second, purchased shares held 90 days or
more; and third, purchased shares held for less than 90 days.  Finally, if a
redeeming shareholder acquires shares through a transfer from another
shareholder, applicability of the discount, if any, will be determined by
reference to the date the shares were originally purchased, and not from the
date of transfer between shareholders.

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.

                                       48


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 a Fund invests in foreign currency or forward foreign exchange contracts,
gains from such foreign currency and forward foreign exchange contracts relating
to investments in stocks, securities or foreign currencies are considered to be
qualifying income for purposes of the 90% gross income test described in clause
(a) above, provided such gains are directly related to the Fund's principal
business of investing in stock or securities.  It is currently unclear, however,
who will be treated as the issuer of certain foreign currency instruments or how
foreign currency contracts will be valued for purposes of the asset
diversification requirements applicable to the Fund described in clause (c)
above.  Until such time as these uncertainties are resolved, each Fund will
utilize the more conservative, or limited, definition or approach with respect
to determining permissible investments in its portfolio.

Investments in foreign currencies, forward contracts, options, futures contracts
and options thereon may subject a Fund to special provisions of the Internal
Revenue Code that may affect the character of gains and losses realized by the
Fund (i.e., may affect whether gains or losses are ordinary or capital), may
accelerate recognition of income to a Fund, and may defer Fund losses.  These
rules also (a) could require a Fund to mark-to-market certain types of the
positions in its portfolio (i.e.,

                                       49


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 could possibly
result in the imposition of tax, interest or penalties on the Fund.

                                       50


Under the Internal Revenue Code, a nondeductible excise tax of 4% is imposed on
a Fund to the extent the Fund does not distribute by the end of any calendar
year at least 98% of its ordinary income for that calendar year and at least 98%
of the net amount of its capital gains (both long-term and short-term) for the
one-year period ending on October 31 of such calendar year (or December 31 if
the Fund so elects), plus any undistributed amounts of taxable income for prior
years.  For this purpose, however, any income or gain retained by the Fund that
is subject to corporate income tax will be considered to have been distributed
by year-end.  Each Fund intends to meet these distribution requirements to avoid
the excise tax liability.

Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made to
shareholders of record in such a month are treated as paid and are taxable as of
December 31, provided that the Fund pays the dividend during January of the
following year.

If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income, or fails to certify that it
has provided a correct taxpayer identification number and that it is not subject
to "backup withholding," then the shareholder may be subject to a 31% "backup
withholding" tax with respect to: (a) taxable dividends and distributions, and,
(b) the proceeds of any redemptions of Fund shares.  An individual's taxpayer
identification number is his social security number.  The 31% "backup
withholding" tax is not an additional tax and may be credited against a
taxpayer's regular federal income tax liability.

Dividends to shareholders who are non-resident aliens may be subject to a 30%
United States withholding tax under provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law.  Non-resident shareholders
should consult their own tax advisers.

The foregoing is a general and abbreviated summary of the applicable provisions
of the Internal Revenue Code and Treasury Regulations presently in effect.  For
the complete provisions, reference should be made to the pertinent Internal
Revenue Code sections and the Treasury Regulations promulgated thereunder.  The
Internal Revenue Code and these Regulations are subject to change by legislative
or administrative action.

Each shareholder will receive annual information from its Fund regarding the tax
status of Fund distributions.  Shareholders are urged to consult their attorneys
or tax advisers with respect to the applicability of federal, state, local,
estate and gift taxes and non-U.S. taxes to their investment in the Fund.

INVESTMENT RESULTS

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

                                      51


Each Fund's total return may be calculated on an "average annual total return"
basis, and may also be calculated on an "aggregate total return" basis, for
various periods.  Average annual total return reflects the average annual
percentage change in the value of an investment in a Fund over the particular
measuring period.  Aggregate total return reflects the cumulative percentage
change in value over the measuring period.  Average annual total return figures
provided for the Funds will be computed according to a formula prescribed by the
SEC.  The formula for an average annual total return can be expressed as
follows:

P(1+T)/n/=ERV

Where:

     P   =     hypothetical initial payment of $1,000

     T   =     average annual total return

     n   =     number of years

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

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

Aggregate Total Return  [ (ERV) - 1 ]
                           ---
                            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 Funds including data from Lipper, Inc., CDA Technologies,
Inc., or similar independent services which monitor the performance of mutual
funds or with other indexes compiled by

                                      52


recognized organizations. 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.

ORGANIZATION, SHARES AND VOTING RIGHTS

The Company was incorporated as a Maryland corporation on September 15, 1992 and
is registered with the Securities and Exchange Commission as an open-end,
management investment company.  The Company has acknowledged that the name "TCW"
is owned by The TCW Group, Inc. ("TCW"), the parent of the Adviser.  The Company
has agreed to change its name and the name of the Funds at the request of TCW if
any advisory agreement into which TCW or any of its affiliates and the Company
may enter is terminated.

The Funds offers three classes of shares: Institutional Class shares, Investor
(or Class N) shares and Advisor Class.  The Institutional Class shares and
Advisor Class shares are offered at the current net asset value.  The Investor
(or 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.

                                      53


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

LEGAL COUNSEL

Dechert, 1775 Eye Street, N.W., Washington, D.C. 20006-2401

FINANCIAL STATEMENTS

The audited financial statements for the period ended October 31, 2000,
including the financial highlights, appearing in the Company's Annual Report to
shareholders are incorporated by reference and made a part of this document.

                                      54


                                  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.

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,

                                      A-1


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.

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.

                                      A-2


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