-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Na+kCvAYcSOvEvRUr+Q6bW3VqYII4GIZ9sn73tDpllc6cH+j004V6WXCwUuLufED lxoppVLcO18K7DmF1S0Nvg== 0000943663-01-500320.txt : 20020411 0000943663-01-500320.hdr.sgml : 20020411 ACCESSION NUMBER: 0000943663-01-500320 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20011115 EFFECTIVENESS DATE: 20011115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TCW GALILEO FUNDS INC CENTRAL INDEX KEY: 0000892071 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-52272 FILM NUMBER: 1792992 BUSINESS ADDRESS: STREET 1: 865 S FIGUEROA ST STE 1800 CITY: LOS ANGELES STATE: CA ZIP: 90017 BUSINESS PHONE: 2132440000 FORMER COMPANY: FORMER CONFORMED NAME: TCW FUNDS INC DATE OF NAME CHANGE: 19930714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TCW GALILEO FUNDS INC CENTRAL INDEX KEY: 0000892071 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07170 FILM NUMBER: 1792993 BUSINESS ADDRESS: STREET 1: 865 S FIGUEROA ST STE 1800 CITY: LOS ANGELES STATE: CA ZIP: 90017 BUSINESS PHONE: 2132440000 FORMER COMPANY: FORMER CONFORMED NAME: TCW FUNDS INC DATE OF NAME CHANGE: 19930714 485BPOS 1 tcwgal485b.txt FORM N-1A As filed with the Securities and Exchange Commission on November 15, 2001 Registration No. 33-52272 811-7170 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. [ ] Post-Effective Amendment No. 32 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 35 [X] TCW GALILEO FUNDS, INC. (Exact Name of Registrant as Specified in Charter) 865 South Figueroa Street, Suite 1800 Los Angeles, California 90017 Registrant's Telephone Number, including Area Code: (213) 244-0000 Philip K. Holl, Esq. Secretary 865 South Figueroa Street, Suite 1800, Los Angeles, CA 90017 (Name and Address of Agent for Service) ------------------------------------------ It is proposed that this filing will become effective (check appropriate box) X immediately upon filing pursuant to paragraph (b) on (date) pursuant to paragraph (b) 60 days after filing pursuant to paragraph (a)(1) on (date) pursuant to paragraph (a)(1) 75 days after filing pursuant to paragraph (a)(2) on (date) pursuant to paragraph (a)(2) of Rule 485 *Registrant has elected to register an indefinite number of shares of beneficial interest pursuant to Rule 24f-2 under the Investment Company Act of 1940. Registrant filed Notice required by Rule. Pursuant to Agreements and Plans of Reorganization expected to be submitted to shareholders of SG Cowen Large Cap Value Fund, a series of SG Cowen Series Funds, Inc. (File Nos. 333-40327 and 811-8487), SG Cowen Opportunity Fund, a series of SG Cowen Funds, Inc. (File Nos. 33-18505 and (811-5388) and SG Cowen Income + Growth Fund (File Nos. 33-05676 and 811-4672), the Registrant will be permitted to use any redemption credits pursuant to Rules 24f-2 in connection with their acquisition by the TCW Galileo Diversified Value Fund, the TCW Galileo Opportunity Fund, and the TCW Galileo Income + Growth Fund, respectively, each a series of the Registrant, in reliance on Rule 24f-2(b) under the Investment Company Act of 1940. TCW Galileo Funds, Inc. This prospectus tells you about the Class I shares of three separate investment funds offered by TCW Galileo Funds, Inc., each of which has different investment objectives and policies that are designed to meet different investment goals. Please read this document carefully before investing, and keep it for future reference. TCW Galileo Diversified Value Fund TCW Galileo Opportunity Fund TCW Galileo Income + Growth Fund As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. November 15, 2001 LOGO TABLE OF CONTENTS General Fund Information......................................................1 Investment Objectives and Principal Strategies.......................1 Principal Risks......................................................1 Performance Summary..................................................2 Fund Expenses and Expense Example....................................5 TCW Galileo Diversified Value Fund............................................6 Investment Objectives/Approach.......................................6 Main Risks...........................................................7 TCW Galileo Opportunity Fund..................................................8 Investment Objectives/Approaches.....................................8 Main Risks...........................................................9 TCW Galileo Income + Growth Fund.............................................10 Investment Objectives/Approach......................................10 Main Risks..........................................................11 Risk Considerations.................................................12 Management of the Fund..............................................15 Multiple Class Structure............................................15 YOUR INVESTMENT..............................................................16 Account Policies and Services.......................................16 To Open an Account/to Add to an Account.............................18 To Sell or Exchange Shares..........................................19 Distributions and Taxes.............................................20 Financial Highlights................................................21 FOR MORE INFORMATION.........................................................24 General Fund Information Investment Objectives and Principal Strategies
TCW Galileo Funds, Inc. Investment Objectives Principal Investment Strategies - ----------------------- --------------------- ------------------------------- TCW Galileo Diversified Value Fund Long term capital appreciation Invests in equity securities of large capitalization companies. TCW Galileo Opportunity Fund Long term capital appreciation Invests in equity securities of small capitalization companies TCW Galileo Income + Growth Fund High level of dividend income Invests in equity securities of issuers which pay dividends.
Under adverse market conditions, each Fund could invest some or all of its assets in money market securities. Although the Funds would do this only when seeking to avoid losses, it could have the effect of reducing the benefit from any upswing in the market. Principal Risks The Funds are affected by changes in the economy, or in securities and other markets. There is also the possibility that investment decisions the Adviser makes will not accomplish what they were designed to achieve or that companies in which the Funds invest will have disappointing performance or not pay their debts. Risk is the chance that you will lose money on your investment or that it will not earn as much as you expect. In general, the greater the risk, the more money your investment can earn for you--and the more you can lose. Since shares of a Fund represent an investment in securities with fluctuating market prices, the value of individual Fund shares will vary as a Fund's portfolio securities increase or decrease in value. Therefore, the value of an investment in the Fund could go down as well as up. All investments are subject to: o MARKET RISK There is the possibility that the returns from the types of securities in which a Fund invests will underperform returns from the various general securities markets or different asset classes. Different types of securities tend to go through cycles of outperformance and underperformance in comparison to the general securities markets. o SECURITIES SELECTION RISK There is the possibility that the specific securities held in a Fund's portfolio will under perform other funds in the same asset class or benchmarks that are representative of the general performance of the asset class because of the portfolio manager's choice of securities. o PRICE VOLATILITY There is the possibility that the value of a Fund's portfolio will change as the prices of its investments go up or down. Although stocks offer the potential for greater long-term growth than most fixed income securities, stocks generally have higher short-term volatility. The Opportunity Fund may be subject to greater price volatility than other funds because it invests primarily in securities of small sized companies. Each Fund may also be subject (in varying degrees) to the following risks: o LIQUIDITY RISK There is the possibility that a Fund may lose money or be prevented from earning capital gains if it cannot sell a security at the time and price that is most beneficial to a Fund. The Opportunity Fund may be subject to liquidity risk because it invests primarily in securities of small sized companies. o FOREIGN INVESTING RISK The Opportunity Fund may invest a portion of its assets in foreign securities. There is the likelihood that foreign investments may be riskier than U.S. investments because of a lack of political stability, foreign controls on investment and currency exchange rates, fluctuations in currency exchange rates, withholding taxes, and lack of adequate company information. In addition, because foreign securities generally are denominated and pay dividends or interest in foreign currencies, and the Fund may hold various foreign currencies, the value of the net assets of the Fund as measured in U.S. dollars can be affected favorably or unfavorably by changes in exchange rates. o CREDIT RISK There is the possibility that a Fund could lose money if an issuer is unable to meet its financial obligations such as the payment of principal and/or interest on a fixed income instrument, or goes bankrupt. A more detailed explanation of these risks is presented under the "Risk Considerations" section at page 12. Your investment is not a bank deposit, and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Performance Summary The two tables below show the each Fund's annual returns and its long-term performance. The first table shows you how the Fund's performance has varied from year to year. The second table compares each Fund's performance over time to that of a broad-based securities index. Both tables assume reinvestment of dividends and distributions. The performance information for each Fund includes the performance of its predecessor investment company, ("Predecessor Funds"), which prior to November 30, 2001, was managed by SG Cowen Asset Management Inc. The Predecessor Funds have investment objectives and strategies that are substantially similar to the Funds. The performance of Predecessor Funds in the bar charts and other tables was calculated using the fees and expenses (not including the sales charge of 4.75% for Class A shares) of the Class A shares of the Predecessor Funds. As with all mutual funds, past performance is not a prediction of futures results. Year by year total return (%) as of December 31, each year TCW Galileo Diversified Value Fund -3.27% 9.34% 13.66% 1998 1999 2000 * The Fund's total return for the period November 1, 2000 to September 30, 2001 is: -15.10% Best and worst quarterly performance during this period Performance Diversified Value Fund Quarter ending 6/30/1999 16.00% (Best) Quarter ending 9/30/1998 -16.39% (Worst) Average Annual Total Return as of December 31, 2000 1 year Since inception Diversified Value Fund 8.24% 4.61% S&P 500 -9.10% 12.26% Russell 1000 Value Index 7.01% 9.93% Year by year total return (%) as of December 31, each year TCW Galileo Opportunity Fund 45.81% 4.92% 31.55% 3.89% 15.52% 25.23% 11.31% -25.86% 28.07% 39.15% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
*The Fund's total return for the period November 1, 2000 to September 30, 2001 is: 3.52% Best and worst quarterly performance during this period Performance Opportunity Fund Quarter ending 3/31/1991 27.08% (Best) Quarter ending 9/30/1998 -21.66% (Worst) Average Annual Total Return as of December 31, 2000 1 year 5 years Since inception or 10 years ------ ------- --------------------------- Opportunity Fund 32.54% 12.22% 15.70% S&P 500 -9.10% 18.33% 17.46% Russell 2000 Index -3.02% 10.31% 15.53%
TCW Galileo Income + Growth Fund, each year 26.49% 12.26% 9.25% -6.13% 36.77% 13.13% 22.90% .65% -4.14% 45.53% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 *The Fund's total return for the period November 1, 2000 to September 30, 2001 is: 7.08%
Best and worst quarterly performance during this period Performance Income + Growth Fund Quarter ending 9/30/2000 16.84% (Best) Quarter ending 9/30/1998 -8.51% (Worst) Average Annual Total Return as of December 31, 2000 1 year 5 years Since inception or 10 years ----- ------- ---------------------------- Income + Growth Fund 38.56% 13.21% 13.98% S&P 500 -9.10% 18.33% 17.46% Lipper Equity Income Fund Avg. 7.46% 13.42% 14.45% Fund Expenses and Expense Example As an investor, you pay certain fees and expenses in connection with the Funds, which are described in the table below. Annual Fund operating expenses are paid out of Fund Assets, so their effect is included in the share price. The Class I shares of the funds have no sales charge (load) or Rule 12b-1 distributions.
FEE TABLE Diversified Opportunity Fund Income + Growth Fund Value Fund Shareholder Transaction Fees 1) Redemption Fees......................... None None None 2) Exchange Fees........................... None None None 3) Contingent Deferred Sales Load.......... None None None 4) Sales Load on Reinvested Dividends...... None None None 5) Sales Load on Purchases................. None None None Annual Fund Operating Expenses Management Fees............................ 0.75% 0.90% 0.75% Distribution (12b-1) Fees.................. None None None Other Expenses............................. 2.25% 0.40% 0.41% Total Annual Fund Operating Expenses (1)............................ 3.00%(2) 1.30% 1.16% - ------------------------------------- (1) The Adviser has agreed to reduce its investment advisory fee or to pay the ordinary expenses of the 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. (2) The above tables do not reflect the previous investment adviser's voluntary reimbursement of expenses. The total operating expenses after the reimbursement for this Fund would be .97%.
EXPENSE EXAMPLE This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. This Example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 Initial Investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether or not you sold your shares at the end of a period. Because actual return and expenses will be higher or lower, the Example is for comparison purposes only.
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- Diversified Value Fund $303 $927 $1,577 $3,318 Opportunity Fund $132 $412 $ 713 $1,568 Income + Growth Fund $118 $368 $ 638 $1,409
TCW Galileo Diversified Value Fund Investment Objectives/Approach The Fund seeks long term capital appreciation, with a secondary goal of current income. To pursue this goal, the Fund invests primarily in equity securities of large capitalization companies. The securities include common and preferred stock and convertible securities. The Fund will invest (except when maintaining a temporary defensive position) at least 65% of the value of its total assets in equity securities of companies with a market capitalization of greater than $1 billion at the time of purchase. The Fund will focus its investments in "value companies." Concepts to understand Large capitalization companies are established companies that are considered known quantities. Large capitalization companies often have the resources to weather economic shifts, though they can be slower to innovate than small companies. Value companies are companies that appear underpriced according to certain financial measurements of their intrinsic worth or business prospects (such as price-to-earnings or price-to-book ratios). Because a stock can remain undervalued for years, value investors often look for factors that could trigger a rise in prices. In managing the Fund's investments, the Adviser blends a number of investment strategies. The Adviser emphasizes investing in companies that have one or more characteristics that are in line with the equivalent characteristics for companies in the Russell 1000 Value Index such that the price to earnings ratio, the price to cashflows ratios, the price to book ratio and the price to sales ratio are in line with the averages of the companies included in the Russell 1000 Value Index. The Adviser seeks companies that it believes are neglected or out of favor and whose stock prices are low in relation to current earnings, cash flow, book value and sales and those companies that have reasonable prospects for growth even though the expectations for these companies are low and their valuations are temporarily depressed. Generally, the Adviser seeks companies who have one or more of the following characteristics: Typically, the Fund sells an individual security when the company fails to meet expectations, there is a deterioration of the underlying fundamentals, the intermediate and long term prospects for the company are poor or the Adviser determines to take advantage of a better investment opportunity. The Fund will generally invest in equity securities which include common and preferred stock; rights; or warrants to purchase common stocks or preferred stocks, securities convertible into common and preferred stock such as convertible bonds and debentures; American Depository Receipts (ADRs); and other securities with equity characteristics. ADRs are typically certificates issued by U.S. banks which represent a stated number of shares of a foreign corporation that a bank holds in its vault. The Fund may invest some its assets in covered call options. A call option is an agreement which gives the buyer the right but not the obligation to buy a certain amount of a specified security for a specific price regardless of the market price of the security. A call option is termed covered when the seller owns the securities underlying the option. The Fund seeks to earn additional income by making loans of its portfolio securities to brokers, dealers and other financial institutions. The loans will be secured at all times by cash and liquid high-grade debt obligations. As with any extension of credit, there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower fail financially. The Fund may engage in active portfolio management which may result in increased Fund transaction expenses and have tax consequences such as increased realized gains for investors. Diane Jaffe is the Fund's portfolio manager. Main Risks The Fund holds primarily stocks, which may go up or down in value, sometimes rapidly and unpredictably. Although stocks offer the potential for greater long-term growth than most fixed income securities, stocks generally have higher short-term volatility. In addition, the Fund may hold convertible debt securities. Many convertible debt securities are rated below investment grade and are considered speculative by rating agencies as to repayment of principal and interest. The primary risk affecting this fund is "price volatility risk." Price volatility refers to the possibility that the value of the Fund's portfolio will change as the prices of its investments go up or down. This Fund may be less susceptible to price volatility than funds that invest in the securities of small companies. This is especially true during periods of economic uncertainty or during economic downturns. TCW Galileo Opportunity Fund Investment Objectives/Approach The Fund seeks long term capital appreciation. Current income is incidental. To pursue this goal, it invests (except when maintaining a temporary defensive position) at least 65% of the value of its total assets in equity securities issued by companies with market capitalizations, at the time of acquisition, of $2 billion or less. The Fund may invest in up to 10% of its assets in securities of similar foreign companies or in American Depository Receipts (ADRs) of such companies. The Fund may invest up to 35% of its assets in equity securities of companies other than small capitalization companies, and up to 20% of its assets in money market instruments. The Fund may also write covered call options. In managing the Fund's Investments, the Adviser tries to identify those companies that have fallen out of favor and whose stock is selling below what the Adviser believes is its real value. The Adviser looks for those stocks with a potential catalyst such as new products, technologies, or management that will trigger an increase in their value. The Adviser analyzes each candidate's fundamental strength, looking for companies with well positioned product lines and experienced management with equity ownership. In the course of this analysis, the Adviser often discovers that many individual stocks in a particular industry or market sector offer attractive investment opportunities. The Adviser's analysis finds that frequently the market undervalues entire industries and sectors, offering a cluster of candidates that meet the investment criteria. As a result, the Adviser may Focus the Fund's investments in a number of industries that the Adviser's analysis has revealed as poised for growth. Typically, the Fund sells an individual security when the company fails to meet expectations, there is a deterioration of underlying funds markets, the intermediate and long term prospects for the company are poor or the Adviser determines to take advantage of a better investment opportunity. The Fund will generally invest in equity securities which include common and preferred stock; rights; or warrants to purchase common stocks or preferred stocks, securities convertible into common and preferred stock, such as convertible bonds and debentures; ADRs; and other securities with equity characteristics. ADRs are typically certificates issued by U.S. banks which represent a stated number of shares of a foreign corporation that a bank holds in its vault. The Fund may invest some its assets in covered call options. A call option is an agreement which gives the buyer the right but not the obligation to buy a certain amount of a specified security for a specific price regardless of the market price of the security. A call option is termed covered when the seller owns the securities underlying the option. The Fund may seek to earn additional income by making loans of its portfolio securities to brokers, dealers and other financial institutions. The loans will be secured at all times by cash and liquid high-grade debt obligations. As with any extension of credit, there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower fail financially. The Fund may engage in active portfolio management which may result in increased Fund transaction expenses and have tax consequences such as increased realized gains for investors. Concepts to understand - ---------------------- Small-Sized Companies The Fund seeks long term capital appreciation by focusing on small, fast-growing companies that offer cutting-edge products, services or technologies. Because these companies are often in their early stages of development, their stocks tend to fluctuate more than most other securities. William Church is the Fund's portfolio manager. Main Risks The Fund holds primarily stocks, which may go up or down in value, sometimes rapidly and unpredictably. Although stocks offer the potential for greater long-term growth than most fixed income securities, stocks generally have higher short-term volatility. In addition, the Fund may hold convertible debt securities. Many convertible debt securities are rated below investment grade and are considered speculative by rating agencies as to repayment of principal and interest. The primary risks affecting this Fund are "price volatility", "liquidity risk" and "foreign investing risk". Price volatility refers to the possibility that the value of the Fund's portfolio will change as the prices of its investments go up or down. This Fund may be subject to greater price volatility than funds that invest in the securities of large or midcap companies. Liquidity risk refers to the possibility that the Fund may lose money or be prevented from earning capital gains if it cannot sell securities at the time and price that is most beneficial to the Fund. Because the securities of small-size companies may be less liquid than the securities of large-size companies, the Fund may be more susceptible to liquidity risk than funds that invest in the securities of large-sized companies. Because the Fund may invest a portion of its assets in securities issued by foreign companies, it may be subject to foreign investing risks. Foreign investing risk refers to the likelihood that foreign investments may be riskier than U.S. investments because of many factors, some of which include: o a lack of political or economic stability o foreign controls on investment and currency exchange rates o withholding taxes o a lack of adequate company information In addition, securities traded only through foreign markets may be more volatile and are often harder to sell. Volatility is a way to measure the changes in the price of a single security or an entire portfolio. Large and frequent price changes indicate higher volatility, which generally indicates that there is a greater chance that you could lose money over the short term. The Fund is also subject to foreign currency risk. Because foreign securities are generally denominated and pay dividends or interest in foreign currencies, the value of the net assets of the Fund as measured in U.S. dollars will be affected favorably or unfavorably by changes in exchange rates. TCW Galileo Income + Growth Fund Investment Objectives/Approach The Fund seeks to realize a high level of dividend income consistent with prudent investment management. Capital appreciation is a secondary objective. To pursue this goal, the Fund will invest (except when maintaining a temporary defensive position) at least 80% of the value of its total assets in equity securities. In managing the Fund's investments, the Adviser will focus on companies that have a record of paying dividends and increasing dividends. Concepts to understand Large Capitalization Companies are established companies that are considered known quantities. Large capitalization companies often have the resources to weather economic shifts, although they can be slower to innovate than small companies. Growth Companies are companies exhibiting faster than average gains in earnings and which are expected to continue to show high levels of growth gain. The Adviser analyzes economic and market conditions and identifies securities that make the best investments in the pursuit of the fund's investment objectives. In selecting the investments, the Adviser considers factors which may include one or more of the following: o the company's current valuation o market capitalization o price/earnings ratio o current dividend yield o the company's potential for a strong positive cash flow and future dividend growth. Typically, the Fund sell an individual security when the company fails to meet expectations, there is a deterioration of the underlying fundamentals, the intermediate and long-term prospects for the company are poor or the Adviser determines to take advantage of a better investment opportunity. The Fund will generally invest in equity securities which include common and preferred stock; rights; or warrants to purchase common stocks or preferred stocks, securities convertible into common and preferred stock such as convertible bonds and debentures; American Depository Receipts (ADRs); and other securities with equity characteristics. ADRs are typically certificates issued by U.S. banks which represent a stated number of shares of a foreign corporation that a bank holds in its vault. The Fund may invest some of its assets in covered call options. A covered call option is any agreement which gives the buyer the right but not the obligation to buy certain amount of a specified security for a specific price within a certain time period regardless of market price of the security. A call option is termed covered when the seller owns the securities underlying the option. The Fund seeks to earn additional income by making loans of its portfolio securities to brokers, dealers and other financial institutions. The loans will be secured at all times by cash and liquid high-grade debt obligations. As with any extension of credit, there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower fail financially. The Fund may engage in active portfolio management which may result in increased Fund transaction expenses and have tax consequences such as increased realized gains for investors. Diane Jaffe is the Fund's portfolio manager. Main Risks The Fund holds primarily stocks, which may go up or down in value, sometimes rapidly and unpredictably. Although stocks offer the potential for greater long-term growth than most fixed income securities, stocks generally have higher short-term volatility. In addition, the Fund may hold convertible debt securities. Many convertible debt securities are rated below investment grade and are considered speculative by rating agencies as to repayment of principal and interest. The primary risk affecting this Fund is "price volatility." Price volatility refers to the possibility that the value of the Fund's portfolio will change as the prices of its investments go up or down. This Fund may be less susceptible to price volatility because it invests in the securities of large companies. This is especially true during periods of economic uncertainty or during economic downturns. Risk Considerations Please consider the following risks before investing in a Fund. Various market risks can affect the price or liquidity of an issuer's securities. Adverse events occurring with respect to an issuer's performance or financial position can depress the value of the issuer's securities. The liquidity in a market for a particular security will affect its value and may be affected by factors relating to the issuer, as well as the depth of the market for that security. Other market risks that can affect value include a market's current attitudes about types of securities, market reactions to political or economic events, and tax and regulatory effects (including lack of adequate regulations for a market or particular type of instrument). Market restrictions on trading volume can also affect price and liquidity. Prices of most securities tend to be more volatile in the short-term. Therefore an investor who trades frequently or redeems in the short-term is more likely to incur a loss than an investor who holds investments for the longer term. The fewer the number of issuers in which the Fund invests, the greater the potential volatility of its portfolio. The Adviser may temporarily invest up to 100% of the Fund's assets in high quality short-term money market instruments if it believes adverse economic or market conditions, such as excessive volatility or sharp market declines, justify taking a defensive investment posture. If the Fund attempts to limit investment risk by temporarily taking a defensive investment position, it may be unable to pursue its investment objective during that time, and it may miss out on some or all of an upswing in the securities markets. General Investment Risk Since shares of the Fund represent an investment in securities with fluctuating market prices, the value of Fund shares will vary as the value of each Fund's portfolio securities increases or decreases. Therefore, the value of an investment in the Fund could go down as well as up. Investment in foreign securities involves special risks in addition to the usual risks inherent in domestic investments. These include: political or economic instability; the unpredictability of international trade patterns; the possibility of foreign governmental actions such as expropriation, nationalization or confiscatory taxation; the imposition or modification of foreign currency or foreign investment controls; the imposition of withholding taxes on dividends, interest and gains; price volatility; and fluctuations in currency exchange rates. These risks are more pronounced in emerging market countries. Foreign Investing Investing in foreign securities involves risks in addition to the risks associated with domestic securities. An additional risk is currency risk. While the price of a Fund's shares is quoted in U.S. dollars, a Fund generally converts U.S. dollars to a foreign market's local currency to purchase a security in that market. If the value of that local currency falls relative to the dollar, the U.S. dollar value of the foreign currency will decrease. As compared to U.S. companies, foreign issuers generally disclose less financial and other information publicly and are subject to less stringent and less uniform accounting, auditing and financial reporting standards. Foreign countries typically impose less thorough regulations on brokers, dealers, stock exchanges, insiders, and listed companies than does the U.S., and foreign securities markets may be less liquid and more volatile than domestic markets. Investment in foreign securities involves higher costs than investment in U.S. securities, including higher transaction and custody costs as well as the imposition of additional taxes by foreign governments. In addition, security trading practices abroad may offer less protection to investors such as the Funds. Settlement of transactions in some foreign markets may be delayed or may be less frequent than in the U.S., which could affect the liquidity of 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 issuers. Because foreign securities generally are denominated and pay dividends or interest in foreign currencies, and some of the Funds may hold various foreign currencies from time to time, the value of the net assets of those Funds as measured in U.S. dollars will be affected favorably or unfavorably by changes in exchange rates. Generally, currency exchange transactions will be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the currency exchange market. The cost of currency exchange transactions will generally be the difference between the bid and offer spot rate of the currency being purchased or sold. In order to protect against uncertainty in the level of future foreign currency exchange rates, certain of the Funds are authorized to enter into certain foreign currency futures and forward contracts. However, a Fund is not obligated to do so and, depending on the availability and cost of these services, the Fund may be unable to use foreign currency futures and forward contracts to protect against currency uncertainty. Please see the Statement of Additional Information for further information. The forward currency market for the purchase or sale of U.S. dollars in most countries is not highly developed, and in certain countries, there may be no such market. If a devaluation of a currency is generally anticipated, a Fund may not be able to contract to sell the currency at an exchange rate more advantageous than that which would prevail after the anticipated amount of devaluation, particularly in regards to forward contracts for local Latin American currencies in view of the relatively small, inactive or even non-existent market for these contracts. In the event the Funds holds securities denominated in a currency that suffers a devaluation, the Fund's net asset values will suffer corresponding reductions. In this regard, in December 1994, the Mexican government determined to allow the Mexican peso to trade freely against the U.S. dollar rather than within a controlled band, which action resulted in a significant devaluation of the Mexican peso against the dollar. Further, in July 1997, the Thai and Philippine governments allowed the baht and peso, respectively, to trade freely against the U.S. dollar resulting in a sharp devaluation of both currencies, and in 1998 Russia did the same, causing a sharp devaluation of the ruble. Credit Risk Credit Risk refers to the likelihood that an issuer will default in the payment of principal and/or interest on a security. Because convertible securities may be rated below investment grade, they are subject to greater credit risk. The Funds may invest in convertible securities rated below investment grade. Debt securities that are rated below investment grade are considered to be speculative. Those debt securities rated below investment grade are also commonly known as "junk bonds". These securities are regarded as bonds predominately speculative with respect to the issuer's continuing ability to meet principal and interest payments. Because investment in lower quality securities involves greater investment risk, achievement of the Fund's investment objective will be more dependent on the Adviser's analysis than would be the case if the Fund was investing in higher quality debt securities. In addition, lower quality securities may be more susceptible to real or perceived adverse economic and individual corporate developments than would investment grade debt securities. More, the secondary trading market for lower quality securities may be less liquid than the market for investment grade securities. This potential lack of liquidity may make it more difficult for the Adviser to accurately value certain portfolio securities. European Economic and Monetary Union Certain of the Funds may invest in European countries that have agreed to enter into the European Monetary Union (EMU). EMU is an effort by certain European countries to, among other things, reduce barriers between countries and eliminate fluctuations in their currencies. Many European countries have adopted or are in the process of adopting a single European currency referred to as the euro. The consequences of the euro conversion are unclear and may adversely affect the value and/or increase the volatility of securities held by a Fund. Among other things, EMU establishes a single European currency (the euro), which was introduced on January 1, 1999 and is expected to replace the existing national currencies of all initial EMU participants by January 1, 2002. Upon introduction of the euro, certain securities (beginning with government and corporate bonds) have been redenominated in the euro and, thereafter trade and make dividend and other payments only in euros. Like other investment companies and business organizations, including the companies in which the Funds invest, the Funds could be adversely affected: (i) if the euro, or EMU as a whole does not take affect as planned; (ii) if a participating country withdraws from EMU; or (iii) if the computing, accounting and trading systems used by the Funds' service providers, or by other business entities with which the Funds or their service providers do business, are not capable of recognizing the euro as a distinct currency at the time of, and following euro conversion. Management of the Fund Investment Adviser The Funds' investment adviser is TCW Investment Management Company (the "Adviser") and is headquartered at 865 South Figueroa Street, Suite 1800, Los Angeles, California 90017. As of September 30, 2001, the Adviser and its affiliated companies, which provide a variety of trust, investment management and investment advisory services, had approximately $80 billion under management or committed to management. Portfolio Managers Listed below are the individuals who are primarily responsible for the day-to-day portfolio management of the Funds, including a summary of each person's business experience during the past five years: Portfolio Manager(s) Business Experience During Last Five Years* Diversified Value Fund & Income + Growth Fund Diane Jaffe Managing Director, the Adviser, TCW Investment Management Company and the Trust Company of the West since November, 2001. Previously she was Investment Officer and had served as Director and Portfolio Manager at SG Cowen and then at SG Cowen Asset Management, Inc. since July, 1998 and served as Director and Portfolio Manager of Cowen Asset Management since July, 1995. Opportunity Fund William Church Managing Director, the Adviser, TCW Investment Management Company and Trust Company of the West. Previously, he was Vice President and Senior Investment Officer SG Cowen and then SG Cowen Asset Management, Inc. since July 1998. Prior to that, Mr. Church was a Class I Limited Partner of Cowen and Managing Director of Cowen Incorporated and Chief Investment Officer of Cowen Asset Management. Advisory Agreement The Funds and the Adviser have entered into an Investment Advisory and Management Agreement (the "Advisory Agreement"), under the terms of which the Funds have employed the Adviser to manage the investment of their assets, to place orders for the purchase and sale of their portfolio securities, and to be responsible for overall management of the Funds' business affairs, subject to control by the Board of Directors. The Adviser also pays certain costs of marketing the Funds, including sales personnel compensation, from legitimate profits from its investment advisory fees and other resources available to it. In addition, the Adviser may reimburse third party administrators for retirement plan shareholder servicing expenses. Under the Advisory Agreement, the Funds pay to the Adviser as compensation for the services rendered, facilities furnished, and expenses paid by it the following fees: Annual Management Fee (As percent of Fund Average Net Asset Value) ----- ----------------------------------- Diversified Value Fund 0.75% Opportunity Fund 0.90% Income + Growth Fund 0.75% The Advisory Agreement provides that the Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by a Fund in connection with the matters to which the agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its duties under the agreement. Multiple Class Structure Each Fund currently offers two classes of shares, Class I shares and Class N shares. Shares of each class of a Fund represent an equal pro rata interest in that Fund and generally give you the same voting, dividend, liquidation, and other rights. The Class I shares are offered at the current net asset value. The Class N shares are also offered at the current net asset value, but will be subject to fees imposed under a distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940. Pursuant to the Distribution Plan, each Fund compensates the Funds' distributor at a rate equal to 0.25% of the average daily net assets of the Fund attributable to its Class N shares for distribution and related services. Because these fees are paid out of the Fund's Class N assets on an on-going basis, over time these fees will increase the cost of an investment and may cost more than paying other types of sales charges. Your Investment Account Policies and Services Buying shares You pay no sales charges to invest in a Fund. Your price for Fund shares is the Fund's net asset value per share (NAV) which is calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Your order will be priced at the next NAV calculated after your order is accepted by the Fund. Orders received by the Fund's Transfer Agent from dealers, brokers or other service providers after the NAV for the day is determined, will receive that same day's NAV if the orders were received by the dealers, brokers or service providers from their customers prior to 4:00 p.m. and were transmitted to and received by the Transfer Agent. The Fund's investments are valued based on market value, or where market quotations are not readily available, based on fair value as determined in good faith by the Fund pursuant to procedures established by the Fund's Board. Minimums - Class I Initial Additional IRA Additional IRA $ 25,000 $5,000 $2,000 $500 TCW Galileo Funds, Inc. may waive the minimum and subsequent investments. All investments must be in U.S. dollars. Third-party checks, except those payable to an existing shareholder, will not be accepted. If your check or wire does not clear, you will be responsible for any loss a Fund incurs. Selling shares You may sell shares at any time. Your shares will be sold at the next NAV calculated after your order is accepted by the Fund's transfer agent. Any certificates representing Fund shares being sold must be returned with your redemption request. Your order will be processed promptly, and you will generally receive the proceeds within a week. Before selling recently purchased shares, please note that if the Fund has not yet collected payment for the shares you are selling, it may delay sending the proceeds for up to fifteen days from the date of purchase. Written sell order Some circumstances require written sell orders, along with Medallion signature guarantees. These include: o amounts of $100,000 or more o amounts of $1,000 or more on accounts whose address has been changed within the last 30 days o requests to send the proceeds to a payee or address different than what is on our records A Medallion signature guarantee helps protect against fraud. You can obtain one from most banks, securities dealers, credit unions or savings associations but not from a notary public. Please call (800) 248-4486 to ensure that your signature guarantee will be processed correctly. Exchange privilege You can exchange from one Class I Galileo Fund into another Class I Galileo Fund. You can request your exchange in writing or by phone. Be sure to read the current prospectus for any Fund into which you are exchanging. Any new account established through an exchange will have the same privileges as your original account (as long as they are available). Third party transactions You may buy and redeem the Fund's shares through certain broker-dealers and financial organizations and their authorized intermediaries. If purchases and redemptions of the Fund's shares are arranged and settlement is made at an investor's election through a registered broker-dealer, other than the Fund's distributor, that broker-dealer may, at its discretion, charge a fee for that service. Account statements Every Fund investor automatically receives regular account statements. You will also be sent a yearly statement detailing the tax characteristics of any dividends and distributions you have received. General policies If your non-retirement account falls below $25,000 for the Class I shares as a result of redemptions and or exchanges for six months or more, the Fund may close your account and send you the proceeds upon 60 days' written notice. Unless you decline telephone privileges on your New Account Form, you may be responsible for any fraudulent telephone order as long as the Transfer Agent takes reasonable measures to verify the order. Large Redemption Amounts Each Fund also reserves the right to make a "redemption in kind"--payment in portfolio securities rather than cash--if the amount you are redeeming in any 90-day period is large enough to affect Fund operations (for example, if it equals more than $250,000 or represents more than 1% of the Fund's assets). Each Fund restricts excessive trading (usually defined as more than four exchanges out of the Fund within a calendar year). You are limited to one exchange of shares in the same Fund during any 15-day period except investors in 401(k) and other group retirement accounts, investors who purchase shares through certain broker dealers, and asset allocation accounts managed by the Adviser or an affiliate. Each Fund reserves the right to: o refuse any purchase or exchange request that could adversely affect the Fund or its operations, including those from any individual or group who, in the Fund's view, are likely to engage in excessive trading o change or discontinue its exchange privilege, or temporarily suspend this privilege during unusual market conditions o delay sending out redemption proceeds for up to seven days (generally applies only in cases of very large redemptions, excessive trading or during unusual market conditions). TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT In Writing Complete the New Account Form. Mail your New Account Form and a check made payable to TCW Galileo __________________ Fund to: Via Regular Mail (Same, except that you should include a TCW Galileo Funds, Inc. note specifying the Fund name, your PFPC Inc. account number, and the name(s) P.O. Box 8909 your account is registered in.) Wilmington, DE 19899-8909 Via Express, Registered or Certified Mail TCW Galileo Funds, Inc. PFPC Inc. 400 Bellevue Parkway, Suite 108 Wilmington, DE 19809 By Telephone Please contact the Investor Relations Department at (800) FUND TCW (386-3829) for a New Account Form. Wire: Have your bank send your investment to: (Same) PNC Bank, Philadelphia, PA ABA No. 031-0000-53 Account No. 86-1282 - 4023 FBO TCW Galileo _______________________ Fund (Name on the Fund Account) (Fund Account Number) Via Exchange Call the Transfer Agent at (800) 248-4486 or the Investor Relations Department at (800) FUND TCW [386-3829]. The new account will have the same registration as the account from which you are exchanging. If you need help completing the New Account Form, please call the Transfer Agent at (800) 248-4486, the Investor Relations Department at TCW Galileo Funds at (800) FUND TCW [386-3829] or your investment representative at TCW Galileo Funds. TO SELL OR EXCHANGE SHARES By Mail Write a letter of instruction that includes: o your name(s) and signature(s) as they appear on the account form o your account number o the Fund name o the dollar amount you want to sell or exchange o how and where to send the proceeds Obtain a signature guarantee or other documentation, if required (see "Account Policies and Services-Selling Shares"). Mail your letter of instruction to: Via Regular Mail TCW Galileo Funds, Inc. PFPC Inc. P.O. Box 8909 Wilmington, DE 19899-8909 Via Express, Registered or Certified Mail TCW Galileo Funds, Inc. PFPC Inc. 400 Bellevue Parkway, Suite 108 Wilmington, DE 19809 By Telephone Be sure the Fund has your bank account information on file. Call the Transfer Agent at (800) 248-4486 to request your transaction. Proceeds will be sent electronically to your bank or a check will be sent to the address of record. Any undelivered checks that remain uncashed for six months will be reinvested in the Fund at the per share NAV determined as of the date of cancellation. Telephone redemption requests must be for a minimum of $1,000. Systematic Withdrawal Plan: Call (800) 248-4486 to request a form to add the plan. Complete the form, specifying the amount and frequency of withdrawals you would like. Be sure to maintain an account balance of $2,000 or more. Systematic Withdrawal plans are subject to a minimum annual withdrawal of $500. To reach the Transfer Agent at PFPC Inc., call toll free in the U.S. (800) 248-4486 Outside the U.S. (816) 843-7166 (collect) To reach your investment representative or the Investor Relations Department at TCW Galileo Funds, call toll free in the U.S. (800) 386-3829 Distributions and Taxes The amount of dividends of net investment income and distributions of net realized long and short-term capital gains payable to shareholders will be determined separately for each Fund. Dividends from the net investment income of each Fund will be declared and paid annually. The Funds will distribute any net realized long or short-term capital gains at least annually. Your distributions will be reinvested in the same Fund unless you instruct the Fund otherwise. There are no fees or sales charges on reinvestments. In any fiscal year in which the Funds qualify as a regulated investment company and distributes to shareholders all of its net investment income and net capital gains, the Funds are relieved of federal income tax. Generally, all dividends and capital gains are taxable whether they are reinvested or received in cash--unless you are exempt from taxation or entitled to tax deferral. Capital gains distributions may be taxable at different rates depending on the length of time a Fund has held the assets sold. Early each year, you will be notified as to the amount and federal tax status of all distributions paid during the prior year. Distributions may also be subject to state or local taxes. The tax treatment of redemptions from a retirement plan account may differ from redemptions from an ordinary shareholder account. If you redeem shares of a Fund or exchange them for shares of another Fund, any gain on the transaction may be subject to tax. You must provide the Funds with a correct taxpayer identification number (generally your Social Security Number) and certify that you are not subject to backup withholding. If you fail to do so, the IRS can require the Funds to withhold 31% of your taxable distributions and redemptions. Federal law also requires the Funds to withhold 30% or the applicable tax treaty rate from dividends paid to nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder accounts. This is a brief summary of some of the tax laws that affect your investment in a Fund. Please see the Statement of Additional Information and your tax adviser for further information. Financial Highlights The financial highlights table is intended to help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. "Total return" shows how much your investment in Class I Shares of the Fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. The information for the two years ended November 30, 2000 of the SG Cowen Series Funds, Inc. has been audited by KPMG LLP, the independent auditors to the Fund's Predecessor Fund, whose report thereon appears in the Annual Reports of the Predecessor Fund. The information for fiscal years ended prior to November 30, 1999 has been audited by other independent auditors. The information for the period ended May 31, 2001 is unaudited.
TCW Galileo Diversified Value Fund -- Class I (4) Period Ended Year Ended November 30, May 31, 2001 2000 1999 Period from 2/2/98 (3) to 11/30/98 --------------- ----------- ------------ ---------------------------- Net asset value, beginning of period $11.26 $10.20 $9.54 $9.77 (1) ------ ------ ----- --------- Investment operations Investment Income -- Net 0.03 0.10 0.12 0.10 Net realized and unrealized gains (losses) on investments 1.09 1.05 0.67 (0.25) Total from investment operations 1.12 1.15 0.79 (0.15) Less distributions Dividend from net investment income (0.03) (0.09) (0.13) (0.08) Distributions from net realized gains on investments --- --- --- --- Total distributions (0.03) (0.09) (0.13) (0.08) Net asset value, end of period $12.35 $11.26 $10.20 $9.54 ------ ------ ------ ----- Total Return (2)10.00% 11.42% 8.27% (1.56%) (2) Ratios/Supplemental Data Net assets, end of period ($ x 1000) $75 $ 68 $ 1,264 $1,153 (2) Ratio of expenses to average net assets (2)0.48% 0.97%(5) 0.97% 0.80% (2) Ratio of net investment income (loss) to average net assets (2)0.26% 1.39% 1.17% 1.01% (2) Decrease reflected on above ratios due to expense reimbursements/waivers (2)0.97% 2.03% 1.18% .55% (2) Portfolio turnover rate (2)18% 83% 52% 67% (2) - ---------------- (1) Based upon the Class A Net Asset Value on the day prior to commencement of distribution (2) Not Annualized (3) Commencement of Operations (4) Based on Average Shares Outstanding (5) The above tables reflects the previous investment adviser's voluntary reimbursement of expenses. The total operating expenses without the reimbursement for this Fund would be 3.00%
Financial Highlights The financial highlights table is intended to help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. "Total return" shows how much your investment in Class I Shares of the Fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. The information for the two years ended November 30, 2000 of the SG Cowen Funds, Inc. has been audited by KPMG LLP, the independent auditors to the Fund's Predecessor Fund, whose report thereon appears in the Annual Reports of the Predecessor Funds. The information for fiscal years ended prior to November 30, 1999 has been audited by other independent auditors. The information for the period ended May 31, 2001 is unaudited.
0 TCW Galileo Opportunity Fund -- Class I(1) Period Ended Year Ended November 30, May 31, 2001 2000 1999 1998 1997 1996 -------------- ---------- ----------- ----------- ---------- ---------- Net asset value, beginning of period $16.13 $12.19 $10.24 $16.69 $16.77 $13.20 ------ ------ ------ ------ ------ ------ Investment operations Investment income (loss) -- Net (1) (0.02) (0.03) (0.04) (0.04) (0.03) (0.01) Net realized and unrealized gains (losses) on investments 3.21 3.97 1.99 (3.47) 2.01 3.89 -- ---- -- ---- -- ------ -- ---- -- ---- Total from investment operations 3.19 3.94 1.95 (3.51) 1.98 3.88 Less distributions -- -- -- -- -- -- Dividend from net investment income -- -- -- -- -- -- Distributions from net realized gains on investments 0.51 -- -- (2.94) (2.06) (0.31) Total distributions 0.51 -- -- (2.94) (2.06) (0.31) Net asset value, end of period $18.81 $16.13 $12.19 $10.24 $16.69 $16.77 ------ ------ ------ ------ ------ ------ Total return (2)20.24% 32.32% 19.04% (24.71)% 13.82% 30.17% Ratios/Supplemental Data Net Assets, end of period ($ x 1000) $10,727 $8.631 $9,339 $19,051 $52,944 $40,369 Ratio of expenses to average net assets (2)0.64% 1.30% 1.27% 1.14% 1.02% 1.01% Ratio of net investment income (loss) to average net assets (2)(0.10)% (0.21)% (0.35)% (0.34)% (0.19)% (0.17)% Decrease reflected on above ratios due to expense -- -- -- 0.01% 0.06% 0.15% reimbursements/waivers Portfolio turnover rate (2)59% 164% 150% 124% 159% 182% - ---------------- (1) Based upon average shares outstanding (2) Not annualized
Financial Highlights The financial highlights table is intended to help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. "Total return" shows how much your investment in Class I Shares of the Fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. The information for the two years ended November 30, 2000 of the SG Cowen Income & Growth Fund, Inc. has been audited by KPMG LLP, the independent auditors to the Fund's Predecessor Fund, whose report thereon appears in the Annual Reports of the Predecessor Funds. The information for fiscal years ended prior to November 30, 1999 has been audited by other independent auditors. The information for the period ended May 31, 2001 is unaudited.
TCW Galileo Income + Growth Fund -- Class I (1) Period Ended Year Ended November 30, May 31, 2001 2000 1999 1998 1997 1996 -------------- ---------- ----------- ----------- ---------- ---------- Net Asset Value, beginning of period $14.04 $11.26 $12.39 $14.61 $14.45 $13.23 ------ ------ ------ ------ ------ ------ Investment operations Investment Income -- Net 0.02 0.59 0.31 0.35 0.41 0.58 Net realized and unrealized gains (losses) on investments $1.11 2.92 (0.42) 0.16 1.97 1.69 Net from investment operations $1.13 3.51 (0.11) 0.51 2.38 2.27 Less Distributions Dividend from net investment income (0.10) (0.23) (0.30) (0.34) (0.40) (0.56) Distributions from net realized gains on investments (0.44) (0.50) (0.72) (2.39) (1.82) (0.49) Total distributions (0.54) (0.73) (1.02) (2.73) (2.22) (1.05) Net asset value, end of period $14.63 $14.04 $11.26 $12.39 $14.61 $14.45 ------ ------ ------ ------ ------ ------ Total Return (2)8.26% 33.46% (0.92)% 4.22% 19.57% 18.25% Ratios/Supplemental Data Net Assets, end of period ($ x 1000) $1,179 $951 $4,468 $5,920 $10,444 $11,733 Ratio of expenses to average net assets (2)0.59% 1.16% 1.06% 0.91% 1.05% 0.90% Ratio of net investment income (loss) to average net assets (2)0.70% 1.50% 2.45% 2.50% 2.98% 3.90% Decrease reflected on above ratios due to expense -- -- -- 0.06% 0.14% 0.16% reimbursements/waivers Portfolio turnover rate 0 73% 71% 62% 75% 79% ___________________ (1) Not Annualized (2) Based on Average Shares Outstanding
FOR MORE INFORMATION For all shareholder account information such as transactions and account inquiries: Call (800) 248-4486 For information regarding the TCW Galileo Funds, Inc.: Call (800) FUND TCW (386-3829) In writing: TCW Galileo Funds, Inc. c/o PFPC Inc. P.O. Box 8909 Wilmington, DE 19899-8909 On the Internet: TCW GALILEO FUNDS, INC. www.tcwgalileofunds.com You may visit the SEC's website at www.sec.gov to view text only versions of Fund documents filed with the SEC. You can also obtain copies by visiting the SEC's Public Reference Room in Washington, DC (phone 1-800-SEC-0330) or by sending your request and a duplicating fee to the SEC's Public Reference Section, 450 Fifth Street, N.W., Washington, DC 20549-6009 or by electronic request at the following e-mail address: www. publicinfo@sec.gov. TCW Galileo Funds, Inc. More information on the Funds is available free upon request, including the following: Annual/Semi-Annual Report Describes the Funds' performance, lists portfolio holdings and contains a letter from the Funds' portfolio managers discussing recent market conditions, economic trends and Fund strategies. Statement of Additional Information (SAI) Provides more details about the Funds and their policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference and is legally considered part of this prospectus. SEC file number: 811-7170 TCW Galileo Funds, Inc. This prospectus tells you about the Class N shares of three separate investment funds offered by TCW Galileo Funds, Inc., each of which has different investment objectives and policies that are designed to meet different investment goals. Please read this document carefully before investing, and keep it for future reference. TCW Galileo Diversified Value Fund TCW Galileo Opportunity Fund TCW Galileo Income + Growth Fund As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. November __, 2001 LOGO TABLE OF CONTENTS General Fund Information.......................................................1 Investment Objectives and Principal Strategies........................1 Principal Risks.......................................................1 Performance Summary...................................................2 Fund Expenses and Expense Example.....................................5 TCW Galileo Diversified Value Fund.............................................6 Investment Objectives/Approach........................................6 Main Risks............................................................7 TCW Galileo Opportunity Fund...................................................8 Investment Objectives/Approaches......................................8 Main Risks............................................................9 TCW Galileo Income + Growth Fund..............................................10 Investment Objectives/Approach.......................................10 Main Risks...........................................................11 Risk Considerations..................................................12 Management of the Fund...............................................15 Multiple Class Structure.............................................15 YOUR INVESTMENT...............................................................16 Account Policies and Services........................................16 To Open an Account/to Add to an Account..............................18 To Sell or Exchange Shares...........................................19 Distributions and Taxes..............................................20 Financial Highlights.................................................22 FOR MORE INFORMATION..........................................................25 General Fund Information Investment Objectives and Principal Strategies
TCW Galileo Funds, Inc. Investment Objectives Principal Investment Strategies - ----------------------- --------------------- ------------------------------- TCW Galileo Diversified Value Fund Long term capital appreciation Invests in equity securities of large capitalization companies. TCW Galileo Opportunity Fund Long term capital appreciation Invests in equity securities of small capitalization companies TCW Galileo Income + Growth Fund High level of dividend income Invests in equity securities of issuers which pay dividends.
Under adverse market conditions, each Fund could invest some or all of its assets in money market securities. Although the Funds would do this only when seeking to avoid losses, it could have the effect of reducing the benefit from any upswing in the market. Principal Risks The Funds are affected by changes in the economy, or in securities and other markets. There is also the possibility that investment decisions the Adviser makes will not accomplish what they were designed to achieve or that companies in which the Funds invest will have disappointing performance or not pay their debts. Risk is the chance that you will lose money on your investment or that it will not earn as much as you expect. In general, the greater the risk, the more money your investment can earn for you--and the more you can lose. Since shares of a Fund represent an investment in securities with fluctuating market prices, the value of individual Fund shares will vary as a Fund's portfolio securities increase or decrease in value. Therefore, the value of an investment in the Fund could go down as well as up. All investments are subject to: o MARKET RISK There is the possibility that the returns from the types of securities in which a Fund invests will under perform returns from the various general securities markets or different asset classes. Different types of securities tend to go through cycles of out performance and under performance in comparison to the general securities markets. o SECURITIES SELECTION RISK There is the possibility that the specific securities held in a Fund's portfolio will under perform other funds in the same asset class or benchmarks that are representative of the general performance of the asset class because of the portfolio manager's choice of securities. o PRICE VOLATILITY There is the possibility that the value of a Fund's portfolio will change as the prices of its investments go up or down. Although stocks offer the potential for greater long-term growth than most fixed income securities, stocks generally have higher short-term volatility. The Opportunity Fund may be subject to greater price volatility than other funds because it primarily invests in securities of small sized companies. Each Fund may also be subject (in varying degrees) to the following risks: o LIQUIDITY RISK There is the possibility that a Fund may lose money or be prevented from earning capital gains if it cannot sell a security at the time and price that is most beneficial to the Fund. The Opportunity Fund may be subject to liquidity risk because it invests primarily in securities of small sized companies. o FOREIGN INVESTING RISK The Opportunity Fund may invest a portion of its assets in foreign securities. There is the likelihood that foreign investments may be riskier than U.S. investments because of a lack of political stability, foreign controls on investment and currency exchange rates, fluctuations in currency exchange rates, withholding taxes, and lack of adequate company information. In addition, because foreign securities generally are denominated and pay dividends or interest in foreign currencies, and the Fund may hold various foreign currencies, the value of the net assets of the Fund as measured in U.S. dollars can be affected favorably or unfavorably by changes in exchange rates. o CREDIT RISK There is the possibility that a Fund could lose money if an issuer is unable to meet its financial obligations such as the payment of principal and/or interest on a fixed income instrument, or goes bankrupt. A more detailed explanation of these risks is presented under the "Risk Considerations" section at page 12. Your investment is not a bank deposit, and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Performance Summary The two tables below show the each Fund's annual returns and its long-term performance. The first table shows you how the Fund's performance has varied from year to year. The second table compares each Fund's performance over time to that of a broad-based securities index. Both tables assume reinvestment of dividends and distributions. The performance information for each Fund includes the performance of its predecessor investment company, ("Predecessor Funds"), which prior to November __, 2001, was managed by SG Cowen Asset Management Inc. The Predecessor Funds have investment objectives and strategies that are substantially similar to the Funds. The performance of Predecessor Funds in the bar charts and the other tables was calculated using the fees and expenses (not including the 4.75% sales charge for Class A shares) of the Class A shares of the Predecessor Funds. As with all mutual funds, past performance is not a prediction of futures results. Year by year total return (%) as of December 31, each year TCW Galileo Diversified Value Fund 9.34% -3.27% 13.68% 1998 1999 2000 * The Fund's total return for the period November 1, 2000 to September 30, 2001 is: -15.10% Best and worst quarterly performance during this period Performance Diversified Value Fund Quarter ending 6/30/1999 16.00% (Best) Quarter ending 9/30/1998 -16.39%(Worst) Average Annual Total Return as of December 31, 2000 1 year Since inception ------ --------------- Diversified Value Fund 8.24% 4.61% S&P 500 -9.10% -12.26% Russell 1000 Value Index 7.01% -9.93% Year by year total return (%) as of December 31, each year
TCW Galileo Opportunity Fund 45.81% 4.92% 31.55% 3.89% 15.52% 25.23% 11.31% -25.86% 28.07% 39.15% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 *The Fund's total return for the period November 1, 2000 to September 30, 2001 is: 3.52%
Best and worst quarterly performance during this period Performance Opportunity Fund Quarter ending 3/31/1991 27.08% (Best) Quarter ending 9/30/1998 -21.66% (Worst) Average Annual Total Return as of December 31, 2000 1 year 5 years Since inception or 10 years ------ ------- --------------------------- Opportunity Fund 32.54% 12.22% 15.70% S&P 500 -9.10% 18.33% 17.46% Russell 2000 Index -3.02% 10.31% 15.53%
TCW Galileo Income + Growth Fund 26.49% 12.26% 9.25% 6.13% 36.77% 13.13% 22.90% .65% -4.14% 45.53% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 *The Fund's total return for the period November 1, 2000 to September 30, 2001 is:7.08%
Best and worst quarterly performance during this period Performance o Income + Growth Fund Quarter ending 9/30/2000 16.84%(Best) Quarter ending 9/30/1998 -8.51%(Worst) Average Annual Total Return as of December 31, 2001 1 year 5 years Since inception or 10 Years ------ ------- --------------------------- Income + Growth Fund 38.56% 13.21% 13.98% S&P 500 -9.10% 18.33 17.46% Lipper Equity Income Fund Avg. 7.46% 13.42%% 14.45% Fund Expenses and Expense Example As an investor, you pay certain fees and expenses in connection with the Funds, which are described in the table below. Annual Fund operating expenses are paid out of Fund assets, so their effect is included in the share price.
FEE TABLE Diversified Opportunity Fund Income + Growth Fund Value Fund Shareholder Transaction Fees 1) Redemption Fees......................... None None None 2) Exchange Fees........................... None None None 3) Contingent Deferred Sales Load.......... None None None 4) Sales Load on Reinvested Dividends...... None None None 5) Sales Load on Purchases................. None None None Annual Fund Operating Expenses Management Fees............................ 0.75% 0.90% 0.75% Distribution (12b-1) Fees.................. 0.25% 0.25% 0.25% Other Expenses............................. 1.88% 0.46% 0.36% Total Annual Fund Operating Expenses (1)............................ 2.88%(2) 1.61% 1.36% - ------------------------------------- (1) The Adviser has agreed to reduce its investment advisory fee or to pay the ordinary expenses of the 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. (2) The above table does not reflect the previous investment adviser's voluntary reimbursement of expenses. The total operating expenses after the reimbursement for this Fund would be 1.22%.
EXPENSE EXAMPLE This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. This Example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 Initial Investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether or not you sold your shares at the end of a period. Because actual return and expenses will be higher or lower, the Example is for comparison purposes only.
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- Diversified Value Fund $291 $892 $1,544 $3,291 Opportunity Fund $164 $508 $ 806 $1,653 Income + Growth Fund $118 $368 $ 638 $1,409
TCW Galileo Diversified Value Fund Investment Objectives/Approach The Fund seeks long term capital appreciation, with a secondary goal of current income To pursue this goal, the Fund invests primarily in equity securities of large capitalization companies. The securities include common and preferred stock and convertible securities. The Fund will invest (except when maintaining a temporary defensive position) at least 65% of the value of its total assets in equity securities of companies with a market capitalization of greater than $1 billion at the time of purchase. The Fund will focus its investments in "value companies." Concepts to understand - ---------------------- Large capitalization companies are established companies that are considered known quantities. Large capitalization companies often have the resources to weather economic shifts, though they can be slower to innovate than small companies. Value companies are companies that appear underpriced according to certain financial measurements of their intrinsic worth or business prospects (such as price-to-earnings or price-to-book ratios). Because a stock can remain undervalued for years, value investors often look for factors that could trigger a rise in prices. In managing the Fund's investments, the Adviser blends a number of investment strategies. The Adviser emphasizes investing in companies that have one or more characteristics that are in line with the equivalent characteristics for companies in the Russell 1000 Value Index such that the price to earnings ratio, the price to cashflows ratio, the price to book ratio and the price to sales ratio is in line with the averages of the companies included in Russell 1000 Value Index. The Adviser seeks companies that it believes are neglected or out of favor and whose stock prices are low in relation to current earnings, cash flow, book value and sales and those companies that have reasonable prospects for growth even though the expectations for these companies are low and their valuations are temporarily depressed. Typically, the Fund sells an individual security when the company fails to meet expectations, there is a deterioration of the underlying fundamentals, the intermediate and long-term prospects for the company are poor or the Adviser determines to take advantage of a better investment opportunity. The Fund will generally invest in equity securities which include common and preferred stock; rights; or warrants to purchase common stocks or preferred stocks, securities convertible into common and preferred stock, such as convertible bonds and debentures; American Depository Receipts (ADRs) and other securities with equity characteristics. ADRs are typically certificates issued by U.S. banks which represent a stated number of shares of a foreign corporation that a bank holds in its vault. The Fund may invest some its assets in covered call options. A call option is an agreement which gives the buyer the right but not the obligation to buy a certain amount of a specified security for a specific price regardless of the market price of the security. A call option is termed covered when the seller owns the securities underlying the option. The Fund seeks to earn additional income by making loans of its portfolio securities to brokers, dealers and other financial institutions. The loans will be secured at all times by cash and liquid high grade debt obligations. As with any extension of credit, there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower fail financially. The Fund may engage in active portfolio management which may result in increased Fund transaction expenses and have tax consequences such as increased realized gains for investors. Diane Jaffe is the Fund's portfolio manager. Main Risks The Fund holds primarily stocks, which may go up or down in value, sometimes rapidly and unpredictably. Although stocks offer the potential for greater long-term growth than most fixed income securities, stocks generally have higher short-term volatility. In addition, the Fund may hold convertible debt securities. Many convertible debt securities are rated below investment grade and are considered speculative by rating agencies as to repayment of principal and interest. The primary risk affecting this fund is "price volatility risk." Price volatility refers to the possibility that the value of the Fund's portfolio will change as the prices of its investments go up or down. This Fund may be less susceptible to price volatility than funds that invest in the securities of small companies. This is especially true during periods of economic uncertainty or during economic downturns. TCW Galileo Opportunity Fund Investment Objectives/Approach The Fund seeks long term capital appreciation. Current income is incidental. To pursue this goal, it invests (except when maintaining a temporary defensive position) at least 65% of the value of its total assets in equity securities issued by companies with market capitalizations, at the time of acquisition, of $2 billion or less. The Fund may invest up to 10% of its assets in securities of similar foreign companies or in American Depository Receipts (ADRs) of such companies. The Fund may invest up to 35% of its assets in equity securities of companies other than small capitalization companies, and up to 20% of its assets in money market instruments. The Fund may also write covered call options. In managing the Fund's investments, the Adviser tries to identify those companies that have fallen out of favor and whose stock is selling below what the Adviser believes is its real value. The Adviser looks for those stocks with a potential catalyst such as new products, technologies, or management that will trigger an increase in their value. The Adviser analyzes each candidate's fundamental strength, looking for companies with well positioned product lines and experienced management with equity ownership. In the course of this analysis, the Adviser often discovers that many individual stocks in a particular industry or market sector offer attractive investment opportunities. The Adviser's analysis finds that frequently the market undervalues entire industries and sectors, offering a cluster of candidates that meet the investment criteria. As a result, the Adviser may focus the Fund's investments in a number of industries that the Adviser's analysis has revealed as poised for growth. Typically, the Fund sells an individual security when the company fails to meet expectations, there is a deterioration in the underlying fundamentals, the intermediate and long-term prospects for the company are poor or the Adviser determines to take advantage of a better investment opportunity. The Fund will generally invest in equity securities which include common and preferred stock; rights; or warrants to purchase common stocks or preferred stocks, securities convertible into common and preferred stock, such as convertible bonds and debentures; ADRs; and other securities with equity characteristics. ADRs are typically certificates issued by U.S. banks which represent a stated number of shares of a foreign corporation that a bank holds in its vault. The Fund may invest some its assets in covered call options. A call option is an agreement which gives the buyer the right but not the obligation to buy a certain amount of a specified security for a specific price regardless of the market price of the security. A call option is termed covered when the seller owns the securities underlying the option. The Fund may seek to earn additional income by making loans of its portfolio securities to brokers, dealers and other financial institutions. The loans will be secured at all times by cash and liquid high grade debt obligations. As with any extension of credit, there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower fail financially. The Fund may engage in active portfolio management which may result in increased Fund transaction expenses and have tax consequences such as increased realized gains for investors. Concepts to understand - ---------------------- Small-Sized Companies The Fund seeks long term capital appreciation by focusing on small, fast-growing companies that offer cutting-edge products, services or technologies. Because these companies are often in their early stages of development, their stocks tend to fluctuate more than most other securities. William Church is the Fund's portfolio manager. Main Risks The Fund holds primarily stocks, which may go up or down in value, sometimes rapidly and unpredictably. Although stocks offer the potential for greater long-term growth than most fixed income securities, stocks generally have higher short-term volatility. In addition, the Fund may hold convertible debt securities. Many convertible debt securities are rated below investment grade and are considered speculative by rating agencies as to repayment of principal and interest. The primary risks affecting this Fund are "price volatility", "liquidity risk" and "foreign investing risk" Price volatility refers to the possibility that the value of the Fund's portfolio will change as the prices of its investments go up or down. This Fund may be subject to greater price volatility than funds that invest in the securities of large or midcap companies. Liquidity risk refers to the possibility that the Fund may lose money or be prevented from earning capital gains if it cannot sell securities at the time and price that is most beneficial to the Fund. Because the securities of small-size companies may be less liquid than the securities of large-size companies, the Fund may be more susceptible to liquidity risk than funds that invest in the securities of large-sized companies. Because the Fund may invest a portion of its assets in securities issued by foreign companies, it may be subject to foreign investing risks. Foreign investing risk refers to the likelihood that foreign investments may be riskier than U.S. investments because of many factors, some of which include: o a lack of political or economic stability o foreign controls on investment and currency exchange rates o withholding taxes o a lack of adequate company information In addition, securities traded only through foreign markets may be more volatile and are often harder to sell. Volatility is a way to measure the changes in the price of a single security or an entire portfolio. Large and frequent price changes indicate higher volatility, which generally indicates that there is a greater chance that you could lose money over the short term. The Fund is also subject to foreign currency risk. Because foreign securities are generally denominated and pay dividends or interest in foreign currencies, the value of the net assets of the Fund as measured in U.S. dollars will be affected favorably or unfavorably by changes in exchange rates. TCW Galileo Income + Growth Fund Investment Objectives/Approach The Fund seeks to realize a high level of dividend income consistent with prudent investment management. Capital appreciation is a secondary objective. To pursue this goal, the Fund will invest (except when maintaining a temporary defensive position) at least 80% of the value of its total assets in equity securities. In managing the Fund's investments, the Adviser will focus on companies that have a record of paying dividends and increasing dividends. Concepts to understand - ---------------------- Large Capitalization Companies are established companies that are considered known quantities. Large capitalization companies often have the resources to weather economic shifts, although they can be slower to innovate than small companies. Growth Companies are companies exhibiting faster than average gains in earnings and which are expected to continue to show high levels of growth gain. The Adviser analyzes economic and market conditions and identifies securities that make the best investments in the pursuit of the fund's investment objectives. In selecting the investments, the Adviser considers factors which may include one or more of the following: o the company's current valuation; o market capitalization o price/earnings ratio o current dividend yield o the company's potential for a strong positive cash flow and future dividend growth. Typically, the Fund sells an individual security when the company fails to meet expectations, there is a deterioration of the underlying fundamentals, the intermediate and long-term prospects of the company are poor or the Adviser determines to take advantage of a better investment opportunity. The Fund will generally invest in equity securities which include common and preferred stock; rights; or warrants to purchase common stocks or preferred stocks, securities convertible into common and preferred stock such as convertible bonds and debentures; American Depository Receipts (ADRs); and other securities with equity characteristics. ADRs are typically certificates issued by U.S. banks which represent a stated number of shares of a foreign corporation that a bank holds in its vault. The Fund may invest some of its assets in covered call options. A covered call option is any agreement which gives the buyer the right but not the obligation to buy certain amount of a specified security for a specific price within a certain time period regardless of market price of the security. A call option is termed covered when the seller owns the securities underlying the option. The Fund seeks to earn additional income by making loans of its portfolio securities to brokers, dealers and other financial institutions. The loans will be secured at all times by cash and liquid high grade debt obligations. As with any extension of credit, there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower fail financially. The Fund may engage in active portfolio management which may result in increased Fund transaction expenses and have tax consequences such as increased realized gains for investors. Diane Jaffe is the Fund's portfolio manager. Main Risks The Fund holds primarily stocks, which may go up or down in value, sometimes rapidly and unpredictably. Although stocks offer the potential for greater long-term growth than most fixed income securities, stocks generally have higher short-term volatility. In addition, the Fund may hold convertible debt securities. Many convertible debt securities are rated below investment grade and are considered speculative by rating agencies as to repayment of principal and interest. The primary risk affecting this Fund is "price volatility." Price volatility refers to the possibility that the value of the Fund's portfolio will change as the prices of its investments go up or down. This Fund may be less susceptible to price volatility risk because it invests in securities of large companies. This is especially true during periods of economic uncertainty or during economic downturns. Risk Considerations Please consider the following risks before investing in a Fund. Various market risks can affect the price or liquidity of an issuer's securities. Adverse events occurring with respect to an issuer's performance or financial position can depress the value of the issuer's securities. The liquidity in a market for a particular security will affect its value and may be affected by factors relating to the issuer, as well as the depth of the market for that security. Other market risks that can affect value include a market's current attitudes about types of securities, market reactions to political or economic events, and tax and regulatory effects (including lack of adequate regulations for a market or particular type of instrument). Market restrictions on trading volume can also affect price and liquidity. Prices of most securities tend to be more volatile in the short-term. Therefore an investor who trades frequently or redeems in the short-term is more likely to incur a loss than an investor who holds investments for the longer term. The fewer the number of issuers in which the Fund invests, the greater the potential volatility of its portfolio. The Adviser may temporarily invest up to 100% of the Fund's assets in high quality short-term money market instruments if it believes adverse economic or market conditions, such as excessive volatility or sharp market declines, justify taking a defensive investment posture. If the Fund attempts to limit investment risk by temporarily taking a defensive investment position, it may be unable to pursue its investment objective during that time, and it may miss out on some or all of an upswing in the securities markets. General Investment Risk Since shares of the Fund represent an investment in securities with fluctuating market prices, the value of Fund shares will vary as the value of each Fund's portfolio securities increases or decreases. Therefore, the value of an investment in the Fund could go down as well as up. Investment in foreign securities involves special risks in addition to the usual risks inherent in domestic investments. These include: political or economic instability; the unpredictability of international trade patterns; the possibility of foreign governmental actions such as expropriation, nationalization or confiscatory taxation; the imposition or modification of foreign currency or foreign investment controls; the imposition of withholding taxes on dividends, interest and gains; price volatility; and fluctuations in currency exchange rates. These risks are more pronounced in emerging market countries. Foreign Investing Investing in foreign securities involves risks in addition to the risks associated with domestic securities. An additional risk is currency risk. While the price of a Fund's shares is quoted in U.S. dollars, a Fund generally converts U.S. dollars to a foreign market's local currency to purchase a security in that market. If the value of that local currency falls relative to the dollar, the U.S. dollar value of the foreign currency will decrease. As compared to U.S. companies, foreign issuers generally disclose less financial and other information publicly and are subject to less stringent and less uniform accounting, auditing and financial reporting standards. Foreign countries typically impose less thorough regulations on brokers, dealers, stock exchanges, insiders and listed companies than does the U.S., and foreign securities markets may be less liquid and more volatile than domestic markets. Investment in foreign securities involves higher costs than investment in U.S. securities, including higher transaction and custody costs as well as the imposition of additional taxes by foreign governments. In addition, security trading practices abroad may offer less protection to investors such as the Funds. Settlement of transactions in some foreign markets may be delayed or may be less frequent than in the U.S., which could affect the liquidity of 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 issuers. Because foreign securities generally are denominated and pay dividends or interest in foreign currencies, and some of the Funds hold various foreign currencies from time to time, the value of the net assets of Funds as measured in U.S. dollars will be affected favorably or unfavorably by changes in exchange rates. Generally, currency exchange transactions will be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the currency exchange market. The cost of currency exchange transactions will generally be the difference between the bid and offer spot rate of the currency being purchased or sold. In order to protect against uncertainty in the level of future foreign currency exchange rates, certain of the Funds are authorized to enter into certain foreign currency futures and forward contracts. However, a Fund is not obligated to do so and, depending on the availability and cost of these services, the Fund may be unable to use foreign currency futures and forward contracts to protect against currency uncertainty. Please see the Statement of Additional Information for further information The forward currency market for the purchase or sale of U.S. dollars in most countries is not highly developed, and in certain countries, there may be no such market. If a devaluation of a currency is generally anticipated, a Fund may not be able to contract to sell the currency at an exchange rate more advantageous than that which would prevail after the anticipated amount of devaluation, particularly in regards to forward contracts for local Latin American currencies in view of the relatively small, inactive or even non-existent market for these contracts. In the event a Fund holds securities denominated in a currency that suffers a devaluation, the Fund's net asset values will suffer corresponding reductions. In this regard, in December 1994, the Mexican government determined to allow the Mexican peso to trade freely against the U.S. dollar rather than within a controlled band, which action resulted in a significant devaluation of the Mexican peso against the dollar. Further, in July 1997, the Thai and Philippine governments allowed the baht and peso, respectively, to trade freely against the U.S. dollar resulting in a sharp devaluation of both currencies, and in 1998 Russia did the same, causing a sharp devaluation of the ruble. Credit Risk Credit Risk refers to the likelihood that an issuer will default in the payment of principal and/or interest on a security. Because convertible securities may be rated below investment grade, they are subject to greater credit risk. The Funds may invest in convertible securities rated below investment grade. Debt securities that are rated below investment grade are considered to be speculative. Those debt securities rated below investment grade are also commonly known as "junk bonds". These securities are regarded as bonds predominately speculative with respect to the issuer's continuing ability to meet principal and interest payments. Because investment in lower quality securities involves greater investment risk, achievement of the Fund's investment objective will be more dependent on the Adviser's analysis than would be the case if the Fund was investing in higher quality debt securities. In addition, lower quality securities may be more susceptible to real or perceived adverse economic and individual corporate developments than would investment grade debt securities. More, the secondary trading market for lower quality securities may be less liquid than the market for investment grade securities. This potential lack of liquidity may make it more difficult for the Adviser to accurately value certain portfolio securities. Certain of the Funds may invest in European countries that have agreed to enter into the European Monetary Union (EMU). EMU is an effort by certain European countries to, among other things, reduce barriers between countries and eliminate fluctuations in their currencies. Among other things, EMU establishes European Economic and Monetary Union Many European countries have adopted or are in the process of adopting a single European currency referred to as the euro. The consequences of the euro conversion are unclear and may adversely affect the value and/or increase the volatility of securities held by a Fund. Among other things, EMU establishes a single European currency (the euro), which was introduced on January 1, 1999 and is expected to replace the existing national currencies of all initial EMU participants by January 1, 2002. Upon introduction of the euro, certain securities (beginning with government and corporate bonds) have been redonominated in the euro and, thereafter trade and make dividend and other payments only in euros. Like other investment companies and business organizations, including the companies in which the Funds invest, the Funds could be adversely affected: (i) if the euro, or EMU as a whole does not take affect as planned; (ii) if a participating country withdraws from EMU; or (iii) if the computing, accounting and trading systems used by the Funds' service providers, or by other business entities with which the Funds or their service providers do business, are not capable of recognizing the euro as a distinct currency at the time of, and following euro conversion. Management of the Fund Investment Adviser The Funds' investment adviser is TCW Investment Management Company (the "Adviser") and is headquartered at 865 South Figueroa Street, Suite 1800, Los Angeles, California 90017. As of September 30, 2001, the Adviser and its affiliated companies, which provide a variety of trust, investment management and investment advisory services, had approximately $80 billion under management or committed to management. Portfolio Managers Listed below are the individuals who are primarily responsible for the day-to-day portfolio management of the Funds, including a summary of each person's business experience during the past five years: Portfolio Manager(s) Business Experience During Last Five Years* Diversified Value Fund & Income + Growth Fund Diane Jaffe Managing Director, the Adviser, TCW Investment Management Company and the Trust Company of the West since November, 2001. Previously she was Investment Officer and had served as Director and Portfolio Manager at SG Cowen Asset Management, Inc. since July, 1998 and served as Director and Portfolio Manager of Cowen Asset Management since July, 1995. Opportunity Fund William Church Managing Director, the Adviser, TCW Investment Management Company and the Trust Company of the West. Previously, he was Vice President and Senior Investment Officer SG Cowen and then SG Cowen Asset Management, Inc. since July 1998. Prior to that, Mr. Church was a Class I Limited Partner of Cowen and Managing Director of Cowen Incorporated and Chief Investment Officer of Cowen Asset Management. Advisory Agreement The Funds and the Adviser have entered into an Investment Advisory and Management Agreement (the "Advisory Agreement"), under the terms of which the Funds have employed the Adviser to manage the investment of their assets, to place orders for the purchase and sale of their portfolio securities, and to be responsible for overall management of the Funds' business affairs, subject to control by the Board of Directors. The Adviser also pays certain costs of marketing the Funds, including sales personnel compensation, from legitimate profits from its investment advisory fees and other resources available to it. In addition, the Adviser may reimburse third party administrators for retirement plan shareholder servicing expenses. Under the Advisory Agreement, the Funds pay to the Adviser as compensation for the services rendered, facilities furnished, and expenses paid by it the following fees: Annual Management Fee (As percent of Fund Average Net Asset Value) ---- ------------------------------------ Diversified Value Fund 0.75% Opportunity Fund 0.90% Income + Growth Fund 0.75% The Advisory Agreement provides that the Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by a Fund in connection with the matters to which the agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its duties under the agreement. Multiple Class Structure Each Fund currently offers two classes of shares, Class I shares and Class N shares. Shares of each class of a Fund represent an equal pro rata interest in that Fund and generally give you the same voting, dividend, liquidation, and other rights. The Class I shares are offered at the current net asset value. The Class N shares are also offered at the current net asset value, but will be subject to fees imposed under a distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940. Pursuant to the Distribution Plan, each Fund compensates the Funds' distributor at a rate equal to 0.25% of the average daily net assets of the Fund attributable to its Class N shares for distribution and related services. Because these fees are paid out of the Fund's Class N assets on an on-going basis, over time these fees will increase the cost of an investment and may cost more than paying other types of sales charges. Your Investment Account Policies and Services Buying shares You pay no sales charges to invest in a Fund. Your price for Fund shares is the Fund's net asset value per share (NAV) which is calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open. Your order will be priced at the next NAV calculated after your order is accepted by the Fund. Orders received by the Fund's Transfer Agent from dealers, brokers or other service providers after the NAV for the day is determined, will receive that same day's NAV if the orders were received by the dealers, brokers or service providers from their customers prior to 4:00 p.m. and were transmitted to and received by the Transfer Agent. A Fund's investments are valued based on market value, or where market quotations are not readily available, based on fair value as determined in good faith by the Fund pursuant to procedures established by the Fund's Board. Minimums - Class N Initial Additional IRA Additional IRA $ 2,000 $250 $500 -- TCW Galileo Funds, Inc. may waive the minimum subsequent investments. All investments must be in U.S. dollars. Third-party checks, except those payable to an existing shareholder, will not be accepted. If your check or wire does not clear, you will be responsible for any loss a Fund incurs. Automatic Investment Plan - ($100 minimum) - Class N Shares You may arrange to make investments on a regular basis through automatic deductions from your bank checking account. Please call (800) 248-4486 for more information and enrollment form. Selling shares You may sell shares at any time. Your shares will be sold at the next NAV calculated after your order is accepted by the Fund's transfer agent. Any certificates representing Fund shares being sold must be returned with your redemption request. Your order will be processed promptly, and you will generally receive the proceeds within a week. Before selling recently purchased shares, please note that if the Fund has not yet collected payment for the shares you are selling, it may delay sending the proceeds for up to fifteen days after the date of purchase. Written sell order Some circumstances require written sell orders, along with Medallion signature guarantees. These include: o amounts of $100,000 or more o amounts of $1,000 or more on accounts whose address has been changed within the last 30 days o requests to send the proceeds to a payee or address different than what is on our records A Medallion signature guarantee helps protect against fraud. You can obtain one from most banks, securities dealers, credit unions or savings associations but not from a notary public. Please call (800) 248-4486 to ensure that your signature guarantee will be processed correctly. Exchange privilege You can exchange from one Class N Galileo Fund into another Class N Galileo Fund. You can request your exchange in writing or by phone. Be sure to read the current prospectus for any Fund into which you are exchanging. Any new account established through an exchange will have the same privileges as your original account (as long as they are available). Third party transactions You may buy and redeem the Fund's shares through certain broker-dealers and financial organizations and their authorized intermediaries. If purchases and redemptions of the Fund's shares are arranged and settlement is made at an investor's election through a registered broker-dealer, other than the Fund's distributor, that broker-dealer may, at its discretion, charge a fee for that service. Account statements Every Fund investor automatically receives regular account statements. You will also be sent a yearly statement detailing the tax characteristics of any dividends and distributions you have received. General policies If your non-retirement account falls below $1,000 for the Class N shares as a result of redemptions and or exchanges for six months or more, the Fund may close your account and send you the proceeds upon 60 days' written notice. Unless you decline telephone privileges on your New Account Form, you may be responsible for any fraudulent telephone order as long as the Transfer Agent takes reasonable measures to verify the order. Large Redemption Amounts - ------------------------ Each Fund also reserves the right to make a "redemption in kind"--payment in portfolio securities rather than cash--if the amount you are redeeming in any 90-day period is large enough to affect Fund operations (for example, if it equals more than $250,000 or represents more than 1% of the Fund's assets). Each Fund restricts excessive trading (usually defined as more than four exchanges out of the Fund within a calendar year). You are limited to one exchange of shares in the same Fund during any 15-day period except investors in 401(k) and other group retirement accounts, investors who purchase shares through certain broker dealers, and asset allocation accounts managed by the Adviser or an affiliate. Each Fund reserves the right to: o refuse any purchase or exchange request that could adversely affect the Fund or its operations, including those from any individual or group who, in the Fund's view, are likely to engage in excessive trading o change or discontinue its exchange privilege, or temporarily suspend this privilege during unusual market conditions o delay sending out redemption proceeds for up to seven days (generally applies only in cases of very large redemptions, excessive trading or during unusual market conditions). TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT In Writing Complete the New Account Form. Mail your New Account Form and a check made payable to TCW Galileo __________________________ Fund to: Via Regular Mail (Same, except that you should TCW Galileo Funds, Inc. include a note specifying the Fund) PFPC Inc. name, your account number, and P.O. Box 8909 the name(s your account is Wilmington, DE 19899-8909 registered in.) Via Express, Registered or Certified Mail TCW Galileo Funds, Inc. PFPC Inc. 400 Bellevue Parkway, Suite 108 Wilmington, DE 19809 By Telephone Please contact the Investor Relations Department at (800)FUND TCW (386-3829) for a New Account Form. Wire: Have your bank send your investment to: (Same) PNC Bank, Philadelphia, PA ABA No. 031-0000-53 Account No. 86-1282 - 4023 FBO TCW Galileo _______________________ Fund (Name on the Fund Account) (Fund Account Number) Via Exchange Call the Transfer Agent at (800) 248-4486 or the Investor Relations Department at (800) FUND TCW [386-3829]. The new account will have the same registration as the account from which you are exchanging. If you need help completing the New Account Form, please call the transfer agent at (800)248-4486, or the Investor Relations Department at TCW Galileo Funds at (800) FUND TCW [386-3829] or your investment representative at TCW Galileo Funds. TO SELL OR EXCHANGE SHARES By Mail Write a letter of instruction that includes: o your name(s) and signature(s) as they appear on the account form o your account number o the Fund name o the dollar amount you want to sell or exchange o how and where to send the proceeds Obtain a signature guarantee or other documentation, if required (see "Account Policies and Services-Selling Shares"). Mail your letter of instruction to: Via Regular Mail TCW Galileo Funds, Inc. PFPC Inc. P.O. Box 8909 Wilmington, DE 19899-8909 Via Express, Registered or Certified Mail TCW Galileo Funds, Inc. PFPC Inc. 400 Bellevue Parkway, Suite 108 Wilmington, DE 19809 By Telephone Be sure the Fund has your bank account information on file. Call the Transfer Agent at (800) 248-4486 to request your transaction. Proceeds will be sent electronically to your bank or a check will be sent to the address of record. Any undelivered checks that remain uncashed for six months will be reinvested in the Fund at the per share NAV determined as of the date of cancellation. Telephone redemption requests must be for a minimum of $1,000. Systematic Withdrawal Plan: Call (800) 248-4486 to request a form to add the plan. Complete the form, specifying the amount and frequency of withdrawals you would like. Be sure to maintain an account balance of $2,000 or more. Systematic Withdrawal plans are subject to a minimum annual withdrawal of $500. To reach the Transfer Agent at PFPC Inc., call toll free in the U.S. (800) 248-4486 Outside the U.S. (816) 843-7166 (collect) To reach your investment representative or the Investor Relations Department at TCW Galileo Funds, call toll free in the U.S. (800) 386-3829 Distributions and Taxes The amount of dividends of net investment income and distributions of net realized long and short-term capital gains payable to shareholders will be determined separately for each Fund. Dividends from the net investment income of each Fund will be declared and paid annually. The Funds will distribute any net realized long or short-term capital gains at least annually. Your distributions will be reinvested in the same Fund unless you instruct the Fund otherwise. There are no fees or sales charges on reinvestments. In any fiscal year in which the Funds qualify as a regulated investment company and distributes to shareholders all of its net investment income and net capital gains, the Funds are relieved of federal income tax. Generally, all dividends and capital gains are taxable whether they are reinvested or received in cash--unless you are exempt from taxation or entitled to tax deferral. Capital gains distributions may be taxable at different rates depending on the length of time a Fund has held the assets sold. Early each year, you will be notified as to the amount and federal tax status of all distributions paid during the prior year. Distributions may also be subject to state or local taxes. The tax treatment of redemptions from a retirement plan account may differ from redemptions from an ordinary shareholder account. If you redeem shares of a Fund or exchange them for shares of another Fund, any gain on the transaction may be subject to tax. You must provide the Funds with a correct taxpayer identification number (generally your Social Security Number) and certify that you are not subject to backup withholding. If you fail to do so, the IRS can require the Funds to withhold 31% of your taxable distributions and redemptions. Federal law also requires the Funds to withhold 30% or the applicable tax treaty rate from dividends paid to nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder accounts. This is a brief summary of some of the tax laws that affect your investment in a Fund. Please see the Statement of Additional Information and your tax adviser for further information. Financial Highlights The financial highlights table is intended to help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. "Total return" shows how much your investment in Class N Shares of the Fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. The information for the two years ended November 30, 2000 of the SG Cowen Series Funds, Inc. has been audited by KPMG LLP, the independent auditors to the Fund's Predecessor Fund whose report thereon appears in the Annual Report s of the Predecessor Fund. The information for fiscal years ended prior to November 30, 1999 has been audited by other independent auditors. The information for the period ended May 31, 2001 is unaudited.
TCW Galileo Diversified Value Fund -- Class N (5) Period Ended Year Ended November 30, May 31, 2001 2000 1999 Period from 2/2/98(3) to 11/30/98 --------------- ---------------- --------------- ---------------------- Net asset value, beginning of period $11.19 $10.20 $9.53 $10.00 (1) ------ ------ ----- ---------- Investment operations Investment Income -- Net 0.02 0.06 0.10 0.08 Net realized and unrealized gains (losses) on investments 1.08 .98 0.67 (0.49) Total from investment operations 1.10 1.04 0.77 (0.41) Less distributions Dividend from net investment income (0.02) (0.05) (0.10) (0.06) Distributions from net realized gains on investments --- --- --- --- Total distributions (0.02) (0.05) (0.10) (0.06) Net asset value, end of period $12.27 $11.19 $10.20 $9.53 ------ ------ ------ ----- Total Return(4) (2)9.86% 10.21% 8.14% (4.08%) (2) Ratios/Supplemental Data Net assets, end of period ($ x 1000) $6,342 $ 6,305 $ 8,343 $12,044 (2) Ratio of expenses to average net assets (2)0.61% 1.22%(6) 1.22% 1.11% (2) Ratio of net investment income (loss) to average net assets (2)0.14% .51% .96% .85% (2) Decrease reflected on above ratios due to expense (2)0.92% 1.66% 1.19% .66% (2) reimbursements/waivers Portfolio turnover rate (2)18% 83% 52% 67% (2) - ---------------- (1) Based upon the Class A Net Asset Value on the day prior to commencement of distribution (2) Not Annualized (3) Commencement of Operations (4) Exclusive of Sales Charges (5) Based upon average shares outstanding (6) The above table reflects the previous investment adviser's voluntary reimbursement of expenses. The total operating expenses without the reimbursement for this Fund would be 2.88%.
Financial Highlights The financial highlights table is intended to help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. "Total return" shows how much your investment in Class N Shares of the Fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. The information for the two years ended November 30, 2000 of the SG Cowen Funds, Inc. has been audited by KPMG LLP, the independent auditors to the Fund's Predecessor Fund whose report thereon appears in the Annual Reports of the Predecessor Fund. The information for fiscal years ended prior to November 30, 1999 has been audited by other independent auditors. The information for the period enedd May 31, 2001 is unaudited.
TCW Galileo Opportunity Fund -- Class N (2) Period Ended Year Ended November 30, May 31, 2001 2000 1999 1998 1997 1996 -------------- ---------- ----------- ----------- ---------- ---------- Net asset value, beginning of period $15.72 $11.92 $10.05 $16.47 $16.61 $13.13 ------ ------ ------ ------ ------ ------ Investment Operations. Investment income (loss) -- Net (0.04) (0.08) (0.07) (0.08) (0.08) (0.07) Net realized and unrealized gains (losses) on investments 3.08 3.88 1.94 (3.40) 2.00 3.86 Total from investment operations 3.04 3.80 1.87 (3.48) 1.92 3.79 Less distributions -- -- -- -- -- -- Dividend from net investment income -- -- -- -- -- -- Distributions from net realized gains on investments (0.51) -- -- (2.94) (2.06) (0.31) Total distributions -- -- (2.94) (2.06) (0.31) Net asset value, end of period $15.25 $15.72 $11.92 $10.05 $16.47 $16.61 ------ ------ ------ ------ ------ ------ Total return(1) (3)19.80% 31.88% 18.61% (24.89)% 13.55% 29.63% Ratios/Supplemental Data Net Assets, end of period ($ x 1000) $22,208 $19,700 $19,787 $27,978 $54,809 $43,950 Ratio of expenses to average net assets (3)0.80% 1.61% 1.59% 1.46% 1.38% 1.39% Ratio of net investment income (loss) to average net assets (3)(0.25)% (0.52)% (0.67)% (0.67)% (0.53)% (0.46)% Decrease reflected on above ratios due to expense -- -- -- 0.01% 0.06% 0.16% reimbursements/waivers Portfolio turnover rate (3)59% 164% 150% 124% 159% 182% - ---------------- (1) Exclusive of Sales Charges (2) Based upon average shares outstanding (3) Not Annualized
Financial Highlights The financial highlights table is intended to help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. "Total return" shows how much your investment in Class N Shares of the Fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. The information for the two years ended November 30, 2000 of the SG Cowen Income + Growth Fund, Inc. has been audited by KPMG LLP, the independent auditors to the Fund's Predecessor Fund, whose report thereon appears in the Annual Reports of the Predecessor Funds. The information for fiscal years ended prior to November 30, 1999 has been audited by other independent auditors. The information for the period enedd May 31, 2001 is unaudited.
TCW Galileo Income + Growth Fund -- Class N (3) Period Ended Year Ended November 30, May 31, 2001 2000 1999 1998 1997 1996 -------------- ---------- ----------- ----------- ---------- ---------- Net asset value, beginning of period $13.97 $11.22 $12.34 $14.55 $14.40 $13.19 ------ ------ ------ ------ ------ ------ Investment Operations Investment Income -- Net 0.08 0.18 0.26 0.29 0.36 0.48 Net realized and unrealized gains (losses) on investments 1.02 3.27 (0.39) 0.19 1.97 1.74 Net from investment operations 1.10 3.45 (0.13) 0.48 2.33 2.22 Less Distributions Dividend from net investment income (0.09) (0.20) (0.27) (0.30) (0.36) (0.52) Distributions from net realized gains on investments (0.44) (0.50) (0.72) (2.39) (1.82) (0.49) Total distributions (0.53) (0.70) (0.99) (2.69) (2.18) (1.01) NET asset value, end of period $14.54 $13.97 $11.22 $12.34 $14.55 $14.40 ------ ------ ------ ------ ------ ------ Total Return(1) (2)8.08% 33.04% (1.12)% 3.98% 19.21% 17.86% Ratios/Supplemental Data Net Assets, end of period ($ x 1000) $37,147 $34,657 $34,116 $44,643 $55,383 $52,502 Ratio of expenses to average net assets (2)0.70% 1.36% 1.33% 1.20% 1.21% 1.24% Ratio of net investment income (loss) to average net assets (2)0.54% 1.45% 2.18% 2.22% 2.65% 3.56% Decrease reflected on above ratios due to expense -- -- -- 0.05% 0.14% 0.15% reimbursements/waivers Portfolio turnover rate 0 73% 71% 62% 75% 79% - ---------------- (1) Exclusive of Sales Charges (2) Not Annualized (3) Based upon average shares outstanding
FOR MORE INFORMATION For all shareholder account information such as transactions and account inquiries: Call (800) 248-4486 For information regarding the TCW Galileo Funds, Inc.: Call (800) FUND TCW (386-3829) In writing: TCW Galileo Funds, Inc. c/o PFPC Inc. P.O. Box 8909 Wilmington, DE 19899-8909 On the Internet: TCW GALILEO FUNDS, INC. www.tcwgalileofunds.com You may visit the SEC's website at www.sec.gov to view text only versions of Fund documents filed with the SEC. You can also obtain copies by visiting the SEC's Public Reference Room in Washington, DC (phone 1-800-SEC-0330) or by sending your request and a duplicating fee to the SEC's Public Reference Section, 450 Fifth Street, N.W., Washington, DC 20549-6009 or by electronic request at the following e-mail address: www. publicinfo@sec.gov. TCW Galileo Funds, Inc. More information on the Funds is available free upon request, including the following: Annual / Semi-Annual Report Describes the Funds' performance, lists portfolio holdings and contains a letter from the Funds' portfolio managers discussing recent market conditions, economic trends and Fund strategies. Statement of Additional Information (SAI) Provides more details about the Funds and their policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference and is legally considered part of this prospectus. SEC file number: 811-7170 TCW GALILEO FUNDS, INC. 865 South Figueroa Street, Suite 1800 Los Angeles, California 90017 (800) FUND TCW STATEMENT OF ADDITIONAL INFORMATION November 15, 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 the Class I and N shares of TCW Galileo Diversified Value Fund, TCW Galileo Opportunity Fund and TCW Galileo Income + Growth Fund (each a "Fund"). Each Fund has established two classes of shares, Class I shares and Class N shares. The Class I and Class N shares of each Fund are offered by means of a separate Prospectus. This Statement of Additional Information should be read in conjunction with the Prospectus. A Prospectus may be obtained without charge by writing TCW Galileo Funds, Inc., Attention: Investor Relations Department, 865 South Figueroa Street, Suite 1800, Los Angeles, California 90017 or by calling the 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...........................................................12 INVESTMENT RESTRICTIONS.......................................................23 DIRECTORS AND OFFICERS OF THE COMPANY.........................................25 INVESTMENT ADVISORY AGREEMENTS................................................30 DISTRIBUTION OF COMPANY SHARES................................................32 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................33 ADMINISTRATION AGREEMENT......................................................33 CODE OF ETHICS................................................................33 DETERMINATION OF NET ASSET VALUE..............................................34 HOW TO BUY AND REDEEM SHARES..................................................34 HOW TO EXCHANGE SHARES........................................................35 PURCHASES-IN-KIND.............................................................35 DISTRIBUTIONS AND TAXES.......................................................35 INVESTMENT RESULTS............................................................38 ORGANIZATION, SHARES AND VOTING RIGHTS........................................40 TRANSFER AGENT AND CUSTODIANS.................................................41 INDEPENDENT AUDITORS..........................................................41 LEGAL COUNSEL.................................................................41 FINANCIAL STATEMENTS..........................................................41 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 Available to All Funds Money Market Instruments. All Funds may invest in money market instruments and will generally do so for temporary and defensive 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 d eposit 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 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. 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 such time, the Fund will also establish a segregated account 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. 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. Options. The Funds may purchase and write (sell) call and put options, including options listed on U.S. or foreign securities exchanges or written in over-the-counter transactions ("OTC Options"). Exchange-listed options are issued by the Options Clearing Corporation ("OCC") (in the U.S.) or other clearing corporation or exchange which assures that all transactions in such options are properly executed. OTC Options are purchased from or sold (written) to dealers or financial institutions which have entered into direct agreements with a Fund. With OTC Options, such variables as expiration date, exercise price and premium will be agreed upon between a Fund and the transacting dealer, without the intermediation of a third party such as the OCC. If the transacting dealer fails to make or take delivery of the securities or amount of foreign currency underlying an option it has written, in accordance with the terms of that option, a Fund would lose the premium paid for the option as well as any anticipated benefit of the transaction. Each Fund will engage in OTC Option transactions only with brokers or financial institutions deemed creditworthy by the Fund's management. Covered Call Writing. The Funds 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. 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 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 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 may purchase a call option in order to close out a covered call position (see "Covered Call Writing" above), to protect against an increase in price of a security it anticipates purchasing or, in the case of a call option on foreign currency, to hedge against an adverse exchange rate move of the currency in which the security it anticipates purchasing is denominated vis-a-vis the currency in which the exercise price is denominated. The purchase of the call option to effect a closing transaction on a call written over-the-counter may be a listed or an OTC Option. In either case, the call purchased is likely to be on the same securities (currencies) and have the same terms as the written option. If purchased over-the-counter, the option would generally be acquired from the dealer or financial institution which purchased the call written by the Fund. A Fund may purchase put options on securities or currencies which it holds in its portfolio to protect itself against a decline in the value of the security and to close out written put option positions. If the value of the underlying security or currency were to fall below the exercise price of the put purchased in an amount greater than the premium paid for the option, the Fund would incur no additional loss. In addition, a Fund may sell a put option which it has previously purchased prior to the sale of the securities (currencies) underlying such option. Such a sale would result in a net gain or loss depending whether the amount received on the sale is more or less than the premium and other transaction costs paid on the put option which is sold. Such gain or loss could be offset in whole or in part by a change in the market value of the underlying security (currency). If a put option purchased by a Fund expired without being sold or exercised, the premium would be lost. Options on Foreign Currencies. The Funds may purchase and write options on foreign currencies for purposes similar to those involved with investing in foreign currency forward contracts. For example, in order to protect against declines in the dollar value of portfolio securities which are denominated in a foreign currency, a Fund may purchase put options on an amount of such foreign currency equivalent to the current value of the portfolio securities involved. As a result, the Fund would be enabled to sell the foreign currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar value of the portfolio securities (less the amount of the premiums paid for the options). Conversely, a Fund may purchase call options on foreign currencies in which securities it anticipates purchasing are denominated to secure a set U.S. dollar price for such securities and protect against a decline in the value of the U.S. dollar against such foreign currency. Each of these Funds may also purchase call and put options to close out written option positions. Each of these Funds may also write call options on foreign currency to protect against potential declines in its portfolio securities which are denominated in foreign currencies. If the U.S. dollar value of the portfolio securities falls as a result of a decline in the exchange rate between the foreign currency in which it is denominated and the U.S. dollar, then a loss to a Fund occasioned by such value decline would be ameliorated by receipt of the premium on the option sold. At the same time, however, the Fund gives up the benefit of any rise in value of the relevant portfolio securities above the exercise price of the option and, in fact, only receives a benefit from the writing of the option to the extent that the value of the portfolio securities falls below the price of the premium received. A Fund may also write options to close out long call option positions. A put option on a foreign currency would be written by the Fund for the same reason it would purchase a call option, namely, to hedge against an increase in the U.S. dollar value of a foreign security which a Fund anticipates purchasing. Here, the receipt of the premium would offset, to the extent of the size of the premium, any increased cost to a Fund resulting from an increase in the U.S. dollar value of the foreign security. However, a Fund could not benefit from any decline in the cost of the foreign security which is greater than the price of the premium received. A Fund may also write options to close out long put and call option positions. The markets in foreign currency options are relatively new and a Fund's ability to establish and close out positions on such options is subject to the maintenance of a liquid secondary market. Although the Funds will not purchase or write such options unless and until, in the opinion of the Adviser, the market for them has developed sufficiently to ensure that the risks in connection with such options are not greater than the risks in connection with the underlying currency, there can be no assurance that a liquid secondary market will exist for a particular option at any specific time. In addition, options on foreign currencies are affected by all of those factors which influence foreign exchange rates and investments generally. 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. Futures Contracts. The Funds may purchase and sell interest rate, currency, and index futures contracts ("futures contracts"), on securities eligible for purchase by the Fund. Subject to certain limitations, a Fund may enter into futures contracts or options on such contracts to attempt to protect against possible changes in the market value of securities held in or to be purchased by the Fund resulting from interest rate or market fluctuations, to protect the Fund's unrealized gains in the value of its portfolio securities, to facilitate the sale of such securities for investment purposes, to manage its effective maturity or duration, or to establish a position in the derivatives markets as a temporary substitute for purchasing or selling particular securities. To the extent futures positions constitute "bona fide hedge" positions as defined by the rules and regulations of the Commodity Futures Trading Commission ("CFTC"), there is no overall limitation on the percentage of a Fund's assets which may be committed to futures contracts and options or futures contracts, provided the aggregate value of such positions does not exceed the value of such Fund's portfolio securities. With respect to futures positions that are not "bona fide hedge" positions, no Fund may enter into futures contracts or related options if, immediately thereafter, the amount of initial margin and premiums for unexpired futures contracts and options on futures contracts exceeds 5% of the Fund's liquidation value, after taking into account unrealized profits and losses on such futures contracts, provided, however, that in the case of an option that is in-the-money (the exercise price of the call (put) option is less (more) than the market price of the underlying security) at the time of purchase, the in-the-money amount may be excluded in calculating the 5%. A Fund may purchase or sell interest rate futures for the purpose of hedging some or all of the value of its portfolio securities against changes in prevailing interest rates or to manage its duration or effective maturity. If the Adviser anticipates that interest rates may rise and, concomitantly, the price of certain of its portfolio securities may fall, the Fund may sell futures contracts. If declining interest rates are anticipated, the Fund may purchase futures contracts to protect against a potential increase in the price of securities the Fund intends to purchase. Subsequently, appropriate securities may be purchased by the Fund in an orderly fashion; as securities are purchased, corresponding futures positions would be terminated by offsetting sales of contracts. A Fund may purchase or sell futures on various currencies in which its portfolio securities are denominated for the purpose of hedging against anticipated changes in currency exchange rates. A Fund will enter into currency 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 may also purchase and write call and put options on futures contracts which are traded on an exchange and enter into closing transactions with respect to such options to terminate an existing position. An option on a futures contract gives the purchaser the right (in return for the premium paid) to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the term of the option. Funds will purchase and write options on futures contracts for identical purposes to those set forth above for the purchase of a futures contract (purchase of a call option or sale of a put option) and the sale of a futures contract (purchase of a put option or sale of a call option), or to close out a long or short position in futures contracts. If, for example, a Fund wished to protect against an increase in interest rates and the resulting negative impact on the value of a portion of its fixed-income portfolio, it might write a call option on an interest rate futures contract, the underlying security of which correlates with the portion of the portfolio the Fund seeks to hedge. Any premiums received in the writing of options on futures contracts may, of course, provide a further hedge against losses resulting from price declines in portions of a Fund's portfolio. Convertible Securities. The Funds 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. Forward Currency Transactions. The Funds may enter into forward currency transactions. A foreign currency forward contract involves an obligation to purchase or sell a specific currency at an agreed future date, at a price set at the time of the contract. These contracts are traded in the interbank market conducted directly between currency traders. A Fund may enter into foreign currency forward contracts in order to protect against the risk that the U.S. dollar value of the Fund's dividends, interest and net realized capital gains in local currency will decline to the extent of any devaluation of the currency during the intervals between (a) (i) the time the Fund becomes entitled to receive or receives dividends, interest and realized gains or (ii) the time an investor gives notice of a requested redemption of a certain amount and (b) the time such amount(s) are converted into U.S. dollars for remittance out of the particular country or countries. At the maturity of a forward contract, a Fund may either accept or make delivery of the currency specified in the contract or, prior to maturity, enter into a closing purchase transaction involving the purchase or sale of an offsetting contract. Closing purchase transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. The cost to a Fund of engaging in forward currency transactions may vary with factors such as the length of the contract period and the market conditions then prevailing. Because forward currency transactions are usually conducted on a principal basis, no fees or commissions are involved, although the price charged in the transaction includes a dealer's markup. The use of forward currency contracts does not eliminate fluctuations in the underlying prices of the securities, but it does establish a rate of exchange that can be achieved in the future. In addition, although forward currency contracts limit the risk of loss due to a devaluation of the foreign currency in relation to the U.S. dollar, they also limit any potential gain if that foreign currency appreciates with respect to the U.S. dollar. Venture Capital Investments. Venture capital investments are new early stage companies whose securities are not publicly traded. Venture capital investments may present significant opportunities for capital appreciation but involve a high degree of business and financial risk that can result in substantial losses. The disposition of U.S. venture capital investments, which may include limited partnership interests, would normally be restricted under federal securities laws. Generally, restricted securities may be sold only in privately negotiated transactions, in public offerings registered under the Securities Act of 1933, as amended (the "1933 Act") or in transactions pursuant to Rule 144A under the 1933 Act. As a result of these restrictions, the Funds may be unable to dispose of these investments at times when disposition is deemed appropriate due to investment of liquidity considerations. Alternatively, the Funds may be forced to dispose of these investments at less than their fair value. Where registration is required, the Funds may be obligated to pay part or all the expenses of such registration. Warrants. A warrant confers upon its holder the right to purchase an amount of securities at a particular time and price. Because a warrant does not carry with it the right to dividends or voting rights with respect to the securities which it entitles a holder to purchase, and because it does not represent any rights in the assets of the issuer, warrants may be considered more speculative than certain other types of investments. Also, the value of a warrant does not necessarily change with the value of the underlying securities and a warrant ceases to have value if it is not exercised prior to its expiration date. 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. 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. 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 and well-established financial institutions and specifying the required value of the collateral underlying the agreement. Fixed Income Securities Fixed income securities are subject to various risks. The two primary (but not exclusive) risks affecting fixed income instruments are "credit risk" and "interest rate risk." These risks can affect a security's price volatility to varying degrees, depending upon the nature of the instrument. In addition, the depth and liquidity of the market for an individual or class of fixed income security can also affect its price and, hence, the market value of a Fund. "Credit risk" refers to the likelihood that an issuer will default in the payment of principal and/or interest on an instrument. Financial strength and solvency of an issuer are the primary factors influencing credit risk. In addition, lack of or inadequacy of collateral or credit enhancements for a fixed income security may affect its credit risk. Credit risk of a security may change over its life and securities which are rated by rating agencies are often reviewed and may be subject to downgrade. "Interest rate risk" refers to the risks associated with market changes in interest rates. Interest rate changes may affect the value of a fixed income security directly (especially in the case of fixed rate securities) and directly (especially in the case of adjustable rate securities). In general, rises in interest rates will negatively impact the price of fixed rate securities and falling interest rates will have a positive effect on price. The degree to which a security's price will change as a result of changes in interest rates is measured by its "duration." For example, the price of a bond with a 5 year duration would be expected under normal market conditions to decrease 5% for every 1% increase in interest rates. Generally, securities with longer maturities have a greater duration and thus are subject to greater price volatility from changes in interest rates. Adjustable rate instruments also react to interest rate changes in a similar manner although generally to a lesser degree (depending, however, on the characteristics of the re-set terms, including the index chosen, frequency of reset and reset caps or floors, among other things). Foreign Securities 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, the value of the net assets of those Funds as measured in United States dollars will be affected favorably or unfavorably by changes in exchange rates. Generally, currency exchange transactions will be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the currency exchange market. The cost of currency exchange transactions will generally be the difference between the bid and offer spot rate of the currency being purchased or sold. In order to protect against uncertainty in the level of future foreign currency exchange rates, the Funds are authorized to enter into certain foreign currency future and forward contracts. However, it is not obligated to do so and, depending on the availability and cost of these devices, the Funds 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 Funds may not to be able to effectively use them. Risks Associated With Emerging Market Countries Investors should recognize that investing in securities of emerging market countries involves certain risks, and considerations, including those set forth below, which are not typically associated with investing in the United States or other developed countries. Political and economic structures in many emerging markets countries may be undergoing significant evolution and rapid development, and such countries may lack the social, political and economic stability characteristics of more developed countries. Some of these countries may have in the past failed to recognize private property rights and have at times nationalized or expropriated the assets of private companies. The securities markets of merging market countries are substantially smaller, less developed, less liquid and more volatile than the major securities markets in the United States and other developed nations. The limited size of many emerging securities markets and limited trading volume in issuers compared to volume of trading in U.S. securities or securities of issuers in other developed countries could cause prices to be erratic for reasons apart from factors that affect the quality of the securities. For example, limited market size may cause prices to be unduly influenced by traders who control large positions. Adverse publicity and investors' perceptions, whether or not based on fundamental analysis, may decrease the value and liquidity of portfolio securities, especially in these markets. In addition, emerging market countries' exchanges' and broker-dealers are generally subject to less government and exchange regulation than their counterparts in developed countries. Brokerage commissions, dealer concessions, custodial expenses and other transaction costs may be higher in emerging markets than in developed countries. As a result, Funds investing in emerging market countries have operating expenses that are expected to be higher than other funds investing in more established market regions. Many of the emerging market countries may be subject to greater degree of economic, political and social instability than is the case in the United States, Canada, Australia, New Zealand, Japan and Western European and certain Asian countries. Such instability may result from, among other things, (i) popular unrest associated with demands for improved political, economic and social conditions, and (ii) internal insurgencies. Such social, political and economic instability could disrupt the financial markets in which the Funds invest and adversely affect the value of the Funds' assets. In certain emerging market countries governments participate to a significant degree, through ownership or regulation, in their respective economies. Action by these governments could have a significant adverse effect on market prices of securities and payment of dividends. In addition, most emerging market countries have experienced substantial, and in some periods extremely high, rates of inflation. Inflation and rapid fluctuation in inflation rates have had and may continue to have very negative effects on the economies and securities markets of certain emerging market countries. Many of the currencies of emerging market countries have experienced devaluations relative to the U.S. dollar, and major devaluations have historically occurred in certain countries. Any devaluations in the currencies in which portfolio securities are denominated will have a detrimental impact on Funds investing in emerging market countries. Many emerging market countries are experiencing currency exchange problems. Countries have and may in the future impose foreign currency controls and repatriation control. Futures There are certain risks inherent in the use of futures contracts and options on futures contracts. Successful use of futures contracts by a Fund is subject to the ability of the Adviser to correctly predict movements in the direction of interest rates or changes in market conditions. In addition, there can be no assurance that there will be a correlation between price movements in the underlying securities, currencies or index and the price movements in the securities which are the subject of hedge. Positions in futures contracts and options on futures contracts may be closed out only on the exchange or board of trade on which they were entered into, and there can be no assurance that an active market will exist for a particular contract or option at any particular time. If a Fund has hedged against the possibility of an increase in interest rates or a decrease in the value of portfolio securities and interest rates fall or the value of portfolio securities increase instead, a Fund will lose part or all of the benefit of the increased value of securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if a Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements at a time when it is disadvantageous to do so. These sales of securities may, but will not necessarily, be at increased prices that reflect the decline in interest rates. While utilization of futures contracts and options on futures contracts may be advantageous to a Fund, if the Fund is not successful in employing such instruments in managing its investments, the Fund's performance will be worse than if the Fund not make such investment in futures contracts and options on futures contracts. Options The successful use of options depends on the ability of the Adviser to forecast interest rate and market movements correctly. For example, if a Fund were to write a call option based on the Adviser's expectation that the price of the underlying security would fall, but the price were to rise instead, the Fund could be required to sell the security upon exercise at a price below the current market price. Similarly, if a Fund were to write a put option based on the Adviser's expectation that the price of the underlying security would rise, but the price were to fall instead, the Fund could be required to purchase the security upon exercise at a price higher than the current market price. When it purchases an option, a Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying security, since the Fund will not lose any of its investment in such security if the price does not change. The effective use of options depends on a Fund's ability to terminate option positions at times when the Adviser deems it desirable to do so. Although the Fund will take an option position only if the Adviser believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price. If a secondary trading market in options were to become unavailable, a Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A market may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events - such as volume in excess of trading or clearing capability - were to interrupt its normal operations. A market may at times find it necessary to impose restrictions on particular types of options transactions, such as opening transactions. For example, if an underlying security ceases to meet qualifications imposed by the market or the Options Clearing Corporation, new series of options on that security will no longer be opened to replace expiring series, and opening transactions in existing series may be prohibited. If an options market were to become unavailable, a Fund which holds an option would be able to realize profits or limit losses only by exercising the option, and a Fund which acted as option writer would remain obligated under the option until expiration or exercise. 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. 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 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. 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 purusant 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 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 dtermination 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 the 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. Options Transactions The effective use of options depends on a Fund's ability to terminate option positions at times when the Adviser deems it desirable to do so. Prior to exercise or expiration, an option position can only be terminated by entering into a closing purchase or sale transaction. If a covered call option writer is unable to effect a closing purchase transaction or to purchase an offsetting OTC Option, it cannot sell the underlying security until the option expires or the option is exercised. Accordingly, a covered call option writer may not be able to sell an underlying security at a time when it might otherwise be advantageous to do so. A secured put option writer who is unable to effect a closing purchase transaction or to purchase an offsetting OTC Option would continue to bear the risk of decline in the market price of the underlying security until the option expires or is exercised. In addition, a secured put writer would be unable to utilize the amount held in cash or U.S. Government Securities or other high grade short-term obligations as security for the put option for other investment purposes until the exercise or expiration of the option. A Fund's ability to close out its position as a writer of an option is dependent upon the existence of a liquid secondary market. There is no assurance that such a market will exist, particularly in the case of OTC Options, as such options will generally only be closed out by entering into a closing purchase transaction with the purchasing dealer. However, the Fund may be able to purchase an offsetting option which does not close out its position as a writer but constitutes an asset of equal value to the obligation under the option written. If the Fund is not able to either enter into a closing purchase transaction or purchase an offsetting position, it will be required to maintain the securities subject to the call, or the collateral underlying the put, even though it might not be advantageous to do so, until a closing transaction can be entered into (or the option is exercised or expires). Among the possible reasons for the absence of a liquid secondary market on an exchange are: (a) insufficient trading interest in certain options; (b) restrictions on transactions imposed by an exchange; (c) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities; (d) interruption of the normal operations on an exchange; (e) inadequacy of the facilities of an exchange or the OCC or other relevant clearing corporation to handle current trading volume; or (f) a decision by one or more exchanges to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been issued by the relevant clearing corporation as a result of trades on that exchange would generally continue to be exercisable in accordance with their terms. In the event of the bankruptcy of a broker through which a Fund engages in transactions in options, the Fund could experience delays and/or losses in liquidating open positions purchased or sold through the broker and/or incur a loss of all or part of its margin deposits with the broker. Similarly, in the event of the bankruptcy of the writer of an OTC Option purchased by a Fund, the Fund could experience a loss of all or part of the value of the option. Transactions are entered into by a Fund only with brokers or financial institutions deemed creditworthy by the Fund's management. Each of the exchanges has established limitations governing the maximum number of options on the same underlying security or futures contract (whether or not covered) which may be written by a single investor, whether acting alone or in concert with others (regardless of whether such options are written on the same or different exchanges or are held or written on one or more accounts or through one or more brokers). An exchange may order the liquidation of positions found to be in violation of these limits and it may impose other sanctions or restrictions. These position limits may restrict the number of listed options which a Fund may write. The hours of trading for options may not conform to the hours during which the underlying securities are traded. To the extent that the option markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the option markets. Futures Contracts and Options on Futures There are certain risks inherent in the use of futures contracts and options on futures contracts. Successful use of futures contracts by a Fund is subject to the ability of the Adviser to correctly predict movements in the direction of interest rates or changes in market conditions. In addition, there can be no assurance that there will be a correlation between price movements in the underlying securities, currencies or index and the price movements in the securities which are the subject of the hedge. Positions in futures contracts and options on futures contracts may be closed out only on the exchange or board of trade on which they were entered into, and there can be no assurance that an active market will exist for a particular contract or option at any particular time. If a Fund has hedged against the possibility of an increase in interest rates or a decrease in the value of portfolio securities and interest rates fall or the value of portfolio securities increase instead, a Fund will lose part or all of the benefit of the increased value of securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if a Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements at a time when it may be disadvantageous to do so. These sales of securities may, but will not necessarily be at increased prices that reflect the decline in interest rates. While utilization of futures contracts and options on futures contracts may be advantageous to the Fund, if the Fund is not successful in employing such instruments in managing the Fund's investments, the Fund's performance will be worse than if the Fund did not make such investments. Each Fund will enter into transactions in futures contracts for hedging purposes only, including without limitation, futures contracts that are "bona fide hedges" as defined by the CFTC. In connection with the purchase of sale of futures contracts, a Fund will be required to either (i) segregate sufficient cash or other liquid assets to cover the outstanding position or (ii) cover the futures contract by either owning the instruments underlying the futures contracts or by holding a portfolio of securities with characteristics substantially similar to the underlying index or stock index comprising the futures contracts or by holding a separate offsetting option permitting it to purchase or sell the same futures contract. A call option is "covered" if written against securities owned by the Fund writing the option or if written against related securities the Fund holds. A put option is "covered" if the Fund writing the option maintains at all time cash, short-term Treasury obligations or other liquid assets with a value equal to the option exercise price in a segregated account with the Fund's custodian, or if it has bought and holds a put on the same security (and on the same amount of securities) where the exercise price of the put held by the Fund is equal to or greater than the exercise price of the put written by the Fund. Exchanges limit the amount by which the price of a futures contract may move on any day. If the price moves equal the daily limit on successive days, then it may prove impossible to liquidate a futures position until the daily limit moves have ceased. In the event of adverse price movements, a Fund would continue to be required to make daily cash payments of variation margin on open futures positions. In such situations, if a Fund has insufficient cash, it may have to sell portfolio securities to meet daily variation margin requirements at a time when it may be disadvantageous to do so. In addition, a Fund may be required to take or make delivery of the instruments underlying interest rate futures contracts it holds at a time when it is disadvantageous to do so. The inability to close out options and futures positions could also have an adverse impact on a Fund's ability to effectively hedge its portfolio. Futures contracts and options thereon which are purchased or sold on foreign commodities exchanges may have greater price volatility than their U.S. counterparts. Furthermore, foreign commodities exchanges may be less regulated and under less governmental scrutiny than U.S. exchanges. Brokerage commissions, clearing costs and other transaction costs may be higher on foreign exchanges. Greater margin requirements may limit a Fund's ability to enter into certain commodity transactions on foreign exchanges. Moreover, differences in clearance and delivery requirements on foreign exchanges may occasion delays in the settlement of a Fund's transactions effected on foreign exchanges. In the event of the bankruptcy of a broker through which a Fund engages in transactions in futures or options thereon, the Fund could experience delays and/or losses in liquidating open positions purchased or sold through the broker and/or incur a loss of all or part of its margin deposits with the broker. Similarly, in the event of the bankruptcy, of the writer of an OTC option purchased by a Fund, the Fund could experience a loss of all or part of the value of the option. Transactions are entered into by a Fund only with brokers or financial institutions deemed creditworthy by the Adviser. There is no assurance that a liquid secondary market will exist for futures contracts and related options in which a Fund may invest. In the event a liquid market does not exist, it may not be possible to close out a futures position, and in the event of adverse price movements, a Fund would continue to be required to make daily cash payments of variation margin. In addition, limitations imposed by an exchange or board of trade on which futures contracts are traded may compel or prevent a Fund from closing out a contract which may result in reduced gain or increased loss to the Fund. The absence of a liquid market in futures contracts might cause a Fund to make or take delivery of the underlying securities (currencies) at a time when it may be disadvantageous to do so. Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to a Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to a Fund notwithstanding that the purchase or sale of a futures contract would not result in a loss, as in the instance where there is no movement in the prices of the futures contract or underlying securities (currencies). Options on foreign currency futures contracts may involve certain additional risks. Trading options on foreign currency futures contracts is relatively new. The ability to establish and close out positions on such options is subject to the maintenance of a liquid secondary market. To reduce this risk, a Fund will not purchase or write options on foreign currency futures contracts unless and until, in the Adviser's opinion, the market for such options has developed sufficiently that the risks in connection with such options are not greater than the risks in connection with transactions in the underlying foreign currency futures contracts. PORTFOLIO TURNOVER The portfolio turnover rate is calculated by dividing the lesser of the value of purchases or sales of portfolio securities for the year by the monthly average value of portfolio securities. For example, a portfolio turnover rate of 100% would occur if all of a Fund's securities that are included in the computation of turnover were replaced once during a period of one year. Securities with remaining maturities of one year or less at the date of acquisition are excluded from the calculation. Certain practices that may be employed by the Funds could result in high portfolio turnover. For example, portfolio securities may be sold in anticipation of a rise in interest rates (market decline) or purchased in anticipation of a decline in interest rates (market rise) and later sold. In addition, a security may be sold and another of comparable quality purchased at approximately the same time to take advantage of what the Adviser believes to be a temporary disparity in the normal yield relationship between the two securities. These yield disparities may occur for reasons not directly related to the investment quality of particular issues or the general movement of interest rates, such as changes in the overall demand for, or supply of, various types of securities. High portfolio turnover can result in increased transaction costs for shareholders. High turnover generally results from the Adviser's effort to maximize return for a particular period. BROKERAGE PRACTICES The Adviser is responsible for the placement of the Funds' portfolio transactions and the negotiation of prices and commissions, if any, with respect to such transactions. Fixed income and unlisted equity securities are generally purchased from a primary market maker acting as principal on a net basis without a stated commission but at prices generally reflecting a dealer spread. Listed equity securities are normally purchased through brokers in transactions executed on securities exchanges involving negotiated commissions. Both fixed income and equity securities are also purchased in underwritten offerings at fixed prices which include discounts to underwriters and/or concessions to dealers. In placing a portfolio transaction, the Adviser seeks to obtain the best execution for the Fund, taking into account such factors as price (including the applicable dealer spread or commission, if any), size of order, difficulty of execution and operational facilities of the firm involved and the firm's risk in positioning a block of securities. 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 services. In an effort to achieve efficiencies in execution and reduce trading costs, the Adviser and its affiliates frequently (though not always) execute securities transactions on behalf of a number of accounts at the same time, generally referred to as "block trades". When executing block trades, securities are allocated using procedures that the Advisers consider fair and equitable. When a small number of shares are allocated to the Adviser and its affiliates in a public offering, allocations may be done disproportionately, taking into consideration performance and resulting lot sizes. In some cases, various forms of pro rata allocations are used and, in other cases, random allocation processes are used. More particularized allocations may result from considerations such as lot size, cash availability, diversification or concentration requirements and investment objectives, restrictions and time horizons. INVESTMENT RESTRICTIONS The investment restrictions numbered 1 through 9 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 10 and 11 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, and (b) each Fund may enter into futures contracts for hedging purposes subject to the conditions set forth in paragraph 8 below. The total amount borrowed by a Fund at any time will not exceed 30% of the value of the Fund's total assets (including the amount borrowed) valued at market less liabilities (not including the amount borrowed) at the time the borrowing is made. As an operating policy, whenever borrowings pursuant to (a) exceed 5% of the value of a Fund's total assets, the Fund will not purchase any securities. 2. No Fund will issue senior securities as defined in the 1940 Act, provided that the Funds may (a) enter into repurchase agreements; (b) purchase securities on a when-issued or delayed delivery basis; (c) purchase or sell financial futures contracts or options thereon; and (d) borrow money in accordance with the restrictions described in paragraph 1 above. 3. No Fund will underwrite securities of other companies, except insofar as the Fund might be deemed to be an underwriter for purposes of the Securities Act by virtue of disposing of portfolio securities. 4. No Fund will purchase any securities that would cause 25% or more of the value of the Fund's total assets at the time of purchase to be invested in the securities of any one particular industry or group of industries, provided that this limitation shall not apply to any Fund's purchase of U.S. Government Securities. 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. 6. No Fund may make loans of cash except by purchasing qualified debt obligations or entering into repurchase agreements. 7. Each Fund may effect short sales of securities or maintain a short position only if the Fund at the time of sale either owns or has the right to acquire at no additional cost securities equivalent in kind and amount to those sold. 8. No Fund will invest in commodities or commodities contracts, except that the Funds 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. For each of the Diversified Value, Opportunity, and Income + Growth Funds, no Fund will, with respect to 75 percent of its assets, (a) purchase the securities of any issuer, other than U.S. Government securities and securities of other investment companies, if as a result more than five percent of the value of the Funds' total assets would be invested in the securities of the issuer; or, (b) purchase more than 10 percent of the voting securities of any one issuer, other than U.S. Government securities and securities of other investment companies. 10. 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. 11. No Fund will purchase the securities of an issuer for the purpose of acquiring control or management thereof. The percentage limitations contained in the restrictions listed above apply, with the exception of (1), at the time of purchase or initial investment and any subsequent change in any applicable percentage resulting from market fluctuations or other changes in total or net assets does not require elimination of any security from the Fund. 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 Fund invest) were initially classified as internet companies, but over time have evolved into 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. 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, the Adviser; Chairman President and Vice Chairman, TCW Asset Management Company; Chairman, 865 South Figueroa Street TCW London International, Limited and Executive Vice Chairman, Trust Los Angeles, California 90017 Company of the West; Chairman, Apex Mortgage Capital, Inc. (Since October 1997); and Director of Qualcomm Incorporated (wireless communications). Thomas E. Larkin, Jr.* (62) Vice Chairman, Trust Company of the West; TCW Asset Management Director Company; The TCW Group, Inc., and the Adviser; Member of the Board 865 South Figueroa Street of Trustees of the University of Notre Dame; Director of Orthopedic Los Angeles, California 90017 Hospital of Los Angeles; Senior Vice President, TCW Convertible Securities Fund, Inc. John C. Argue (69) Former Senior Partner and Of Counsel, Argue Pearson Harbison & Myers Director (law firm); Director, Avery Dennison Corporation (manufacturer of 444 South Flower Street self-adhesive products and office supplies), Apex Mortgage Capital, Los Angeles, California 90071 Inc. (real estate investment trust); Nationwide Health Properties, Inc. (real estate investment trust) and TCW Convertible Securities Fund, Inc. He is Chairman of the Rose Hills Foundation, the Amateur Athletic Foundation and the University of Southern California Board of Trustees. Norman Barker, Jr. (79) Former Chairman of the Board, First Interstate Bank of California Director and former Vice Chairman of the Board, First Interstate Bancorp; 9601 Wilshire Blvd. Director, Bank Plus Corp., ICN Pharmaceuticals, Inc., and TCW Beverly Hills, CA 90210 Convertible Securities Fund, Inc Richard W. Call (77) Former President, The Seaver Institute (a private foundation); Director Director, TCW Convertible Securities Fund, Inc. and The Seaver c/o Mayer, Brown & Platt Institute. Counsel to the Independent Directors 1675 Broadway New York, NY 10019 Matthew K. Fong (45) Since 1999 Mr. Fong has been Of Counsel to the Los Angeles based law Director firm of Sheppard, Mullin, Richter & Hamilton. From 1995 to 1998, 333 South Hope Street Mr. Fong served as State Treasurer for the State of California. Los Angeles, CA 90071 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 Holdings (international Director capita consulting firm); Member of the Latin America Strategy Board c/o Mayer, Brown & Platt of Hicks, Muse, Tate and Furst (leveraged buyout firm); Director, Counsel to the Independent Directors International Wire Group (electrical wire manufacturer), KKCF, Inc. 1675 Broadway (home furnishings manufacturer) TCW Convertible Securities Fund New York, NY 10019 (closed-end fund) and Apex Mortgage Capital, Inc. (a REIT); Trustee and director of certain Merrill Lynch mutual funds. From 1981- 1986, Mr. Gavin was the United States Ambassador to Mexico. Patrick C. Haden (48) Since 1997, General Partner, Riordan, Lewis & Haden (a venture Director capital firm); Director, Tetra Tech, Inc. (environmental Riordan, Lewis & Haden consulting), Elkay Plastics Co. Inc. , Financial Pacific Insurance 300 South Grand Avenue Group, Inc., TCW Convertible Securities Fund (closed-end fund) and Los Angeles, CA 90071 IndyMac Mortgage Holdings (mortgage banking). *Directors who are or maybe deemed to be "interested" persons of the Company as defined in the 1940 Act. Messrs. Stern and Larkin are officers of the Adviser.
Compensation of Independent Directors The Company pays each Independent Director an annual fee of $35,000 plus a per meeting fee of $500 for meetings of the Board of Directors or Committees of the Board of Directors attended by the Director prorated among the Funds. The Company also reimburses such Directors for travel and other out-of-pocket expenses incurred by them in connection with attending such meetings. Directors and officers of the Company who are employed by the Adviser or an affiliated company thereof receive no compensation nor expense reimbursement from the Company. The following table illustrates the compensation paid to the Company's Independent Directors by the Company for the fiscal year ended October 31, 2000.
Name of Independent Director Aggregate Compensation From the Company - ---------------------------- --------------------------------------- John C. Argue $38,000 Norman Barker, Jr. $38,000 Richard W. Call $38,000 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.
For Service as Director and Total Cash Compensation from TCW Committee Member of the TCW Galileo Funds, Inc. and Name of Independent Convertible Securities TCW Convertible Securities Funds, Inc. Director Funds, Inc. -------------------------------------- --------------- ------------ John C. Argue $12,000 $50,000 Norman Barker, Jr. $12,750 $50,750 Richard W. Call $11,250 $48,750 The officers of the Company who are not also directors of the Company are:
Position(s) Held Principal Occupation(s) ---------------- ----------------------- Name and Address with Company During Past 5 Years(1) ---------------- ------------- ---------------------- 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 President, Secretary, the Adviser, The TCW Group, General Inc., Trust Company of the West and TCW Counsel Asset Management Company. 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. David S. DeVito (38) Treasurer Managing Director and Chief Financial Officer, 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. The directors and officers of the Company collectively own less than 1% of the outstanding shares of any Fund. INVESTMENT 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. 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 Asset Management, 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 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: Diversified Value Fund, 0.75%; Opportunity Fund, 0.90%; and Income + Growth, 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. 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 Class N 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. The Advisory Agreement was 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 Agreement may be terminated without penalty at any time on 60 days' written notice, by vote of a majority of the Board of Directors of the Company or by vote of a majority of the outstanding voting securities of the Fund. The Advisory 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. (formerly, TCW Management Company) ("TCW"), the parent of the Adviser. The Company has agreed to change its name and the name of the Funds at the request of TCW if any advisory agreement into which TCW or any of its affiliates and the Company may enter is terminated. The Advisory Agreement also provides that the 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 B or Class I shares, Investor Class or Class N shares and Advisor Class shares. Class I shares are offered primarily for direct investment by investors. Class N shares are offered through firms which are members of the National Association of Securities Dealers, Inc. ("NASD"), and which have dealer agreements with the Distributor and other financial intermediaries. Class K shares of certain Funds may be 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 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 average daily net assets of the Fund attributable to its Class N shares for distribution and related services. The Distributor may pay any or all of the fee payable to it for distribution and related services to the firms that are members of the NASD, subject to compliance by the firms with the terms of the dealer agreement between the firm and the Distributor. Under the terms of the Distribution Plan, services which a firm will provide may include, but are not limited to, the following functions: providing facilities to answer questions from prospective investors about a Fund; receiving and answering correspondence, including requests for prospectuses and statements of additional information; preparing, printing and delivering prospectuses and shareholder reports to prospective shareholders; complying with federal and state securities laws pertaining to the sale of Class N shares; and assisting investors in completing application forms and selecting dividend and other account options. The Distribution Plan provides that it may not be amended to materially increase the costs which Class N shareholders may bear under the Plan without the approval of a majority of the outstanding voting securities of Class N, and by vote of a majority of both (i) the Board of Directors of the Company, and (ii) those Directors of the Company who are not "interested persons" of the Company (as defined in the 1940 Act) and who have no direct or indirect financial interest in the operation of the Plan or any agreements related to it cast in person at a meeting called for the purpose of voting on the Plan and any related amendments. The Distribution Plan was approved by the Company's Board of Directors on December 17, 1998 and provides that it shall continue in effect so long as such continuance is specifically approved at least annually by the by a vote of a majority of both (i) the Board of Directors of the Company, and (ii) those Directors of the Company who are not "interested persons" of the Company (as defined in the 1940 Act) and who have no direct or indirect financial interest in the operation of the Plan or any agreements related to it cast in person at a meeting called for the purpose of voting on the Plan and any related amendments. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of November 15, 2001 the following persons owned 5% or more of the outstanding shares of Class I for the Diversified Value Fund, the Opportunity Fund and the Income + Growth Fund: TCW Investment Management Co. As of November 15, 2001, the following persons owned 5% or more of the outstanding shares of Class N for the Diversified Value Fund, the Opportunity Fund and the Income + Growth Fund: TCW Investment Management Co. All communications to these shareholders can be addressed to TCW Investment Management Company, 865 South Figueroa Street, 18th Floor, Los Angeles, California 90017; Attention: Investors Relations Department. 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. 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. Distributions in Kind If the Board of Directors determines that it would be detrimental to the best interests of the remaining shareholders of a Fund to make a redemption payment wholly in cash, the Fund may pay, in accordance with SEC rules, any portion of a redemption in excess of the lesser of $250,000 or 1% of the Fund's net assets by distribution in kind of portfolio securities in lieu of cash. Shareholders receiving distributions in kind may incur brokerage commissions or other costs when subsequently disposing of shares of those securities. HOW TO EXCHANGE SHARES A shareholder may exchange all or part of its shares of one Fund for shares of another Fund (subject to receipt of any required state securities law clearances with respect to certain Funds in the shareholder's state of residence). An exchange of shares is treated for federal income tax purposes as a redemption (sale) of shares given in exchange by the shareholder, and an exchanging shareholder may, therefore, realize a taxable gain or loss in connection with the exchange. See "Distributions and Taxes" below. The exchange privilege enables a shareholder to acquire shares in a Fund with different investment objectives or policies when the shareholder believes that a shift between Funds is an appropriate investment decision. Upon receipt of proper instructions and all necessary supporting documents, shares submitted for exchange are redeemed at the then-current net asset value and the proceeds are immediately invested, at a price as described above, in shares of the Fund being acquired. The Company reserves the right to reject any exchange request. As described in the Prospectus, the exchange privilege may be terminated or revised by the Company. PURCHASES-IN-KIND The Funds may, at the sole discretion of the Adviser, accept securities in exchange for shares of a Fund. Securities which may be accepted in exchange for shares of any Fund must: (1) meet the investment objectives and policies of the Fund; (2) be acquired for investment and not for resale; (3) be liquid securities which are not restricted as to transfer either by law or liquidity of market (determined by reference to liquidity policies established by the Board of Directors); and (4) have a value which is readily ascertainable as evidenced by, for example, a listing on a recognized stock exchange. DISTRIBUTIONS AND TAXES Each of the Funds intends to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). A Fund that is a regulated investment company and distributes to its shareholders at least 90% of its taxable net investment income (including, for this purpose, its net realized short-term capital gains) and 90% of its tax-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 realiz ed by the Fund (i.e., may affect whether gains or losses are ordinary or capital), may accelerate recognition of income to a Fund, and may defer Fund losses. These rules also (a) could require a Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they had been closed out in a fully taxable transaction) and (b) may cause the Fund to recognize income without receiving cash with which to pay dividends or make distributions in amounts necessary to satisfy the distribution requirements for avoiding income and excise taxes. As a general rule, a Fund's gain or loss on a sale or exchange of an investment will be a long-term capital gain or loss if the Fund has held the investment for more than one year and will be a short-term capital gain or loss if it has held the investment for one year or less. Furthermore, as a general rule, a shareholder's gain or loss on a sale or redemption of Fund shares will be a long-term capital gain or loss if the shareholder has held his or her Fund shares for more than one year and will be a short-term capital gain or loss if he or she has held his or her Fund shares for one year or less. For federal, state and local income tax purposes, an exchange by a shareholder of shares in one Fund or securities for shares in a Fund will be treated as a taxable sale for a purchase price equal to the fair market value of the shares received. Any loss realized on the disposition by a shareholder of its shares in a Fund will be disallowed to the extent the shares disposed of are replaced with other Fund shares, including replacement through the reinvesting of dividends and capital gains distributions in the Fund, within a period (of 61 days) beginning 30 days before and ending 30 days after the disposition of the shares. In such a case, the basis of the shares acquired will be increased to reflect the disallowed loss. Any loss realized by a shareholder on the sale of a Fund share held by the shareholder for six months or less will be treated as a long-term capital loss to the extent of any distributions of capital gain dividends (as defined below) received by the shareholder with respect to such share. Any realized gains will be distributed as described in the Prospectus. See "Distributions and Taxes" in the Prospectus. Such distributions ("capital gain dividends"), if any, will be taxable to shareholders as long-term capital gains, regardless of how long a shareholder has held Fund shares, and will be designated as capital gain dividends in a written notice mailed to the shareholder after the close of the Fund's prior taxable year. A Fund may be subject to taxes in foreign countries in which each invests. If such a Fund invests in an entity which is classified as a "passive foreign investment company" ("PFIC") for U.S. tax purposes, the application of certain technical tax provisions applying to such companies could result in the imposition of federal income tax with respect to such investments at the Fund level which could not be eliminated by distributions to the shareholders of the Fund. It is not anticipated that any taxes at the Fund level with respect to investments in PFICs will be significant. In computing its net taxable (and distributable) income and/or gains, a Fund may choose to take a dividend paid deduction for a portion of the proceeds paid to redeeming shareholders. This method (sometimes referred to as "equalization") would permit the Fund to avoid distributing to continuing shareholders taxable dividends representing earnings included in the net asset value of shares redeemed. Using this method will not affect the Fund's total return. Since there are some unresolved technical tax issues relating to use of equalization by a fund, there can be no assurance that the Internal Revenue Service will agree with the Fund's methodology and/or calculations which could possibly result in the imposition of tax, interest or penalties on the Fund. It should also be noted that a recent proposal submitted to Congress as part of President Clinton's proposed Budget would (if enacted) limit the use of equalization for taxable years beginning after the date of enactment. 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. 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 Company's shares, including data from Lipper Analytical Services, Inc., CDA Technologies, Inc., or similar independent services which monitor the performance of mutual funds or with other appropriate indexes of investment securities. The performance information may also include evaluations of the Funds published by nationally recognized ranking services and by financial publications that are nationally recognized, such as Business Week, Forbes, Fortune, Institutional Investor, Money and The Wall Street Journal. ORGANIZATION, SHARES AND VOTING RIGHTS The Company was incorporated as a Maryland corporation on September 15, 1992 and is registered with the Securities and Exchange Commission as an open-end, management investment company. The Company has acknowledged that the name "TCW" is owned by The TCW Group, Inc. ("TCW"), the parent of the Adviser. The Company has agreed to change its name and the name of the Funds at the request of TCW if any advisory agreement into which TCW or any of its affiliates and the Company may enter is terminated. The Funds offers two classes of shares: Class I shares and the Class N shares. The Class I shares are offered at the current net asset value. The Class N shares are also offered at the current net asset value, but will be subject to distribution or service fees imposed under the Distribution Plan. Shares of each class of a Fund represents an equal proportionate share in the assets, liabilities, income and expenses of that Fund and, generally, have identical voting, dividend, liquidation, and other rights, other than the payment of distribution fees imposed under the Distribution Plan. All shares issued will be fully paid and nonassessable and will have no preemptive or conversion rights. Each share has one vote and fractional shares have fractional votes. As a Maryland corporation, the Company is not required to hold an annual shareholder meeting in any year in which the selection of directors is not required to be acted on under the 1940 Act. Shareholder approval will be sought only for certain changes in the operation of the Funds and for the election of directors under certain circumstances. Directors may be removed by a majority of all votes entitled to be cast by shareholders at a meeting. A special meeting of the shareholders will be called to elect or remove directors if requested by the holders of ten percent of the Company's outstanding shares. All shareholders of the Funds will vote together with all other shareholders of the Funds and with all shareholders of all other funds that the Company may form in the future on all matters affecting the Company, including the election or removal of directors. For matters where the interests of separate Funds or classes of a Fund are not identical, the matter will be voted on separately by each affected Fund or class. For matters affecting only one Fund or class of a Fund, only the shareholders of that Fund or class will be entitled to vote thereon. Voting is not cumulative. Upon request in writing by ten or more shareholders who have been shareholders of record for at least six months and hold at least the lesser of shares having a net asset value of $25,000 or one percent of all outstanding shares, the Company will provide the requesting shareholders either access to the names and addresses of all shareholders of record or information as to the approximate number of shareholders of record and the approximate cost of mailing any proposed communication to them. If the Company elects the latter procedure, and the requesting shareholders tender material for mailing together with the reasonable expenses of the mailing, the Company will either mail the material as requested or submit the material to the Securities and Exchange Commission for a determination that the mailing of the material would be inappropriate. TRANSFER AGENT AND CUSTODIANS PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809, serves as transfer agent for the Company. Investors Bank & Trust Company, 200 Clarendon Street, Boston, Massachusetts 02117, serves as custodian for the Company. Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004; Morgan Guaranty Trust Company, 60 Wall Street, New York, New York 10260; and The Bank of New York, 90 Washington Street, New York, New York 10286 act as limited custodians under the terms of certain repurchase and futures agreements. INDEPENDENT AUDITORS Deloitte & Touche LLP, Two California Plaza, 350 South Grand Avenue, Los Angeles, California 90071-3462 LEGAL COUNSEL Dechert, 1775 Eye Street, N.W., Washington, D.C. 20006-2401 FINANCIAL STATEMENTS The audited financial statements for the Diversified Value Fund, the Opportunity Fund and the Income + Growth Fund for the period ended November 30, 2000, including the financial highlights, appearing in the Annual Report to shareholders of the SG Cowen Funds, Inc., Cowen Series Fund, Inc. and the SG Cowen Income + Growth Fund, Inc. respectively, are incorporated by reference and made a part of this document. 3 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, 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. 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. 2 PART C OTHER INFORMATION Item 23. Exhibits. (a)(1) Form of Articles of Incorporation - filed herein (a)(2) Form of Articles of Amendment - filed herein (a)(3) Form of Articles Supplementary - filed herein (a)(4) Form of Articles Supplementary - filed herein (a)(5) Form of Articles Supplementary - filed herein (a)(6) Form of Articles of Amendment - filed herein (a)(7) Form of Articles Supplementary. /1/ (a)(8) Form of Articles Supplementary. /2/ (a)(9) Form of Articles of Amendment. /5/ (a)(10) Form of Articles of Amendment. /5/ (a)(11) Form of Articles Supplementary. /6/ (a)(12) Form of Articles Supplementary. /8/ (a)(13) Form of Articles Supplementary. /10/ (a)(14) Form of Articles of Amendment. /10/ (a)(15) Form of Articles Supplementary. /11/ (a)(16) Form of Articles Supplementary. /12/ (b)(1) Bylaws - filed herein (b)(2) Amendment No. 1 to By-laws. /7/ (b)(3) Amendment No. 2 to the By-laws - filed herein (c) Not Applicable. (d)(1) Form of Amended and Restated Investment Advisory and Management Agreement between Registrant and TCW Funds Management, Inc. /5/ (d)(2) Form of Amendment No. 1 to Amended and Restated Investment Advisory and Management Agreement between Registrant and TCW Investment Management Company (previously named TCW Funds Management, Inc.) /8/ (d)(3) Form of Sub-Advisory Agreement between TCW Funds Management, Inc. and TCW London International, Limited. /3/ (d)(4) Form of Addendum to Sub-Advisory Agreement between TCW Funds Management, Inc. and TCW London International Limited. /4/ (d)(5) Form of Amendment No. 1 to Sub-Advisory Agreement between TCW Funds Management, Inc. and TCW London International Limited /7/ (d)(6) Form of Amendment No. 2 to Amended and Restated Investment Advisory and Management Agreement between Registrant and TCW Investment Management Company (previously named TCW Funds Management, Inc.) /11/ (d)(7) Form of Amendment No. 3 to Amended and Restated Investment Advisory and Management Agreement between Registrant and TCW Investment Management Company (previously named TCW Funds Management, Inc.) - filed herein (e)(1) Form of Amended and Restated Distribution Agreement between Registrant and TCW Brokerage Services. /5/ (e)(2) Form of Dealer Agreement. /5/ (f) Not Applicable. (g)(1) Form of Custodian Agreement between Registrant and Investors Bank & Trust Company. /5/ (g)(1)(a)Form of Amendment No. 1 to Appendix A to the Custodian Agreement between Registrant and Investors Bank & Trust Company - filed herein (g)(2) Form of Delegation Agreement between Registrant and Investors Bank & Trust Company. /5/ (h)(1) Form of Transfer Agency Services Agreement between Registrant and PFPC Inc. /9/ (h)(1)(a)Form of Amendment No. 1 to Exhibit A to the Transfer Agency Services Agreement between the Registrant and PFPC, Inc. - filed herein (h)(2) Form of Administration Agreement between Registrant and Investors Bank & Trust Company. /5/ (h)(2)(a)Form of Amendment No. 1 to Appendix A to the Administration Agreement between Registrant and Investors Bank & Trust Company - filed herein (h)(3) Form of Securities Lending Agency Agreement between Registrant and Investors Bank & Trust Company. /5/ (h)(3)(a)Form of Amendment No. 1 to Schedule A to the Securities Lending Agency Agreement between the Registrant and Investors Bank & Trust Company - filed herein (i) Form of Opinion of Counsel - filed herein (j) Consent of KPMG /12/ (k) Not Applicable. (l) Not Applicable. (m) Form of Registrant's Class N Shares Distribution Plan. /5/ (n) Not Applicable (o) Form of Amended and Restated Plan Pursuant to Rule 18f-3. - filed herein (p) Code of Ethics. /8/ (q) Powers of Attorney. /7/ (q)(1) Power of Attorney for John A. Gavin and Patrick C. Harden /12/ ------------------------------------------------ 1. Incorporated herein by reference to Registrant's Registration Statement on Form N-1A filed on April 21, 1995. 2. Incorporated herein by reference to Registrant's Registration Statement on Form N-1A filed April 2, 1998. 3. Incorporated herein by reference to Registrant's Registration Statement filed on December 21, 1995. 4. Incorporated herein by reference to Registrant's Registration Statement on Form N-1A filed on October 31, 1997. 5. Incorporated herein by reference to Registrant's Registration Statement on Form N-1A filed on December 30, 1998. 6. Incorporated herein by reference to Registrant's Registration Statement on Form N-1A filed on March 1, 1999. 7. Incorporated herein by reference to Registrant's Registration Statement on Form N-1A filed on February 29, 2000. 8. Incorporated herein by reference to Registrant's Registration Statement on Form N-1A filed on August 17, 2000. 9. Incorporated herein by reference to Registrant's Registration Statement on Form N-1A filed on December 15, 2001. 10. Incorporated herein by reference to Registrant's Registration Statement on Form N-1A filed on March 1, 2001. 11. Incorporated herein by reference to Registrant's Registration Statement on Form N-1A filed on June 4, 2001 12. Incorporated herein by reference to Registrant's Registration Statement on Form N-1A filed on August 27, 2001 Item 24. Persons Controlled by or Under Common Control with Registrant. TCW Investment Management Company (the "Adviser") (previously named TCW Funds Management, Inc.) is a 100% owned subsidiary of The TCW Group, Inc. (formerly TCW Management Company), a Nevada corporation. 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 Asset Management, S.A., France's second largest public bank. Item 25. Indemnification. Under Article Eighth, Section (9) of the Company's Articles of Incorporation, filed as Exhibit 1.1, directors and officers of the Company will be indemnified, and will be advanced expenses, to the fullest extent permitted by Maryland law, but not in violation of Section 17(i) of the Investment Company Act of 1940. Such indemnification rights are also limited by Article 9.01 of the Company's Bylaws, previously filed as Exhibit 2.1. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in a successful defense of any action, suit or proceeding or payment pursuant to any insurance policy) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. Item 26. Business and Other Connections of Investment Adviser. In addition to the Funds, the Adviser serves as investment adviser or sub-adviser to a number of open- and closed-end management investment companies that are registered under the 1940 Act and to a number of foreign investment companies. The list required by this Item 28 of officers and directors of the Adviser, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by the Adviser and such officers and directors during the past two years, is incorporated by reference to Form ADV (SEC File No. 801-29075) filed by the Adviser pursuant to the Advisers Act. Item 27. Principal Underwriters. (a) None. (b)
Name and Principal Positions and Offices Positions and Offices Business Address With Underwriter With Registrant - ---------------- --------------------- --------------------- Alvin R. Albe, Jr.+ Director President Michael E. Cahill+ Director Senior Vice President, General Counsel and Assistant Secretary William C. Schubert+ Vice President and None Secretary Philip K. Holl+ Vice President Secretary David S. DeVito Managing Director and Treasurer Chief Financial Officer (c) None. - ----------------------------- + Address is 865 South Figueroa Street, Los Angeles, California 90017
Item 28. Location of Accounts and Records. Unless otherwise stated below, the books or other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder are in the physical possession of: Treasurer TCW Galileo Funds, Inc. 865 South Figueroa Street Los Angeles, CA 90017 Location of Rule Required Records 31a-l(b)(2)(c) N/A 31a-l(b)(2)(d) Investors Bank & Trust Company 200 Clarendon Street Boston, MA 02116 31a-l(b)(4)-(6) TCW Investment Management Company 865 South Figueroa Street Los Angeles, CA 90017 31a-1(b)(9)-(11) TCW Investment Management Company 65 South Figueroa Street Los Angeles, CA 90017
Item 29. Management Services. Not applicable. Item 30. Undertakings. Not applicable.. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certified that it meets all of the requirements for effectiveness of this registration statement under Rule 485(b) under the Securities Act and has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles and State of California on the 15th day of November, 2001. TCW GALILEO FUNDS, INC. By: /s/ Philip K. Holl ----------------------------- Philip K. Holl Secretary Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant's registration statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date * - ----------------------------------------- Marc I. Stern Chairman and Director November 15, 2001 * - ----------------------------------------- Thomas E. Larkin, Jr. Director November 15, 2001 * - ----------------------------------------- Norman Barker, Jr. Director November 15, 2001 * - ----------------------------------------- Richard W. Call Director November 15, 2001 * - ----------------------------------------- Matthew K. Fong Director November 15, 2001 * - ----------------------------------------- John A. Gavin Director November 15, 2001 * - ----------------------------------------- Patrick C. Haden Director November 15, 2001 - ----------------------------------------- David S. DeVito Managing Director and November 15, 2001 Chief Financial Officer *By: /s/ Philip K. Holl Philip K. Holl Attorney-in-Fact - -------- * 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.
INDEX TO EXHIBITS Exhibit Number Description Exhibit (a)(1) Articles of Incorporation Exhibit (a)(2) Form of Articles of Amendment Exhibit (a)(3) Form of Articles Supplementary Exhibit (a)(4) Form of Articles Supplementary Exhibit (a)(5) Form of Articles Supplementary Exhibit (a)(6) Form of Articles of Amendment Exhibit (b)(1) By-Laws Exhibit (b)(3) Amendment No. 2 to By-Laws Exhibit (d)(7) Form of Amendment No. 3 to the Amended and Restated Investment Advisory and Management Agreement between Registrant and TCW Investment Management Company (Previously named TCW Funds Management Inc.) Exhibit (g)(1)(a) Form of Amendment No. 1 to Appendix A to the Custodian Agreement between Registrant and Investors Bank & Trust Company Exhibit (h)(1)(a) Form of Amendment No. 1 to Exhibit A to the Transfer Agency Services Agreement between Registrant and PFPC, Inc. Exhibit (h)(2)(a) Form of Amendment No. 1 to Appendix A to the Administration Agreement between Registrant and Investors Bank & Trust Company Exhibit (h)(3)(a) Form of Amendment No. 1 to Schedule A to the Securities Lending Agency Agreement between Registrant and Investors Bank & Trust Company Exhibit (i) Form of Opinion of Counsel Exhibit (o) Form of Amended and Restated Plan pursuant to Rule 18f-3 EX-99.A 3 tcwgalileoartofinc.txt TCW FUNDS, INC. ARTICLES OF INCORPORATION FIRST: The undersigned, Michael E. Cahill, whose address is 865 South Figueroa Street, Los Angeles, California 90017, being at least eighteen years of age, as incorporator, does hereby form a corporation under and by virtue of the General Laws of the State of Maryland. SECOND: The name of the corporation (hereinafter called the "Corporation") is: TCW FUNDS, INC. TCW Management Company ("TCWMC") has consented to the use by the Corporation of the identifying name "TCW" which the Corporation acknowledges in the property of TCWMC. The Corporation will only use the name "TCW" as a component of its name and for no other purpose, and will not purport to grant to any third party the right to use the name "TCW" for any purpose. TCWMC may grant to others the right to use the name "TCW" as all or a portion of a corporate or business name or for any commercial purpose, including a grant of such right to any other investment company whether now existing or hereafter created. At the request of TCWMC, the Corporation will take such action as may be required to provide its consent to the use by TCWMC or any person to whom TCWMC has granted the right to the use of the name "TCW". Upon the termination of any investment advisory agreement into which TCWMC or any of its affiliates and the Corporation may enter, the Corporation shall, upon the request of TCWMC, cease to use the name "TCW" as a component of its name, and shall not use the name as a part of its name or for any other commercial purpose, and shall cause its request to effect the foregoing and to reconvey to TCW or any of its affiliates any and all rights to such name. The foregoing agreements on the part of the Corporation are hereby made binding upon it, its directors, officers, shareholders, creditors and all other persons claiming under or through it. For purposes of the paragraph, reference to TCWMC shall includes any of its affiliates other than the Corporation and any successor or assignee thereof. THIRD: The purposes for which the Corporation is formed are to conduct and carry on the business of an open-end investment company under the Investment Company Act of 1940, as from time to time amended (hereinafter, together with any rules, regulations or orders issued thereunder, referred to as the "1940 Act"), and to engage in all or all lawful business for which corporations may be organized under the Maryland General Corporation Law. FOURTH: The Corporation is expressly empowered as follows: (1) To hold, invest and reinvest its assets in securities and other investments and in connection therewith to hold part of all of its assets in cash. (2) To redeem, issue and sell shares of its capital stock in such amounts and on such terms and conditions and for such purposes and for such amount or kind of consideration as may now or hereafter be permitted by law. (3) To redeem, purchase or otherwise acquire, hold, dispose of, resell, transfer, reissue or cancel (all without the vote or consent of the shareholders of the Corporation) shares of its capital stock, in any manner and to the extent now or hereafter permitted by law and by the Charter of the Corporation. (4) To enter into a written contract or contracts with any person or persons providing for a delegation of the management of all or part of the Corporation's securities portfolio and also for the delegation of the performance of various administrative or corporation functions, subject to the direction of the Board of Directors. Any such contract or contracts may be made with any person even though such person may be an officer, other employee, director or shareholder of the Corporation or a corporation, partnership, trust or association in which any such officer, other employee, director or shareholder may be interested. (5) To enter into a written contract or contracts employing such custodian or custodians for the safekeeping of the property of the Corporation, such dividend disbursing agent or agents and such transfer agent or agents for its shares, on such terms and conditions as the Board of Directors of the Corporation may deem reasonable and proper for the conduct of the affairs of the Corporation, and to pay the fees and disbursements of such custodians, dividend disbursing agents and transfer agents out of the income and/or any other property of the Corporation. Notwithstanding any other provisions of the Charter or the Bylaws of the Corporation, the Board of Directors may cause any or all of the property of the Corporation to be transferred to, or to be acquired and held in the name of, a custodian so appointed or any nominee or nominees of the Corporation or nominee or nominees of such custodian satisfactory to the Board of Directors. (6) To do any and all such further acts or things and to exercise any and all such further powers or rights as may be necessary, incidental, relative, conducive, appropriate or desirable for the accomplishment, carrying out or attainment of the purposes stated in Article THIRD and the powers stated in this Article FOURTH. FIFTH: The post office address of the principal office of the Corporation in the State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The name of the resident agent of the Corporation in this State is The Corporation Trust Incorporated, a corporation of this State, and the post office address of the resident agent is 32 South Street, Baltimore, Maryland 21202. SIXTH: (a) The total number of shares of stock of all classes which the Corporation initially has authority to issue is ten billion (10,000,000,000) shares of capital stock (par value $.001 per share) amounting in aggregate par value to $10,000,000. All of such shares are initially designated as "Common Stock". Such shares initially are issuable in six classes or series designated as the TCW Concentrated Core Equity Fund (1,667,000,000); TCW High Grade Fixed Income Fund (1,667,000,000); TCW High Yield Fund (1,667,000,000); TCW Latin America Equity Fund (1,667,000,000); TCW Mortgage-Backed Securities Fund; and TCW Specialized Cash Management Fund (1,666,000,000). The Board of Directors may classify and reclassify any unissued shares of capital stock among such classes or series or into one or more additional or other classes or series as may be established from time to time by setting or changing in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares of stock. The Board of Directors may also redesignate the issued shares of any class or series of capital stock provided that such redesignation does not affect the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares of stock. (b) Subject to the Board of Directors' power of classification and reclassification, the following is a description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of shares of TCW Concentrated Core Equity Fund, TCW High Grade Fixed Income Fund, TCW High Yield Fund, TCW Latin America Equity Fund, TCW Mortgage-Backed Securities Fund and TCW Specialized Cash Management Fund and of any additional class or series of Capital Stock of the Corporation (unless provided otherwise by the Board of Directors with respect to any such additional class or series at the time of establishing and designating such additional class or series). (1) Assets Belonging to a Class or Series. All consideration received by the Corporation from the issue or sale of shares of a particular class or series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to that class or series for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Corporation. Such consideration, assets, income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds, in whatever form the same may be, together with any General Items allocated to that class or series as provided in the following sentence, are herein referred to as "assets belonging to" that class or series. In the event that there are any assets, income, earnings, profits, and proceeds thereof, funds, or payments which are not readily identifiable as belonging to any particular class or series (collectively "General Items"), such General Items shall be allocated by or under the supervision of the Board of Directors to and among any one more of the classes or series established and designated from time to time in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable; and any General Items so allocated to a particular class or series shall belong to that class or series. Each such allocation by the Board of Directors shall be conclusive and binding for all purposes. (2) Liabilities Belonging to a Class or Series. The assets belonging to each particular class or series shall be charged with the liabilities of the Corporation in respect of that class or series and all expenses, costs, charges and reserves attributable to that class or series, and any general liabilities, expenses, costs, charges or reserves of the Corporation which are not readily identifiable as belonging to any particular class or series shall be allocated and charged by or under the supervision of the Board of Directors to and among any more of the classes or series established and designated from time to time in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and quitable. The liabilities, expenses, costs, charges and reserves allocated and so charged to a class or series are herein referred to as "liabilities belonging to" that class or series. Each allocation of liabilities, expenses, costs, charges and reserves by the Board of Directors shall be conclusive and binding for all purposes. (3) Income Belonging to a Class or Series. The Board of Directors shall have full discretion, to the extent not inconsistent with the Maryland General Corporation Law and the 1940 Act, to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding. Income belonging to a class or series includes all income, earnings and profits derived from assets belonging to that class or series, less any expenses, costs, charges or reserves belonging to that class of series, for the relevant time period, all determined in accordance with generally accepted accounting principles. (4) Dividends. Dividends and distributions on shares of a particular class or series may be paid with such frequency, in such form and in such amount as the Board of Directors may from time to time determine. Dividends may be daily or otherwise pursuant to a standing resolution or resolutions adopted only once or with such frequency as the Board of Directors may determine, after providing for actual and accrued liabilities belonging to that class or series. All dividends on shares of a particular class or series shall be paid only out of the income belonging to that class or series and capital gains or other distributions on shares of a particular class or series shall be paid only out of the capital gains or capital belonging to that class or series. All dividends and distributions on shares of a particular class or series shall be distributed pro rata to the holders of that class or series in proportion to the number of shares of that class or series held by such holders at the date and time of record established for the payment of such dividends or distributions, except that in connection with any dividend or distribution program or procedure, the Board of Directors may determine that no dividend or distribution shall be payable on shares as to which the shareholder's purchase order and/or payment have not been received by the time or times established by the Board of Directors under such program or procedure. The Corporation intends to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, or any successor or comparable statute thereto, and Regulations promulgated thereunder. In asmuch as the computation of net income and gains for Federal income tax purposes may vary from the computation thereof on the books of the Corporation, the Board of Directors shall have the power, in its sole discretion, to distribute in any fiscal year as dividends, including dividends designated in whole or in part as capital gains distributions, amounts sufficient, in the opinion of the Board of Directors, to enable the Corporation to qualify as a regulated investment company and to avoid liability of the Corporation for Federal income tax in respect of that year. However, nothing in the foregoing shall limit the authority of the Board of Directors to make distributions greater than or less than the amount necessary to qualify as a regulated investment company and to avoid liability of the Corporation for such tax. Dividends and distributions may be made in cash, property or additional shares of the same or another class or series, or a combination thereof, as determined by the Board of Directors or pursuant to any program that the Board of Directors may have in effect at the time for the election by each shareholder of the mode of the making of such dividend or distribution to that shareholder. Any such dividend or distribution paid in shares shall be paid at the net asset value thereof as defined in subsection (11) below: (5) Liquidation. In the event of the liquidation or dissolution of the Corporation or of a particular class or series, the shareholders of each class or series that has been established and designated and is being liquidated shall be entitled to receive, as a class or series, when and as declared by the Board of Directors, the excess of the of the assets belonging to that class or series over the liabilities belonging to that class or series. The holders of shares of any particular class or series shall not be entitled thereby to any distribution upon liquidation of any other class or series. The assets so distributable to the shareholders of any particular class or series shall be distributed among such shareholders in proportion to the number of shares of that class or series held by them and recorded on the books of the Corporation. Subject to the provisions of subsection (6) below, and without limiting, to the extent permitted by law, the authority of the Board of Directors to act without shareholder authorization, the liquidation of any particular class or series in which there are shares then outstanding may be authorized by vote of a majority of the Board of Directors than in office, subject to the approval of a majority of the outstanding securities of that class or series, as defined in the 1940 Act, and without the vote of the holders of any other class or series, and the liquidation or dissolution of a particular class or series may be accomplished, in whole or in part, by the transfer of assets of such class or series to another class or series or by the exchange of shares of such class or series for the shares of another class or series. (6) Termination of a Class or Series. In addition to, and not in limitation of the authorization granted in subsection (5) above, to the full extent permitted by applicable law, the Corporation may, without the vote of the shares of any class or series of capital stock of the Corporation then outstanding and if so determined by the Board of Directors: (i) Sell and convey the assets belonging to a class or series of capital st6ock to another trust or corporation that is a management investment company (as defined in the Investment Company Act of 1940) and is organized under the laws of any state of the United States for consideration which may include the assumption of all outstanding obligations, taxes and other liabilities, accrued or contingent, belonging to such class or series and which may include securities issued by such trust or corporation. Following such sale and conveyance, and after making provision for the payment of any liabilities belonging to such class or series that are not assumed by the purchaser of the assets belonging to such class or series, the Corporation may at its option, redeem all outstanding shares of such class or series at the net asset value thereof as determined by the Board of Directors in accordance with the provisions of applicable law, less such redemption fee or other charge, if any, as may be fixed by resolution of the Board of Directors. Notwithstanding any other provision of the Charter of the Corporation to the contrary, the redemption price may be paid in any combination of cash or other assets belonging to the class or series, including but not limited to the distribution of the securities or other consideration received by the Corporation for the assets belonging to such class or series upon such conditions as the Board of Directors deems, in its sole discretion, to be appropriate consistent with applicable law and the Charter of the Corporation; (ii) Sell and convert the assets belonging to a class or series of capital stock into money and, after making provision for the payment of all obligations, taxes and other liabilities, accrued or contingent, belonging to such class or series, the Corporation may, at its option, (i) redeem all outstanding shares of such class or series at the net asset value thereof as determined by the Board of Directors in accordance with the provisions of applicable law, less such redemption fee or other charge, if any, as may be fixed by resolution of the Board of Directors upon such conditions as the Board of Directors deems, in its sole discretion, to be appropriate consistent with applicable law and the Charter of the Corporation, or (ii) combine the assets belonging to such class or series following such sale and conversion with the assets belonging to any one or more other class or series of capital stock of the Corporation pursuant to and in accordance with subsection (6)(iii) below; or (iii) Combine the assets belonging to a class or series of capital stock with the assets belonging to any one or more other classes or series of capital stock of the Corporation if the Board of Directors reasonable determines that such combination will not have a material adverse effect on the shareholders of any class or series of capital stock of the Corporation participating in such combination. In connection with any such combination of assets the shares of any class or series of capital stock of the Corporation then outstanding may, if so determined by the Board of Directors, be converted into shares of any other class, classes, or series of capital stock of the Corporation with respect to which conversion is permitted by applicable law, or may be redeemed, at the option of the Corporation, at the next asset value thereof as determined by the Board of Directors in accordance with the provisions of applicable law, less such redemption fee or other charge, or conversion cost, if any, as may be fixed by resolution of the Board of Directors upon such conditions as the Board of Directors deems, in its sole discretion, to be appropriate consistent with applicable law and the Charter of the Corporation. Notwithstanding any other provision of the Charter of the Corporation to the contrary, any redemption price, or part thereof, paid pursuant to this subsection (6)(iii) may be paid in shares of any other existing or future class, classes or series of capital stock of the Corporation. (7) Voting. On each matter submitted to a vote of the shareholders, each holder of a share shall be entitled to one vote for each share standing in his name on the books of the Corporation, irrespective of the class or series thereof, and all shares of all classes or series shall vote as a single class or series ("Single Class Voting"); provided, however, that (a) as to any matter with respect to which a separate vote of any class or series is required by the 1940 Act or by the Maryland General Corporation Law, such requirement as to a separate vote by that class or series shall apply in lieu of Single Class Voting as described above; (b) in the event that the separate vote requirements referred to in (a) above apply with respect to one or more classes to series, then, subject to (c) below, the shares of all other classes or series shall vote as a single class or series; and (c) as to any matter which does not affect the interest of a particular class or series, only the holders of shares of the one or more affected classes or series shall be entitled to vote. (8) Quorum Requirements. The presence in person or by proxy of the holders of one-third of the shares of stock of the Corporation entitled to vote without regard to class or series shall constitute a quorum at any meeting of the shareholders, except with respect to any matter which by law requires the approval of one or more classes or series of stock, in which case the presence in person or by person or by proxy of the holders of one-third of the shares of stock of each such class of series shall constitute a quorum. (9) Redemption by Shareholder. Each holder of shares of a particular class or series shall have the right to require the Corporation to redeem all or any part of his shares of that class or series at a redemption price per share equal to the net asset value per share of that class or series next determined (in accordance with subsection (11)) after the shares are properly tendered for redemption, less such redemption charge, if any, as is determined by the Board of Directors, which redemption charge shall not exceed one percent (1%) of said net asset value per share. Payment of the redemption price shall be in cash; provided, however, that if the Board of Directors determines, which determination shall be conclusive, that conditions exist which make payment wholly in cash unwise or undesirable, the Corporation may make payment wholly or partly in securities or other assets belonging to the class or series of which the shares being redeemed are part at the value of such securities or assets used in such determination of net asset value. The right of a holder or stock redeemed by the Corporation to receive dividends thereon and all other rights with respect to the shares shall terminate at the time as of which the redemption price has been determined, except the right to receive the redemption price and any dividend or distribution to which the holder had become entitled as the record holder of the shares on the record date for that dividend or distribution. The Board of Directors may establish other terms and conditions and procedures for redemption, including requirements as to delivery of certificates evidencing shares, if issued. Notwithstanding the foregoing, the Corporation may postpone payment of the redemption price and may suspend the right of the holders of shares of any class or series to require the Corporation to redeem shares of the class or series during any period or at any time when and to the extent permissible under the 1940 Act. (10) Redemption by Corporation. Without being subject to the provisions of section 2-310.1 of the Maryland General Corporation Law, or any amendment or successor thereto, the Board of Directors may cause the Corporation to redeem at net asset value the shares of any class or series from a holder who has, for a period of more than six months, had in his account shares of that class or series having an aggregate net asset value (determined in accordance with subsection (11)) of less than the amount fixed by the Board of Directors, provided that such amount shall not exceed the minimum initial investment amount then applicable to that account as set forth in the Corporation's registration statement under the Securities Act of 1933, as amended, if at least sixty (60) days prior written notice of the proposed redemption has been given to such holder by postage paid mail to his last known address. Upon redemption of shares pursuant to this subsection, the Corporation shall promptly cause payment of the full redemption price to be made to the holder of shares so redeemed. (11) Net Asset Value Per Share. The net asset value per share of any class or series shall be the quotient obtained by dividing the value of the net assets of that class or series (being the value of the assets belonging to that class or series less the liabilities belonging to that class or series) by the total number of shares of that class or series outstanding, all determined by the Board of Directors in accordance with generally accepted accounting principles and not inconsistent with the 1940 Act. The Board of Directors may determine to maintain the net asset value per share of any class or series at a designated constant dollar amount and in connection therewith may adopt procedures not inconsistent with the 1940 Act for the continuing declarations of income attributable to that class or series as dividends payable in additional shares of that class or series at the designated constant dollar amount and for the handling of any losses attributable to that class or series. Such procedures may provide that in the event of any loss, each shareholder shall be deemed to have contributed to the capital of the Corporation attributable to that class or series his pro rata portion of the total number of shares required to be cancelled in order to permit the net asset value per share of that class or series to be maintained, after reflecting such loss, at the designated constant dollar amount. Each shareholder of the Corporation shall be deemed to have agreed, by his investment in any class or series with respect to which the Board of Directors shall have adopted any such procedure, to make the contribution referred to in the preceding sentence in the event of any such loss. (12) Equality. All shares of each particular class or series shall represent an equal proportionate interest in the assets belonging to that class or series (subject to the liabilities belonging to that class or series), and each share of any particular class or series shall be equal to each other share of that class or series. The Board of Directors may from time to time divide or combine the shares of any particular class or series into a greater or less number of shares of that class or series without thereby changing the proportionate beneficial interest in the assets belonging to that class or series or in any way affecting the rights of shares of any other class or series. (13) Conversion or Exchange Rights. Subject to compliance with the requirements of the 1940 Act, the Board of Directors shall have the authority to provide that holders of shares of any class or series shall have the right to convert or exchange said shares into shares of one or more other classes or series of shares in accordance with such requirements and procedures as may be established by the Board of Directors. (14) Fractional Shares. The Corporation may issue and sell fractions of shares having pro rata all the rights of full shares (except the right to receive a stock certificate evidencing such fractional shares), including, without limitation, the right to vote and to receive dividends, and wherever the words "share" or "shares" are used in the Charter or in the Bylaws, they shall be deemed to include fractions or shares, where the context does not clearly indicate that only full shares are intended. (15) Stock Certificates. The Corporation shall not be obligated to issue certificates representing shares of any class or series unless it shall receive a written request therefor from the record holder thereof in accordance with procedures established in the Bylaws or by the Board of Directors. (c) The power of the Board of Directors to classify and reclassify any of the shares of capital stock shall include, without limitation, subject to the provisions of the Charter, authority to classify or reclassify any unissued shares of such stock into one or more classes or series of capital stock, special stock or other stock, and to subdivide and resubdivide shares of any class or series into one or more subclasses or subseries of such class or series, by determining, fixing, or altering or more of the following: (1) The distinctive designation of such class or series and the number of shares to constitute such class or series; provided that, unless otherwise prohibited by the terms of such or any other class or series, the number of shares of any class or series may be decreased by the Board of Directors in connection with any classification or reclassification of unissued shares and the number of shares of such class or series may be increased by the Board of Directors in connection with any such classification or reclassification, and any shares of any class or series which have been redeemed, purchased, otherwise acquired or converted into shares of capital stock of any other class or series shall become part of the authorized capital stock and be subject to classification and reclassification as provided in this section. (2) Whether or not and, if so, the rates, amounts and times at which, and the conditions under which, dividends shall be payable on shares of such class or series, whether any such dividends shall rank senior or junior to or on a parity with the dividends payable on any other class or series of stock, and the status of any such dividends as cumulative, cumulative to a limited extent or non-cumulative and as participating or non participating. (3) Whether or not shares of such class or series shall having voting rights, in addition to any voting rights provided by law and, if so, the terms of such voting rights. (4) Whether or not shares of such class or series shall have conversion or exchange privileges and, if so, the terms and conditions thereof, including provision for adjustment of the conversion or exchange rate in such events or at such times as the Board of Directors shall determine. (5) Whether or not shares of such class or series shall be subject to redemption and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at difference redemption dates; and whether or not there shall be any sinking fund or purchase account in respect thereof, and if so, the terms thereof. (6) The rights of the holders of shares of such class or series upon the liquidation, dissolution or winding up of the affairs of, or upon any distribution of the assets of, the Corporation, which rights may vary depending upon whether such liquidation, dissolution or winding up is voluntary or involuntary and, if voluntary, may vary at different dates, and whether such rights shall rank senior or junior to or on a parity with such rights of any other class or series of stock. (7) Whether or not there shall be any limitations applicable, while shares of such class or series are outstanding, upon the payment of dividends or making of distributions on, or the acquisition of, or the use of moneys for purchase or redemption of, any stock of the Corporation, or upon any other action of the Corporation, including acting under this Section, and, if so, the terms and conditions thereof. (8) Whether or not the assets of any class or series shall be invested in a common pool of investments with those or more or more other classes or series, (9) Any other preferences, rights, restrictions, including restrictions on transferability, and qualifications of shares of such class or series, not inconsistent with law and the Charter of the Corporation. (d) Unless otherwise prohibited by law, so long as the Corporation is registered as an open end investment company under the 1940 Act, the Board of Directors shall have the power and authority, without the approval of the holders of any outstanding shares, to increase or decrease the number of shares of capital stock or the number of shares of capital stock of any class or series that the Corporation has authority to issue. (e) All persons who shall acquire stock in the Corporation shall acquire the same subject to the provisions of the Charter and Bylaws of the Corporation. (f) Any determination made in good faith by or pursuant to the direction of the Board of Directors as to the amount of the assets, debts, obligations or liabilities of the Corporation, as to the amount of any reserves or charges set up and the propriety thereof, as to the time of or purpose for creating such reserves or charges, as to the use, alternation or cancellation of any reserves or charges (whether or not any debt, obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged or shall be then or thereafter required to be paid or discharged), as to the value of or the method of valuing any investment or other asset owned or held by the Corporation, as to the number of shares of any class or series of stock outstanding, as to the income of the Corporation or as to any other matter relating to the determination of net asset value, the declaration of dividends of the issue, sale, redemption or other acquisition of shares of the Corporation, shall be final and conclusive and shall be binding upon the Corporation and all holders of its shares, past, present and future, and shares of the Corporation are issued and sold on the condition and understanding that any and all such determinations shall be binding as aforesaid. SEVENTH: The number of directors of the Corporation shall five, which number may be increased or decreased pursuant to the Bylaws of the Corporation, but shall never be less than the minimum number permitted by the General Laws of the State of Maryland now or hereafter it force. The names of the directors who will serve until the first annual meeting and until their successors are elected and qualify are as follows: Marc I. Stern Thomas E. Larkin, Jr. John C. Argue Norman Barker, Jr. Harold S. Eastman EIGHTH: The following provisions are hereby adopted for the purpose of defining, limiting and regulating the powers of the Corporation and of the directors and shareholders: (1) The Board of Directors of the Corporation is hereby empowered to authorize the issuance from time to time of shares of its stock of any class or series, whether now or hereafter authorized, or securities convertible into shares of it stock of any class or series, whether now or hereafter authorized, for such consideration as may be deemed advisable by the Board of Directors and without any action by the shareholders. (2) Except as otherwise required by the 1940 Act, the Board of Directors shall have the exclusive power to make, alter, amend, or repeal the Bylaws of the Corporation. (3) No holder of any stock or any other securities of the Corporation, whether now or hereafter authorized, shall have any preemptive right to subscribe for or purchase any stock or any other securities of the Corporation other than such, if any, as the Board of Directors, in its sole discretion, may determine and at such price or prices and upon such other terms as the Board of Directors, in its sole discretion, my fix; and any stock or other securities which the Board of Directors may determine to offer for subscription may, as the Board of Directors in its sole discretion shall determine, be offered to the holders of any class, series or type of stock or other securities at the time outstanding to the exclusion of the holders of any or all other classes, series or types of stock or other securities at the time outstanding. (4) The Board of Directors of the Corporation shall have power from time to time and in its sole discretion to determine whether and to what extent and at what times and places and under what conditions and regulations the books, accounts and documents of the Corporation, or any of them, shall be open to the inspection of shareholders, except as otherwise provided by statute or by the By Laws, and, except as so provided, no shareholder shall have any right to inspect any book, account or document of the Corporation unless authorized so to do by resolution of the Board of Directors. (5) Subject only to the provisions of the 1940 Act, a contract or other transaction between the Corporation and any of its directors or between the Corporation and any other corporation, firm or other entity in which any of its directors is a director or has a material financial interest is not void or voidable solely because of any one or more of the following: the common directorship or interest; the presence of the director at the meeting of the Board of Directors or a Committee of the Board which authorizes; approves, or ratifies the contract or transaction; or the counting of the vote of the director for the authorization, approval, or ratification of the contract or transaction. This Section applies if: (a) the fact of the common directorship or interest is disclosed or known to: (i) the Board of Directors or a Committee of the Board and the Board or Committee authorizes, approves, or ratifies the contract or transaction by the affirmative vote of a majority of disinterested directors, even if the disinterested directors constitute less than a quorum; or (ii) the shareholders entitled to vote and the contract or transaction is authorized, approved, or ratified by a majority of the votes cast by the shareholders entitled to vote other than the votes of shares owned of record or beneficially by the interested director or corporation, firm, or other entity; or (b) the contract or transaction is fair and reasonable to the Corporation. Common or interested directors or the stock owned by them or by an interested corporation, firm, or other entity may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a Committee of the Board or at a meeting of the shareholders, as the case may be, at which the contract or transaction is authorized, approved, or ratified. If a contract or transaction is not authorized, approved, or ratified in one of the ways provided for in clause (a) of the second sentence of the Section, the person asserting the validity of the contract or transaction bears the burden of proving that the contract or transaction was fair and reasonable to the Corporation at the time it was authorized, approved, or ratified. The procedures in this direction do not apply to the fixing by the Board of Directors of reasonable compensation for a director, whether as a director or in any other capacity. (6) Except for contracts, transactions, or acts required to be approved under the provisions of Section (5) of this Article, any contract, transaction, or act of the Corporation or of the Board of Directors which shall be ratified by a majority of a quorum of the shareholders having voting powers at any annual meeting, or at any special meeting called for such purpose, shall so far as permitted by law be as valid and as binding as though ratified by every shareholder of the Corporation. (7) Unless the Bylaws otherwise provide, any officer or employee of the Corporation (other than a director) may be removed at any time with or without cause by the Board of Directors or by any committee or superior officer upon whom such power of removal be conferred by the By Laws or by authority of the Board of Directors. (8) Notwithstanding any provision of law which provides for the authorization of any action by a greater proportion than a majority of the total number of shares of all classes or series of capital stock (or of any class or series entitled to vote thereon as a separate class or series) or of the total number of shares of any class or series of capital stock, such action shall be valid and effective if authorized by the affirmative vote of the holders of a majority of the total number of shares of all classes or series outstanding and entitled to vote thereon or of the class or series entitled to vote thereon as a separate class or series, as the case may be, except as otherwise provided in the Charter. (9) The Corporation shall indemnify (a) its directors to the full extent permitted by the general laws of the State of Maryland and the 1940 Act, including the advance of expenses under the procedures provided by such laws; (b) its officers to the same extent it shall indemnify its directors; and (c) its directors and officers to such further extent as shall be authorized by the Board of Directors by Bylaw, resolution, or agreement or by the shareholders of the Corporation and be consistent with law. The foregoing shall not limit the authority of the Corporation to indemnify other employees and agents consistent with law. The foregoing shall not be exclusive of any other rights to which a person seeking indemnification may be entitled under any insurance policy, agreement or otherwise and shall inure to the benefit of the heirs, executors and personal representatives of such person. No amendment to the Charter of the Corporation or repeal of any of its provisions shall affect any right of any person under this provision based on any act or omission that occurred prior to the amendment or repeal. (10) The Corporation reserves the right from time to time to make any amendments of its Charter which may now or hereafter be authorized by law, including any amendments changing the terms or contract rights, as expressly set forth in its Charter, of any of its outstanding stock by classification, reclassification or otherwise. (11) So long as the Corporation is registered as an investment company under the 1940 Act, the Corporation shall not be required to hold an annual meeting of the holders of shares of any class or series in any year in which the election of directors is not required to be acted on by the shareholders under the 1940 Act. (12) To the fullest permitted by Maryland statutory or decisional law, as amended or interpreted, no director or officer of this Corporation shall be personally liable to the Corporation or its shareholders for money damages. This limitation on liability applies to events occurring at the time a person serves as a director or officer of the Corporation regardless of whether or not such person is a director of officer at the time of any proceeding in which liability is asserted. No amendment of the Charter of the Corporation or repeal of any of its provisions shall limit or eliminate the benefits provided to directors or officers under this provision with respect to any act or omission which occurred prior to such amendment or repeal. This Section (12) shall not protect any director or officer of this Corporation against any liability to the Corporation or to its security holders to which he would otherwise be subject by reason of "willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his officer" within the meaning of Section 17(f) of the 1940 Act. The enumeration and definition of particular powers of the Board of Directors included in the foregoing shall in no way be limited or restricted by reference to or interference from the terms of any other clause of this or any other Article of the Charter of the Corporation, or construed as or deemed by inference or otherwise in any manner to exclude or limit any powers conferred upon the Board of Directors under the General Laws of the State of Maryland now or hereafter in force. NINTH The duration of the Corporation shall be perpetual. IN WITNESS WHEREOF, I have signed these Articles of Incorporation, acknowledging the same to be my act, on the 11th day of September, 1992. /s/ ---------------------------------------- Michael E. Cahill EX-99 4 tcwfundsartofamd.txt (A)(2) TCW FUNDS, INC. ARTICLES OF AMENDMENT TCW FUNDS, INC., a Maryland corporation for which the principal office in the State of Maryland is in the City of Baltimore (hereinafter called the "Corporation"), certifies that: FIRST: The Articles of Incorporation of the Corporation are hereby amended as follows: (A) To rename certain of the classes or series of the Corporation by striking out the third sentence of Article Sixth, paragraph (a) and inserting in lieu thereof the following: "Such shares initially are issuable in six classes or series designated as the TCW Galileo Core Equity Fund (1,667,000,000 shares); TCW Galileo High Grade Fixed Income Fund (1,667,000,000 shares); TCW Galileo High Yield Bond Fund (1,667,000,000 shares); TCW Galileo Latin America Equity Fund (1,667,000,000 shares); TCW Galileo Long-Term Mortgage Backed Securities Fund (1,666,000,000 shares); and TCW Galileo Mortgage Backed Securities Fund (1,666,000,000 shares). (B) To reflect certain changes in the names of classes or series of this Corporation by striking out the first sentence in Article Sixth, paragraph (b) and inserting in lieu thereof the following: "(b) Subject to the Board of Directors' power of classification and reclassification, the following is a description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of shares of TCW Galileo Core Equity Fund, TCW Galileo High Grade Fixed Income Fund, TCW Galileo High Yield Bond Fund, TCW Galileo Latin America Equity Fund, TCW Galileo Long-Term Mortgage Backed Securities Fund and TCW Galileo Mortgage Backed Securities Fund and of any additional class or series of Capital Stock of the Corporation (unless provided otherwise by the Board of Directors with respect to any such Additional class or series)." (C) By striking out the number "6." from Article Sixth, paragraph (b) 6. and further indenting this paragraph and redesignating it as (b) (6). (D) By striking out the third sentence of Article Sixth, paragraph (b)(9). The undersigned TCW Funds, Inc. has caused these Articles of Amendment to be signed in its name and on its behalf by its duly authorized officer who acknowledges that these Articles of Amendment are the act of the Corporation, and states that to the best of his knowledge, information and belief all matters and facts set forth therein relating to the authorization and approval of the Articles of Amendment are true in all material respects and that this statement is made under the penalties of perjury. IN WITNESS WHEREOF, these articles of Amendment have been executed on behalf of TCW Funds, Inc. this 19th day of February 1993. TCW FUNDS, INC. By: /s/ ----------------------------- Michael E. Cahill Senior Vice President Attest: /s/ - -------------------------- Hilary G. D. Lord Secretary EX-99 5 tcwgalileoartsupp.txt (A)(3) TCW FUNDS, INC. ARTICLES SUPPLEMENTARY TCW FUNDS, INC., a Maryland corporation having its principal office in Maryland in the City of Baltimore (hereinafter called the "Corporation"), certifies that: FIRST: The Board of Directors of the Corporation hereby increases the aggregate number of shares of capital stock that the Corporation has authority to issue by 5,000,000,000 shares and hereby classifies such shares as 1,667,000,000 shares of TCW Galileo Asia Pacific Equity Fund, 1667,000,000 shares of TCW Galileo Emerging Markets Fund and 1,666,000,000 shares of TCW Galileo Small Cap Growth Fund. SECOND: The TCW Galileo Asia Pacific Equity Fund shares, TCW Galileo Emerging Markets Fund shares and TCW Galileo Small Cap Growth Fund shares as so classified by the Corporation's Board of Directors shall all be initially designated as Common Stock and shall have the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption set forth in Article SIXTH (b) of the Corporation's Articles of Incorporation and shall be subject to all provisions of the Articles of Incorporation relating to stock of the Corporation generally. THIRD: A. Immediately before the increase in authorized capital stock provided for herein, the total number of shares of stock of all classes which the Corporation had authority to issue was 10,000,000,000 shares, the par value of all classes of the stock being $.001 per share, with an aggregate par value of $10,000,000, all designated initially as Common Stock, of which 1,667,000,000 shares were classified as TCW Galileo Core Equity Fund shares, 1,667,000,000 shares were classified as TCW Galileo High Grade Fixed Income Fund shares, 1,667,000,000 shares were classified as TCW Galileo High Yield Bond Fund shares, 1,667,000,000 shares were classified as TCW Galileo Latin American Equity Fund shares, 1,666,000,000 shares were classified as TCW Galileo Long-Term Mortgage Backed Securities Fund shares and 1,666,000,000 shares were classified as TCW Galileo Mortgage Backed Securities Fund shares. B. Immediately after the increase in authorized capital stock provided for herein, the total number of shares of stock of all classes which the Corporation has authority to issue is 15,000,000,000 shares, the par value of all classes of the stock being $.001 per share, with an aggregate par value of $15,000,000, all designated initially as Common Stock, of which 1,667,000,000 shares are classified as TCW Galileo Core Equity Fund shares, 1,667,000,000 share are classified as TCW Galileo High Grade Fixed Income Fund shares, 1,667,000,000 shares are classified TCW Galileo High Yield Bond Fund shares, 1,667,000,000 shares are classified as TCW Galileo Latin America Equity Fund shares, 1,666,000,000 shares are classified as TCW Galileo Long-Term Mortgage Backed Securities Fund shares, 1,666,000,000 shares are classified as TCW Galileo Mortgage Backed Securities Fund shares, 1,667,000,000 shares are classified as TCW Galileo Asia Pacific Equity Fund shares, 1,667,000,000 shares are classified TCW Galileo Emerging Markets Fund shares and 1,666,000,000 shares are classified as TCW Galileo Small Cap Growth Fund shares. FOURTH: The Corporation is registered as an open-end company under the Investment Company Act of 1940. FIFTH: The total number of shares that the Corporation has authority to issue has been increased by the Board of Directors in accordance with Section 2-105(c) of the Maryland General Corporation Law. SIXTH: The shares aforesaid have been duly classified by the Corporation's Board of Directors pursuant to authority and power contained in the Corporation's Articles of Incorporation. IN WITNESS WHEREOF, TCW Funds, Inc, has caused these Articles Supplementary to be executed by its Senior Vice President and witnessed by its Secretary on this 19th day of November, 1993. The Senior Vice President of the Corporation who signed these Articles Supplementary acknowledges them to be the act of the Corporation and states under the penalties of perjury that, to the best of his knowledge, information and belief, the matters and facts set forth herein relating to authorization and approval hereof are true in all material respects. TCW FUNDS, INC. By: /s/ -------------------------- Michael E. Cahill Senior Vice President WITNESS ____________________________ Paul D. Wallace, Jr. Secretary EX-99 6 tcwfundsartsupp.txt (A)(4) TCW FUNDS, INC. ARTICLES SUPPLEMENTARY TCW FUNDS, INC., a Maryland corporation having its principal office in Maryland in the City of Baltimore (hereinafter called the "Corporation"), certifies that: FIRST: The Board of Directors of the Corporation hereby increases the aggregate number of shares of capital stock that the Corporation has authority to issue by 5,000,000,000 shares and hereby classifies all of such shares as shares of TCW Galileo Money Market Fund. SECOND: The TCW Galileo Money Market Fund shares as so classified by the Corporation's Board of Directors shall all be initially designated as Common Stock and shall have the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption set forth in Article SIXTH (b) of the Corporation's Articles of Incorporation and shall be subject to all provisions of the Articles of Incorporation relating to stock of the Corporation generally. THIRD: A. Immediately before the increase in authorized capital stock provided for herein, the total number of shares of stock of all classes which the Corporation had authority to issue was 15,000,000,000 shares, the par value of all classes of the stock being $.001 per share, with an aggregate par value of $10,000,000, all designated initially as Common Stock, of which 1,667,000,000 shares were classified as TCW Galileo Core Equity Fund shares, 1,667,000,000 shares were classified as TCW Galileo High Grade Fixed Income Fund shares, 1,667,000,000 shares were classified as TCW Galileo High Yield Bond Fund shares, 1,667,000,000 shares were classified as TCW Galileo Latin American Equity Fund shares, 1,666,000,000 shares were classified as TCW Galileo Long-Term Mortgage Backed Securities Fund shares, 1,666,000,000 shares were classified as TCW Galileo Mortgage Backed Securities Fund shares, 1,667,000 shares are classified as TCW Galileo Asia Pacific Equity Fund shares, 1,667,000 shares are classified as TCW Galileo Emerging Markets Fund shares and 1,666,000 shares are classified as TCW Galileo Small Cap Growth Fund shares. B. Immediately after the increase in authorized capital stock provided for herein, the total number of shares of stock of all classes which the Corporation has authority to issue is 20,000,000,000 shares, the par value of all classes of the stock being $.001 per share, with an aggregate par value of $20,000,000, all designated initially as Common Stock, of which 1,667,000,000 shares are classified as TCW Galileo Core Equity Fund shares, 1,667,000,000 share are classified as TCW Galileo High Grade Fixed Income Fund shares, 1,667,000,000 shares are classified TCW Galileo High Yield Bond Fund shares, 1,667,000,000 shares are classified as TCW Galileo Latin America Equity Fund shares, 1,666,000,000 shares are classified as TCW Galileo Long-Term Mortgage Backed Securities Fund shares, 1,666,000,000 shares are classified as TCW Galileo Mortgage Backed Securities Fund shares, 1,667,000,000 shares are classified as TCW Galileo Asia Pacific Equity Fund shares, 1,667,000,000 shares are classified TCW Galileo Emerging Markets Fund shares, 1,666,000,000 shares are classified as TCW Galileo Small Cap Growth Fund shares and 5,000,000 are classified as TCW Galileo Money Market Fund shares. FOURTH: The Corporation is registered as an open-end company under the Investment Company Act of 1940. FIFTH: The total number of shares that the Corporation has authority to issue has been increased by the Board of Directors in accordance with Section 2-105(c) of the Maryland General Corporation Law. SIXTH: The shares aforesaid have been duly classified by the Corporation's Board of Directors pursuant to authority and power contained in the Corporation's Articles of Incorporation. IN WITNESS WHEREOF, TCW Funds, Inc. has caused these Articles Supplementary to be executed by its Senior Vice President and witnessed by its Secretary on this 24th day of February, 1994. The Senior Vice President of the Corporation who signed these Articles Supplementary acknowledges them to be the act of the Corporation and states under the penalties of perjury that, to the best of his knowledge, information and belief, the matters and facts set forth herein relating to authorization and approval hereof are true in all material respects. TCW FUNDS, INC. By: /s/ ----------------------------- Michael E. Cahill Senior Vice President WITNESS /s/ - ---------------------------------- Ronald E. Robison Assistant Secretary EX-99 7 tcwgalartsupp.txt (A)(5) TCW GALILEO FUNDS, INC. ARTICLES SUPPLEMENTARY TCW GALILEO FUNDS, INC., a Maryland corporation having its principal office in Maryland in the City of Baltimore (hereinafter called the "Corporation"), certifies that: FIRST: The Board of Directors of the Corporation hereby increases the aggregate number of shares of capital stock that the Corporation has authority to issue by 2,000,000,000 shares and hereby classifies such shares of TCW Galileo Earnings Momentum Fund. SECOND: The TCW Galileo Earnings Momentum Fund shares as so classified by the Corporation's Board of Directors shall all be initially designated as Common Stock and shall have the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption set forth in Article SIXTH (b) of the Corporation's Articles of Incorporation and shall be subject to all provisions of the Articles of Incorporation relating to stock of the Corporation generally. THIRD: A. Immediately before the increase in authorized capital stock provided for herein, the total number of shares of stock of all classes which the Corporation had authority to issue was 20,000,000,000 shares, the par value of all classes of the stock being $.001 per share, with an aggregate par value of $20,000,000, all designated initially as Common Stock, of which 1,667,000,000 shares were classified as TCW Galileo Core Equity Fund shares, 1,667,000,000 shares were classified as TCW Galileo High Grade Fixed Income Fund shares, 1,667,000,000 shares were classified as TCW Galileo High Yield Bond Fund shares, 1,667,000,000 shares were classified as TCW Galileo Latin American Equity Fund shares, 1,666,000,000 shares were classified as TCW Galileo Long-Term Mortgage Backed Securities Fund shares and 1,666,000,000 shares were classified as TCW Galileo Mortgage Backed Securities Fund shares, 1,667,000,000 shares are classified as TCW Galileo Asia Pacific Equity Fund shares, 1,667,000,000 shares are classified as TCW Galileo Emerging Markets Fund shares, 1,666,000,000 shares are classified as TCW Galileo Small Cap Growth Fund shares and 5,000,000,000 shares are classified as TCW Galileo Money Market Fund shares. B. Immediately after the increase in authorized capital stock provided for herein, the total number of shares of stock of all classes which the Corporation has authority to issue is 22,000,000,000 shares, the par value of all classes of the stock being $.001 per share, with an aggregate par value of $22,000,000, all designated initially as Common Stock, of which 1,667,000,000 shares are classified as TCW Galileo Core Equity Fund shares, 1,667,000,000 share are classified as TCW Galileo High Grade Fixed Income Fund shares, 1,667,000,000 shares are classified TCW Galileo High Yield Bond Fund shares, 1,667,000,000 shares are classified as TCW Galileo Latin America Equity Fund shares, 1,666,000,000 shares are classified as TCW Galileo Long-Term Mortgage Backed Securities Fund shares, 1,666,000,000 shares are classified as TCW Galileo Mortgage Backed Securities Fund shares, 1,667,000,000 shares are classified as TCW Galileo Asia Pacific Equity Fund shares, 1,667,000,000 shares are classified TCW Galileo Emerging Markets Fund shares and 1,666,000,000 shares are classified as TCW Galileo Small Cap Growth Fund shares, 5,000,000,000 shares are classified as TCW Galileo Money Market Fund shares and 2,000,000,000 shares are classified as TCW Galileo Earnings Momentum Fund shares. FOURTH: The Corporation is registered as an open-end company under the Investment Company Act of 1940. FIFTH: The total number of shares that the Corporation has authority to issue has been increased by the Board of Directors in accordance with Section 2-105(c) of the Maryland General Corporation Law. SIXTH: The shares aforesaid have been duly classified by the Corporation's Board of Directors pursuant to authority and power contained in the Corporation's Articles of Incorporation. IN WITNESS WHEREOF, TCW Galileo Funds, Inc. has caused these Articles Supplementary to be executed by its Senior Vice President and witnessed by its Secretary on this 20th day of July, 1994. The Senior Vice President of the Corporation who signed these Articles Supplementary acknowledges them to be the act of the Corporation and states under the penalties of perjury that, to the best of his knowledge, information and belief, the matters and facts set forth herein relating to authorization and approval hereof are true in all material respects. TCW GALILEO FUNDS, INC. By: /s/ ------------------------------------- Michael E. Cahill Senior Vice President WITNESS /s/ - -------------------------------- Philip K. Holl Secretary EX-99 8 tcwfundsartamend.txt (A)(6) ARTICLES OF AMENDMENT Of TCW FUNDS, INC. TCW Funds, Inc., a Maryland corporation and an open-end management investment company, having its principal office in Maryland in the City of Baltimore (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: The Articles of Incorporation of the Corporation are hereby amended to change the name of the Corporation by striking out Article SECOND and inserting in lieu thereof the following: "SECOND: The name of the Corporation is TCW GALILEO FUNDS, INC." SECOND: The amendment of the Articles of Incorporation of the Corporation as hereinabove set forth has been duly advised by the Board of Directors of the Corporation. IN WITNESS WHEREOF, TCW Funds, Inc, has caused these presents to be signed in its name and on its behalf by its Senior Vice President and attested by its Secretary on November 9, 1994. TCW FUNDS, INC. ATTEST: /s/ /s/ - --------------------------- --------------------------------- Ronald E. Robison Philip K. Holl Senior Vice President Secretary The undersigned, Senior Vice President of TCW Funds, Inc., who executed on behalf of the Corporation, the foregoing Articles of Amendment, on which this certificate is made a part, hereby acknowledges, in the name and on behalf of Corporation, the foregoing Articles of Amendment to be the corporate act of the Corporation and further certifies that, to the best of his knowledge, information, and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury. /s/ - ---------------------------- Ronald E. Robison Senior Vice President EX-99.B 9 tcwbylaws.txt TCW GALILEO FUNDS, INC. BYLAWS TABLE OF CONTENTS Page ARTICLE I - SHAREHOLDERS.......................................................1 1.01. Annual Meeting....................................................1 1.02. Special Meeting...................................................1 1.03. Place of Meetings.................................................1 1.04. Notice of Meetings; Waiver of Notice..............................1 1.05. Quorum; Voting....................................................1 1.06. Adjournments......................................................1 1.07. General Right to Vote; Proxies....................................1 1.08. List of Shareholders..............................................2 1.09. Conduct of Voting.................................................2 1.10. Informal Action by Shareholders...................................2 ARTICLE II - BOARD OF DIRECTORS................................................2 2.01. Function of Directors.............................................2 2.02. Number of Directors...............................................2 2.03. Election and Tenure of Directors..................................2 2.04. Removal of Directors..............................................2 2.05. Vacancy on Board..................................................3 2.06. Regular Meetings..................................................3 2.07. Special Meetings..................................................3 2.08. Notice of Meeting.................................................3 2.09. Action by Directors...............................................4 2.10. Meeting by Conference Telephone...................................4 2.11. Compensation......................................................4 ARTICLE III - COMMITTEES.......................................................4 3.01. Committees........................................................4 3.02. Committee Procedure...............................................4 3.03. Emergency.........................................................4 ARTICLE IV - OFFICERS..........................................................5 4.01. Executive and Other Officers......................................5 4.02. Chairman of the Board.............................................5 4.03. President.........................................................5 4.04. Vice Presidents...................................................5 4.05. Secretary.........................................................5 4.06.Treasurer..........................................................6 4.07. Assistant and Subordinate Officers...............................6 4.08. Election, Tenure and Removal of Officers.........................6 4.09. Compensation.....................................................6 ARTICLE V - STOCK..............................................................6 5.01. Certificates for Stock...........................................6 5.02. Transfers........................................................6 5.03. Record Date and Closing of Transfer Books........................7 5.04. Stock Ledger.....................................................7 5.05. Certification of Beneficial Owners...............................7 5.06. Lost Stock Certificates..........................................7 ARTICLE VI - FINANCE...........................................................7 6.01. Checks, Drafts, Etc..............................................7 6.02. Annual Statement of Affairs......................................7 6.03. Fiscal Year......................................................7 6.04. Dividends........................................................8 ARTICLE VII - SUNDRY PROVISIONS................................................8 7.01. Books and Records................................................8 7.02. Corporate Seal...................................................8 7.03. Bonds............................................................8 7.04. Voting Upon Shares in Other Corporations.........................8 7.05. Mail.............................................................8 7.06. Execution of Documents...........................................8 7.07. Amendments.......................................................8 ARTICLE VIII - CUSTODIAN.......................................................8 8.01. Employment of Custodian..........................................8 ARTICLE IX - INDEMNIFICATION...................................................9 9.01. Indemnification..................................................9 TCW FUNDS, INC. BYLAWS ARTICLE I. SHAREHOLDERS SECTION 1.01. Annual Meeting. To the extent the Corporation is required to hold an annual meeting of its shareholders pursuant to the Charter, the Corporation shall hold the annual meeting of its shareholders to transact business within its powers, at such time as shall be set by the Board of Directors within 120 days after the occurrence of the event requiring the meeting. Except as the Charter or statute provides otherwise, any business may be considered at an annual meeting without the purpose of the meeting having been specified in the notice. Failure to hold an annual meeting does not invalidate the Corporation's existence or affect any otherwise valid corporate acts. SECTION 1.02. Special Meeting. At any time in the interval between annual meetings, a special meeting of the shareholders may be called by the Chairman of the Board or the President or by a majority of the Board of Directors by vote at a meeting or in writing (addressed to the Secretary of the Corporation) with or without a meeting. The Secretary of the Corporation shall call a special meeting of the shareholders on the written request of the holders of at least 10% of the outstanding stock entitled to be voted at the meeting. Such request shall state the purpose or purposes of such meeting and the matters proposed to be acted on thereat. No special meeting need be called upon the request of the holders of less than a majority of all the shares entitled to vote at such meeting to consider any matter which is substantially the same as a matter voted upon at any special meeting of the shareholders held during the preceding twelve months. SECTION 1.03. Place of Meetings. Meetings of shareholders shall be held at such place in the United States as is set from time to time by the Board of Directors. SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less than ten nor more than 90 days before each shareholders' meeting, the Secretary shall give written notice of the meeting to each shareholder entitled to vote at the meeting and each other shareholder entitled to notice of the meeting. The notice shall state the time and place of the meeting and, if the meeting is a special meeting or notice of the purpose is required by statute, the purpose of the meeting. Notice is given to a shareholder when it is personally delivered to him, left at his residence or usual place of business, or mailed to him at his address as it appears on the records of the Corporation. Notwithstanding the foregoing provisions, each person who is entitled to notice waives notice if he before or after the meeting signs a waiver of the notice which is filed with the records of shareholders' meetings, or is present at the meeting in person or by proxy. SECTION 1.05. Voting. Except as otherwise provided in the Charter or in these Bylaws or by law, a majority of all the votes cast at a meeting at which a quorum (as defined in the Charter) is present is sufficient to approve any matter which properly comes before the meeting, except that a plurality of all the votes cast at a meeting at which a quorum is present is sufficient to elect a director. SECTION 1.06. Adjournments. Whether or not a quorum is present, a meeting of shareholders convened on the date for which it was called may be adjourned from time to time by the shareholders present in person or by proxy by a majority vote. Any business which might have been transacted at the meeting as originally noticed may be deferred and transacted at any such adjourned meeting at which a quorum shall be present. No further notice of an adjourned meeting other than by announcement shall be necessary if held on a date not more than 120 days after the original record date. SECTION 1.07. General Right to Vote; Proxies. Unless the Charter provides for a greater or lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class or series, is entitled to one vote on each matter submitted to a vote at a meeting of shareholders. In all elections for directors, each share of stock may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted. All voting rights for the election of directors are non-cumulative. A shareholder may vote the stock he owns of record either in person or by written proxy signed by the shareholder or by his duly authorized attorney in fact. Unless a proxy provides otherwise, it is not valid more than 11 months after its date. SECTION 1.08. List of Shareholders. At each meeting of shareholders, a full, true and complete list of all shareholders entitled to vote at such meeting, showing the number and class or series of shares held by each and certified by the transfer agent for such class or series or by the Secretary, shall be furnished by the Secretary. SECTION 1.09. Conduct of Voting. At all meetings of shareholders, unless the voting is conducted by inspectors, the proxies and ballots shall be received, and all questions touching the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided, by the chairman of the meeting. If demanded by shareholders, present in person or by proxy, entitled to cast 10% in number of votes entitled to be cast, or if ordered by the chairman, the vote upon any election or question shall be taken by ballot and, upon like demand or order, the voting shall be conducted by two inspectors, in which event the proxies and ballots shall be received, and all questions touching the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided, by such inspectors. Unless so demanded or ordered, no vote need be by ballot and voting need not be conducted by inspectors. The shareholders at any meeting may choose an inspector or inspectors to act at such meeting, and in default of such election the chairman of the meeting may appoint an inspector or inspectors. No candidate for election as a director at a meeting shall serve as an inspector thereat. SECTION 1.10. Informal Action Bar Shareholders. Any action required or permitted to be taken at a meeting of shareholders may be taken without a meeting if there is filed with the records of shareholders' meetings an unanimous written consent which sets forth the action and is signed by each shareholder entitled to vote on the matter and a written waiver of any right to dissent signed by each shareholder entitled to notice of the meeting but not entitled to vote at it. ARTICLE II. BOARD OF DIRECTORS SECTION 2.01. Function of Directors. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors. All powers of the Corporation may be exercised by or under authority of the Board of Directors, except as conferred on or reserved to the shareholders by statute or by the Charter or Bylaws. SECTION 2.02. Number of Directors. The Corporation shall have at least three directors; provided that, if there is no stock outstanding, the number of directors may be less than three but not less than one, and, if there is stock outstanding and so long as there are less than three shareholders, the number of directors may be less than three but not less than the number of shareholders. The Corporation shall have the number of directors provided in the Charter until changed as herein provided. A majority of the entire Board of Directors may alter the number of directors set by the Charter to not exceeding 25 nor less than the minimum number then permitted herein, but the action may not affect the tenure of office of any director. SECTION 2.03. Election and Tenure of Directors. At any annual meeting that the Corporation holds pursuant to its Charter, the shareholders shall elect directors to hold office until the next annual meeting and until their successors are elected and qualify. SECTION 2.04. Removal of Directors. Unless statute or the Charter provides otherwise, the shareholders may remove any director, with or without cause, by the affirmative vote of a majority of all the votes entitled to be cast for the election of directors. Such action may be taken at a special meeting of shareholders called for such purpose upon the request of the holders of not less than 10% of the shares entitled to vote pursuant to Section 1.02 hereof. Whenever ten or more shareholders of record who have been such for at least six months preceding the date of application, and who hold in the aggregate either shares having a net asset value of at least $25,000 or at least 1 per centum of the outstanding shares, whichever is less, shall apply to the Board of Directors in writing, stating that they wish to communicate with other shareholders with a view to obtaining signatures to a request for a special meeting to remove any director and accompanied by a form of communication and request which they wish to transmit, the Board shall within five business days after receipt of such application either: (a) afford to such applicants access to a list of the names and addresses of all shareholders as recorded on the books of the Corporation; or (b) inform such applicants as to the approximate number of shareholders of record, and the approximate cost of mailing to them the proposed communication and form of request. If the Board elects to follow the course specified in paragraph (b), the Board, upon the written request of such applicants, accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all shareholders of record at their addresses as recorded on the books, unless within five business days after such tender the Board shall mail to such applicants and file with the Securities and Exchange Commission (the "Commission") together with a copy of the material to be mailed, a written statement signed by at least a majority of the directors to the effect that in their opinion either such material contains untrue statements of fact or omits to state facts necessary to make the statements contained therein not misleading, or would be in violation of applicable law, and specifying the basis of such opinion. If the Commission shall enter an order refusing to sustain any of such objections, or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all objections so sustained have been met, and shall enter an order so declaring, the Board shall mail copies of such material to all shareholders with reasonable promptness after the entry of such order and the renewal of such tender. SECTION 2.05. Vacancy on Board. The shareholders may elect a successor to fill a vacancy on the Board of Directors which results from the removal of a director. A director elected by the shareholders to fill a vacancy which results from the removal of a director serves for the balance of the term of the removed director. A majority of the remaining directors, whether or not sufficient to constitute a quorum, may fill a vacancy on the Board of Directors which results from any cause except an increase in the number of directors and a majority of the Board of Directors then in office may fill a vacancy which results from an increase in the number of directors. A director elected by the Board of Directors to fill a vacancy serves until the next annual meeting of shareholders and until his successor is elected and qualifies. SECTION 2.06. Regular Meetings. Any regular meeting of the Board of Directors shall be held on such date and at any place as may be designated from time to time by the Board of Directors. SECTION 2.07. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board or the President or by a majority of the Board of Directors by vote at a meetings or in writing with or without a meeting. A special meeting of the Board of Directors shall be held on such date and at any place as may be designated from time to time by the Board of Directors. In the absence of designation such meeting shall be held at such place as may be designated in the call. SECTION 2.08. Notice of Meeting. The Secretary shall give notice to each director of each regular and special meeting of the Board of Directors. The notice shall state the time and place of the meeting. Notice is given to a director when it is delivered personally to him, left at his residence or usual place of business, or sent by telegraph or telephone, at least 24 hours before the time of the meeting or, in the alternative by mail to his address as it shall appear on the records of the Corporation, at least 72 hours before the time of the meeting. Unless the Bylaws or a resolution of the Board of Directors provides otherwise, the notice need not state the business to be transacted at or the purposes of any regular or special meeting of the Board of Directors. No notice of any meeting of the Board of Directors need be given to any director who attends, or to any director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. Any meeting of the Board of Directors, regular or special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. SECTION 2.09. Action by Directors. Unless statute or the Charter or Bylaws requires a greater proportion, the action of a majority of the directors present at a meeting at which a quorum is present is action of the Board of Directors. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business. In the absence of a quorum, the directors present by majority vote and without notice other than by announcement may adjourn the meeting from time to time until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally noticed. Any action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting, if a unanimous written consent which sets forth the action is signed by each member of the Board and filed with the minutes of proceedings of the Board. SECTION 2.10. Meeting by Conference Telephone. Members of the Board of Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means constitutes presence in person at a meeting within the meaning of the Maryland General Corporations Law but not within the meaning of the Investment Company Act of 1940. SECTION 2.11. Compensation. By resolution of the Board of Directors, a fixed sum and expenses, if any, for attendance at each regular or special meeting of the Board of Directors or of committees thereof and other compensation for their services as such or on committees of the Board of Directors, may be paid to directors. A director who serves the Corporation in any other capacity also may receive compensation for such other services, pursuant to a resolution of the directors. ARTICLE III. COMMITTEES SECTION 3.01. Committees. The Board of Directors may appoint from among its members an Executive Committee and other committees composed of two or more directors and delegate to these committees any of the powers of the Board of Directors, except the power to declare dividends or other distributions on stock, elect directors, issue stock other than as provided in the next sentence, recommend to the shareholders any action which requires shareholder approval, amend the Bylaws, or approve any merger or share exchange which does not require shareholder approval. If the Board of Directors has given general authorization for the issuance of stock, a committee of the Board, in accordance with a general formula or method specified by the Board by resolution or by adoption of a stock option or other plan, may fix the terms of stock subject to classification or reclassification and the terms on which any stock may be issued, including all terms and conditions required or permitted to be established or authorized by the Board of Directors. SECTION 3.02. Committee Procedure. Each committee may fix rules of procedure for its business. A majority of the members of a committee shall constitute a quorum for the transaction of business and the act of a majority of those present at a meeting at which a quorum is present shall be the act of the committee. The members of a committee present at any meeting, whether or not they constitute a quorum, may appoint a director to act in the place of an absent member. Any action required or permitted to be taken at a meeting of a committee may be taken without a meeting, if a unanimous written consent which sets forth the action is signed by each member of the committee and filed with the minutes of the committee. The members of a committee may conduct any meeting thereof by conference telephone in accordance with the provisions of Section 2.10. SECTION 3.03. Emergency. In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Corporation by its directors and officers as contemplated by the Charter and the Bylaws, any two or more available members of the then incumbent Executive Committee shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Corporation in accordance with the provisions of Section 3.01. In the event of the unavailability, at such time, of a minimum of two members of the then incumbent Executive Committee, the available directors shall elect an Executive Committee consisting of any two members of the Board of Directors, whether or not they be officers of the Corporation, which two members shall constitute the Executive Committee for the full conduct and management of the affairs of the Corporation in accordance with the foregoing provisions of this Section. This Section shall be subject to implementation by resolution of the Board of Directors passed from time to time for that purpose, and any provisions of the Bylaws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary resolutions shall be suspended until it shall be determined by any interim Executive Committee acting under this Section that it shall be to the advantage of the Corporation to resume the conduct and management of its affairs and business under all the other provisions of the Bylaws. ARTICLE IV. OFFICERS SECTION 4.01. Executive and Other Officers. The Corporation shall have a President, a Secretary, and a Treasurer who shall be the executive officers of the Corporation. It may also have a Chairman of the Board who shall be an executive officer. The Board of Directors may designate who shall serve as chief executive officer, having general supervision of the business and affairs of the Corporation, or as chief operating officer, having supervision of the operations of the Corporation; in the absence of designation the President shall serve as chief executive officer and chief operating officer. It may also have one or more Vice Presidents (with such seniority as may be decided by the Board of Directors), assistant officers, and subordinate officers as may be established by the Board of Directors. A person may hold more than one office in the Corporation but may not serve concurrently as both President and Vice President of the Corporation. The Chairman of the Board shall be a director; the other officers may be directors. SECTION 4.02. Chairman of the Board. The Chairman of the Board, if one be elected, shall preside at all meetings of the Board of Directors and of the shareholders at which he shall be present; and, in general, he shall perform all such duties as are from time to time assigned to him by the Board of Directors. SECTION 4.03. President. The President, in the absence of the Chairman of the Board, shall preside at all meetings of the Board of Directors and of the shareholders at which he shall be present; he may sign and execute, in the name of the Corporation, all authorized deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall have been expressly delegated to some other officer or agent of the Corporation; and, in general, he shall perform all duties usually performed by a president of a corporation and such other duties as are from time to time assigned to him by the Board of Directors or the chief executive officer of the Corporation. SECTION 4.04. Vice Presidents. The Vice President or Vice Presidents, at the request of the chief executive officer or the President, or in the President's absence or during his inability to act, shall perform the duties and exercise the functions of the President, and when so acting shall have the powers of the President. If there be more than one Vice President, the Board of Directors may determine which one or more of the Vice Presidents shall perform any of such duties or exercise any of such functions, or if such determination is not made by the Board of Directors, the chief executive officer, or the President may make such determination; otherwise any of the Vice Presidents may perform any of such duties or exercise any of such functions. The Vice President or Vice Presidents shall have such other powers and perform such other duties, and have such additional descriptive designations in their titles (if any), as are from time to time assigned to them by the Board of Directors, the chief executive officer, or the President. SECTION 4.05. Secretary. The Secretary shall keep the minutes of the meetings of the shareholders, of the Board of Directors and of any committees, in books provided for the purpose; he shall see that all notices are duly given in accordance with the provisions of the Bylaws or as required by law; he shall be custodian of the records of the Corporation; he may witness any document on behalf of the Corporation, the execution of which is duly authorized, see that the corporate seal is affixed where such document is required or desired to be under its seal, and, when so affixed, may attest the same; and, in general, he shall perform all duties incident to the office of a secretary of a corporation, and such other duties as are from time to time assigned to him by the Board of Directors, the chief executive officer, or the President. SECTION 4.06. Treasurer. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit, or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies or other depositories as shall, from time to time, be selected by the Board of Directors; he shall render to the President and to the Board of Directors, whenever requested, an account of the financial condition of the Corporation; and, in general, he shall perform all the duties incident to the office of a treasurer of a corporation, and such other duties as are from time to time assigned to him by the Board of Directors, the chief executive officer, or the President. SECTION 4.07. Assistant and Subordinate Officers. The assistant and subordinate officers of the Corporation are all officers below the office of Vice President, Secretary, or Treasurer. The assistant or subordinate officers shall have such duties as are from time to time assigned to them by the Board of Directors, the chief executive officer, or the President. SECTION 4.08. Election. Tenure and Removal of Officers. The Board of Directors shall elect the officers. The Board of Directors may from time to time authorize any committee or officer to appoint assistant and subordinate officers. The officers shall be appointed to hold their offices, respectively, during the pleasure of the Board. The Board of Directors (or, as to any assistant or subordinate officer, any committee or officer authorized by the Board) may remove an officer at any time. The removal of an officer does not prejudice any of his contract rights. The Board of Directors (or, as to any assistant or subordinate officer, any committee or officer authorized by the Board) may fill a vacancy which occurs in any office for the unexpired portion of the term. SECTION 4.09. Compensation. The Board of Directors shall have power to fix the salaries and other compensation and remuneration, of whatever kind, of all officers of the Corporation. It may authorize any committee or officer, upon whom the power of appointing assistant and subordinate officers may have been conferred, to fix the salaries, compensation and remuneration of such assistant and subordinate officers. ARTICLE V. STOCK SECTION 5.01. Certificates for Stock. Upon written request therefor in accordance with such procedures as may be established by the Board of Directors from time to time, each shareholder is entitled to certificates which represent and certify the shares of stock he holds in the Corporation. Each stock certificate shall include on its face the name of the Corporation the name of the shareholder or other person to whom it is issued, and the class or series of stock and number of shares it represents. It shall be in such form, not inconsistent with law or with the Charter, as shall be approved by the Board of Directors or any officer or officers designated for such purpose by resolution of the Board of Directors. Each stock certificate shall be signed by the Chairman of the Board, the President, or a Vice President, and countersigned by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the actual corporate seal or a facsimile of it or in any other form and the signatures may be either manual or facsimile signatures. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. SECTION 5.02. Transfers. The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates of stock; and may appoint transfer agents and registrars thereof. The duties of transfer agent and registrar may be combined. SECTION 5.03. Record Date and Closing of Transfer Books. The Board of Directors may set a record date or direct that the stock transfer books be closed for a stated period for the purpose of making any proper determination with respect to shareholders, including which shareholders are entitled to notice of a meeting, vote at a meeting, receive a dividend, or be allotted other rights. The record date may not be prior to the close of business on the day the record date is fixed nor more than 90 days before the date on which the action requiring the determination will be taken except as permitted in Section 1.06 with respect to adjournment; the transfer books may not be closed for a period longer than 20 days; and, in the case of a meeting of shareholders, the record date or the closing of the transfer books shall be at least ten days before the date of the meeting. SECTION 5.04. Stock Ledger. The Corporation shall maintain a stock ledger which contains the name and address of each shareholder and the number of shares of stock of each class or series which the shareholder holds. The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. The original or a duplicate of the stock ledger shall be kept at the offices of a transfer agent for the particular class of stock, or, if none, at the principal office in the State of Maryland or the principal executive offices of the Corporation. SECTION 5.05. Certification of Beneficial Owners. The Board of Directors may adopt by resolution a procedure by which a shareholder of the Corporation may certify in writing to the Corporation that any shares of stock registered in the name of the shareholder are held for the account of a specified person other than the shareholder. The resolution shall set forth the class or series of shareholders who may certify; the purpose for which the certification may be made; the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the stock transfer books, the time after the record date or closing of the stock transfer books within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board considers necessary or desirable. On receipt of a certification which complies with the procedure adopted by the Board in accordance with this Section, the person specified in the certification is, for the purpose set forth in the certification, the holder of record of the specified stock in place of the shareholder who makes the certification. SECTION 5.06. Lost Stock Certificates. The Board of Directors of the Corporation may determine the conditions for issuing a new stock certificate in place of one which is alleged to have been lost, stolen, or destroyed, or the Board of Directors may delegate such power to any officer or officers of the Corporation. In their discretion, the Board of Directors or such officer or officers may refuse to issue such new certificate save upon the order of some court having jurisdiction in the premises. ARTICLE VI. FINANCE SECTION 6.01. Checks, Drafts. Etc. All checks, drafts and orders for the payment of money, notes and other evidences of indebtedness, issued in the name of the Corporation, shall, unless otherwise provided by resolution of the Board of Directors, be signed by the President, a Vice President or an Assistant Vice President and countersigned by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary. SECTION 6.02. Annual Statement of Affairs. The President shall prepare annually a full and correct statement of the affairs of the Corporation, to include a balance sheet and a financial statement of operations for the preceding fiscal year. The statement of affairs shall be submitted at the annual meeting of the shareholders if an annual meeting is held and placed on file at the Corporation's principal office. SECTION 6.03. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 6.04. Dividends. If declared by the Board of Directors at any meeting thereof, the Corporation may pay dividends on its shares in cash, property, or in shares of the capital stock of the Corporation, unless such dividend is contrary to law or to a restriction contained in the Charter. ARTICLE VII. SUNDRY PROVISIONS SECTION 7.01. Books and Records. The Corporation shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its shareholders and Board of Directors and of any executive or other committee when exercising any of the powers of the Board of Directors. The books and records of the Corporation may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. Minutes shall be recorded in written form but may be maintained in the form of a reproduction. The original or a certified copy of the Bylaws shall be kept at the principal office of the Corporation. SECTION 7.02. Corporate Seal. The Board of Directors shall provide a suitable seal, bearing the name of the Corporation, which shall be in the charge of the Secretary. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof. If the Corporation is required to place its corporate seal to a document, it is sufficient to meet the requirement of any law, rule, or regulation relating to a corporate seal to place the word "Seal" adjacent to the signature of the person authorized to sign the document on behalf of the Corporation. SECTION 7.03. Bonds. The Board of Directors may require any officer, agent or employee of the Corporation to give a bond to the Corporation, conditioned upon the faithful discharge of his duties, with one or more sureties and in such amount as may be satisfactory to the Board of Directors. SECTION 7.04. Voting Upon Shares in Other Corporations. Stock of other corporations or associations, registered in the name of the Corporation, may be voted by the President, a Vice President, or a proxy appointed by either of them. The Board of Directors, however, may by resolution appoint some other person to vote such shares, in which case such person shall be entitled to vote such shares upon the production of a certified copy of such resolution. SECTION 7.05. Mail. Any notice or other document which is required by these Bylaws to be mailed shall be deemed mailed when deposited in the United States mails, postage prepaid. SECTION 7.06. Execution of Documents. A person who holds more than one office in the Corporation may not act in more than one capacity to execute, acknowledge, or verify an instrument required by law to be executed, acknowledged, or verified by more than one officer. SECTION 7.07. Amendments. The Board of Directors shall have the exclusive power, at any regular or special meeting thereof, to make and adopt new Bylaws, or to amend, alter or repeal any of the Bylaws of the Corporation. ARTICLE VIII. CUSTODIAN SECTION 8.01. Employment of Custodian. All assets of the Corporation shall be held by one or more custodian banks or trust companies meeting the requirements of the Investment Company Act of 1940, as amended (the "1940 Act"), and having capital, surplus and undivided profits of at least $2,000,000 and may be registered in the name of the Corporation, including the designation of the particular class or series to which such assets belong, or any such custodian, or the nominee of either of them. The terms of any such custodian agreement shall be determined by the Board of Directors, which terms shall be in accordance with the provisions of the 1940 Act. If so directed by vote of the holders of a majority of the outstanding shares of a particular class or series or by vote of the Board of Directors, the custodian of the assets belonging to such class or series shall deliver and pay over such assets as specified in such vote. Subject to such rules, regulations and orders as the Commission may adopt, the Corporation may direct a custodian to deposit all or any part of the securities owned by the Corporation in a system for the central handling of securities established by the Federal Reserve system or by a national securities exchange or a national securities association registered with the Commission, or otherwise in accordance with the 1940 Act, pursuant to which system, all securities of a particular class or issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without the physical delivery of such securities, provided that all such deposits shall be subject to withdrawal only upon the order of the Corporation or a custodian. ARTICLE IX. INDEMNIFICATION SECTION 9.01. Indemnification. (a) Subject to the exceptions and limitations contained in paragraph (b) below: (i) every person who is, or has been, a director or officer of the Corporation shall be indemnified by the Corporation to the fullest extent permitted by law against all liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a director or officer and against amounts paid or incurred by him in the settlement thereof; (ii) the words "claim, "action, "suit" or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal, administrative, investigative or other, including appeals), actual or threatened; and the words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities. (b) No indemnification shall be provided hereunder to a director or officer: (i) against any liability to the Corporation or the shareholder by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office; or (ii) With respect to any matter as to which there shall have been a final adjudication as follows: (A) that any act or omission of the director or officer material to the matter giving rise to the proceeding (x) was committed in bad faith, or (y) was the result of active and deliberate dishonesty; or (B) that the director or officer actually received an improper personal benefit in money, property or services; or (C) in the case of any criminal proceeding, that the director or officer had reasonable cause to believe that the act or omission was unlawful; or (iii) in the event of a settlement or other disposition not involving a final adjudication as provided in paragraph (b)(ii) resulting in a payment by a director or officer, unless there has been a determination that such director or officer did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office and did not violate the standards described in paragraph (b)(ii): (A) by the court or other body approving the settlement or other disposition, or (B) based upon a review of readily available facts (as opposed to a full trial-type inquiry), by (x) vote of a majority of the Non-interested Directors acting on the matter (provided that a majority of the Non interested Directors then in office act on the matter and constitute a quorum of the Board of Directors) or (y) written opinion of independent legal counsel or (2) such other procedures as may be permitted by Maryland law. (c) The rights of indemnification herein provided may be insured against by policies maintained by the Corporation, shall be severable, shall not affect any other rights to which any director or officer may now or hereafter be entitled, shall continue as to a person who has ceased to be such director or officer and shall inure to the benefit of the heirs, executors, administrators and assigns of such a person. Nothing contained herein shall affect any rights to indemnification to which personnel of the Corporation other than directors and officers may be entitled by contract or otherwise under law. (d) Expenses of preparation and presentation of a defense to any claim, action, suit or proceeding of the character described in paragraph (a) of this Article IX may be advanced by the Corporation prior to final disposition thereof upon receipt of a written affirmation by the director or officer of the director's or officer's good faith belief that the standard of conduct necessary for indemnification by the Corporation as authorized in this Article IX has been met and a written undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he is not entitled to indemnification under this Article IX, provided that either: (i) such undertaking is secured by a surety bond or some other appropriate security provided by the recipient, or the Corporation shall be insured against losses arising out of any such advances; or (ii) a majority of the Non-interested Directors acting on the matter (provided a majority of the Non-interested Directors act on the matter) or an independent legal counsel in a written opinion shall determine, based upon a review of readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the recipient ultimately will be found entitled to indemnification. As used in this Article IX, a "Non-interested Director" is one who is not (i) an "Interested Person" (within the meaning of that term under the 1940 Act) of the Corporation (including anyone who has been exempted from being an "Interested Person" by any rule, regulation or order of the Commission), or (ii) involved in the claim, action, suit or proceeding. EX-99 10 tcwamendnotwobylaws.txt (B)(3) Amendment 2 to By-Laws ARTICLE I SHAREHOLDERS SECTION 1.07. General Right to Vote; Proxies. Unless the Charter provides for a greater or lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class or series, is entitle to one vote on each matter submitted to a vote at a meeting of shareholders. In all elections for directors, each share of stock may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted. All voting rights for the election of directors are non-cumulative. A shareholder may vote the stock he owns of record either in person, by telephonic means, through use of the Internet or written proxy signed by the shareholder or by his duly authorized attorney in fact. Unless a proxy provides otherwise, it is not valid more than 11 months after its date. Effective April 30, 2001 EX-99 11 tcwinvadvmngmtagmt.txt (D)(7) Form of Amendment No. 3 to the Amended and Restated Investment Advisory and Management Agreement. TCW Galileo Funds, Inc. and TCW Investment Management Company hereby agree to amend the Amended and Restated Investment Advisory and Management Agreement ("Agreement") entered into by the parties effective December 1, 2001. All other terms and conditions of the Agreement will remain in full force and effect, including the existing provisions of Schedule B and any amendments thereof. Schedule B Annual Fee Rate (expressed as Fund percentage of net assets) - ---- ---------------------- TCW Galileo Diversified Value Fund .75% TCW Galileo Opportunity Fund .90% TCW Galileo Income + Growth Fund .75% IN WITNESS WHEREOF, the parties have agreed to and executed this amendment to the Agreement on the day and year written above. Attest TCW Galileo Funds, Inc. - -------------------------- -------------------------- By:----------------------- Marc I. Stern Title:-------------------- Chairman -------------------------- Alvin R. Albe, Jr. President Attest TCW Investment Management Company - -------------------------- -------------------------- By:----------------------- Alvin R. Albe Title:-------------------- President EX-99 12 tcwamndonecustagmt.txt (G)(1)(A) Form of Amendment No. 1 to the Custodian Agreement TCW Galileo Funds, Inc. and Investors Bank & Trust Company hereby agree to amend the Custodian Agreement ("Agreement") entered into by the parties. This amendment shall be effective December 1, 2001. All other terms and conditions of the Agreement will remain in full force and effect, including the existing provisions of Appendix A and any amendments thereof. Appendix A Fund TCW Galileo Diversified Value Fund TCW Galileo Opportunity Fund TCW Galileo Income + Growth Fund IN WITNESS WHEREOF, the parties have agreed to and executed this amendment to the Agreement effective December 1, 2001. Attest TCW Galileo Funds, Inc. - ----------------------- -------------------------- By:-------------------- Marc I. Stern Title:----------------- Chairman -------------------------- Alvin R. Albe, Jr. President Attest Investors Bank & Trust Company - ------------------------ By:------------------------ By:--------------------- Title:------------------ Title:--------------------- EX-99 13 tcwamndtransagency.txt (H)(1)(A) Form of Amendment No. 1 to the Transfer Agency Services Agreement. TCW Galileo Funds, Inc. and PFPC, Inc. hereby agree to amend Transfer Agency Services Agreement ("Agreement") entered into by the parties This amendment shall be effective December 1, 2001. All other terms and conditions of the Agreement will remain in full force and effect, including the existing provisions of Exhibit A and any amendments thereof. Exhibit A Portfolios I Class TCW Galileo Diversified Value Fund TCW Galileo Opportunity Fund TCW Galileo Income + Growth Fund N Class TCW Galileo Diversified Value Fund TCW Galileo Opportunity Fund TCW Galileo Income + Growth Fund IN WITNESS WHEREOF, the parties have agreed to and executed this amendment to the Agreement effective December 1, 2001. Attest TCW Galileo Funds, Inc. - -------------------------- -------------------------- By:----------------------- Marc I. Stern Title:-------------------- Chairman --------------------------- Alvin R. Albe, Jr. President Attest PFPC, Inc. - --------------------------- By:------------------------ By:------------------------ Title:--------------------- Title:--------------------- EX-99 14 tcwamdmtadminagmnt.txt (H)(2)(A) Form of Amendment No. 1 to the Administration Agreement. TCW Galileo Funds, Inc. and Investor Bank & Trust Company hereby agree to amend Administration Agreement ("Agreement") entered into by the parties. This amendment shall be effective December 1, 2001. All other terms and conditions of the Agreement will remain in full force and effect, including the existing provisions of Appendix A and any amendments thereof. Appendix A Portfolios TCW Galileo Diversified Value Fund TCW Galileo Opportunity Fund TCW Galileo Income + Growth Fund IN WITNESS WHEREOF, the parties have agreed to and executed this amendment to the Agreement effective December 1, 2001. Attest TCW Galileo Funds, Inc. - --------------------------- ---------------------------- By:------------------------ Marc I. Stern Title:--------------------- Chairman ---------------------------- Alvin R. Albe, Jr. President Attest Investor Bank & Trust Company - --------------------------- By:------------------------- By:------------------------ Title:--------------------- Title:---------------------- EX-99 15 tcwseclendagmnt.txt (H)(3)(A) Form of Amendment No. 1 to the Securities Lending Agency Agreement. TCW Galileo Funds, Inc. and Investors Bank & Trust Company hereby agree to amend the Securities Lending Agency Agreement ("Agreement") entered into by the parties. This amendment shall be effective December 1, 2001. All other terms and conditions of the Agreement will remain in full force and effect, including the existing provisions of Schedule A and any amendments thereof. Schedule A Fund TCW Galileo Diversified Value Fund TCW Galileo Opportunity Fund TCW Galileo Income + Growth Fund IN WITNESS WHEREOF, the parties have agreed to and executed this amendment to the Agreement effective December 1, 2001. Attest TCW Galileo Funds, Inc. - ------------------------------- ---------------------------- By:---------------------------- Marc I. Stern Title:------------------------- Chairman ---------------------------- Alvin R. Albe, Jr. President Attest Investors Bank & Trust Company - ---------------------------- By:---------------------------- By:------------------------- Title:---------------------- Title:------------------------- EX-99 16 tcwconsentltr.txt (I) Dechert letterhead November , 2001 TCW Galileo Funds, Inc. 865 South Figueroa Street Los Angeles, California 90017 Dear Sirs: In connection with the registration under the Securities Act of 1933 of an indefinite number of shares of common stock, par value $.001 per share ("Shares") of TCW Galileo Funds, Inc. (the "Fund"), we have examined such matters, as we have deemed necessary to give this opinion: On the basis of the foregoing, we are of the opinion that the shares of common stock of the Funds being registered under the Securities Act of 1933 in Post-Effective Amendment No. 32 and under the Investment Company Act of 1940 in Post-Effective Amendment No. 35 to the Registration Statement when issued in the manner described in the Registration Statement will be legally and validly issued, fully paid and non-assessable. We hereby consent to the filing of this opinion with and as part the Registration Statement Sincerely, Dechert EX-99 17 tcw18f3plan.txt (O) TCW GALILEO FUNDS, INC. (the "Company") TCW GALILEO MONEY MARKET FUND TCW GALILEO EMERGING MARKETS INCOME FUND TCW GALILEO CORE FIXED INCOME FUND TCW GALILEO HIGH YIELD BOND FUND TCW GALILEO TOTAL RETURN MORTGAGE-BACKED SECURITIES FUND TCW GALILEO MORTGAGE-BACKED SECURITIES FUND TCW GALILEO ASIA PACIFIC EQUITIES FUND TCW GALILEO EMERGING MARKETS EQUITIES FUND TCW GALILEO EUROPEAN EQUITIES FUND TCW GALILEO SELECT INTERNATIONAL EQUITIES FUND TCW GALILEO JAPANESE EQUITIES FUND TCW GALILEO CONVERTIBLE SECURITIES FUND TCW GALILEO SELECT EQUITIES FUND TCW GALILEO EARNINGS MOMENTUM FUND TCW GALILEO LARGE CAP GROWTH FUND TCW GALILEO LARGE CAP VALUE FUND TCW GALILEO AGGRESSIVE GROWTH EQUITIES FUND TCW GALILEO SMALL CAP GROWTH FUND TCW GALILEO SMALL CAP VALUE FUND TCW GALILEO VALUE OPPORTUNITIES FUND TCW GALILEO TECHNOLOGY FUND TCW GALILEO GROWTH INSIGHTS FUND TCW GALILEO FLEXIBLE INCOME FUND TCW GALILEO HEALTH SCIENCES FUND TCW GALILEO FOCUSED LARGE CAP VALUE FUND TCW DIVERSIFIED VALUE FUND TCW OPPORTUNITY FUND TCW INCOME + GROWTH FUND (THE "FUNDS") FORM OF PLAN PURSUANT TO RULE 18F-3 UNDER THE INVESTMENT COMPANY ACT OF 1940 THE PLAN -------- I. Introduction As required by Rule 18f-3 under the Investment Company Act of 1940, as amended ("1940 Act"), this Plan describes the multi-class system for the Funds, including the separate class arrangements for shareholder services and/or the distribution of shares, the method for allocating expenses to classes and any related conversion features or exchange privileges applicable to the classes. Upon the effective date of this Plan, the Company, on behalf of the Funds, elects to offer multiple classes of shares of each of the Funds, as described herein, pursuant to Rule 18f-3 and this Plan. II. The Multi-Class System Each of the Funds shall offer three classes of shares: Institutional Class ("Class I" shares) Investor Class ("Class N" shares) and an Advisor Class ("Class K" shares). Shares of each class of a Fund shall represent an equal pro rata interest in that Fund and, generally, shall have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications and terms and conditions, except that: (a) each class shall have a different designation; (b) each class of shares shall bear any Class Expenses, as defined in Section C, below; (c) each class shall have exclusive voting rights on any matter submitted to shareholders that relates solely to its distribution arrangement; and (d) each class shall have separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class. In addition, Class I shares, Class N shares and Class K shares shall have the features described in Sections A, B, C and D, below. A. Sales Charge and Distribution Fee Structure 1. Class I Shares. Class I shares of each Fund shall be offered at the then-current net asset value as disclosed in the current prospectus for that Fund, including any prospectus supplements. Class I shares shall generally not be subject to front-end or contingent deferred sales charges provided, however, that such charges may be imposed in such cases as the Board of Directors of the Company ("Board") may approve and as disclosed in a prospectus or prospectus supplement for a Fund. Class I shares will not, unlike the Class N shares, pay fees under a Rule 12b-1 Plan (as defined below). 2. Class N Shares. Class N shares of each Fund shall be offered at the then-current net asset value. Class N shares shall generally not be subject to front-end or contingent deferred sales charges, provided, however, that such charges may be imposed in such cases as the Board may approve and as disclosed in a prospectus or prospectus supplement for a Fund. The Funds have adopted a Plan pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1 Plan") under which Class N shares of each Fund pay a Rule 12b-1 or service fee, equal to 0.25% of the average daily net assets represented by shares attributable to that Class to the Funds' distributor for specified services. Class N shares shall be distinguished from the Class I shares by the payment of the Rule 12b-1 fee. 3. Class K Shares. Class K shares of each Fund shall be offered at the then-current net asset value. Class K shares shall generally not be subject to front-end or contingent deferred sales charges, provided, however, that such charges may be imposed in such cases as the Board may approve and as disclosed in a prospectus or prospectus supplement for a Fund. The Funds have adopted a Plan pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1 Plan") under which Class K shares of each Fund pay a Rule 12b-1 or service fee, equal to 0.25% of the average daily net assets represented by shares attributable to that Class to the Funds' distributor for specified services. Class K Shares also pay an administrative fee equal to .25% of the average daily net assets represented by shares attributable to that class. Class K shares, like the Class N shares, shall be distinguished from the Class I shares by the payment of the Rule 12b-1 fee. B. Allocation of Income and Expenses 1. General. The gross income, realized and unrealized capital gains and losses and expenses (other than Class Expenses, as defined below) of each Fund shall be allocated to each class on the basis of its net asset value relative to the net asset value of the Fund. Expenses to be so allocated also include expenses of the Company that are not attributable to a particular Fund or class of a Fund ("Company Expenses") and expenses of the particular Fund that are not attributable to a particular class of the Fund ("Fund Expenses"). Company Expenses include, but are not limited to, Board of Director's fees, insurance costs and certain legal fees. Fund Expenses include, but are not limited to, certain registration fees, advisory fees, custodial fees, and other expenses relating to the management of the Fund's assets. 2. Class Expenses. Expenses attributable to a particular class ("Class Expenses") shall be limited to: (a) payments pursuant to the Rule 12b-1 Plan for that class; (b) transfer agent fees attributable to that class; (c) printing and postage expenses related to preparing and distributing material such as shareholder reports, prospectuses and proxy materials to current shareholders of that class; (d) registration fees for shares of that class; (e) the expense of administrative personnel and services as required to support the shareholders of that class; (f) litigation or other legal expenses relating solely to that class; and (g) Board of Director's fees incurred as a result of issues relating to that class. Expenses described in (a) of this paragraph must be allocated to the class for which they are incurred. All other expenses described in this paragraph may be allocated as Class Expenses, but only if the officers of the Company have determined, subject to Board approval or ratification, which of such categories of expenses will be treated as Class Expenses, consistent with applicable legal principles under the 1940 Act and the Internal Revenue Code of 1986, as amended ("Code"). In the event a particular expense is no longer reasonably allocable by class or to a particular class, it shall be treated as a Company Expense or Fund Expense, and in the event a Company Expense or Fund Expense becomes allocable at a different level, including as a Class Expense, it shall be so allocated, subject to compliance with Rule 18f-3 and to approval or ratification by the Board. The initial determination of expenses that will be allocated as Class Expenses and any subsequent changes thereto shall be reviewed and approved by the Board and by a majority of the Board who are not "interested persons" of the Company, as defined in the 1940 Act. 3. Waivers or Reimbursements of Expenses. Expenses may be waived or reimbursed by the Funds' adviser, the Funds' distributors or any other provider of services to a Fund or the Company without the prior approval of the Board. C. Exchange and Conversion Privileges 1. Exchange. Shareholders of a Fund may exchange shares of a particular class for shares of the same class of any other fund advised by the Funds' investment adviser at relative net asset value and with no initial sales charge or contingent deferred sales charge, provided the shares to be acquired in the exchange are qualified for sale in the shareholder's state of residence and subject to the applicable requirements as to minimum amount and such other terms as may be set forth in the Funds' prospectuses. 2. Conversion. Shares of a Fund may convert from one class to another as provided in the Funds' prospectuses or a supplement to a prospectus. D. Board Review 1. Initial Approval. The Board, including a majority of the Directors who are not interested persons (as defined in the 1940 Act) of the Company or a Fund ("Independent Directors"), at a meeting held on December 17, 1998, initially approved the Plan based on a determination that the Plan, including the expense allocation, is in the best interests of each Class N nd Fund individually and of the Company. Their determination was based on their review of information furnished to them which they deemed reasonably necessary and sufficient to evaluate the Plan. 2. Approval of Amendments. The Plan may not be amended materially unless the Board, including a majority of the Independent Directors, have found that the proposed amendment, including any proposed related expense allocation, is in the best interests of each Class N nd Fund individually and of the Company. Such finding shall be based on information requested by the Board and furnished to them which the Board deems reasonably necessary to evaluate the proposed amendment. 3. Periodic Review. The Board shall review reports of expense allocations and such other information as they request at such times, or pursuant to such schedule, as they may determine consistent with applicable legal requirements. E. Contracts Any agreement related to a class arrangement shall require the parties thereto to furnish to the Board, upon their request, such information as is reasonably necessary to permit the Board to evaluate the Plan or any proposed amendment. F. Amendments The Plan may not be amended to modify materially its terms unless such amendment has been approved in the manner specified in Section D.2 of the Plan. Effective Date: October 17, 2001 -----END PRIVACY-ENHANCED MESSAGE-----