ECLIPSE FUNDS, 497, 1998-05-04

ECLIPSE FUNDS
497, 1998-05-04

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<PAGE>
Filed pursuant to Rule 497(c)
for File Nos. 33-8865 and 811-4847
[LOGO]

144 EAST 30TH STREET, NEW YORK, NEW YORK 10016

PROSPECTUS
MAY 1, 1998

Eclipse Funds (the "Trust") is a no-load, open-end, diversified management
investment company. The Trust currently has four investment portfolios: the
Ultra Short Term Income Fund, the Balanced Fund, the Growth and Income Fund and
the Equity Fund (individually a "Fund" and collectively the "Funds").

The investment objective of the Ultra Short Term Income Fund is to seek
a high level of current income, preservation of capital and a relatively
stable net asset value. The Ultra Short Term Income Fund is designed for
the investor who seeks a higher yield than a money market fund but less
fluctuation in net asset value than a longer-term bond fund. It is not a
money market fund and may not maintain a stable net asset value per
share. Investors in the Fund are therefore subject to a greater risk of
loss of principal than are shareholders of a money market fund. Under
normal market conditions, the duration of the Fund's portfolio will not
exceed 13 months. The Ultra Short Term Income Fund will generally limit
its investments to securities which, in the opinion of the Fund's
Manager, are issued by companies that are socially responsible.

The investment objective of the Balanced Fund is to seek a high total
return from a combination of equity and fixed-income investments.

The investment objective of the Growth and Income Fund is to seek a high
total return consisting of both current income and realized and
unrealized capital gains from equity securities and equity-related
securities. Equity selection for the Growth and Income Fund is based on
estimated relative intrinsic value, expected future earnings growth and
current and expected dividend income.

The investment objective of the Equity Fund is to seek a high total
return from equity investments. The Fund pursues its objective by
investing primarily in smaller capitalization companies.

Securities are selected and weighted in each Fund's portfolio with a view toward
achievement of its investment objective.

Each Fund is a separate investment portfolio having its own investment objective
and policies. A shareholder in a Fund will be entitled to his pro rata share of
all dividends and distributions paid from that Fund's assets and, upon redeeming
shares of the Fund, will receive the portion of its net assets represented by
the redeemed shares.

Towneley Capital Management, Inc. serves as Manager of the Trust.

(CONTINUED ON INSIDE FRONT COVER)

- -Registered Trademark- Eclipse is a registered service mark of Eclipse Funds.

SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR CREDIT UNION, AND SHARES OF THE TRUST ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
(CONTINUED FROM FRONT COVER)

This Prospectus sets forth concisely the information concerning the Trust and
the Funds that a prospective investor should know before investing. A Statement
of Additional Information, dated May 1, 1998 containing additional and more
detailed information about the Trust and the Funds (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and is
hereby incorporated by reference into this Prospectus. It is available without
charge and can be obtained by writing or calling the Shareholder Servicing Agent
at the address and telephone number on the cover. The Statement of Additional
Information, as well as other related materials, is available on the Securities
and Exchange Commission's Internet Website at
http://www.sec.gov.

This Prospectus should be read and retained by investors for future reference.

TABLE OF CONTENTS

<TABLE>
<S> <C>
Table of Fees and Expenses................................................ 3
Financial Highlights...................................................... 5
Prospectus Summary........................................................ 9
Investment Objectives, Policies and Risk Considerations................... 10
Introduction to the Trust............................................... 10
Ultra Short Term Income Fund............................................ 10
Balanced Fund........................................................... 12
Growth and Income Fund.................................................. 13
Equity Fund............................................................. 13
Investment Policies Applicable to More Than One Fund.................... 14
Policies Applicable to All Funds...................................... 14
Policies Applicable to the Ultra Short Term Income Fund and the
Balanced Fund........................................................ 17
Investment Restrictions................................................... 23
The Manager............................................................... 23
Expenses of the Trust..................................................... 25
How to Purchase and Redeem Shares......................................... 26
Initial Purchase of Shares.............................................. 27
Subsequent Purchases of Shares.......................................... 27
General Information Regarding Redemptions............................... 27
Retirement Plans.......................................................... 29
Exchange Privilege........................................................ 30
Dividends, Distributions and Taxes........................................ 30
Federal Income Taxes.................................................... 31
State and Local Taxes................................................... 32
Net Asset Value........................................................... 32
General Information....................................................... 32
Description of Shares................................................... 32
Performance............................................................. 32
Custodian, Transfer Agent and Dividend Agent............................ 33
Information for Shareholders............................................ 33
Appendix A................................................................ A-1
</TABLE>

- 2 -
<PAGE>
TABLE OF FEES AND EXPENSES

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
Ultra Short
Term Income Balanced Growth and Equity
Fund Fund Income Fund Fund
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Sales Load Imposed on Reinvested Dividends None None None None
Deferred Sales Load None None None None
Redemption Fees None None None None
Exchange Fees None None None None
</TABLE>

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)

<TABLE>
<CAPTION>
Ultra Short
Term Income Balanced Growth and Equity
Fund Fund Income Fund Fund
----------- -------- ----------- ------
<S> <C> <C> <C> <C>
Management Fees (after any fee waiver) 0.00% 0.62% 0.74% 1.00%
12b-1 Fees None None None None
Other Expenses (after any reimbursement) 0.00% 0.22% 0.20% 0.14%
Total Fund Operating Expenses (after any
reimbursement or fee waiver) 0.00% 0.84% 0.94% 1.14%
</TABLE>

EXAMPLE

You would pay the following expenses on a $1,000 investment, assuming 5% annual
return (cumulative through the end of each year):

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Ultra Short Term Income Fund $ 0 $ 0 $ 0 $ 0
Balanced Fund $ 9 $ 27 $ 47 $ 104
Growth and Income Fund $ 10 $ 30 $ 52 $ 115
Equity Fund $ 12 $ 36 $ 63 $ 139
</TABLE>

The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in a Fund will bear directly or
indirectly; for a further discussion of these fees, see "The Manager" and
"Expenses of the Trust" herein.

With respect to the Ultra Short Term Income Fund, the Manager voluntarily waived
its entire fee payable ($19,113) and reimbursed the Fund for $39,255 of the
Fund's expenses for the fiscal year ended December 31, 1997; absent such waiver
and reimbursement the Fund's management fee would have been 0.40% of the Fund's
average net assets and the Fund's other expenses would have been 0.82% of
average net assets (which would have resulted in total operating expenses of
1.22% of average net assets). With respect to the Balanced Fund, the Manager
voluntarily waived $153,387 of its fee payable for the fiscal year ended
December 31, 1997; absent such

- 3 -
<PAGE>
waiver the management fee would have been 0.80% of average net assets (which
would have resulted in total operating expenses of 1.02% of average net assets).
With respect to the Growth and Income Fund, the Manager voluntarily waived
$82,079 of its fee payable for the fiscal year ended December 31, 1997; absent
such waiver the Fund's management fee would have been 0.90% of average net
assets (which would have resulted in total operating expenses of 1.10% of
average net assets). As of the date of this Prospectus, the Manager is
continuing to waive all of its fee for the Ultra Short Term Income Fund, and a
portion of its fee for the Growth and Income Fund and the Balanced Fund, and to
reimburse all of the expenses of the Ultra Short Term Income Fund. The Manager
is also continuing to reimburse the Balanced Fund to the extent that operating
expenses would exceed, on an annualized basis, 0.85% of the average daily net
assets of the Fund. Also as of the date of this Prospectus, the Manager is
maintaining the expense ratio of the Growth and Income Fund at a level not to
exceed 0.95%, including certain indirect expenses.

The example should not be considered a representation of past or future
expenses; actual expenses may be greater or lesser than those shown above.

- 4 -
<PAGE>
FINANCIAL HIGHLIGHTS

The following tables of selected financial information of Eclipse Funds have
been audited by McGladrey & Pullen, LLP, Independent Certified Public
Accountants, whose report thereon appears in the Trust's Annual Report which is
incorporated by reference in the Statement of Additional Information. Further
information concerning investment performance is contained in the Trust's annual
report to shareholders, which is available without charge.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ULTRA SHORT TERM INCOME FUND
DECEMBER 27,
1994
FOR THE YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance for a
share outstanding throughout the period (a)
Net asset value, beginning of period........................ $10.03 $10.20 $10.00 $10.00
------- ------- ------- ------
Income from investment operations:
Net investment income....................................... 0.64 0.71 0.57 0.00
Net realized and unrealized gains (losses) on investments... (0.03) (0.16) 0.20 0.00
------- ------- ------- ------
Total from investment operations........................ 0.61 0.55 0.77 0.00
------- ------- ------- ------
Less distributions:
Dividends from net investment income........................ (0.64) (0.72) (0.57) 0.00
------- ------- ------- ------
Total distributions..................................... (0.64) (0.72) (0.57) 0.00
------- ------- ------- ------
Net asset value, end of period.............................. $10.00 $10.03 $10.20 $10.00
------- ------- ------- ------
------- ------- ------- ------
Total return................................................ 6.21% 5.48% 7.83% 0.00%
Ratios/Supplemental data
Net assets, end of period (000)............................. $5,393 $4,461 $4,610 $ 621
Ratios to average net assets:
Expenses.................................................. 0.00%+# 0.00%+# 0.22%+# 0.50%*+
Net investment income..................................... 6.61%+ 6.76%+ 6.92%+ 0.65%*+
Portfolio turnover rate..................................... 45.10% 46.82% 39.26% 0.00%
</TABLE>

- -------------
* Annualized.

+ Net of management fee waived equivalent to 0.4%, 0.4%, 0.4% and 0.4% of
average net assets plus expenses reimbursed equivalent to 0.82%, 0.80%, 1.27%
and 21.54% of average net assets, respectively.

# Includes custodian fees paid indirectly which amounted to 0.00% and to less
than 0.01% and 0.04% of average net assets, respectively.

(a) Per share amounts for periods ended prior to December 31, 1996 have been
restated to reflect a 1 for 5 share split effective June 14, 1996.

- 5 -
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
FOR THE YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance for a
share outstanding throughout the period
Net asset value, beginning of period.... $ 21.00 $ 20.59 $ 17.76 $ 18.63 $ 17.37 $ 17.02 $ 14.69 $ 15.24
-------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income................... 0.66 0.78 0.64 0.56 0.62 0.73 0.71 0.74
Net realized and unrealized gains
(losses) on investments................ 4.14 1.85 3.39 (0.56) 2.32 1.28 2.33 (0.53)
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment operations.... 4.80 2.63 4.03 0.00 2.94 2.01 3.04 0.21
-------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income.... (0.66) (0.78) (0.64) (0.56) (0.64) (0.73) (0.71) (0.76)
Distributions from net realized gains... (2.99) (1.44) (0.56) (0.31) (1.04) (0.93) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions................. (3.65) (2.22) (1.20) (0.87) (1.68) (1.66) (0.71) (0.76)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 22.15 $ 21.00 $ 20.59 $ 17.76 $ 18.63 $ 17.37 $ 17.02 $ 14.69
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Total return............................ 23.40% 12.91% 22.99% 0.01% 17.06% 12.01% 20.91% 1.45%
Ratios/Supplemental data
Net assets, end of period (000)......... $84,246 $83,825 $85,922 $27,703 $21,690 $14,044 $10,736 $ 4,777
Ratios to average net assets:
Expenses.............................. 0.84%+# 0.80%+ 0.81%+# 0.80%+ 0.69%+ 0.52%+ 0.66%+ 1.00%+
Net investment income................. 2.85%+ 3.56%+ 3.62%+ 3.10%+ 3.42%+ 4.31%+ 5.03%+ 5.42%+
Portfolio turnover rate................. 46.66% 71.51% 74.72% 94.38% 65.05% 95.51% 101.51% 120.90%
Average commission rate................. $0.0466 $0.0476 (a) (a) (a) (a) (a) (a)

<CAPTION>
- ----------------------------------------
BALANCED FUND

MAY 1, 1989
(INCEPTION)
TO
DECEMBER 31,
1989
- ----------------------------------------
<S> <C>
Per share operating performance for a
share outstanding throughout the period
Net asset value, beginning of period.... $ 15.00
---------------
Income from investment operations:
Net investment income................... 0.44
Net realized and unrealized gains
(losses) on investments................ 0.23
---------------
Total from investment operations.... 0.67
---------------
Less distributions:
Dividends from net investment income.... (0.43)
Distributions from net realized gains... --
---------------
Total distributions................. (0.43)
---------------
Net asset value, end of period.......... $ 15.24
---------------
---------------
Total return............................ 4.50%
Ratios/Supplemental data
Net assets, end of period (000)......... $ 3,227
Ratios to average net assets:
Expenses.............................. 1.00%*+
Net investment income................. 5.55%*+
Portfolio turnover rate................. 23.73%
Average commission rate................. (a)
</TABLE>

- --------------------
* Annualized.

+ Net of management fee waived equivalent to 0.2%, 0.2%, 0.3%, 0.4%, 0.5%, 0.8%,
0.8%, 0.8% and 0.8% of average net assets, respectively, plus expenses
reimbursed equivalent to 0.05% in 1990, and 0.84% during the period ended
December 31, 1989, of average net assets, respectively.

# Includes custodian fees paid indirectly, which amounted to less than 0.01% of
average net assets.

(a) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.

- 6 -
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME FUND

FOR THE YEAR ENDED DECEMBER 27, 1994
DECEMBER 31, (INCEPTION) TO
1997 1996 1995 DECEMBER 31, 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance for a
share outstanding throughout the period
Net asset value, beginning of period........................ $ 13.49 $ 12.31 $ 10.00 $ 10.00
--------- --------- --------- -------
Income from investment operations:
Net investment income....................................... 0.03 0.22 0.11 0.00
Net realized and unrealized gains on investments............ 4.34 2.54 2.57 0.00
--------- --------- --------- -------
Total from investment operations........................ 4.37 2.76 2.68 0.00
--------- --------- --------- -------
Less distributions:
Dividends from net investment income........................ (0.03) (0.23) (0.11) 0.00
Distributions from net realized gains....................... (0.07) (1.35) (0.26) 0.00
--------- --------- --------- -------
Total distributions..................................... (0.10) (1.58) (0.37) 0.00
--------- --------- --------- -------
Net asset value, end of period.............................. $ 17.76 $ 13.49 $ 12.31 $ 10.00
--------- --------- --------- -------
--------- --------- --------- -------
Total return................................................ 32.46% 22.40% 26.82% 0.00%
Ratios/Supplemental data
Net assets, end of period (000)............................. $109,452 $ 9,737 $ 7,960 $ 315
Ratios to average net assets:
Expenses.................................................. 0.94%+ 0.90%+ 1.00%+# 1.20%*+
Net investment income..................................... 0.36%+ 1.66%+ 1.57%+ (0.06)%*+
Portfolio turnover rate..................................... 51.66% 102.24% 63.16% 0.00%
Average commission rate..................................... $ 0.0451 $ 0.0454 (a) (a)
</TABLE>

- -------------
* Annualized.

+ Net of management fee waived equivalent to 0.2%, 0.7%, 0.9% and 0.9% of
average net assets, respectively, plus expenses reimbursed equivalent to 0.05%
in 1995 and 43.15% in 1994 of average net assets.

# Includes custodian fees paid indirectly, which amounted to 0.10% of average
net assets.

(a) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.

- 7 -
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
EQUITY FUND
FOR THE YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance for a
share outstanding throughout the year
Net asset value, beginning of year...... $ 13.47 $ 13.56 $ 11.82 $ 13.35 $ 13.20
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income................... (0.02) 0.14 0.07 0.03 0.08
Net realized and unrealized gains
(losses) on investments................ 4.40 3.89 2.26 (0.66) 2.17
--------- --------- --------- --------- ---------
Total from investment operations.... 4.38 4.03 2.33 (0.63) 2.25
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income.... -- (0.14) (0.07) (0.03) (0.08)
Distributions from net realized gains... (3.66) (3.98) (0.52) (0.87) (2.02)
--------- --------- --------- --------- ---------
Total distributions................. (3.66) (4.12) (0.59) (0.90) (2.10)
--------- --------- --------- --------- ---------
Net asset value, end of year............ $ 14.19 $ 13.47 $ 13.56 $ 11.82 $ 13.35
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total return............................ 33.30% 29.87% 19.69% (4.74)% 17.02%
Ratios/Supplemental data
Net assets, end of year (000)........... $189,965 $170,747 $174,705 $195,107 $197,106
Ratios to average net assets:
Expenses.............................. 1.14%# 1.15%# 1.14%# 1.12% 1.12%
Net investment income................. (0.12)% 0.81% 0.45% 0.21% 0.55%
Portfolio turnover rate................. 55.47% 82.05% 74.40% 92.20% 101.09%
Average commission rate................. $ 0.0418 $ 0.0431 (a) (a) (a)

<CAPTION>
- ----------------------------------------
EQUITY FUND

FOR THE YEAR ENDED DECEMBER 31,
1992 1991 1990 1989 1988
- ----------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance for a
share outstanding throughout the year
Net asset value, beginning of year...... $ 11.73 $ 9.07 $ 10.86 $ 10.12 $ 9.35
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income................... 0.15 0.16 0.30 0.27 0.41
Net realized and unrealized gains
(losses) on investments................ 2.12 2.66 (1.77) 1.38 0.77
--------- --------- --------- --------- ---------
Total from investment operations.... 2.27 2.82 (1.47) 1.65 1.18
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income.... (0.15) (0.16) (0.32) (0.27) (0.41)
Distributions from net realized gains... (0.65) -- -- (0.64) --
--------- --------- --------- --------- ---------
Total distributions................. (0.80) (0.16) (0.32) (0.91) (0.41)
--------- --------- --------- --------- ---------
Net asset value, end of year............ $ 13.20 $ 11.73 $ 9.07 $ 10.86 $ 10.12
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total return............................ 19.38% 31.18% (13.64)% 16.41% 12.72%
Ratios/Supplemental data
Net assets, end of year (000)........... $163,170 $149,385 $110,154 $184,211 $161,250
Ratios to average net assets:
Expenses.............................. 1.15% 1.18% 1.18% 1.09% 1.12%
Net investment income................. 1.17% 1.48% 2.57% 2.40% 4.05%
Portfolio turnover rate................. 110.98% 118.58% 154.15% 45.51% 30.91%
Average commission rate................. (a) (a) (a) (a) (a)
</TABLE>

- --------------------
# Includes custodian fees paid indirectly, which amounted to less than 0.01% of
average net assets for each period indicated.

(a) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.

- 8 -
<PAGE>
PROSPECTUS SUMMARY

THE TRUST is a diversified management investment company whose shares are
offered without a sales load or redemption charge. The Trust currently offers
four investment portfolios: the Ultra Short Term Income Fund, the Balanced Fund,
the Growth and Income Fund and the Equity Fund.

THE INVESTMENT OBJECTIVE of the Ultra Short Term Income Fund is to seek a high
level of current income, preservation of capital and a relatively stable net
asset value. The Ultra Short Term Income Fund is designed for the investor who
seeks a higher yield than a money market fund but less fluctuation in net asset
value than a longer-term bond fund. It is not a money market fund and may not
maintain a stable net asset value per share. Investors in the Fund are therefore
subject to a greater risk of loss of principal than shareholders of a money
market fund. Under normal market conditions, the duration of the Fund's
portfolio will not exceed 13 months. The Fund will generally limit its
investments to securities which, in the opinion of the Fund's manager, are
issued by companies that are socially responsible. The investment objective of
the Balanced Fund is to seek a high total return from a combination of equity
and fixed-income investments. The investment objective of the Growth and Income
Fund is to seek a high total return, consisting of both current income and
realized and unrealized capital gains, from equity securities and equity-related
securities. Equity selection for the Growth and Income Fund is based on
estimated relative intrinsic value, expected future earnings growth and current
and expected dividend income. The investment objective of the Equity Fund is to
seek a high total return from equity investments. Securities are selected and
weighted in each Fund's portfolio with a view toward achievement of its
objective. There is no assurance that a Fund's objective will be achieved. See
"Investment Objectives and Policies."

THERE IS NO SALES LOAD. Shares may be purchased and redeemed at the next
determined net asset value.

SHARES MAY BE PURCHASED AND REDEEMED directly through the Trust's transfer agent
and custodian, Investors Fiduciary Trust Company. The minimum initial investment
for each Fund is $1,000 (unless the investor chooses the automatic investment
plan or a gift account). There is no minimum for subsequent investments. See
"How to Purchase and Redeem Shares."

THE MANAGER of the Trust is Towneley Capital Management, Inc. (the "Manager"),
which also serves as investment adviser to individuals and institutional
clients. The Funds pay management fees to the Manager at the following annual
rates, which are expressed as a percentage of the average daily net assets of
each Fund:

<TABLE>
<S> <C>
Ultra Short Term Income Fund 0.40%
Balanced Fund 0.80%
Growth and Income Fund 0.90%
Equity Fund 1.00%
</TABLE>

See "Manager." The management fees paid by the Balanced Fund, the Growth and
Income Fund and the Equity Fund are higher than those paid by most mutual funds.

RISK FACTORS associated with investing in a Fund include the following. The
value of a Fund's shares will fluctuate with changes in the market value of its
portfolio securities and is consequently subject to the usual market risks of
investment. In addition, the value of the shares of the Ultra Short Term Income
Fund and the Balanced Fund, which invest in fixed-income securities (including
mortgage-backed and asset-backed securities), will fluctuate as the value of its
portfolio securities changes in response to changing market rates of interest,
principal prepayments and other factors. When interest rates rise, the value of
most fixed-income securities declines. Conversely, when interest rates decline,
the value of most fixed-income securities rises.

The Ultra Short Term Income Fund and the Balanced Fund may invest in securities
rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB

- 9 -
<PAGE>
or better by Standard & Poor's Rating Group, a division of McGraw-Hill, Inc.
("S&P"). Moody's indicates that securities rated Baa, although investment grade,
have speculative elements.

Each Fund may invest its assets in foreign securities which involves
considerations and risks such as the risk of adverse changes in currency
exchange rates, exchange controls, and the application of foreign tax laws,
including withholding taxes. Each Fund may invest in restricted securities which
are subject to statutory or contractual restrictions and delays on resale. Each
Fund may experience a high rate of portfolio turnover, which would involve
correspondingly greater expenses than a lower rate (which expenses must be borne
by the Fund and its shareholders), and possible substantial net short-term
capital gains.

DIVIDENDS of the net investment income of the Ultra Short Term Income Fund and
the Balanced Fund will normally be paid quarterly, and dividends of the net
investment income of the Growth and Income Fund and the Equity Fund will
normally be paid annually. Capital gain distributions, if any, will be made
annually. Income dividends and capital gain distributions paid by a Fund are
automatically reinvested in additional shares of the Fund unless the shareholder
instructs otherwise. See "Dividends, Distributions and Taxes."

IRA AND OTHER RETIREMENT PLANS utilizing a Fund as an investment vehicle provide
Federal income tax benefits for qualified participants. See "Retirement Plans."

EXCHANGE PRIVILEGES are offered whereby shares of the Funds may be exchanged at
their respective net asset values for each other. See "Exchange Privilege."

INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS

INTRODUCTION TO THE TRUST

Eclipse Funds (the "Trust") is a no-load, open-end, diversified management
investment company commonly known as a "mutual fund" whose shares are offered in
separate series referred to as "portfolios." Because the Trust offers multiple
portfolios, it is known as a "series fund." Each portfolio is a separate pool of
assets constituting, in effect, a separate fund with its own investment
objective and policies. A shareholder in a portfolio will be entitled to his pro
rata share of all dividends and distributions paid from that portfolio's assets
and, upon redeeming shares of that portfolio, the shareholder will receive the
then current net asset value of that portfolio represented by the redeemed
shares. (See "How to Purchase and Redeem Shares.") The Trust is empowered to
establish, without shareholder approval, additional portfolios which may have
different investment objectives and policies.

ULTRA SHORT TERM INCOME FUND

The investment objective of the Ultra Short Term Income Fund is to seek a high
level of current income, preservation of capital and a relatively stable net
asset value. The Ultra Short Term Income Fund is designed for the investor who
seeks a higher yield than a money market fund but less fluctuation in net asset
value than a longer-term bond fund. It is not a money market fund and may not
maintain a stable net asset value per share. Investors in the Fund are therefore
subject to a greater risk of loss of principal than shareholders of a money
market fund. The Fund will pursue this objective by investing in a diversified
portfolio of investment grade, short-term fixed-income securities. Securities
are selected and weighted in the portfolio with a view toward the achievement of
this objective. The Fund's investment objective is deemed a fundamental policy
of the Fund.

It is the Fund's policy that the weighted average maturity and duration of its
portfolio not exceed 36 months. Under normal market conditions, the duration of
the Fund's portfolio will not exceed 13 months. The duration of a fixed-income
security indicates the time it will take an investor to recoup his or her
investment, and approximates the price sensitivity of a fixed-income security to
interest rate changes. It was developed as a more precise alternative to the
concept of "term to maturity." Duration

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<PAGE>
incorporates a bond's interest payments, final maturity, call features and other
factors into one measure. Duration is expressed as a measure of time in years --
the longer the duration of a bond (or a bond portfolio), the greater the impact
of interest rate changes on the bond's (or bond portfolio's) price. Generally,
the higher the interest rate on a bond, the shorter its duration will be.

The duration of the Fund is calculated by averaging the duration of each
fixed-income instrument held by the Fund with each duration "weighted" according
to the percentage of net assets that it represents. Duration takes the length of
the time intervals between the present time and the time that the interest and
principal payments are scheduled or, in the case of a callable bond, expected to
be received, and weights them by the present values of the cash to be received
at each future point in time. Because duration accounts for interest payments, a
fund's duration is usually shorter than its average maturity. Duration measures
interest rate risk only and not other risks, such as credit risk and, in the
case of non-U.S. dollar denominated securities, currency risks.

In some cases, duration cannot be calculated with certainty because certain
assumptions have to be factored into the calculation. For example, in the case
of mortgage pass-through securities (described below under "Policies Applicable
to the Ultra Short Term Income Fund and the Balanced Fund"), the stated final
maturity of such securities is generally 30 years, but current and projected
payment rates are more critical in determining the securities' interest rate
exposure. In these and other similar situations, the Fund's Manager will use
more sophisticated analytical techniques that incorporate the anticipated
economic life of a security into the determination of its interest rate
exposure.

When interest rates are falling, a portfolio with a shorter duration generally
will not generate as high a level of total return as a portfolio with a longer
duration. Conversely, when interest rates are rising, a portfolio with a shorter
duration will generally outperform longer duration portfolios. When interest
rates are flat, shorter duration portfolios generally will not generate as high
a level of total return as longer duration portfolios (assuming that long-term
interest rates are higher than short-term rates, which is commonly the case).
With respect to the composition of any fixed-income portfolio, the shorter the
duration of the portfolio, the lower the market risk and price volatility, with
however, a lower anticipated potential for total return than for a portfolio
with a longer duration. For example, in general, if a fund's duration is one
year, then a change of one percentage point in prevailing interest rates would
result in a change in the opposite direction of approximately one percentage
point in the net asset value of the fund.

The Ultra Short Term Fund will, to the extent possible, limit its investments to
securities which, in the opinion of the Fund's Manager, and based on available
information, are issued by companies that are socially responsible. The Manager
selects socially responsible portfolios using research provided by, among
others, Kinder, Lydenberg, Domini & Co., Inc. With this research, the Manager is
able to apply both inclusionary and exclusionary criteria to companies to create
a socially responsible portfolio. Investments may include federally insured
short term fixed income securities of community development banks. In addition,
the Manager attempts to enhance shareholder value through the use of proxy
research and voting. The Fund pursues its policy of making socially responsible
investments while maintaining the quality of its investment portfolio in
accordance with the guidelines set forth in this section and under "Investment
Policies Applicable to More Than One Fund."

The categories of investments which may be acquired by the Fund are described
directly below and in the section "Investment Policies Applicable to More Than
One Fund."

FOREIGN ISSUER OBLIGATIONS -- The Fund may invest in fixed-income securities of
non-U.S. issuers rated AA or better by S&P and Aa2 or better by Moody's. (See
"Investment Policies Applicable to More Than One Fund -- Foreign Securities.")

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<PAGE>
BANK OBLIGATIONS -- The Fund may invest in obligations of domestic banks and
savings and loan associations and dollar-denominated obligations of domestic
subsidiaries and branches of foreign banks, such as certificates of deposit
(including variable rate certificates of deposit) and bankers' acceptances,
provided such instruments are issued or guaranteed by an institution having
total assets in excess of one billion dollars. As noted above, the Fund may also
invest in securities issued by community development banks not meeting the
foregoing requirements provided that the entire principal amount of such
securities is federally insured.

COMMERCIAL PAPER -- The Fund may invest in commercial paper rated at the time of
purchase A-1 by S&P or Prime-1 by Moody's. Commercial paper represents
short-term (nine months or less) unsecured promissory notes issued in bearer
form by banks or bank holding companies, corporations and finance companies.

REPURCHASE AGREEMENTS -- The Fund may also enter into repurchase agreements. A
repurchase agreement is an instrument under which an investor (E.G., the Fund)
purchases a U.S. Government security from a vendor, with an agreement by the
vendor to repurchase the security at the same price, plus interest at a
specified rate. Repurchase agreements may be entered into with member banks of
the Federal Reserve System or "primary dealers" (as designated by the Federal
Reserve Bank of New York) in U.S. Government securities. Repurchase agreements
usually have a short duration, often less than one week. In the event that a
vendor defaulted on its repurchase obligation, the Fund might suffer a loss to
the extent that the proceeds from the sale of the collateral were less than the
repurchase price. If the vendor becomes bankrupt, the Fund might be delayed, or
may incur costs or possible losses of principal and income, in selling the
collateral. The Fund will not enter into a repurchase agreement with a duration
of more than seven days if, as a result, more than 10% of the value of the
Fund's total assets would be so invested. The Fund may also invest in repurchase
agreements with a domestic bank having total assets in excess of one billion
dollars and a long-term credit rating of at least A as determined by Moody's or
S&P. Securities subject to repurchase agreements will be placed in a segregated
account and the Manager will monitor the market value of the securities plus any
accrued interest thereon so that they will at least equal the repurchase price.

BALANCED FUND

The investment objective of the Balanced Fund is to seek a high total return
from a combination of equity securities and fixed-income investments (including
debt securities, convertible securities and preferred stocks.) (See "Equity
Securities" and "Fixed-Income Securities" below.) "Total return" refers to the
objective to achieve a return consisting of both dividend and interest income
and realized and unrealized capital gains. Securities are selected and weighted
in the portfolio with a view toward the achievement of this objective. The
Fund's investment objective is deemed a fundamental policy of the Fund.

The Balanced Fund has adopted as a fundamental policy that it be a "balanced"
fund; this fundamental policy cannot be changed without the approval of
shareholders. As a "balanced" fund, the Fund will invest at least 25% of the
value of its total assets in fixed-income senior securities. With respect to
convertible securities held by the Fund, only that portion of their value
attributable to their fixed-income characteristics will be used in calculating
the 25% figure. Subject to such restrictions, the percentage of the Fund's
assets invested in each type of security at any time shall be in accordance with
the judgment of the Manager.

EQUITY SECURITIES -- The equity component of the Balanced Fund will be invested
primarily in shares of companies whose average total common stock market
capitalization (price per common share multiplied by the shares outstanding) is
similar to the average total market capitalization of those stocks making up the
Standard & Poor's 500 Stock Composite Index. In selecting the equity issues to
be placed in the Fund, approximately equal weight will be given to estimated
relative intrinsic value, expected future earnings

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<PAGE>
growth, and current and expected dividend income. Estimated relative intrinsic
value is a ranking of the ratio of the market value to economic book value. The
economic book value, or intrinsic value, is a valuation concept that attempts to
adjust historical financial data to reflect true economic worth.

FIXED-INCOME SECURITIES -- The fixed-income component of the Balanced Fund will
be invested in the following types of fixed-income securities: (i) U.S.
Government securities; (ii) foreign government securities; (iii) investment
grade corporate fixed-income securities; and (iv) mortgage-backed and other
asset-backed securities. These securities are described under the caption
"Investment Policies Applicable to More Than One Fund."

GROWTH AND INCOME FUND

The investment objective of the Growth and Income Fund is to seek a high total
return consisting of both current income and realized and unrealized capital
gains from equity securities and equity-related securities. As used herein,
"equity securities and equity-related securities" means common and preferred
stock (including convertible preferred stock); bonds, notes and debentures
convertible into common or preferred stock; stock purchase warrants and rights;
and depository receipts (traded in a U.S. market) for securities of foreign
issuers. Equity selection will be based on estimated relative intrinsic value
(see "Balanced Fund" above), expected future earnings growth, and current and
expected dividend income. Securities are selected and weighted in the portfolio
with a view toward the achievement of this objective. The Fund's investment
objective is deemed a fundamental policy of the Fund.

In selecting the issues to be placed in the Fund, approximately equal weight
will be given to estimated relative intrinsic value, expected future earnings
growth, and current and expected dividend income; therefore, the Fund's
portfolio will exhibit characteristics of a total return, value (I.E., seeking
high net asset values relative to market price), growth and income fund. Under
normal market conditions, the Fund will invest primarily in dividend-paying
equity securities of North American businesses listed on the major exchanges or
traded in the over-the-counter market. In general, the Fund will invest
primarily in shares of companies whose average stock market capitalization
(price per common share multiplied by the shares outstanding) is comparable to
the average total market capitalization of those stocks comprising the Standard
& Poor's 500 Stock Composite Index.

The Fund expects to invest primarily in the securities of U.S. issuers, although
it may also invest up to 20% of its assets in securities of foreign issuers, or
depository receipts for such securities (which are traded in a U.S. market),
which meet the criteria for investment selection set forth above. Since 20% of
the Fund's assets may consist of securities issued by foreign issuers, the Fund
may be subject to additional investment risks that are different in some
respects from those incurred by a fund which invests only in securities of U.S.
domestic issuers. (See "Investment Policies Applicable to More Than One Fund --
Foreign Securities.")

The Fund will not engage in short selling or option trading, nor will it
leverage its shares.

The Fund is subject to the usual market risks incident to its investments and,
therefore, there can be no assurance that the objective of the Fund will be
attained.

The Fund's investment objective and its investment policy of investing under
normal circumstances more than 65% of its assets in equity securities are deemed
fundamental and, therefore, may not be changed without shareholder approval. The
other investment policies of the Fund described in this section are not deemed
fundamental and may be changed by the Board of Trustees of the Fund without
shareholder approval.

EQUITY FUND

The investment objective of the Equity Fund is to seek a high total return from
equity securities (including for this purpose preferred stocks and debt
securities convertible into common stock). "Total return" refers to the
objective to achieve a return consisting of both

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<PAGE>
income and realized and unrealized capital gains. Securities are selected and
weighted in the portfolio with a view toward achievement of this objective. The
Fund's investment objective is deemed a fundamental policy of the Fund.

In selecting the issues to be placed in the Fund, approximately equal weight
will be given to estimated relative intrinsic value (see "Balanced Fund" above),
expected future earnings growth, and current and expected dividend income;
therefore, the Fund's portfolio will exhibit characteristics of a total return,
value (I.E., seeking high net asset values relative to market price), growth and
income fund. Under normal market conditions, the Fund will invest primarily in
equity securities of North American businesses listed on the major exchanges or
traded in the over-the-counter market. In general, the companies whose shares
are to be purchased will sell at a total common stock market capitalization
(price per common share multiplied by the shares outstanding) less than the
average total market capitalization of those stocks in the Standard & Poor's 500
Stock Composite Index. The securities of smaller capitalization companies often
involve significantly greater risks than the securities of larger, better-known
companies. The securities of smaller capitalization companies may be thinly
traded and may be subject to greater price volatility than the market as a
whole. In addition, smaller capitalization companies are generally more
adversely affected by increased competition, and are subject to a greater risk
of bankruptcy, than larger companies. Although at times the Fund may have all of
its assets invested in smaller capitalization companies, such a policy shall not
prohibit the Fund from investing in large capitalization companies if the
Manager believes such companies have intrinsic value, growth and income
potential superior to that available from smaller capitalization companies. As a
matter of fundamental policy, the Fund is required under normal circumstances to
have more than 65% of its total assets invested in equity investments.

The Fund will not engage in short selling or option trading, nor will it
leverage its shares.

The Fund is subject to the usual market risks incident to its investments and,
therefore, there can be no assurance that the objective of the Fund will be
attained.

INVESTMENT POLICIES APPLICABLE TO MORE THAN ONE FUND

The following additional investment policies are applicable to more than one
Fund and supplement those set forth above for the Funds.

POLICIES APPLICABLE TO ALL FUNDS:

WARRANTS -- Each Fund may invest in warrants which entitle the holder to buy
equity securities at a specific price for a specific period of time. A Fund will
not, however, purchase any warrant if, as a result of such purchase, 5% or more
of the Fund's total assets would be invested in warrants. Included within that
amount, but not to exceed 2% of the value of the Fund's total assets, may be
warrants which are not listed on the

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<PAGE>
New York Stock Exchange or American Stock Exchange. Warrants acquired by a Fund
in units or attached to securities are deemed to be without value.

TEMPORARY DEFENSIVE POSITION; CASH RESERVES -- When business or financial
conditions warrant, each Fund may take a defensive position and invest
temporarily without limit in investment grade corporate debt securities or money
market instruments. Money market instruments for this purpose include U.S.
Government securities having remaining maturities of one year or less,
commercial paper rated in the highest grade by any nationally recognized rating
agency, certificates of deposit and bankers' acceptances issued by domestic
banks having total assets in excess of one billion dollars, and repurchase
agreements relating to U.S. Government securities. A repurchase agreement is an
instrument under which an investor (E.G., a Fund) purchases a U.S. Government
security from a vendor, with an agreement by the vendor to repurchase the
security at the same price, plus interest at a specified rate. Repurchase
agreements may be entered into with member banks of the Federal Reserve System
or "primary dealers" (as designated by the Federal Reserve Bank of New York) in
U.S. Government securities. See "Ultra Short Term Income Fund -- Repurchase
Agreements" for a description of the characteristics and risks of repurchase
agreements.

In addition, a portion of each Fund's assets will be maintained in money market
instruments as described above in such amount as the Manager deems appropriate
for cash reserves.

FOREIGN SECURITIES -- Each Fund may invest in securities issued by foreign
issuers, and thus may be subject to additional risks for these securities that
are different in some respects from those incurred by a fund which invests only
in securities of U.S. domestic issuers. Such risks include future political and
economic developments, the possible imposition of foreign withholding taxes on
interest income payable on the securities, changes in foreign exchange rates
(including the possible establishment of exchange controls), the possible
seizure or naturalization of foreign deposits, or the adoption of other foreign
government restrictions which might adversely affect the payment of principal
and interest on such securities. Currency fluctuations may affect the net asset
value of a Fund irrespective of the performance of the underlying investments in
foreign issuers. A Fund will not purchase securities which it believes, at the
time of purchase, will be subject to exchange controls or withholding taxes;
however, there can be no assurance that such laws may not become applicable to
certain of a Fund's investments. In addition, there may be less publicly
available information about a foreign issuer than about a domestic issuer, and
foreign issuers may not be subject to the same accounting, auditing and
financial recordkeeping standards and requirements as domestic issuers. While
each Fund generally will invest only in securities which are regularly traded on
recognized exchanges or over-the-counter markets, from time to time foreign
securities may be difficult to liquidate rapidly at the best available price.
Settlement periods for foreign securities, which are sometimes longer than those
of securities of U.S. issuers, may affect portfolio liquidity. These different
settlement practices may cause missed purchasing opportunities or the loss of
interest on cash positions pending further investments.

RESTRICTED SECURITIES (BALANCED FUND AND EQUITY FUND ONLY) -- Each Fund may
invest in restricted securities and in other assets having no ready market
(including repurchase agreements of more than seven days' duration) if such
purchases at the time thereof would not cause more than 10% of the value of the
Fund's net assets to be invested in all such restricted or not readily
marketable assets. Restricted securities may be sold only in privately
negotiated transactions, in a public offering with respect to which a
registration statement is in effect under the Securities Act or pursuant to
Rules 144 or 144A promulgated under such Act. Where registration is required, a
Fund may be obligated to pay all or part of the registration expense, and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If during such a period adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell. Restricted securities will be valued in

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<PAGE>
such manner as the Board of Trustees of the Fund in good faith deems appropriate
to reflect their fair market value.

ILLIQUID SECURITIES (ULTRA SHORT TERM INCOME FUND AND GROWTH AND INCOME FUND
ONLY) -- Each Fund may invest in illiquid securities, (I.E., securities having
no ready market (including repurchase agreements of more than seven days'
duration)), if such purchases at the time thereof would not cause more than 10%
of the value of the Fund's net assets to be invested in all such illiquid or not
readily marketable assets. A Fund may be unable to dispose of its holdings in
illiquid securities at acceptable prices and the disposition of such securities
may require an extended period of time. Illiquid securities may include certain
restricted securities, which may be sold only in privately negotiated
transactions, in a public offering with respect to which a registration
statement is in effect under the Securities Act or pursuant to Rules 144 or 144A
promulgated under such Act. Where registration of such securities is required, a
Fund may be obligated to pay all or part of the registration expense, and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If during such a period adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell. The Manager, under the supervision of the Board of Trustees of
the Trust, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to a Fund's restriction on investing in illiquid
securities. A determination as to whether a Rule 144A security is liquid or not
is a question of fact. In making this determination, the Manager will consider
the trading markets for the specific security, taking into account the
unregistered nature of a Rule 144A security. In addition, the Manager could
consider (1) the frequency of trades and quotes, (2) the number of dealers and
potential purchasers, (3) the dealer undertakings to make a market and (4) the
nature of the security and of market place trades (E.G., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). The liquidity of Rule 144A securities would be monitored and, if, as
a result of changed conditions, it is determined that a Rule 144A security is no
longer liquid, a Fund's holding of illiquid securities would be reviewed to
determine what steps, if any, are required to assure that the Fund does not
invest more than the maximum percentage of its assets in illiquid securities.
Investing in Rule 144A securities could have the effect of increasing the amount
of a Fund's assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities. Illiquid securities will be
valued in such manner as the Board of Trustees of the Fund in good faith deems
appropriate to reflect their fair market value.

LENDING OF PORTFOLIO SECURITIES -- To increase its income, each Fund may lend
its portfolio securities to certain brokers or dealers, banks or other
institutional investors, such as insurance companies and pension funds and
receive collateral in the form of cash or United States Government obligations.
In the event the borrowing institution fails to redeliver the securities when
due, or becomes bankrupt, the Fund might be delayed, or may incur costs or
possible losses of principal and income, in selling the collateral. A Fund will
not lend portfolio securities in excess of 20% of the value of its total assets,
nor will the Fund lend its portfolio securities to any officer, director,
trustee, employee or affiliate of the Fund or the Manager.

PORTFOLIO TURNOVER -- The Trust anticipates that the annual portfolio turnover
rates of the Ultra Short Term Income Fund, the equity component of the Balanced
Fund, the Growth and Income Fund and the Equity Fund may exceed 100%,
respectively. (An annual portfolio turnover rate of 100% would occur, for
example, if all of the stocks in a Fund's portfolio were replaced in a period of
one year.) The annual portfolio turnover rate of the fixed-income component of
the Balanced Fund is not expected to exceed 100%. The Trust, however, has not
placed any limit on the rate of portfolio turnover with respect to any of the
Funds, and portfolio securities may be sold without regard to the time they have
been held when, in the opinion of the Manager, investment considerations warrant
such action. A high rate of portfolio turnover involves correspondingly greater
expenses than a

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<PAGE>
lower rate, which expenses must be borne by the Fund and its shareholders. High
portfolio turnover also may result in the realization of substantial net
short-term capital gains.

POLICIES APPLICABLE TO THE ULTRA SHORT TERM INCOME FUND AND THE BALANCED FUND:

GOVERNMENT SECURITIES -- U.S. Government securities are securities issued or
guaranteed by the United States Government, its agencies or instrumentalities
and include: (i) U.S. Treasury obligations, which differ only in their interest
rates, maturities and times of issuance, U.S. Treasury bills (maturity of one
year or less), U.S. Treasury notes (maturities of one to ten years), and (in the
case of the Balanced Fund only) U.S. Treasury bonds (generally maturities of
greater than ten years), all of which are backed by the full faith and credit of
the United States Government; and (ii) obligations issued or guaranteed by U.S.
Government agencies or instrumentalities, some of which are backed by the full
faith and credit of the U.S. Treasury (E.G., the Export-Import Bank); some of
which are supported by the right of the issuer to borrow from the U.S.
Government (E.G., obligations of the Tennessee Valley Authority and the United
States Postal Service); and some of which are backed only by the credit of the
issuer itself (E.G., obligations of the Student Loan Marketing Association).
U.S. Government securities also include government-guaranteed mortgage-backed
securities. (See "Mortgage-Backed and Asset-Backed Securities" below.)

The Ultra Short Term Income Fund and the Balanced Fund may invest in "zero
coupon" Treasury securities which are U.S. Treasury bills, notes and bonds which
have been stripped of their unmatured interest coupons and receipts or
certificates representing interests in such stripped debt obligations and
coupons. A zero coupon security pays no interest to its holder during its life.
Its value to an investor consists of the difference between its face value at
the time of maturity and the price for which it was acquired, which is generally
an amount significantly less than its face value (sometimes referred to as a
"deep discount" price).

Zero coupon Treasury securities do not entitle the holder to any periodic
payments of interest prior to maturity. Accordingly, such securities usually
trade at a deep discount from their face or par value and will be subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. Current Federal tax law requires that a holder (such as the Fund) of a
zero coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the Fund receives no interest payment
in cash on the security during the year.

U.S. Government securities do not generally involve the credit risks associated
with other types of interest bearing securities, although, as a result, the
yields available from U.S. Government securities are generally lower than the
yields available from other interest bearing securities. Like other fixed-income
securities, however, the values of U.S. Government securities change as interest
rates fluctuate. When interest rates decline, the values of U.S. Government
securities can be expected to increase, and when interest rates rise, the values
of U.S. Government securities can be expected to decrease.

STRIPPED CORPUS INTERESTS IN U.S. TREASURY SECURITIES -- A number of banks and
brokerage firms have separated ("stripped") the principal portions ("corpus")
from the coupon portions of the U.S. Treasury bonds and notes and sold them
separately in the form of receipts or certificates representing undivided
interests in these instruments (which instruments are generally held by a bank
in a custodial or trust account). The Funds may invest in such receipts or
certificates. The investment and risk characteristics of "zero coupon" Treasury
securities described above under "Government Securities" are shared by such
receipts or certificates. The staff of the Securities and Exchange Commission
has indicated that receipts or certificates representing stripped corpus
interests in U.S. Treasury securities sold by banks and brokerage firms should
not be deemed U.S. Government securities but rather securities issued by the
bank or brokerage firm involved.

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<PAGE>
FOREIGN GOVERNMENT AND SUPRANATIONAL ENTITY SECURITIES -- The Ultra Short Term
Income Fund may invest up to 10% of its total assets, and the Balanced Fund may
invest up to 20% of its total assets, in foreign government securities of
issuers in countries considered stable by the Manager and in securities of
supranational entities. Investing in foreign government and supranational entity
securities involves considerations and possible risks not typically associated
with investing in U.S. Government securities. (See "Investment Policies
Applicable to More Than One Fund -- Foreign Securities.")

Foreign government securities include debt securities issued or guaranteed, as
to payment of principal and interest, by governments, quasi-governmental
entities, governmental agencies, or other governmental entities (collectively,
the "Government Entities") denominated in foreign currencies or in U.S. dollars
(including debt securities of a Government Entity in a country denominated in
the currency of another country). The Fund's portfolio may include government
securities of a number of foreign countries or, depending upon market
conditions, those of a single country.

The Manager's determination that a particular country should be considered
stable depends on its evaluation of political and economic developments
affecting the country as well as recent experience in the markets for government
securities of the country. Examples of foreign governments which the Manager
currently considers to be stable, among others, are the governments of Canada,
Germany, Japan, Sweden and the United Kingdom. The Manager does not believe that
the credit risk inherent in the obligations of such stable foreign governments
is significantly greater than that of U.S. Government securities. The percentage
of the Fund's assets invested in foreign government securities will vary
depending on the relative yields of such securities, the economies of the
countries in which the investments are made and such countries' financial
markets, the interest rate climate of such countries and the relationship of
such countries' currencies to the U.S. dollar. Currency is judged on the basis
of fundamental economic criteria (E.G., relative inflation levels and trends,
growth rate forecasts, balance of payments status and economic policies) as well
as technical and political data.

Debt securities of "quasi-governmental entities" are issued by entities owned by
either a national, state or equivalent government or are obligations of a
political unit that is not backed by the national government's full faith and
credit and general taxing powers. Examples of quasi-governmental issuers
include, among others, the Province of Ontario and the City of Stockholm. The
Fund's portfolio may also include debt securities denominated in European
Currency Units of an issuer in a country in which the Fund may invest. A
European Currency Unit represents specified amounts of the currencies of certain
of the fifteen member states of the European Union.

A "supranational entity" is an entity constituted by the national governments of
several countries to promote economic development. Examples of such
supranational entities include, among others, the World Bank (International Bank
for Reconstruction and Development), the European Investment Bank, the Asian
Development Bank and the European Coal and Steel Community. The governmental
members, or "stockholders," usually make initial capital contributions to the
supranational entity and, in many cases, are committed to make additional
contributions if the supranational entity is unable to repay its borrowings.
Each supranational entity's lending activities are limited to a percentage of
its total capital (including "callable capital" contributed by members at the
entity's call), reserves and net income.

CORPORATE FIXED-INCOME SECURITIES -- The Funds may invest their assets in
corporate fixed-income securities which include debt securities (including
floating and variable notes), convertible securities and preferred stock of
corporate issuers. (As noted above, for purposes of the Balanced Fund's policy
of investing at least 25% of its total assets in fixed-income securities, only
that portion of the value of convertible securities attributable to their
fixed-income characteristics will be taken into account.) Differing yields on
corporate fixed-income securities of the same maturity are a

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<PAGE>
function of several factors, including the relative financial strength of the
issuers. Higher yields are generally available from securities in the lower
rating categories. The Funds will invest in investment grade securities
(securities rated at the time of purchase Baa or better by Moody's or BBB or
better by S&P), and in comparable non-rated securities. Moody's indicates that
securities rated Baa, although investment grade, have speculative elements. S&P
indicates that adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and principal for
securities rated BBB than is the case with higher-rated securities, although
such securities are regarded as having an adequate capacity to pay interest and
principal. (See Appendix A hereto for a description of corporate debt ratings.)
Non-rated securities will be considered for investment by the Funds when the
Manager believes that the financial condition of the issuers of such obligations
and the protection afforded by the terms of the obligations themselves limit the
risk to the Funds to a degree comparable to that of rated securities which are
consistent with the Funds' objective and policies. The Funds may also invest in
non-Treasury zero coupon securities and in "pay-in-kind" debentures (I.E., debt
obligations the interest on which may be paid in the form of additional
obligations of the same type rather than cash), which have both investment and
risk characteristics similar to zero coupon Treasury securities, including the
risk of the untimely disposition of portfolio securities to fund required
distributions and the resultant transaction costs. (See "Government Securities"
above and "Dividends, Distributions and Taxes" below.)

The ratings of fixed-income securities by Moody's and S&P are a generally
accepted barometer of credit risk. They are, however, subject to certain
limitations from an investor's standpoint. The rating of an issuer is heavily
weighted by past developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating is assigned and
the time it is updated. In addition, there may be varying degrees of difference
in credit risk of securities in each rating category. The Manager will attempt
to reduce the overall portfolio credit risk through diversification and
selection of portfolio securities based on considerations mentioned above. In
addition, it is the Ultra Short Term Income Fund's policy to dispose of a
security whose rating drops below Baa or BBB when it is practicable to do so if,
in the judgment of the Manager, such downgrade is likely to lead to a default.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES -- Mortgage-backed and asset-backed
securities arise through the grouping by governmental, government-related and
private organizations of loans, receivables and other assets originated by
various lenders. Interests in pools of these assets differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal paid at maturity or specified call dates. Instead,
these securities provide periodic payments which generally consist of both
interest and principal payments. The estimated life of a mortgage-backed or
asset-backed security and the average maturity of a portfolio including such
securities varies with the prepayment experience with respect to the underlying
debt instruments.

MORTGAGE-BACKED SECURITIES -- GENERAL -- Mortgage-backed securities are
securities that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans secured by real property. There are
currently three basic types of mortgage-backed securities: (i) those issued or
guaranteed by the United States Government or one of its agencies or
instrumentalities, such as the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC"); (ii) those issued by private issuers
that represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the United States government or one of its
instrumentalities; and (iii) those issued by private issuers that represent an
interest in or are collateralized by whole mortgage loans or mortgage-backed
securities without a government guarantee but usually having some form of
private credit enhancement. An issuer of

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<PAGE>
mortgage-backed securities meeting certain conditions may elect to be treated as
a Real Estate Mortgage Investment Conduit (a "REMIC") under the Internal Revenue
Code of 1986, as amended (the "Code"). (See "Dividends, Distributions and
Taxes.")

GNMAs are pass-through interests in pools of mortgage loans insured by the
Federal Housing Administration or by the Farmer's Home Administration or
guaranteed by the Veterans Administration. GNMA is a U.S. Government corporation
within the Department of Housing and Urban Development. GNMAs are backed by the
full faith and credit of the United States, which means that the U.S. Government
guarantees that interest and principal will be paid when due. FNMA is a U.S.
Government-sponsored corporation owned entirely by private stockholders. Pass-
through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA. FHLMC issues mortgage-related securities
representing interests in residential mortgage loans pooled by it. FHLMC is a
corporate instrumentality of the U.S. Government. FHLMC guarantees the timely
payment of interest and ultimate collection of principal. FNMAs and FHLMCs are
not backed by the full faith and credit of the United States.

PRIVATE MORTGAGE PASS-THROUGH SECURITIES -- Private mortgage pass-through
securities ("Private Pass-Throughs") are structured similarly to the GNMA, FNMA
and FHLMC mortgage pass-through securities described above and are issued by
originators of, and investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. Private Pass-Throughs are usually backed
by a pool of conventional fixed rate or adjustable rate mortgage loans. Since
Private Pass-Throughs typically are not guaranteed by an entity having the
credit status of GNMA, FNMA or FHLMC, such securities generally are structured
with one or more types of credit enhancement. (See "Types of Credit Support"
below.)

TYPES OF CREDIT SUPPORT -- Mortgage-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on underlying assets to make payments,
such securities may contain elements of credit support. Such credit support
falls into two categories -- (i) liquidity protection and (ii) protection
against losses resulting from ultimate default by an obligor on the underlying
assets. Liquidity protection refers to the provision of advances, generally by
the entity administering the pool of assets, to ensure that the receipt of
payments on the underlying pool occurs in a timely fashion. Protection against
losses resulting from ultimate default ensures ultimate payment of the
obligations on at least a portion of the assets in the pool. Such protection may
be provided through guarantees, insurance policies or letters of credit obtained
by the issuer or sponsor from third parties, through various means of
structuring the transaction or through a combination of such approaches. The
Fund will not pay any additional fees for such credit support, although the
existence of credit support may increase the price of a security.

Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information regarding
the level of credit risk associated with the underlying assets. Delinquency or
loss in excess of that anticipated could adversely affect the return on an
investment in such a security.

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES --
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through

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<PAGE>
securities. Typically, CMOs are collateralized by GNMA, FNMA or FHLMC
Certificates, but also may be collateralized by whole loans or Private Pass-
Throughs (as such terms are defined above) (such collateral collectively
referred to herein as "Mortgage Assets"). Multiclass pass-through securities are
equity interests in a trust composed of Mortgage Assets. Unless the context
indicates otherwise, all references herein to CMOs include multiclass
pass-through securities. Payments of principal of and interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs or make scheduled distributions on the multiclass
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the United States Government, or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing.

In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis. The principal of, and interest on, the Mortgage Assets may
be allocated among the several classes of a series of a CMO in innumerable ways.
In a common structure, payments of principal, including any principal
prepayments on the Mortgage Assets, are applied to the classes of the series of
a CMO in the order of their respective stated maturities or final distribution
dates, so that no payment of principal will be made on any class of CMOs until
all other classes having an earlier stated maturity or final distribution date
have been paid in full.

The Funds may also invest in parallel pay CMOs and Planned Amortization Class
CMOs ("PAC" Bonds). Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO structures, must be
retired by its stated maturity date or final distribution date but may be
retired earlier. PAC Bonds generally require payments of a specified amount of
principal on each payment date. PAC Bonds are always parallel pay CMOs with the
required principal on such securities having the highest priority after interest
has been paid to all classes.

ASSET-BACKED SECURITIES -- GENERAL -- The Funds also may invest in asset-backed
securities including interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. These securities
may be in the form of pass-through instruments or asset-backed bonds. The
securities, all of which are issued by non-governmental entities and carry no
direct or indirect government guarantee, are structurally similar to the
mortgage pass-through securities described above. As with mortgage-backed
securities, asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties and use similar
credit enhancement techniques. (See "Types of Credit Support" above.)

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most organizations that issue asset-backed securities
relating to motor vehicle installment purchase obligations perfect their
interests in their respective obligations only by filing a financing statement
and by having the servicer of the obligations, which is usually the originator,
take custody thereof. In such circumstances, if the servicer were to sell the
same obligations to another party, in violation of its duty not to do so, there
is a risk that such party

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<PAGE>
could acquire an interest in the obligations superior to that of the holders of
the securities. Also, although most such obligations grant a security interest
in the motor vehicle being financed, in most states the security interest in a
motor vehicle must be noted on the certificate of title to perfect such security
interest against competing claims of other parties. Due to the large number of
vehicles involved, however, the certificate of title to each vehicle financed,
pursuant to the obligations underlying the securities, usually is not amended to
reflect the assignment of the seller's security interest for the benefit of the
holders of the securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related securities.

SPECIAL RISK CONSIDERATIONS -- The yield characteristics of mortgage-backed and
asset-backed securities differ from traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if the Fund purchases such a security at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if the Fund purchases these securities
at a discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity.

Prepayments on a pool of mortgage loans are influenced by a variety of economic,
geographic, social and other factors, including changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties and servicing decisions. An acceleration in prepayments in response
to sharply falling interest rates will shorten the security's average maturity
and limit the potential appreciation in the security's value relative to a
conventional debt security. As a result, mortgage-backed securities are not as
effective in locking in high long-term yields. Conversely, in periods of sharply
rising rates, prepayments generally slow, increasing the security's average life
and its potential for price depreciation. Amounts available for reinvestment by
the Fund are therefore likely to be greater during a period of declining
interest rates and, as a result, likely to be reinvested at lower interest rates
than during a period of rising interest rates. Generally, asset-backed
securities are less likely to experience substantial prepayments than are
mortgage-backed securities, primarily because the collateral supporting
asset-backed securities is of shorter maturity than mortgage loans. However,
certain of the factors that affect the rate of prepayments on mortgage-backed
securities also affect the rate of prepayments on asset-backed securities (E.G.,
fluctuations in interest rates and unemployment), although the predominant
factors affecting prepayment rates on mortgage-backed and asset-backed
securities may be different during any particular period. In periods of rapidly
changing economic conditions, these factors can lead to volatility in the value
of certain types of mortgage-backed and asset-backed securities.

The Funds' respective returns will also be affected by the yields on instruments
in which the Fund is able to reinvest the proceeds of payments and prepayments.
Accelerated prepayments on securities purchased by the Funds at a premium also
impose a risk of loss of principal because the premium may not have been fully
amortized at the time the principal is repaid in full.

New types of mortgage-backed securities and asset-backed securities are
developed and marketed from time to time. Consistent with their respective
investment limitations, the Funds expect to invest in those new types of
instruments that the Manager believes may assist the Funds in achieving their
respective investment objectives and to supplement this prospectus to
appropriately describe such instruments.

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<PAGE>
INVESTMENT RESTRICTIONS

Each Fund has adopted certain investment restrictions which may not be changed
without the approval of the Fund's shareholders. Briefly, these restrictions
provide that a Fund may not:

1. Purchase the securities of any one issuer, other than the United States
Government or any of its agencies or instrumentalities if, immediately after
such purchase, more than 5% of the value of its total assets would be invested
in such issuer or the Fund would own more than 10% of the outstanding voting
securities of such issuer, except that up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% and 10% limitations;

2. Invest more than 25% of the value of its total assets in any particular
industry;

3. Purchase securities on margin, but it may obtain such short-term credits
from banks as may be necessary for the clearance of purchases and sales of
securities;

4. Make loans of its assets to any person, except for the lending of portfolio
securities, the purchase of debt securities and the entering into of repurchase
agreements as discussed under "Investment Objectives and Policies;"

5. Borrow money except for (i) the short-term credits from banks referred to in
paragraph 3 above and (ii) borrowings from banks for temporary or emergency
purposes, including the meeting of redemption requests which might require the
unexpected disposition of securities. Borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the value of the Fund's total assets (including the amount borrowed) at
the time the borrowing is made. Outstanding borrowings will be repaid before any
subsequent investments are made;

6. Mortgage, pledge or hypothecate any of its assets, except as may be
necessary in connection with permissible borrowings mentioned in paragraph 5
above;
7. Purchase the securities of any other investment company (other than certain
issuers of mortgage-backed and asset-backed securities), except by purchase in
the open market where no commission or profit to a sponsor or dealer (other than
the customary broker's commission) results from such purchase, and except when
such purchase is part of a merger, consolidation or acquisition of assets; and

8. Act as an underwriter of securities of other issuers, except that the Fund
may acquire restricted or not readily marketable securities under circumstances
where, if such securities were sold, the Fund might be deemed to be an
underwriter for purposes of the Securities Act. The Fund will not, however,
invest (in the case of the Balanced Fund and the Equity Fund) more than 10% of
the value of its net assets in illiquid securities, restricted securities and
not readily marketable securities and repurchase agreements of more than seven
days' duration or (in the case of the Ultra Short Term Income Fund and the
Growth and Income Fund) more than 10% of the value of its net assets in illiquid
securities and repurchase agreements of more than seven days' duration.

If a percentage restriction is adhered to at the time an investment is made, a
later change in percentage resulting from changes in the value of a Fund's
portfolio securities will not be considered a violation of the Fund's policies
or restrictions.

THE MANAGER

The business and affairs of the Trust are managed under the direction of its
Board of Trustees.

The manager of the Trust is Towneley Capital Management, Inc., a Delaware
corporation founded in 1971, with its office located at 144 East 30th Street,
New York, New York 10016 (the "Manager"). The Manager was, at December 31, 1997,
investment adviser for assets of approximately $1 billion. In addition to the
Trust, the Manager's clients include a limited number of corporations, insurance
companies, foundations, colleges, hospitals and individuals. Wesley G. McCain,
chairman and trustee of the Trust, has been

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<PAGE>
chairman and director of the Manager since its founding in 1971 and is primarily
responsible for the day-to-day management of the Funds' portfolios. Mr. McCain
is a controlling person of the Manager on the basis of his ownership of the
Manager's stock.

INVESTMENT MANAGEMENT CONTRACTS

Pursuant to a Management Contract for the Balanced Fund and the Equity Fund,
dated January 7, 1987 (the "1987 Contract"), and one for the Ultra Short Term
Income Fund and the Growth and Income Fund dated December 27, 1994 (the "1994
Contract" and, together with the 1987 Contract, the "Management Contracts"), the
Manager furnishes an investment program for each Fund, makes the day-to-day
investment decisions for each Fund, executes the purchase and sale orders for
the portfolio transactions of each Fund and generally manages each Fund's
investments. Subject to each Fund's objective of obtaining the most favorable
price and efficient execution, the Manager may place portfolio transactions with
brokers or dealers which have been instrumental in the sale of a Fund's shares.
When placing portfolio transactions, the Manager may also take into account
payments made by brokers effecting transactions for the Trust to other persons
on behalf of the Trust for services provided to it for which it would be
obligated to pay (such as custodial and professional fees).

Under the Management Contracts, the Manager provides persons satisfactory to the
Board of Trustees to serve as officers of the Trust. Such officers, as well as
certain other employees and trustees, may be directors, officers or employees of
the Manager. For its services under the Management Contracts, the Manager
receives fees from each Fund at the following annual rates, which are expressed
as a percentage of each Fund's average daily net assets:

<TABLE>
<S> <C>
Ultra Short Term Income Fund 0.40%
Balanced Fund 0.80%
Growth and Income Fund 0.90%
Equity Fund 1.00%
</TABLE>

These fees are accrued daily and paid monthly. The rates of the management fees
to be paid by the Balanced Fund, the Growth and Income Fund and the Equity Fund
are higher than the rates paid by most other registered investment companies.
The Manager may from time to time from its own funds (other than the management
fees paid by the Funds) compensate brokers and other persons, including Eclipse
Financial Services, Inc. and other affiliates of the Manager, for providing
shareholder services or assistance in distributing the Funds' shares. Eclipse
Financial Services, Inc. may, in turn, make payments out of amounts received
from the Manager to compensate brokers and other persons for providing
shareholder services.

The Trust has retained MainStay Management, Inc., a registered broker-dealer
unaffiliated with the Manager, to administer all aspects of the Trust's
operations except those which are the responsibility of the Manager. In
connection with its responsibilities as administrator, MainStay Management, Inc.
performs such supervisory, administrative, and clerical functions as are
necessary in order to provide effective administration of the Trust, including
maintaining certain books and records; authorizing the payment of Fund expenses
and maintaining control over daily cash balances; monitoring the availability of
funds for investment; overseeing and confirming portfolio holdings with the
Custodian and the Manager; coordinating and controlling on a daily basis the
administrative and professional services rendered to the Trust by others,
including the Manager, Custodian and the Transfer and Dividend Disbursing Agent,
and the Trust's Shareholder Servicing Agent, as well as accounting, auditing and
other services performed for the Trust; calculating the net asset value of the
Trust's shares; providing the Trust with adequate conference facilities for all
board meetings; overseeing the preparation and filing with the Securities and
Exchange Commission of the Trust's registration statement, prospectus and
statement of additional information; and preparing and filing all required State
Blue Sky filings. For providing such services, MainStay Management, Inc.
receives a fee, computed daily and paid monthly in arrears, from the Manager
based on the

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<PAGE>
average combined daily net asset value of the Funds ("Combined Assets") to be
calculated at the annual rate of 0.15% of the Combined Assets up to $50 million,
plus 0.12% of such Combined Assets in excess of $50 million but not in excess of
$100 million, plus 0.08% of such Combined Assets in excess of $100 million but
not in excess of $150 million; plus 0.05% of such Combined Assets in excess of
$150 million but not in excess of $750 million and 0.02% of the Combined Assets
in excess of $750 million. In addition, for any Fund, the Manager shall also pay
MainStay Management, Inc. a monthly fee of $625 until such time as the Fund's
average daily net asset value during the preceding month exceeded $20 million.
Because MainStay Management, Inc. has been retained by the Trust, the Trust can
directly supervise the performance of its administrative functions, even though
MainStay Management, Inc. receives no compensation directly from the Trust.

Under the 1987 Contract, for the fiscal year ended December 31, 1997, the
Manager received a fee from the Equity Fund equal to 1.00% of the Fund's average
daily net assets. Under the Management Contracts, for the fiscal year ended
December 31, 1997, the Manager was entitled to receive fees from the Ultra Short
Term Income Fund in the amount of 0.40% of average daily net assets, which fee
was waived in its entirety by the Manager; from the Balanced Fund in the amount
of 0.80% of average daily net assets, of which $153,387 was voluntarily waived
by the Manager; and from the Growth and Income Fund in the amount of 0.90% of
average daily net assets, of which $82,079 was voluntarily waived by the
Manager.

YEAR 2000

Like other investment companies, financial and business organizations and
individuals around the world, the Trust could be adversely affected if the
computer systems used by the Adviser, the Distributor or other service providers
to the Trust do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Adviser and the Distributor are taking steps that they believe are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that they use and the Adviser is taking steps to obtain reasonable
assurances that comparable steps are being taken by the Trust's other service
providers. At this time, however, there can be no assurance that these steps
will be sufficient to avoid any adverse impact to the Trust.

The Year 2000 Problem is expected to impact corporations, which may include
issuers of portfolio securities held by the Trust, to varying degrees based upon
various factors, including, but not limited to, the corporation's industry
sector and degree of technological sophistication. The Trust is unable to
predict what impact, if any, the Year 2000 Problem will have on issuers of the
portfolio securities held by the Trust.

EXPENSES OF THE TRUST

Except as set forth above under "Manager," the Trust is responsible for the
payment of its expenses. Without limitation such expenses include the fees
payable to the Manager; the organizational expenses payable to the Manager; any
brokerage fees and commissions; taxes; interest; the cost of any liability
insurance or fidelity bonds; legal and auditing fees and expenses; the fees and
certain expenses of the Trust's Custodian and Transfer and Dividend Disbursing
Agent; the fees of any trade association of which the Trust is a member; the
expenses of printing and mailing reports and notices to shareholders; filing
fees and other costs for the registration or qualification of each Fund's shares
under Federal or state securities laws; the fees and expenses involved in
registering and maintaining registration of the Trust and of each Fund's shares
with the Securities and Exchange Commission; the costs of registering the Trust
as a broker or dealer; the expenses of servicing shareholders and shareholder
accounts held by the Trust directly; and any extraordinary expenses incurred by
a Fund.

For the fiscal year ended December 31, 1997, the expenses of the Equity Fund,
including the management fee, equaled 1.14% of the Fund's average daily net
assets. For the fiscal year ended December 31, 1997, the expenses of the
Balanced Fund equaled

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<PAGE>
0.84% of the Fund's average daily net assets (net of the management fee waived
equivalent to 0.18% of average net assets). For the fiscal year ended December
31, 1997, the expenses of the Growth and Income Fund equaled 0.94% of the Fund's
average daily net assets (net of the management fee waived equivalent to 0.16%
of average net assets) and the expenses of the Ultra Short Term Income Fund were
equal to 0.00% of the Fund's average daily net assets (after management fee
waived equivalent to 0.40% of average net assets and other expenses reimbursed
equivalent to 0.82% of average net assets).

HOW TO PURCHASE AND REDEEM SHARES

Each Fund sells and redeems its shares on a continuing basis at its net asset
value and does not impose a sales charge for either sales or redemptions. All
transactions in Fund shares are effected through the Trust's transfer agent,
Investors Fiduciary Trust Company (the "Transfer Agent"), which accepts orders
for purchases and redemptions from investors directly. The minimum initial
investment in each Fund is $1,000. The minimum investment required to open an
individual retirement account is also $1,000. (See "Retirement Plans.") The Fund
minimum does not apply to automatic investment accounts (see "Automatic
Investment" below) or to gift accounts. Initial investments may be made in any
amount in excess of the applicable minimums. There is no minimum for subsequent
investments.

Shareholder accounts may be maintained through brokerage firms or other
financial institutions, including the Manager and its affiliates. Such
institutions may make arrangements for their customers to purchase and redeem
Fund shares by telephone, in which event a transaction fee may be charged by the
institution (not by the Trust). In addition, the $1,000 minimum initial
investment amount does not apply to shareholder accounts maintained through such
institutions, which may impose their own minimum investment amounts.

Shares of each Fund are offered at the next determined net asset value by the
Fund as an investment vehicle for individuals, institutions, fiduciaries and
retirement plans. Prospectuses, sales material and applications may be obtained
from the Trust's shareholder servicing agent, Eclipse Financial Services, Inc.,
P.O. Box 2196, Peachtree City, Georgia 30269, 1-800-872-2710 or 1-770-631-0414
(within Georgia). Orders received by Investors Fiduciary Trust Company, the
Trust's Transfer Agent, prior to 4:00 P.M., New York City time, on a Fund
business day, will result in shares being issued the same day. The price will be
based on that day's net asset value. Orders which are received after 4:00 P.M.,
New York City time, will not result in share issuance until the next Fund
business day.

For each shareholder of record, the Transfer Agent, as the shareholder's agent,
establishes an open account to which all shares purchased are credited, together
with any dividends and capital gain distributions which are paid in additional
shares. (See "Dividends, Distributions and Taxes.") It is the Funds' policy not
to issue share certificates. Each Fund reserves the right to reject any
subscription for its shares.

At the time of initial investment in the Trust, investors must elect on their
application the Fund(s) in which they wish to invest. Subject to each Fund's
initial investment minimums, investors may divide their investment in the Trust
among the Funds in any manner they choose. Subject to a $500 minimum,
stockholders may transfer all or a portion of their shares from one open Fund
account to another open Fund account at any time. Any transfer into a Fund in
which the stockholder does not have an open account must satisfy the Fund's
initial investment minimum. Stockholders will have a separate account with the
Trust for each Fund in which they invest.

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<PAGE>
INITIAL PURCHASE OF SHARES

MAIL -- To purchase shares of a Fund send a check made payable to "Eclipse
Funds" and a completed application to:

Eclipse Funds
c/o Investors Fiduciary Trust Company
P.O. Box 419595
Kansas City, MO 64179

IFTC will not accept third-party checks.

Checks are accepted subject to collection at full face value in United States
currency.

BANK WIRE -- To purchase shares of a Fund using the wire system for transmittal
of money among banks, an investor should first telephone Eclipse Financial
Services, Inc. at 1-800-872-2710 or 1-770-631-0414 (within Georgia) to obtain a
new account number.

The investor should then instruct a member commercial bank to wire funds to:

Investors Fiduciary Trust Company
ABA 101003621
for further credit to a/c #7512554
Re: -Name of Fund-
Account Number _________________________________________________________
Account Name ___________________________________________________________
Social Security #/Tax ID #______________________________________________

Then promptly complete and mail the subscription order form to the Transfer
Agent (Investors Fiduciary Trust Company). There may be a charge by your bank
for transmitting the money by bank wire. The Transfer Agent does not charge
investors in the Trust for the receipt of wire transfers. If you are planning to
wire funds, it is suggested that you instruct your bank early in the day so the
wire transfer can be accomplished the same day.

AUTOMATIC INVESTMENT -- By completing the automatic investment authorization,
you can direct Eclipse Funds to charge your bank account for the monthly
purchase of shares of the Fund(s) of your choice. Your account will be charged
on or about the 20th day of each month and you will receive a confirmation of
every transaction. There is no initial minimum if you open an automatic
investment account, but the minimum monthly purchase is $50.

SUBSEQUENT PURCHASES OF SHARES

Subsequent purchases can be made by bank wire, by automatic investment or by
mailing a check as instructed above.

There is no minimum for subsequent purchases. All payments should clearly
indicate the name of the Fund whose shares are being purchased and the
shareholder's account number.

Provided that the information on the subscription order form on file with the
Trust is still applicable, a shareholder may reopen an account without filing a
new subscription order form at any time during the year the shareholder's
account is closed or during the following calendar year.

GENERAL INFORMATION REGARDING REDEMPTIONS

Upon receipt by the Transfer Agent of a redemption request in proper form,
shares of each Fund will be redeemed at their next determined net asset value.
(See "Net Asset Value.") Redemption requests may be made by mail or by
telephone, and automatic withdrawals may be authorized by establishing a
Systematic Withdrawal Account as described below.

REDEMPTION BY MAIL -- Redemptions may be made by mail to the Transfer Agent at:

Eclipse Funds
c/o Investors Fiduciary Trust Company
P.O. Box 419595
Kansas City, MO 64179

The letter must specify the name of the Fund, the dollar amount or number of
shares to be redeemed, and the account number. The letter must be signed in
exactly the same way the account is registered (if there is more than one owner
of the shares, all must sign). In all cases, all the signatures on a redemption
request must be guaranteed by a bank, broker-dealer, municipal securities broker
and dealer, government securities dealer and broker, credit union, a member

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<PAGE>
firm of a national securities exchange, registered securities association or
clearing agency or savings association. The Transfer Agent may reject redemption
instructions if the guarantor is neither a member of nor a participant in a
signature guarantee program (currently known as "STAMP.") (Signature guarantees
by savings banks and notaries public are not acceptable.) Further documentation,
such as copies of corporate resolutions and instruments of authority, may be
requested from certain accounts such as corporations, administrators, executors,
personal representatives, trustees or custodians to evidence the authority of
the person or entity making the redemption request.

REDEMPTION BY TELEPHONE -- Shares of each Fund may also be sold by calling the
Transfer Agent at 1-800-525-0687. In order to utilize this procedure for
telephone redemption, a shareholder must have previously elected this procedure
in writing, which election will be reflected in the records of the Transfer
Agent, and the redemption proceeds must be mailed directly to the investor at
the address of record for that investor. To change your address of record, send
the stub of your account statement signed by all account holders, or send a
written request with signature(s) guaranteed as described above under
"Redemption by Mail" to the Transfer Agent. The Trust reserves the right to
limit the number of telephone redemptions by an investor. Once made, telephone
redemption requests may not be modified or canceled. The selling price of each
share being redeemed will be the per share net asset value next calculated by
the relevant Fund after receipt by the Transfer Agent of the telephone
redemption request.

To preserve flexibility, the Trust may revise or remove the ability to redeem
shares by telephone, or may charge a fee for such service, although currently,
the Trust does not expect to charge a fee. The Trust will not be liable for
following instructions communicated by telephone that it reasonably believes to
be genuine. The Trust will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures may include,
among others, requiring some form of personal identification prior to acting
upon telephone instructions, providing written confirmations of all such
transactions, and/or tape recording all telephone instructions. Assuming
procedures such as the above have been followed, the Trust will not be liable
for any loss, cost, or expense for acting upon an investor's telephone
instructions or for any unauthorized telephone redemption. As a result of this
policy, the investor will bear the risk of any loss unless the Trust has failed
to follow such procedure(s).

During periods of substantial economic or market changes, telephone redemptions
may be difficult to implement. If an investor is unable to contact the Transfer
Agent by telephone, shares may also be redeemed by delivering the redemption
request to the Transfer Agent by letter as previously described.

AUTOMATIC WITHDRAWAL -- If you own Fund shares worth at least $10,000 at the
current net asset value, you may create a Systematic Withdrawal Account from
which a fixed sum will be paid to you at regular intervals. Please contact
shareholder servicing for additional information.

PAYMENT OF PROCEEDS -- Checks for redemption proceeds normally will be mailed
within three business days, but will not be mailed until all checks in payment
for the purchase of the shares to be redeemed have been cleared, which may take
up to 15 days. Unless other instructions are given, a check for the proceeds of
a redemption will be sent to the shareholder's address of record and generally
will be mailed within three business days after receipt of the request.

The Trust may suspend the right of redemption and postpone the date of payment
for more than seven days during any period when (i) trading on the New York
Stock Exchange is restricted or the Exchange is closed, other than customary
weekend and holiday closings, (ii) the Securities and Exchange Commission has by
order permitted such suspension or (iii) an emergency, as defined by rules of
the Securities and Exchange Commission, exists making disposal of portfolio
investments or determination of the value of the net assets of the Funds not
reasonably practicable. The proceeds of a redemption may be more or less

- 28 -
<PAGE>
than the amount invested and, therefore, a redemption may result in a gain or
loss for income tax purposes.

REDEMPTION AT THE OPTION OF THE FUND To be in a position to eliminate excessive
expenses, the Trust reserves the right to redeem upon not less than 30 days'
notice all shares of a Fund in an account (other than an individual retirement
account) which has a value below $500 as a result of voluntary redemptions.
However, a shareholder will be allowed to make additional investments prior to
the date fixed for redemption to avoid liquidation of the account.

RETIREMENT PLANS

Recent federal tax legislation has expanded the types of individual retirement
accounts ("IRAs") available to individuals for tax deferred retirement savings.
In addition to "traditional" IRAs established under Code Section 408, there are
Roth IRAs governed by Code Section 408A and SIMPLE IRAs established under Code
Section 408(p). Contributions to each of these types of IRAs are subject to
differing limitations. In addition, distributions from each type of IRA are
subject to differing restrictions. The following is a very general description
of each type of IRA.

TRADITIONAL IRAS

Traditional IRAs are subject to limitations on the amount that may be
contributed, the persons who may be eligible, and on the time when distributions
must commence. Depending upon the circumstances of the individual, contributions
to a traditional IRA may be made on a deductible or non-deductible basis. Each
Fund has available a form of traditional IRA for investment in each Fund's
shares. Individuals earning compensation, including earnings from self-
employment, generally may make IRA contributions of up to $2,000 annually.
However, the deductibility of an individual's IRA contribution may be reduced or
eliminated if the individual or, in the case of a married individual, either the
individual or the individual's spouse is an active participant in an employer-
sponsored retirement plan. Generally if a taxpayer is not covered by an
employer-sponsored retirement plan, the amount the taxpayer may deduct for
federal income tax purposes in a year for contributions to an IRA is the lesser
of $2,000 or the taxpayer's compensation for the year. If the taxpayer is
covered by an employer-sponsored retirement plan, the amount of IRA
contributions the taxpayer may deduct in a year may be reduced or eliminated
based on the taxpayer's adjusted gross income for the year. The adjusted gross
income level at which a single taxpayer's deduction for 1997 is affected,
$25,000, will increase annually to $50,000 in the year 2005. The adjusted gross
income level at which the deduction for a married taxpayer (who does not file a
separate return) is affected, $40,000, will increase annually to $80,000 in the
year 2007. If the taxpayer is married, files a separate return, and is covered
by a qualified retirement plan, the taxpayer may not make a deductible
contribution to an IRA if the taxpayer's income exceeds $10,000. If the taxpayer
is not covered by an employer-sponsored retirement plan, but the taxpayer's
spouse is, the amount the taxpayer may deduct for IRA contributions will be
phased out if the taxpayer's adjusted gross income is between $150,000 and
$160,000. In addition, an individual with a non-working spouse may establish a
separate IRA for the spouse and annually contribute a total of up to $4,000 to
the two IRAs, provided that no more than $2,000 may be contributed to the IRA of
either spouse. The minimum investment required to open an IRA with the Fund is
$1,000.

Withdrawals from a traditional IRA, other than that portion, if any, of the
withdrawal considered to be a return of the investor's non-deductible IRA
contributions, are taxed as ordinary income when received. Such withdrawals may
be made without penalty after the participant reaches age 59 1/2, and must
commence shortly after age 70 1/2. Withdrawals before age 59 1/2 or the failure
to commence withdrawals on a timely basis after age 70 1/2 may involve the
payment of certain penalties.

SIMPLE INDIVIDUAL RETIREMENT ANNUITIES

The Small Business Job Protection Act of 1996 created a new retirement plan, the
Savings Incentive

- 29 -
<PAGE>
Match Plan of Employees of Small Employers ("SIMPLE Plans"). Depending upon the
type of SIMPLE Plan, employers may deposit the plan contributions into a single
trust or into SIMPLE individual retirement accounts ("SIMPLE IRAs") established
by each participant. Contributions to a SIMPLE IRA may be either salary deferral
contributions or employer contributions.

ROTH IRAS

Section 408A of the Code permits eligible individuals to establish a Roth IRA, a
new type of IRA which becomes available in 1998. Contributions to a Roth IRA are
not deductible, but withdrawals that meet certain requirements are not subject
to federal income tax. In general, Roth IRAs are subject to certain required
distribution rules on the death of the account owner. The Roth IRA, like the
traditional IRA is subject to a $2,000 ($4,000 for a married couple)
contribution limit (taking into account both Roth IRA and traditional IRA
contributions). The maximum contribution that can be made is phased-out for
taxpayers with adjusted gross income between $95,000 and $110,000 ($150,000 and
$160,000 if married and filing jointly).

Shares of either Fund may also be a suitable investment for assets of "section
403(b) accounts" and other types of qualified pension or profit-sharing plans,
including cash or deferred or salary reduction "section 401(k) plans" which give
participants the right to defer portions of their compensation for investment on
a tax-deferred basis until distributions are made from the plans.

Persons desiring information concerning investments by IRAs and other retirement
plans should write or telephone the Trust.

EXCHANGE PRIVILEGE

Shareholders of any Fund are entitled to exchange some or all of their shares
for any other Fund. An exchange of shares in a Fund pursuant to the exchange
privilege may result in a shareholder realizing a taxable gain or loss for
income tax purposes.
There is no charge for the exchange privilege or limitation as to frequency of
exchanges. The minimum amount for an exchange is $500, except that shareholders
who are establishing a new account with an investment company or a portfolio
through the exchange privilege must insure that a sufficient number of shares
are exchanged to meet the minimum initial investment required for the portfolio
into which the exchange is being made.

Instructions for exchanges may be made in writing to Investors Fiduciary Trust
Company at the appropriate address listed above or, for shareholders with
telephone exchange, by calling Investors Fiduciary Trust Company at
l-800-525-0687. The Trust reserves the right to reject any exchange request and
may modify or terminate the exchange privilege at any time.

DIVIDENDS, DISTRIBUTIONS AND TAXES

Each dividend and capital gains distribution, if any, declared by a Fund on its
outstanding shares will, at the election of each shareholder, be paid in cash or
in additional shares of the Fund having an aggregate net asset value as of the
payment date of such dividend or distribution equal to the cash amount of such
dividend or distribution. Election to receive dividends and distributions in
cash or shares is made at the time shares are subscribed for and may be changed
by notifying the Fund in writing at any time prior to the record date for a
particular dividend or distribution. If the shareholder makes no election, the
Fund will make the distribution in shares. There is no sales or other charge in
connection with the reinvestment of dividends and capital gains distributions.

While it is the intention of the Funds to distribute to their respective
shareholders substantially all of each fiscal year's net income (quarterly with
respect to the Ultra Short Term Income Fund and the Balanced Fund, and annually
with respect to the Growth and Income Fund and the Equity Fund) and net realized
capital gains, if any (annually with respect to all of the Funds), the amount
and time of any such distribution must necessarily depend upon the realization
by the Fund of income and capital gains from investments.

- 30 -
<PAGE>
There is no fixed dividend rate, and there can be no assurance that a Fund will
pay any dividends or realize any capital gains.

The following discussion is intended for general information only. An investor
should consult with his or her own tax adviser as to the tax consequences of an
investment in a Fund, including the status of distributions from each Fund under
applicable state or local law.

FEDERAL INCOME TAXES

Each of the Funds intends to qualify for tax treatment as a "regulated
investment company" under the Code. Qualification as a regulated investment
company generally relieves a Fund of Federal income tax on that part of its net
ordinary income and net realized capital gains which it pays out to its
shareholders.

Dividends out of net ordinary income and distributions of net short-term capital
gains are taxable to the recipient shareholders as ordinary income. In the case
of corporate shareholders, dividends paid by the Balanced Fund, the Growth and
Income Fund and the Equity Fund may be eligible for the dividends-received
deduction, to the extent that the Fund's income is derived from qualifying
dividends received by the Fund from domestic corporations. Distributions of the
excess of net long-term capital gains over net short-term capital losses which
are designated by a Fund as capital gain dividends are taxable to the
shareholders at a maximum 20% or 28% capital gains rate (depending on the Fund's
holding period for the assets giving rise to the gain), irrespective of the
length of time a shareholder may have held his shares. Such capital gains
distributions are not eligible for the dividends-received deduction referred to
above. Dividends are taxable to shareholders in the same manner whether received
in cash or reinvested in additional Fund shares.

A distribution will be treated as paid on December 31 of the current calendar
year if it is declared by a Fund in October, November or December with a record
date in such a month and paid by the Fund during January of the following
calendar year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.

Each year each Fund will notify shareholders of the tax status of dividends and
distributions.

Investments by the Ultra Short Term Income Fund and the Balanced Fund in zero
coupon securities will result in income to the Fund each year equal to a portion
of the excess of the face value of the securities over their issue price, even
though the Fund receives no cash interest payments from the securities.

Both the Ultra Short Term Income Fund and the Balanced Fund may invest in
residual interests in REMICs. Under Treasury regulations that have not yet been
issued, but may apply retroactively, a portion of the Fund's income that is
attributable to a residual interest in a REMIC (referred to in the Code as an
"excess inclusion") will be subject to federal income tax in all events. These
regulations are also expected to require the Fund to allocate any excess
inclusion income to its shareholders in proportion to the dividends received by
them, with the same consequences as if the shareholders held the REMIC residual
interests directly. In general, excess inclusion income (i) cannot be offset by
net operating losses, (ii) is unrelated business taxable income, thereby
potentially requiring tax-exempt entities to file a tax return and pay tax on
the income, and (iii) in the case of a foreign shareholder, will not qualify for
a reduced rate of U.S. federal withholding tax. It is anticipated that only a
small portion, if any, of the assets of the Ultra Short Term Income Fund and of
the Balanced Fund will consist of residual interests in REMICs.

Upon the sale or other disposition of shares of a Fund, or upon receipt of a
distribution in complete liquidation of a Fund, a shareholder generally will
realize a capital gain or loss which may be eligible for reduced capital gains
rates, generally depending upon the shareholder's holding period for the shares.

- 31 -
<PAGE>
Each Fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. federal income tax
liability.

Further information relating to tax consequences is contained in the Statement
of Additional Information.

STATE AND LOCAL TAXES

Fund distributions may be subject to state and local taxes. Investors should
consult their own tax advisers regarding the particular tax consequences of an
investment in a Fund.

NET ASSET VALUE

The Trust determines the net asset value per share of each Fund as of 4:00 P.M.,
New York City time, by dividing the value of the Fund's net assets (I.E., the
value of its securities and other assets less its liabilities, including
expenses payable or accrued but excluding capital stock and surplus) by the
number of shares outstanding at the time the determination is made. The Trust
determines each Fund's net asset value on each Trust business day. Trust
business day for this purpose means weekdays (Monday through Friday) except
customary national business holidays and Good Friday. Purchases and redemptions
will be effected at the time of determination of net asset value next following
the receipt of any purchase or redemption order. (See "How to Purchase and
Redeem Shares.")

Portfolio securities for which market quotations are readily available
(including asset-backed securities) are valued at market value. All other
investment assets of each Fund are valued in such manner as the Board of
Trustees of the Trust in good faith deems appropriate to reflect their fair
value.
GENERAL INFORMATION

DESCRIPTION OF SHARES

The Ultra Short Term Income Fund, the Balanced Fund, the Growth and Income Fund
and the Equity Fund are portfolios of Eclipse Funds, a Massachusetts business
trust established by an Agreement and Declaration of Trust dated July 30, 1986.
The Trust has an unlimited authorized number of shares of beneficial interest
which may, without shareholder approval, be divided into any number of
portfolios of shares (also sometimes referred to as classes, or series, of
shares), subject to the requirements of the Investment Company Act of 1940, as
amended (the "1940 Act"). The Trust's shares are entitled to one vote per share
with proportional voting for fractional shares. There are no conversion or
preemptive rights in connection with any shares of the Trust. All shares when
issued in accordance with the terms of the offering will be fully paid and
non-assessable. Shares of each Fund are redeemable at net asset value, at the
option of the shareholders.

As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Procedures for calling a shareholders meeting for the
removal of Trustees of the Trust, similar to those set forth in Section 16(c) of
the 1940 Act, are available to shareholders of the Trust.

PERFORMANCE

From time to time, a Fund may advertise its "average annual total return" over
various periods of time. This total return figure shows the average percentage
change in value of an investment in a Fund from the beginning date of the
measuring period to the ending date of the measuring period. The figure reflects
changes in the price of a Fund's shares and assumes that any income, dividends
and/or capital gains distributions made by the Fund during the period are
reinvested in shares of the Fund. Figures will be given for recent one-,
five-and ten-year periods (when applicable), and may be given for other periods
as well (such as from commencement of the Fund's operations, or on a
year-by-year basis). When considering "average"

- 32 -
<PAGE>
total return figures for periods longer than one year, investors should note
that a Fund's annual total return for any one year in the period might have been
greater or less than the average for the entire period. A Fund also may use
"aggregate" total return figures for various periods, representing the
cumulative change in value of an investment in the Fund for the specific period
(again reflecting changes in the Fund's share price and assuming reinvestment of
dividends and distributions). Aggregate total returns may be shown by means of
schedules, charts or graphs, and may indicate subtotals of the various
components of total return (that is, the change in value of initial investment,
income dividends and capital gains distributions).

A Fund may also distribute sales literature or publish advertisements containing
"principal only" performance information for a Fund that relates to various time
periods (on both an average annual and cumulative basis). "Principal only"
performance information is not total return but a measure of performance,
expressed as a percentage, that excludes from its computation income dividends
and capital gains distributions paid on the Fund's shares. Such quotations in
effect reflect only changes in the value over time of a single share of a Fund
without taking into account the compounding effect of reinvested dividends or
distributions. "Principal only" quotations may be a useful comparison with
changes in certain stock indices (which are unmanaged) that do not reflect
reinvestment of dividends on the stocks comprising the index. Any sales
literature or advertisements containing "principal only" performance information
will be accompanied by standard performance information relating to the same
time periods.

From time to time, the Ultra Short Term Income Fund and the Balanced Fund may
advertise their respective 30-day "yields." The yield of the Fund refers to the
income generated by an investment in the Fund over the 30-day period identified
in the advertisement and is computed by dividing the net investment income per
share earned by the Fund during the period by the net asset value per share on
the last day of the period. This income is "annualized" by assuming that the
amount of income is generated each month over a one-year period and is
compounded semi-annually. The annualized income is then shown as a percentage of
the net asset value.

In reports or other communications to shareholders of a Fund or in advertising
materials, the Fund may compare its performance with that of other mutual funds
as listed in the rankings prepared by Lipper Analytical Services, Inc.,
publications such as BARRONS, BUSINESS WEEK, FORBES, FORTUNE, INSTITUTIONAL
INVESTOR, KIPLINGER'S PERSONAL FINANCE, MONEY, MORNINGSTAR MUTUAL FUND VALUES,
THE NEW YORK TIMES, THE WALL STREET JOURNAL and USA TODAY or other industry or
financial publications. It is important to note that yield and total return
figures are based on historical earnings and are not intended to indicate future
performance. Comparative performance information may be used from time to time
in advertising the Fund's shares, including data from LIPPER ANALYTICAL
SERVICES, INC., THE STANDARD & POOR'S INDEX OF 500 STOCKS, THE DOW JONES
INDUSTRIAL AVERAGE and other industry publications. The Statement of Additional
Information further describes the methods used to determine a Fund's
performance.

CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT

Investors Fiduciary Trust Company, P.O. Box 419595, Kansas City, Missouri 64179
is custodian, transfer agent and dividend agent for the shares of the Trust.
Investors Fiduciary Trust Company does not assist in and is not responsible for
investment decisions involving assets of the Funds.

INFORMATION FOR SHAREHOLDERS

All shareholder inquiries should be directed to Eclipse Financial Services,
Inc., P.O. Box 2196, Peachtree City, Georgia, 30269 (1-800-872-2710 outside
Georgia or 1-770-631-0414 within Georgia).

The Trust sends to all its shareholders semiannual unaudited and annual audited
reports, including a list of investment securities held.

- 33 -
<PAGE>
APPENDIX A
BOND RATINGS

MOODY'S INVESTORS SERVICE, INC.

Aaa: Bonds which are rated Aaa judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." 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 fluctuations 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.

Unrated: When no rating has been assigned or when no rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemptions; or for other reasons.

Note: Those bonds in the Aa, A and Baa groups which Moody's believe possess the
strongest investment attributes are designated by the symbols Aa-1, A-1 and
Baa-1.

A-1
<PAGE>
STANDARD & POOR'S CORPORATION

AAA: Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.

A: Bonds rated A have a very strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in the highest rated
categories.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit 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
bonds in this category than in higher rated categories.

Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.

A-2
<PAGE>
ECLIPSE ULTRA SHORT TERM INCOME FUND
SYMBOL ECUIX
CUSIP 278846308

ECLIPSE BALANCED FUND
SYMBOL EBALX
CUSIP 278846209

ECLIPSE GROWTH AND INCOME FUND
SYMBOL ECGIX
CUSIP 278846407

ECLIPSE EQUITY FUND
SYMBOL EEQFX
CUSIP 278846100
<PAGE>

ECLIPSE FUNDS

STATEMENT OF ADDITIONAL INFORMATION

MAY 1, 1998

144 EAST 30TH STREET
NEW YORK, NEW YORK 10016
(800) 872-2710
IN GEORGIA (770) 631-0414

ULTRA SHORT TERM INCOME FUND: The investment objective of the Ultra Short
Term Income Fund is to seek a high level of current income, preservation of
capital and a relatively stable net asset value. This fund is designed for
the investor who seeks a higher yield than a money market fund but less
fluctuation in net asset value than a longer-term bond fund. It is not a
money market fund and may not maintain a stable net asset value per share.
Investors in the Fund are therefore subject to a greater risk of loss of
principal than shareholders of a money market fund. Under normal market
conditions, the duration of the Fund's portfolio will not exceed 13 months.
The Ultra Short Term Income Fund will generally limit its investments to
securities which, in the opinion of the Fund's Manager, are issued by
companies that are socially responsible.

BALANCED FUND: The investment objective of the Balanced Fund is to seek a
high total return from a combination of equity and fixed-income
investments.

GROWTH AND INCOME FUND: The investment objective of the Growth and Income
Fund is to seek a high total return consisting of both current income and
realized and unrealized capital gains from equity securities and
equity-related securities. Equity selection for the Growth and Income Fund
will be based on estimated relative intrinsic value, expected future
earnings growth and current and expected dividend income.

EQUITY FUND: The investment objective of the Equity Fund is to seek a high
total return from equity investments. The Fund pursues its objective by
investing primarily in smaller capitalization companies.

Securities are selected and weighted in each Fund's portfolio with a view
toward achievement of its investment objective.

Towneley Capital Management, Inc. serves as Manager to the Trust.

This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Trust's
prospectus relating to the Funds dated May 1, 1998 (the "Prospectus"). This
Statement of Additional Information contains additional and more detailed
information than that set forth in the Prospectus and should be read in
conjunction with the Prospectus, additional copies of which may be obtained
without charge by writing or telephoning the Trust at the address and telephone
number set forth above.

-1-
<PAGE>

TABLE OF CONTENTS

Page
----

INVESTMENT POLICIES AND RISK CONSIDERATIONS. . . . . . . . . . . . . . . . . 3

INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 5

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . .10

REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . .12

TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

COUNSEL AND AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

-2-
<PAGE>

INVESTMENT POLICIES AND RISK CONSIDERATIONS

INVESTMENT POLICIES APPLICABLE TO THE ULTRA SHORT TERM INCOME FUND AND THE
BALANCED FUND

FLOATING AND VARIABLE RATE NOTES

Floating and variable rate notes generally are unsecured obligations issued
by financial institutions and other entities. These obligations typically have a
stated maturity in excess of one year. The interest rate on such notes is based
on an identified interest rate index and is adjusted automatically at specified
intervals or when the index changes.

MORTGAGE-BACKED SECURITIES

GOVERNMENT GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. The Ultra Short
Term Income Fund and the Balanced Fund may invest in mortgage pass-through
securities representing participation interests in pools of residential mortgage
loans originated by United States governmental or private lenders and
guaranteed, to the extent provided in such securities, by the United States
Government or one of its agencies or instrumentalities. Such securities, which
are ownership interests in the underlying mortgage loans, differ from
conventional debt securities, which provide for periodic payment of interest in
fixed amounts (usually semiannually) and principal payments at maturity or on
specified call dates. Mortgage pass-through securities provide for monthly
payments that are a "pass-through" of the monthly interest and principal
payments (including any prepayments) made by the individual borrowers on the
pooled mortgage loans, net of any fees paid to the guarantor of such securities
and the servicer of the underlying mortgage loans.

The guaranteed mortgage pass-through securities in which the Fund may
invest include those issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC").

GNMA CERTIFICATES. GNMA is a wholly-owned corporate instrumentality of the
United States within the Department of Housing and Urban Development. The
National Housing Act of 1934, as amended (the "Housing Act"), authorizes GNMA to
guarantee the timely payment of the principal of and interest on certificates
that are based on and backed by a pool of mortgage loans insured by the Federal
Housing Administration under the Housing Act, or Title V of the Housing Act of
1949 ("FHA Loans"), or guaranteed by the Veterans' Administration under the
Servicemen's Readjustment Act of 1944, as amended ("VA Loans"), or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith and
credit of the United States Government is pledged to the payment of all amounts
that may be required to be paid under any guarantee. In order to meet its
obligations under such guarantee, GNMA is authorized to borrow from the United
States Treasury with no limitations as to amount.

The GNMA Certificates will represent a pro rata interest in one or more
pools of the following types of mortgage loans: (i) fixed rate level payment
mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii) fixed
rate growing equity mortgage loans; (iv) fixed rate mortgage loans secured by
manufactured (mobile) homes; (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (viii) mortgage loans that provide for
adjustments in payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (ix) mortgage-backed serial notes. All
of these mortgage loans will be FHA Loans or VA Loans and, except as otherwise
specified above, will be fully-amortizing loans secured by first liens on one to
four-family housing units.

FNMA CERTIFICATES. FNMA is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act. FNMA was originally established in 1939 as a United
States Government agency to provide supplemental liquidity to the mortgage
market and was transformed into a stockholder owned and privately managed
corporation by legislation enacted in 1968. FNMA provides funds to the mortgage
market primarily by purchasing home mortgage loans from local lenders, thereby
replenishing their funds for additional lending. FNMA acquires funds to
purchase home mortgage loans from

-3-
<PAGE>

many capital market investors that may not ordinarily invest in mortgage loans
directly, thereby expanding the total amount of funds available for housing.

Each FNMA Certificate will entitle the registered holder thereof to receive
amounts representing such holder's pro rata interest in scheduled principal
payments and interest payments (at such FNMA Certificate's pass-through rate,
which is net of any servicing and guarantee fees on the underlying mortgage
loans), and any principal prepayments, on the mortgage loans in the pool
represented by such FNMA Certificate and such holder's proportionate interest in
the full principal amount of any foreclosed or otherwise finally liquidated
mortgage loan. The full and timely payment of principal of and interest on each
FNMA Certificate will be guaranteed by FNMA, which guarantee is not backed by
the full faith and credit of the United States Government.

Each FNMA Certificate will represent pro rata interests in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate mortgage loans secured by multifamily
projects.

FHLMC CERTIFICATES. FHLMC is a corporate instrumentality of the United
States created pursuant to the Emergency Home Finance Act of 1970, as amended
(the "FHLMC Act"). FHLMC was established primarily for the purpose of
increasing the availability of mortgage credit for the financing of needed
housing. The principal activity of FHLMC currently consists of the purchase of
first lien, conventional, residential mortgage loans and participation interests
in such mortgage loans and the resale of the mortgage loans so purchased in the
form of mortgage securities, primarily FHLMC Certificates.

FHLMC guarantees to each registered holder of an FHLMC Certificate the
timely payment of interest at the rate provided for by such FHLMC Certificate,
whether or not received. FHLMC also guarantees to each registered holder of an
FHLMC Certificate ultimate collection of all principal of the related mortgage
loans, without any offset or deduction, but does not, generally, guarantee the
timely payment of scheduled principal. FHLMC may remit the amount due on
account of its guarantee of collection of principal at any time after default on
an underlying mortgage loan, but not later than 30 days following (i)
foreclosure sale, (ii) payment of a claim by any mortgage insurer, or (iii) the
expiration of any right of redemption, whichever occurs later, but in any event
no later than one year after demand has been made upon the mortgagor for
accelerated payment of principal. The obligations of FHLMC under its guarantee
are obligations solely of FHLMC and are not backed by the full faith and credit
of the United States Government.

FHLMC Certificates represent pro rata interests in a group of mortgage
loans (an "FHLMC Certificate group") purchased by FHLMC. The mortgage loans
underlying the FHLMC Certificates will consist of fixed rate or adjustable rate
mortgage loans with original terms to maturity of between ten and thirty years,
substantially all of which are secured by first liens on one to four-family
residential properties or multifamily projects. Each mortgage loan must meet
the applicable standards set forth in the FHLMC Act. An FHLMC Certificate group
may include whole loans, participation interests in whole loans and undivided
interests in whole loans and participations comprising another FHLMC Certificate
group.

INVESTMENT POLICIES APPLICABLE TO ALL FUNDS

WARRANTS

Each Fund may invest in warrants which entitle the holder to buy equity
securities at a specific price for a specific period of time. Warrants may be
considered more speculative than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with respect to the
securities which may be purchased nor do they represent any right in the assets
of the issuing company. 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 the expiration date. A Fund will not,
however, purchase any warrant if, as a result of such purchase, 5% or more of
the Fund's total assets would be invested in warrants. Included in that amount,
but not to exceed 2% of the value of the Fund's total assets, may be warrants
which are not listed on the New York or

-4-
<PAGE>

American Stock Exchange. Warrants acquired by a Fund in units or attached to
securities may be deemed to be without value.

LENDING OF PORTFOLIO SECURITIES

Each Fund may from time to time lend securities from its portfolio to
brokers or dealers, banks or other institutional investors and receive
collateral in the form of cash or United States Government obligations. Under
each Fund's current practices, the loan collateral must be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. In determining whether to lend securities to a particular
broker-dealer or financial institution, the Manager will consider all relevant
facts and circumstances, including the creditworthiness of the broker-dealer or
financial institution. A Fund may pay reasonable finders, administrative and
custodial fees in connection with a loan. A Fund will not lend portfolio
securities in excess of 20% of the value of its total assets, nor will a Fund
lend its portfolio securities to any officer, director, trustee, employee or
affiliate of the Fund or the Manager.

INVESTMENT RESTRICTIONS

Each Fund has adopted the following investment restrictions which are in
addition to those described in the Prospectus. Under the following
restrictions, which may not be changed without the approval of a Fund's
shareholders, a Fund may not:

1. Purchase or otherwise acquire interests in real estate (including, in
the case of the Ultra Short Term Income Fund and the Growth and Income
Fund, interests in real estate limited partnerships) or real estate
mortgage loans, or interests in oil, gas or other mineral exploration
or development programs, except that the Ultra Short Term Income Fund
and the Balanced Fund may acquire mortgage-backed securities;

2. Sell securities short or invest in puts, calls, straddles, spreads or
combinations thereof;

3. Purchase or acquire commodities or commodity contracts;

4. Issue senior securities, except insofar as the Fund may be deemed to
have issued a senior security in connection with any permitted
borrowing;

5. Participate on a joint, or a joint and several, basis in any
securities trading account; or

6. Invest in companies for the purpose of exercising control.

In addition, each Fund has adopted certain additional investment
restrictions, including the following, which may be changed by the Board of
Trustees without shareholder approval. None of the Funds may (i) purchase or
retain the securities of any issuer if the officers, directors or trustees of
the Trust or the Trust's adviser owning beneficially more than one-half of one
percent of the securities of any issuer together own beneficially more than 5%
of such securities, or (ii) purchase the securities of other open-end investment
companies. Neither the Balanced Fund nor the Equity Fund may invest more than
5% of its total assets in the securities of issuers which together with any
predecessors have a record of less than three years' continuous operation and
equity securities of issuers which are not readily marketable. Neither the
Growth and Income Fund nor the Ultra Short Term Income Fund may (i) invest more
than 5% of its total assets in the securities of issuers which together with any
predecessors have a record of less than three years' continuous operation, or
(ii) invest more than 15% of the total assets in the securities of issuers which
together with any predecessors have a record of less than three years'
continuous operation or securities of issuers which are restricted as to
disposition (including for this purpose Rule 144A securities).

-5-
<PAGE>

MANAGEMENT

TRUSTEES AND OFFICERS

The Trustees and executive officers of the Trust, and their principal
occupations for the past five years, are listed below. Trustees deemed to be
"interested persons" of the Trust for purposes of the Investment Company Act of
1940, as amended ("1940 Act"), are indicated by an asterisk.

WESLEY G. MCCAIN*, 55, Trustee, Chairman of the Board and President, is the
founder and has been Chairman of Towneley Capital Management, Inc. since 1971.
His address is 144 East 30th Street, New York, New York 10016. Mr. McCain is a
trustee of the Van Eck Funds and the Van Eck World Wide Insurance Trust, a
director of the Van Eck/Chubb Funds, Inc. and a director of the Peregrine Fund
and is a general partner of Pharaoh Partners, L.P., which is the general partner
of Libre Partners, L.P. He is also a Trustee of Libre Group Trust, a director
of Libre Investments (Cayman) Ltd. and Chairman of Millbrook Associates, Inc.
and of Eclipse Financial Services, Inc. He is a Chartered Financial Analyst and
a member of the Association for Investment Management and Research. In addition
to managing investment portfolios, Mr. McCain's experience includes economic and
financial consulting to a diversified corporate clientele.

SIGRID A. HESS*, 56, Trustee, Executive Vice President and Secretary, is a
Vice President of Towneley Capital Management, Inc., where she has been employed
since 1977. Her address is 144 East 30th Street, New York, New York 10016.

JOHN C. NOVOGROD, 55, Trustee, is a partner of the law firm of Kirkland &
Ellis since 1997. Prior to this, he was a partner of Hughes Hubbard & Reed from
1978 to 1986, a partner of Reboul, MacMurray, Hewitt, Maynard & Kristol from
1986 to 1991, a partner of Novogrod & Kurlander from 1991 to 1995, and a partner
of Schiff, Hardin & Waite from 1995 to 1997. His address is 153 East 53nd
Street, New York, New York 10022.

YUNG WONG, 59, Trustee, was a Director of Shaw Investment Management (H.K.)
Limited (an asset management and direct investment firm) from 1994 to 1995, and
was a General Partner of Abacus Partners Limited Partnership (general partner of
a venture capital investment firm) from 1984 to 1994. His address is 29 Alden
Road, Greenwich, Connecticut 06831. Dr. Wong is also a director of Back Bay
Funds, Inc., California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income
Fund, Inc., North Carolina Daily Municipal Income Fund, Inc., Reich & Tang
Equity Fund, Inc., Short Term Income Fund, Inc., and Virginia Daily Municipal
Income Fund, Inc. He is also a trustee of Florida Daily Municipal Income Fund,
Institutional Daily Income Fund and Pennsylvania Daily Municipal Income Fund.

JOHN C. VAN ECK, 82, Trustee, is Chairman of the Board and President of Van
Eck Funds and Van Eck Worldwide Insurance Trust (mutual funds). He is Chairman
of Van Eck Associates Corporation, an investment adviser, and Van Eck Securities
Corporation, a broker dealer. He is President of the Asia Dynasty Fund, Global
Balanced Fund, and Emerging Markets Growth Fund Series of Van Eck Funds and the
Worldwide Balanced Fund and Worldwide Emerging Markets Fund Series of Van Eck
Worldwide Insurance Trust. He was Chairman of companies and investment
companies affiliated with the Van Eck Associates Corporation from 1955 to 1991.
His address is 99 Park Avenue, New York, New York 10016.

ANTHONY W. POLIS, 54, Vice President and Treasurer, is a Vice President of
New York Life Insurance Company, a Director, Vice President and Chief Financial
Officer of NYLIFE Securities Inc. and NYLIFE Distributors, Inc. and a treasurer
of MainStay Management, Inc. He has also been Vice President and Chief
Financial Officer of The MainStay Funds from 1988 to the present, Treasurer of
MainStay Institutional Funds, Inc. since 1990, and Treasurer of MainStay VP
Series Fund Inc. from 1993 to the present. From 1983 through 1988, he was Vice
President of Drexel Burnham Lambert Incorporated, DBL Tax-Free Fund Inc., DBL
Cash Fund Inc., The Drexel Burnham Fund, Drexel Series Trust, Fenimore
International Fund Inc., BT Investment Trust and BT Tax Free Investment Trust
and Assistant Treasurer, Drexel Bond-Debenture Trading Fund. His address is 51
Madison Avenue, New York, New York 10010.

-6-
<PAGE>

SYLVIA MCCORMICK, 51, Vice President, has been employed by Towneley Capital
Management, Inc. since September, 1973. She is President of Eclipse Financial
Services, Inc., the Trust's shareholder servicing agent. Her address is 21
Eastbrook Bend, Suite 119, Peachtree City, Georgia 30269.

A. THOMAS SMITH III, 40, Assistant Secretary, has been Assistant General
Counsel of New York Life Insurance Company since 1994. Mr. Smith was Assistant
General Counsel of the Dreyfus Corporation from 1991 to 1993. From 1989 to
1991, he was Senior Associate with Willkie, Farr & Gallagher, and from 1986 to
1988, Staff Attorney in the Chief Counsel's Office of the U.S. Securities and
Exchange Commission, Division of Investment Management. His address is 51
Madison Avenue, New York, New York 10010.

SARA L. BADLER, 37, Assistant Secretary, has been Associate Counsel of New
York Life Insurance Company since 1994. Ms. Badler worked for Oppenheimer
Management Corporation from 1987 to 1993 as Vice President and Associate
Counsel, and also worked as a consulting attorney. From 1984 to 1987 she was
Associate Counsel for Damson Oil Corporation. From 1993 to 1994 she taught in
New York City. Her address is 51 Madison Avenue, New York, New York 10010.

ANTOINETTE B. CIRILLO, 44, Assistant Treasurer, has been Assistant Vice
President, Director and Senior Accountant of Mutual Fund Accounting Operations,
NYLIFE Securities Inc. from 1988 to the present, Assistant Treasurer of The
MainStay Funds from 1992 to the present, Assistant Treasurer of MainStay
Institutional Funds, Inc. from 1992 to the present, Assistant Treasurer of
MainStay VP Series Fund, Inc. from 1993 to the present, and Assistant Treasurer
from 1997 to present and Assistant Vice President from 1993 to present of
MainStay Management, Inc. She held various positions in New York Life Insurance
Company from 1987 to 1988. Her address is 51 Madison Avenue, New York, New York
10010.

PATRICK J. FARRELL, 38, Assistant Treasurer, has been Corporate Vice
President and Assistant Treasurer of MainStay Management, Inc. and Corporate
Vice President of NYLIFE Securities, Inc. from 1996 to the present, Assistant
Treasurer of MainStay Funds from 1996 to the present, Assistant Treasurer of
MainStay Institutional Funds from 1996 to the present and Assistant Treasurer of
MainStay VP Series Fund from 1996 to the present. He was Vice President of
Alliance Capital Management Corporation from 1988 to 1996. From 1986 to 1988,
he was Vice President and Associate Manager of Drexel Burnham Lambert
Incorporated. From 1983 to 1986, he was Assistant Treasurer of Lexington
Management Corporation. From 1981 to 1983 he was a Senior Accountant for Peat
Marwick Mitchell & Company. His address is 51 Madison Avenue, New York, New
York 10010.

Trustees of the Trust not affiliated with Towneley Capital Management, Inc.
or MainStay Management, Inc. receive from the Trust an annual retainer of $2,000
and a fee of $750 for each Board of Trustees meeting attended and are reimbursed
for all out-of-pocket expenses relating to attendance at such meetings.
Officers of the Trust and Trustees who are affiliated with Towneley Capital
Management, Inc. or MainStay Management, Inc. do not receive compensation from
the Trust. The following table sets forth information regarding compensation of
Trustees by the Trust for the fiscal year ended December 31, 1997.

-7-
<PAGE>

COMPENSATION TABLE
(YEAR ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>

Pension or
Retirement
Aggregate Benefits Accrued Estimated Annual Total Compensation
Name of Compensation As Part of Trust Benefits Upon From Trust
Trustee from the Trust Expenses Retirement Paid to Trustees*
- ------- -------------- -------- ---------- -----------------
<S> <C> <C> <C> <C>
Sigrid A. Hess $ 0 $0 $0 $ 0
Wesley G. McCain $ 0 $0 $0 $ 0
John C. Novogrod $5,000 $0 $0 $5,000
John C. Van Eck $5,000 $0 $0 $5,000
Yung Wong $5,000 $0 $0 $5,000
</TABLE>

- -------------
* Eclipse Funds includes all of the funds (or portfolios) advised by Towneley
Capital Management, Inc., and is not a related person of any other
registered investment company.

MANAGER

Pursuant to a Management Contract dated January 7, 1987 with the Trust with
respect to the Balanced Fund and the Equity Fund (the "1987 Contract") and a
Management Contract dated December 27, 1994 with the Trust with respect to the
Ultra Short Term Income Fund and the Growth and Income Fund (the "1994 Contract"
and, together with the 1987 Contract, the "Management Contracts"), Towneley
Capital Management, Inc. (the "Manager") furnishes investment programs for the
Funds, makes the day-to-day investment decisions for each Fund, executes the
purchase and sale orders for the portfolio transactions of each Fund, and
generally manages each Fund's investments. Mr. McCain, chairman and trustee of
the Trust and chairman and director of the Manager, may be deemed a "controlling
person" of the Manager on the basis of his ownership of the Manager's stock.

The 1987 Contract was approved on December 8, 1986, and the 1994 Contract
was approved on December 20, 1994, in each case by the Board of Trustees,
including a majority of the trustees who are not interested persons (as defined
in the 1940 Act) of the Trust or the Manager. The sole initial shareholder of
the Balanced Fund and the Equity Fund approved the 1987 Contract on January 7,
1987, and the sole initial shareholder of each of the Growth and Income Fund and
the Ultra Short Term Income Fund approved the 1994 Contract on December 27,
1994. Amendments to the 1987 Contract, to provide for the management of the
Balanced Fund and to eliminate 12b-1 expenses as an allowable expense payable by
either Fund, were approved on March 15, 1989 and March 16, 1990, respectively,
by the Trust's Board of Trustees, including a majority of the Trustees who are
not interested persons (as defined in the 1940 Act) of the Trust or the Manager.
The 1987 Contract, as amended, was approved by the public shareholders of each
of the Balanced Fund and the Equity Fund at a meeting held on June 13, 1990.
The 1987 Contract and the 1994 Contract shall continue in effect as to each Fund
provided that continuance is specifically approved annually by the Trust's Board
of Trustees or by vote of such Fund's shareholders, and in either case by a
majority of the trustees who are not parties to the relevant Management Contract
or interested persons of any such party, by vote cast in person at a meeting
called for the purpose of voting on the relevant Management Contract.

Under the Management Contracts, the Funds pay management fees to the
Manager at the following rates, which are expressed as a percentage of the
average daily net assets of each Fund:

-8-
<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C>
Ultra Short Term Income Fund 0.40%
Balanced Fund 0.80%
Growth and Income Fund 0.90%
Equity Fund 1.00%
</TABLE>

For the fiscal years ended December 31, 1995, December 31, 1996 and
December 31, 1997, the Manager voluntarily waived fees of $10,021, $18,414 and
$19,113, respectively (in each case, its entire fee) for the Ultra Short Term
Income Fund.

For the fiscal years ended December 31, 1995, December 31, 1996 and
December 31, 1997, the fees payable by the Balanced Fund under the 1987 Contract
were $414,448, $672,074 and $681,825, respectively. During the years ended
December 31, 1995, December 31, 1996 and December 31, 1997, the Manager
voluntarily waived fees for the Balanced Fund totaling $160,241, $200,877 and
$153,387, respectively.

For the fiscal year ended December 31, 1995, the Manager voluntarily waived
fees of $41,173 (its entire fee) for the Growth and Income Fund. For the fiscal
years ended December 31, 1996 and December 31, 1997, the fees payable by the
Growth and Income Fund under the 1994 Contract amounted to $76,816 and $470,307,
respectively, and the Manager voluntarily waived fees totaling $57,284 and
$82,079, respectively.

For the fiscal years ended December 31, 1995, December 31, 1996 and
December 31, 1997, the fees paid by the Equity Fund under the Management
Contract were $1,860,540, $1,657,486 and $1,781,313 respectively.

As of the date of this Statement of Additional Information, the Manager is
continuing to waive all of its fee for the Ultra Short Term Income Fund, and a
portion of its fee for the Balanced Fund and the Growth and Income Fund, and to
reimburse all of the expenses of the Ultra Short Term Income Fund. Also as of
the date of this Statement of Additional Information, the Manager is maintaining
the expense ratio of the Balanced Fund at a level not to exceed 0.85% and the
expense ratio of the Growth and Income Fund at a level not to exceed 0.95%,
including certain indirect expenses.

Under the Management Contracts, the Manager is required to pay the fees of
the Trust's administrator (see "Administrator" below).

The Management Contracts can be terminated without penalty by the Trust on
60 days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of Trustees,
or by the Manager on 60 days' written notice, and will automatically terminate
in the event of its assignment. The Management Contract provides that in the
absence of willful misfeasance, bad faith or gross negligence on the part of the
Manager, or of reckless disregard of its obligations thereunder, the Manager
shall not be liable for any action or failure to act in accordance with its
duties thereunder.

If the Manager ceases to act as the Trust's investment adviser, or, in any
event, if the Manager requests in writing, the Trust will take action to change
its name to a name not including the word "Eclipse."

ADMINISTRATOR

Pursuant to its administration contract with the Trust, MainStay
Management, Inc., a registered broker-dealer unaffiliated with the Manager (the
"Administrator"), administers all aspects of the Trust's operations except those
which are the responsibility of the Manager. The Administrator is a
wholly-owned subsidiary of New York Life Insurance Company.

Because of the services rendered to the Trust by the Manager and the
Administrator, the Trust itself requires no employees other than its officers,
none of whom receive compensation from the Trust and all of whom are employed by
the Manager or the Administrator. In connection with its responsibilities as
Administrator, the Administrator performs such supervisory, administrative, and
clerical functions as are necessary in order to provide effective administration
of the Trust, including maintaining certain books and records; authorizing the
payment of Fund expenses and maintaining control over daily cash balances;
monitoring the availability of funds for investment; overseeing and confirming
portfolio holdings with the Custodian and the Manager; coordinating

-9-
<PAGE>

and controlling on a daily basis the administrative and professional services
rendered to the Trust by others, including the Manager, the Custodian, the
Trust's Transfer and Dividend Disbursing Agent, and the Trust's Shareholder
Servicing Agent, as well as accounting, auditing and other services performed
for the Trust; calculating the net asset value of the Trust's shares; providing
the Trust with adequate conference facilities for board meetings; overseeing the
preparation and filing with the Securities and Exchange Commission of the
Trust's registration statement, prospectus and statement of additional
information; and preparing and filing all required State Blue Sky filings.

For providing such services, MainStay Management, Inc. receives a fee,
computed daily and paid monthly in arrears, from the Manager based on the
average combined daily net asset value of the Funds ("Combined Assets") to be
calculated at the annual rate of 0.15% of the Combined Assets up to $50 million,
plus 0.12% of such Combined Assets in excess of $50 million but not in excess of
$100 million, plus 0.08% of such Combined Assets in excess of $100 million but
not in excess of $150 million; plus 0.05% of such Combined Assets in excess of
$150 million but not in excess of $750 million and 0.02% of the Combined Assets
in excess of $750 million. In addition, for any Fund, the Manager shall also pay
MainStay Management, Inc. a monthly fee of $625 until such time as the Fund's
average daily net asset value during the preceding month exceeded $20 million.

The administration contract can be terminated by either party on 60 days'
written notice to the other and will terminate automatically upon the
termination of the Management Contract. The administration contract provides
that in the absence of willful misfeasance, bad faith or gross negligence on the
part of the Administrator, or of reckless disregard of its obligations
thereunder, the Administrator shall not be liable for any action or failure to
act in accordance with its duties.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Manager is responsible for decisions to buy and sell securities for the
Trust, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions. Purchases and sales of securities on a
securities exchange are effected through brokers who charge a commission for
their services. Brokerage commissions on United States securities exchanges are
subject to negotiation between the Manager and the broker.

In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.

In placing orders for portfolio securities of each Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Manager will
consider the research and investment services provided by brokers or dealers who
effect or are parties to portfolio transactions of the Funds or the Manager's
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include statistical
and economic data and research reports on particular companies and industries.
Such services are used by the Manager in connection with all of its investment
activities, and some of such services obtained in connection with the execution
of transactions for a Fund may be used in managing other investment accounts.
Conversely, brokers furnishing such services may be selected for the execution
of transactions of such other accounts, and the services furnished by such
brokers may be used by the Manager in providing investment management for a
Fund. Commission rates in the United States are established pursuant to
negotiations with the broker based on the quality and quantity of execution
services provided by the broker in the light of generally prevailing rates. The
Manager's policy is to pay higher commissions to brokers for particular
transactions than might be charged if a different broker had been selected on
occasions when, in the Manager's opinion, this policy furthers the objective of
obtaining the most favorable price and execution. In addition, the Manager is
authorized to pay higher commissions on brokerage transactions for a Fund to
brokers in order to secure research and investment services described above,
subject to review by the Trust's Board of Trustees from time to time as to the
extent and continuation of this practice. Subject to each Fund's objective of
obtaining the most favorable price and efficient execution, the Manager may
place portfolio transactions with brokers or dealers which have been
instrumental in the sale of a Fund's shares. The Manager

-10-
<PAGE>

may also take into account payments made by brokers effecting transactions
for the Trust to other persons on behalf of the Trust for services provided
to it for which it would be obligated to pay (such as custodial and
professional fees). The allocation of orders among brokers and the
commission rates paid are reviewed periodically by the Trust's Board of
Trustees.

The Trust did not pay any brokerage commissions with respect to portfolio
transactions of the Ultra Short Term Income Fund for the fiscal years ended
December 31, 1995, December 31, 1996 and December 31, 1997.

For the fiscal year ended December 31, 1995, the Trust paid a total of
$96,194 in brokerage commissions with respect to portfolio transactions of the
Balanced Fund aggregating $61,899,739. For the fiscal year ended December 31,
1996, the Trust paid a total of $189,651 in brokerage commissions with respect
to portfolio transactions of the Balanced Fund aggregating $105,127,014. For
the fiscal year ended December 31, 1997, the Trust paid a total of $116,356 in
brokerage commissions with respect to portfolio transactions of the Balanced
Fund aggregating $68,814,572. Of such amount, $58,904 in brokerage commissions
with respect to portfolio transactions aggregating $34,352,465 was placed with
brokers or dealers who provide research and investment services.

For the fiscal year ended December 31, 1995, the Trust paid a total of
$14,791 in brokerage commissions with respect to portfolio transactions of the
Growth and Income Fund aggregating $11,335,219. For the fiscal year ended
December 31, 1996, the Trust paid a total of $28,812 in brokerage commissions
with respect to portfolio transactions of the Growth and Income Fund aggregating
$16,307,262. For the fiscal year ended December 31, 1997, the Trust paid a
total of $104,373 in brokerage commissions with respect to portfolio
transactions of the Growth and Income Fund aggregating $64,065,778. Of such
amount, $50,977 in brokerage commissions with respect to portfolio transactions
aggregating $28,010,846 was placed with brokers or dealers who provide research
and investment services.

For the fiscal year ended December 31, 1995, the Trust paid a total of
$545,684 in brokerage commissions with respect to portfolio transactions of the
Equity Fund aggregating $251,277,874. For the fiscal year ended December 31,
1996, the Trust paid a total of $571,967 in brokerage commissions with respect
to portfolio transactions of the Equity Fund aggregating $248,806,498. For the
fiscal year ended December 31, 1997, the Trust paid a total of $418,585 in
brokerage commissions with respect to portfolio transactions of the Equity Fund
aggregating $173,861,420. Of such amount, $177,443 in brokerage commissions
with respect to portfolio transactions aggregating $62,191,087 was placed with
brokers or dealers who provide research and investment services.

REDEMPTION OF SHARES

Payment of the redemption price for shares redeemed may be made either in
cash or in portfolio securities (selected in the discretion of the Board of
Trustees of the Trust and taken at their value used in determining the net asset
value per share of the particular Fund as described under "Net Asset Value"), or
partly in cash and partly in portfolio securities. However, payments will be
made wholly in cash unless the Board of Trustees believes that economic
conditions exist which would make such a practice detrimental to the best
interests of the Trust. If payment for shares redeemed is made wholly or partly
in portfolio securities, brokerage costs may be incurred by the investor in
converting the securities to cash. The Trust will not distribute in kind
portfolio securities that are not readily marketable. The Trust has filed a
formal election with the Securities and Exchange Commission pursuant to which
the Trust will only effect a redemption in portfolio securities where the
particular shareholder of record is redeeming more than $250,000 or 1% of a
Fund's total net assets, whichever is less, during any 90-day period. In the
opinion of the Trust's management, however, the amount of a redemption request
would have to be significantly greater than $250,000 or 1% of a Fund's total net
assets before a redemption wholly or partly in portfolio securities was made.

-11-
<PAGE>

NET ASSET VALUE

For purposes of determining the net asset value per share of each Fund,
readily marketable portfolio securities listed on the New York Stock Exchange
are valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the New York Stock Exchange on the business
day as of which such value is being determined. If there has been no sale on
such day, the securities are valued at the mean of the closing bid and asked
prices on such day. If no bid or asked prices are quoted on such day, then the
security is valued by such method as the Board of Trustees shall determine in
good faith to reflect its fair market value. Readily marketable securities not
listed on the New York Stock Exchange but listed on other securities exchanges
or admitted to trading on the National Association of Securities Dealers
Automated Quotations, Inc. ("NASDAQ") National List are valued in like manner.
Portfolio securities traded on more than one securities exchange are valued at
the last sale price on the business day as of which such value is being
determined as reflected on the tape at the close of the exchange representing
the principal market for such securities.

Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the Manager to
be over-the-counter, but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Board of
Trustees deems appropriate to reflect their fair market value.

Readily marketable fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed by the Trust
to reflect the fair market value of such securities. The prices provided by a
pricing service take into account institutional size trading in similar groups
of securities and any developments related to specific securities.

United States Government obligations and other debt instruments having 60
days or less remaining until maturity are stated at amortized cost. All other
investment assets, including restricted and not readily marketable securities,
are valued in such manner as the Board of Trustees in good faith deems
appropriate to reflect their fair market value.

For purposes of determining a Fund's net asset value per share, all assets
and liabilities initially expressed in foreign currencies will be converted into
United States dollars at the mean of the bid and asked prices of such currencies
against the United States dollar last quoted by a major bank which is a regular
participant in the institutional foreign exchange markets or on the basis of a
pricing service which takes into account the quotes provided by a number of such
major banks.

DESCRIPTION OF SHARES

On February 12, 1998, there were 546,339 shares of beneficial interest of
the Ultra Short Term Income Fund outstanding; 3,847,157 shares of beneficial
interest of the Balanced Fund outstanding; 5,960,833 shares of beneficial
interest of the Growth and Income Fund outstanding; and 13,479,785 shares of
beneficial interest of the Equity Fund outstanding. On February 12, 1998, the
officers and trustees of the Trust as a group beneficially owned, directly or
indirectly, including the power to vote or to dispose of, less than 1% of the
outstanding shares of beneficial interest of the Equity Fund, less than 3% of
the outstanding shares of beneficial interest of the Balanced Fund, less than
49% of the outstanding shares of beneficial interest of the Ultra Short Term
Income Fund and less than 16% of the outstanding shares of beneficial interest
of the Growth and Income Fund. Set forth below is certain information as to
persons who owned 5% or more of the outstanding shares of the Ultra Short Term
Income Fund, the Balanced Fund, the Growth and Income Fund and the Equity Fund
as of February 12, 1998:

-12-
<PAGE>

ULTRA SHORT TERM INCOME FUND

Name and Address % of Shares Nature of Ownership
- ---------------- ----------- -------------------
<S> <C> <C>
Towneley Capital Mgmt., Inc. 30.0 Beneficial
Profit Sharing Plan
144 E. 30th Street
New York, New York 10016

Towneley Capital Mgmt., Inc. 7.0 Beneficial
144 E. 30th Street
New York, New York 10016

Richard C. Dalsemer 7.0 Beneficial
2554 Santa Lucia Avenue
Carmel, California 93923-9105

W.G. McCain, Trustee 5.0 Beneficial
FBO Manastee River Rev. Tr.
144 E. 30th Street
New York, New York 10016

John C. Van Eck 5.0 Beneficial
270 River Road
Briarcliff Manor,
New York 10510-2416

<CAPTION>
BALANCED FUND

Name and Address % of Shares Nature of Ownership
- ---------------- ----------- -------------------
<S> <C> <C>
Mac & Co. 53.0 Beneficial
Mellon Bank NA Mutual Funds
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-0320

Vernat Company 8.0 Beneficial
Trust Department
P.O. Box 800
Brattleboro, Vermont 05302-0800

<CAPTION>
GROWTH AND INCOME FUND

Name and Address % of Shares Nature of Ownership
- ---------------- ----------- -------------------
<S> <C> <C>
American Express Trust Company 88.0% Beneficial
American Express Retirement Services
FBO NIBCO 401(K)
P.O. Box 534
Minnepolois, Minnesota 55440-0534

-13-
<PAGE>

<CAPTION>
EQUITY FUND

Name and Address % of Shares Nature of Ownership
- ---------------- ----------- -------------------
<S> <C> <C>
Allied Signal Savings Plan #7928 29.0 Beneficial
c/o State Street Bank & Trust Co.
Master Trust Division
P.O. Box 1992
Boston, Massachusetts 02106-1992

Delta Airlines, Inc., TCM 23.0 Beneficial
c/o Citibank NA
410 North Westshore Boulevard
Tampa, Florida 33607

Charles Schwab & Co. Inc. 5.0 Beneficial
Mutual Funds Department
101 Montgomery Street
San Francisco, California 94104-4122
</TABLE>

TAXATION

Each Fund intends to qualify annually and to elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code").

To qualify as a regulated investment company, each Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 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 the securities of other regulated investment
companies); and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) each taxable
year.

As a regulated investment company, each Fund generally will not be subject
to U.S. federal income tax on its investment company taxable income and net
capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to shareholders. Each Fund intends
to distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax. To prevent imposition
of the excise tax, each Fund must distribute during each calendar year an amount
equal to the sum of (1) at least 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (2) at least 98% of
its capital gains in excess of its capital losses (adjusted for certain ordinary
losses) for the one-year period ending on October 31 of the calendar year, and
(3) any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by a Fund in October,
November or December with a record date in such a month and paid by the Fund
during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, each Fund intends to make its
distributions in accordance with the calendar year distribution requirement.

-14-
<PAGE>

DISTRIBUTIONS

Dividends paid out of a Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Because a portion of the
income of each of the Balanced Fund, the Growth and Income Fund and the Equity
Fund may consist of dividends paid by U.S. corporations, a portion of the
dividends paid by each such Fund is expected to be eligible for the corporate
dividends-received deduction. Distributions of net capital gains, if any,
designated as capital gain dividends are taxable at a maximum 20% or 28% capital
gains rate (depending on the Fund's holding period for the assets giving rise to
the gains), regardless of how long the shareholder has held the Fund's shares,
and are not eligible for the dividends-received deduction. Shareholders
receiving distributions in the form of additional shares, rather than cash,
generally will have a cost basis in each such share equal to the net asset value
of a share of the relevant Fund on the reinvestment date. Shareholders will be
notified annually as to the U.S. federal tax status of distributions, and
shareholders receiving distributions in the form of additional shares will
receive a report as to the net asset value of those shares.

CURRENCY FLUCTUATIONS - "SECTION 988" GAINS OR LOSSES

Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.

SALE OF SHARES

Upon the sale or other disposition of shares of a Fund, a shareholder may
realize a capital gain or loss which may be eligible for reduced capital gains
rates, generally depending upon the shareholder's holding period for the shares.
Any loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced within a period of 61 days beginning 30 days
before and ending 30 days after disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on a disposition of Fund shares 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 net capital gains received by the
shareholder with respect to such shares.

INVESTMENTS IN REAL ESTATE MORTGAGE INVESTMENT CONDUITS

The Ultra Short Term Income Fund and the Balanced Fund may invest in
residual interests in real estate mortgage investment conduits ("REMICs").
Under Treasury regulations that have not yet been issued, but may apply
retroactively, a portion of the Funds' income that is attributable to a residual
interest in a REMIC (referred to in the Code as an "excess inclusion") will be
subject to federal income tax in all events. These regulations are also
expected to provide that excess inclusion income of a regulated investment
company, such as the Funds, will be allocated to shareholders of the regulated
investment company in proportion to the dividends received by such shareholders,
with the same consequences as if the shareholders held the related REMIC
residual interest directly. In general, excess inclusion income allocated to
shareholders (i) cannot be offset by net operating losses (subject to a limited
exception for certain thrift institutions), (ii) will constitute unrelated
business taxable income to entities (including a qualified pension plan, an
individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt
entity) subject to tax on unrelated business income, thereby potentially
requiring such an entity that is allocated excess inclusion income, and
otherwise might not be required to file a tax return, to file a tax return and
pay tax on such income, and (iii) in the case of a foreign shareholder, will not
qualify for any reduction in U.S. federal withholding tax. In addition, if at
any time during any taxable year a "disqualified organization" (as defined in
the Code) is a record holder of a share in a regulated investment company, then
the regulated investment company will be subject to a tax equal to that portion
of its excess inclusion income for the taxable year that is allocable to the
disqualified organization, multiplied by the highest federal income tax rate
imposed on

-15-
<PAGE>

corporations. It is anticipated that only a small portion, if any, of the
assets of the Ultra Short Term Income Fund and the Balanced Fund will consist of
residual interests in REMICs.

ZERO COUPON SECURITIES

Investments by the Ultra Short Term Income Fund and the Balanced Fund in
zero coupon securities will result in income to the Funds equal to a portion of
the excess of the face value of the securities over their issue price (the
"original issue discount") each year that the securities are held, even though
the Funds receive no cash interest payments. This income is included in
determining the amount of income which the Funds must distribute to maintain
their status as regulated investment companies and to avoid the payment of
federal income tax and the 4% excise tax.

MARKET DISCOUNT BONDS

Gain derived by the Ultra Short Term Income Fund or by the Balanced Fund
from the disposition of any market discount bonds (I.E., bonds purchased other
than at original issue, where the face value of the bonds exceeds their purchase
price) held by the Funds will be taxed as ordinary income to the extent of the
accrued market discount on the bonds, unless the Funds elect to include the
market discount in income as it accrues.

PASSIVE FOREIGN INVESTMENT COMPANIES

If a Fund invests in stock of certain foreign investment companies, the
Fund may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income tax rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.

A Fund may be able to make an election, in lieu of being taxable in the
manner described above, to include annually in income its pro rata share of the
ordinary earnings and net capital gain of the foreign investment company,
regardless of whether it actually received any distributions from the foreign
company. These amounts would be included in the Fund's investment company
taxable income and net capital gain which, to the extent distributed by the Fund
as ordinary or capital gain dividends, as the case may be, would not be taxable
to the Fund. In order to make this election, the Fund would be required to
obtain certain annual information from the foreign investment companies in which
it invests, which in many cases may be difficult to obtain. Alternatively, the
Fund may elect to mark to market its foreign investment company stock, resulting
in the stock being treated as sold at fair market value on the last business day
of each taxable year. Any resulting gain would be reported as ordinary income;
any resulting loss and any loss from an actual disposition of such stock would
be reported as ordinary loss to the extent of any net mark-to-market gains
periodically included in income. If this election were made, the special rules
described above with respect to excess distributions and dispositions would
still apply.

FOREIGN WITHHOLDING TAXES

Income received by the Funds from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.

-16-
<PAGE>

BACKUP WITHHOLDING

Each Fund may be required to withhold U.S. federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to provide
the Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Corporate shareholders and certain other shareholders
specified in the Code generally are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. federal income tax liability.

FOREIGN SHAREHOLDERS

The tax consequences to a foreign shareholder of an investment in a Fund
may be different from those described herein. Foreign shareholders are advised
to consult their own tax advisers as to the particular tax consequences to them
of an investment in a Fund.

OTHER TAXATION

Fund shareholders may be subject to state, local and foreign taxes on their
Fund distributions. In many states, Fund distributions which are derived from
interest on certain U.S. Government obligations may be exempt from taxation.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.

PERFORMANCE

From time to time, the Trust may quote a Fund's total return or yield in
advertisements or in reports and other communications to shareholders. 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 a 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 for a stated period of time. Investors comparing a Fund's
performance with that of other mutual funds should give consideration to the
quality and maturity of the respective investment companies' portfolio
securities.

YIELD

A Fund's 30-day yield figure described in the Prospectus is calculated
according to a formula prescribed by the Securities and Exchange Commission
("SEC"). The formula can be expressed as follows:

6
YIELD = 2[(a-b + 1) - 1]
---
cd

Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period

For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations purchased by the Ultra Short Term Income Fund or by
the Balanced Fund at a discount or premium, the formula generally calls for
amortization of the discount or premium; the amortization schedule will be
adjusted monthly to reflect changes in the market values of the debt
obligations.

AVERAGE ANNUAL TOTAL RETURN

The Funds' "average annual total return" figures described below and in the
Prospectus are computed according to a formula prescribed by the SEC. The
formula can be expressed as follows:

-17-
<PAGE>

n
P(1 + T) = ERV

Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years

ERV = Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of a 1-, 5-, or 10-year period at the
end of a 1-, 5-, or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions

AGGREGATE TOTAL RETURNS

The Funds' aggregate total return figures described in the Prospectus
represent the cumulative change in the value of an investment in the Fund for
the specified period and are computed by the following formula:

AGGREGATE TOTAL RETURN = ERV - P
-------
P

Where: P = a hypothetical initial payment of $1,000

ERV = Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of the 1-, 5- or 10-year period at the
end of the 1-, 5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions

Comparative performance information may be used from time to time in advertising
the Funds' shares, including data from Lipper Analytical Services, Inc., the
Standard & Poor's Index of 500 Stocks, the Dow Jones Industrial Average and
other industry publications.

The Trust may also distribute sales literature or publish advertisements
containing "principal only" performance information for a Fund that relates to
various time periods (on both an average annual and cumulative basis).
"Principal only" performance information is not total return but a measure of
performance, expressed as a percentage, that excludes from its computation
income dividends and capital gains distributions paid on the Fund's shares.
Such quotations in effect reflect only changes in the value over time of a
single share of the Fund without taking into account the compounding effect of
reinvested dividends or distributions. "Principal only" quotations may be a
useful comparison with changes in certain stock indexes (which are unmanaged)
that do not reflect reinvestment of dividends on the stocks comprising the
index. Any sales literature or advertisements containing "principal only"
performance information will be accompanied by standard performance information
relating to the same time periods.

The following are average annual total return and principal only
performance for the indicated time periods for each of the Ultra Short Term
Income Fund, the Balanced Fund, the Growth and Income Fund and the Equity Fund.

-18-
<PAGE>

ULTRA SHORT TERM INCOME FUND
----------------------------------------------------------------------

Inception
(December 27, 1994)
Year Ended to
December 31, 1997 December 31, 1997
----------------- -----------------
<S> <C> <C>
Average Annual
Compounded Total Return 6.21% 6.48%

Principal Only
Performance (0.30)% 0.00%

BALANCED FUND
----------------------------------------------------------------------
<CAPTION>
Twelve Months Five Years Inception
Ended Ended (May 1, 1989) to
December 31, 1997 December 31, 1997 December 31, 1997
----------------- ----------------- -------------------
<S> <C> <C> <C>
Average Annual
Compounded Total Return 23.40% 14.94% 12.97%

Principal Only
Performance 5.48% 4.98% 4.60%

<CAPTION>
GROWTH AND INCOME FUND
----------------------------------------------------------------------
Inception
Year Ended (December 27, 1994) to
December 31, 1997 December 31, 1997
----------------- ------------------
<S> <C> <C>
Average Annual
Compounded Total Return 32.46% 27.05%

Principal Only
Performance 31.65% 21.10%

EQUITY FUND
------------------------------------------------------------------------------------

Twelve Months Five Years Ten Years Inception
Ended Ended Ended (January 31, 1987) to
December 31, 1997 December 31, 1997 December 31, 1997 December 31, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Average Annual
Compounded Total Return 33.30% 18.22% 15.15% 13.48%

Principal Only
Performance 5.35% 1.46% 4.26% 3.24%
</TABLE>

A Fund's investment performance is not fixed and will fluctuate in response
to prevailing market conditions or as a function of the type and quality of the
securities in the Fund's portfolio and the Fund's expenses. Performance
information is useful in reviewing the Fund's results but such information may
not provide a basis for comparison with bank deposits or other investments which
pay a fixed return for a stated period of time. An investor's principal
invested in a Fund is not fixed and will fluctuate in response to prevailing
market conditions.

COUNSEL AND AUDITORS

Legal matters in connection with the issuance of shares of the Trust are
passed upon by Dechert Price & Rhoads, 30 Rockefeller Plaza, New York, New York
10112.

-19-
<PAGE>

McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017,
independent certified public accountants, have been selected as auditors for the
Trust.

GENERAL INFORMATION

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument the Trust or its Trustees enter into
or sign.

In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made
and pay any judgment against a shareholder for any act or obligation of the
Trust. Therefore, financial loss resulting from liability as a shareholder will
occur only if the Trust itself cannot meet its obligations to indemnify
shareholders and pay judgments against them.

FINANCIAL STATEMENTS

The Trust's audited financial statements for the year ended December 31,
1997, including notes thereto, are incorporated by reference in this Statement
of Additional Information from the Trust's Annual Report dated as of December
31, 1997. The Trust will furnish, without charge, a copy of such Annual Report
to Shareholders on request. All such requests should be directed to the Fund at
144 East 30th Street, New York, New York 10016, (800) 872-2710 (in Georgia,
(770) 631-0414).

-20-