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[LOGO]
- ---------------------------------------------------------------- ECLIPSE ------
FUNDS
ANNUAL REPORT
DECEMBER 31, 1997
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MEMBER OF
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COUNCIL
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Chairman's Letter............................................................................................ 1
Review of Eclipse-Registered Trademark- Funds
Ultra Short Term Income Fund............................................................................. 4
Balanced Fund............................................................................................ 6
Growth and Income Fund................................................................................... 8
Equity Fund.............................................................................................. 10
Statements of Net Assets
Ultra Short Term Income Fund............................................................................. 12
Balanced Fund............................................................................................ 14
Growth and Income Fund................................................................................... 20
Equity Fund.............................................................................................. 23
Statements of Operations..................................................................................... 28
Statements of Changes in Net Assets.......................................................................... 29
Notes to Financial Statements................................................................................ 31
Selected Financial Information
Ultra Short Term Income Fund............................................................................. 34
Balanced Fund............................................................................................ 35
Growth and Income Fund................................................................................... 36
Equity Fund.............................................................................................. 37
Independent Auditor's Report................................................................................. 38
Trustees and Officers........................................................................................ 39
Towneley Capital Management, Inc., Investment Manager........................................................ 40
Glossary..................................................................................................... 41
</TABLE>
- -Registered Trademark- Eclipse is a registered service mark of Eclipse Funds.
<PAGE>
CHAIRMAN'S LETTER
Dear Fellow Shareholder:
In our report to you last year, we spoke about how extraordinary the investment
returns of the past few years have been, with stock market indexes breaking
records, enthusiasm rampant, and valuations ever more aggressive.
We can practically repeat that part of our discussion one year later. Nineteen
ninety-seven has seen two additional thousand-point barriers broken as the Dow
Jones Industrial Average passed the 7000 mark last February, and, after a
decline, passed 8000 in the summer, closing the year at 7908.
The Dow Transportation and Dow Jones Utility Averages both posted new highs, as
did the Standard & Poor's 500 Index which was 970 at year end.
However, memories of the "crash" of October, 1987 were revived as the US stock
market dropped more than 500 points--over 7%--last October in response to severe
declines in the Asian markets. For the last part of the year, the US market was
affected by the volatility in Asia. This market concern over Asia continues as I
write this report.
THE BOND MARKET IN PERSPECTIVE
Nineteen ninety-seven began with the perception that economic growth was
accelerating and with fears of a Fed rate hike, which would have translated into
lower bond prices. This became a reality in March when the Fed raised short-term
interest rates a quarter of a percentage point. The yield on the 30-year
Treasury bond jumped to 7.10% by the end of the first quarter. After signs of a
slowing economy emerged, the market reversed itself in May, and by the end of
June the yield on the 30-year Treasury bond had slipped to 6.78%. The third
quarter of the year was marked by persistent economic optimism because of
continued low inflation, low unemployment, high corporate profitability and good
business conditions in general. The 30-year Treasury bond was 6.40% by the end
of the third quarter. Although the 6% barrier was broken in December,
uncertainty about Asian markets and their effect on our economy was the
overriding theme during the last quarter.
THE STOCK MARKET IN PERSPECTIVE
The domestic equity market posted strong returns--over 20%--for the third
consecutive year. These returns are unusual; the long term average returns for
stocks has been between 10% and 12%. Investors are torn between expecting or,
perhaps, wishing that these unusual returns will continue, and worrying that the
financial markets are ready for a correction. Fear and greed are ever present.
We do not know if the stock market is in a bear market or if the early January
decline was merely a "correction." We do know that the equity market is
expensive relative to history in terms of traditional measures of dividend
yield, price to book value, price to earnings and price to cash flow. The
concept of something being overpriced implies a norm that allows one to
determine when items are cheap and when they're expensive. The real question is,
WHAT IS THE STANDARD OF VALUE? If we adjust some of these measures by the
current low-inflation environment and very low interest rates, then it's not so
obvious the market is expensive. Another complication in measuring market value
is that the nature of earnings may be different today than it was in the past.
An entire segment of the economy is difficult to measure--all those industries
based on intellectual capital, such as information technology and entertainment.
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1
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TECHNOLOGY Technological advances are a major positive force contributing to
high returns in the financial markets. The decline in the cost of information
processing has helped companies in all industries operate more efficiently.
Using technology to "work smarter" has improved profitability. As a result, the
technology sector of the equity market has generated some of the strongest
market returns over the past few years.
RETIREMENT SAVINGS US financial markets have been positively affected by cash
inflows from retirement funding and savings. Many workers now believe social
security benefits alone may be insufficient for their retirement. As workers
participate in available 401(k), 403(b), IRA and other retirement plans, they
fuel stock purchases, which have been an important contributing factor to the
bull market. There is no reason, however, why these investors couldn't switch to
bonds or money market funds.
POWERFUL DEMOGRAPHIC TRENDS The post World War II baby boomers are educated,
trained, and productive. They are now approaching their peak spending years,
suggesting the possibility of a consumer-led US economy into the early part of
the next century.
INTERNATIONAL POLITICAL AND ECONOMIC CHANGES There has also been a major change
in the political environment that affects the investment environment. Since the
end of the cold war every major world economy is becoming market oriented and
competing globally. The number of international mergers, acquisitions, and joint
ventures is increasing. Despite this globalization of markets, it remains
unclear at this point to what degree the troubled Asian markets will effect the
US economy and corporate profitability.
EQUITY INVESTING: TOWNELEY'S QUEST FOR GOOD AND CHEAP
Eclipse shareholders benefit from our search for undervalued quality stocks;
that is, companies with strong or improving fundamental characteristics. We use
a DISCIPLINED QUANTITATIVE APPROACH TO FUNDAMENTAL ANALYSIS.
Valuation, like beauty, is in the eye of the beholder. In our view, an
undervalued company is one that is both good and cheap. But the stock market
continually poses the following challenge:
- Very good companies are rarely cheap, and
- Very cheap companies are rarely good.
Moreover, it is difficult for a truly troubled company to become good, and it is
always possible for an excellent company to stumble. Fortunately, stock prices
fluctuate (presenting opportunities on the cheapness scale) and a company's
financial performance can change greatly over different economic and industry
cycles or as the result of better management practices (presenting opportunities
on the goodness scale).
Towneley, the Eclipse Funds' manager, evaluates stocks by a combination of their
relative goodness and cheapness. We analyze financial and operating data of
several thousand companies on a weekly basis, seeking to uncover relatively
cheap companies that are improving on the goodness scale.
We strive to purchase the most attractive of these stocks before the
improvements show up on the company's bottom line, leading to a higher market
value.
FIXED-INCOME INVESTMENTS
Towneley actively manages its fixed-income investments for the Balanced and
Ultra Short Term Income Funds. All corporate securities are subjected to credit
analysis. Additional information is obtained from the major bond rating
agencies. In the Balanced Fund, market risk associated with a rise in interest
rates is controlled by duration limits, including the selection of laddered
maturities, with a minimum of judgment concerning the economic cycle. Selection
________________________________________________________________________________
2
<PAGE>
of securities for both funds is affected by the availability of fixed income
instruments in the marketplace that fit the strategy's investment parameters, as
well as quality and sector interest rate spreads. Securities are purchased and
sold to maintain credit quality, duration targets, and sector diversification.
ITEMS OF NOTE
We'd like to bring to your attention the following recent developments at
Towneley:
- NO-FEE PROGRAMS The Eclipse Funds have been chosen to be included in the
no-transaction-fee programs of Charles Schwab, Fidelity, American Express,
Jack White, and Waterhouse Securities.
- NAME CHANGE Eclipse Financial Asset Trust changed its name to Eclipse Funds
for simplification.
- WEBSITES The Eclipse Funds are now on the internet. Information on the
Eclipse Funds can be found at www.eclipsefund.com and through Towneley's
website, www.towneley.com. We plan to update the information on these sites
frequently and welcome your comments.
Towneley Capital Management, Inc., your Funds' investment manager, has over $1
billion in assets under management, of which over $400 million comprises
investments in Eclipse. We thank you for your trust in us and will work to
continue to merit it in the years to come.
Sincerely,
[SIGNATURE]
Wesley G. McCain
Chairman
________________________________________________________________________________
3
<PAGE>
REVIEW OF ECLIPSE ULTRA SHORT TERM INCOME FUND
The Eclipse Ultra Short Term Income Fund had a total return of 6.2% for the year
1997, exceeding the 5.8% return for the Lipper Ultra Short Obligations Funds
Average. For year-end 1997, the Fund was in the top third of its group on a
total-return basis and in the top quartile on SEC standardized yield. We
continue to invest in socially responsible securities while seeking a high level
of current income, preserving capital and maintaining a relatively stable net
asset value.
Bonds are selected for the portfolio based primarily on credit quality and
duration.
At year end the Fund's duration was 0.94 years; the portfolio had an average
quality rating of AA.
- ----------------------------------------------------
LARGEST INDUSTRY HOLDINGS--12/31/97 % OF PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<S> <C>
Finance 19.7%
Federal Agencies 19.7
Utilities 15.3
Retail Trade 11.2
Consumer Non-Durables 10.2
</TABLE>
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- --------------------------------------------------------------------------------
PERFORMANCE AND RISK DATA
PERIODS ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURN(1)
1 YEAR 3 YEARS RISK(2) RETURN/RISK
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eclipse Ultra Short Term Income Fund(3,4) 6.2% 6.5% 0.9% 7.2%
Lipper Ultra Short Obligations Funds Average(5) 5.8 5.9 0.4 14.8
3 Month Treasury Bill 5.3 5.6 0.1 --
1 Year Treasury Bill 6.1 6.6 0.6 11.0
</TABLE>
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<TABLE>
<C> <S>
1) With income reinvested.
2) Annualized standard deviation of monthly return.
3) The Fund's inception was 12/27/94; its annualized total return through 12/31/97 was 6.5%.
4) Net of management fee waived and after expense reimbursement by manager: 1.67%, 1.20%, and 1.22% of average net assets in
1995, 1996, and 1997, respectively.
5) After all expenses.
</TABLE>
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4
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GROWTH OF $10,000 SINCE INCEPTION
ECLIPSE ULTRA SHORT TERM INCOME FUND WITH INCOME REINVESTED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Eclipse Ultra Short Term Income Fund With Income Reinvested
<S> <C> <C>
Eclipse Ultra Short Term Income 1 Yr T-Bill
Dec-94 10000 10000
Mar-95 10200 10250
Jun-95 10453 10473
Sep-95 10556 10622
Dec-95 10784 10809
Mar-96 10890 10926
Jun-96 11018 11069
Sep-96 11191 11239
Dec-96 11375 11421
Mar-97 11501 11551
Jun-97 11707 11763
Sep-97 11903 11954
Dec-97 12083 12118
</TABLE>
All returns represent past performance, which are not predictive of future
results. Investment returns and share price will vary and shares, when redeemed,
may be worth more or less than their cost.
- --------------------------------------------------------------------------------
PER SHARE DIVIDEND INFORMATION--1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Income dividends $ 0.6433
Short-term capital gain dividends --
Long-term capital gain dividends --
---------
Total 1997 dividends $ 0.6433
---------
---------
</TABLE>
- --------------------------------------------------------------------------------
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5
<PAGE>
REVIEW OF ECLIPSE BALANCED FUND
Eclipse Balanced Fund finished the year with a total return of 23.4%. This
surpassed the Lipper Balanced Fund Index's return of 20.1% for the same period.
For 1997, the Fund was among the top 13% of all balanced funds on a total-return
basis.
Finance and retail trade were the largest industry holdings for the year and
both sectors contributed to the Fund's strong performance. The finance sector,
which includes banks, savings and loan, investment brokers and insurance stocks,
turned in a strong stock market performance because of low interest rates
leading to strong consumer demand. Robust consumer demand also aided retail
stocks as low interest rates buoyed consumer confidence and spending. We took
some profits in several utility and energy minerals stocks, reducing our
exposure in these industries.
With interest rates low and corporate profits high, bond investments were out of
favor most of the year. Despite relatively low and stable inflation, the bond
market showed some volatility. Intermediate bonds had a total return of 7.9% for
the year; the fixed income portion of Eclipse Balanced Fund performed slightly
better at 8.2%. We are maintaining our discipline of investing 40% of the
portfolio in intermediate-term investment grade bonds. At year-end the duration
of the bond portfolio was 3.9 years with an A quality rating.
- ----------------------------------------------------
LARGEST INDUSTRY HOLDINGS--12/31/97 % OF ENTIRE
PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<S> <C>
Finance 25.0%
Retail Trade 15.2
Federal Agencies and U.S. Treasury 10.5
Consumer Non-Durables 10.3
Utilities 6.3
</TABLE>
- ----------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE AND RISK DATA
PERIODS ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURN(1)
1 YEAR 3 YEARS 5 YEARS INCEPTION(2) RISK(2,3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Eclipse Balanced Fund(4,5) 23.4% 19.7% 14.9% 13.0% 7.0%
Lipper Balanced Fund Index(4) 20.1 19.2 13.2 12.7 7.8
Merrill Lynch Corporate & Govt 1-9.99 Years Bond Index 7.9 9.0 6.7 8.5 3.3
Standard & Poor's 500 Index 33.4 31.2 20.3 17.3 12.2
3 Month Treasury Bill 5.3 5.6 4.8 5.6 0.5
<CAPTION>
RETURN/RISK
- ---------------------------------------------------------------------------------------
<S> <C>
Eclipse Balanced Fund(4,5) 1.9%
Lipper Balanced Fund Index(4) 1.6
Merrill Lynch Corporate & Govt 1-9.99 Years Bond Index 2.6
Standard & Poor's 500 Index 1.4
3 Month Treasury Bill --
</TABLE>
- ---------------
<TABLE>
<C> <S>
1) With income reinvested.
2) May 1, 1989 to December 31, 1997.
3) Annualized standard deviation of monthly return.
4) After all expenses.
5) Net of management fee waived equivalent to 0.8% of average net assets from 1989 through 1992, 0.5%, 0.4%, 0.3%, 0.2%, and
0.2% from 1993 through 1997 respectively. Returns are also net of reimbursed expenses equivalent to 0.84% of average net
assets in 1989 and 0.05% of average net assets in 1990.
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
6
<PAGE>
GROWTH OF $10,000 SINCE INCEPTION
ECLIPSE BALANCED FUND WITH INCOME REINVESTED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Eclipse Balanced Fund Lipper Balanced Index S&P 500
<S> <C> <C> <C>
Apr-89 10000 10000 10000
Dec-89 10445 11139 11690
Dec-90 10596 11211 11327
Dec-91 12812 14107 14778
Dec-92 14353 15159 15904
Dec-93 16803 16971 17507
Dec-94 16807 16624 17738
Dec-95 20673 20760 24403
Dec-96 23344 23461 30006
Dec-97 28803 28166 40017
</TABLE>
All returns represent past performance, which are not predictive of future
results. Investment returns and share price will vary and shares, when redeemed,
may be worth more or less than their cost.
In the chart above, we have replaced the Merrill Lynch Corporate & Government
1-9.99 Year Bond Index with the Lipper Balanced Fund Index because the Lipper
Index is a more representative return/risk investment alternative. Both Lipper
Balanced Fund Index and Eclipse Balanced Fund returns are shown net of expenses
and include transaction costs; in most cases indexes do not have expenses or
transaction costs deducted from their returns. Based on an initial value of
$10,000 on April 30, 1989, at the end of 1997 the Merrill Lynch Corporate &
Government Index was $19,012, the Eclipse Balanced Fund's ending value was
$28,803, and the Lipper Balanced Index was $28,166.
- --------------------------------------------------------------------------------
PER SHARE DIVIDEND INFORMATION--1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Income dividends $ 0.6647
Short-term capital gain dividends --
Long-term capital gain dividends 2.9852
---------
Total 1997 dividends $ 3.6499
---------
---------
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
7
<PAGE>
REVIEW OF ECLIPSE GROWTH AND INCOME FUND
Eclipse Growth and Income Fund was up 32.5% this year and up 27.1% on an annual
compounded basis since its inception at the end of 1994. The Fund outperformed
the Lipper Growth & Income Fund Index by a significant margin in 1997 with less
risk.
In 1997 large-capitalization stocks were stronger performers than were
small-capitalization stocks, as represented by the Russell 1000 and 2000
Indexes. Based on monthly returns, the large-capitalization sector outperformed
the small-capitalization sector 75% of the time. We believe there are still good
buys in both the large-and small-capitalization sectors of the market.
INDUSTRY HOLDINGS
The finance and retail trade industries continued to be the largest Fund
holdings, and both contributed to the Fund's strong performance.
The strength of the US financial markets resulted in earnings that were better
than the previous year for many financial institutions. Particularly good
performers include Raymond James Financial, Dime Bancorp, Paine Webber Group,
and Bear Stearns.
The strong economy encouraged consumer spending resulting in good sales and
earnings growth for companies in the retail trade industry. These companies
included such Fund holdings as General Nutrition, Pier 1 Imports, Dayton Hudson,
and Kroger.
Other strong performers were US Airways Group and Yellow Corporation in the
transportation sector. The Fund has relatively lower weights in the technology
services, electronic technology, and health technology sectors because,
according to our valuation measures, companies in these sectors are overvalued
or "expensive".
As a result of adding new stocks and the appreciation of existing positions,
there has been an increase in the sector weights of consumer non-durables and
health services. Companies in these sectors are becoming more efficient at
managing their businesses, a development that ultimately means better
profitability. Companies in the consumer non-durables sector that have performed
well are Coca Cola Enterprises and Smithfield Foods. In the health services
sector, McKesson, Bergen Brunswig and Tenet Healthcare were strong performers.
We use valuation measures as a means of comparing companies. We measure a
company's economic value by relating accounting data (revenues, earnings before
interest and taxes, etc.) to the current stock price and comparing the company
to a large universe of companies in our data base. Our goal is to pay a low
price for a company based on revenues and earnings, among other measures.
The table below show several valuation measures comparing the stocks in Eclipse
Growth and Income Fund with those in the S&P 500 Index.
- ----------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND S&P 500
INCOME FUND INDEX
- -----------------------------------------------------------
<S> <C> <C>
Price to Sales 1.3x 2.0x
Price to Earnings 22.1 26.9
Price to Book Value 3.0 4.9
</TABLE>
This table indicates that stocks in the S&P 500 Index are more than 50% as
expensive as the stocks in Eclipse Growth and Income Fund on the basis of
revenues, 22% more expensive on earnings, and 60% more expensive on book value
ratios.
- ----------------------------------------------------
LARGEST INDUSTRY HOLDINGS--12/31/97 % OF PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<S> <C>
Finance 22.6%
Retail Trade 18.1
Consumer Non-Durables 9.1
Health Services 8.2
Electronic Technology 6.2
</TABLE>
- ----------------------------------------------------
________________________________________________________________________________
8
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE AND RISK DATA
PERIODS ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURN(1)
1 YEAR 3 YEARS RISK(2) RETURN/RISK
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eclipse Growth and Income Fund(3,4) 32.5% 27.2% 9.2% 3.0%
Lipper Growth & Income Fund Index(5) 27.0 26.2 9.4 2.8
Standard & Poor's 500 Index 33.4 31.2 11.1 2.8
3 Month Treasury Bill 5.3 5.6 0.1 --
</TABLE>
- ---------------
<TABLE>
<C> <S>
1) With income reinvested.
2) Annualized standard deviation of monthly return.
3) The Fund's inception was 12/27/94; its annualized total return through 12/31/97 was 27.1%.
4) Net of management fee waived equivalent to 0.90%, 0.67%, and 0.16% of average net assets in 1995, 1996, and 1997,
respectively. Returns are also net of reimbursed expenses equivalent to 0.05% of average net assets in 1995.
5) After all expenses.
</TABLE>
- --------------------------------------------------------------------------------
GROWTH OF $10,000 SINCE INCEPTION
ECLIPSE GROWTH AND INCOME FUND WITH INCOME REINVESTED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Eclipse Ultra Short Term Income Fund With Income Reinvested
<S> <C> <C> <C>
Eclipse Growth and Income
Dec-94 10000
Mar-95 10460
Jun-95 11271
Sep-95 12212
Dec-95 12684
Mar-96 13395
Jun-96 13746
Sep-96 14076
Dec-96 15526
Mar-97 15699
Jun-97 17772
Sep-97 20176
Dec-97 20566
<CAPTION>
Eclipse Ultra Short Term Income Fund With Income Reinvested
<S> <C> <C>
Lipper Growth & Income Index S&P 500
Dec-94 10000 10000
Mar-95 10784 10974
Jun-95 11670 12021
Sep-95 12539 12977
Dec-95 13114 13758
Mar-96 13867 14496
Jun-96 14223 15147
Sep-96 14682 15615
Dec-96 15827 16917
Mar-97 16093 17370
Jun-97 18349 20403
Sep-97 19885 21931
Dec-97 20095 22560
</TABLE>
All returns represent past performance, which are not predictive of future
results. Investment returns and share price will vary and shares, when redeemed,
may be worth more or less than their cost.
- --------------------------------------------------------------------------------
PER SHARE DIVIDEND INFORMATION--1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Income dividends $ 0.0309
Short-term capital gain dividends --
Long-term capital gain dividends 0.0742
---------
Total 1997 dividends $ 0.1051
---------
---------
</TABLE>
- --------------------------------------------------------------------------------
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9
<PAGE>
REVIEW OF ECLIPSE EQUITY FUND
Eclipse Equity Fund had excellent results in 1997. The Fund was up 33.3%,
outperforming the Russell 2000 Index by 50%. The Fund's performance was
especially noteworthy in a year when large-capitalization stocks outperformed
small-capitalization stocks.
THE SMALL-CAPITALIZATION MARKET
Small-capitalization "value" stocks, as measured by the Russell 2000 Value
Index, performed twice as well as "growth" stocks, as measured by the Russell
2000 Growth Index. Disappointing corporate earnings dampened performance of
"growth" companies. Growth companies are characterized by high expected growth
rates and correspondingly high valuations. When companies do not meet the
expected target growth rates, disappointed investors sell these stocks. This, in
turn, lowers their valuations. The smaller capitalization "value" companies, in
which the Eclipse Equity Fund invests, have lower expected growth rates and
valuations than growth stocks. There are fewer disappointments in the earnings
reports since expectations were never as high.
Eclipse investments in the finance and retail sectors paid off this year. A few
of the successes in the retail sector include Trans World Entertainment,
Musicland Stores, Ames Department Stores, Freds, Bon-Ton Stores, and General
Nutrition. Some of the stronger performers in the finance sector have been
Raymond James Financial, Morgan Keegan, Imperial Bancorp, Republic Bancorp, Dime
Bancorp and Paine Webber Group.
Industry holdings remained relatively stable. The Fund took profits in the
finance, retail trade, commercial services, utilities and energy minerals
groups, resulting in a slight decline in these industry holdings. We still see
opportunity in these sectors.
Our holdings in such industries as producer manufacturing, consumer durables and
industrial services increased during the year. Such companies as Denver
Machinery, Alpine Group, Chart Industries and Dycom Industries had particularly
strong returns.
The table below reflects valuations for the Eclipse Equity Fund and the Russell
2000 Index and shows why we believe the stocks we buy are cheap relative to the
market:
- ----------------------------------------------------
<TABLE>
<CAPTION>
EQUITY RUSSELL
FUND 2000
- ------------------------------------------------------------
<S> <C> <C>
Price to Sales 1.0x 3.5x
Price to Earnings 18.4 28.3
Price to Book Value 2.7 4.0
</TABLE>
Stocks in the Russell 2000 Index are three and one-half times as expensive as
the stocks in the Eclipse Equity Fund on revenues, more than 50% as expensive on
earnings and about 50% more expensive on a price-to-book-value measure.
A word about dividends: The Fund paid an unusually large capital gain dividend
as a result of strong performance over the last three years. We are long term
investors; our goal is to generate high risk-adjusted returns (preferably
long-term) in the small capitalization market. Our goal is to hold a stock for
at least 18 months; however, we will hold a stock only as long as the valuations
and quality of operations indicate it is a good investment. Markets are dynamic
and our holding period will be affected by mergers, acquisitions, valuation
levels and industry concentrations. The market environment and stock valuations
will determine whether these returns will be realized or unrealized and whether
they will be long-term, medium-term, or short-term.
- ----------------------------------------------------
LARGEST INDUSTRY HOLDINGS--12/31/97 % OF PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<S> <C>
Finance 15.5%
Producer Manufacturing 12.9
Retail Trade 12.9
Consumer Durables 8.0
Commercial Services 8.0
</TABLE>
- ----------------------------------------------------
________________________________________________________________________________
10
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE AND RISK DATA
PERIODS ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURN(1)
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(3) RISK(2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Eclipse Equity Fund(3,4) 33.3% 27.5% 18.2% 15.2% 13.5% 11.5%
Lipper Small Cap Index(5) 15.1 20.1 15.0 15.4 12.4 17.2
Standard & Poor's Small Cap 600 Index 25.6 25.6 17.5 15.4 11.4 17.7
Standard & Poor's 500 Index 33.4 31.2 20.3 18.1 15.6 14.1
3 Month Treasury Bill 5.3 5.6 4.8 5.9 5.9 0.5
<CAPTION>
RETURN/RISK
- ----------------------------------------------------------------------------------
<S> <C>
Eclipse Equity Fund(3,4) 1.2%
Lipper Small Cap Index(5) 0.7
Standard & Poor's Small Cap 600 Index 0.6
Standard & Poor's 500 Index 1.1
3 Month Treasury Bill --
</TABLE>
- ---------------
<TABLE>
<C> <S>
1) With income reinvested.
2) Annualized standard deviation of monthly return.
3) Data shown are from 1/31/87. The Fund's inception was 1/12/87; its annualized total return through 12/31/97 was 13.4.%.
4) Net of management fee waived in 1987 equivalent to 0.1% of average net assets.
5) After all expenses.
</TABLE>
- --------------------------------------------------------------------------------
GROWTH OF $10,000 SINCE INCEPTION
ECLIPSE EQUITY FUND WITH INCOME REINVESTED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Eclipse / Equity Lipper Small Cap Index S&P 500
<S> <C> <C> <C>
Jan-87 $10,000 $10,000 $10,000
Dec-87 $9,704 $8,590 $9,276
Dec-88 $10,936 $10,337 $10,817
Dec-89 $12,732 $12,514 $14,244
Dec-90 $10,994 $10,790 $13,802
Dec-91 $14,421 $16,026 $18,007
Dec-92 $17,215 $17,819 $19,378
Dec-93 $20,143 $20,835 $21,332
Dec-94 $19,185 $20,734 $21,613
Dec-95 $22,964 $27,290 $29,735
Dec-96 $29,821 $31,211 $36,562
Dec-97 $39,748 $35,908 $48,761
</TABLE>
All returns represent past performance, which are not predictive of future
results. Investment returns and share price will vary and shares, when redeemed,
may be worth more or less than their cost.
In the table shown above, we have replaced the Standard & Poor's Small Cap 600
Index with the Lipper Small Cap Index because we believe the Lipper Index is
more representative of investment alternatives. Both the Lipper Small Cap Index
and Eclipse Equity Fund returns are shown net of expenses and transaction costs;
in most cases indexes do not have expenses or transaction costs deducted from
their returns. Based on an initial value of $10,000 on January 31, 1987, at the
end of 1997 the value of the Standard & Poor's Small Cap 600 Index was $32,611,
the Eclipse Equity Fund was $39,748, and the Lipper Small Cap Index was $35,908.
- --------------------------------------------------------------------------------
PER SHARE DIVIDEND INFORMATION--1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Income dividends $ --
Short-term capital gain dividends 0.1608
Long-term capital gain dividends 3.4969
---------
Total 1997 dividends $ 3.6577
---------
---------
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
11
<PAGE>
ECLIPSE ULTRA SHORT TERM INCOME FUND STATEMENT OF NET ASSETS--DECEMBER 31, 1997
- --------------------------------------------------------------------------------
U.S. CORPORATE BONDS 77.39%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
Consumer Durables 3.76%
Eastman Kodak Company Notes, 7.25%, due 07/01/99 $ 100,000 $ 101,715
Mattel, Inc. Notes, 6.75%, due 05/15/00 100,000 101,114
----------
202,829
----------
Consumer Non-Durables 10.24%
Coca-Cola Company Notes, 7.875%, due 09/15/98 50,000 50,661
Coca-Cola Enterprises Inc. Notes, 7.00%, due 11/15/99 50,000 50,809
Heinz (H.J.) Company Notes, 6.75%, due 10/15/99 200,000 202,410
PepsiCo, Inc. Notes, 7.75%, due 10/01/98 200,000 202,693
PepsiCo, Inc. Notes, 6.80%, due 05/15/00 45,000 45,867
----------
552,440
----------
Consumer Services 4.17%
Gannett Co., Inc. Notes, 5.25%, due 03/01/98 200,000 199,801
Service Corporation International Sr. Notes, 6.375%, due
10/01/00 25,000 25,115
----------
224,916
----------
Electronic Technology 1.87%
IBM Corporation Notes, 6.375%, due 06/15/00 100,000 100,728
----------
Energy Minerals 1.86%
USX Corporation Notes, 6.375%, due 07/15/98 100,000 100,146
----------
Finance 19.73%
Aetna Services Inc. Notes, 8.625%, due 03/01/98 100,000 100,390
Allstate Corporation Notes, 5.875%, due 06/15/98 125,000 125,017
American Express Credit Corporation Notes, 6.125%, due
06/15/00 140,000 140,269
Chrysler Financial Corporation Notes, 5.375%, due 10/15/98 50,000 49,824
Household Finance Corporation Notes, 6.375%, due 06/30/00 75,000 75,331
International Lease Finance Corporation Notes, 5.75%, due
01/15/99 150,000 149,516
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Finance (Cont'd)
Merrill Lynch & Co., Notes, 6.375%, due 03/30/99 $ 100,000 $ 100,393
Merrill Lynch & Co., Inc. Sr. Notes, 7.75%, due 03/01/99 50,000 50,946
Norwest Financial, Inc. Notes, 5.125%, due 04/15/00 135,000 132,411
Norwest Financial, Inc. Sr. Notes, 6.25%, due 03/15/99 40,000 40,119
USLife Group Corporation Sr. Notes, 6.75%, due 01/15/98 100,000 100,019
----------
1,064,235
----------
Health Technology 6.87%
American Home Products Corporation Notes, 7.70%, due
02/15/00 90,000 92,854
Lilly (Eli) & Company Notes, 6.75%, due 11/15/99 50,000 50,733
Upjohn Company Notes, 5.875%, due 04/15/00 75,000 74,827
Warner-Lambert Company Notes, 8.00%, due 09/01/98 150,000 151,904
----------
370,318
----------
Non-Energy Minerals 2.34%
Alcan Aluminium Corporation Guaranteed Notes, 7.25%, due
12/15/99 75,000 76,475
Alcan Aluminium Corporation Ltd. Notes, 5.875%, due
04/01/00 50,000 49,753
----------
126,228
----------
Retail Trade 11.23%
Dayton Hudson Corporation Notes, 7.50%, due 03/01/99 200,000 202,755
Dillard's Department Stores Inc. Notes, 7.375%, due
06/15/99 150,000 152,752
Penney (J.C.) Co., Inc. Notes, 5.375%, due 11/15/98 100,000 99,479
Sears Roebuck & Co. Notes, 9.25%, due 04/15/98 75,000 75,668
Wal-Mart Stores Inc. Notes, 5.50%, due 03/01/98 75,000 74,946
----------
605,600
----------
Utilities 15.32%
Cincinnati Gas & Electric Notes, 5.80%, due 02/15/99 100,000 99,714
Consolidated Natural Gas Notes, 5.875%, due 10/01/98 125,000 125,013
</TABLE>
________________________________________________________________________________
12
<PAGE>
ECLIPSE ULTRA SHORT TERM INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Utilities (Cont'd)
MCI Communications Corporation Notes, 6.25%, due 03/23/99 $ 200,000 $ 199,944
New England Telephone & Telegraph Notes, 6.15%, due
09/01/99 50,000 50,136
New York Telephone Company Notes, 5.25%, due 09/01/98 200,000 199,169
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Utilities (Cont'd)
Ohio Bell Telephone Company Notes, 5.75%, due 05/01/00 $ 100,000 $ 99,688
Sonat, Inc. Notes, 9.50%, due 08/15/99 50,000 52,538
----------
826,202
----------
Total U.S. Corporate Bonds
(Cost $4,182,972) $4,173,642
----------
</TABLE>
FEDERAL AGENCIES 19.65%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
Federal Home Loan Banks, 8.03%, due 01/09/98 $ 100,000 $ 100,043
Federal Home Loan Banks, 5.84%, due 06/22/98 250,000 250,172
Federal Home Loan Mortgage Corporation, 5.50%, due
01/15/14 111,400 111,107
Federal National Mortgage Association (V.R.), 5.51%, due
12/14/98 200,000 199,635
Student Loan Marketing Association (V.R.), 5.78%, due
01/21/98 50,000 50,000
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Student Loan Marketing Association (V.R.), 5.62%, due
11/10/98 $ 100,000 $ 99,805
Student Loan Marketing Association (V.R.), 5.69%, due
03/07/01 250,000 248,764
----------
Total Federal Agencies
(Cost $1,061,334) $1,059,526
----------
</TABLE>
SHORT-TERM INVESTMENTS 2.15%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
Repurchase Agreements 2.15%
State Street Bank and Trust Company, 4.25%, due 01/02/98
(Collateralized by $115,000 U.S. Treasury Note, 6.375%,
due 01/15/00) $ 116,273 $ 116,273
----------
<CAPTION>
VALUE
(NOTE 1)
<S> <C> <C>
Total Short-Term Investments
(Cost $116,273) $ 116,273
----------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Total Investments (99.19%)
(Cost $5,360,579+) $5,349,441
Cash and Other Assets in Excess of Liabilities (0.81%) 43,763
----------
Net Assets (100.00%) 539,140 shares outstanding (Note 3) $5,393,204
----------
----------
Net Asset Value, offering and redemption price per share $10.00
----------
----------
</TABLE>
+ The cost stated also represents the aggregate cost for federal income tax
purposes. Aggregate unrealized appreciation and depreciation of
investments, based on cost for federal income tax purposes, are $7,506 and
$18,644, respectively.
See notes to financial statements.
________________________________________________________________________________
13
<PAGE>
ECLIPSE BALANCED FUND STATEMENT OF NET ASSETS--DECEMBER 31, 1997
- --------------------------------------------------------------------------------
COMMON STOCKS 59.50%
<TABLE>
<CAPTION>
<S> <C> <C>
VALUE
SHARES (NOTE 1)
<CAPTION>
<S> <C> <C>
Commercial Services 1.65%
Fleming Companies, Inc. 11,200 $ 150,500
Jacobs Engineering Group Inc.* 8,600 218,225
Richfood Holdings, Inc. 14,550 411,038
Sysco Corporation 13,300 605,981
-----------
1,385,744
-----------
Consumer Durables 2.76%
Hasbro, Inc. 39,600 1,247,400
International Game Technology 22,800 575,700
Maytag Corporation 13,500 503,719
-----------
2,326,819
-----------
Consumer Non-Durables 6.64%
Campbell Soup Company 10,100 587,062
Coca-Cola Enterprises Inc. 52,800 1,877,700
ConAgra, Inc. 19,600 643,125
Coors (Adolph) Company Class B 3,400 113,050
DIMON Incorporated 11,300 296,625
IBP, Inc. 21,700 454,344
Smithfield Foods, Inc.* 15,200 501,600
Universal Corporation 14,600 600,425
Whitman Corporation 19,900 518,644
-----------
5,592,575
-----------
Consumer Services 0.32%
Darden Restaurants, Inc. 21,200 265,000
-----------
Electronic Technology 2.20%
Avnet, Inc. 5,000 330,000
GenCorp Inc. 19,500 487,500
National Semiconductor Corporation* 21,000 544,688
Quantum Corporation* 24,600 493,537
-----------
1,855,725
-----------
Energy Minerals 3.48%
Ashland Inc. 7,900 424,131
NGC Corporation 13,700 239,750
Pride International, Inc.* 11,400 287,850
Sun Company, Inc. 19,300 811,806
Tosco Corporation 14,400 544,500
Ultramar Diamond Shamrock Corporation 14,600 465,375
Zeigler Coal Holding Company 9,900 161,494
-----------
2,934,906
-----------
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Finance 14.71%
American Financial Group, Inc. 11,400 $ 459,563
Bank of New York Company, Inc. (The) 4,400 254,375
Bear Stearns Companies Inc. (The) 11,829 561,878
Capstead Mortgage Corporation 8,000 159,500
City National Corporation 6,600 243,788
Comdisco, Inc. 17,500 585,156
Countrywide Credit Industries, Inc. 14,500 621,688
Dime Bancorp, Inc. 21,500 650,375
Dynex Capital, Inc. 14,600 194,362
Edwards (A.G.), Inc. 23,700 942,075
First Security Corporation 10,500 439,687
Freddie Mac 26,000 1,090,375
Fremont General Corporation 9,200 503,700
Hibernia Corporation Class A 30,400 571,900
Huntington Bancshares Inc. 17,963 646,668
Imperial Credit Industries, Inc.* 9,800 200,900
Lehman Brothers Holdings, Inc. 5,000 255,000
Old Republic International Corporation 18,300 680,531
Paine Webber Group Inc. 33,750 1,166,484
Popular, Inc. 6,300 311,850
Raymond James Financial, Inc. 8,900 353,219
Reliance Group Holdings, Inc. 9,500 134,187
Riggs National Corporation 9,700 260,688
Ryder System, Inc. 17,000 556,750
USF&G Corporation 24,900 549,356
-----------
12,394,055
-----------
Health Services 1.21%
McKesson Corporation 7,000 757,313
NovaCare, Inc.* 20,200 263,862
-----------
1,021,175
-----------
Health Technology 0.79%
Biomet, Inc. 26,000 666,250
-----------
Industrial Services 0.72%
Global Marine Inc.* 24,900 610,050
-----------
Non-Energy Minerals 1.15%
Lafarge Corporation 32,900 972,606
-----------
Process Industries 0.88%
Fort James Corporation 12,000 459,000
International Specialty Products Inc.* 18,700 279,331
-----------
738,331
-----------
</TABLE>
________________________________________________________ * NON-INCOME PRODUCING.
14
<PAGE>
ECLIPSE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Producer Manufacturing 3.28%
Burlington Industries, Inc.* 17,700 $ 244,481
Coltec Industries Inc.* 28,900 670,119
Furniture Brands International, Inc.* 14,200 291,100
U.S. Industries, Inc. 42,000 1,265,250
Westinghouse Air Brake Company 11,300 289,563
-----------
2,760,513
-----------
Retail Trade 11.69%
American Stores Co. 42,100 865,681
BJ's Wholesale Club, Inc.* 7,600 238,450
Best Buy Co., Inc.* 5,000 184,375
Burlington Coat Factory Warehouse Corporation 14,040 230,783
Circuit City Stores-Circuit City Group 6,800 241,825
Costco Companies, Inc.* 23,300 1,039,763
Dayton Hudson Corporation 13,000 877,500
Fred Meyer, Inc.* 26,800 974,850
General Nutrition, Incorporated* 44,100 1,499,400
Kroger Company (The)* 22,000 812,625
Longs Drug Stores Corporation 8,400 269,850
OfficeMax Inc.* 9,100 129,675
Pier 1 Imports, Inc. 18,600 420,825
Reebok International Ltd.* 19,600 564,725
Ruddick Corporation 15,900 277,256
Sports Authority, Inc. (The)* 8,900 131,275
TJX Companies, Inc. (The) 17,200 591,250
Tandy Corporation 12,900 497,456
-----------
9,847,564
-----------
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Technology Services 2.89%
CHS Electronics, Inc.* 11,700 $ 200,363
Ingram Micro, Inc. Class A* 17,900 521,337
Tech Data Corporation* 11,200 435,400
Tele-Communications, Inc. Series A Liberty Media Group* 35,300 1,279,625
-----------
2,436,725
-----------
Transportation 2.67%
Kansas City Southern Industries, Inc. 17,900 568,325
US Airways Group Inc.* 23,200 1,450,000
Yellow Corporation* 9,100 228,637
-----------
2,246,962
-----------
Utilities 2.46%
Edison International 43,900 1,193,531
MCN Energy Group, Inc. 13,100 528,913
Western Resources, Inc. 8,100 348,300
-----------
2,070,744
-----------
Total Common Stocks
(Cost $37,156,874) $50,125,744
-----------
</TABLE>
U.S. CORPORATE BONDS 33.63%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
Commercial Services 1.21%
Supervalu Inc. Notes, 7.25%, due 07/15/99 $ 300,000 $ 304,047
Supervalu Inc. Notes, 7.80%, due 11/15/02 200,000 211,911
Sysco Corporation Sr. Notes, 6.50%, due 06/15/05 500,000 506,178
-----------
1,022,136
-----------
Consumer Non-Durables 3.69%
Anheuser-Busch Companies, Inc. Notes, 8.75%, due 12/01/99 50,000 52,295
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Consumer Non-Durables (Cont'd)
Bass America, Inc. Guaranteed Notes, 6.75%, due 08/01/99 $ 550,000 $ 558,605
Coca-Cola Company Notes, 7.875%, due 09/15/98 100,000 101,322
Coca-Cola Enterprises Inc. Notes, 7.00%, due 11/15/99 350,000 355,664
Coca-Cola Enterprises Inc. Notes, 7.875%, due 02/01/02 200,000 212,078
</TABLE>
* NON-INCOME PRODUCING. ________________________________________________________
15
<PAGE>
ECLIPSE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE
Consumer Non-Durables (Cont'd$$) AMOUNT (NOTE 1)
Heinz (H.J.) Company Notes, 6.75%, due 10/15/99 200,000 202,410
<S> <C> <C>
Hertz Corporation Sr. Notes, 8.30%, due 02/02/98 300,000 300,498
Hertz Corporation Sr. Notes, 7.00%, due 04/15/01 300,000 306,320
PepsiCo, Inc. Notes, 6.125%, due 01/15/98 200,000 200,018
PepsiCo, Inc. Notes, 7.75%, due 10/01/98 100,000 101,347
PepsiCo, Inc. Notes, 6.25%, due 09/01/99 200,000 201,062
PepsiCo, Inc. Notes, 6.80%, due 05/15/00 200,000 203,854
Philip Morris Companies Inc. Notes, 7.625%, due 05/15/02 100,000 104,457
RJR Nabisco, Inc. Sr. Notes, 7.625%, due 09/01/00 200,000 205,242
-----------
3,105,172
-----------
Consumer Services 0.12%
Gannett Co., Inc. Notes, 5.25%, due 03/01/98 100,000 99,900
-----------
Electronic Technology 2.35%
Boeing Co. Notes, 6.35%, due 06/15/03 500,000 506,247
IBM Corporation Notes, 6.375%, due 06/15/00 200,000 201,455
IBM Corporation Notes, 7.25%, due 11/01/02 300,000 313,708
McDonnell Douglas Finance Corporation Notes, 7.25%, due
06/15/98 200,000 201,207
Raytheon Company Notes, 6.50%, due 07/15/05 700,000 703,429
Rockwell International Corporation Notes, 8.875%, due
09/15/99 50,000 52,327
-----------
1,978,373
-----------
Energy Minerals 1.09%
Exxon Capital Corporation Guaranteed Notes, 7.45%, due
12/15/01 300,000 315,282
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Energy Minerals (Cont'd)
Exxon Capital Corporation Notes, 6.50%, due 07/15/99 $ 300,000 $ 302,916
Shell Oil Company Notes, 6.95%, due 12/15/98 300,000 302,981
-----------
921,179
-----------
Finance 10.32%
Allstate Corporation Notes, 5.875%, due 06/15/98 250,000 250,033
American Express Credit Corporation Notes, 7.375%, due
02/01/99 500,000 507,141
American Express Credit Corporation Notes, 6.125%, due
06/15/00 200,000 200,385
American General Finance Corporation Notes, 8.00%, due
02/15/00 200,000 207,217
American General Finance Corporation Sr. Notes, 8.25%,
due 01/15/98 200,000 200,112
Aristar, Inc. Sr. Notes, 7.875%, due 02/15/99 150,000 152,809
Associates Corp. of North America Notes, 7.25%, due
05/15/98 400,000 401,819
Associates Corp. of North America Notes, 7.875%, due
09/30/01 100,000 105,423
Berkley (W.R.) Corporation Notes, 6.25%, due 01/15/06 500,000 490,582
CIT Group Holdings, Inc. Notes, 8.75%, due 04/15/98 300,000 302,316
CNA Financial Corporation Sr. Notes, 8.875%, due 03/01/98 100,000 100,443
Chrysler Financial Corporation Notes, 6.625%, due
08/15/00 1,000,000 1,014,295
Commercial Credit Company Notes, 8.25%, due 11/01/01 200,000 213,101
</TABLE>
________________________________________________________________________________
16
<PAGE>
ECLIPSE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Finance (Cont'd)
Ford Holdings, Inc. Guaranteed Notes, 9.25%, due 03/01/00 $ 50,000 $ 53,192
Ford Motor Credit Company Notes, 8.00%, due 01/15/99 100,000 101,860
Ford Motor Credit Company Notes, 7.25%, due 05/15/99 250,000 253,676
Ford Motor Credit Company Notes, 8.375%, due 01/15/00 250,000 260,690
General Electric Capital Corporation Notes, 8.00%, due
01/15/98 400,000 400,202
General Motors Corporation Notes, 7.00%, due 06/15/03 700,000 724,212
Heller Financial, Inc. Notes, 9.375%, due 03/15/98 50,000 50,295
Heller Financial, Inc. Notes, 7.875%, due 11/01/99 100,000 102,662
International Lease Finance Corporation Notes, 8.125%,
due 01/15/98 200,000 200,104
Lehman Brothers Inc. Sr. Notes, 7.625%, due 06/01/06 350,000 369,413
Norwest Corporation Notes, 6.80%, due 05/15/02 1,100,000 1,122,760
Travelers Group Inc. Notes, 6.125%, due 06/15/00 300,000 300,847
USL Capital Corporation Notes, 8.125%, due 02/15/00 300,000 311,683
USLife Corporation Sr. Notes, 6.75%, due 01/15/98 300,000 300,056
-----------
8,697,328
-----------
Health Technology 1.35%
American Home Products Corporation Notes, 7.70%, due
02/15/00 500,000 515,855
Lilly (Eli) & Company Notes, 8.125%, due 12/01/01 250,000 268,072
Upjohn Company Notes, 5.875%, 04/15/00 200,000 199,540
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Health Technology (Cont'd)
Warner-Lambert Company Notes, 6.625%, due 09/15/02 $ 150,000 $ 151,991
-----------
1,135,458
-----------
Industrial Services 1.45%
Browning-Ferris Industries Inc. Sr. Notes, 6.10%, due
01/15/03 500,000 497,241
Lockheed Martin Corporation Guaranteed Notes, 7.25%, due
05/15/06 500,000 524,306
WMX Technologies Inc. Notes, 8.125%, due 02/01/98 200,000 200,248
-----------
1,221,795
-----------
Non-Energy Minerals 0.77%
Alcan Aluminum Corporation Guaranteed Notes, 7.25%, due
12/15/99 100,000 101,966
Weyerhaeuser Company Notes, 7.50%, due 03/01/13 500,000 547,313
-----------
649,279
-----------
Process Industries 1.72%
Corning, Inc. Notes, 6.00%, due 08/15/03 1,000,000 983,754
DuPont (E.I.) De Nemours & Company Notes, 6.00%, due
12/01/01 200,000 199,197
International Paper Company Notes, 7.80%, due 03/18/99 100,000 102,089
James River Corporation of Virginia, 8.375%, due 11/15/01 150,000 160,248
-----------
1,445,288
-----------
Producer Manufacturing 1.19%
Dresser Industries, Inc. Sr. Notes, 6.25%, due 06/01/00 600,000 603,510
Illinois Tool Works, Inc. Notes, 5.875%, due 03/01/00 400,000 398,715
-----------
1,002,225
-----------
</TABLE>
________________________________________________________________________________
17
<PAGE>
ECLIPSE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Retail Trade 3.46%
Dayton Hudson Corporation Notes, 7.50%, due 03/01/99 $ 300,000 $ 304,134
Dillard's Department Stores Inc. Notes, 7.375%, due
06/15/99 255,000 259,678
Dillard's Department Stores Inc. Notes, 7.15%, due
02/01/07 1,000,000 1,054,814
Limited, Inc. (The) Notes, 8.875%, due 08/15/99 200,000 207,410
May Department Stores Notes, 7.45%, due 09/15/11 500,000 541,617
Penney (J.C.) Co., Inc. Notes, 6.875%, due 06/15/99 50,000 50,536
Wal-Mart Stores Inc. Notes, 8.625%, due 04/01/01 50,000 53,734
Wal-Mart Stores Inc. Notes, 7.25%, due 06/01/13 400,000 441,080
-----------
2,913,003
-----------
Transportation 1.04%
Consolidated Rail Corporation Notes, 6.90%, due 07/01/98 200,000 200,945
Kansas City Southern Industries Sr. Notes, 7.875%, due
07/01/02 150,000 158,252
Union Pacific Corporation Notes, 7.375%, due 05/15/01 500,000 514,849
-----------
874,046
-----------
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Utilities 3.87%
Ameritech Capital Funding Inc. (Floating Rate) Notes,
5.83%, due 05/12/98 $ 550,000 $ 550,183
Chesapeake & Potomac Telephone-Virginia, Inc. Notes,
7.125%, due 01/15/02 300,000 309,482
Consolidated Edison Company Series F, 5.70%, due 10/01/98 350,000 349,379
GTE Corporation Notes, 8.85%, due 03/01/98 50,000 50,201
GTE Northwest Inc. Notes, 7.375%, due 05/01/01 500,000 517,564
Pacific Bell Notes, 7.25%, due 07/01/02 300,000 312,626
Public Service Electric & Gas Notes, 6.00%, due 01/01/98 100,000 100,000
Sonat Inc. Notes, 9.00%, due 05/01/01 50,000 54,094
Southern California Edison Company Notes, 5.875%, due
02/01/98 300,000 299,977
Southern California Edison Company Notes, 6.50%, due
06/01/01 200,000 202,281
Southwestern Bell Telephone Notes, 7.00%, due 07/01/15 500,000 518,194
-----------
3,263,981
-----------
Total U.S. Corporate Bonds
(Cost $27,926,282) $28,329,163
-----------
</TABLE>
FEDERAL AGENCIES 5.61%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
Federal Home Loan Mortgage Corporation, 6.50%, due
01/15/12 $ 750,000 $ 741,279
Federal Home Loan Mortgage Corporation, 7.00%, due
02/15/13 500,000 508,748
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Federal Home Loan Mortgage Corporation, 7.00%, due
04/17/13 $ 500,000 $ 512,489
Federal National Mortgage Association, 6.50%, due
11/25/13 1,000,000 982,600
</TABLE>
________________________________________________________________________________
18
<PAGE>
ECLIPSE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Federal National Mortgage Association, 6.50%, due
09/25/23 $1,000,000 $ 971,083
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Government National Mortgage Association, 7.00%, due
02/20/20 $1,000,000 $ 1,013,942
-----------
Total Federal Agencies
(Cost $4,696,042) $ 4,730,141
-----------
</TABLE>
UNITED STATES GOVERNMENT OBLIGATIONS 4.87%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
United States Treasury Bill, due 01/02/98 $4,100,000 $ 4,099,434
-----------
<CAPTION>
VALUE
(NOTE 1)
<S> <C> <C>
Total United States Government Obligations
(Cost $4,099,434) $ 4,099,434
-----------
</TABLE>
SHORT-TERM INVESTMENTS 0.91%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
Repurchase Agreements 0.91%
State Street Bank and Trust Company, 4.25%, due 01/02/98
(Collateralized by $775,000 U.S. Treasury Note, 6.125%,
due 03/31/98) $ 771,237 $ 771,237
-----------
<CAPTION>
VALUE
(NOTE 1)
<S> <C> <C>
Total Short-Term Investments
(Cost $771,237) $ 771,237
-----------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Total Investments (104.52%)
(Cost $74,649,869+) $88,055,719
Liabilities Less Cash and Other Assets (-4.52%) (3,809,653)
-----------
Net Assets (100.00%) 3,803,313 shares outstanding (Note
3) $84,246,066
-----------
-----------
Net Asset Value, offering and redemption price per share $22.15
-----------
-----------
</TABLE>
<TABLE>
<C> <S>
+ The cost stated also represents the aggregate cost for federal income tax
purposes. Aggregate unrealized appreciation and depreciation of invest-
ments, based on cost for federal income tax purposes, are $14,341,284 and
$935,434, respectively.
See notes to financial statements.
</TABLE>
________________________________________________________________________________
19
<PAGE>
ECLIPSE GROWTH AND INCOME FUND STATEMENT OF NET ASSETS--DECEMBER 31, 1997
- --------------------------------------------------------------------------------
COMMON STOCKS 99.02%
<TABLE>
<CAPTION>
<S> <C> <C>
VALUE
SHARES (NOTE 1)
<CAPTION>
<S> <C> <C>
Commercial Services 1.93%
Fleming Companies, Inc. 38,700 $ 520,031
Jacobs Engineering Group Inc.* 8,500 215,688
Richfood Holdings, Inc. 2,950 83,337
Sysco Corporation 28,400 1,293,975
-----------
2,113,031
-----------
Consumer Durables 5.38%
Brunswick Corporation 30,000 909,375
Hasbro, Inc. 62,400 1,965,600
Honda Motor Co., Ltd. 5,500 406,313
International Game Technology 46,500 1,174,125
Maytag Corporation 38,100 1,421,606
Toll Brothers, Inc.* 400 10,700
-----------
5,887,719
-----------
Consumer Non-Durables 9.08%
Campbell Soup Company 39,400 2,290,125
Coca-Cola Enterprises Inc. 101,300 3,602,481
IBP, Inc. 49,100 1,028,031
Kellwood Company 5,900 177,000
McCormick & Company, Incorporated 36,900 1,033,200
Smithfield Foods, Inc.* 2,000 66,000
Universal Corporation 15,900 653,888
Whitman Corporation 41,600 1,084,200
-----------
9,934,925
-----------
Consumer Services 1.04%
Darden Restaurants, Inc. 91,500 1,143,750
-----------
Electronic Technology 6.21%
Avnet, Inc. 7,700 508,200
Burr-Brown Corporation* 3,300 106,013
Coltec Industries, Inc.* 105,800 2,453,237
Cypress Semiconductor Corporation* 13,100 111,350
Data General Corporation* 5,700 99,394
GenCorp Inc. 31,700 792,500
National Semiconductor Corporation* 35,600 923,375
Quantum Corporation* 44,100 884,756
SCI Systems, Inc.* 21,000 914,813
-----------
6,793,638
-----------
Energy Minerals 5.00%
Ashland Inc. 22,800 1,224,075
Oryx Energy Company* 40,600 1,035,300
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Energy Minerals (Cont'd)
Pride International, Inc.* 27,600 $ 696,900
Sun Company, Inc. 13,000 546,813
Tosco Corporation 31,000 1,172,187
Ultramar Diamond Shamrock Corporation 23,600 752,250
Valero Energy Corporation 1,400 44,012
-----------
5,471,537
-----------
Finance 22.62%
Ahmanson (H. F.) & Company 5,900 394,931
American Financial Group, Inc. 9,300 374,906
BRE Properties, Inc. 3,500 98,438
Bank of New York Company, Inc. (The) 25,700 1,485,781
Bear Stearns Companies Inc. (The) 43,428 2,062,830
Capstead Mortgage Corporation 3,800 75,763
Colonial BancGroup, Inc. (The) 3,100 106,756
Comdisco, Inc. 57,200 1,912,625
Countrywide Credit Industries, Inc. 11,900 510,212
Crawford & Company Class A 700 13,300
Dime Bancorp, Inc. 4,900 148,225
Dynex Capital, Inc. 2,000 26,625
Edwards (A.G.), Inc. 2,400 95,400
First Security Corporation 41,600 1,742,000
Freddie Mac 37,200 1,560,075
Fremont General Corporation 16,700 914,325
Hibernia Corporation Class A 57,900 1,089,244
Huntington Bancshares Inc. 9,240 332,640
Lehman Brothers Holdings, Inc. 46,200 2,356,200
Mercantile Bankshares Corporation 9,700 379,513
Old Republic International Corporation 47,200 1,755,250
Paine Webber Group Inc. 73,050 2,524,791
Popular, Inc. 6,400 316,800
Raymond James Financial, Inc. 18,500 734,219
Reliance Group Holdings, Inc. 20,500 289,562
Riggs National Corporation 12,800 344,000
Ryder System, Inc. 33,800 1,106,950
St. Paul Bancorp, Inc. 10,000 262,500
USF&G Corporation 79,000 1,742,937
-----------
24,756,798
-----------
</TABLE>
________________________________________________________ * NON-INCOME PRODUCING.
20
<PAGE>
ECLIPSE GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Health Services 8.16%
AmeriSource Health Corporation Class A* 11,700 $ 687,375
Bergen Brunswig Corporation Class A 61,200 2,578,050
Humana, Inc.* 38,200 792,650
McKesson Corporation 24,100 2,607,319
NovaCare, Inc.* 30,200 394,487
PacifiCare Health Systems, Inc. Class B* 6,700 350,913
Sun Healthcare Group, Inc.* 10,700 207,312
Tenet Healthcare Corporation* 39,500 1,308,438
-----------
8,926,544
-----------
Health Technology 2.05%
Biomet, Inc. 87,700 2,247,313
-----------
Industrial Services 1.61%
Global Marine Inc.* 65,200 1,597,400
Morrison Knudsen Corporation* 17,100 166,725
-----------
1,764,125
-----------
Non-Energy Minerals 2.49%
Lafarge Corporation 92,200 2,725,663
-----------
Process Industries 0.80%
Fort James Corporation 12,300 470,475
International Specialty Products Inc.* 26,800 400,325
-----------
870,800
-----------
Producer Manufacturing 2.99%
Burlington Industries, Inc.* 56,700 783,169
Furniture Brands International, Inc.* 14,600 299,300
Hayes Lemmerz International, Inc.* 3,400 95,200
MascoTech, Inc. 20,700 380,362
U.S. Industries, Inc. 29,100 876,637
Watts Industries, Inc. 6,400 181,200
Westinghouse Air Brake Company 25,700 658,563
-----------
3,274,431
-----------
Retail Trade 18.07%
American Stores Co. 66,500 1,367,406
Best Buy Co., Inc.* 6,800 250,750
Burlington Coat Factory Warehouse Corporation 32,160 528,630
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Retail Trade (Cont'd)
Circuit City Stores-Circuit City Group 11,000 $ 391,188
Costco Companies, Inc.* 44,500 1,985,812
Dayton Hudson Corporation 32,500 2,193,750
Fingerhut Companies, Inc. 48,000 1,026,000
Fred Meyer, Inc.* 39,000 1,418,625
General Nutrition, Incorporated* 80,800 2,747,200
Kmart Corporation* 73,800 853,312
Kroger Company (The)* 46,800 1,728,675
Longs Drug Stores Corporation 5,700 183,113
OfficeMax, Inc.* 15,000 213,750
Pier 1 Imports, Inc. 34,950 790,744
Ruddick Corporation 3,100 54,056
Safeway, Inc.* 38,707 2,448,218
TJX Companies, Inc. (The) 23,600 811,250
Tandy Corporation 13,800 532,162
Winn-Dixie Stores, Inc. 5,700 249,019
-----------
19,773,660
-----------
Technology Services 3.91%
CHS Electronics, Inc.* 15,200 260,300
Ingram Micro, Inc. Class A* 30,000 873,750
Tech Data Corporation* 2,200 85,525
Tele-Communications, Inc. Series A Liberty Media Group* 84,400 3,059,500
-----------
4,279,075
-----------
Transportation 4.38%
Kansas City Southern Industries, Inc. 35,300 1,120,775
UAL Corporation* 6,800 629,000
US Airways Group, Inc.* 41,900 2,618,750
Yellow Corporation* 16,900 424,612
-----------
4,793,137
-----------
Utilities 3.30%
Edison International 99,100 2,694,281
MidAmerican Energy Company 23,300 512,600
Washington Water Power Company (The) 16,800 408,450
-----------
3,615,331
-----------
Total Common Stocks
(Cost $96,250,577) $108,371,477
-----------
</TABLE>
* NON-INCOME PRODUCING. ________________________________________________________
21
<PAGE>
ECLIPSE GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 1.28%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
Repurchase Agreements 1.28%
State Street Bank and Trust Company, 4.25%, due
01/02/98 (Collateralized by $1,410,000 U.S. Treasury
Note, 6.125%, due 03/31/98) $1,404,565 $ 1,404,565
------------
<CAPTION>
VALUE
(NOTE 1)
<S> <C> <C>
Total Short-Term Investments
(Cost $1,404,565) $ 1,404,565
------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Total Investments (100.30%)
(Cost $97,655,142+) $109,776,042
Liabilities in Excess of Cash and Other Assets
(-0.30%) (324,435)
------------
Net Assets (100.00%) 6,161,320 shares outstanding
(Note 3) $109,451,607
------------
------------
Net Asset Value, offering and redemption price per
share $17.76
------------
------------
</TABLE>
<TABLE>
<C> <S>
+ The cost stated also represents the aggregate cost for federal income tax
purposes. Aggregate unrealized appreciation and depreciation of
investments, based on cost for federal income tax purposes, are $14,520,501
and $2,399,601, respectively.
See notes to financial statements.
</TABLE>
________________________________________________________________________________
22
<PAGE>
STATEMENT OF NET ASSETS--DECEMBER 31, 1997 ECLIPSE EQUITY FUND
- --------------------------------------------------------------------------------
COMMON STOCKS 98.89%
<TABLE>
<CAPTION>
<S> <C> <C>
VALUE
SHARES (NOTE 1)
<CAPTION>
<S> <C> <C>
Commercial Services 8.03%
ABM Industries Inc. 55,800 $ 1,705,388
Applied Industrial Technology, Inc. 57,900 1,548,825
Borg-Warner Security Corporation* 45,500 801,938
Cameron Ashley Building Products* 80,400 1,346,700
CompuCom Systems, Inc.* 70,300 579,975
Fleming Companies, Inc. 50,700 681,281
ICO, Inc. 74,600 456,925
JP Foodservice, Inc.* 27,800 1,026,863
Jacobs Engineering Group Inc.* 30,100 763,787
Jenny Craig, Inc.* 42,900 324,431
Market Facts, Inc.* 28,200 472,350
MicroAge, Inc.* 41,800 629,612
Pinkerton's, Inc.* 64,200 1,508,700
Richfood Holdings, Inc. 20,696 584,662
SED International Holdings, Inc.* 35,000 393,750
SunSource L.P. 13,900 329,256
Sysco Corporation 11,000 501,187
Western Staff Services, Inc.* 31,500 531,563
World Fuel Services Corporation 51,150 1,074,150
------------
15,261,343
------------
Consumer Durables 7.98%
Champion Enterprises, Inc.* 24,816 510,279
Coachmen Industries, Inc. 56,100 1,209,656
Crossman Communities, Inc.* 6,800 187,850
Dixie Group, Inc. (The)* 45,100 513,013
Hasbro, Inc. 7,750 244,125
Huffy Corporation 81,800 1,104,300
International Game Technology 12,300 310,575
LoJack Corporation* 44,600 657,850
M.D.C. Holdings, Inc. 116,700 1,757,794
M/I Schottenstein Homes, Inc.* 26,000 487,500
Maytag Corporation 16,000 597,000
Monaco Coach Corporation* 44,900 1,144,950
NVR, Inc.* 16,000 350,000
O'Sullivan Industries Holdings, Inc.* 9,500 95,000
Rowe Furniture Corporation 72,300 578,400
Salton/Maxim Housewares, Inc.* 54,600 491,400
Schuler Homes, Inc.* 1,900 12,231
Southern Energy Homes, Inc.* 10,100 80,800
Standard Pacific Corporation 108,500 1,708,875
TBC Corporation* 76,500 731,531
Thor Industries, Inc. 13,900 476,944
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Consumer Durables (Cont'd)
Toll Brothers, Inc.* 41,600 $ 1,112,800
Video Lottery Technologies, Inc.* 67,200 798,000
------------
15,160,873
------------
Consumer Non-Durables 4.67%
Brooke Group Ltd. 22,600 194,925
Coca-Cola Enterprises Inc. 16,400 583,225
ConAgra, Inc. 9,200 301,875
DIMON Incorporated 43,900 1,152,375
Farah Inc.* 35,300 196,356
Hartmarx Corporation* 50,000 381,250
IBP, Inc. 11,400 238,688
Imperial Holly Corporation 3,800 41,325
National Beverage Corporation* 27,200 270,300
Pilgrims Pride Corporation 20,500 319,031
Smithfield Foods, Inc.* 49,200 1,623,600
Standard Commercial Corporation* 66,315 1,098,342
Tarrant Apparel Group* 12,600 196,875
Thorn Apple Valley, Inc.* 45,800 664,100
Universal Corporation 33,800 1,390,025
Whitman Corporation 8,700 226,744
------------
8,879,036
------------
Consumer Services 2.31%
American Media, Inc.* 50,900 394,475
Bowne & Co, Inc. 19,700 785,537
Darden Restaurants, Inc. 35,900 448,750
Ryan's Family Steak Houses, Inc.* 151,200 1,294,650
TCBY Enterprises, Inc. 193,500 1,463,344
------------
4,386,756
------------
Electronic Technology 5.18%
Aviall, Inc.* 54,300 811,106
Avnet,Inc. 3,300 217,800
ESCO Electronics Corporation* 98,400 1,660,500
GENICOM Corporation* 59,200 680,800
GenCorp Inc. 10,500 262,500
GenRad, Inc.* 28,300 854,306
IEC Electronics Corporation* 24,500 333,813
MTS Systems Corporation 24,000 900,000
Microsemi Corporation* 43,100 756,944
National Semiconductor Corporation* 17,500 453,906
Quantum Corporation* 7,700 154,481
RMI Titanium Company* 31,300 626,000
Reliability Incorporated* 12,000 165,000
</TABLE>
* NON-INCOME PRODUCING. ________________________________________________________
23
<PAGE>
ECLIPSE EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Electronic Technology (Cont'd)
Storage Technology Corporation* 4,100 $ 253,944
TSI Incorporated 66,900 669,000
United Industrial Corporation 68,400 743,850
Xicor, Inc.* 101,600 304,800
------------
9,848,750
------------
Energy Minerals 4.08%
Ashland Inc. 4,100 220,119
Clayton Williams Energy, Inc.* 35,000 525,000
Comstock Resources, Inc.* 40,000 477,500
Crown Central Petroleum Corporation* 34,300 696,719
Giant Industries, Inc. 36,400 691,600
LL&E Royalty Trust 104,200 514,487
NGC Corporation 26,000 455,000
Plains Resources, Inc.* 34,400 591,250
Pride International, Inc.* 37,500 946,875
Sabine Royalty Trust 48,500 663,844
Sun Company, Inc. 4,800 201,900
Tosco Corporation 13,500 510,469
TransMontaigne Oil Company* 17,700 265,500
Ultramar Diamond Shamrock Corporation 10,274 327,483
Unocal Corporation 6,400 248,400
Zeigler Coal Holding Company 26,000 424,125
------------
7,760,271
------------
Finance 15.50%
Allied Capital Corporation 29,736 661,626
AmerUs Life Holdings, Inc. 14,994 552,904
Andover Bancorp, Inc. 22,600 909,650
Arrow Financial Corporation 15,960 534,660
Asset Investors Corporation 10,380 218,629
BRE Properties, Inc. 21,700 610,313
Bank of New York Company, Inc. (The) 2,300 132,969
BankAtlantic Bancorp, Inc. 49,300 804,206
Bear Stearns Companies Inc. (The) 8,505 403,988
CV Reit, Inc. 26,100 357,244
Capstead Mortgage Corporation 7,400 147,537
City National Corporation 8,500 313,969
Coastal Bancorp, Inc. 16,300 568,462
Comdisco, Inc. 10,200 341,062
Countrywide Credit Industries, Inc. 7,600 325,850
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Finance (Cont'd)
Dime Bancorp, Inc. 10,400 $ 314,600
Dime Financial Corporation 26,300 802,150
Doral Financial Corporation 28,600 725,725
Dynex Capital, Inc. 12,200 162,412
Edwards (A.G.), Inc. 7,350 292,162
Evergreen Bancorp, Inc. 22,700 564,662
First Colorado Bancorp, Inc. 11,500 273,125
First Defiance Financial Corporation 26,700 427,200
First Essex Bancorp, Inc. 10,500 244,125
First Northern Capital Corporation 29,000 406,000
First Security Corporation 8,500 355,938
Freddie Mac 6,900 289,369
Fremont General Corporation 17,800 974,550
Grubb & Ellis Company* 16,000 219,000
HRE Properties 9,100 179,156
Hibernia Corporation Class A 34,500 649,031
Huntington Bancshares Incorporated 9,570 344,520
IBS Financial Corporation 15,300 270,619
Imperial Bancorp* 20,400 1,005,975
Imperial Credit Industries, Inc.* 20,800 426,400
Independent Bank Corporation 42,800 786,450
Interstate/Johnson Lane, Inc. 20,300 537,950
Klamath First Bancorp 27,200 584,800
Lawyers Title Corporation 17,900 562,731
Lehman Brothers Holdings, Inc. 3,500 178,500
Lexington Corporate Properties, Inc. 27,300 421,444
Life USA Holding, Inc.* 25,700 433,688
MGI Properties, Inc. 11,400 273,600
ML Bancorp, Inc. 9,100 273,000
Morgan Keegan, Inc. 17,400 440,438
National Discount Brokers Group, Inc.* 10,600 141,112
Old Republic International Corporation 8,200 304,938
Oriental Financial Group 9,250 273,453
Paine Webber Group Inc. 12,300 425,119
PonceBank 25,900 488,862
Popular, Inc. 6,800 336,600
Presidential Life Corporation 34,200 692,550
Raymond James Financial, Inc. 16,500 654,844
Reliance Bancorp, Inc. 8,100 296,663
Reliance Group Holdings, Inc. 40,000 565,000
Republic Bancorp, Inc. 5,500 117,562
</TABLE>
________________________________________________________ * NON-INCOME PRODUCING.
24
<PAGE>
ECLIPSE EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Finance (Cont'd)
Riggs National Corporation 27,800 $ 747,125
Royal Bancshares of Pennsylvania 7,904 185,744
Ryder System, Inc. 15,800 517,450
St. Paul Bancorp, Inc. 11,700 307,125
San Juan Basin Royalty Trust 64,600 597,550
Southwest Securities Group, Inc. 26,620 685,465
Sovereign Bancorp, Inc. 39,480 819,210
USF&G Corporation 11,800 260,337
WSFS Financial Corporation* 36,300 726,000
------------
29,445,098
------------
Health Services 3.40%
Bergen Brunswig Corporation Class A 5,900 248,537
Bindley Western Industries, Inc. 55,800 1,722,825
Coventry Corporation* 16,000 244,000
McKesson Corporation 4,500 486,844
NovaCare, Inc.* 78,800 1,029,325
Owens & Minor, Inc. Holding Corporation 75,400 1,093,300
Syncor International Corporation* 101,000 1,628,625
------------
6,453,456
------------
Health Technology 1.16%
Biomet, Inc. 13,800 353,625
Fonar Corporation* 138,000 405,375
Molecular Dynamics, Inc.* 25,000 406,250
OEC Medical Systems, Inc.* 52,600 1,048,713
------------
2,213,963
------------
Industrial Services 3.01%
Butler International, Inc.* 35,400 619,500
EMCOR Group, Inc.* 66,900 1,371,450
Global Marine Inc.* 21,500 526,750
Hovnanian Enterprises, Inc.* 16,800 122,850
Morrison Knudson Corporation* 56,000 546,000
NRG Generating (U.S.) Inc.* 17,500 347,812
Robertson-Ceco Corporation* 58,400 569,400
Turner Corporation (The)* 20,400 538,050
URS Corporation* 13,000 202,313
Zapata Corporation 129,200 872,100
------------
5,716,225
------------
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Non-Energy Minerals 2.70%
Centex Construction Products, Inc. 21,600 $ 650,700
Giant Cement Holding, Inc.* 76,200 1,762,125
Lafarge Corporation 9,500 280,844
National Steel Corporation* 22,000 254,375
Republic Group, Inc. 46,310 758,326
Universal Forest Products, Inc. 54,100 737,113
WHX Corporation* 57,400 681,625
------------
5,125,108
------------
Process Industries 2.95%
Albemarle Corporation 18,200 434,525
Ampal-American Israel Corporation* 69,900 358,237
Culp, Inc. 26,100 522,000
Delta Woodside Industries, Inc. 120,500 587,438
Dyersburg Corporation 30,500 346,938
Foamex International Inc.* 35,000 380,625
Gaylord Container Corporation* 150,600 865,950
International Specialty Products Inc.* 37,800 564,637
Spartech Corporation 101,500 1,535,187
------------
5,595,537
------------
Producer Manufacturing 12.93%
Alpine Group, Inc. (The)* 77,300 1,449,375
Ampco-Pittsburgh Corporation 54,800 1,072,025
Anacomp, Inc.* 57,000 890,625
Astec Industries, Inc.* 40,100 671,675
Atchison Casting Corporation* 7,000 113,750
Burlington Industries, Inc.* 34,800 480,675
Chart Industries, Inc. 92,700 2,114,719
Chase Industries, Inc.* 32,300 823,650
Coltec Industries Inc.* 50,400 1,168,650
Commercial Intertech Corporation 33,900 703,425
Drew Industries, Inc.* 65,200 831,300
Essef Corporation* 35,600 569,600
Excel Industries, Inc. 2,700 48,769
Fairchild Corporation (The)* 88,400 2,198,950
FiberMark, Inc.* 34,600 743,900
Furniture Brands International, Inc.* 58,200 1,193,100
Gardner Denver Machinery, Inc.* 65,550 1,659,234
Genlyte Group Inc. (The)* 61,400 1,089,850
Griffon Corporation* 57,600 842,400
Interlake Corporation (The)* 53,200 249,375
</TABLE>
* NON-INCOME PRODUCING. ________________________________________________________
25
<PAGE>
ECLIPSE EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Producer Manufacturing (Cont'd)
International Comfort Products Corporation* 33,500 $ 280,562
Justin Industries, Inc. 13,200 179,850
Katy Industries, Inc. 26,100 531,788
Lamson & Sessions Co. (The)* 102,100 593,456
MascoTech, Inc. 46,600 856,275
Mestek, Inc.* 22,300 418,125
Oshkosh Truck Corporation Class B 5,000 90,312
Patrick Industries, Inc. 20,300 299,425
Powell Industries, Inc.* 17,900 272,975
Titan International, Inc. 18,300 367,144
TransTechnology Corporation 9,600 271,800
U.S. Industries, Inc. 10,200 307,275
Westinghouse Air Brake Company 22,200 568,875
WinsLoew Furniture, Inc.* 41,700 604,650
------------
24,557,559
------------
Retail Trade 12.90%
American Stores Co. 20,000 411,250
Ames Department Stores, Inc.* 69,700 1,219,750
BJ's Wholesale Club, Inc.* 9,800 307,475
Best Buy Co., Inc.* 10,000 368,750
Bon-Ton Stores, Inc. (The)* 15,000 225,000
Burlington Coat Factory Warehouse Corporation 34,680 570,053
Carson Pirie Scott & Co.* 18,800 942,350
Cash America International, Inc. 14,100 182,419
Cato Corporation Class A 2,000 17,750
Central Garden and Pet Company* 7,100 186,375
Charming Shoppes, Inc.* 71,600 335,625
Circuit City Stores-Circuit City Group 4,900 174,256
Costco Companies, Inc.* 18,400 821,100
Creative Computers, Inc.* 43,000 427,313
Damark International, Inc. Class A* 30,700 299,325
Dayton Hudson Corporation 11,300 762,750
Egghead, Inc.* 30,000 195,000
Filene's Basement Corporation* 104,000 416,000
Fred Meyer, Inc.* 27,800 1,011,225
Fred's, Inc. 7,750 158,875
General Nutrition Incorporated* 11,100 377,400
Genesco Inc.* 23,400 298,350
Genovese Drug Stores, Inc. 30,030 514,264
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Retail Trade (Cont'd)
Goody's Family Clothing, Inc.* 30,300 $ 823,781
Great Atlantic & Pacific Tea Company, Inc. (The) 8,100 240,469
Handleman Company* 166,100 1,152,319
Homebase, Inc.* 16,900 133,087
Intelligent Electronics, Inc.* 51,200 284,800
J. Baker, Inc. 21,600 121,500
Kmart Corporation* 19,900 230,094
Kroger Company (The)* 6,900 254,869
Lazare Kaplan International Inc.* 15,800 213,300
Longs Drug Stores Corporation 20,900 671,412
Marsh Supermarkets, Inc. Class B 200 2,987
Musicland Stores Corporation* 86,700 633,994
OfficeMax, Inc.* 39,200 558,600
Pier 1 Imports, Inc. 48,800 1,104,100
Reebok International Ltd.* 5,200 149,825
Ruddick Corporation 72,600 1,265,962
Seaway Food Town, Inc. 7,500 142,500
Shoe Carnival, Inc.* 26,600 216,125
Shopko Stores, Inc.* 44,200 961,350
Syms Corporation* 21,400 254,125
TJX Companies, Inc. (The) 52,600 1,808,125
Tandy Corporation 7,300 281,506
Trans World Entertainment Corporation* 118,000 2,286,250
Value City Department Stores, Inc.* 54,400 482,800
------------
24,496,535
------------
Technology Services 3.25%
Audiovox Corporation* 165,800 1,139,875
Bell Microproducts, Inc.* 64,200 505,575
CHS Electronics, Inc.* 83,500 1,429,938
Ingram Micro, Inc., Class A* 8,200 238,825
Merisel, Inc.* 50,000 218,750
Tech Data Corporation* 35,800 1,391,725
Tele-Communications, Inc. Series A Liberty Media Group* 7,000 253,750
Vanstar Corporation* 87,300 987,581
------------
6,166,019
------------
Transportation 6.50%
Air Express International Corporation 40,500 1,235,250
Arkansas Best Corporation* 55,200 538,200
Atlantic Coast Airlines, Inc.* 67,200 2,133,600
</TABLE>
________________________________________________________ * NON-INCOME PRODUCING.
26
<PAGE>
ECLIPSE EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Transportation (Cont'd)
Circle International Group, Inc. 14,200 $ 325,712
Consolidated Freightways Corporation* 44,000 599,500
Hawaiian Airlines, Inc.* 144,200 540,750
Illinois Central Corporation 5,200 177,125
Kansas City Southern Industries, Inc. 8,400 266,700
Mesaba Holdings, Inc.* 20,300 527,800
Roadway Services, Inc. 63,500 1,404,938
Rollins Truck Leasing Corporation 16,000 286,000
US Airways Group, Inc.* 40,300 2,518,750
Yellow Corporation* 71,200 1,788,900
------------
12,343,225
------------
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
Utilities 2.34%
Citizens Utilities Company* 17,855 $ 171,852
Dycom Industries, Inc.* 95,000 2,048,438
Edison International 11,300 307,219
FirstEnergy Corporation* 8,662 251,198
Kaneb Services, Inc.* 54,400 282,200
TNP Enterprises, Inc. 18,500 615,125
USX-Delhi Group 22,700 465,350
Western Resources, Inc. 6,900 296,700
------------
4,438,082
------------
Total Common Stocks
(Cost $142,280,875) $187,847,836
------------
</TABLE>
SHORT-TERM INVESTMENTS 2.18%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
Repurchase Agreements 2.18%
State Street Bank and Trust Company, 4.25%, due
01/02/98 (Collateralized by $4,170,000 U.S. Treasury
Note, 6.125% due 03/31/98) $4,151,232 $ 4,151,232
------------
<CAPTION>
VALUE
(NOTE 1)
<S> <C> <C>
Total Short-Term Investments
(Cost $4,151,232) $ 4,151,232
------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Total Investments (101.07%)
(Cost $146,432,107+) $191,999,068
Liabilities in Excess of Cash
and Other Assets (-1.07%) (2,034,117)
------------
Net Assets (100.00%) 13,390,434 shares outstanding
(Note 3) $189,964,951
------------
------------
Net Asset Value, offering and redemption price per
share $14.19
------------
------------
</TABLE>
<TABLE>
<C> <S>
+ The cost stated also represents the aggregate cost for federal income tax
purposes. Aggregate unrealized appreciation and depreciation of
investments, based on cost for federal income tax purposes, are $51,834,989
and $6,268,028, respectively.
See notes to financial statements.
</TABLE>
* NON-INCOME PRODUCING. ________________________________________________________
27
<PAGE>
ECLIPSE FUNDS STATEMENTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ULTRA SHORT TERM BALANCED GROWTH AND
INCOME FUND FUND INCOME FUND
------------------ ---------------- ----------------
<S> <C> <C> <C>
Investment Income (Loss)
Income:
Interest $ 315,984 $ 2,344,687 $ 75,130
Dividends (a) -- 802,693 608,518
---------- ---------------- ----------------
Total Income 315,984 3,147,380 683,648
---------- ---------------- ----------------
Expenses (Note 2):
Management Fee 19,113 681,825 470,307
Custodian and related shareholder expenses 16,591 131,008 53,161
Legal, compliance and filing fees 7,710 28,081 40,757
Audit and accounting 7,000 13,000 7,000
Trustees' fees 223 4,047 2,386
Other 7,731 12,566 2,288
---------- ---------------- ----------------
Total expenses before reimbursement 58,368 870,527 575,899
Fees paid indirectly -- (1,079) --
Expense reimbursement from Advisor (58,368) (153,387) (82,079)
---------- ---------------- ----------------
Net expenses -- 716,061 493,820
---------- ---------------- ----------------
Net investment income (loss) 315,984 2,431,319 189,828
---------- ---------------- ----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on investments (30,742) 10,408,969 456,275
Change in unrealized appreciation of investments 4,876 5,041,636 10,537,440
---------- ---------------- ----------------
Net gain (loss) on investments (25,866) 15,450,605 10,993,715
---------- ---------------- ----------------
Increase in net assets from operations $ 290,118 $ 17,881,924 $ 11,183,543
---------- ---------------- ----------------
---------- ---------------- ----------------
<CAPTION>
EQUITY
FUND
----------------
<S> <C>
Investment Income (Loss)
Income:
Interest $ 153,310
Dividends (a) 1,664,229
----------------
Total Income 1,817,539
----------------
Expenses (Note 2):
Management Fee 1,781,313
Custodian and related shareholder expenses 133,722
Legal, compliance and filing fees 68,720
Audit and accounting 20,000
Trustees' fees 8,344
Other 12,268
----------------
Total expenses before reimbursement 2,024,367
Fees paid indirectly (1,408)
Expense reimbursement from Advisor --
----------------
Net expenses 2,022,959
----------------
Net investment income (loss) (205,420)
----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on investments 39,214,295
Change in unrealized appreciation of investments 10,587,723
----------------
Net gain (loss) on investments 49,802,018
----------------
Increase in net assets from operations $ 49,596,598
----------------
----------------
</TABLE>
(a) Dividends recorded net of foreign withholding taxes of $0, $2,639, $654 and
$6,465, respectively.
See notes to financial statements.
________________________________________________________________________________
28
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS ECLIPSE FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ULTRA SHORT TERM INCOME FUND BALANCED FUND
-------------------------------- -----------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED
1997 1996 DECEMBER 31, 1997
--------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 315,984 $ 310,550 $ 2,431,319
Net realized gain (loss) on investments (30,742) (36,917) 10,408,969
Change in unrealized appreciation (depreciation) of investments 4,876 (25,313) 5,041,636
--------------- --------------- -----------------
Increase in net assets from operations 290,118 248,320 17,881,924
--------------- --------------- -----------------
Distributions to shareholders from:
Net investment income (316,187) (314,948) (2,431,857)
Net realized gains on investments -- -- (10,409,079)
--------------- --------------- -----------------
Total distributions to shareholders (316,187) (314,948) (12,840,936)
--------------- --------------- -----------------
Transactions in shares of beneficial interest (Note 3) 958,752 (83,335) (4,620,083)
--------------- --------------- -----------------
Total increase (decrease) 932,683 (149,963) 420,905
Net Assets:
Beginning of year 4,460,521 4,610,484 83,825,161
--------------- --------------- -----------------
End of year (including undistributed net investment income of $0, $173, $0
and $278, respectively) $ 5,393,204 $ 4,460,521 $ 84,246,066
--------------- --------------- -----------------
--------------- --------------- -----------------
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
----------------
<S> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 2,991,119
Net realized gain (loss) on investments 5,295,291
Change in unrealized appreciation (depreciation) of investments 1,655,120
----------------
Increase in net assets from operations 9,941,530
----------------
Distributions to shareholders from:
Net investment income (2,991,194)
Net realized gains on investments (5,295,439)
----------------
Total distributions to shareholders (8,286,633)
----------------
Transactions in shares of beneficial interest (Note 3) (3,751,938)
----------------
Total increase (decrease) (2,097,041)
Net Assets:
Beginning of year 85,922,202
----------------
End of year (including undistributed net investment income of $0, $173, $0
and $278, respectively) $ 83,825,161
----------------
----------------
</TABLE>
See notes to financial statements.
________________________________________________________________________________
29
<PAGE>
ECLIPSE FUNDS STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
------------------------------------ EQUITY FUND
YEAR ENDED ------------------
YEAR ENDED DECEMBER 31, YEAR ENDED
DECEMBER 31, 1997 1996 DECEMBER 31, 1997
------------------ ---------------- ------------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income (loss) $ 189,828 $ 141,967 $ (205,420)
Net realized gain on investments 456,275 879,420 39,214,295
Change in unrealized appreciation of investments 10,537,440 742,727 10,587,723
------------------ ---------------- ------------------
Increase in net assets from operations 11,183,543 1,764,114 49,596,598
------------------ ---------------- ------------------
Distributions to shareholders from:
Net investment income (190,015) (147,097) --
Net realized gains on investments (456,282) (879,204) (39,161,849)
------------------ ---------------- ------------------
Total distributions to shareholders (646,297) (1,026,301) (39,161,849)
------------------ ---------------- ------------------
Transactions in shares of beneficial interest (Note 3) 89,177,271 1,038,837 8,783,459
------------------ ---------------- ------------------
Total increase (decrease) 99,714,517 1,776,650 19,218,208
Net Assets:
Beginning of year 9,737,090 7,960,440 170,746,743
------------------ ---------------- ------------------
End of year (including undistributed net investment income of $10,
$147, $0 and $7,178, respectively) $ 109,451,607 $ 9,737,090 $ 189,964,951
------------------ ---------------- ------------------
------------------ ---------------- ------------------
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
------------------
<S> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income (loss) $ 1,336,261
Net realized gain on investments 38,831,528
Change in unrealized appreciation of investments 3,677,561
------------------
Increase in net assets from operations 43,845,350
------------------
Distributions to shareholders from:
Net investment income (1,333,568)
Net realized gains on investments (38,672,513)
------------------
Total distributions to shareholders (40,006,081)
------------------
Transactions in shares of beneficial interest (Note 3) (7,797,705)
------------------
Total increase (decrease) (3,958,436)
Net Assets:
Beginning of year 174,705,179
------------------
End of year (including undistributed net investment income of $10,
$147, $0 and $7,178, respectively) $ 170,746,743
------------------
------------------
</TABLE>
See notes to financial statements.
________________________________________________________________________________
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS ECLIPSE FUNDS
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Eclipse Funds (the "Funds"), formerly Eclipse Financial Asset Trust, a
Massachusetts business trust registered under the Investment Company Act of
1940, is a no-load, diversified, open-end management investment company. There
are currently 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 total return
consisting of current income, preservation of capital, and a relatively stable
net asset value. The Balanced Fund seeks a high total return from a combination
of equity and fixed-income investments. The Growth and Income Fund seeks a high
total return consisting of both current income and realized and unrealized
capital gains from equity securities and equity-related securities. The
investment objective of the Equity Fund is to seek a high total return from
equity investments. The financial statements are prepared in accordance with
generally accepted accounting principles for investment companies as follows:
a) Valuation of Securities
Securities traded on a national securities exchange or admitted to trading
on the National Association of Securities Dealers Inc. Automated Quotations
National List are valued at the last reported sales price on the last
business day of the fiscal period. Common stocks for which no sale was
reported on that date and over-the-counter securities are valued at the mean
between the last reported bid and asked prices. United States Government
obligations and other debt instruments having sixty days or less remaining
until maturity are stated at amortized cost. Debt instruments having a
remaining maturity of more than sixty days will be valued at the highest bid
price obtained from a dealer maintaining an active market in that security
or on the basis of prices obtained from a pricing service approved as
reliable by the Board of Trustees. All other investment assets, including
restricted and not readily marketable securities, are valued in such a
manner as the Board of Trustees in good faith deems appropriate to reflect
their fair market value.
b) Federal Income Taxes
It is the policy of each Fund to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no
provision for federal income tax is required.
c) Dividends and Distributions to Shareholders
Dividends and distributions are recorded on the ex-dividend date. Dividends
from net investment income will be declared and paid quarterly for the Ultra
Short Term Income Fund and the Balanced Fund, and annually for the Growth
and Income Fund and the Equity Fund. Distributions from net realized gains
and income distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for deferral of
wash sales.
d) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ
from those estimates.
e) General
Securities transactions are recorded on a trade date basis. Interest income
is accrued as earned and dividend income is recorded on the ex-dividend
date. Realized gains and losses from securities transactions are recorded on
the identified cost basis. It is the Funds' policy to take possession of
securities as collateral under repurchase agreements and to determine on a
daily basis that the value of such securities plus accrued interest are
sufficient to cover the value of the repurchase agreements.
2. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Management Contract, the Funds pay a management fee to Towneley
Capital Management, Inc. (Manager) equal to an annual rate of the average daily
net assets of .40%, .80%, .90% and 1.00% for the Ultra Short Term Income Fund,
the Balanced Fund, the Growth and Income Fund and the Equity Fund, respectively.
For the year ended December 31, 1997, the Manager voluntarily waived fees for
the Ultra Short Term Income Fund, the Balanced Fund and the Growth and Income
Fund of $19,113, $153,387 and $82,079, respectively. In
________________________________________________________________________________
31
<PAGE>
ECLIPSE FUNDS NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
addition, the Manager reimbursed expenses of $39,255 for the Ultra Short Term
Income Fund.
Fees are paid to Trustees who are unaffiliated with the Manager on the basis of
$2,000 per annum plus $750 per meeting attended.
Included in the statement of operations under the caption "Custodian and related
shareholder expenses" are custodian fee offsets of $1,079 and $1,408 for the
Balanced Fund and the Equity Fund, respectively.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
At December 31, 1997, the Funds had an unlimited authorized number of shares of
beneficial interest ($.01
par value). Capital paid in amounted to $5,472,001, $70,840,216, $97,330,697 and
$144,384,771 for the Ultra Short Term Income Fund, the Balanced Fund, the Growth
and Income Fund and the Equity Fund. The Ultra Short Term Income Fund underwent
a one for five share split on June 14, 1996. Transactions were as follows:
<TABLE>
<CAPTION>
ULTRA SHORT TERM INCOME FUND
------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 207,569 $ 2,108,857 388,853 $ 1,211,511
Issued on reinvestment of dividends 29,419 295,699 49,121 314,637
Redeemed (142,566) (1,445,804) (387,823) (1,609,483)
Reduction in shares due to reverse share split -- -- (1,867,810) --
----------- ------------- ----------- -------------
Net increase (decrease) 94,422 $ 958,752 (1,817,659) $ (83,335)
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BALANCED FUND
------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 449,370 $ 10,340,424 579,937 $ 12,210,767
Issued on reinvestment of dividends 580,641 12,701,623 390,889 8,225,985
Redeemed (1,217,823) (27,662,130) (1,153,469) (24,188,690)
----------- ------------- ----------- -------------
Net decrease (187,812) $ (4,620,083) (182,643) $ (3,751,938)
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
________________________________________________________________________________
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS ECLIPSE FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 5,817,969 $95,493,541 52,143 $ 691,069
Issued on reinvestment of dividends 37,400 641,036 71,032 958,216
Redeemed (415,771) (6,957,306) (47,879) (610,448)
----------- ------------- ----------- -------------
Net increase 5,439,598 $89,177,271 75,296 $ 1,038,837
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EQUITY FUND
------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 1,515,115 $ 24,622,974 515,755 $ 7,634,352
Issued on reinvestment of dividends 2,802,771 38,675,310 2,963,304 39,737,905
Redeemed (3,598,851) (54,514,825) (3,688,581) (55,169,962)
----------- ------------- ----------- -------------
Net increase (decrease) 719,035 $ 8,783,459 (209,522) $ (7,797,705)
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
4. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than U.S. Government direct
and agency obligations and short-term investments, totaled $2,421,404 and
$1,500,000 for the Ultra Short Term Income Fund, $34,095,398 and $49,085,759 for
the Balanced Fund, $113,133,045 and $25,343,645 for the Growth and Income Fund
and $96,622,391 and $125,945,438 for the Equity Fund. At December 31, 1997,
accumulated undistributed realized gains amounted to $13,219 for the Equity
Fund. Accumulated realized losses at December 31, 1997, amounted to $67,659 for
the Ultra Short Term Income Fund. Such losses represent tax basis capital losses
which may be carried forward to offset future capital gains and expire December
31, 2005.
________________________________________________________________________________
33
<PAGE>
ECLIPSE FUNDS NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ULTRA SHORT TERM INCOME FUND
DECEMBER 27,
FOR THE FOR THE FOR THE 1994
YEAR ENDED YEAR ENDED YEAR ENDED (INCEPTION) TO
DECEMBER DECEMBER DECEMBER DECEMBER 31,
31, 1997 31, 1996 31, 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 --
Net realized and unrealized gains (losses) on
investments (0.03) (0.16) 0.20 --
----------- ----------- ----------- ---------------
Total from investment operations 0.61 0.55 0.77 --
----------- ----------- ----------- ---------------
Less distributions:
Dividends from net investment income (0.64) (0.72) (0.57) --
----------- ----------- ----------- ---------------
Total distributions (0.64) (0.72) (0.57) --
----------- ----------- ----------- ---------------
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>
- -----------------
<TABLE>
<C> <S> <S>
* 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 reverse share
split effective June 14, 1996.
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS ECLIPSE FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
BALANCED 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 $ 21.00 $ 20.59 $ 17.76 $ 18.63 $ 17.37
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 0.66 0.78 0.64 0.56 0.62
Net realized and unrealized gains (losses)
on investments 4.14 1.85 3.39 (0.56) 2.32
--------- --------- --------- --------- ---------
Total from investment operations 4.80 2.63 4.03 0.00 2.94
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income (0.66) (0.78) (0.64) (0.56) (0.64)
Distributions from net realized gains (2.99) (1.44) (0.56) (0.31) (1.04)
--------- --------- --------- --------- ---------
Total distributions (3.65) (2.22) (1.20) (0.87) (1.68)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 22.15 $ 21.00 $ 20.59 $ 17.76 $ 18.63
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total return 23.40% 12.91% 22.99% 0.01% 17.06%
Ratios/Supplemental data
Net assets, end of year (000) $ 84,246 $ 83,825 $ 85,922 $ 27,703 $ 21,690
Ratios to average net assets:
Expenses 0.84%+# 0.80%+ 0.81%+# 0.80%+ 0.69%+
Net investment income 2.85%+ 3.56%+ 3.62%+ 3.10%+ 3.42%+
Portfolio turnover rate 46.66% 71.51% 74.72% 94.38% 65.05%
Average commission rate paid $ 0.0466 $ 0.0476 (a) (a) (a)
</TABLE>
- -----------------
<TABLE>
<C> <S>
+ Net of management fee waived equivalent to 0.2%, 0.2%, 0.3%, 0.4% and 0.5% of average net assets.
# Includes custody fees paid indirectly which amount to less than 0.01% of average net assets.
(a) Disclosure of amount required for fiscal years beginning on or after September 1, 1995.
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
35
<PAGE>
ECLIPSE FUNDS NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
GROWTH AND INCOME FUND
DECEMBER 27,
FOR THE FOR THE FOR THE 1994
YEAR ENDED YEAR ENDED YEAR ENDED (INCEPTION) TO
DECEMBER DECEMBER DECEMBER DECEMBER 31,
31, 1997 31, 1996 31, 1995 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 --
Net realized and unrealized gains on investments 4.34 2.54 2.57 --
----------- ----------- ----------- ---------------
Total from investment operations 4.37 2.76 2.68 --
----------- ----------- ----------- ---------------
Less distributions:
Dividends from net investment income (0.03) (0.23) (0.11) --
Distributions from net realized gains (0.07) (1.35) (0.26) --
----------- ----------- ----------- ---------------
Total distributions (0.10) (1.58) (0.37) --
----------- ----------- ----------- ---------------
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 paid $ 0.0451 $ 0.0454 (a) (a)
</TABLE>
- -----------------
<TABLE>
<C> <S> <S>
* Annualized
+ Net of management fee waived equivalent to 0.2%, 0.7%, 0.9% and 0.9% of average net assets plus expenses reimbursed
equivalent to 0.00%, 0.00%, 0.05% and 43.15% of average net assets, respectively.
# 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.
</TABLE>
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________________________________________________________________________________
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS ECLIPSE FUNDS
- --------------------------------------------------------------------------------
<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 (loss) (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 paid $ 0.0418 $ 0.0431 (a) (a) (a)
</TABLE>
- -----------------
<TABLE>
<C> <S>
# Includes custody 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.
</TABLE>
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________________________________________________________________________________
37
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees and Shareholders of
Eclipse Funds:
We have audited the accompanying statements of net assets of the Ultra Short
Term Income Fund, the Balanced Fund, the Growth and Income Fund, and the Equity
Fund series of Eclipse Funds, as of December 31, 1997, and the related
statements of operations, changes in net assets and selected financial
information for the periods indicated in the accompanying financial statements.
These financial statements and selected financial information are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and selected financial information based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of the Ultra Short Term Income Fund, the Balanced Fund, the Growth and
Income Fund, and the Equity Fund series of Eclipse Funds as of December 31,
1997, the results of their operations, the changes in their net assets and the
selected financial information for the periods indicated, in conformity with
generally accepted accounting principles.
[/S/ MCGLADREY & PULLEN, LLP]
New York, New York
January 30, 1998
________________________________________________________________________________
38
<PAGE>
ECLIPSE FUNDS TRUSTEES AND OFFICERS
<TABLE>
<S> <C>
Wesley G. McCain Trustee, Chairman and President
Trustee, Secretary, Executive Vice
Sigrid A. Hess President
John Novogrod Trustee
John C. Van Eck Trustee
Yung Wong Trustee
Anthony W. Polis Vice President, Treasurer
Sylvia McCormick Vice President
Patrick J. Farrell Assistant Treasurer
Antoinette B.
Cirillo Assistant Treasurer
A. Thomas Smith
III Assistant Secretary
Sara L. Badler Assistant Secretary
</TABLE>
________________________________________________________________________________
39
<PAGE>
TOWNELEY CAPITAL MANAGEMENT, INC.
Towneley Capital Management, Inc. is the Manager of the Eclipse Funds.
Established in 1971, Towneley is a registered investment advisor serving
individual and institutional clients. As of December 31, 1997 total assets under
management were over one billion dollars.
The firm's four lines of business are the investment management of the Eclipse
Funds, of separate accounts, of portfolios of no-load mutual funds customized to
meet clients' financial planning objectives, and of several hedge funds.
Towneley Capital Management is organized for efficient investment decision
making and administration with electronically linked offices in New York City,
Laguna Hills, California, and Peachtree City, Georgia.
Hallmarks of each of Towneley Capital Management's investment services are
integration of risk management with pursuit of investment return, dedication to
clients' investment goals, application of fundamentally sound quantitative
strategies and extension of institutional investment expertise to individuals
and groups through low cost approaches.
Towneley Capital Management's founder and chairman, Wesley G. McCain directs the
investment process, in collaboration with a staff of 25 professional and
administrative personnel. Dr. McCain, who holds a doctoral degree from Stanford
University and master's degrees from Columbia and Stanford, was formerly on the
faculty of the Graduate School of Business of Columbia University. The
co-manager of the Ultra Short Term Income Fund and the Balanced Fund is Joan
Sabella, who has been with Towneley since 1978. She holds a BBA from Baruch
College, and is a Certified Financial Planner. The co-manager, with Dr. McCain,
of the Growth and Income and Equity Funds is Kathy O'Connor. She holds a BBA
from Southeastern Massachusetts State College, an MBA from Babson College, and
is a Certified Financial Analyst. She joined Towneley in 1987.
________________________________________________________________________________
40
<PAGE>
GLOSSARY
Asset/Value Stocks are defined as companies which are cheap to their economic
book value or adjusted net worth. These companies typically have low price to
stated book value ratios, low price to earnings ratios, high dividends, and low
price to sales ratios.
Current Yield is the annual interest paid by a bond, divided by its current
market value.
Duration is a measure of the expected life of all fixed income securities in a
fund. It is market value weighted and incorporates each bond's yield, coupon
interest payments, final maturity and call feature into one measure. In general,
the lower the coupon rate of interest, the longer the duration, and the higher
the coupon, the shorter the duration. Duration is used as a proxy for the
sensitivity of prices to changes in interest rates. The shorter the duration,
the less sensitive the price is to interest rate changes.
Growth/Value Stocks are defined as companies which have experienced a high level
of profitability from a combination of high margins and/or asset turns. They
generally have good working capital and debt management, and typically have low
price to sales ratios, high price earnings ratios, nominal dividends, and high
historical earnings or revenue growth.
Large Capitalization is defined by Eclipse by ranking all publicly traded
companies in our universe based on market capitalization. We then divide that
universe into ten groups, each with an equal number of companies. The 10% with
the highest market capitalization are considered large. The next 10-20% are
mid-size and the balance of the universe we consider small companies. As the
stock market and the economic environment change, companies once considered
large may become mid-size or small and vice versa.
Lipper Balanced Fund Index tracks the performance of the 30 largest balanced
funds, adjusted for the reinvestment of capital gain distributions and income
dividends. Source: Lipper Analytical Services
Lipper Growth & Income Fund Index tracks the performance of the 30 largest
growth and income funds, adjusted for the reinvestment of capital gains
distributions and income dividends. These growth and income funds combine a
growth of earnings orientation and an income requirement for level and/or rising
dividends. Source: Lipper Analytical Services
Lipper Small Cap Index tracks the performance of the 30 largest small company
growth funds, adjusted for the reinvestment of capital gains distributions and
income dividends. Source: Lipper Analytical Services
Lipper Ultra Short Obligations Funds Average is an average of funds which invest
at least 65% of their assets in investment grade debt issues, or better, and
maintain a portfolio dollar-weighted average maturity between 91 days and 365
days. Source: Lipper Analytical Services
Market Capitalization refers to the market value of all of a company's shares of
common stock outstanding. If a company has five million shares of common stock
selling at $50 a share, its market capitalization is $250 million dollars.
Merrill Lynch Corporate & Government 1-9.99 Year Bond Index is a market
capitalization weighted index including U.S. Government and fixed coupon
domestic investment grade corporate bonds with at least $100 million par amount
outstanding. Source: Merrill Lynch
Risk, in the sense of market risk, refers to the possibility that an asset might
lose value or not gain value because of price fluctuations. There are virtually
riskless investments, such as Treasury bills and low-risk investments like
short-term high quality bonds. Medium- and high-risk investments include stocks,
bonds, options, etc. A fundamental principle of finance is that investors make
riskier investments because they expect higher returns over time.
Russell 2000 Index tracks the smallest 2,000 companies in the Russell 3000
Index. The Russell 3000 includes the largest 3,000 United States companies as
determined by market capitalization. The index represents 98% of the U.S. equity
market. Source: Frank Russell Company
S&P 500 Composite Stock Price Index is a market value weighted benchmark of
common stock performance. The S&P Composite Index includes 500 stocks in 87
industries and represents over 70% of the total U.S. equity market. Source:
Standard & Poor's Securities.
________________________________________________________________________________
41
<PAGE>
S&P Small Capitalization 600 Index is a market value weighted benchmark of 600
smaller capitalization common stocks. Source: Standard & Poor's Securities.
Small Capitalization (see Large Capitalization)
Standard Deviation is a statistical measure, often used to evaluate market risk.
Standard deviation compares the volatility or variation of all the individual
returns to the average return of an investment over a time period. The bigger
the price fluctuations, the higher the variation and the riskier the return.
Weighted Average Maturity is the remaining life of all the bonds in a portfolio
adjusted for the size of each holding. If you held 60% of your investment in
Bond A, which matured in 4 years, and 40% in Bond B, maturing in 2 years, your
average weighted maturity would be 3.2 years (60% of 4 plus 40% of 2).
________________________________________________________________________________
42
<PAGE>
MANAGER
Towneley Capital Management, Inc.
144 East 30th Street
New York, New York 10016
www.towneley.com
SHAREHOLDER
SERVICING AGENT
Eclipse Financial Services, Inc.
P.O. Box 2196
Peachtree City, GA 30269
Telephone: 800.872.2710
In Georgia: 770.631.0414
CUSTODIAN, TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Investors Fiduciary Trust Company
1004 Baltimore Avenue
Kansas City, Missouri 64105
[LOGO]
WEBSITE
Visit our website at www.eclipsefund.com
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of
the Funds. It is not authorized for distribution to prospective investors in
the Funds unless preceeded or accompanied by an effective prospectus, which
includes information regarding the Funds' objectives and policies, experience
of its management, marketability of shares, and other information.
