<PAGE>
ECLIPSE
FUNDS
ANNUAL REPORT
DECEMBER 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Chairman's Letter............................................................................................ 1
Review of Eclipse-Registered Trademark- Funds
Ultra Short Term Income Fund............................................................................. 3
Balanced Fund............................................................................................ 5
Mid Cap Value Fund*...................................................................................... 7
Small Cap Value Fund**................................................................................... 10
Statements of Net Assets
Ultra Short Term Income Fund............................................................................. 12
Balanced Fund............................................................................................ 15
Mid Cap Value Fund*...................................................................................... 22
Small Cap Value Fund**................................................................................... 25
Statements of Operations..................................................................................... 30
Statements of Changes in Net Assets.......................................................................... 31
Notes to Financial Statements................................................................................ 33
Financial Highlights
Ultra Short Term Income Fund............................................................................. 36
Balanced Fund............................................................................................ 37
Mid Cap Value Fund*...................................................................................... 38
Small Cap Value Fund**................................................................................... 39
Independent Auditor's Report................................................................................. 40
Trustees and Officers........................................................................................ 41
Towneley Capital Management, Inc., Investment Manager........................................................ 42
Glossary..................................................................................................... 43
</TABLE>
- -Registered Trademark- Eclipse is a registered service mark of Eclipse Funds.
* Formerly Eclipse Growth and Income Fund
** Formerly Eclipse Equity Fund
<PAGE>
CHAIRMAN'S LETTER
Dear Fellow Shareholder:
In our last several reports to you, we spoke about how unusual the high returns
of the past several years have been. This pattern of soaring domestic stock
markets continued in 1998 . We can describe the 1998 stock market as ebullient
until the summer. Then, shaken by political and economic events in the former
Soviet Union and by financial and economic turmoil in Thailand and elsewhere in
Asia, the U.S. markets plummeted. Following the August meltdown, the market once
again turned around, becoming ever more speculative.
In the early part of the year, the stock markets kept breaking barriers: the S&P
500, which began the year at 970, passed the 1000 mark for the first time in
February. The Dow Jones Industrials, which was 7908 in December, 1997, continued
breaking through 100 point barriers until it closed above 9000 for the first
time in April, and approached 10,000 by the end of the year. The markets peaked
in July. The S&P and Dow both hit new highs in November, sparked by another wave
of merger activity.
The economy was strong. Oil prices were at new lows in the early part of the
year, and other commodity prices were also low. Money was cheap, corporate
profits were strong, as was the IPO market. Merger mania characterized much of
the year. Megamergers such as the following were announced: the $80 billion deal
between Exxon and Mobil, the nation's two largest oil companies; the formation
of Citigroup through the $73 billion merger of Citicorp and Travelers Group; SBC
Communications' acquisition of Ameritech Corp for $63 billion; the $62 billion
marriage between Nationsbank and BankAmerica; Bell Atlantic's $53 billion
acquisition of GTE; and a $40 billion transaction joining Daimler Benz and
Chrysler.
Then the wheel turned. News out of Russia was grim as Boris Yeltsin's health
declined, the strength of his government was shaken, the government defaulted on
its debts, and the economy collapsed. Thailand's monetary system imploded, and
Indonesia's financial collapse and consequent political unrest sent shock waves,
first throughout southeast Asia, and then with lightning speed to financial
markets throughout the world. Japan was mired in a recession, and Brazil
suffered from a collapse in world coffee prices. In emerging markets interest
rates soared and capital fled to safety.
THE BOND MARKET IN PERSPECTIVE
Interest rates declined significantly in 1998. The rate decline was especially
significant for U.S. Treasury securities, which benefited from a flight to
quality. Investors sought only the safest investments, as much of Asia fell into
recession, Russia defaulted, and stocks gyrated. Inflation, always a concern of
bond investors, remained under control. Short-term rates benefited from the
Federal Reserve Board's reduction of the federal funds rates three times during
the year-- September 29, October 15, and yet again November 17. While yields on
long-term Treasuries fell as low as 4.72% in October amid concerns about a
slowing economy, the yield on the 30 year Treasury bond ended the year at 5.09%,
approximately 85 basis points lower than year-end 1997.
THE STOCK MARKET IN PERSPECTIVE
Nineteen ninety-eight was a year of great market volatility and disparate market
returns. In fact, it was the most unusual and speculative market in the last 25
years, one of only a handful of such markets in history.
VOLATILITY
The stock market in 1998 was a bull market interrupted by a brief August panic.
After continuing the bull market streak for the first half of 1998, July and
August saw all U.S. domestic equity markets decline. August declines were
especially severe: the S&P 500's August loss of 14.5% was the second-largest
monthly percentage decline in the postwar period and the tenth-largest since
1926. Mid- and small-capitalization stocks fell even more that month; the S&P
400 Mid Cap Index dropped 18.6%, while the small-capitalization market segment
declined more than 19%.
Conversely, the market's one-day rally on September 8th was one of the largest
single percentage gains in decades. During the fourth quarter the S&P 500
experienced a breathtaking rally from the third quarter correction, rising
strongly
________________________________________________________________________________
1
<PAGE>
each month to end the quarter up 21.3% and the year up 28.6%. That such a rally
followed on the heels of the August decline was a surprise to nearly everyone.
DISJUNCTIVE RETURNS
The stock market was especially segmented in 1998. The "action" was concentrated
in very large growth stocks. Stocks of large-capitalization companies and growth
companies performed well; those of small-capitalization companies and value
companies did not. Large-capitalization growth companies did best of all.
The disparity is evident in the returns earned by the various segments: there
was a 30 percentage point difference in return between the Russell 1000 Index
(large companies) and the Russell 2000 Index (small companies). There was a 27
percentage point difference in return between the S&P 500 Barra Growth Index
(growth companies) and the S&P 500 Barra Value Index (value companies).
Technology stocks soared, especially stocks of companies (with or without any
earnings) having any connection, however tenuous, to the Internet.
The table below summarizes for the largest 10% of U.S. stocks (about 85% of the
value of the entire U.S. market) the large variation in returns to value,
growth, and portfolio weighting. Most indices (e.g., the S&P 500) are
capitalization-weighted. This means that the larger the capitalization of a
company, the greater its influence on the index. In contrast, most managed
portfolios have a tendency toward equal weighting, whereby an equal amount is
invested in each position.
1998 Returns*
<TABLE>
<CAPTION>
Total Universe Value Universe Growth Universe
<S> <C> <C> <C>
Equal Weighted 12.6% 5.0% 18.8%
Capitalization Weighted 27.6 10.3 35.7
* The total universe is the largest 10% of U.S. stocks ranked by market capitalization as of 12/31/97.
Value and growth universes are the cheapest and most expensive halves, respectively, of the total
universe based on price/book value.
</TABLE>
It is clear from the table that the place to have been invested was in large
growth stocks, with your money weighted by market capitalization. Eclipse
portfolios are value based and tend to be more equal-weighted.
Valuation measures soared: Price earnings multiples for large cap growth stocks
rose from 32 times latest 12-month earnings at the end of 1997 to 44 times
earnings by the end of 1998. This group of stocks was selling at an astounding
11 1/2 times book value, and more than 33 times cash flow. Large value stocks,
on the other hand, were selling at 27 times earnings, 3 1/3 times book value and
11 times cash flow.
NAME CHANGES
The Board of Trustees approved the following name changes: Eclipse Growth and
Income Fund is now ECLIPSE MID CAP VALUE FUND and Eclipse Equity Fund is now
ECLIPSE SMALL CAP VALUE FUND.
We thank you for your confidence in us, and will work to continue to merit your
trust in the years to come.
Sincerely,
[SIGNATURE]
Wesley G. McCain
Chairman
________________________________________________________________________________
2
<PAGE>
REVIEW OF ECLIPSE ULTRA SHORT TERM INCOME FUND
ECUIX
Eclipse Ultra Short Income Fund ended the year with a total return of 6.3%. The
Fund outperformed the Lipper Ultra Short Obligations Funds Average, which
returned 5.5%. The Fund was ranked number two in its Lipper group on the basis
of total return for 1998.
We select bonds primarily on the basis of credit quality and duration. At
year-end the Fund had an average quality rating of A and a duration of 0.96
years.
We continue to seek a high level of current income, preservation of capital and
a relatively stable net asset value. We also seek a higher yield than a
money-market fund offers with less fluctuation than a longer-term bond fund
experiences. Investments are limited to securities of socially responsible
companies.
- ----------------------------------------------------
LARGEST INDUSTRY HOLDINGS--12/31/98 % OF PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<S> <C>
Finance 23.5%
Federal Agencies 16.5
Retail Trade 9.3
Utilities 8.1
Consumer Non-durables 6.9
</TABLE>
- ----------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE AND RISK DATA
PERIODS ENDING DECEMBER 31, 1998
<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) 6.3% 6.0% 0.7% 8.6
Lipper Ultra Short Obligations Funds Average(5) 5.5 5.5 0.4 13.8
3 Month Treasury Bill 5.2 5.3 0.1 53.0
1 Year Treasury Bill 5.9 5.9 0.6 9.8
</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 12/31/98 was 6.4%.
4) Net of management fee waived and after expense reimbursement by manager: 1.67%, 1.20%, 1.22%, and 1.20% of average net
assets from 1995 through 1998 respectively.
5) After all expenses.
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
3
<PAGE>
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>
Ultra Short Term Income 1 Yr T-Bill
<S> <C> <C>
Dec-94 10,000 10,000
Mar-95 10,200 10,250
Jun-95 10,453 10,473
Sep-95 10,556 10,622
Dec-95 10,784 10,809
Mar-96 10,890 10,926
Jun-96 11,018 11,069
Sep-96 11,191 11,239
Dec-96 11,375 11,421
Mar-97 11,501 11,551
Jun-97 11,707 11,763
Sep-97 11,903 11,954
Dec-97 12,083 12,118
Mar-98 12,265 12,292
Jun-98 12,448 12,463
Sep-98 12,708 12,724
Dec-98 12,842 12,833
</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--1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Income dividends $ 0.5861
Short-term capital gain dividends --
Long-term capital gain dividends --
---------
Total 1998 dividends $ 0.5861
---------
---------
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
4
<PAGE>
REVIEW OF ECLIPSE BALANCED FUND
EBALX
Eclipse Balanced Fund ended the year with a disappointing total return of 8.0%.
The Lipper Balanced Fund Index had a total return of 15.1%. Large capitalization
stocks continued to reward investors handsomely; the S&P 500 Index's total
return was 28.6%. However, within the Index there was a large disparity between
growth stocks and value stocks as represented by the S&P Barra Growth Index with
a total return of 42.2%, and the S&P Barra Value Index's total return of 14.7%.
High-valuation, high-future-growth stocks did not meet our value-investing
criteria, so we did not buy them. We continued to select stocks that generally
have low relative valuations with improving fundamental trends. This approach
employs "bottom up" fundamental analysis using quantitative techniques. A
"bottom up" method means that we select individual stocks, not an industry
group. Each stock must meet our investment criteria.
Retail and utility stocks were among the Fund's largest industry holdings. Low
interest rates buoyed consumer confidence and spending, which, in turn, helped
retail stocks attain higher revenues and earnings. The Fund ended the year with
a larger utility position than it had a year earlier. The position increased
because of both stock price appreciation and additional purchases. "Success
stories" include the Fund's purchases of McKesson Corporation and Best Buy
Company. McKesson, the nation's largest distributor of drugs and toiletries,
acquired other wholesalers and remained profitable. The stock has doubled since
we first purchased it in April, 1997. Best Buy sells consumer electronics,
appliances, and home office equipment through its chain of stores. The company
benefited from the robust economy, as well as from good management and inventory
controls, and the stock has tripled in price since the beginning of 1998.
Investment grade corporate bonds were out of favor because of global
uncertainty. The Russian devaluation and concerns about Asia's future financial
stability caused investors to seek the safest bond investment, namely US
Treasuries. This flight to quality fueled long term Treasuries to a 13.5% total
return for the year. While the Fund owned some Treasuries, most of the
investments were in investment grade bonds, which produced a total return of
8.6%. Our benchmark index had a total return of 8.5%. The bond portfolio had a
duration of 4.8 years and an average quality rating of A.
- ----------------------------------------------------
LARGEST INDUSTRY HOLDINGS--12/31/98 % OF ENTIRE
PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<S> <C>
Finance 15.8%
Utilities 13.6
Retail Trade 13.1
Producer Manufacturing 7.2
Health Services 5.9
</TABLE>
- ----------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE AND RISK DATA
PERIODS ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURN(1)
1 YEAR 3 YEARS 5 YEARS INCEPTION(2) RISK(3) RETURN/RISK
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Eclipse Balanced Fund(4,5) 8.0% 14.6% 13.1% 12.5% 7.5% 1.7
Lipper Balanced Fund Index(4) 15.1 16.1 13.9 13.0 8.4 1.6
Merrill Lynch Corporate & Govt 1-9.99 Years Bond Index 8.5 6.8 6.7 8.5 3.2 2.7
Standard & Poor's 500 Index 28.6 28.2 24.1 18.5 13.3 1.4
3 Month Treasury Bill 5.2 5.3 5.2 5.6 0.5 11.2
</TABLE>
- ---------------
<TABLE>
<C> <S>
1) With income reinvested.
2) May 1, 1989 to December 31, 1998.
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%,
0.2%, and 0.1% from 1993 through 1998, 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>
- --------------------------------------------------------------------------------
________________________________________________________________________________
5
<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 Lipper Balanced Index
<S> <C> <C>
Apr-89 10,000 10,000
Dec-89 10,445 11,139
Dec-90 10,596 11,211
Dec-91 12,812 14,107
Dec-92 14,353 15,159
Dec-93 16,803 16,971
Dec-94 16,807 16,624
Dec-95 20,673 20,760
Dec-96 23,344 23,461
Dec-97 28,803 28,166
Dec-98 31,116 32,482
</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 eliminated the S&P 500 Index because it measures only
stocks, while Eclipse Balanced Fund invests in both stocks and bonds. Based on
an initial value of $10,000 on April 30, 1989, Eclipse Balanced Fund's ending
value was $31,116, the ending value of the Lipper Balanced Fund Index was
$32,482, and the ending value of the S&P 500 Index was $51,450.
- --------------------------------------------------------------------------------
PER SHARE DIVIDEND INFORMATION--1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Income dividends $ 0.6116
Short-term capital gain dividends 0.0081
Long-term capital gain dividends 1.9120
---------
Total 1998 dividends $ 2.5317
---------
---------
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
6
<PAGE>
REVIEW OF ECLIPSE MID CAP VALUE FUND
(FORMERLY ECLIPSE GROWTH AND INCOME FUND)
EGCIX
Eclipse Mid Cap Value Fund was up 10.4% this year. The Fund's performance was in
line with the Russell Midcap Index at 10.1% and ahead of the Russell Midcap
Value Index which rose 5.1%. However, the Fund underperformed both the Lipper
Growth and Income Fund Index which rose 13.6%, and the S&P 500 Index which
returned 28.6%.
The Fund's performance reflects the following reality: the equity market's
strong showing in 1998 was confined to a narrow group of relatively
high-valuation technology stocks with high expected future growth rates. Because
these stocks did not meet our criteria, we did not purchase them. Consequently
the Fund did not participate in these unusually strong returns.
There are two basic investment styles: value and growth. Growth companies tend
to have higher valuations (higher price/earnings ratios, price/cash flow ratios,
price/revenue multiples), while value companies have lower valuations. The
performance of one style vis-a-vis the other varies, often according to the
current stage of the economic and business cycle. The S&P Barra Value and Growth
Indexes divide the stocks within the S&P 500 Index into two groups, value and
growth. The S&P Barra Growth Index had a total return of 42.2%, while the S&P
Barra Value Index rose only 14.7%, a difference of 27.5 percentage points.
A QUANTITATIVE APPROACH
We use a quantitative approach to economic measures in selecting relatively
undervalued equities. We do not forecast earnings or estimate future growth
rates. Our valuation methods show that the current growth-oriented technology
and health services sectors have relatively high valuations and low
profitability. We do not know when, if ever, companies in those sectors will
meet the growth rates implied by current valuations. In fact, the operating
earnings for the S&P 500 Index fell in 1998 for the first time since 1991. The
consistent application of our valuation method causes us to maintain a portfolio
of relatively undervalued and highly profitable companies.
We select stocks based on their individual investment merit. The stocks we buy
usually have low relative valuations and strong current operating
characteristics. Valuations are relatively low because the market believes the
company does not have strong growth prospects.
The Fund may have high concentrations in some industries, not because of a
decision to invest in them, but by default. Often companies in the same industry
experience a weak business cycle at the same time. The weak cycle results in
slower growth rates and correspondingly lower valuations. The nature of our
value oriented selection process may, therefore, lead us to invest in many
companies within one sector.
In 1997 financial stocks comprised approximately 20% of the portfolio; in 1998
this declined to 7%. The Fund has about 17% of its portfolio invested in Retail
Trade and 10% in Utilities. Our Utilities position increased during the year,
both as a result of new purchases, and appreciation of current holdings.
Two of the Fund's holdings that did particularly well were Apple Computer and
McKesson Corporation. Apple is a well known comeback story. In the early 1990s
Apple lost market share to Microsoft, as new software applications were being
written to work with Windows, but not with Apple's operating system. We bought
the stock in late 1997 and early 1998 because the valuations were low and there
were changes in the business. Management had changed, and the company discounted
old inventory and introduced a new product--the successful "I-Mac" Macintosh
Computer. This operating momentum led to strong profitability and, consequently,
strong stock price performance.
McKesson Corporation is the U.S.' leading domestic drug wholesaler. It acquired
other wholesalers, realizing economies of scale and lower costs. Moreover, the
company is aggressive in winning new business. We purchased this stock at a
relatively attractive valuation, based on the fundamental characteristics of its
business. The stock subsequently performed well.
VALUATION
We use valuation measures to compare companies. We assess a company's economic
value by relating accounting data (revenues, earnings, 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.
________________________________________________________________________________
7
<PAGE>
The table below shows several valuation measures comparing the stocks in Eclipse
Mid Cap Value Fund with those in the Russell Mid Cap Index and the S&P 500 Index
measured at the end of the year.
- ----------------------------------------------------
<TABLE>
<CAPTION>
ECLIPSE MID CAP RUSSELL MID CAP S&P 500
VALUE INDEX INDEX
------------------------------------------------------------
<S> <C> <C> <C>
Price/Sales 0.7 3.9 2.8
Price/Earnings 19.6 29.8 32.3
Price/Book Value 2.5 4.2 7.4
</TABLE>
The table indicates that stocks in the S&P 500 Index are four times as expensive
as the stocks in the Eclipse Mid Cap Value Fund with respect to sales, more than
60% as expensive in terms of earnings and almost three times as expensive in
terms of book value ratios. The stocks in the Russell Mid Cap Index are also
more expensive than those in Eclipse on these measures.
- ----------------------------------------------------
LARGEST INDUSTRY HOLDINGS--12/31/98 % OF PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<S> <C>
Retail Trade 17.4%
Producer Manufacturing 12.0
Utilities 10.5
Health Services 10.4
Commercial Services 7.0
</TABLE>
- ----------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE AND RISK DATA
PERIODS ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURN(1)
1 YEAR 3 YEARS RISK(2) RETURN/RISK
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eclipse Mid Cap Value Fund(3,4) 10.4% 21.4% 15.1% 1.4
Russell Mid Cap Index 10.1 19.1 16.5 1.2
Standard & Poor's 500 Index 28.6 28.2 16.0 1.8
3 Month Treasury Bill 5.2 5.3 0.1 53.0
</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 12/31/98 was 22.7%.
4) Net of management fee waived and after expense reimbursement by manager: 0.95%, 0.67%, 0.16%, and 0.06% of average net
assets from 1995 through 1998, respectively.
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
8
<PAGE>
GROWTH OF $10,000 SINCE INCEPTION
ECLIPSE MID CAP VALUE FUND WITH INCOME REINVESTED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Eclipse Mid Cap Value Russell Mid Cap Index
<S> <C> <C>
Dec-94 10,000 10,000
Mar-95 10,460 11,041
Jun-95 11,271 11,965
Sep-95 12,212 13,025
Dec-95 12,684 13,445
Mar-96 13,395 14,254
Jun-96 13,746 14,656
Sep-96 14,076 15,115
Dec-96 15,526 16,000
Mar-97 15,699 15,869
Jun-97 17,772 18,021
Sep-97 20,176 20,414
Dec-97 20,566 20,641
Mar-98 23,612 22,871
Jun-98 23,835 22,526
Sep-98 20,454 19,187
Dec-98 22,700 22,725
</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 Lipper Growth & Income Fund Index with
the Russell Mid Cap Index because the Russell Index is more reflective of the
stocks in the Eclipse portfolio. We have eliminated the Standard & Poor's 500
Index because it is not reflective of the stocks in which Eclipse Mid Cap Value
Fund invests. Based on an initial value of $10,000 on December 31, 1994, at the
end of 1998 the Lipper Growth and Income Fund Index was $22,805, the Russell Mid
Cap Index was $22,725, the S&P 500 was $29,006, and Eclipse Mid Cap Value Fund
was $22,700.
- --------------------------------------------------------------------------------
PER SHARE DIVIDEND INFORMATION--1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Income dividends $ 0.0589
Short term capital gain dividends 0.0863
Long term capital gain dividends 1.7019
---------
Total 1998 dividends $ 1.8471
---------
---------
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
9
<PAGE>
REVIEW OF ECLIPSE SMALL CAP VALUE FUND
(FORMERLY ECLIPSE EQUITY FUND)
EEQFX
Eclipse Small Cap Value Fund had a total return of 3.4% in 1998. Large
capitalization stocks and growth stocks both had another stellar year. However,
the Fund invests in small capitalization, value companies, neither of which
groups did well in 1998. Nonetheless, within the small cap and value investment
universes, the Fund outperformed the Russell 2000 Value Index which was down
6.5% and the total Russell 2000 Index which was down 2.6%.
Equity markets were very volatile in 1998. August was the "cruelest month" with
Eclipse Small Cap Value Fund falling 17.2%, its worst ever monthly decline. The
Russell 2000 Index did even worse, falling 19.5%. Most domestic stock indexes
were down more than 14% that month.
Large capitalization stocks significantly outperformed small capitalization
stocks. Large capitalization stocks, represented by the Russell 1000 Index, were
up 27.0%; small capitalization stocks, represented by the Russell 2000 Index,
were down 2.6%. Small stocks struggled throughout the year. They outperformed
large capitalization stocks in only one month, and by only a small margin. The
stronger relative performance is primarily due to a small group of stocks, such
as Microsoft, Apple Computer, Ascend Communications, Dell Computer, Lucent
Technology, and other technology-related companies.
There are two basic investment styles--value and growth. Growth companies tend
to have higher valuations, while value companies tend to have lower valuations.
Relative performance varies, often according to the current stage of the
economic cycle. Growth companies generally do well during stronger economic
cycles when investors are willing to take more risk; investors often prefer
value stocks when there is more uncertainty in the economic environment. Using
the Russell indexes to measure these sectors, we see that the Russell 2000
Growth Index with a return of +0.80% substantially outperformed the Russell 2000
Value Index which had a -8.5% return.
We continue to select stocks based on their individual investment merit. Often
stocks within the same industry may experience difficult business conditions
simultaneously, leading to relative undervaluation for the group. The Fund held
large positions in the Finance, Retail Trade and Producer Manufacturing
industries, and we increased our position in Utilities. Although the Fund may
hold large positions in a particular industry, the companies within that
industry are often diverse. For example, the finance sector includes banks,
brokerage firms, leasing companies, and both property-casualty and life
insurance companies. The Fund's holdings consisted primarily of small insurance
and leasing companies.
Atlantic Coast Airlines, Egghead, and Champion Enterprises were among the Fund's
strongest performers. The Fund has held each of these stocks a long time. For
example, it purchased Atlantic Coast Airlines in June, 1996, when the company
was known as "United Express," and now the stock has more than a 200% total
return. When we bought the stock, the company had relatively strong and
improving operating characteristics and was also relatively undervalued on
various measures. Asset turnover (sales divided by average assets) continued to
improve. The market ultimately recognized the company's improvement in
profitability and the price of the stock rose. We bought Champion Enterprises,
which makes manufactured homes, in 1994. This company also had strong operating
performance, which led to a higher stock price. We bought this stock at $6 1/2;
at the end of the year it was selling at $27.
The table below gives comparative valuation data for Eclipse Small Cap Value
Fund and the Russell 2000 Index in 1998 and shows why we believe the stocks we
buy are cheap relative to the market. Stocks in the Russell 2000 Index are over
five times more expensive as the stocks in Eclipse Small Cap Value Fund with
respect to sales, more than 50% as expensive in terms of earnings and twice as
expensive based on price-to-book value.
- ----------------------------------------------------
<TABLE>
<CAPTION>
RUSSELL
ECLIPSE SMALL CAP VALUE 2000
- ------------------------------------------------------------
<S> <C> <C>
Price/Sales 0.8 4.2
Price/Earnings 18.4 30.5
Price/Book Value 2.2 4.5
</TABLE>
- ----------------------------------------------------
LARGEST INDUSTRY HOLDINGS--12/31/98 % OF PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<S> <C>
Finance 12.7%
Consumer Durables 11.7
Retail Trade 11.0
Producer Manufacturing 9.3
Commercial Services 9.0
</TABLE>
- ----------------------------------------------------
________________________________________________________________________________
10
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE AND RISK DATA
PERIODS ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURN(1)
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(2) RISK(3)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Eclipse Small Cap Value Fund(4) 3.4% 21.4% 15.3% 14.2% 12.6% 12.8%
Lipper Small Cap Index(5) (0.9) 9.3 11.3 13.2 11.2 18.2
Standard & Poor's Small Cap 600 Index (1.3) 14.6 13.2 13.2 10.3 18.6
Russell 2000 Index (2.6) 11.6 11.9 12.9 10.9 18.6
Standard & Poor's 500 Index 28.6 28.2 24.1 19.2 16.7 14.8
3 Month Treasury Bill 5.2 5.3 5.2 5.7 5.9 0.5
<CAPTION>
RETURN/RISK
- ------------------------------------------------------------------------------
<S> <C>
Eclipse Small Cap Value Fund(4) 1.0
Lipper Small Cap Index(5) 0.6
Standard & Poor's Small Cap 600 Index 0.6
Russell 2000 Index 0.6
Standard & Poor's 500 Index 1.1
3 Month Treasury Bill 11.8
</TABLE>
- ---------------
<TABLE>
<C> <S>
1) With income reinvested.
2) Data shown are from 1/31/87. The Fund's inception was 1/12/87; its annualized total return through 12/31/98 was 12.6.%.
3) Annualized standard deviation of monthly return.
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 SMALL CAP VALUE FUND WITH INCOME REINVESTED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Eclipse Small Cap Value Lipper Small Cap Index Russell 2000 Index
<S> <C> <C> <C>
Jan-87 10,000 10,000 10,000
Dec-87 9,704 8,590 8,172
Dec-88 10,936 10,337 10,206
Dec-89 12,732 12,514 11,864
Dec-90 10,994 10,790 9,550
Dec-91 14,421 16,026 13,947
Dec-92 17,215 17,819 16,515
Dec-93 20,143 20,835 19,638
Dec-94 19,185 20,734 19,280
Dec-95 22,964 27,290 24,763
Dec-96 29,821 31,211 28,848
Dec-97 39,748 35,898 35,299
Dec-98 41,104 35,586 34,400
</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.
Because Eclipse Small Cap Value Fund invests primarily in smaller capitalization
stocks, in the chart above, we have replaced the Standard & Poor's 500 Index, a
large-capitalization index, with the Russell 2000 Index, a small-capitalization
stock index. Both Eclipse Small Cap Value Fund and the Lipper Small Cap Index
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 1998 the value of
the Lipper Small Cap Index was $35,586, Eclipse Small Cap Value Fund was
$41,104, the Russell 2000 Index was $34,400, and the Standard & Poor's 500 Index
was $62,691.
- --------------------------------------------------------------------------------
PER SHARE DIVIDEND INFORMATION--1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Income dividends $ --
Short-term capital gain dividends 0.0668
Long term capital gain dividends 2.6112
---------
Total 1998 dividends $ 2.6780
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
11
<PAGE>
ECLIPSE ULTRA SHORT TERM INCOME FUND STATEMENT OF NET ASSETS--DECEMBER 31, 1998
- --------------------------------------------------------------------------------
U.S.CORPORATE BONDS 79.82%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
COMMERCIAL SERVICES 1.16%
Donnelley (R.R.) & Son Notes, 6.34%, due 06/21/00 $ 100,000 $ 101,414
----------
CONSUMER DURABLES 2.32%
Eastman Kodak Company Notes, 7.25%, due 07/01/99 100,000 100,948
Mattel, Inc. Notes, 6.75%, due 05/15/00 100,000 101,438
----------
202,386
----------
CONSUMER NON-DURABLES 6.94%
Coca-Cola Enterprises Inc. Notes, 7.00%, due 11/15/99 150,000 152,174
Heinz (H.J.) Company Notes, 6.75%, due 10/15/99 300,000 303,757
PepsiCo, Inc. Notes, 6.25%, due 09/01/99 103,000 103,733
PepsiCo, Inc. Notes, 6.80%, due 05/15/00 45,000 45,861
----------
605,525
----------
CONSUMER SERVICES 6.15%
Disney (Walt) Company Sr. Notes, 6.375%, due 03/30/01 300,000 309,036
Gannett Co., Inc. Sr. Notes, 5.85%, due 05/01/00 200,000 201,624
Service Corporation International Sr. Notes, 6.375%, due
10/01/00 25,000 25,314
----------
535,974
----------
ELECTRONIC TECHNOLOGY 1.17%
IBM Corporation Notes, 6.375%, due 06/15/00 100,000 101,572
----------
ENERGY MINERALS 3.73%
Burlington Resources, Inc. Notes, 6.875%, due 08/01/99 200,000 201,363
Texaco Capital Inc. Guaranteed Notes, 9.00%, due 12/15/99 120,000 124,139
----------
325,502
----------
FINANCE 23.50%
American Express Credit Corporation Notes, 6.125%, due
06/15/00 140,000 141,452
American General Finance Corporation Notes, 7.125%, due
12/01/99 100,000 101,462
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
FINANCE (CONT'D)
American General Finance Corporation Sr. Notes, 6.125%,
due 09/15/00 $ 90,000 $ 90,895
Commercial Credit Group, Inc. Sr. Notes, 5.75%, due
07/15/00 100,000 100,555
Fleet Financial Group, Inc. Notes, 7.125%, due 05/01/00 200,000 203,869
Ford Motor Credit Company Notes, 6.85%, due 08/15/00 200,000 204,441
Household Finance Corporation Notes, 6.375%, due 06/30/00 175,000 176,964
International Lease Finance Corporation Notes, 5.75%, due
01/15/99 150,000 150,001
John Deere Capital Corporation Notes, 6.15%, due 08/01/00 200,000 201,330
John Deere Capital Corporation Notes, 6.23%, due 10/18/00 200,000 201,767
Merrill Lynch & Co., Inc. Notes, 6.375%, due 03/30/99 100,000 100,178
Merrill Lynch & Co., Inc. Sr. Notes, 7.75%, due 03/01/99 100,000 100,314
Norwest Financial, Inc. Notes, 5.125%, due 04/15/00 135,000 134,512
Norwest Financial, Inc. Sr. Notes, 6.25%, due 03/15/99 40,000 40,048
Wachovia Corporation Notes, 7.00%, due 12/15/99 100,000 101,495
----------
2,049,283
----------
HEALTH TECHNOLOGY 6.24%
American Home Products Corporation Notes, 7.70%, due
02/15/00 200,000 205,535
Becton Dickinson & Company Notes, 9.95%, due 03/15/99 100,000 100,895
Lilly (Eli) & Company Notes, 6.75%, due 11/15/99 50,000 50,683
Upjohn Company Notes, 5.875%, due 04/15/00 185,000 186,642
----------
543,755
----------
NON-ENERGY MINERALS 2.61%
Alcan Aluminum Corporation Guaranteed Notes, 7.25%, due
12/15/99 75,000 76,325
</TABLE>
________________________________________________________________________________
12
<PAGE>
ECLIPSE ULTRA SHORT TERM INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
NON-ENERGY MINERALS (CONT'D)
Alcan Aluminum Corporation Ltd. Notes, 5.875%, due
04/01/00 $ 150,000 $ 151,375
----------
227,700
----------
PROCESS INDUSTRIES 2.78%
International Paper Company Notes, 6.875%, due 07/10/00 100,000 101,383
Monsanto Company Notes, 6.00%, due 07/01/00 140,000 141,113
----------
242,496
----------
PRODUCER MANUFACTURING 4.03%
Ingersoll-Rand Company Notes, 6.17%, due 11/17/99 200,000 200,995
Xerox Corporation Notes, 5.50%, due 11/15/03 150,000 150,614
----------
351,609
----------
RETAIL TRADE 9.32%
Dayton Hudson Corporation Notes, 7.50%, due 03/01/99 200,000 200,604
Dillard Department Stores Inc. Notes, 7.375%, due 06/15/99 200,000 201,381
Rite Aid Corporation Notes, 6.70%, due 12/15/01 100,000 102,642
Sears, Roebuck & Company Notes, 6.24%, due 11/15/99 125,000 125,830
Sears Roebuck Acceptance Corporation Notes, 6.50%, due
06/15/00 50,000 50,609
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
RETAIL TRADE (CONT'D)
Wal-Mart Stores Notes, 6.75%, due 05/15/02 $ 125,000 $ 131,720
----------
812,786
----------
TRANSPORTATION 1.79%
Norfolk Southern Corporation Notes, 6.95%, due 05/01/02 150,000 156,161
----------
UTILITIES 8.08%
Cincinnati Gas & Electric Notes, 5.80%, due 02/15/99 100,000 100,041
MCI Communications Corporation Notes, 6.25%, due 03/23/99 200,000 200,200
New England Telephone & Telegraph Notes, 6.15%, due
09/01/99 50,000 50,306
Ohio Bell Telephone Company Notes, 5.75%, due 05/01/00 100,000 100,855
Sonat, Inc. Notes, 9.50%, due 08/15/99 50,000 51,099
TCI Communications, Inc. Notes, 7.25%, due 06/15/99 200,000 201,798
----------
704,299
----------
Total U.S. Corporate Bonds
(Cost $6,968,258) $6,960,462
----------
</TABLE>
FEDERAL AGENCIES 16.52%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
Federal Home Loan Banks (V.R.), 4.986%, due 04/01/99 $ 200,000 $ 199,890
Federal Home Loan Discount Note, due 05/27/99 200,000 196,028
Federal National Mortgage Association (V.R.), 5.028%, due
01/21/99 200,000 199,987
Federal National Mortgage Association (V.R.), 4.696%, due
07/26/99 150,000 149,536
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Federal National Mortgage Association, 6.50%, due 02/25/00 $ 139,776 $ 139,685
Federal National Mortgage Association, 6.00%, due 04/25/19 108,883 108,665
Student Loan Marketing Association (V.R.), 4.696%, due
07/12/99 200,000 199,534
</TABLE>
________________________________________________________________________________
13
<PAGE>
ECLIPSE ULTRA SHORT TERM INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Student Loan Marketing Association (V.R.), 4.898%, due
03/07/01 $ 250,000 $ 247,623
----------
Total Federal Agencies
(Cost $1,443,417) $1,440,948
----------
</TABLE>
SHORT-TERM INVESTMENTS 2.61%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
REPURCHASE AGREEMENTS 2.61%
State Street Bank and Trust Company, 3.50%, due 01/04/99
(Collateralized by $230,000 U.S. Treasury Note, 7.75%,
due 12/31/99) $ 227,778 $ 227,778
----------
<CAPTION>
VALUE
(NOTE 1)
<S> <C> <C>
Total Short-Term Investments
(Cost $227,778) $ 227,778
----------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Total Investments (98.95%)
(Cost $8,639,453+) $8,629,188
Cash and Other Assets in Excess of Liabilities (1.05%) 91,387
----------
Net Assets (100.00%) 869,387 shares outstanding (Note 3) $8,720,575
----------
----------
Net Asset Value, offering and redemption price per share $10.03
----------
----------
</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 $22,194 and
$32,459, respectively.
See notes to financial statements.
________________________________________________________________________________
14
<PAGE>
STATEMENT OF NET ASSETS--DECEMBER 31, 1998 ECLIPSE BALANCED FUND
- --------------------------------------------------------------------------------
COMMON STOCKS 57.66%
<TABLE>
<CAPTION>
<S> <C> <C>
VALUE
SHARES (NOTE 1)
<CAPTION>
<S> <C> <C>
COMMERCIAL SERVICES 2.96%
Jacobs Engineering Group Inc.* 11,200 $ 456,400
SuperValu Inc. 78,900 2,209,200
Sysco Corporation 42,000 1,152,375
-----------
3,817,975
-----------
CONSUMER DURABLES 3.37%
DaimlerChrysler AG* 8,479 814,514
General Motors Corporation 37,300 2,669,281
International Game Technology 35,200 855,800
-----------
4,339,595
-----------
CONSUMER NON-DURABLES 2.55%
IBP, Inc. 77,600 2,260,100
Liz Claiborne, Inc. 32,300 1,019,469
-----------
3,279,569
-----------
CONSUMER SERVICES 2.30%
Darden Restaurants, Inc. 45,100 811,800
Knight-Ridder, Inc. 23,800 1,216,775
Viacom Inc. Class B* 12,600 932,400
-----------
2,960,975
-----------
ELECTRONIC TECHNOLOGY 1.86%
Alliant Techsystems Inc.* 4,300 354,481
Apple Computer, Inc.* 22,400 917,000
Avnet, Inc. 18,800 1,125,650
-----------
2,397,131
-----------
ENERGY MINERALS 1.18%
Lyondell Chemical Company 84,300 1,517,400
-----------
FINANCE 4.64%
Allstate Corporation (The) 23,600 911,550
Bear Stearns Companies Inc. (The) 39,869 1,490,104
CNA Financial Corporation 32,700 1,316,175
Cincinnati Financial Corporation 19,300 706,862
First Union Corporation 5,184 315,252
TIG Holdings, Inc. 8,700 135,394
Transamerica Corporation 9,600 1,108,800
-----------
5,984,137
-----------
HEALTH SERVICES 5.87%
Aetna Inc. 30,700 2,413,788
Bergen Brunswig Corporation Class A 73,200 2,552,850
McKesson Corporation 14,000 1,106,875
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
HEALTH SERVICES (CONT'D)
PacifiCare Health Systems, Inc. Class B* 18,800 $ 1,494,600
-----------
7,568,113
-----------
INDUSTRIAL SERVICES 0.59%
Fluor Corporation 17,900 761,869
-----------
NON-ENERGY MINERALS 1.91%
ASARCO Incorporated 14,600 219,913
LTV Corporation (The) 41,700 242,381
Phelps Dodge Corporation 39,400 2,004,475
-----------
2,466,769
-----------
PROCESS INDUSTRIES 2.70%
Dow Chemical Company (The) 7,900 718,406
Lubrizol Corporation (The) 15,900 408,431
Westvaco Corporation 87,500 2,346,094
-----------
3,472,931
-----------
PRODUCER MANUFACTURING 6.56%
Crown Cork & Seal Company, Inc. 63,500 1,956,594
Deere & Company 65,400 2,166,375
Eaton Corporation 31,300 2,212,519
Johnson Controls, Inc. 15,400 908,600
Pitney Bowes Inc. 18,200 1,202,337
-----------
8,446,425
-----------
RETAIL TRADE 10.73%
BJ's Wholesale Club, Inc.* 7,300 338,081
Best Buy Co., Inc. 18,300 1,123,163
Burlington Coat Factory Warehouse Corporation 24,240 395,415
Circuit City Stores-Circuit City Group 10,700 534,331
Costco Companies, Inc.* 17,400 1,256,062
Dayton Hudson Corporation 21,600 1,171,800
Dillard's, Inc. Class A 34,900 990,287
Food Lion, Inc. Class A 80,700 857,437
Kmart Corporation* 46,600 713,563
Kroger Company (The)* 22,800 1,379,400
Limited, Inc. (The) 56,000 1,631,000
Longs Drug Stores Corporation 12,900 483,750
Tandy Corporation 4,900 201,819
Toys "R" Us, Inc.* 75,300 1,270,688
Winn-Dixie Stores, Inc. 33,000 1,480,875
-----------
13,827,671
-----------
TECHNOLOGY SERVICES 0.99%
Ingram Micro, Inc. Class A* 23,800 830,025
</TABLE>
* NON-INCOME PRODUCING. ________________________________________________________
15
<PAGE>
ECLIPSE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
TECHNOLOGY SERVICES (CONT'D)
Tech Data Corporation* 11,200 $ 450,800
-----------
1,280,825
-----------
TRANSPORTATION 2.71%
AMR Corporation* 36,800 2,185,000
Northwest Airlines Corporation Class A* 51,200 1,308,800
-----------
3,493,800
-----------
UTILITIES 6.74%
Edison International 66,600 1,856,475
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
UTILITIES (CONT'D)
Energy East Corporation 12,300 $ 694,950
Niagara Mohawk Power Corporation* 138,600 2,234,925
Telephone and Data Systems, Inc. 39,500 1,775,031
UtiliCorp United Inc. 57,900 2,124,207
-----------
8,685,588
-----------
Total Common Stocks
(Cost $66,981,305) $74,300,773
-----------
</TABLE>
U.S. CORPORATE BONDS 35.11%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
COMMERCIAL SERVICES 0.97%
SuperValu Inc. Notes, 7.25%, due 07/15/99 $ 450,000 $ 453,768
SuperValu Inc. Notes, 7.80%, due 11/15/02 200,000 214,525
Sysco Corporation Sr. Notes, 6.50%, due 06/15/05 500,000 530,194
Sysco Corporation Sr. Notes, 7.00%, due 05/01/06 45,000 49,267
-----------
1,247,754
-----------
CONSUMER DURABLES 0.78%
General Motors Corporation Notes, 7.00%, due 06/15/03 700,000 738,538
General Motors Corporation Notes, 7.10%, due 03/15/06 250,000 271,627
-----------
1,010,165
-----------
CONSUMER NON-DURABLES 2.55%
Anheuser-Busch Companies, Inc. Notes, 8.75%, due 12/01/99 50,000 51,524
Coca-Cola Enterprises, Inc. Notes, 7.875%, due 02/01/02 200,000 213,373
Coca-Cola Enterprises, Inc. Notes, 6.625%, due 08/01/04 100,000 105,023
Heinz (H.J.) Company Notes, 6.75%, due 10/15/99 200,000 202,505
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
CONSUMER NON-DURABLES (CONT'D)
Heinz (H.J.) Company Notes, 6.875%, due 01/15/03 $ 100,000 $ 106,289
Hershey Foods Corporation Notes, 6.70%, due 10/01/05 250,000 267,678
Hertz Corporation Sr. Notes, 7.00%, due 04/15/01 300,000 308,472
PepsiCo, Inc. Notes, 6.80%, due 05/15/00 340,000 346,504
Phillip Morris Companies Inc. Notes, 7.625%, due 05/15/02 100,000 106,055
RJR Nabisco, Inc. Sr. Notes, 7.625%, due 09/01/00 200,000 199,536
Sara Lee Corp. Notes, 6.00%, due 01/15/08 1,200,000 1,221,749
Seagram (Joseph E) & Sons Guaranteed Notes, 7.00%, due
04/15/08 150,000 151,852
-----------
3,280,560
-----------
CONSUMER SERVICES 0.37%
Disney (Walt) Company (The) Notes, 6.375%, due 03/30/01 200,000 206,024
McDonald's Corporation Sr. Notes, 6.625%, due 09/01/05 255,000 264,407
-----------
470,431
-----------
</TABLE>
________________________________________________________ * NON-INCOME PRODUCING.
16
<PAGE>
ECLIPSE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE
ELECTRONIC TECHNOLOGY 2.72% AMOUNT (NOTE 1)
<S> <C> <C>
Boeing Co. Notes, 6.35%, due 06/15/03 $ 500,000 $ 515,977
IBM Corporation Notes, 6.375%, due 06/15/00 450,000 457,073
IBM Corporation Notes, 7.25%, due 11/01/02 300,000 320,226
Mattel, Inc. Notes, 7.30%, due 06/13/11 800,000 899,375
Raytheon Company Notes, 6.50%, due 07/15/05 950,000 998,869
Rockwell International Corporation Notes, 8.875%, due
09/15/99 50,000 51,211
Rockwell International Corporation Notes, 6.75%, due
09/15/02 50,000 52,296
Rockwell International Corporation Notes, 6.625%, due
06/01/05 200,000 212,688
-----------
3,507,715
-----------
ENERGY MINERALS 0.64%
Exxon Capital Corporation Guaranteed Notes, 7.45%, due
12/15/01 300,000 317,763
Exxon Capital Corporation Guaranteed Notes, 6.625%, due
08/15/02 100,000 104,404
Exxon Capital Corporation Notes, 6.50%, due 07/15/99 300,000 301,821
Texaco Capital Inc. Guaranteed Notes, 6.875%, due
07/15/99 100,000 100,871
-----------
824,859
-----------
FINANCE 11.11%
American Express Credit Corporation Notes, 6.125%, due
06/15/00 200,000 202,074
American General Finance Corporation Notes, 8.00%, due
02/15/00 200,000 205,233
Associates Corp. of North America Notes, 7.875%, due
09/30/01 100,000 105,978
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
FINANCE (CONT'D)
Associates Corp. of North America Notes, 6.375%, due
10/15/02 $ 100,000 $ 102,674
Associates Corp. of North America Notes, 6.875%, due
11/15/08 500,000 537,682
Associates Corp. of North America Sr. Notes, 6.50%, due
08/15/02 100,000 103,259
BankAmerica Corporation Notes, 7.125%, due 03/01/09 900,000 985,091
Beneficial Corporation Notes, 6.77%, due 08/26/04 1,000,000 1,039,320
Berkley (W.R.) Corporation Notes, 6.25%, due 01/15/06 500,000 493,135
CNA Financial Corporation Notes, 6.45%, due 01/15/08 650,000 641,404
Chrysler Financial Corporation Notes, 6.625%, due
08/15/00 1,250,000 1,274,640
Chubb Capital Corporation Guaranteed Notes, 6.875%, due
02/01/03 50,000 52,718
Chubb Corporation Notes, 8.75%, due 11/15/99 20,000 20,201
Citigroup Inc. Notes, 6.125%, due 06/15/00 300,000 303,110
Commercial Credit Group Inc. Notes, 8.25%, due 11/01/01 200,000 213,939
Commercial Credit Group Inc. Notes, 6.375%, due 09/15/02 200,000 204,795
Ford Holdings, Inc. Guaranteed Notes, 9.25%, due 03/01/00 50,000 52,012
Ford Motor Credit Company Notes, 8.00%, due 01/15/99 100,000 100,057
Ford Motor Credit Company Notes, 7.25%, due 05/15/99 350,000 352,150
</TABLE>
________________________________________________________________________________
17
<PAGE>
ECLIPSE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
FINANCE (CONT'D)
Ford Motor Credit Company Notes, 6.375%, due 09/15/99 $ 700,000 $ 704,335
Ford Motor Credit Company Notes, 8.375%, due 01/15/00 250,000 257,301
General Motors Acceptance Corporation Notes, 5.50%, due
12/15/01 100,000 99,154
Heller Financial, Inc. Notes, 7.875%, due 11/01/99 100,000 101,407
Hertz Corporation Sr. Notes, 7.375%, due 06/15/01 100,000 103,854
Household Finance Corporation Notes, 6.70%, due 06/15/02 100,000 103,168
Household Finance Corporation Notes, 7.65%, due 05/15/07 75,000 83,218
Household Finance Corporation Notes, 6.375%, due 08/01/10 500,000 513,199
International Lease Finance Corporation Notes, 6.875%,
due 05/01/01 250,000 256,917
Lehman Brothers Inc. Sr. Notes, 7.625%, due 06/01/06 350,000 373,422
Merrill Lynch & Co., Inc. Notes, 6.375%, due 03/30/99 200,000 200,355
Merrill Lynch & Co., Inc. Notes, 7.00%, due 01/15/07 700,000 710,688
Morgan (J.P.) & Co. Inc. Notes, 6.25%, due 02/15/11 300,000 305,971
Norwest Corporation Notes, 6.125%, due 10/15/00 500,000 505,307
Norwest Corporation Notes, 6.80%, due 05/15/02 1,100,000 1,140,747
Norwest Financial, Inc. Sr. Notes, 6.85%, due 07/15/09 125,000 134,757
Pitney-Bowes Credit Corporation Notes, 6.625%, due
06/01/02 200,000 207,374
Progressive Corporation Notes, 6.60%, due 01/15/04 150,000 153,884
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
FINANCE (CONT'D)
Progressive Corporation Notes, 7.30%, due 06/01/06 $ 100,000 $ 107,975
Salomon Smith Barney Holdings Notes, 7.00%, due 03/15/04 600,000 625,752
USL Capital Corporation Notes, 8.125%, due 02/15/00 475,000 487,955
Wachovia Corporation Notes, 6.375%, due 02/01/09 150,000 157,040
-----------
14,323,252
-----------
HEALTH TECHNOLOGY 1.31%
American Home Products Corporation Notes, 7.70%, due
02/15/00 725,000 745,064
Lilly (Eli) & Company Notes, 8.125%, due 12/01/01 250,000 269,821
Upjohn Company Notes, 5.875%, due 04/15/00 250,000 252,219
Warner-Lambert Company Notes, 6.625%, due 09/15/02 150,000 158,010
Warner-Lambert Company Notes, 6.00%, due 01/15/08 250,000 263,411
-----------
1,688,525
-----------
INDUSTRIAL SERVICES 1.08%
Browning-Ferris Industries Inc. Sr. Notes, 6.10%, due
01/15/03 750,000 741,957
Lockheed Martin Corporation Guaranteed Notes, 7.25%, due
05/15/06 500,000 542,382
WMX Technologies Inc. Sr. Notes, 8.25%, due 11/15/99 100,000 101,969
-----------
1,386,308
-----------
NON-ENERGY MINERALS 0.56%
Alcan Aluminum Corporation Guaranteed Notes, 7.25%, due
12/15/99 150,000 152,650
</TABLE>
________________________________________________________________________________
18
<PAGE>
ECLIPSE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
NON-ENERGY MINERALS (CONT'D)
Weyerhaeuser Company Notes, 7.50%, due 03/01/13 $ 500,000 $ 563,988
-----------
716,638
-----------
PROCESS INDUSTRIES 3.10%
Corning, Inc. Notes, 6.00%, due 08/15/03 1,000,000 1,012,041
Engelhard Corporation Notes, 7.00%, due 08/01/01 125,000 129,177
International Paper Company Notes, 7.80%, due 03/18/99 175,000 175,690
International Paper Company Notes, 6.125%, due 11/01/03 600,000 600,265
James River Corporation of Virginia, 8.375%, due 11/15/01 150,000 160,004
Loews Corporation Notes, 6.75%, due 12/15/06 640,000 676,115
Sherwin-Williams Company Notes, 6.85%, due 02/01/07 200,000 214,956
Union Camp Corporation Notes, 6.50%, due 11/15/07 1,000,000 1,031,876
-----------
4,000,124
-----------
PRODUCER MANUFACTURING 0.64%
Dresser Industries, Inc. Sr. Notes, 6.25%, due 06/01/00 650,000 657,968
Honeywell, Inc. Notes, 7.125%, due 04/15/08 150,000 167,552
-----------
825,520
-----------
RETAIL TRADE 2.35%
Dillard Department Stores Inc. Notes, 7.15%, due 02/01/07 1,000,000 1,052,015
Limited, Inc. (The) Notes, 8.875%, due 08/15/99 200,000 203,865
May Department Stores Notes, 7.45%, due 09/15/11 500,000 578,562
Penney (J.C.) Co., Inc. Notes, 6.875%, due 06/15/99 150,000 150,747
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
RETAIL TRADE (CONT'D)
Sears Roebuck Acceptance Corporation Notes, 6.75%, due
09/15/05 $ 500,000 $ 524,077
Wal-Mart Stores Inc. Notes, 8.625%, due 04/01/01 50,000 53,797
Wal-Mart Stores Inc. Notes, 7.25%, due 06/01/13 400,000 463,993
-----------
3,027,056
-----------
TRANSPORTATION 0.12%
Kansas City Southern Industries Sr. Notes, 7.875%, due
07/01/02 150,000 159,153
-----------
UTILITIES 6.81%
ALLTEL Corporation Notes, 6.50%, due 11/01/13 50,000 52,446
Bell Atlantic Financial Notes, 6.25%, due 06/01/00 1,000,000 1,011,125
BellSouth Telecommunications Notes, 5.875%, due 01/15/09 300,000 311,269
Carolina Telephone & Telegraph Notes, 6.75%, due 08/15/13 100,000 107,026
Chesapeake & Potomac Telephone-Virginia, Inc. Notes,
7.125%, due 01/15/02 300,000 314,975
Chesapeake & Potomac Telephone-West Virginia, Inc. Notes,
7.00%, due 08/15/04 100,000 108,301
Citizens Utilities Company Notes, 7.60%, due 06/01/06 250,000 278,283
GTE North, Inc. Notes, 6.90%, due 11/01/08 1,000,000 1,092,473
GTE North, Inc. Series F Notes, 6.375%, due 02/15/10 500,000 532,847
GTE Northwest, Inc. Notes, 7.375%, due 05/01/01 500,000 523,960
GTE South, Inc. Series C Sr. Notes, 6.00%, due 02/15/08 75,000 77,359
</TABLE>
________________________________________________________________________________
19
<PAGE>
ECLIPSE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
UTILITIES (CONT'D)
IES Utilities Inc. Series A Sr. Notes, 6.625%, due
08/01/09 $1,500,000 $ 1,596,654
Lucent Technologies, Inc. Notes, 6.90%, due 07/15/01 100,000 104,528
MCI Communications Corporation Notes, 6.25%, due 03/23/99 75,000 75,075
New York Telephone Company Notes, 6.25%, due 02/15/04 150,000 155,732
New York Telephone Company Notes, 6.125%, due 01/15/10 1,000,000 1,049,970
Pacific Bell Notes, 7.25%, due 07/01/02 300,000 318,760
Pacific Bell Notes, 6.25%, due 03/01/05 50,000 52,274
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
UTILITIES (CONT'D)
Potomac Electric Power Company Notes, 6.50%, due 03/15/08 $ 100,000 $ 105,689
Sonat Inc. Notes, 9.00%, due 05/01/01 50,000 53,253
Southern California Edison Company Notes, 6.50%, due
06/01/01 200,000 204,811
Southwestern Bell Telephone Company Notes, 6.375%, due
11/15/07 100,000 106,718
Southwestern Bell Telephone Company Notes, 7.00%, due
07/01/15 500,000 547,581
-----------
8,781,109
-----------
Total U.S. Corporate Bonds
(Cost $44,290,945) $45,249,169
-----------
</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 $ 763,172
Federal Home Loan Mortgage Corporation, 7.00%, due
02/15/13 500,000 510,923
Federal Home Loan Mortgage Corporation, 7.00%, due
04/17/13 500,000 513,316
Federal National Mortgage Association, 6.50%, due
03/18/08 500,000 509,720
Federal National Mortgage Association, 6.50%, due
11/25/13 1,000,000 1,003,820
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Federal National Mortgage Association, 6.50%, due
09/25/23 $1,000,000 $ 977,618
Federal National Mortgage Association, 6.50%, due
11/17/24 1,000,000 948,535
Government National Mortgage Association, 7.00%, due
02/20/20 1,000,000 1,010,825
Government National Mortgage Association, 6.50%, due
08/20/25 1,000,000 993,503
-----------
Total Federal Agencies
(Cost $7,166,985) $ 7,231,432
-----------
</TABLE>
UNITED STATES GOVERNMENT OBLIGATIONS 0.42%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
United States Treasury Note, 5.875%, due 11/15/05 $ 500,000 $ 533,438
-----------
<CAPTION>
VALUE
(NOTE 1)
<S> <C> <C>
Total United States Government Obligations
(Cost $517,500) $ 533,438
-----------
</TABLE>
________________________________________________________________________________
20
<PAGE>
ECLIPSE BALANCED FUND
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 0.77%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
REPURCHASE AGREEMENTS 0.77%
State Street Bank and Trust Company, 3.50%, due 01/04/99
(Collateralized by $610,000 U.S. Treasury Bond, 13.25%,
due 05/15/14) $ 998,329 $ 998,329
-----------
<CAPTION>
VALUE
(NOTE 1)
<S> <C> <C>
Total Short-Term Investments
(Cost $998,329) $ 998,329
-----------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Total Investments (99.57%)
(Cost $119,955,064+) $128,313,141
Cash and Other Assets in Excess of Liabilities (0.43%) 552,140
-----------
Net Assets (100.00%) 6,031,225 shares outstanding (Note
3) $128,865,281
-----------
-----------
Net Asset Value, offering and redemption price per share $21.37
-----------
-----------
</TABLE>
<TABLE>
<C> <S>
+ Aggregate cost for federal income tax purposes is $120,433,191. Aggregate
unrealized appreciation and depreciation of investments, based on cost for
federal income tax purposes, are $10,561,623 and $2,681,673 respectively.
See notes to financial statements.
</TABLE>
________________________________________________________________________________
21
<PAGE>
ECLIPSE MID CAP VALUE FUND STATEMENT OF NET ASSETS--DECEMBER 31, 1998
- --------------------------------------------------------------------------------
COMMON STOCKS 97.31%
<TABLE>
<CAPTION>
<S> <C> <C>
VALUE
SHARES (NOTE 1)
<CAPTION>
<S> <C> <C>
COMMERCIAL SERVICES 6.97%
Fleming Companies, Inc. 36,600 $ 379,725
Knight-Ridder, Inc. 59,700 3,052,163
SuperValu, Inc. 108,500 3,038,000
Sysco Corporation 56,800 1,558,450
U.S. Foodservice, Inc.* 7,800 382,200
United Stationers Inc.* 10,200 265,200
-----------
8,675,738
-----------
CONSUMER DURABLES 4.21%
DaimlerChrysler AG* 9,539 916,340
General Motors Corporation 44,700 3,198,844
International Game Technology 46,500 1,130,531
-----------
5,245,715
-----------
CONSUMER NON-DURABLES 5.21%
IBP, Inc. 123,800 3,605,675
Liz Claiborne, Inc. 91,300 2,881,656
-----------
6,487,331
-----------
CONSUMER SERVICES 2.21%
Darden Restaurants, Inc. 77,700 1,398,600
King World Productions, Inc.* 13,900 409,181
Viacom, Inc. Class B* 12,800 947,200
-----------
2,754,981
-----------
ELECTRONIC TECHNOLOGY 2.17%
Alliant Techsystems Inc.* 10,600 873,838
Apple Computer, Inc.* 35,000 1,432,812
EG&G, Inc. 14,000 389,375
-----------
2,696,025
-----------
ENERGY MINERALS 3.22%
Ashland Inc. 20,100 972,338
Lyondell Chemical Company 155,600 2,800,800
Southern Peru Copper Corporation 25,400 239,712
-----------
4,012,850
-----------
FINANCE 6.50%
Allstate Corporation (The) 40,200 1,552,725
BancWest Corporation 10,300 494,400
Bear Stearns Companies Inc. (The) 42,528 1,589,484
CNA Financial Corporation* 37,200 1,497,300
Fund American Enterprises Holdings, Inc. 2,600 364,163
Horace Mann Educators Corporation 9,000 256,500
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
FINANCE (CONT'D)
NAC Re Corporation 7,000 $ 328,562
TIG Holdings, Inc. 21,200 329,925
Transamerica Corporation 14,500 1,674,750
-----------
8,087,809
-----------
HEALTH SERVICES 10.41%
Aetna Inc. 41,500 3,262,938
AmeriSource Health Corporation Class A* 10,400 676,000
Bergen Brunswig Corporation Class A 122,400 4,268,700
Bindley Western Industries, Inc. 21,600 1,063,800
McKesson Corporation 32,100 2,537,906
ServiceMaster Company (The) 52,150 1,150,559
-----------
12,959,903
-----------
INDUSTRIAL SERVICES 2.65%
Fluor Corporation 72,100 3,068,756
Jacobs Engineering Group Inc.* 5,800 236,350
-----------
3,305,106
-----------
NON-ENERGY MINERALS 3.31%
ASARCO Corporation 13,600 204,850
Lone Star Industries, Inc. 20,400 750,975
Phelps Dodge Corporation 59,700 3,037,237
Texas Industries, Inc. 4,900 131,994
-----------
4,125,056
-----------
PROCESS INDUSTRIES 3.98%
Dow Chemical Company (The) 9,500 863,906
Lubrizol Corporation (The) 23,800 611,363
Springs Industries, Inc. Class A 7,600 314,925
Westvaco Corporation 118,100 3,166,556
-----------
4,956,750
-----------
PRODUCER MANUFACTURING 12.04%
Caterpillar Inc. 72,300 3,325,800
Crown Cork & Seal Company, Inc. 76,800 2,366,400
Deere & Company 99,400 3,292,625
Eaton Corporation 45,900 3,244,556
Johnson Controls, Inc. 10,000 590,000
Payless Shoesource, Inc.* 12,200 577,975
Pitney Bowes Inc. 18,000 1,189,125
Ryerson Tull, Inc.* 42,300 412,425
-----------
14,998,906
-----------
</TABLE>
________________________________________________________ * NON-INCOME PRODUCING.
22
<PAGE>
ECLIPSE MID CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
RETAIL TRADE 17.38%
American Stores Company 46,600 $ 1,721,288
BJ's Wholesale Club, Inc.* 9,200 426,075
Best Buy Co., Inc.* 22,600 1,387,075
Burlington Coat Factory Warehouse Corporation 32,160 524,610
Circuit City Stores-Circuit City Group 9,100 454,431
Costco Companies, Inc.* 40,400 2,916,375
Dayton Hudson Corporation 29,400 1,594,950
Dillard's, Inc. Class A 55,700 1,580,488
Food Lion, Inc. Class A 105,200 1,117,750
Kmart Corporation* 46,000 704,375
Kroger Company (The)* 44,600 2,698,300
Limited, Inc. (The) 59,800 1,741,675
Longs Drug Stores Corporation 5,700 213,750
OfficeMax, Inc.* 15,000 181,875
Ross Stores, Inc. 9,800 385,875
Safeway Inc.* 13,514 823,509
Tandy Corporation 11,200 461,300
Toys 'R' Us, Inc.* 91,000 1,535,625
Winn-Dixie Stores, Inc. 26,000 1,166,750
-----------
21,636,076
-----------
TECHNOLOGY SERVICES 1.82%
Avnet, Inc. 8,700 520,913
CHS Electronics, Inc.* 15,200 257,450
Ingram Micro, Inc. Class A* 40,000 1,395,000
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
TECHNOLOGY SERVICES (CONT'D)
Tech Data Corporation* 2,200 $ 88,550
-----------
2,261,913
-----------
TRANSPORTATION 4.72%
AMR Corporation* 52,600 3,123,125
Northwest Airlines Corporation Class A* 72,800 1,860,950
UAL Corporation* 15,000 895,313
-----------
5,879,388
-----------
UTILITIES 10.51%
Edison International 99,100 2,762,413
Energy East Corporation 15,800 892,700
MidAmerican Energy Holdings Company 22,500 604,687
Niagara Mohawk Power Corporation* 183,700 2,962,162
Public Service Enterprise Group Inc. 17,900 716,000
Telephone and Data Systems, Inc. 43,400 1,950,288
UtiliCorp United Inc. 87,200 3,199,150
-----------
13,087,400
-----------
Total Common Stocks
(Cost $110,197,361) $121,170,947
-----------
</TABLE>
* NON-INCOME PRODUCING. ________________________________________________________
23
<PAGE>
ECLIPSE MID CAP VALUE FUND
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 3.19%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
REPURCHASE AGREEMENTS 3.19%
State Street Bank and Trust Company, 3.50%, due
01/04/99 (Collaterized by $3,955,000 U.S. Treasury
Note, 5.875%, due 01/31/99) $3,969,381 $ 3,969,381
------------
<CAPTION>
VALUE
(NOTE 1)
<S> <C> <C>
Total Short-Term Investments
(Cost $3,969,381) $ 3,969,381
------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Total Investments (100.50%)
(Cost $114,166,742+) $125,140,328
Liabilities in Excess of Cash and Other Assets
(-0.50%) (614,944)
------------
Net Assets (100.00%) 7,022,041 shares outstanding
(Note 3) $124,525,384
------------
------------
Net Asset Value, offering and redemption price per
share $17.73
------------
------------
</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 $16,909,881
and $5,936,295, respectively.
See notes to financial statements.
</TABLE>
________________________________________________________________________________
24
<PAGE>
STATEMENT OF NET ASSETS--DECEMBER 31, 1998 ECLIPSE SMALL CAP VALUE FUND
- --------------------------------------------------------------------------------
COMMON STOCKS 96.01%
<TABLE>
<CAPTION>
<S> <C> <C>
VALUE
SHARES (NOTE 1)
<CAPTION>
<S> <C> <C>
COMMERCIAL SERVICES 9.04%
ABM Industries Inc. 19,900 $ 689,037
Administaff, Inc.* 40,500 1,012,500
Banner Aerospace, Inc.* 31,200 294,450
Berlitz International, Inc.* 6,200 179,800
Borg-Warner Security Corporation* 43,200 810,000
Bowne & Co., Inc. 56,800 1,015,300
Cameron Ashley Building Products, Inc.* 30,100 393,181
Day Runner, Inc* 13,200 191,400
Fleming Companies, Inc. 50,700 526,012
Handleman Company* 143,100 2,012,344
Hughes Supply, Inc. 18,700 546,975
Insurance Auto Auctions, Inc.* 114,300 1,357,313
Knight-Ridder, Inc. 9,100 465,237
Noland Company 7,000 185,500
PEC Israel Economic Corporation* 16,800 483,000
Performance Food Group Company* 22,000 618,750
Pinkerton's, Inc.* 53,100 1,131,694
Staff Leasing, Inc.* 55,300 642,862
SunSource L.P. 13,900 261,494
SuperValu, Inc. 20,900 585,200
Sysco Corporation 22,000 603,625
U.S. Foodservice, Inc.* 27,800 1,362,200
United Stationers Inc.* 41,600 1,081,600
Vincan Group, Inc. (The)* 23,000 403,938
Westaff Inc.* 100,800 630,000
World Fuel Services Corporation 68,050 731,538
------------
18,214,950
------------
CONSUMER DURABLES 11.72%
Audiovox Corporation* 165,800 984,437
Beazer Homes USA, Inc.* 25,200 630,000
Champion Enterprises, Inc.* 20,816 569,838
Crossman Communities, Inc.* 38,100 1,052,512
DaimlerChrysler AG* 3,197 307,112
Dixie Group, Inc. (The) 45,100 366,437
Engle Homes, Inc. 35,900 549,719
General Motors Corporation 7,100 508,094
Huffy Corporation 81,800 1,349,700
Jan Bell Marketing, Inc.* 266,900 1,718,169
M.D.C. Holdings, Inc. 72,600 1,551,825
M/I Schottenstein Homes, Inc. 37,000 814,000
Media Arts Group, Inc.* 70,900 997,031
Monaco Coach Corporation* 73,875 1,957,687
NVR, Inc.* 34,800 1,659,525
National R.V. Holdings, Inc.* 33,700 867,775
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
CONSUMER DURABLES (CONT'D)
Powerhouse Technologies, Inc.* 67,200 $ 974,400
Ryland Group, Inc. (The) 25,200 727,650
Salton/Maxim Housewares, Inc.* 70,100 1,796,313
Schuler Homes, Inc.* 54,800 390,450
Standard Pacific Corporation 48,100 679,413
Starrett (L.S.) Company (The) Class A 7,600 260,775
TBC Corporation* 76,500 545,063
Thor Industries, Inc. 27,350 697,425
U.S. Home Corporation* 29,700 987,525
Winsloew Furniture, Inc.* 25,600 678,400
------------
23,621,275
------------
CONSUMER NON-DURABLES 1.97%
Brown Group, Inc. 40,600 713,037
Cagle's, Inc. 9,500 185,250
Farmer Brothers Company 1,700 363,800
Garan, Inc. 33,500 942,187
IBP, Inc. 18,100 527,163
Liz Claiborne, Inc. 13,900 438,719
M & F Worldwide Corporation* 19,800 199,237
Pilgrim's Pride Corporation 20,500 408,719
WLR Foods, Inc.* 21,800 196,200
------------
3,974,312
------------
CONSUMER SERVICES 3.20%
Advanced Marketing Services, Inc. 12,700 244,475
Darden Restaurants, Inc. 13,300 239,400
King World Productions, Inc.* 8,300 244,331
Players International, Inc.* 290,400 1,796,850
Ryan's Family Steak Houses, Inc.* 151,200 1,871,100
TCBY Enterprises, Inc. 90,600 634,200
Tele-Communications, Inc. Class B* 11,094 511,017
VICORP Restaurants, Inc.* 35,000 542,500
Viacom Inc. Class B* 3,400 251,600
Washington Post Company (The) 200 115,588
------------
6,451,061
------------
ELECTRONIC TECHNOLOGY 4.89%
Alliant Techsystems Inc.* 17,300 1,426,169
Apple Computer, Inc.* 9,600 393,000
Aviall, Inc.* 54,300 638,025
Bel Fuse Inc.* 50,500 2,020,000
EG&G, Inc. 44,400 1,234,875
GENICOM Corporation* 59,200 131,353
</TABLE>
* NON-INCOME PRODUCING. ________________________________________________________
25
<PAGE>
ECLIPSE SMALL CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
ELECTRONIC TECHNOLOGY (CONT'D)
IEC Electronics Corporation* 24,500 $ 101,062
Microsemi Corporation* 51,700 568,700
Primex Technologies, Inc. 25,900 1,100,750
Sequa Corporation* 8,200 490,975
United Industrial Corporation 98,500 966,531
Whittaker Corporation* 46,400 783,000
------------
9,854,440
------------
ENERGY MINERALS 1.12%
Ashland Inc. 4,100 198,338
Crown Central Petroleum Corporation* 34,300 240,100
Lyondell Chemical Company 25,100 451,800
Queen Sand Resources, Inc.* 87,100 326,625
Tesoro Petroleum Corporation* 63,700 772,362
TransMontaigne Oil Company* 17,700 267,712
------------
2,256,937
------------
FINANCE 12.69%
Alleghany Corporation* 1,500 281,812
Allstate Corporation (The) 6,200 239,475
BancWest Corporation 17,200 825,600
BankAtlantic Bancorp, Inc. 50,925 327,830
Bayonne Bancshares, Inc. 40,000 670,000
Bear Stearns Companies Inc. (The) 8,505 317,874
Bluegreen Corporation* 28,000 211,750
CFSB Bancorp, Inc. 14,630 356,606
CNA Financial Corporation* 8,800 354,200
Calumet Bancorp, Inc.* 7,000 189,875
Charter Municipal Mortgage Acceptance Company 31,100 377,087
Charter One Financial, Inc. 27,896 774,114
Chittenden Corporation 12,100 387,200
Cincinnati Financial Corporation 4,200 153,825
Doral Financial Corporation 57,200 1,265,550
E.W. Blanch Holdings, Inc. 300 14,231
Echelon International Corporation* 2,200 49,088
FBL Financial Group, Inc. 22,200 538,350
FFY Financial Corporation 12,500 435,937
Farm Family Holdings, Inc.* 14,000 476,000
First Bell Bancorp, Inc. 6,500 100,750
First Essex Bancorp, Inc. 10,500 189,000
First Northern Capital Corporation 25,000 290,625
Foremost Corporation of America 17,100 359,100
Franklin Select Realty Trust 51,400 346,950
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
FINANCE (CONT'D)
Frontier Insurance Group, Inc. 35,600 $ 458,350
Fund American Enterprises Holdings, Inc. 4,100 574,256
HMN Financial, Inc. 3,300 38,775
HSB Group, Inc. 13,700 562,556
Harleysville Group Inc. 12,400 320,075
Home Federal Bancorp 7,800 173,550
Horace Mann Educators Corporation 12,800 364,800
Independent Bank Corporation 21,735 440,134
InterContinental Life Corporation* 10,000 200,000
Interstate/Johnson Lane, Inc. 9,500 297,469
LandAmerica Financial Group, Inc. 11,800 658,588
Life USA Holding, Inc. 25,700 330,887
MAF Bancorp, Inc. 24,450 647,925
MGI Properties, Inc. 10,900 304,519
Meridian Insurance Group, Inc. 14,960 302,940
NAC Re Corporation 10,100 474,069
National Western Life Insurance Company* 3,500 411,250
Ohio Casualty Corporation 14,500 596,312
Ottawa Financial Corporation 28,380 603,075
PMA Capital Corporation 20,900 408,856
PMI Group, Inc. (The) 9,500 469,062
Pilgrim America Capital Corporation* 13,950 348,750
Presidential Life Corporation 34,200 679,725
Professionals Insurance Company Management Group* 4,730 146,630
Queens County Bancorp, Inc. 19,200 571,200
RLI Corporation 15,375 511,219
Ramco-Gershenson Properties Trust 24,300 352,350
Risk Capital Holdings, Inc.* 26,000 565,500
SCPIE Holdings Inc. 1,800 54,563
Southwest Securities Group, Inc. 27,951 562,514
St. Francis Capital Corporation 10,400 439,400
Stewart Information Services Corporation 14,100 817,800
Superior National Insurance Group, Inc.* 8,000 160,500
TIG Holdings, Inc. 44,200 687,863
Tarragon Realty Investors, Inc.* 50,826 559,086
Transamerica Corporation 2,500 288,750
USBANCORP, Inc. 21,900 435,263
</TABLE>
________________________________________________________ * NON-INCOME PRODUCING.
26
<PAGE>
ECLIPSE SMALL CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
FINANCE (CONT'D)
West Coast Bancorp 10,010 $ 210,210
------------
25,561,600
------------
HEALTH SERVICES 3.58%
Aetna Inc. 6,600 518,925
AmeriSource Health Corporation Class A* 2,900 188,500
Bergen Brunswig Corporation Class A 57,200 1,994,850
Bindley Western Industries, Inc. 39,100 1,925,675
McKesson Corporation 9,000 711,563
Owens & Minor, Inc. Holding Corporation 75,400 1,187,550
Syncor International Corporation* 25,100 683,975
------------
7,211,038
------------
HEALTH TECHNOLOGY 0.20%
Cooper Companies Inc.* 18,900 390,994
------------
INDUSTRIAL SERVICES 4.91%
Butler International, Inc.* 57,000 1,506,937
EMCOR Group, Inc.* 66,900 1,078,763
Fluor Corporation 11,100 472,444
Hovnanian Enterprises, Inc.* 33,000 284,625
Jacobs Engineering Group Inc.* 33,500 1,365,125
Morrison Knudsen Corporation* 110,300 1,075,425
Robertson-Ceco Corporation* 58,400 452,600
Turner Corporation (The)* 71,100 1,302,019
URS Corporation* 13,000 303,875
Zapata Corporation 166,800 2,043,300
------------
9,885,113
------------
MISCELLANEOUS 0.75%
Burlington Resources Coal Seam Gas Royalty Trust 42,700 341,600
Eastern American Natural Gas Trust (The) 15,200 210,900
Sabine Royalty Trust 48,500 600,188
San Juan Basin Royalty Trust 64,600 351,262
------------
1,503,950
------------
NON-ENERGY MINERALS 5.45%
ASARCO Corporation 56,500 851,031
Champion International Corp. 10,000 405,000
Cyprus Amax Minerals Company 88,700 887,000
Giant Cement Holding, Inc.* 76,200 1,885,950
LTV Steel Corporation (The) 191,000 1,110,188
Lone Star Industries, Inc. 47,400 1,744,912
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
NON-ENERGY MINERALS (CONT'D)
Phelps Dodge Corporation 9,200 $ 468,050
Roanoke Electric Steel Corporation 74,800 1,098,625
Texas Industries, Inc. 10,000 269,375
Universal Forest Products, Inc. 50,400 1,011,150
WHX Corporation* 123,200 1,239,700
------------
10,970,981
------------
PROCESS INDUSTRIES 3.95%
Ampal-American Israel Corporation* 69,900 301,444
Andersons, Inc. (The) 9,500 109,844
Applied Extrusion Technologies, Inc.* 87,800 702,400
Buckeye Technologies Inc.* 33,200 495,925
Burlington Industries, Inc.* 101,300 1,114,300
Chesapeake Corporation 27,100 999,312
Delta Woodside Industries, Inc. 87,500 525,000
Imation Corporation* 57,100 999,250
Lubrizol Corporation (The) 29,200 750,075
Springs Industries, Inc. 25,600 1,060,800
Temple-Inland Inc. 7,600 450,775
Westvaco Corporation 17,000 455,813
------------
7,964,938
------------
PRODUCER MANUFACTURING 9.25%
Astec Industries, Inc.* 12,700 706,437
Case Corporation 8,600 187,587
Caterpillar Inc. 11,200 515,200
Crown Cork & Seal Company, Inc. 7,800 240,338
Cummins Engine Company, Inc. 15,400 546,700
Deere & Company 15,300 506,812
Essef Corporation* 39,160 753,830
Eaton Corporation 7,600 537,225
Franklin Electric Co., Inc. 6,300 425,250
Gencor Industries, Inc. 109,400 1,011,950
Interlake Corporation (The)* 140,400 982,800
International Aluminum Corporation 13,600 402,050
Johnson Controls, Inc. 8,900 525,100
Johnstown America Industries, Inc.* 94,500 1,240,312
Katy Industries, Inc. 26,100 458,381
Lincoln Electric Company (The) 57,300 1,274,925
Nashua Corporation* 74,700 994,444
Oshkosh Truck Corporation Class B 40,500 1,341,563
Payless Shoesource, Inc.* 2,400 113,700
</TABLE>
* NON-INCOME PRODUCING. ________________________________________________________
27
<PAGE>
ECLIPSE SMALL CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
PRODUCER MANUFACTURING (CONT'D)
Pitt-Des Moines Inc. 28,600 $ 686,400
Robbins & Myers, Inc. 34,200 754,538
Ryerson Tull, Inc. Class A* 54,100 527,475
Smith (A.O.) Corporation 10,650 261,591
Specialty Equipment Companies, Inc.* 42,000 1,136,625
TB Wood's Corporation 36,300 437,869
Tecumseh Products Company Class A 3,800 177,175
Titan International, Inc. 18,300 173,850
TransTechnology Corporation 9,600 199,200
Varlen Corporation 66,000 1,522,125
------------
18,641,452
------------
RETAIL TRADE 11.01%
American Stores Co. 12,400 458,025
Ames Department Stores, Inc.* 37,000 999,000
Arden Group, Inc. Class A* 6,000 240,000
BJ's Wholesale Club, Inc.* 15,700 727,106
Baker (J.), Inc. 21,600 124,200
Best Buy Co., Inc.* 20,000 1,227,500
Blair Corporation 29,900 663,406
Bon-Ton Stores, Inc. (The)* 41,400 315,675
Burlington Coat Factory Warehouse Corporation 34,680 565,717
Cato Corporation Class A 2,000 19,688
Circuit City Stores-Circuit City Group 4,900 244,694
Costco Companies, Inc.* 6,000 433,125
Creative Computers, Inc.* 43,000 1,365,250
Cross-Continent Auto Retailers, Inc.* 18,800 183,300
Dayton Hudson Corporation 6,000 325,500
Deb Shops, Inc. 24,000 360,000
Dillard's, Inc. Class A 8,300 235,512
Egghead, Inc.* 30,000 624,375
Finlay Enterprises* 25,400 257,175
Food Lion, Inc. Class A 24,000 255,000
Footstar, Inc.* 17,900 447,500
Fred's, Inc. 25,150 377,250
Genovese Drug Stores, Inc. 30,030 855,855
Goody's Family Clothing, Inc.* 18,700 187,585
Great Atlantic & Pacific Tea Company, Inc. (The) 17,500 518,438
Kroger Company (The)* 6,900 417,450
Limited, Inc. (The) 19,600 570,850
Longs Drug Stores Corporation 20,900 783,750
Micro Warehouse, Inc.* 26,800 906,175
Musicland Stores Corporation* 86,700 1,295,081
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
RETAIL TRADE (CONT'D)
OfficeMax, Inc.* 39,200 $ 475,300
Phar-Mor, Inc.* 91,600 698,450
Ross Stores, Inc. 15,500 610,312
Ruddick Corporation 25,500 557,813
Seaway Food Town, Inc. 14,450 238,425
Shoe Carnival, Inc.* 26,600 295,925
Sonic Automotive, Inc.* 6,500 223,844
Syms Corporation* 18,600 167,400
Tandy Corporation 1,800 74,138
Toys "R" Us, Inc.* 24,500 413,438
Tractor Supply Company* 16,300 391,200
United Retail Group, Inc.* 77,000 827,750
Value City Department Stores, Inc.* 70,400 981,200
Winn-Dixie Stores, Inc. 5,600 251,300
------------
22,190,677
------------
TECHNOLOGY SERVICES 2.23%
Avnet, Inc. 27,600 1,652,550
Good Guys, Inc. (The)* 72,900 469,294
Ingram Micro, Inc. Class A* 10,100 352,237
Merisel, Inc.* 50,000 118,750
MicroAge, Inc.* 27,300 419,738
SED International Holdings, Inc.* 35,000 153,125
Tech Data Corporation* 33,000 1,328,250
------------
4,493,944
------------
TRANSPORTATION 3.83%
AMR Corporation* 8,300 492,813
Amtran, Inc.* 26,700 724,237
Arkansas Best Corporation* 121,300 708,853
Atlantic Coast Airlines, Inc.* 26,200 655,000
Consolidated Freightways Corporation* 44,000 698,500
Landstar System Holdings, Inc.* 41,700 1,699,275
Maritrans Inc. 74,300 487,594
Mark VII, Inc.* 16,300 303,587
Midwest Express Holdings, Inc.* 39,200 1,031,450
Rollins Truck Leasing Corporation 47,300 697,675
UAL Corporation* 3,800 226,813
------------
7,725,797
------------
UTILITIES 6.22%
Bangor Hydro-Electric Company* 15,800 202,437
CMP Group, Inc. 71,100 1,342,012
Central Hudson Gas & Electric Corporation 30,000 1,342,500
</TABLE>
________________________________________________________ * NON-INCOME PRODUCING.
28
<PAGE>
ECLIPSE SMALL CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
UTILITIES (CONT'D)
Central Vermont Public Service Corporation 78,900 $ 818,588
Eastern Utilities Associates 43,900 1,240,175
Edison International 11,300 314,988
Energen Corporation 42,200 822,900
Energy East Corporation 4,000 226,000
MidAmerican Energy Company 54,400 1,462,000
Niagra Mohawk Power Corporation* 32,700 527,287
Public Service Enterprise Group Inc. 5,700 228,000
TNP Enterprises, Inc. 39,100 1,483,356
<CAPTION>
VALUE
SHARES (NOTE 1)
<S> <C> <C>
UTILITIES (CONT'D)
Telephone and Data Systems, Inc. 11,000 $ 494,313
United Illuminating Company (The) 27,000 1,390,500
UtiliCorp United Inc. 12,000 440,250
Vanguard Cellular Systems, Inc.* 7,900 203,919
------------
12,539,225
------------
Total Common Stocks
(Cost $177,883,871) $193,452,684
------------
</TABLE>
SHORT-TERM INVESTMENTS 3.05%
<TABLE>
<CAPTION>
<S> <C> <C>
FACE VALUE
AMOUNT (NOTE 1)
<CAPTION>
<S> <C> <C>
REPURCHASE AGREEMENTS 3.05%
State Street Bank and Trust Company, 3.50%, due
01/04/99 (Collateralized by $3,745,000 U.S. Treasury
Bond, 13.25%, due 05/15/14) $6,138,155 $ 6,138,155
------------
<CAPTION>
VALUE
(NOTE 1)
<S> <C> <C>
Total Short-Term Investments
(Cost $6,138,155) $ 6,138,155
------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Total Investments (99.06%)
(Cost $184,022,027+) $199,590,839
Cash and Other Assets in Excess of Liabilities (0.94%) 1,901,238
------------
Net Assets (100.00%) 16,894,905 shares outstanding
(Note 3) $201,492,077
------------
------------
Net Asset Value, offering and redemption price per
share $11.93
------------
------------
</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 $36,741,494
and $21,172,682, respectively.
See notes to financial statements.
</TABLE>
* NON-INCOME PRODUCING. ________________________________________________________
29
<PAGE>
ECLIPSE FUNDS STATEMENTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ULTRA SHORT TERM BALANCED MID CAP
INCOME FUND FUND VALUE FUND
------------------ ---------------- ----------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Interest $ 434,991 $ 2,732,990 $ 96,916
Dividends (a) -- 807,260 1,415,601
---------- ---------------- ----------------
Total Income 434,991 3,540,250 1,512,517
---------- ---------------- ----------------
Expenses (Note 2):
Management Fee 27,820 779,459 1,038,228
Custodian and related shareholder expenses 20,202 121,510 97,182
Legal, compliance and filing fees 18,160 39,838 41,695
Audit and accounting 6,629 14,710 6,913
Trustees' fees 240 3,371 4,162
Other 14,343 27,086 16,680
---------- ---------------- ----------------
Total expenses before reimbursement 87,394 985,974 1,204,860
Fees paid indirectly (157) -- --
Expense reimbursement from Advisor (83,797) (136,778) (70,826)
---------- ---------------- ----------------
Net expenses 3,440 849,196 1,134,034
---------- ---------------- ----------------
Net investment income (loss) 431,551 2,691,054 378,483
---------- ---------------- ----------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments (19,508) 10,110,764 11,470,206
Change in unrealized appreciation (depreciation) of investments 873 (5,047,773) (1,147,314)
---------- ---------------- ----------------
Net gain (loss) on investments (18,635) 5,062,991 10,322,892
---------- ---------------- ----------------
Increase in net assets from operations $ 412,916 $ 7,754,045 $ 10,701,375
---------- ---------------- ----------------
---------- ---------------- ----------------
<CAPTION>
SMALL CAP
VALUE FUND
----------------
<S> <C>
INVESTMENT INCOME (LOSS)
Income:
Interest $ 140,521
Dividends (a) 2,090,141
----------------
Total Income 2,230,662
----------------
Expenses (Note 2):
Management Fee 1,978,256
Custodian and related shareholder expenses 196,593
Legal, compliance and filing fees 32,550
Audit and accounting 21,802
Trustees' fees 7,227
Other 22,734
----------------
Total expenses before reimbursement 2,259,162
Fees paid indirectly (25,249)
Expense reimbursement from Advisor --
----------------
Net expenses 2,233,913
----------------
Net investment income (loss) (3,251)
----------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 36,314,495
Change in unrealized appreciation (depreciation) of investments (29,998,149)
----------------
Net gain (loss) on investments 6,316,346
----------------
Increase in net assets from operations $ 6,313,095
----------------
----------------
</TABLE>
(a) Dividends recorded net of foreign withholding taxes of $0, $277, $512 and
$1,683, respectively.
See notes to financial statements.
________________________________________________________________________________
30
<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
1998 1997 DECEMBER 31, 1998
--------------- --------------- ------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income $ 431,551 $ 315,984 $ 2,691,054
Net realized gain (loss) on investments (19,508) (30,742) 10,110,764
Change in unrealized appreciation (depreciation) of investments 873 4,876 (5,047,773)
--------------- --------------- ------------------
Increase in net assets from operations 412,916 290,118 7,754,045
--------------- --------------- ------------------
Distributions to shareholders:
From net investment income (432,793) (316,187) (2,693,263)
From net realized gains on investments -- -- (10,108,555)
In excess of net realized gains on investments -- -- (474,893)
--------------- --------------- ------------------
Total distributions to shareholders (432,793) (316,187) (13,276,711)
--------------- --------------- ------------------
Transactions in shares of beneficial interest (Note 3) 3,347,248 958,752 50,141,881
--------------- --------------- ------------------
Total increase 3,327,371 932,683 44,619,215
Net Assets:
Beginning of year 5,393,204 4,460,521 84,246,066
--------------- --------------- ------------------
End of year $ 8,720,575 $ 5,393,204 $ 128,865,281
--------------- --------------- ------------------
--------------- --------------- ------------------
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
----------------
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income $ 2,431,319
Net realized gain (loss) on investments 10,408,969
Change in unrealized appreciation (depreciation) of investments 5,041,636
----------------
Increase in net assets from operations 17,881,924
----------------
Distributions to shareholders:
From net investment income (2,431,857)
From net realized gains on investments (10,409,079)
In excess of net realized gains on investments --
----------------
Total distributions to shareholders (12,840,936)
----------------
Transactions in shares of beneficial interest (Note 3) (4,620,083)
----------------
Total increase 420,905
Net Assets:
Beginning of year 83,825,161
----------------
End of year $ 84,246,066
----------------
----------------
</TABLE>
See notes to financial statements.
________________________________________________________________________________
31
<PAGE>
ECLIPSE FUNDS STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP VALUE
MID CAP VALUE FUND FUND
-------------------------------------- ------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $ 378,483 $ 189,828 $ (3,251)
Net realized gain on investments 11,470,206 456,275 36,314,495
Change in unrealized appreciation (depreciation) of investments (1,147,314) 10,537,440 (29,998,149)
------------------ ------------------ ------------------
Increase in net assets from operations 10,701,375 11,183,543 6,313,095
------------------ ------------------ ------------------
Distributions to shareholders from:
Net investment income (377,837) (190,015) --
Net realized gains on investments (11,471,120) (456,282) (36,324,385)
------------------ ------------------ ------------------
Total distributions to shareholders (11,848,957) (646,297) (36,324,385)
------------------ ------------------ ------------------
Transactions in shares of beneficial interest (Note 3) 16,221,359 89,177,271 41,538,416
------------------ ------------------ ------------------
Total increase 15,073,777 99,714,517 11,527,126
Net Assets:
Beginning of year 109,451,607 9,737,090 189,964,951
------------------ ------------------ ------------------
End of year $ 124,525,384 $ 109,451,607 $ 201,492,077
------------------ ------------------ ------------------
------------------ ------------------ ------------------
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $ (205,420)
Net realized gain on investments 39,214,295
Change in unrealized appreciation (depreciation) of investments 10,587,723
------------------
Increase in net assets from operations 49,596,598
------------------
Distributions to shareholders from:
Net investment income --
Net realized gains on investments (39,161,849)
------------------
Total distributions to shareholders (39,161,849)
------------------
Transactions in shares of beneficial interest (Note 3) 8,783,459
------------------
Total increase 19,218,208
Net Assets:
Beginning of year 170,746,743
------------------
End of year $ 189,964,951
------------------
------------------
</TABLE>
See notes to financial statements.
________________________________________________________________________________
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS ECLIPSE FUNDS
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Eclipse Funds (the "Funds"), 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 Mid Cap Value Fund (formerly the
Growth and Income Fund) and the Small Cap Value Fund (formerly 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 Mid Cap Value
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 Small Cap Value 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 Mid Cap
Value Fund and the Small Cap Value 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 Mid Cap Value Fund and the Small Cap Value Fund,
respectively. Effective January 1, 1999, the Manager has voluntarily agreed to
reduce its fee payable with respect to the Ultra Short Term Income Fund from an
annual rate of 0.40% of the Fund's average daily net assets to an annual rate of
________________________________________________________________________________
33
<PAGE>
ECLIPSE FUNDS NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
0.20% of the Fund's average daily net assets for a three year period ending
December 31, 2001. In addition, effective January 1, 1999, the management fee
payable to the Manager with respect to the Balanced Fund has been reduced from
an annual rate of 0.80% of the Fund's average daily net assets to an annual rate
of 0.75% of the Fund's average daily net assets. For the year ended December 31,
1998, the Manager voluntarily waived fees for the Ultra Short Term Income Fund,
the Balanced Fund and the Mid Cap Value Fund of $27,820, $136,778 and $70,826,
respectively. In addition, the Manager reimbursed expenses of $55,977 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.
The Manager has directed certain portfolio trades to brokers who paid a portion
of the Small Cap Value Fund's expenses. For the period, the Fund's expenses were
reduced by $25,016 under this arrangement. In addition the Funds have entered
into arrangements with their custodian whereby interest earned on uninvested
cash balances were used to offset a portion of the Fund's expenses. During the
period the Funds custodian fees were reduced under these arrangements by $157,
and $233 for the Ultra Short-Term Income Fund and the Small Cap Value Fund,
respectively.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
At December 31, 1998, the Funds had an unlimited authorized number of shares of
beneficial interest ($.01 par value). Capital paid in amounted to $8,818,007,
$120,982,097, $113,551,798 and $185,923,187 for the Ultra Short Term Income
Fund, the Balanced Fund, the Mid Cap Value Fund and the Small Cap Value Fund.
Transactions were as follows:
<TABLE>
<CAPTION>
ULTRA SHORT TERM INCOME FUND
------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 487,275 $ 4,944,505 207,569 $ 2,108,857
Issued on reinvestment of dividends 39,951 401,696 29,419 295,699
Redeemed (196,979) (1,998,953) (142,566) (1,445,804)
--------- ------------ --------- ------------
Net increase 330,247 $ 3,347,248 94,422 $ 958,752
--------- ------------ --------- ------------
--------- ------------ --------- ------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BALANCED FUND
------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 3,342,278 $ 76,521,072 449,370 $ 10,340,424
Issued on reinvestment of dividends 611,406 13,101,486 580,641 12,701,623
Redeemed (1,725,772) (39,480,677) (1,217,823) (27,662,130)
----------- ------------- ----------- -------------
Net increase (decrease) 2,227,912 $ 50,141,881 (187,812) $ (4,620,083)
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
________________________________________________________________________________
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS ECLIPSE FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MID CAP VALUE FUND
---------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 1,859,741 $ 35,912,212 5,817,969 $ 95,493,541
Issued on reinvestment of dividends 668,983 11,727,277 37,400 641,036
Redeemed (1,668,003) (31,418,130) (415,771) (6,957,306)
----------- ------------ ---------- ------------
Net increase 860,721 $ 16,221,359 5,439,598 $ 89,177,271
----------- ------------ ---------- ------------
----------- ------------ ---------- ------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP VALUE FUND
------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 8,684,170 $ 124,507,422 1,515,115 $ 24,622,974
Issued on reinvestment of dividends 3,011,532 35,084,351 2,802,771 38,675,310
Redeemed (8,191,231) (118,053,357) (3,598,851) (54,514,825)
----------- -------------- ----------- ------------
Net increase 3,504,471 $ 41,538,416 719,035 $ 8,783,459
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
4. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than U.S. Government direct
and agency obligations and short-term investments, totaled $4,316,238 and
$2,155,393 for the Ultra Short Term Income Fund, $104,162,892 and $66,644,698
for the Balanced Fund, $93,971,384 and $91,494,806 for the Mid Cap Value Fund
and $142,582,560 and $143,249,118 for the Small Cap Value Fund. Accumulated
realized losses at December 31, 1998, amounted to $87,167 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, 2004 to
2006.
________________________________________________________________________________
35
<PAGE>
ECLIPSE FUNDS NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
ULTRA SHORT TERM INCOME FUND
DECEMBER 27,
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 1994
ENDED ENDED ENDED ENDED (INCEPTION)
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER
1998 1997 1996 1995 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance for a share
outstanding throughout the period (a)
Net asset value, beginning of period $ 10.00 $ 10.03 $ 10.20 $ 10.00 $ 10.00
------------- ------------- ------------- ------------- -------------
Income from investment operations:
Net investment income 0.59 0.64 0.71 0.57 --
Net realized and unrealized gains (losses) on
investments 0.03 (0.03) (0.16) 0.20 --
------------- ------------- ------------- ------------- -------------
Total from investment operations 0.62 0.61 0.55 0.77 --
------------- ------------- ------------- ------------- -------------
Less distributions:
Dividends from net investment income (0.59) (0.64) (0.72) (0.57) --
------------- ------------- ------------- ------------- -------------
Total distributions (0.59) (0.64) (0.72) (0.57) --
------------- ------------- ------------- ------------- -------------
Net asset value, end of period $ 10.03 $ 10.00 $ 10.03 $ 10.20 $ 10.00
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Total return 6.27% 6.21% 5.48% 7.83% 0.00%
Ratios/Supplemental data
Net assets, end of period (000) $ 8,721 $ 5,393 $ 4,461 $ 4,610 $ 621
Ratios to average net assets:
Expenses 0.05%+# 0.00%+# 0.00%+# 0.22%+# 0.50%*+
Net investment income 6.20%+ 6.61%+ 6.76%+ 6.92%+ 0.65%*+
Portfolio turnover rate 36.02% 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%, 0.4% and 0.4% of average net assets plus expenses reimbursed
equivalent to 0.80%, 0.82%, 0.80%, 1.27% and 21.54% of average net assets, respectively.
# Includes expenses paid indirectly which amounted to less than 0.01%, 0.00%, 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>
- --------------------------------------------------------------------------------
________________________________________________________________________________
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS ECLIPSE FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
BALANCED FUND
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance for a share
outstanding throughout the year
Net asset value, beginning of year $ 22.15 $ 21.00 $ 20.59 $ 17.76 $ 18.63
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income 0.61 0.66 0.78 0.64 0.56
Net realized and unrealized gains (losses) on
investments 1.14 4.14 1.85 3.39 (0.56)
------------ ------------ ------------ ------------ ------------
Total from investment operations 1.75 4.80 2.63 4.03 0.00
------------ ------------ ------------ ------------ ------------
Less distributions:
Dividends from net investment income (0.61) (0.66) (0.78) (0.64) (0.56)
Distributions from net realized gains (1.84) (2.99) (1.44) (0.56) (0.31)
Distributions in excess of net realized gains (0.08) -- -- -- --
------------ ------------ ------------ ------------ ------------
Total distributions (2.53) (3.65) (2.22) (1.20) (0.87)
------------ ------------ ------------ ------------ ------------
Net asset value, end of year $ 21.37 $ 22.15 $ 21.00 $ 20.59 $ 17.76
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total return 8.03% 23.40% 12.91% 22.99% 0.01%
Ratios/Supplemental data
Net assets, end of year (000) $ 128,865 $ 84,246 $ 83,825 $ 85,922 $ 27,703
Ratios to average net assets:
Expenses 0.87%+ 0.84%+# 0.80%+ 0.81%+# 0.80%+
Net investment income 2.76%+ 2.85%+ 3.56%+ 3.62%+ 3.10%+
Portfolio turnover rate 69.85% 46.66% 71.51% 74.72% 94.38%
</TABLE>
- -----------------
<TABLE>
<C> <S>
+ Net of management fee waived equivalent to 0.1%, 0.2%, 0.2%, 0.3% and 0.4% of average net assets.
# Includes expenses paid indirectly which amount to less than 0.01% of average net assets.
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
37
<PAGE>
ECLIPSE FUNDS NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MID CAP VALUE FUND
DECEMBER 27,
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR 1994
ENDED ENDED ENDED ENDED (INCEPTION)
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER
1998 1997 1996 1995 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance for a share
outstanding throughout the period
Net asset value, beginning of period $ 17.76 $ 13.49 $ 12.31 $ 10.00 $ 10.00
------------- ------------- ------------- ------------- -------------
Income from investment operations:
Net investment income 0.06 0.03 0.22 0.11 --
Net realized and unrealized gains on
investments 1.76 4.34 2.54 2.57 --
------------- ------------- ------------- ------------- -------------
Total from investment operations 1.82 4.37 2.76 2.68 --
------------- ------------- ------------- ------------- -------------
Less distributions:
Dividends from net investment income (0.06) (0.03) (0.23) (0.11) --
Distributions from net realized gains (1.79) (0.07) (1.35) (0.26) --
------------- ------------- ------------- ------------- -------------
Total distributions (1.85) (0.10) (1.58) (0.37) --
------------- ------------- ------------- ------------- -------------
Net asset value, end of period $ 17.73 $ 17.76 $ 13.49 $ 12.31 $ 10.00
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Total return 10.35% 32.46% 22.40% 26.82% 0.00%
Ratios/Supplemental data
Net assets, end of period (000) $ 124,525 $ 109,452 $ 9,737 $ 7,960 $ 315
Ratios to average net assets:
Expenses 0.98%+ 0.94%+ 0.90%+ 1.00%+# 1.20%*+
Net investment income (loss) 0.33%+ 0.36%+ 1.66%+ 1.57%+ (0.06)%*+
Portfolio turnover rate 80.72% 51.66% 102.24% 63.16% 0.00%
</TABLE>
- -----------------
<TABLE>
<C> <S> <S>
* Annualized
+ Net of management fee waived equivalent to 0.1%, 0.2%, 0.7%, 0.9% and 0.9% of average net assets plus expenses reimbursed
equivalent to 0.00%, 0.00%, 0.00%, 0.05% and 43.15% of average net assets, respectively.
# Includes expenses paid indirectly which amounted to 0.10% of average net assets.
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS ECLIPSE FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SMALL CAP VALUE FUND
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance for a share
outstanding throughout the year
Net asset value, beginning of year $ 14.19 $ 13.47 $ 13.56 $ 11.82 $ 13.35
-------------- ------------- ------------- ------------- -------------
Income from investment operations:
Net investment income (loss) (0.00)* (0.02) 0.14 0.07 0.03
Net realized and unrealized gains (losses) on
investments 0.42 4.40 3.89 2.26 (0.66)
-------------- ------------- ------------- ------------- -------------
Total from investment operations 0.42 4.38 4.03 2.33 (0.63)
-------------- ------------- ------------- ------------- -------------
Less distributions:
Dividends from net investment income -- -- (0.14) (0.07) (0.03)
Distributions from net realized gains (2.68) (3.66) (3.98) (0.52) (0.87)
-------------- ------------- ------------- ------------- -------------
Total distributions (2.68) (3.66) (4.12) (0.59) (0.90)
-------------- ------------- ------------- ------------- -------------
Net asset value, end of year $ 11.93 $ 14.19 $ 13.47 $ 13.56 $ 11.82
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
Total return 3.40% 33.30% 29.87% 19.69% (4.74)%
Ratios/Supplemental data
Net assets, end of year (000) $ 201,492 $ 189,965 $ 170,747 $ 174,705 $ 195,107
Ratios to average net assets:
Expenses 1.14%# 1.14%# 1.15%# 1.14%# 1.12%
Net investment income (loss) (0.00)%** (0.12)% 0.81% 0.45% 0.21%
Portfolio turnover rate 73.39% 55.47% 82.05% 74.40% 92.20%
</TABLE>
- -----------------
<TABLE>
<C> <S> <S>
* Less than one cent per share.
** Less than 0.01% of average net assets.
# Includes expenses paid indirectly which amounted to less than 0.01% of average net assets for each year indicated.
</TABLE>
- --------------------------------------------------------------------------------
________________________________________________________________________________
39
<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 Mid Cap Value Fund (formerly the Growth
and Income Fund), and the Small Cap Value Fund (formerly the Equity Fund) series
of Eclipse Funds, as of December 31, 1998, and the related statements of
operations, changes in net assets and financial highlights for the periods
indicated in the accompanying financial statements. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights 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 financial
highlights 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, 1998, by correspondence with the custodian. 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 financial highlights referred to
above present fairly, in all material respects, the financial position of the
Ultra Short Term Income Fund, the Balanced Fund, the Mid Cap Value Fund, and the
Small Cap Value Fund series of Eclipse Funds as of December 31, 1998, the
results of their operations, the changes in their net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles.
[/S/ MCGLADREY & PULLEN, LLP]
New York, New York
January 28, 1999
________________________________________________________________________________
40
<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>
________________________________________________________________________________
41
<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, 1998 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 three 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, master's degrees from Columbia and Stanford, and a bachelor's degree
from the University of Michigan, was formerly on the faculty of the Graduate
School of Business of Columbia University. He is also a Chartered Financial
Analyst (CFA).
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 (CFP).
The co-manager, with Dr. McCain, of the Mid Cap Value and the Small Cap Value
Funds is Kathy O'Connor. She holds a BBA from the University of Massachusetts,
an MBA from Babson College, and is a Chartered Financial Analyst (CFA). She
joined Towneley in 1987.
________________________________________________________________________________
42
<PAGE>
GLOSSARY
CAPITALIZATION WEIGHTING with reference to an index, means that the larger the
market capitalization of a company, the greater its weight, or influence, will
be. Medium and small capitalization companies will have a much smaller influence
on the index.
CURRENT YIELD is the annual interest paid by a bond, divided by its current
market value.
EQUAL WEIGHTING refers to investing equal dollar amounts in each portfolio
holding. With reference to an index, it means that each component of the index
has an equal influence.
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 STOCKS are companies that are experiencing faster than average gains in
earnings, and that are expected to continue to enjoy relatively rapid profit
increases. These companies tend to have higher valuations such as higher
price/earnings ratios, higher price/ cash flow ratios, and higher price/revenue
ratios.
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
MID CAPITALIZATION (See Large Capitalization)
QUANTITATIVE METHODS use financial accounting statement data to analyze
companies' fundamental operating characteristics and returns of the business in
order to determine, among other things, their quality and value. MEASURES OF
QUALITY may include asset turnover (sales/ assets), net income margins (net
income/sales), working capital (short-term assets -- short-term liabilities) and
leverage (debt/equity). MEASURES OF VALUE may include 1) price to sales ratios,
2) price to cash flow ratios, 3) price to earnings ratios, 4) dividend yields,
and 5) price to book value ratios.
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
________________________________________________________________________________
43
<PAGE>
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
RUSSELL MID CAP INDEX measures the performance of the smallest 800 securities in
the Russell 1000 Index, ranked by total market capitalization. This index
captures the medium-sized universe of securities and represents approximately
35% of the total market capitalization of the Russell 1000. 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
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.
VALUATION MEASURES are used to determine the relative worth of a company. They
include, for example, 1) price to sales ratios, 2) price to cash flow ratios, 3)
price to earnings ratios, 4) dividend yields, and 5) price to book value ratios.
VALUE STOCKS are companies that are cheap relative 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, relatively high dividends, and low
price to sales ratios.
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).
________________________________________________________________________________
44
<PAGE>
MANAGER
Towneley Capital Management, Inc.
470 Park Avenue South
16th Floor
New York, New York 10016
www.towneley.com
SHAREHOLDER
SERVICING AGENT
Eclipse Financial Services, Inc.
P.O. Box 2196
Peachtree City, Georgia 30269
Telephone: 800.872.2710
In Georgia: 770.631.0414
CUSTODIAN
Investors Fiduciary Trust Company
TRANSFER AGENT
National Financial Data Services
330 West 9th Street
Kansas City, Missouri 64105
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.
