ECLIPSE FUNDS, 485APOS, 1999-03-01

ECLIPSE FUNDS
485APOS, 1999-03-01

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As filed electronically with the Securities and Exchange Commission on
March 1, 1999
(File Nos. 33-8865 and 811-4847)

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 18 [x]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 17 [x]

ECLIPSE FUNDS
(Exact Name of Registrant as Specified in Charter)

470 Park Avenue South, 16th Floor, New York, New York 10016
(Address of Principal Executive Offices)

Registrant's Telephone Number: 212.696.4130

Wesley G. McCain
c/o Towneley Capital Management, Inc.
470 Park Avenue South, 16th Floor
New York, New York 10016
(Name and Address of Agent for Service)

Copies to:

Joseph R. Fleming, Esq.
Dechert Price & Rhoads
Ten Post Office Square, South - Suite 1230
Boston, MA 02109

[ X ] It is proposed that this Post-Effective Amendment become effective
on May 1, 1999 pursuant to paragraph (a)(1) of Rule 485.

THIS POST-EFFECTIVE AMENDMENT NO. 18 TO THE REGISTRATION STATEMENT OF ECLIPSE
FUNDS (THE "REGISTRANT") IS BEING MADE TO CONFORM THE DISCLOSURE DOCUMENTS OF
THE ECLIPSE ULTRA SHORT TERM INCOME FUND, THE ECLIPSE BALANCED FUND, THE ECLIPSE
MID CAP VALUE FUND, AND THE ECLIPSE SMALL CAP VALUE FUND, EACH A SEPARATE SERIES
OF THE REGISTRANT, TO THE REQUIREMENTS OF AMENDED FORM N-1A.

ECLIPSE FUNDS

CROSS REFERENCE SHEET

Post-Effective Amendment No. 18 contains the Prospectus and Statement of
Additional Information to be used with Eclipse Ultra Short Term Income Fund,
Eclipse Balanced Fund, Eclipse Mid Cap Value Fund, Eclipse Small Cap Value Fund,
each a series of Eclipse Funds (the "Trust").

ITEMS REQUIRED BY FORM N-1A:
PART A:

ITEM 1 FRONT AND BACK COVER PAGES: Front and back cover pages.

ITEM 2 RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE:
Summary of Investments, Risks, and Performance.

ITEM 3 RISK/RETURN SUMMARY: FEE TABLE: Summary of Investments,
Risks, and Performance.

ITEM 4 INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND
RELATED RISKS: Summary of Investments,
Risks, and Performance; Additional Investments and Risks; How
the Manager Determines Which Securities to Buy and Sell.

ITEM 5 MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE:
Not applicable.

ITEM 6 MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE: Summary of
Investments, Risks, and Performance.
ITEM 7 SHAREHOLDER INFORMATION: Account Policies and Procedures;
How Fund Shares Are Priced, Retirement
Plans, Distributions, and Tax Consequences.

ITEM 8 DISTRIBUTION ARRANGEMENTS: Not Applicable.

ITEM 9 FINANCIAL HIGHLIGHTS INFORMATION: Summary of Investments,
Risks, and Performance.

PART B:

ITEM 10 COVER PAGE AND TABLE OF CONTENTS: Cover Page; Table of
Contents.

ITEM 11 FUND HISTORY: Fund History.

ITEM 12 DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS:
Fund History; Investment Policies and Risk
Considerations; Investment Restrictions.

ITEM 13 MANAGEMENT OF THE FUND: Management of the Funds.

ITEM 14 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES:
Ownership of Shares.

ITEM 15 INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisory
and Other Services; Counsel and Auditors.

ITEM 16 BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio
Transactions and Brokerage.

ITEM 17 CAPITAL STOCK AND OTHER SECURITIES: Fund History;
Description of Shares; General Information.

ITEM 18 PURCHASE, REDEMPTION AND PRICING OF SHARES: Pricing of
Shares; Redemption of Shares; Retirement Plans.

ITEM 19 TAXATION OF THE FUND: Taxation.

ITEM 20 UNDERWRITERS: Not Applicable.

ITEM 21 CALCULATION OF PERFORMANCE DATA: Performance.

ITEM 22 FINANCIAL STATEMENTS: Financial Statements.

[Eclipse_logo_graphic]

PROSPECTUS

MAY 1, 1999

The Prospectus begins on the following page

<PAGE>

[Eclipse_logo_graphic] [service mark]

470 Park Avenue South, 16th Floor, New York, New York 10016

PROSPECTUS
May 1, 1999

The Eclipse Funds consist of four separate investment portfolios or Funds:

[small bullet] Eclipse Ultra Short Term Income Fund

[small bullet] Eclipse Balanced Fund

[small bullet] Eclipse Mid Cap Value Fund *

[small bullet] Eclipse Small Cap Value Fund **

Each Fund has its own investment objectives, policies, and risks, which are
discussed in this Prospectus.

[service mark] Eclipse is a registered service mark of Eclipse Funds.

* Formerly Eclipse Growth and Income Fund

** Formerly Eclipse Equity Fund

The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

<PAGE>

TABLE OF CONTENTS

SUMMARY OF INVESTMENTS, RISKS, AND PERFORMANCE...............................4

ECLIPSE ULTRA SHORT TERM INCOME FUND........................................4
ECLIPSE BALANCED FUND.......................................................9
ECLIPSE MID CAP VALUE FUND*................................................14
ECLIPSE SMALL CAP VALUE FUND**............................................18

ADDITIONAL INVESTMENTS & RISKS..............................................22

HOW THE MANAGER DETERMINES WHICH SECURITIES TO BUY AND SELL.................25

ACCOUNT POLICIES AND PROCEDURES.............................................26

HOW FUND SHARES ARE PRICED..................................................30

RETIREMENT PLANS............................................................31

DISTRIBUTIONS...............................................................31

TAX CONSEQUENCES............................................................31

* Formerly Eclipse Growth and Income Fund
** Formerly Eclipse Equity Fund

<PAGE>

SUMMARY OF INVESTMENTS, RISKS, AND PERFORMANCE

ECLIPSE ULTRA SHORT TERM INCOME FUND

INVESTMENT GOAL
The Ultra Short Term Income Fund seeks a high level of current income, capital
preservation, and a relatively stable net asset value.

INVESTMENT APPROACH
The Fund pursues this goal by investing primarily in short-term, investment
grade, fixed-income securities (such as bonds) issued by U.S. corporations and
U.S. government agencies. The Fund selects bonds based primarily on their credit
quality and duration. In addition, the Fund:

[small bullet] Invests in investment grade bonds.

[small bullet] Keeps its maximum duration at 13 months.

[small bullet] Maintains a laddered maturity schedule.

[small bullet] Invests a maximum of 25% of its assets in any one industry.

[small bullet] Buys securities issued by companies considered to be socially
responsible.

MAIN RISKS
[small bullet] Market risk - The Fund is not a money market fund; the price of
its shares will fluctuate as the securities in its portfolio change in value.
Your investment could be worth more or less than you paid when you decide to
sell; in other words, you could lose money on your investment.

[small bullet] Interest rate risk - When interest rates rise, bond prices
generally fall, which can lower the share price of the Fund. Alternatively, when
interest rates fall, bond prices generally rise, which can raise the share price
of the Fund. This means the Fund generally will perform better during periods of
stable or falling interest rates than during periods of rising interest rates.
The high quality and short duration bonds chosen for the Fund tend to be less
sensitive to interest rate changes than lower-grade, longer-term debt
instruments. This means that the Fund's portfolio will tend to maintain more of
its value during periods of rising interest rates and to appreciate more slowly
during periods of steeply falling interest rates.

[small bullet] Credit risk - Every fixed-income security comes with the risk
that the expected payments will not be received. In general, an issuer with a
higher credit rating presents a lower credit risk. Because the Fund invests in
investment grade bonds, this credit risk is lower than with funds which invest
in lower grade debt securities. Still, there is some credit risk.

[call-out start]

KEY TERMS

Duration
With respect to a particular bond or other fixed-income security, duration is
the length of time required to receive the present value of all future interest
and principal payments. With respect to the Fund's portfolio, duration means the
average duration for all of the bonds and fixed-income securities, weighted by
their amounts. For example, a $500,000 bond will have twice the weight, or count
twice as much, as a $250,000 bond. Duration provides a measure of the
portfolio's sensitivity to interest rate changes. Generally, a shorter duration
indicates less sensitivity than a longer duration.

Investment grade
Investment grade bonds are either rated Baa or better by Moody's or BBB or
better by S&P, or are unrated but of comparable quality in the view of the
Fund's Manager

Laddered maturity schedule
The portfolio is structured so that a certain percentage of the securities will
mature each year. This helps the Fund manage duration and risk, and creates a
more consistent return.

Socially responsible
Socially responsible investing takes into consideration ethical and moral, as
well as financial, aspects of a company before making an investment decision.
Socially responsible companies are considered those which, among other criteria,
are not involved in such industries as: defense, nuclear, alcohol, tobacco, and
gambling. [call-out end]

WHO MIGHT INVEST IN THIS FUND?
[small bullet] Investors who want a higher return than a money market fund with
less fluctuation in share price than a longer term bond fund, and who are
willing to risk principal.

[small bullet] Investors who want to stabilize their investment returns. While
bonds historically have produced lower returns than stocks, they are generally
less volatile than stocks. The Fund can provide a cushion against sharp drops in
the stock market.

[small bullet] Corporate working capital accounts, individual permanent
emergency reserve accounts, and temporary investments.

EVALUATING THE FUND'S PERFORMANCE
The following bar chart and table give an indication of the risks associated
with investing in the Fund. The bar chart shows variations in the Fund's annual
return; and the table compares the Fund's average annual returns to several
market indexes. Remember, the Fund's past performance does not indicate its
future performance.

Annual Total Returns (%, each year as of 12/31)

[bar chart: 1995, 7.84%; 1996, 5.48%; 1997, 6.22%; 1998, 6.28%. vertical
scale:

0.00% to 10.00%.]

Best Quarter:.....Q2 1995, up 2.48%
Worst Quarter:....Q3 1995, up 0.98%

Average Annual Returns(1) (%, all periods ending 12/31/98)
<TABLE>
<S> <C> <C> <C>

1 Year 3 Years Inception(2)
------ ------- ---------

Eclipse Ultra Short Term Income Fund(3) 6.3 6.0 6.5
1 Year Treasury Bill 5.9 5.9 6.4
Lipper Ultra Short Obligations Funds Average(4) 5.5 5.5 5.8
3 Month Treasury Bill 5.2 5.3 5.5
</TABLE>

- -------------------

1 With income reinvested.
2 Returns shown are from 12/31/94. The Fund's inception was 12/27/94; its
annualized total return from inception through 12/31/98 was 6.4%.
3 The Manager has waived its fee and reimbursed expenses as follows: 1.67%,
1.20%, 1.22%, and 1.20% of average net assets from 1995 through 1998,
respectively. The data presented reflect those waivers and reimbursements.
4 This 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.

FEES AND EXPENSES OF THE FUND

As an investor in a Fund, you will pay fees and expenses which are reflected in
the following table. The Eclipse Funds are no-load funds. They have no sales
charge (or load), 12b-1 fee, exchange fee, or redemption fee. Each Fund has
operating expenses that are paid out of its assets, however, and those expenses
are incorporated in the Fund's share price.

Annual Fund Operating Expenses

Ultra Short Term Income Fund
Management Fees* 0.40%
Distribution (12b-1) Fees None
Other Expenses* 0.86%
Total Annual Fund Operating Expenses* 1.26%
- -------------------

* Management Fees and Operating Expenses: The Manager has contractually
waived 0.20% of its Management Fee through December 31, 2001. In addition,
the Manager has voluntarily waived the rest of its Management Fee and
partially reimbursed the Fund for its Other Expenses. Thus, the Fund's
actual Total
Annual Fund Operating Expenses were 0.05% of average net assets.

Example: This example is intended to help you compare the cost of investing
in the Fund with the costs of investing in other mutual
funds. The example assumes that:

[small bullet] You invest $10,000 in the Fund for the time periods indicated;
[small bullet] Your investment has a 5% return each year; and [small bullet] The
Fund's operating expenses remain the same.

1 year 3 years
Under these assumptions your costs would be: $108 $337

5 years 10 years
$585 $1294

[call-out start]
MANAGEMENT

Towneley Capital Management, Inc. (Towneley or the Manager), founded in 1971 by
Wesley G. McCain, serves as investment advisor of the Fund. Towneley currently
manages over $1.1 billion in assets including those of the Eclipse Funds.
Towneley's clients also include corporations, foundations, colleges, hospitals,
individuals, retirement plans, and hedge funds. Towneley is located at 470 Park
Avenue South, 16th Floor, New York, New York 10016. On behalf of the Fund,
Towneley provides an investment program, makes the day-to-day investment
decisions, executes purchase and sale orders, and generally manages the Fund's
investments.

Mr. McCain, the founder and chairman of Towneley, directs the investment
process and co-manages the Fund. Mr. McCain holds a BBA from the University of
Michigan, an MBA from Columbia University, and an MA and PhD from Stanford
University; he is a Chartered Financial Analyst (CFA). He was formerly on the
faculty of the Graduate School of Business of Columbia University.

Joan Sabella, who has been with Towneley since 1978, co-manages the Fund
with Mr. McCain. She is a Vice President of Towneley and is Director of Fixed
Income Research and Trading. She holds a BBA from Baruch College and is a
Certified Financial Planner (CFP). [call-out end]

<PAGE>

FINANCIAL HIGHLIGHTS
<TABLE>
<S> <C> <C> <C> <C> <C>

DECEMBER 27,1994 FOR THE YEAR ENDED DECEMBER 31,
(INCEPTION) TO
DECEMBER 31,1994 1995 1996 1997 1998
---------------- ---- ---- ---- ----

Net asset value, beginning of period $10.00 $10.00 $10.20 $10.03
------ ------ ------ ------
Income from investment operations:
Net investment income 0.00 0.57 0.71 0.64
Net gains or losses on securities (both realized and 0.00 0.20 (0.16) (0.03)
---- ---- ------ ------
unrealized)
Total from investment operations. 0.00 0.77 0.55 0.61
---- ---- ---- ----
Less distributions:
Dividends (from net investment income) 0.00 (0.57) (0.72) (0.64)
---- ------ ------ ------
Distributions (from capital gains) 0.00 0.00 0.00 0.00
Returns of capital 0.00 0.00 0.00 0.00
Total distributions 0.00 (0.57) (0.72) (0.64)
---- ------ ------ ------

Net asset value, end of period. $10.00 $10.20 $10.03 $10.00
====== ====== ====== ======
Total return 0.00% 7.83% 5.48% 6.21%
Ratios/supplemental data
Net assets, end of period (000) $621 $4,610 $4,461 $5,393
Ratio of expenses to average net assets:
Expenses 0.50%*+ 0.22%+# 0.00%+# 0.00%+#
Ratios of net income to average net assets 0.65%*+ 6.92%+ 6.76%+ 6.61%+
Portfolio turnover (%) 0.00% 39.26% 46.82% 45.10%
</TABLE>

- -----------------------------------------------------------------------------

This information has been audited by _______________, Certified Public
Accountants, whose report, together with the Eclipse Funds' financial
statements, are included in the SAI, which is available upon request.

* Annualized.
+ Net of management fee waived equivalent to 0.4%, 0.4%, 0.4%, and 0.4%
of average net assets plus expenses reimbursed equivalent to 21.54%,
1.27%, 0.80%, 0.82%, and 0.80% of average net assets, respectively.
# Includes custodian fees paid indirectly which amounted to 0.00% and to
less than 0.01% and 0.04% of average net assets, respectively.
(a) Per share amounts for periods ended prior to December 31, 1996 have
been restated to reflect a 1 for 5 share split effective June 14, 1996.

<PAGE>

ECLIPSE BALANCED FUND

INVESTMENT GOAL
The Balanced Fund seeks high total return.

INVESTMENT APPROACH
The Fund pursues this goal by investing approximately 60% of its assets in
stocks and 40% in fixed-income securities (such as bonds) and cash equivalents.
Although this 60/40 ratio may vary the Fund will always invest at least 25% of
its assets in fixed-income securities. By holding both stocks and bonds the Fund
seeks a balance between capital gains from stock appreciation and current income
from interest and dividends.

Stocks

The Fund generally invests in dividend-paying, mid-large capitalization stocks
that the Manager determines are value stocks.

[small bullet] "Value" stocks are stocks that the Manager determines (1) have
strong or improving fundamental characteristics and (2) have been overlooked by
the marketplace so that they are undervalued or "cheap" relative to the rest of
the equity market.

[small bullet] In selecting stocks, the Manager applies quantitative and
statistical methods to analyze the relative quality and value of the stocks. See
HOW THE MANAGER DETERMINES WHICH SECURITIES TO BUY AND SELL.

Fixed-income securities

The Fund invests in U.S. government securities and investment grade bonds
issued by U.S. corporations. It selects fixed-income securities based on their
credit quality and duration. The fixed income portion of the portfolio:

[small bullet] Has an intermediate term duration which ranges from three to five
years.

[small bullet] Has a laddered maturity schedule.

[call-out start]
KEY TERMS

Total return
Total return means a combination of income and realized and unrealized capital
gains.

Mid-large capitalization stocks
These are stocks of U.S. companies that tend to be well known, and to have large
amounts of stock outstanding, such as those listed in the Standard & Poor's 400
and Standard & Poor's 500 Indexes. The Fund considers mid-large capitalization
stocks to be the top 20% of companies sorted by market capitalization.

Fundamental characteristics
In evaluating a company, the Manager considers margins, asset turns, working
capital, leverage, cash flow, returns on equity and assets, and many other
variables. These are fundamental characteristics. [call-out end]

MAIN RISKS

[small bullet] Market risk - Stocks and bonds fluctuate in price. As the Fund's
holdings fluctuate, so will the price of the Fund's shares. Consequently, your
investment could be worth more or less than you paid when you sell. You could
lose money on your investment.

[small bullet] Interest rate risk - When interest rates rise, bond prices
generally fall, which can lower the share price of the Fund. Alternatively, when
interest rates fall, bond prices generally rise, which can raise the share price
of the Fund. This means the Fund generally will perform better during periods of
stable or falling interest rates than during periods of rising interest rates.
The high quality and short-to-intermediate duration bonds chosen for the Fund
tend to be less sensitive to interest rate changes than lower grade, longer term
debt instruments. This means that the Fund's bond portfolio will tend to
maintain more of its value during periods of rising interest rates and to
appreciate more slowly during periods of steeply falling interest rates.

[small bullet] Credit risk - Every bond and other fixed-income security comes
with the risk that the expected payments will not be received. In general, an
issuer with a higher credit rating presents a lower credit risk. Because the
Fund invests in investment grade securities, this credit risk is lower than with
funds that invest in lower grade debt instruments. Still, there is some credit
risk.

WHO MIGHT INVEST IN THIS FUND?

[small bullet] Moderate risk takers who want the opportunities for gain offered
by the equity market, but also want current income from dividend-paying stocks
and from interest payments from bonds.

[small bullet] Investors who want a diversified portfolio of both stocks and
bonds.

[small bullet] Corporate pension and profit-sharing plans, individual retirement
plans, education funds, endowments, and trusts for children.

EVALUATING THE FUND'S PERFORMANCE
The following bar chart and table give an indication of the risks associated
with investing in the Fund. The bar chart shows variations in the Fund's annual
returns; and the table compares the Fund's average annual returns to several
market indexes. Remember, the Fund's past performance does not indicate its
future performance.

Annual Total Returns(1) (%, each year as of 12/31)

[bar chart: 1990, 1.45% 1991, 20.91%; 1992, 12.03%; 1993, 17.07%; 1994, 0.02%;
1995, 23.00%; 1996, 12.92%; 1997, 23.39%; 1998,8.03%. vertical scale: 0.00% to
30.00%]

Best Quarter: Q3 1997, up 9.94%
Worst Quarter: Q3 1998, down 6.38%

<PAGE>

Average Annual Returns(1) (%, all periods ending 12/31/98)
<TABLE>
<S> <C> <C> <C> <C>

1 Year 3 Years 5 Years Inception(2)
------ ------- ------- ---------

Eclipse Balanced Fund(3) 8.0 14.6 13.1 12.5
Lipper Balanced Fund Index(4) 15.1 16.1 13.9 13.0
Merrill Lynch Corporate & 8.5 6.8 6.7 8.5
Govt 1-9.99 Years Bond Index(5)
Russell Mid Cap Index(6) 10.1 19.1 17.3 15.9
Standard & Poor's 500 Index(7) 28.6 28.2 24.1 18.5
3-Month Treasury Bill 5.2 5.3 5.2 5.6
</TABLE>

- -------------------

1 With income reinvested. 2 May 1, 1989 through December 31, 1998.
3 The Manager has waived its fee as follows: 0.8% of average net assets from
1989 through 1992, and 0.5%, 0.4%, 0.3%, 0.2%, 0.2%, and 0.1% of average
net assets from 1993 through 1998, respectively. The Manager also has
reimbursed expenses equivalent to 0.84% of average net assets in 1989 and
0.05% of average net assets in 1990. The data presented reflect those
waivers and reimbursements.
4 This index tracks the performance of the 30 largest balanced funds,
adjusted for the reinvestment of capital gain distributions and income
dividends.
5 This 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.
6 This index measures the performance of the smallest 800 securities in the
Russell 1000 Index, ranked by total market
capitalization; it captures the medium-sized universe of securities.
7 This index is a market value weighted benchmark of common stock performance.

FEES AND EXPENSES OF THE FUND

Annual Fund Operating Expenses

Balanced Fund
Management Fees 0.75%
Distribution (12b-1) Fees None
Other Expenses 0.21%
Total Annual Fund Operating Expenses 0.96%

Example: This example is intended to help you compare the cost of investing
in the Fund of investing in other mutual funds. The
example assumes that:

1 year 3 years
Under these assumptions your costs would be: $98 $306

5 years 10 years
$531 $1178
[call-out start]
MANAGEMENT

<PAGE>

FINANCIAL HIGHLIGHTS

FOR THE YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998

Net asset value, beginning of period $18.63 $17.76 $20.59 $21.00
------ ------ ------ ------
Income from investment operations:
Net investment income 0.56 0.64 0.78 0.66
Net gains or losses on securities (both realized and
unrealized) (0.56) 3.39 1.85 4.14
------ ---- ---- ----
Total from investment operations 0.00 4.03 2.63 4.80
---- ---- ---- ----

Less distributions:
Dividends (from net investment income) (0.56) (0.64) (0.78) (0.66)
Distributions (from capital gains) (0.31) (0.56) (1.44) (2.99)
------ ------ ------ ------
Returns of capital 0.00 0.00 0.00 0.00
Total distributions (0.87) (1.20) (2.22) (3.65)
------ ------ ------ ------

Net asset value, end of period $17.76 $20.59 $21.00 $22.15
====== ====== ====== ======

Total return 0.01% 22.99% 12.91% 23.40%

Ratios/supplemental data
Net assets, end of period (000) $27,703 $85,922 $83,825 $84,246
Ratio of expenses to average net assets 0.80%+ 0.81%+# 0.80%+ 0.84%+#

Ratio of net income to average net assets 3.10%+ 3.62%+ 3.56%+ 2.85%+
Portfolio turnover (%) 94.38% 74.72% 71.51% 46.66%
</TABLE>

- --------------------------------------------------------------------------------

+ Net of management fee waived equivalent to 0.4%, 0.3%, 0.2%, 0.2%, and 0.1% of
average net assets, respectively. # Includes custodian fees paid indirectly,
which amounted to less than 0.01% of average net assets.

<PAGE>

ECLIPSE MID CAP VALUE FUND
(FORMERLY ECLIPSE GROWTH AND INCOME FUND)

INVESTMENT GOAL
The Mid Cap Value Fund seeks high total return.

INVESTMENT APPROACH
The Fund pursues this goal by investing primarily in mid-large capitalization
stocks that the Manager determines are value stocks.

MAIN RISKS

[small bullet] Market risk - Stocks fluctuate in price. As the Fund's holdings
fluctuate, so will the price of the Fund's shares. Consequently, your investment
could be worth more or less than you paid when you decide to sell. This means
you could lose money on your investment.

WHO MIGHT INVEST IN THIS FUND?

[small bullet] Moderate risk takers who want the opportunities offered by the
equity markets, but also want some current income.

[small bullet] Investors seeking long-term capital growth.

[small bullet] Corporate pension and profit-sharing plans, individual retirement
plans, education funds, endowments, and trusts for children.

EVALUATING THE FUND'S PERFORMANCE
The following bar chart and table indicate some of the risks associated with
investing in the Fund. The bar chart shows variations in the Fund's annual
returns; the table compares the Fund's average annual returns to several market
indexes. Remember, the Fund's past performance does not indicate its future
performance.

Annual Total Returns (%, each year as of 12/31)

[bar chart: 1995, 26.84%; 1996, 22.41%; 1997, 32.46%; 1998 10.37%. vertical
scale: 0.00% to 40.00%]

Best Quarter:.....Q1 1998, up 14.81%
Worst Quarter:....Q3 1998, down 14.18%

Average Annual Returns(1) (%, all periods ending 12/31/98)

1 Year 3 Years Inception(2)

Eclipse Mid Cap Value Fund(3) 10.4 21.4 22.7
Russell Mid Cap Index 10.1 19.1 22.8
Standard & Poor's 500 Index 28.6 28.2 30.5
3 Month Treasury Bill 5.2 5.3 5.5
- -------------------

1 With income reinvested.
2 Returns shown are from 12/31/94. The Fund's inception was 12/27/94; its
annualized total return from inception through 12/31/98 was 22.7%.
3 The Manager has waived its fee and reimbursed expenses as follows: 0.95%,
0.67%, 0.16%, and 0.06% of average net assets from 1995 through 1998,
respectively. The data presented reflect those waivers and reimbursements.

FEES AND EXPENSES OF THE FUND

Annual Fund Operating Expenses

Mid Cap Value Fund
Management Fees 0.90%
Distribution (12b-1) Fees None
Other Expenses 0.14%
Total Annual Fund Operating Expenses 1.04%

Example: This example is intended to help you compare the cost of investing
in the Fund of investing in other mutual funds. The
example assumes that:

1 year 3 years
Under these assumptions your costs would be: $106 $331

5 years 10 years
$574 $1271

[call out start]
MANAGEMENT

Kathy O'Connor, who has been with Towneley since 1987, co-manages the Fund
with Mr. McCain. She is a Vice President of Towneley. She holds a BBA from
Southeastern Massachusetts State College, an MBA from Babson College, and is a
CFA. [call out end]

<PAGE>

FINANCIAL HIGHLIGHTS
<TABLE>
<S> <C> <C> <C> <C> <C>

DECEMBER. 27, 1994, FOR THE YEAR ENDED DECEMBER 31
(INCEPTION) TO
DECEMBER. 31, 1994 1995 1996 1997 1998
------------------ ---- ---- ---- ----

Net asset value, beginning of period $10.00 $10.00 $12.31 $13.49
------ ------ ------ ------

Income from investment operations:
Net investment income 0.00 0.11 0.22 0.03
Net gains or losses on securities (both realized 0.00 2.57 2.54 4.34
------- ------- ------- ----
and unrealized gains)
Total from investment operations 0.00 2.68 2.76 4.37
------- ------- ------- ----
Less distributions:
Dividends (from net investment income) 0.00 (0.11) (0.23) (0.03)
Distributions (from capital gains) 0.00 (0.26) (1.35) (0.07)
------- -------- -------- ------
Return of capital
Total distributions 0.00 (0.37) (1.58) (0.10)
------- -------- -------- ------

Net asset value, end of period $ 10.00 $ 12.31 $ 13.49 $17.76
======= ======= ======= ======

Total return 0.00 % 26.82% 22.40% 32.46%
Ratios / supplemental data
Net assets, end of period (000) $315 $7,960 $9,737 $109,452
Ratios of expense to average net assets:
Expenses 1.20 %*+ 1.00%+# 0.90%+ 0.94%+
Ratios of net income to average net assets (0.06)%*+ 1.57%+ 1.66%+ 0.36%+
Portfolio turnover (%) 0.00 % 63.16% 102.24% 51.66%
</TABLE>

----------------------------------------------------------------------------

This information has been audited by McGladrey & Pullen, LLP, Certified Public
Accountants, whose report, together with the Eclipse Funds' financial
statements, are included in the SAI, which is available upon request.

* Annualized.
+ Net of management fee waived equivalent to 0.9%, 0.9%, 0.7%, 0.2%, and
0.1% of average net assets, respectively, and expense reimbursement by
manager equivalent to 43.15%, 0.05%, 0.00%, 0.00%, and 0.00% of average
net assets, respectively.
# Includes custodian fees paid indirectly, which amounted to 0.10% of
average net assets.

<PAGE>

ECLIPSE SMALL CAP VALUE FUND
(FORMERLY ECLIPSE EQUITY FUND)

INVESTMENT GOAL
The Small Cap Value Fund seeks high total return.

INVESTMENT APPROACH
The Fund pursues this goal by investing primarily in small-capitalization stocks
that the Manager determines are value stocks.

[small bullet] In selecting stocks, the manager applies quantitative and
statistical methods to analyze the relative quality and price of the stocks. See
HOW THE MANAGER DETERMINES WHICH SECURITIES TO BUY AND SELL.

[small bullet] The Manager seeks relatively low portfolio turnover.

MAIN RISKS

[small bullet] Market risk - Stocks fluctuate in price. As the holdings
fluctuate, so will the price of the Fund's shares. Your investment could be
worth more or less than you paid when you decide to sell; in other words, you
could lose money on your investment.

[small bullet] Small-capitalization stocks risk - Smaller capitalization stocks
can be risky. They may be more thinly traded than larger company stocks and
consequently may be more volatile. Their returns may vary significantly from the
overall stock markets.

[call-out start]
KEY TERMS

Small-capitalization stocks
These are U.S. stocks of relatively small companies that tend to have few shares
outstanding and thus a smaller trading volume than large-capitalization stocks.
The Fund considers small-capitalization stocks to be stocks whose average stock
market capitalization (price per share multiplied by total shares outstanding)
is in the bottom 80% of the market. [call-out end]

WHO MIGHT INVEST IN THIS FUND?

[small bullet] Investors with long-term investment goals of at least four to six
years.

[small bullet] Not market timers or short-term investors. Small-capitalization
stocks tend to be less liquid than larger-capitalization stocks. Because few
shares of a particular stock may be for sale on any given day, it can take a
long time to establish a position in a particular stock. It can also be
difficult to sell small-capitalization stocks quickly. If investors trade
excessively in Fund shares, the Manager may have to sell stock positions before
the stocks have reached their full value.

<PAGE>

Annual Total Returns (%, each year as of 12/31)

[bar chart: 1988, 12.69%; 1989, 16.43%; 1990, -13.65%; 1991, 31.17%; 1992,
19.38%; 1993, 17.01%; 1994, -4.75%; 1995, 19.69%; 1996,
29.86%; 1997, 33.29%; 1998, 3.41%. vertical scale: -20.00% to 40.00%.]

Best Quarter: Q1 1991, up 19.97%
Worst Quarter: Q3 1990, down 18.80%

Average Annual Returns(1) (%, all periods ending 12/31/98)

1 Year 3 Years 5 Years 10 Years Inception(2)
------ ------- ------- -------- ---------

Eclipse Small Cap Value Fund(3) 3.4 21.4 15.3 14.2 12.6
Lipper Small Cap Index(4) -0.9 9.3 11.3 13.2 11.2
Standard & Poor's Small Cap 600 Index (5) -1.3 14.6 13.2 13.2 10.3
Russell 2000 Index(6) -2.6 11.6 11.9 12.9 10.9
Standard & Poor's 500 Index 28.6 28.2 24.1 19.2 16.7
3 Month Treasury Bill 5.2 5.3 5.2 5.7 5.9
</TABLE>

- -------------------

1 With income reinvested.
2 Returns shown are from 1/30/87. The Fund's inception was 1/12/87; its
annualized total return from inception through 12/31/98 was 12.6.%.
3 Net of management fee waived in 1987 equivalent to 0.1% of average net
assets.
4 This index tracks the performance of the 30 largest small company growth
funds, after expenses, adjusted for the reinvestment of capital gains
distributions and income dividends.
5 This index is a market value weighted benchmark of 600 smaller
capitalization common stocks.
6 This index tracks the smallest 2,000 companies in the Russell 3000 Index;
the Russell 3000 includes the largest 3,000 U.S.
companies as determined by market capitalization.

FEES AND EXPENSES OF THE FUND

<PAGE>

Annual Fund Operating Expenses

Small Cap Value Fund
Management Fees 1.00%
Distribution (12b-1) Fees None
Other Expenses 0.14%
Total Annual Fund Operating Expenses 1.14%

Example: This example is intended to help you compare the cost of investing
in the Fund of investing in other mutual funds. The
example assumes that:

1 year 3 years
Under these assumptions your costs would be: $116 $362

5 years 10 years
$628 $1386

[call-out start]
MANAGEMENT

<PAGE>

FINANCIAL HIGHLIGHTS
<TABLE>
<S> <C> <C> <C> <C> <C>

FOR THE YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998
Net asset value, beginning of period.................. $13.35 $11.82 $13.56 $13.47
------ ------ ------ ------
Income from investment operations:
Net investment income 0.03 0.07 0.14 (0.02)
Net gains or losses on securities (both realized and
unrealized gains) (0.66) 2.26 3.89 4.40
------ ---- ---- ----
Total from investment operations (0.63) 2.33 4.03 4.38
------ ---- ---- ----
Less distributions:
Dividends (from net investment income) (0.03) (0.07) (0.14) 0.00
Distributions (from capital gains) (0.87) (0.52) (3.98) (3.66)
------ ------ ------ ------
Returns of capital
Total distributions (0.90) (0.59) (4.12) (3.66)
------ ------ ------ ------

Net asset value, end of period $11.82 $13.56 $13.47 $14.19
====== ====== ====== ======

Total return (4.74)% 19.69% 29.87% 33.30%
Ratios / Supplemental data
Net assets, end of period (000) 195,107 $174,705 $170,747 $189,965
Ratio of expenses average net assets:
Expenses 1.12% 1.14%# 1.15%# 1.14%#
Ratios of net income to average net assets 0.21% 0.45% 0.81% (0.12)%
Portfolio turnover (%) 92.20% 74.40% 82.05% 55.47%
</TABLE>

------------------------------------------------------------------------------

* Less than one cent per share
** Less than 0.01% of average net assets
# Includes custodian fees paid indirectly, which amounted to less than 0.01%
of average net assets for each period indicated.

<PAGE>

ADDITIONAL INVESTMENTS & RISKS

As market and other economic conditions warrant, each Fund may use investment
strategies to supplement its principal investment approach. This section
discusses some of those additional investment strategies that each Fund may use,
and their risks.

Eclipse Ultra Short Term Income Fund

[small bullet] May invest up to 5% of its assets in warrants.

[small bullet] May invest up to 10% of its assets in securities of foreign
issuers; only in countries the Manager considers stable and only in securities
the Manager considers high quality.

[small bullet] May lend up to 20% of its assets.

[small bullet] May invest up to 10% of its assets in restricted securities or
illiquid securities.

[small bullet] May invest in mortgage-backed and asset-backed securities.

[small bullet] May take a temporary defensive position.

Eclipse Balanced Fund

[small bullet] May invest up to 5% of its assets in warrants.

[small bullet] May invest up to 20% of its assets in securities of foreign
issuers; only in countries the Manager considers stable and only in securities
the Manager considers high quality.

[small bullet] May lend up to 20% of its assets.

[small bullet] May invest up to 10% of its assets in restricted securities or
illiquid securities.

[small bullet] May invest in mortgage-backed and asset-backed securities.

[small bullet] May take a temporary defensive position.

[call-out start]
KEY TERMS

Active Trading
If a Fund were to replace all of its portfolio securities over the course of one
year, it would have an annual portfolio turnover rate of 100%. A Fund with an
annual portfolio turnover rate above 100% is viewed as engaged in active
trading.

Foreign securities
Investing in foreign securities may create special risks, including those
arising from political and economic developments, foreign exchange rates, less
available information, possible imposition of withholding taxes, and longer
settlement periods.

Illiquid securities
These are securities that have no ready market. They may be difficult to sell.

Large-capitalization stocks
These are U.S. stocks of large companies that tend to be well known and have
large amounts of stock outstanding. The Fund considers large-capitalization
stocks to be the top 10% of the companies sorted by market capitalization.

Lending Assets
In a portfolio securities lending transaction, a Fund lends securities from its
portfolio to a broker-dealer (or other institution) for a period of time. The
Fund receives interest and a promise that the securities will be returned on a
fixed date.

Prepayment risk
Prepayment risk is a risk associated with mortgage-backed and asset-backed
securities. When the underlying asset is repaid ahead of schedule, the value of
the security tends to decline.

Restricted securities
These are securities that are sold only through negotiated private transactions
and not to the general public, due to certain restrictions imposed by federal
securities laws. They can be difficult to sell.

Temporary defensive position
If adverse business, economic, or other conditions arise, a Fund may take a
temporary defensive position. This means that the Fund may invest temporarily,
without limit, in cash equivalents. [call-out end]

Eclipse Mid Cap Value Fund

[small bullet] May invest up to 5% of its assets in warrants.

[small bullet] May invest up to 20% of its assets in securities of foreign
issuers; only in countries the Manager considers stable and only in securities
the Manager considers high quality.

[small bullet] May lend up to 20% of its assets

[small bullet] May invest up to 10% of its assets in restricted securities or
illiquid securities.

[small bullet] May take a temporary defensive position.

[small bullet] May invest in common stock; it may also invest in other equity
securities and in equity-related securities, such as preferred stock (including
convertible preferred stock), and debt securities convertible into stock. The
Fund normally will invest more than 65% of its assets in common and preferred
stock.

[small bullet] May invest up to 10% of its assets in large-capitalization stocks
for additional liquidity.

[small bullet] May engage in active trading.

<PAGE>

Eclipse Small Cap Value Fund

[small bullet] May invest up to 5% of its assets in warrants.

[small bullet] May invest up to 20% of its assets in securities of foreign
issuers; only in countries the Manager considers stable and only in securities
the Manager considers high quality.

[small bullet] May lend up to 20% of its assets.

[small bullet] May invest up to 10% of its assets in restricted securities or
illiquid securities.

[small bullet] May take a temporary defensive position.

[small bullet] May invest in common stock; it may also invest in other equity
and equity-related securities such as preferred stock (including convertible
preferred stock) and debt securities convertible into common stock.

[small bullet] May purchase large capitalization stocks for additional
liquidity.

[small bullet] May engage in active trading.

The Year 2000
Many computer programs are still unable to distinguish between the year 2000 and
the year 1900. Any system that is not corrected could experience processing
errors as January 1, 2000 approaches. This is known as the Year 2000 Problem.
Like other mutual funds and business organizations worldwide, a Fund could be
adversely affected by the Year 2000 Problem.

[small bullet] The Manager has taken steps that it believes are reasonably
designed to address any potential Year 2000 Problems with computer programs used
by the Funds or the Manager that the Funds or the Manager controls.

[small bullet] Similarly, the service providers on which the Funds and the
Manager rely are taking steps that the service providers believe are reasonably
designed to address any potential Year 2000 Problems with computer programs they
use.

There can be no assurance that these steps will be sufficient to avoid any
adverse impact on a Fund.

<PAGE>

HOW THE MANAGER DETERMINES WHICH SECURITIES TO BUY AND SELL

DETERMINING WHICH BONDS TO BUY

The Ultra Short Term Income Fund and the Balanced Fund both invest in
fixed-income securities such as bonds. The Funds select bonds based primarily on
their credit quality and duration.

DETERMINING WHICH BONDS TO SELL

In general, a Fund will hold a bond to maturity (or call date, if applicable).
The Fund may sell the bond sooner if it falls below investment grade, or if the
Fund receives other adverse information about an issuer.

DETERMINING WHICH STOCKS TO BUY

The Balanced Fund, the Mid Cap Value Fund, and the Small Cap Value Fund all
invest in stocks. Each Fund has its own investment goal and pursues its goal in
a distinct way. The Manager decides which particular stocks to buy and which
ones to sell using a value-based approach to investing.

[small bullet] The Manager purchases undervalued stocks, often referred to as
"value" stocks. Value stocks are stocks which the Manager determines (1) have
strong or improving financial accounting statement data and (2) have been
overlooked by the market and are "cheap" according to typical valuation
measures. Value stocks generally have substantial revenues and assets for each
dollar of price, but often have disappointing recent sales and earnings growth.

[small bullet] In selecting stocks, the Manager analyzes financial and operating
data for several thousand companies on a weekly basis, searching for companies
with improving operating characteristics but which are still cheap or
inexpensive relative to the rest of the equity market. The Manager evaluates how
company operations have performed over time and how they have performed compared
to other companies (both competitors and companies in other industries). The
Manager uses proprietary quantitative and statistical methods to analyze
fundamental data.

[small bullet] To avoid concentration in a specific industry, which increases
risk, the Manager invests a maximum of 4% of a Fund's net assets in any one
company and 25% in any one industry, and it consistently re-balances its
investments.

[small bullet] Under normal conditions, the Manager keeps each Fund fully
invested rather than taking temporary cash positions.

[small bullet] The Manager does not attempt to time the market or to hedge
returns.

[small bullet] The Manager avoids initial public offerings because the
companies' often brief operating histories do not provide sufficient data to
adequately evaluate their operating trends under the Manager's proprietary
analytical methods.

[small bullet] The Manager does not visit companies to avoid becoming biased by
personal impressions of the companies' management.

[small bullet] The Manager does not project earnings or use earnings forecast
data of either the companies or of Wall Street analysts. Only historical,
publicly available annual and quarterly financial statistical data are used in
the analysis.

[small bullet] The Manager does not use options, futures or derivatives.

[call-out start]
KEY TERMS

Undervalued
The Manager evaluates price from the perspective of a potential acquirer of the
business. The measure of relative value is based upon economic book value, and
ratios of total market value to revenues, cash flow, earnings, and assets.
[call-out end]

DETERMINING WHICH STOCKS TO SELL
The Manager will sell a stock if its price objective has been met, if better
opportunities are identified, or if it determines the initial investment
expectations are not being met.

ACCOUNT POLICIES AND PROCEDURES

THE TRANSFER AGENT
All transactions in Fund shares are made through National Financial Data
Services (NFDS), transfer agent of the Funds, which accepts orders directly for
purchases, redemptions, and exchanges. The Funds do not issue share
certificates. Instead, NFDS maintains an account for each shareholder of record,
in which that shareholder's purchases, redemptions, exchanges, and distributions
are reflected.

OPENING AN ACCOUNT
There is no sales charge. There is a minimum initial investment of $1,000, a
$500 minimum initial investment for gift accounts, and a $50 per month minimum
for automatic investment accounts. Individuals, institutions, fiduciaries, and
retirement plans may invest in the Funds. Generally, if an order in proper form
is received by NFDS before 4:00 P.M., Eastern Time on a Fund's business day,
shares will be issued that day; and if it is received after 4:00 P.M. the shares
will be issued on the Fund's next business day. Each Fund reserves the right to
reject any subscription for its shares. To open an account please:

First, obtain an application.

Write or call ......... Eclipse Financial Services, Inc.
P.O. Box 2196
Peachtree City, Georgia 30269
800.872.2710

Or download the application from our website www.eclipsefund.com

Second, send funds by mail, bank wire, or automatic investment:

MAIL
You may open an account by mail. Mail a check payable to "Eclipse Funds" with
your completed application to:

Eclipse Funds
c/o National Financial Data Services
P.O. Box 419595
Kansas City, MO 64179

Checks are accepted subject to collection at full face value in U.S. currency.

Third-party checks are not accepted.

BANK WIRE
You may open an account using the wire system for transmittal of money among
banks by following three steps.

1. Telephone Eclipse Financial Services, Inc. at 800.872.2710 to obtain your
new account number.

2. Instruct a member commercial bank to wire funds to:

National Financial Data Services
ABA 101003621
for further credit to a/c #7512554
Re: -Name of Fund-
Account Number __________________________
Account Name____________________________
Social Security #/Tax ID #___________________

Your bank may charge your account for wiring the money. The Funds do not charge
for receipt. If you are planning to wire funds, inform your bank early in the
day so that the wire transfer can be completed the same day.

3. Return your completed application to:

Eclipse Funds
c/o National Financial Data Services
P.O. Box 419595
Kansas City, MO 64179

AUTOMATIC INVESTMENT You may also establish an automatic investment account. By
completing the automatic investment authorization form included with the
application and sending it with a voided check, you can direct a Fund to charge
your bank account for the monthly purchase of shares. Your account will be
charged on or about the 20th day of each month and you will receive a
confirmation of every transaction.

OPENING A GIFT ACCOUNT
A Gift Account is an investment in any of the Eclipse Funds that you open for
someone special to you. This is a special way to mark a birthday, graduation,
wedding, or other occasion. You can add to the account whenever you wish, but
the person you honor with the gift (or that person's custodian) is the only one
who can make an exchange or sale.

INVESTING IN MORE THAN ONE ECLIPSE FUND
When you make your initial investment, you must state on the application the
Fund(s) in which you are investing. You may divide your investment among the
Funds in any manner you choose, as long as you meet the applicable initial
investment minimum for each Fund. You will have a separate account in each Fund
in which you invest.

MAKING ADDITIONAL PURCHASES
There is no sales charge. Once you have made an initial investment in a Fund,
you may make additional purchases for any amount. Purchases can be made by mail,
bank wire, or automatic investment.

REDEEMING YOUR SHARES
You may redeem shares in a Fund by mail, telephone, or systematic withdrawal. To
redeem your shares, please:

MAIL
Send a letter to:

Eclipse Funds
c/o National Financial Data Services
P.O. Box 419595
Kansas City, MO 64179

The letter must:
[small bullet] Name the Fund whose shares you want to redeem

[small bullet] State the dollar amount or number of shares you want to redeem

[small bullet] Provide your account number

[small bullet] Be signed in exactly the same way the account is registered (if
there is more than one registered owner, signed by all); and

[small bullet] Have signatures that are properly guaranteed. A signature can be
guaranteed by a member of or a participant in a signature guarantee program that
is a bank, broker-dealer, municipal securities broker and dealer, government
securities broker and dealer, credit union, a member firm of a national
securities exchange, registered securities association or clearing agency or
savings association. A signature guarantee by a savings bank or notary public
will not be accepted. Depending upon the circumstances, additional information
may be requested. For example, corporations, administrators, executors, personal
representatives, trustees, or custodians may be required to evidence their
authority for making the redemption request.

TELEPHONE
This is the easiest way to redeem but you must have selected this option in the
original application or in a subsequent signature-guaranteed letter.

Call 800.525.0687.

Before placing the call, you should consider the following:

[small bullet] In order to redeem your shares by telephone, you must have
previously elected this option.

[small bullet] The money will be mailed to your address on record with Eclipse
Funds.

[small bullet] Each Fund reserves the right to limit the number of telephone
redemptions.

[small bullet] Telephone redemption requests may not be modified or canceled.

[small bullet] A Fund will not be liable for following telephone instructions
that it reasonably believes to be genuine. To confirm the genuineness of
telephone instructions, a Fund may record all telephone instructions, and it may
require some form of personal identification prior to acting upon them. In
addition, a Fund will send written confirmations of all redemptions made by
telephone. Assuming reasonable procedures such as the above have been followed,
a Fund will not be liable for any loss, cost, or expense for acting upon an
investor's telephone instructions or for any unauthorized telephone redemption.
Consequently, the Fund shareholder will bear this risk.

[small bullet] During periods of substantial economic or market changes, you may
have difficulty reaching a Fund to make a telephone redemption. If you cannot
reach a Fund by telephone, you may still redeem by mail.

SYSTEMATIC WITHDRAWAL
If you own shares in a Fund worth at least $10,000 at the current NAV, you may
open a Systematic Withdrawal Account from which a fixed sum will be paid to you
at regular intervals. For additional information, please contact Eclipse
Financial Services, Inc. at the address and telephone number on the back cover.

RECEIVING YOUR MONEY
Your redemption request will be processed promptly, and a check normally will be
mailed within 3 business days after NFDS has received your request. The check
will be mailed to your address of record.

The Fund will not mail redemption proceeds for an account until any purchases
made by check have cleared; this may take up to 15 days. Consequently, if you
purchase shares in a Fund by check and submit a redemption request shortly
thereafter, it could take somewhat longer than normal to process your request.

In addition, your redemption request may take longer to process if Eclipse Funds
have temporarily suspended the right of redemption. A Fund may suspend the right
of redemption and postpone the date of payment for more than 7 days during any
period when (1) trading on the NYSE is restricted or the NYSE is closed, other
than customary weekend and holiday closings, (2) the SEC has by order permitted
such suspension, or (3) an emergency, as defined by rules of the SEC, exists
making disposal of portfolio investments or determination of the value of the
net assets of the Funds not reasonably practicable.

MAKING AN EXCHANGE
As a shareholder in a Fund, you are entitled to exchange some or all of those
shares for shares in any other Eclipse Fund. There is no charge for making an
exchange. If you are exchanging shares between two Funds in which you already
hold shares, the minimum exchange amount is $500. If you are making an exchange
for shares in a Fund in which you are not already invested, you must exchange
enough shares to satisfy the new Fund's initial investment minimum. Each Fund
reserves the right to reject any exchange request and to modify or discontinue
the exchange privilege at any time. You may make an exchange by mail or
telephone:

MAIL
Please send written instructions to:

Eclipse Funds
c/o National Financial Data Services
P.O. Box 419595
Kansas City, MO 64179

TELEPHONE
Please call: 800.525.0687

MAINTAINING AN ACCOUNT MINIMUM
If you have an account with an initial investment minimum (other than an IRA)
and your account balance falls below $500 as a result of sales you have made, a
Fund has the right to redeem the rest of your shares. This right allows the Fund
to reduce expenses. You would be given at least 30 days' notice of the date for
the scheduled sale and would be able to purchase enough shares to meet the
initial investment minimum to prevent the redemption.

PURCHASING OR REDEEMING SHARES THROUGH A BROKER-DEALER
In addition to opening an account with the Funds directly, a shareholder may
open an account through brokerage firms or other financial institutions,
including the Manager and its affiliates. Those institutions may charge a fee
for purchasing or redeeming shares by telephone. The $1,000 minimum initial
investment described above may not apply; however, those institutions may impose
their own minimum investment amounts.

HOW FUND SHARES ARE PRICED

Your price for purchases, redemptions, and exchanges will be the net asset value
per share (NAV) next calculated after your order is placed. NAV generally is
calculated at the close of regular trading in the New York Stock Exchange (NYSE)
(normally 4:00 P.M. Eastern time) every day the NYSE is open for trading. NAV
depends upon the value of a Fund's investments. Each Fund's investments
generally are valued at their market price, or where market prices are not
available on a particular day, at fair value. Fair value prices are calculated
according to methods determined in good faith by each Fund's board. Bonds with
60 days or less remaining until maturity are stated at amortized cost. NAV is
calculated as follows:

Fund assets - Fund liabilities
Number of shares outstanding = Net Asset Value

<PAGE>

RETIREMENT PLANS

You may invest in any of the Eclipse Funds through certain retirement plans.
There are several different types of retirement plans, including, for example,
Traditional IRAs, Roth IRAs, and SIMPLE Plans. Each type has its own rules
concerning qualifications, contributions, distributions, and tax consequences.
Additional information is contained in the SAI. Also, as always, you may write
or telephone Eclipse Funds for more information.

DISTRIBUTIONS
WHEN DISTRIBUTIONS ARE MADE
Each Fund generally makes two types of distributions to its shareholders:

Dividend distributions from its net investment income
Capital gains distributions of any net capital gains that it has realized.

[small bullet] Any dividend distributions are normally paid once each quarter
for the Ultra Short Term Income Fund and the Balanced Fund, and once a year for
the Mid Cap Value Fund and the Small Cap Value Fund.

[small bullet] Any capital gains distributions are normally made once per year.

HOW DISTRIBUTIONS ARE MADE
You may have distributions paid in cash or reinvested in shares either by
selecting the appropriate option on your account application or by notifying
Eclipse Funds in writing. Instructions must be received by the Fund before the
record date of a distribution. Distributions will be reinvested in additional
shares of a Fund unless you instruct the Fund otherwise. The Funds do not impose
sales charges for dividend reinvestments.

TAX CONSEQUENCES

FEDERAL TAX CONSEQUENCES OF HOLDING SHARES
Each Fund will distribute most of its net investment income and net capital
gains to its shareholders. Although the Fund will not be taxed on amounts it
distributes, you may be taxed. Distributions are taxable to most shareholders.

A particular distribution generally will be taxable as either ordinary income or
long-term capital gains. The tax status of any particular distribution will be
the same for all of the Fund's shareholders. It does not matter how long you
have been in the Fund or whether you reinvest or receive cash for your
distributions. For example, if a Fund designates a particular distribution as a
long-term capital gains distribution, it will be taxable to you at your
long-term capital gains rate.

If a Fund declares a dividend in October, November, or December of a year and
distributes the dividend in January of the next year, you may be taxed as if you
received it in the year when declared rather than when received.

If you hold shares through a tax-deferred account, such as a retirement plan,
income and gains will not be taxable each year. Instead, the taxable portion of
amounts you hold in a tax-deferred account generally will be subject to tax only
once you receive a distribution from that tax-deferred account.

Each year, you will receive a statement from the Funds detailing the tax status
of any distributions for that year.

FEDERAL TAX CONSEQUENCES OF REDEEMING OR EXCHANGING SHARES
If you sell or redeem shares, you will generally realize a capital gain or loss,
which will be long-term or short-term, generally depending upon how long you
held those shares. If you exchange shares, you may be treated as if you sold
them.

STATE AND LOCAL TAXES
In addition to federal tax, distributions may be subject to state and local
taxes.

BACKUP WITHHOLDING
As with all mutual funds, a Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to you if you fail
to provide the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the IRS that you are
subject to backup withholding. Backup withholding is not an additional tax; it
is a way in which the IRS ensures it will collect taxes otherwise due. Any
amounts withheld may be credited against your U.S. federal income tax liability.

EVERYONE'S TAX SITUATION IS UNIQUE
Because everyone's tax situation is unique, you should always consult your tax
professional about federal, state, and local tax consequences to you. This tax
discussion is meant only as a general summary.

<PAGE>

ADDITIONAL INFORMATION on
the Eclipse Funds is
available from the
following sources:

ANNUAL AND SEMI-ANNUAL REPORTS
In the annual and
semi-annual reports, you
will find additional
information about the
Funds' investments. In the
annual report, you will
also find a discussion of
the market conditions and
investment strategies that
significantly affected the
Funds' performance during
its past fiscal year.

STATEMENT OF ADDITIONAL INFORMATION
(SAI) In the SAI, you will
find additional information
about the Funds. The SAI is
incorporated into this
prospectus by reference,
which means it is legally
considered part of this
prospectus.

TO OBTAIN INFORMATION FROM THE SEC:

Visit the SEC Public Reference Room:
Public Reference Room of the Commission
Washington, D.C. 20549-6009
800.732.0330

You may review the
information for free, but
will pay a fee for copying.
Please call the above
number for details. Also,
you may request information
from the Public Reference
Room by mail or telephone.
You will be charged a fee
for any reports or SAIs
that are sent to you.

Visit the SEC Website:
www.sec.gov

TO OBTAIN FREE ADDITIONAL INFORMATION:

Call or write to:
Eclipse Financial Services, Inc.
P.O. Box 2196
Peachtree City, GA 30269

800.872.2710
770.631.0414

Visit the Eclipse Funds Website:
www.eclipsefund.com

[Eclipse_logo_graphic]
File No. 811-4847

<PAGE>

ECLIPSE FUNDS

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1999

470 Park Avenue South
16th Floor
New York, New York 10016

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

Eclipse Ultra Short Term Income Fund

Eclipse Balanced Fund

Eclipse Mid Cap Value Fund*

Eclipse Small Cap Value Fund**

Towneley Capital Management, Inc. ("Manager" or "Towneley")
serves as investment manager to the Trust.

This Statement of Additional Information ("SAI") is not a prospectus
and is authorized for distribution solely when preceded or accompanied by the
Trust's prospectus relating to the Funds dated May 1, 1999 (the "Prospectus").
This SAI contains additional and more detailed information than that set forth
in the Prospectus. This SAI should be read in conjunction with the Prospectus.
Additional copies of the Prospectus may be obtained without charge by writing or
telephoning:

Eclipse Financial Services, Inc.
P.O. Box 2196
Peachtree City, GA 30269
800.872.2710
770.631.0414

- --------------------

*Formerly, Eclipse Growth and Income Fund

**Formerly, Eclipse Equity Fund

<PAGE>

TABLE OF CONTENTS

Page

FUND HISTORY..................................................................3

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

Ultra Short Term Income Fund.........................................3
Balanced Fund........................................................5
Mid Cap Value Fund...................................................5
Small Cap Value Fund.................................................6
Ultra Short Term Income Fund and the Balanced Fund...................7
Investment Policies and Risks Applicable to All Funds...............13

INVESTMENT RESTRICTIONS......................................................15

MANAGEMENT OF THE FUNDS......................................................17

INVESTMENT ADVISORY AND OTHER SERVICES.......................................19

PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................21

DESCRIPTION OF SHARES........................................................23

PRICING OF SHARES............................................................23

REDEMPTION OF SHARES.........................................................24

OWNERSHIP OF FUND SHARES.....................................................24

RETIREMENT PLANS.............................................................26

TAXATION 27

PERFORMANCE..................................................................30

COUNSEL AND AUDITORS.........................................................33

GENERAL INFORMATION..........................................................33

FINANCIAL STATEMENTS.........................................................33

APPENDIX A...................................................................38

<PAGE>

FUND HISTORY

The Trust, a Massachusetts business trust established by an Agreement and
Declaration of Trust dated July 30, 1986, is a no-load, open-end, diversified
management investment company commonly known as a "mutual fund." The Trust has
an unlimited authorized number of shares of beneficial interest which may,
without shareholder approval, be divided into any number of portfolios of shares
(also sometimes referred to as classes or series of shares), subject to the
requirements of the Investment Company Act of 1940, as amended (the "1940 Act"),
and each such portfolio may have different investment objectives and policies.
Shares of the Trust are currently offered in four separate portfolios: Eclipse
Ultra Short Term Income Fund, Eclipse Balanced Fund, Eclipse Mid Cap Value Fund,
and Eclipse Small Cap Value Fund. Because the Trust offers multiple portfolios,
it is commonly referred to as a "series fund." Each Fund is a separate pool of
assets constituting, in effect, a separate fund with its own investment
objective and policies.

INVESTMENT POLICIES AND RISK CONSIDERATIONS

Descriptions in this SAI of a particular investment practice or technique
in which a Fund may engage or a financial instrument which a Fund may purchase
are meant to describe the spectrum of investments that the Manager, in its
discretion, might, but is not required to, use in managing a Fund's portfolio
assets. The Manager may, in its discretion, at any time employ such practice,
technique or instrument for one or more Funds but not for all Funds advised by
it. Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible, or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
a Fund but, to the extent employed, could from time to time have a material
impact on that Fund's performance.

Investment Policies and Risks Applicable to the Ultra Short Term Income Fund

Investment Objective

The investment objective of the Ultra Short Term Income Fund is to seek a
high level of current income, preservation of capital and a relatively stable
net asset value. The Ultra Short Term Income Fund is designed for the investor
who seeks a higher yield than a money market fund but less fluctuation in net
asset value than a longer-term bond fund. It is not a money market fund and may
not maintain a stable net asset value per share. Investors in the Fund are
therefore subject to a greater risk of loss of principal than shareholders of a
money market fund. The Fund's investment objective is deemed a fundamental
policy of the Fund.

Investment Approach

The Fund will pursue this objective by investing in a diversified portfolio
of investment grade, short-term fixed-income securities. Securities are selected
and weighted in the portfolio with a view toward the achievement of this
objective. It is the Fund's policy that the effective weighted average maturity
and duration of its portfolio not exceed 36 months. Under normal market
conditions, the duration of the Fund's portfolio will not exceed 13 months. The
duration of a fixed-income security indicates the time it will take an investor
to recoup his or her investment, and approximates the price sensitivity of a
fixed-income security to interest rate changes. It was developed as a more
precise alternative to the concept of "term to maturity." Duration incorporates
a bond's interest payments, final maturity, call features and other factors into
one measure. Duration is expressed as a measure of time in years -- the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or bond portfolio's) price. Generally, the higher
the interest rate on a bond, the shorter its duration will be.

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

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

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

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

Foreign Issuer Obligations

The Fund may invest in fixed-income securities of non-U.S. issuers rated AA
or better by S&P and Aa2 or better by Moody's.

Bank Obligations

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

Commercial Paper

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

Repurchase Agreements

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

Investment Policies and Risks Applicable to the Balanced Fund

Investment Objective

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

Investment Approach

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

Equity Securities

The equity component of the Balanced Fund will be invested primarily in
shares of mid- to large- capitalization companies. The Funds define large
capitalization by ranking all U.S. publicly traded companies based on market
capitalization. That universe of companies is then divided into ten groups, each
with an equal number of companies. The 10% with the highest market
capitalization are considered large. The next 10% are considered
mid-capitalization companies and the balance of the universe is considered
small. As the stock market and the economic environment change, companies once
considered large- may become mid- or small- or vice versa. In selecting the
equity issues to be placed in the Fund, approximately equal weight will be given
to estimated relative intrinsic value, expected future earnings growth, and
current and expected dividend income. Estimated relative intrinsic value is a
ranking of the ratio of the market value to economic book value. The economic
book value, or intrinsic value, is a valuation concept that attempts to adjust
historical financial data to reflect true economic worth.

Fixed-Income Securities

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

Investment Policies and Risks Applicable to the Mid Cap Value Fund

Investment Objective

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

Investment Approach

In selecting the issues to be placed in the Fund, approximately equal
weight will be given to estimated relative intrinsic value, expected future
earnings growth, and current and expected dividend income; therefore, the Fund's
portfolio will exhibit characteristics of a total return, value (i.e., seeking
high net asset values relative to market price), growth and income fund. Under
normal market conditions, the Fund will invest primarily in dividend-paying
equity securities of North American businesses listed on the major exchanges or
traded in the over-the-counter market. The Fund will invest primarily in shares
of mid- to large-capitalization companies. The Funds define large capitalization
by ranking all U.S. publicly traded companies based on market capitalization.
That universe of companies is then divided into ten groups, each with an equal
number of companies. The 10% with the highest market capitalization are
considered large. The next 10% are considered mid-capitalization companies and
the balance of the universe is considered small. As the stock market and the
economic environment change, companies once considered large- may become mid- or
small- or vice versa.

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

The Fund will neither engage in short selling or option trading, nor will
it leverage its shares.

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

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

Investment Policies and Risks Applicable to the Small Cap Value Fund

Investment Objective

The investment objective of the Small Cap Value Fund is to seek a high
total return from equity securities (including for this purpose preferred stocks
and debt securities convertible into common stock). "Total return" refers to the
objective to achieve a return consisting of both income and realized and
unrealized capital gains. Securities are selected and weighted in the portfolio
with a view toward achievement of this objective. The Fund's investment
objective is deemed a fundamental policy of the Fund.

Investment Approach

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

The Fund will neither engage in short selling or option trading, nor will
it leverage its shares.

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

Investment Policies and Risks Applicable to the Ultra Short
Term Income Fund and the Balanced Fund

The Ultra Short Term Income Fund and the Balanced Fund may also invest in
the following types of securities.

Government Securities

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

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

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

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

Stripped Corpus Interests in U.S. Treasury Securities

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

Foreign Government and Supranational Entity Securities

The Ultra Short Term Income Fund may invest up to 10% of its total assets,
and the Balanced Fund may invest up to 20% of its total assets, in foreign
government securities of issuers in countries considered stable by the Manager
and in securities of supranational entities. Investing in foreign government and
supranational entity securities involves considerations and possible risks not
typically associated with investing in U.S. Government securities. (See
"Investment Policies and Risks Applicable to All Funds--Foreign Securities.")

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

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

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

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

Corporate Fixed-Income Securities

The Funds may invest their assets in corporate fixed-income securities
which include debt securities (including floating and variable notes),
convertible securities and preferred stock of corporate issuers. (As noted
above, for purposes of the Balanced Fund's policy of investing at least 25% of
its total assets in fixed-income securities, only that portion of the value of
convertible securities attributable to their fixed-income characteristics will
be taken into account.) Differing yields on corporate fixed-income securities of
the same maturity are a function of several factors, including the relative
financial strength of the issuers. Higher yields are generally available from
securities in the lower rating categories. The Funds will invest in investment
grade securities (securities rated at the time of purchase Baa or better by
Moody's or BBB or better by S&P), and in comparable non-rated securities.
Moody's indicates that securities rated Baa, although investment grade, have
speculative elements. S&P indicates that adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
principal for securities rated BBB than is the case with higher-rated
securities, although such securities are regarded as having an adequate capacity
to pay interest and principal. (See Appendix A hereto for a description of
corporate debt ratings.) Non-rated securities will be considered for investment
by the Funds when the Manager believes that the financial condition of the
issuers of such obligations and the protection afforded by the terms of the
obligations themselves limit the risk to the Funds to a degree comparable to
that of rated securities which are consistent with the Funds' objective and
policies. The Funds may also invest in non-Treasury zero coupon securities and
in "pay-in-kind" debentures (i.e., debt obligations the interest on which may be
paid in the form of additional obligations of the same type rather than cash),
which have both investment and risk characteristics similar to zero coupon
Treasury securities, including the risk of the untimely disposition of portfolio
securities to fund required distributions and the resultant transaction costs.
(See "Government Securities" above and "Dividends, Distributions and Taxes"
below.)

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

Mortgage-Backed and Asset-Backed Securities - General

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

Mortgage-Backed Securities - General

Mortgage-backed securities are securities that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
secured by real property. There are currently three basic types of
mortgage-backed securities: (i) those issued or guaranteed by the United States
Government or one of its agencies or instrumentalities, such as the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC");
(ii) those issued by private issuers that represent an interest in or are
collateralized by mortgage-backed securities issued or guaranteed by the United
States government or one of its instrumentalities; and (iii) those issued by
private issuers that represent an interest in or are collateralized by whole
mortgage loans or mortgage-backed securities without a government guarantee but
usually having some form of private credit enhancement. An issuer of
mortgage-backed securities meeting certain conditions may elect to be treated as
a Real Estate Mortgage Investment Conduit (a "REMIC") under the Internal Revenue
Code of 1986, as amended (the "Code"). (See "Dividends, Distributions and
Taxes.")

Government Guaranteed Mortgage Pass-Through Securities - General

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

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

GNMA Certificates

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

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

FNMA Certificates

FNMA is a federally chartered and privately owned corporation organized and
existing under the Federal National Mortgage Association Charter Act. FNMA was
originally established in 1939 as a United States Government agency to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder owned and privately managed corporation by legislation enacted in
1968. FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans from local lenders, thereby replenishing their funds for
additional lending. FNMA acquires funds to purchase home mortgage loans from
many capital market investors that may not ordinarily invest in mortgage loans
directly, thereby expanding the total amount of funds available for housing.

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

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

FHLMC Certificates

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

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

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

Private Mortgage Pass-Through Securities

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

Types of Credit Support

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

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

Collateralized Mortgage Obligations and Multiclass Pass-Through Securities

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

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

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

Asset-Backed Securities - General

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

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most organizations that issue asset-backed securities
relating to motor vehicle installment purchase obligations perfect their
interests in their respective obligations only by filing a financing statement
and by having the servicer of the obligations, which is usually the originator,
take custody thereof. In such circumstances, if the servicer were to sell the
same obligations to another party, in violation of its duty not to do so, there
is a risk that such party could acquire an interest in the obligations superior
to that of the holders of the securities. Also, although most such obligations
grant a security interest in the motor vehicle being financed, in most states
the security interest in a motor vehicle must be noted on the certificate of
title to perfect such security interest against competing claims of other
parties. Due to the large number of vehicles involved, however, the certificate
of title to each vehicle financed, pursuant to the obligations underlying the
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the securities. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on those securities. In addition,
various state and federal laws give the motor vehicle owner the right to assert
against the holder of the owner's obligation certain defenses such owner would
have against the seller of the motor vehicle. The assertion of such defenses
could reduce payments on the related securities.

Mortgage-Backed and Asset Backed Securities - Special Risk Considerations

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

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

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

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

Floating and Variable Rate Notes

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

Investment Policies and Risks Applicable to All Funds

Each Fund may also invest in the following types of securities.

Illiquid and Restricted Securities

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

The Ultra Short Term Income Fund and the Mid Cap Value Fund may invest in
restricted securities and in other assets having no ready market (including
repurchase agreements of more than seven days' duration) if such purchases at
the time thereof would not cause more than 10% of the value of the Fund's net
assets to be invested in all such restricted or not readily marketable assets.
Restricted securities may be sold only in privately negotiated transactions, in
a public offering with respect to which a registration statement is in effect
under the Securities Act or pursuant to Rules 144 or 144A promulgated under such
Act. Where registration is required, a Fund may be obligated to pay all or part
of the registration expense, and a considerable period may elapse between the
time of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If during such a period
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be valued in such manner as the Board in good faith deems appropriate to
reflect their fair market value.

Warrants

Each Fund may invest in warrants which entitle the holder to buy equity
securities at a specific price for a specific period of time. Warrants may be
considered more speculative than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with respect to the
securities which may be purchased nor do they represent any right in the assets
of the issuing company. Also, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to the expiration date. A Fund will not, however,
purchase any warrant if, as a result of such purchase, 5% or more of the Fund's
total assets would be invested in warrants. Included in that amount, but not to
exceed 2% of the value of the Fund's total assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by a Fund
in units or attached to securities may be deemed to be without value.

Lending of Portfolio Securities

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

Temporary Defensive Position; Cash Reserves

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

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

Foreign Securities

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

Portfolio Turnover

Portfolio turnover rate is the percentage of a Fund's investments (either
its entire portfolio or a component thereof, such as an equity component or
fixed-income component) that is replaced in one fiscal year. For example, a fund
that replaces its entire portfolio in one year would have a portfolio turnover
rate of 100%. The annual portfolio turnover rates of the Ultra Short Term Income
Fund, the equity component of the Balanced Fund, the Mid Cap Value Fund and the
Small Cap Value Fund may exceed 100%. (An annual portfolio turnover rate of 100%
would occur, for example, if all of the stocks in a Fund's portfolio were
replaced in a period of one year.) The annual portfolio turnover rate of the
fixed-income component of the Balanced Fund is not expected to exceed 100%. The
following table shows that, for each of the last two years, the portfolio
turnover rate for each Fund was well below 100%:

1998 1997
---- ----

Ultra Short Term Income Fund. 36.02% 45.10%

Balanced Fund 69.85% 46.66%

Mid Cap Value Fund 80.72% 51.66%

Small Cap Value Fund 73.39% 55.47%

The Trust, however, has not placed any limit on the rate of portfolio
turnover with respect to any of the Funds, and portfolio securities may be sold
without regard to the time they have been held when, in the opinion of the
Manager, investment considerations warrant such action. A high rate of portfolio
turnover involves correspondingly greater expenses than a lower rate, which
expenses must be borne by the Fund and its shareholders. High portfolio turnover
also may result in the realization of substantial net short-term capital gains.

INVESTMENT RESTRICTIONS

Each Fund has adopted certain investment restrictions which may not be
changed without the approval of the Fund's shareholders, by a vote of a majority
of its outstanding voting shares, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"). Briefly, these restrictions provide that a
Fund may not:

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

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

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

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

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

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

7. Purchase or acquire commodities or commodity contracts;

8. Make loans of its assets to any person, except for the lending of
portfolio securities, the purchase of debt securities and the entering
into of repurchase agreements as discussed in the Prospectus and
herein.

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

10. Mortgage, pledge or hypothecate any of its assets, except as may be
necessary in connection with permissible borrowings mentioned in
paragraph 5 above;

11. Purchase the securities of any other investment company (other than
certain issuers of mortgage-backed and asset-backed securities), except
by purchase in the open market where no commission or profit to a
sponsor or dealer (other than the customary broker's commission)
results from such purchase, and except when such purchase is part of a
merger, consolidation or acquisition of assets;

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

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

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

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

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

MANAGEMENT OF THE FUNDS

Responsibilities of Board of Trustees

The Trust's Board of Trustees (the "Board") is responsible for the overall
management of the Trust, including general supervision and review of each Fund's
investment activities. The Board, in turn, elects the officers who are
responsible for administering the Trust's day-to-day operations.

Background of Trustees and Officers

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

Wesley G. McCain*, 56, Trustee, Chairman of the Board and President, is the
founder and has been Chairman of Towneley Capital Management, Inc. since 1971.
His address is 470 Park Avenue South, 16th Floor, New York, New York 10016. Mr.
McCain is a trustee of the Van Eck Funds and the Van Eck World Wide Insurance
Trust, and a director of the Van Eck/Chubb Funds, Inc. He was a director of the
Peregrine Fund from 1995 to 1998. He is a general partner of Pharaoh Partners,
L.P., which is the general partner of Libre Partners, L.P. He is also a trustee
of Libre Group Trust, a director of Libre Investments (Cayman) Ltd., a member of
Pharaoh Partners (Cayman) LDC, and Chairman of Millbrook Associates, Inc. and of
Eclipse Financial Services, Inc. He is a Chartered Financial Analyst and a
member of the Association for Investment Management and Research. In addition to
managing investment portfolios, Mr. McCain's experience includes economic and
financial consulting to a diversified corporate clientele.

Sigrid A. Hess*, 57, Trustee, Executive Vice President and Secretary, is a
Vice President of Towneley Capital Management, Inc., where she has been employed
since 1977. Her address is 470 Park Avenue South, 16th Floor, New York, New York
10016.

John C. Novogrod, 56, Trustee, is a partner of the law firm of Kirkland &
Ellis since 1997. Prior to this, he was a partner of Novogrod & Kurlander from
1991 to 1995, and a partner of Schiff, Hardin & Waite from 1995 to 1997. His
address is 153 East 53rd Street, New York, New York 10022.

Yung Wong, 60, Trustee, is a Director of Back Bay Funds, Inc., a California
Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Michigan Daily Tax Free
Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., North Carolina
Daily Municipal Income Fund, Inc., Reich & Tang Equity Fund, Inc., Short Term
Income Fund, Inc., Virginia Daily Municipal Income Fund, Inc., Georgia Daily
Municipal Income Fund, Inc., and PAX World Money Market Fund, Inc. He is also a
trustee of Florida Daily Municipal Income Fund, Institutional Daily Income Fund,
and Pennsylvania Daily Municipal Income Fund. Dr. Wong was a Director of Shaw
Investment Management (H.K.) Limited (an asset management and direct investment
firm) from 1994 to 1995. His address is 29 Alden Road, Greenwich, Connecticut
06831.

John C. Van Eck, 83, Trustee, is Chairman of the Board and President of Van
Eck Funds and Van Eck Worldwide Insurance Trust (mutual funds). He is Chairman
of Van Eck Associates Corporation, an investment adviser, and Van Eck Securities
Corporation, a broker dealer. His address is 99 Park Avenue, New York, New York
10016.

Anthony W. Polis, 55, Vice President and Treasurer, is a Vice President of
New York Life Insurance Company, a Director, Vice President and Chief Financial
Officer of NYLIFE Securities Inc. and NYLIFE Distributors, Inc. and a treasurer
of MainStay Management, Inc. He has also been Vice President and Chief Financial
Officer of The MainStay Funds from 1988 to the present, Treasurer of MainStay
Institutional Funds, Inc. since 1990, and Treasurer of MainStay VP Series Fund
Inc. from 1993 to the present. From 1983 through 1988, he was Vice President of
Drexel Burnham Lambert Incorporated, DBL Tax-Free Fund Inc., DBL Cash Fund Inc.,
The Drexel Burnham Fund, Drexel Series Trust, Fenimore International Fund Inc.,
BT Investment Trust and BT Tax Free Investment Trust and Assistant Treasurer,
Drexel Bond-Debenture Trading Fund. His address is 51 Madison Avenue, New York,
New York 10010.

Sylvia McCormick, 52, Vice President, has been employed by Towneley Capital
Management, Inc. since 1973. She is President of Eclipse Financial Services,
Inc., the Trust's shareholder servicing agent. Her address is 21 Eastbrook Bend,
Suite 119, Peachtree City, Georgia 30269.

Sara L. Badler, 38, Assistant Secretary, has been Associate Counsel of New
York Life Insurance Company since 1994. Ms. Badler worked for Oppenheimer
Management Corporation from 1987 to 1993 as Vice President and Associate
Counsel, and also worked as a consulting attorney. From 1984 to 1987 she was
Associate Counsel for Damson Oil Corporation. From 1993 to 1994 she taught in
New York City. Her address is 51 Madison Avenue, New York, New York 10010.

Antoinette B. Cirillo, 45, Assistant Treasurer, has been Assistant Vice
President, Director and Senior Accountant of Mutual Fund Accounting Operations,
NYLIFE Securities Inc. from 1988 to the present, Assistant Treasurer of The
MainStay Funds from 1992 to the present, Assistant Treasurer of MainStay
Institutional Funds, Inc. from 1992 to the present, Assistant Treasurer of
MainStay VP Series Fund, Inc. from 1993 to the present, and Assistant Treasurer
from 1997 to present and Assistant Vice President from 1993 to present of
MainStay Management, Inc. She held various positions in New York Life Insurance
Company from 1987 to 1988. Her address is 51 Madison Avenue, New York, New York
10010.

Patrick J. Farrell, 39, Assistant Treasurer, has been Corporate Vice
President and Assistant Treasurer of MainStay Management, Inc. and Corporate
Vice President of NYLIFE Securities, Inc. from 1996 to the present, Assistant
Treasurer of MainStay Funds from 1996 to the present, Assistant Treasurer of
MainStay Institutional Funds from 1996 to the present and Assistant Treasurer of
MainStay VP Series Fund from 1996 to the present. He was Vice President of
Alliance Capital Management Corporation from 1988 to 1996. From 1986 to 1988, he
was Vice President and Associate Manager of Drexel Burnham Lambert Incorporated.
From 1983 to 1986, he was Assistant Treasurer of Lexington Management
Corporation. From 1981 to 1983 he was a Senior Accountant for Peat Marwick
Mitchell & Company. His address is 51 Madison Avenue, New York, New York 10010.

Trustees of the Trust not affiliated with Towneley Capital Management, Inc.
or MainStay Management, Inc. receive from the Trust an annual retainer of $2,000
and a fee of $750 for each Board meeting attended and are reimbursed for all
out-of-pocket expenses relating to attendance at such meetings. Officers of the
Trust and Trustees who are affiliated with Towneley Capital Management, Inc. or
MainStay Management, Inc. do not receive compensation from the Trust. The
following table sets forth information regarding compensation of Trustees by the
Trust for the fiscal year ended December 31, 1998.

Compensation Table

(Year Ended December 31, 1998)
<TABLE>
<S> <C> <C> <C> <C>

Pension or
Retirement
Aggregate Benefits Accrued Estimated Annual Total Compensation
Name of Compensation As Part of Trust Benefits Upon From Trust
Trustee from the Trust Expenses Retirement Paid to Trustees*

Sigrid A. Hess $0 $0 $0 $0
Wesley G. McCain $0 $0 $0 $0
John C. Novogrod $5,000 $0 $0 $5,000
John C. Van Eck $5,000 $0 $0 $5,000
Yung Wong $5,000 $0 $0 $5,000
</TABLE>

- ---------------

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

INVESTMENT ADVISORY AND OTHER SERVICES

Manager

Pursuant to a Management Contract for the Balanced Fund and the Small Cap
Value Fund, dated January 7, 1987 (the "1987 Contract"), and one for the Ultra
Short Term Income Fund and the Mid Cap Value Fund dated December 27, 1994 (the
"1994 Contract" and, together with the 1987 Contract, the "Management
Contracts"), the Manager furnishes an investment program for each Fund, makes
the day-to-day investment decisions for each Fund, executes the purchase and
sale orders for the portfolio transactions of each Fund, and generally manages
each Fund's investments. Mr. McCain, chairman and Trustee of the Trust and
chairman and director of the Manager, may be deemed a "controlling person" of
the Manager on the basis of his ownership of the Manager's stock.

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

Under the Management Contracts, the Manager provides persons satisfactory
to the Board to serve as officers of the Trust. Such officers, as well as
certain other employees and Trustees, may be directors, officers or employees of
the Manager.

For its services under the Management Contracts, the Manager receives fees
from each Fund, accrued daily and payable monthly, at the following annual
rates, which are expressed as a percentage of the average daily net assets of
each Fund:

Ultra Short Term Income Fund 0.40%
Balanced Fund 0.75%
Mid Cap Value Fund 0.90%
Small Cap Value Fund 1.00%

Under the 1987 Contract, for the fiscal year ended December 31, 1998, the
Manager received a fee from the Small Cap Value Fund equal to 1.00% of the
Fund's average daily net assets. Under the Management Contracts, for the fiscal
year ended December 31, 1998, the Manager was entitled to receive fees from the
Ultra Short Term Income Fund in the amount of 0.40% of average daily net assets,
which fee was waived in its entirety by the Manager; from the Balanced Fund in
the amount of 0.80% of average daily net assets, of which $136,778 was
voluntarily waived by the Manager; and from the Mid Cap Value Fund in the amount
of 0.90% of average daily net assets, of which $70,826 was voluntarily waived by
the Manager.

For the fiscal years ended December 31, 1996, December 31, 1997 and
December 31, 1998, the Manager voluntarily waived fees of $18,414, $19,113 and
$27,820, respectively (in each case, its entire fee) for the Ultra Short Term
Income Fund.

For the fiscal years ended December 31, 1996, December 31, 1997 and
December 31, 1998, the fees payable by the Balanced Fund under the 1987 Contract
were $672,074, $681,825 and $779,459, respectively. During the years ended
December 31, 1996, December 31, 1997 and December 31, 1998, the Manager
voluntarily waived fees for the Balanced Fund totaling $200,877, $153,387 and
$136,778, respectively.

For the fiscal years ended December 31, 1996, December 31, 1997 and
December 31, 1998, the fees payable by the Mid Cap Value Fund under the 1994
Contract were $76,816 and $470,307 and $1,038,228, respectively, and the Manager
voluntarily waived fees totaling $57,284 and $82,079 and $70,826, respectively.

For the fiscal years ended December 31, 1996, December 31, 1997 and
December 31, 1998, the fees paid by the Small Cap Value Fund under the
Management Contract were $1,657,486, $1,781,313 and $1,978,256, respectively.

As of the date of this SAI, the Manager: (i) is continuing to waive all of
its fee for the Ultra Short Term Income Fund and to reimburse most
of the
expenses of the Ultra Short Term Income Fund; (ii) with respect to the Balanced
Fund, is no longer waiving a portion of its fee, and is no longer maintaining
the expense ratio at a level not to exceed 0.85%, including certain indirect
expenses; and with respect to Mid Cap Value Fund, is no longer waiving a portion
of its fee, and is no longer maintaining the expense ratio at a level not to
exceed 0.95%, including certain indirect expenses.

The Manager may from time to time from its own funds (other than the
management fees paid by the Funds) compensate brokers and other persons,
including Eclipse Financial Services, Inc. and other affiliates of the Manager,
for providing shareholder services or assistance in distributing the Funds'
shares. Eclipse Financial Services, Inc. may, in turn, make payments out of
amounts received from the Manager to compensate brokers and other persons for
providing shareholder services.

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

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

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

Administrator

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

For providing such services, the Administrator receives a fee, computed
daily and paid monthly in arrears, from the Manager based on the average
combined daily net asset value of the Funds ("Combined Assets") to be calculated
at the annual rate of 0.15% of the Combined Assets up to $50 million, plus 0.12%
of such Combined Assets in excess of $50 million but not in excess of $100
million, plus 0.08% of such Combined Assets in excess of $100 million but not in
excess of $150 million; plus 0.05% of such Combined Assets in excess of $150
million but not in excess of $750 million and 0.02% of the Combined Assets in
excess of $750 million. In addition, for any Fund, the Manager shall pay the
Administrator a monthly fee of $625 until such time as the Fund's average daily
net asset value during the preceding month exceeded $20 million. For the fiscal
years ended December 31, 1996, December 31, 1997, and December 31, 1998, the
Administrator received ______, ______ and ______, respectively, from the Manager
for the Ultra Short Term Bond Fund. For the fiscal years ended December 31,
1996, December 31, 1997, and December 31, 1998, the Administrator received
______, ______ and ______, respectively, from the Manager for the Balanced Fund.
For the fiscal years ended December 31, 1996, December 31, 1997, and December
31, 1998, the Administrator received ______, ______ and ______, respectively,
from the Manager for the Mid Cap Value Fund. For the fiscal years ended December
31, 1996, December 31, 1997, and December 31, 1998, the Administrator received
______, ______ and ______, respectively, from the Manager for the Small Cap
Value Fund. Because the Administrator has been retained by the Trust, the Trust
can directly supervise the performance of its administrative functions, even
though the Administrator receives no compensation directly from the Trust.

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

Because of the services rendered to the Trust by the Manager and the
Administrator, the Trust itself requires no employees other than its officers,
none of whom receive compensation from the Trust and all of whom are employed by
the Manager or the Administrator.

Transfer Agent, Dividend Disbursing Agent and Custodian

National Financial Data Services (NFDS), 330 West 9th Street, Kansas City,
Missouri 64105 is the transfer agent, dividend disbursing agent, and registrar
for the shares of the Funds. NFDS performs data processing and administrative
services necessary for the maintenance of shareholder accounts. Investors
Fiduciary Trust Company (IFTC), 330 West 9th Street, Kansas City, Missouri
64105, is the custodian for assets held by the Funds.

PORTFOLIO TRANSACTIONS AND BROKERAGE

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

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

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

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

For the fiscal year ended December 31, 1996, the Trust paid a total of
$189,651 in brokerage commissions with respect to portfolio transactions of the
Balanced Fund aggregating $105,127,014. For the fiscal year ended December 31,
1997, the Trust paid a total of $116,356 in brokerage commissions with respect
to portfolio transactions of the Balanced Fund aggregating $68,814,572. For the
fiscal year ended December 31, 1998, the Trust paid a total of $_____ in
brokerage commissions with respect to portfolio transactions of the Balanced
Fund aggregating _______. Of such amount, $_______ in brokerage commissions with
respect to portfolio transactions aggregating $_________ was placed with brokers
or dealers who provide research and investment services.

For the fiscal year ended December 31, 1996, the Trust paid a total of
$28,812 in brokerage commissions with respect to portfolio transactions of the
Mid Cap Value Fund aggregating $16,307,262. For the fiscal year ended December
31, 1997, the Trust paid a total of $104,373 in brokerage commissions with
respect to portfolio transactions of the Mid Cap Value Fund aggregating
$64,065,778. For the fiscal year ended December 31, 1998, the Trust paid a total
of $______ in brokerage commissions with respect to portfolio transactions of
the Mid Cap Value Fund aggregating __________. Of such amount, $_______ in
brokerage commissions with respect to portfolio transactions aggregating
$_________ was placed with brokers or dealers who provide research and
investment services.

For the fiscal year ended December 31, 1996, the Trust paid a total of
$571,967 in brokerage commissions with respect to portfolio transactions of the
Small Cap Value Fund aggregating $248,806,498. For the fiscal year ended
December 31, 1997, the Trust paid a total of $418,585 in brokerage commissions
with respect to portfolio transactions of the Small Cap Value Fund aggregating
$173,861,420. For the fiscal year ended December 31, 1998, the Trust paid a
total of $______ in brokerage commissions with respect to portfolio transactions
of the Small Cap Value Fund aggregating __________. Of such amount, $_______ in
brokerage commissions with respect to portfolio transactions aggregating
$_________ was placed with brokers or dealers who provide research and
investment services.

<PAGE>

DESCRIPTION OF SHARES

A shareholder in a Fund will be entitled to his pro rata share of all
dividends and distributions paid from that Fund's assets and, upon redeeming
shares of that portfolio, the shareholder will receive the then current net
asset value of that portfolio represented by the redeemed shares.

The Trust's shares are entitled to one vote per share with proportional
voting for fractional shares. There are no conversion or preemptive rights in
connection with any shares of the Trust. All shares when issued in accordance
with the terms of the offering will be fully paid and non-assessable. Shares of
each Fund are redeemable at net asset value, at the option of the Fund's
shareholders.

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

PRICING OF SHARES

Fund Shares are priced at the net asset value per share next determined
after the purchase, redemption or exchange order is placed.

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

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

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

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

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

REDEMPTION OF SHARES

Payment of the redemption price for shares redeemed may be made either in
cash or in portfolio securities (selected at the discretion of the Board and
taken at their value used in determining the net asset value per share of the
particular Fund described under "Net Asset Value"), or partly in cash and partly
in portfolio securities. Payments will be made in cash unless the Board
determines that making cash payments would be detrimental to the best interests
of the Trust. If payment for shares redeemed is made wholly or partly in
portfolio securities, brokerage costs may be incurred by the investor in
converting the securities to cash. The Trust will not distribute in kind
portfolio securities that are not readily marketable.

The Trust has filed a formal election with the SEC pursuant to which the
Trust will only effect a redemption in portfolio securities if the particular
shareholder of record is redeeming more than $250,000 or 1% of a Fund's total
net assets, whichever is less, during any 90-day period. In the opinion of the
Trust's management, however, the amount of a redemption request would have to be
significantly greater than $250,000 or 1% of a Fund's total net assets before a
redemption wholly or partly in portfolio securities would be made.

OWNERSHIP OF SHARES

Management Ownership

On April 1, 1999, there were __________ shares of beneficial interest of
the Ultra Short Term Income Fund outstanding; __________ shares of beneficial
interest of the Balanced Fund outstanding; __________ shares of beneficial
interest of the Mid Cap Value Fund outstanding; and __________ shares of
beneficial interest of the Small Cap Value Fund outstanding. On April 1, 1999,
the officers and Trustees of the Trust as a group beneficially owned, directly
or indirectly, including the power to vote or to dispose of, less than _% of the
outstanding shares of beneficial interest of the Small Cap Value Fund, less than
_% of the outstanding shares of beneficial interest of the Balanced Fund, less
than __% of the outstanding shares of beneficial interest of the Ultra Short
Term Income Fund, and less than __% of the outstanding shares of beneficial
interest of the Mid Cap Value Fund.

Five Percent Owners

A person who owns beneficially, either directly or through one or more
controlled companies, more than 25% of the voting securities of a Fund is
considered a "control person" of that Fund; a person who owns of record or who
is known by the Fund to own beneficially 5% or more of any class of a Fund's
shares is considered a "principal holder" of that Fund. The following table
provides certain information as to persons who owned 5% or more of the
outstanding shares of the Ultra Short Term Income Fund, the Balanced Fund, the
Mid Cap Value Fund, and the Small Cap Value Fund as of March 31, 1999.

Ultra Short Term Income Fund

Name and Address % of Shares Nature of Ownership

Balanced Fund

Name and Address % of Shares Nature of Ownership

Mid Cap Value Fund

Name and Address % of Shares Nature of Ownership

Small Cap Value Fund

Name and Address % of Shares Nature of Ownership

<PAGE>

RETIREMENT PLANS

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

Traditional IRAs

Traditional IRAs are subject to limitations on the amount that may be
contributed, the persons who may be eligible, and on the time when distributions
must commence. An individual who has not reached age 70 1/2 and who receives
compensation or earned income is eligible to contribute to a traditional IRA.
Any eligible individual may contribute up to the lesser of $2,000 or 100% of his
or her compensation or earned income to an IRA each year. The contribution will
be fully deductible if neither the individual nor his or her spouse is an active
participant in an employer's retirement plan. If an individual is (or has a
spouse who is) an active participant in an employer-sponsored retirement plan,
the amount, if any, of IRA contributions that are deductible by such an
individual is determined by the individual's (or, if married filing jointly, the
couple's) adjusted gross income for the year. Even if an individual's
contributions to an IRA for a taxable year are not deductible, the individual
nonetheless may make nondeductible contributions up to the $2,000, or 100% of
earned income limit for that year. A higher-earning spouse also may contribute
up to $2,000 per year to the lower-earning spouse's IRA, whether or not the
lower-earning spouse has compensation or earned income, as long as the spouses'
joint earned income is at least equal to the combined amount of the spouses' IRA
contributions for the year. In addition, an individual may roll over to an IRA
distributions from certain qualified retirement plans, IRAs, or Code Section
403(b) plans that qualify as eligible rollover distributions, that are rolled
over directly or within 60 days of the distribution, and that satisfy the other
requirements applicable to rollovers. The minimum investment required to open an
IRA with the Fund is $1,000.

Withdrawals from a traditional IRA, other than that portion, if any, of the
withdrawal considered to be a return of the investor's non-deductible IRA
contributions, are taxed as ordinary income when received. Such withdrawals may
be made without penalty after the individual reaches age 59 1/2, and must
commence shortly after age 70 1/2. Withdrawals taken before the individual
reaches age 59 1/2 will be subject to a penalty tax unless an exception applies;
some of those exceptions include distributions upon death or disability,
distributions paid over the individual's life or life expectancy, amounts used
to pay for certain deductible medical expenses, qualified higher education
expenses or first-time homebuyer expenses, and amounts withdrawn by certain
unemployed individuals not in excess of amounts paid for certain health
insurance premiums. Failure to take withdrawals after the individual reaches age
70 1/2 also may subject the individual to a penalty tax.

SIMPLE Individual Retirement Annuities

The Small Business Job Protection Act of 1996 created a new retirement
plan, the Savings Incentive Match Plan of Employees of Small Employers ("SIMPLE
Plans"). Depending upon the type of SIMPLE Plan, employers may deposit the plan
contributions into a single trust or into SIMPLE individual retirement accounts
("SIMPLE IRAs") established by each participant. Contributions to a SIMPLE IRA
may be either salary deferral contributions or employer contributions.

Roth IRAs

Section 408A of the Code permits eligible individuals to establish a Roth
IRA. Contributions to a Roth IRA are not deductible, but withdrawals that meet
certain requirements are not subject to federal income tax. Contributions to a
Roth IRA may be made even after the individual for whom the account is
maintained has reached age 70 1/2. The Roth IRA, like the traditional IRA is
subject to a $2,000 ($4,000 for a married couple) contribution limit (taking
into account both Roth IRA and traditional IRA contributions). The maximum
contribution that can be made is phased-out for taxpayers with adjusted gross
income between $95,000 and $110,000 ($150,000 and $160,000 if married and filing
jointly). An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA. No distributions are required
to be taken prior to the death of the original account holder. An individual
whose income is less than $100,000 (who is not married filing separately) may
roll over amounts from an existing traditional IRA into a Roth IRA. However, the
individual will be subject to federal income tax on the taxable amount that is
rolled over from the traditional IRA.

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

Persons desiring information concerning investments by IRAs and other
retirement plans should write or telephone the Trust's Shareholder Servicing
Agent: Eclipse Financial Services, Inc., P.O. Box 2196, Peachtree City, GA
30269, 800.872.2710 or 770.631.0414.

TAXATION

The following is a general discussion of certain tax rules thought to be
applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.

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

To qualify as a regulated investment company, each Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each quarter of the taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash and cash items (including receivables),
U.S. Government securities, the securities of other regulated investment
companies and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5% of
the value of the Fund's total assets and not greater than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies).

As a regulated investment company, each Fund generally will not be subject
to U.S. federal income tax on its investment company taxable income and net
capital gains that it distributes to shareholders, if at least 90% of its
investment company taxable income (which includes, among other items, dividends,
interest and the excess of any net short-term capital gains over net long-term
capital losses) each taxable year is distributed. Each Fund intends to
distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, each Fund must distribute during each calendar year an amount equal
to the sum of (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses) for the one-year period ending on October 31 of the calendar year, and
(3) any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by a Fund in October,
November or December with a record date in such a month and paid by the Fund
during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, each Fund intends to make its
distributions in accordance with the calendar year distribution requirement.

Distributions

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

While it is the intention of the Funds to distribute to their respective
shareholders substantially all of each fiscal year's net income (quarterly with
respect to the Ultra Short Term Income Fund and the Balanced Fund, and annually
with respect to the Mid Cap Value Fund and the Small Cap Value Fund) and net
realized capital gains, if any (annually with respect to all of the Funds), the
amount and time of any such distribution must necessarily depend upon the
realization by the Fund of income and capital gains from investments. There is
no fixed dividend rate, and there can be no assurance that a Fund will pay any
dividends or realize any capital gains.

Dividends paid out of a Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Because a portion of the
income of each of the Balanced Fund, the Mid Cap Value Fund and the Small Cap
Value Fund may consist of dividends paid by U.S. corporations, a portion of the
dividends paid by each such Fund is expected to be eligible for the corporate
dividends-received deduction. Distributions of net capital gains, if any,
designated as capital gain dividends are taxable as long-term capital gains,
regardless of how long the shareholder has held the Fund's shares, and are not
eligible for the dividends-received deduction. Shareholders receiving
distributions in the form of additional shares, rather than cash, generally will
have a cost basis in each such share equal to the net asset value of a share of
the relevant Fund on the reinvestment date. Shareholders will be notified
annually as to the U.S. federal tax status of distributions, and shareholders
receiving distributions in the form of additional shares will receive a report
as to the net asset value of those shares.

Currency Fluctuations - "Section 988" Gains or Losses

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

Sale of Shares

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

Investments in Real Estate Mortgage Investment Conduits

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

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

Zero Coupon Securities

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

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

Market Discount Bonds

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

Passive Foreign Investment Companies

If a Fund invests in stock of certain foreign investment companies, namely,
foreign corporations which may be classified under the Code as passive foreign
investment companies ("PFICs"), the Fund may be subject to U.S. federal income
taxation on a portion of any "excess distribution" with respect to, or gain from
the disposition of, such stock. In general, a foreign corporation is classified
as a PFIC if at least one-half of its assets constitute investment-type assets,
or 75% or more of its gross income is investment-type income. If the Fund
receives a so-called "excess distribution" with respect to PFIC stock, the Fund
itself may be subject to a tax on a portion of the excess distribution, whether
or not the corresponding income is distributed by the Fund to shareholders. In
general, under the PFIC rules, an excess distribution is treated as having been
realized ratably over the period during which a Fund held the PFIC shares. The
Fund itself will be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior Fund taxable years and an interest
factor will be added to the tax, as if the tax had been payable in such prior
taxable years. Certain distributions from a PFIC as well as gain from the sale
of PFIC shares are treated as excess distributions. Excess distributions are
characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital gain.

The Fund may be eligible to elect alternative tax treatment with respect to
PFIC shares. The Fund may elect to mark to market its PFIC shares, resulting in
the shares being treated as sold at fair market value on the last business day
of each taxable year. Any resulting gain would be reported as ordinary income;
any resulting loss and any loss from an actual disposition of the shares would
be reported as ordinary loss to the extent of any net gains reported in prior
years. Under another election that currently is available in some circumstances,
the Fund generally would be required to include in its gross income its share of
the earnings of a PFIC on a current basis, regardless of whether distributions
are received from the PFIC in a given year.

Foreign Withholding Taxes

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

Backup Withholding

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

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

Foreign Shareholders

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

Other Taxation

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

PERFORMANCE

From time to time, quotations of the Funds' "performance" may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures are described below along with explanations
of how they are calculated.

General

From time to time, a Fund may quote its "average annual total return" over
various periods of time in advertisements or in reports and other communications
to shareholders. This total return figure shows the average percentage change in
value of an investment in a Fund from the beginning date of the measuring period
to the ending date of the measuring period. The figure reflects changes in the
price of a Fund's shares and assumes that any income, dividends and/or capital
gains distributions made by the Fund during the period are reinvested in shares
of the Fund. Figures will be given for recent one-, five- and ten-year periods
(when applicable), and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis). When
considering "average" total return figures for periods longer than one year,
investors should note that a Fund's annual total return for any one year in the
period might have been greater or less than the average for the entire period. A
Fund also may use "aggregate" total return figures for various periods,
representing the cumulative change in value of an investment in the Fund for the
specific period (again reflecting changes in the Fund's share price and assuming
reinvestment of dividends and distributions). Aggregate total returns may be
shown by means of schedules, charts or graphs, and may indicate subtotals of the
various components of total return (that is, the change in value of initial
investment, income dividends and capital gains distributions).

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

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

In reports or other communications to shareholders of a Fund or in
advertising materials, the Fund may compare its performance with that of other
mutual funds as listed in the rankings prepared by Lipper Analytical Services,
Inc., publications such as Barrons, Business Week, Forbes, Fortune,
Institutional Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual
Fund Values, The New York Times, The Wall Street Journal and USA Today or other
industry or financial publications. It is important to note that yield and total
return figures are based on historical earnings and are not intended to indicate
future performance. Comparative performance information may be used from time to
time in advertising the Fund's shares, including data from Lipper Analytical
Services, Inc., The Standard & Poor's Index of 500 Stocks, The Dow Jones
Industrial Average and other industry publications.

Yield

A Fund's 30-day yield figure is calculated according to a formula
prescribed by the SEC. The formula can be expressed as follows:

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

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

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

Average Annual Total Return

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

P(1 + T)n = ERV

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

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

Aggregate Total Returns

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

AGGREGATE TOTAL RETURN = ERV - P
P

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

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

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

ULTRA SHORT TERM INCOME FUND

Inception
Year Ended (December 27, 1994)
December 31, 1998 to December 31, 1998

Average Annual Compounded 6.27% 6.43%
Total Return

Principal Only Performance 0.30% 0.07%

BALANCED FUND

Inception
Year Ended Five Years Ended (December 27, 1994)
December 31, 1998 December 31, 1998 to December 31, 1998

Average Annual 8.03% 13.11% 12.45%
Compounded Total
Return

Principal Only (3.40)% 2.78% 3.73%
Performance

MID CAP VALUE FUND

Inception
Year Ended (December 27, 1994)
December 31, 1998 to December 31, 1998

Average Annual Compounded 10.35% 22.67%
Total Return

Principal Only Performance (0.17)% 15.39%

SMALL CAP VALUE FUND
Five Years Ten Years
Year Ended Ended Ended
December 31, 1998 December 31, 1998 December 31, 1998

Average Annual 3.40% 15.34% 14.16%
Compounded Total
Return

Principal Only (15.93)% (2.22)% 0.94%
Performance

Inception
(January 31, 1987) to
December 31, 1998

Average Annual 12.60%
Compounded Total
Return

Principal Only 1.47%
Performance

A Fund's investment performance is not fixed and will fluctuate in response
to prevailing market conditions or as a function of the type and quality of the
securities in the Fund's portfolio and the Fund's expenses. Consequently, any
given performance quotation should not be considered representative of a Fund's
performance for any specified period in the future. In addition, because
performance will fluctuate, it may not provide a basis for comparing an
investment in a Fund with certain bank deposits or other investments that pay a
fixed yield for a stated period of time. Investors comparing a Fund's
performance with that of other mutual funds should give consideration to the
quality and maturity of the respective investment companies' portfolio
securities. An investor's principal invested in a Fund is not fixed and will
fluctuate in response to prevailing market conditions.

COUNSEL AND AUDITORS

Legal matters in connection with the issuance of shares of the Trust are
passed upon by Dechert Price & Rhoads, Ten Post Office Square South, Boston, MA
02109.

____________________, independent certified public accountants, have been
selected as auditors for the Trust.

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

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

FINANCIAL STATEMENTS

The Trust's audited financial statements for the year ended
_________________, including notes thereto, are incorporated by reference in
this Statement of Additional Information from the Trust's Annual Report dated as
of _________________. The Trust will furnish, without charge, a copy of such
Annual Report to Shareholders on request. All such requests should be directed
to Fund's shareholder servicing agent: Eclipse Financial Services, Inc., P.O.
Box 2196, Peachtree City, GA 30269, 800.872.2710 or 770.631.0414.

<PAGE>

APPENDIX A

BOND RATINGS

Moody's Investors Service, Inc.

Aaa: Bonds which are rated Aaa judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

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

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

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

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

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

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

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

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

<PAGE>

Standard & Poor's Corporation

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

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

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

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.

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

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

Part C Other Information

Item 23 Exhibits:

(a) Articles of Incorporation:

(1) Copy of Agreement and Declaration of Trust of the
Registrant (Exhibit 1 to Registration Statement
on Form N-1A filed on September 19, 1986 (File
Nos. 33-8865 and 811-4847) and incorporated
herein by reference).

(2) Copy of First Amendment of Eclipse Financial
Asset Trust (formerly Eclipse Equity Trust)
(Exhibit 1(b) to Pre-Effective Amendment No. 1 to
Registration Statement on Form N-1A filed on
January 9, 1987 (File Nos. 33-8865 and 811-4847)
and incorporated herein by reference).

(3) Form of Certificate of Designation of Eclipse
Financial Asset Trust relating to the Ultra Short
Term Income Fund and the Growth and Income Fund
(Exhibit 1(c) to Post Effective Amendment No. 12
to Registration Statement on Form N-1A filed on
October 13, 1994 (File Nos. 33-8865 and 811-4847)
and incorporated herein by reference).

(4) Copy of Second Amendment of Eclipse Funds
(formerly Eclipse Financial Asset Trust) (Exhibit
(b)(1)(d) to Post Effective Amendment No. 17 to
Registration Statement on Form N-1A filed on
February 27, 1998 (File Nos. 33-8865 and
811-4847) and incorporated herein by reference.

(5) Form of Certificate of Redesignation of Series
relating to Mid Cap Value Fund (formerly Growth
and Income Fund) and Equity Fund (formerly Small
Cap Value Fund), to be filed by amendment.

(b) By-laws:

(1) Copy of the By-laws of the Registrant (Exhibit 2
to Registration Statement on Form N-1A filed on
September 19, 1986 (File Nos. 33-8865 and
811-4847) and incorporated herein by reference).

Not Applicable.

(d) Investment Advisory Contracts:

(1) Copy of Amended Management Contract between the
Registrant and Towneley Capital Management, Inc. (Exhibit 5
to Post-Effective Amendment No. 6 to Registration Statement
on Form N-1A filed on April 30, 1990 (File Nos. 33-8865 and
811-4847) and incorporated herein by reference).

(2) Form of Management Contract between the Registrant and
Towneley Capital Management, Inc. relating to the Ultra
Short Term Income Fund and the Growth and Income Fund
(Exhibit 5 to Post-Effective Amendment No. 12 to
Registration Statement on Form N-1A filed on October 13,
1994 (File Nos. 33-8865 and 811-4847) and incorporated
herein by reference).

(e) Underwriting Contracts:

Not Applicable.

(f) Bonus or Profit Sharing Contracts:

Not Applicable.

(g) Custodian Agreements:

(1) Copy of Custody Agreement between the Registrant and
Investors Fiduciary Trust Company. (Exhibit 8 to
Post-Effective Amendment No. 6 to Registration Statement on
Form N-1A filed on April 30, 1990 (File Nos. 33-8865 and
811-4847) and incorporated herein by reference).

(h) Other Material Contracts:

(1) Copy of Transfer Agency Agreement between the Registrant
and Investors Fiduciary Trust Company. (Exhibit 8 to
Post-Effective Amendment No. 6 to Registration Statement on
Form N-1A filed on April 30, 1990 (File Nos. 33-8865 and
811-4847) and incorporated herein by reference).

(2) Copy of Administration Contract between the Registrant
and NYLIFE Securities Inc. (Exhibit 9 to Post-Effective
Amendment No. 9 to Registration Statement on Form N-1A filed
on April 30, 1991 (File Nos. 33-8865 and 811-4847) and
incorporated herein by reference.)

(i) Legal Opinions

(1) Opinion of Messrs. Seward & Kissel (Exhibit 10(a) to
Pre-Effective Amendment No. 1 to Registration Statement on
Form N-1A filed on January 9, 1987 (File Nos. 33-8865 and
811-4847) and incorporated herein by reference).

(2) Opinion of Messrs. Sullivan & Worcester (Exhibit 11(a)
to Pre-Effective Amendment No. 1 to Registration Statement
on Form N-1A filed on January 9, 1987 (File Nos. 33-8865 and
811-4847) and incorporated herein by reference).

(3) Opinion and Consent of Dechert Price & Rhoads, to be
filed by amendment.

(j) Other Opinions:

(1) Consent of Independent Auditors, to be filed by
amendment.

(k) Omitted Financial Statements:

Not Applicable.

(l) Initial Capital Agreements:

(1) Investment representation letter of initial purchaser of
shares of beneficial interest of the Registrant (Exhibit 13
to Pre-Effective Amendment No. 1 to Registration Statement
on Form N-1A filed on January 9, 1987 (File Nos. 33-8865 and
811-4847) and incorporated herein by reference).

(m) Rule 12b-1 Plan:

Not Applicable.

(n) Financial Data Schedule:

To be filed by amendment.

(o) Rule 18f-3 Plan:

Not Applicable.

Item 24 Persons Controlled by or Under Common Control with the Funds:

No such person.

Item 25 Indemnification:

Registrant incorporates herein by reference the response to Item
27 of the Registration Statement on Form N-1A filed with the
Commission on September 19, 1986.

Item 26 Business and Other Connections of the Investment Adviser:

The descriptions of Towneley Capital Management, Inc. under the
captions "Management" in the Prospectus and "Manager" in the
Statement of Additional Information constituting Parts A and B,
respectively, of this Registration Statement are incorporated
herein by reference.

Wesley G. McCain, the sole director of Towneley Capital
Management, Inc., is also a trustee of the Van Eck Funds, and the
Van Eck World Wide Insurance Trust, a director of the Van
Eck/Chubb Funds, Inc. He was a director of the Peregrine Fund from
1995 to 1998. He is a general partner of Pharaoh Partners, L.P.,
which is the general partner of Libre Partners, L.P. He is also a
Trustee of Libre Group Trust, a director of Libre Investments
(Cayman) Ltd., a member of Pharaoh Partners (Cayman) LDC, and
Chairman of Millbrook Associates, Inc. and of Eclipse Financial
Services, Inc.

Item 27 Principal Underwriters:

Not Applicable.

Item 28 Location of Accounts and Records:

The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules thereunder are maintained
at the offices of NYLIFE Securities Inc., 51 Madison Avenue,
New York, New York 10010. Additional records are maintained
at the offices of Investors Fiduciary Trust Company, P.O.
Box 419595, Kansas City, Missouri, 64179, the Registrant's
custodian.

Item 29 Management Services:

Not Applicable.

Item 30 Undertakings:

Not Applicable.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 18 to its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State
of New York, on the 26th day of February, 1999.

Eclipse Funds

By /S/ WESLEY G. MCCAIN
Wesley G. McCain,
President

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 18 to its Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.

Signatures Title Date

(1) Principal
Executive Officer:

/S/ WESLEY G. MCCAIN President February 26, 1999
Wesley G. McCain

(2) Principal Financial
and Accounting Officer:

/S/ ANTHONY W. POLIS Treasurer February 26, 1999
Anthony W. Polis

(3) Majority Trustees:

/S/ WESLEY G. MCCAIN Trustee February 26, 1999
Wesley G. McCain

_____________________ Trustee February 26, 1999
Sigrid A. Hess*

_____________________ Trustee February 26, 1999
John C. Van Eck*

_____________________ Trustee February 26, 1999
Yung Wong*

*By /S/ WESLEY G. MCCAIN
Wesley G. McCain
Attorney-in-fact

* Executed pursuant to powers of attorney filed with Registrant's
Post-Effective Amendment No. 1 to its Registration Statement on Form N-1A
filed on July 2, 1987 (File Nos. 33-8865 and 811-4847).

EXHIBIT INDEX

To be filed by amendment.