<PAGE> 1
As filed electronically with the Securities and Exchange Commission on
December 29, 2000
(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. 21 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20 [x]
ECLIPSE FUNDS
(Exact Name of Registrant as Specified in Charter)
51 Madison Avenue, New York, New York 10010
(Address of Principal Executive Officers)
Registrant's Telephone Number: 212-576-7215
Robert Anselmi, Esq.
51 Madison Avenue
New York, N.Y. 10010
Copies to:
Mitchell B. Birner, Esq.
Dechert
30 Rockefeller Plaza
New York, N.Y. 10012
[x] It is proposed that this Post-Effective Amendment become effective on
February 26, 2001 pursuant to paragraph (a) of Rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE> 2
ECLIPSE FUNDS
Prospectus
March 1, 2001
EQUITY FUNDS
Eclipse Growth Equity Fund
Eclipse Value Equity Fund
Eclipse Indexed Equity Fund
Eclipse Mid Cap Core Fund
Eclipse Mid Cap Value Fund
Eclipse Small Cap Value Fund
FIXED-INCOME FUNDS
Eclipse Bond Fund
Eclipse Core Bond Plus Fund
Eclipse Indexed Bond Fund
Eclipse Short Term Bond Fund
Eclipse Ultra Short Term Income Fund
Eclipse Tax Free Bond Fund
Eclipse Money Market Fund
BLENDED FUNDS
Eclipse Asset Manager Fund
Eclipse Balanced Fund
INTERNATIONAL FUNDS
Eclipse International Equity Fund
Eclipse EAFE Index Fund
Eclipse International Bond Fund
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
[ECLIPSE FUNDS LOGO]
<PAGE> 3
What's Inside?
<TABLE>
<C> <S>
2 Investment Objectives, Principal Investment Strategies and
Principal Risks:
An Overview
EQUITY FUNDS
6 Eclipse Growth Equity Fund
10 Eclipse Value Equity Fund
14 Eclipse Indexed Equity Fund
18 Eclipse Mid Cap Core Fund
20 Eclipse Mid Cap Value Fund
24 Eclipse Small Cap Value Fund
FIXED-INCOME FUNDS
28 Eclipse Bond Fund
32 Eclipse Core Bond Plus Fund
36 Eclipse Indexed Bond Fund
40 Eclipse Short Term Bond Fund
44 Eclipse Ultra Short Term Income Fund
48 Eclipse Tax Free Bond Fund
52 Eclipse Money Market Fund
BLENDED FUNDS
56 Eclipse Asset Manager Fund
62 Eclipse Balanced Fund
INTERNATIONAL FUNDS
66 Eclipse International Equity Fund
70 Eclipse EAFE Index Fund
74 Eclipse International Bond Fund
78 More about Investment Strategies and Risks
82 Shareholder Guide
82 Multi-Class Structure
83 Buying, Selling and Exchanging Shares
83 How to Open An Account
83 Investment Minimums
88 General Policies
90 Determining the Funds' Share Prices (NAV) and Valuation of
Securities
90 Fund Earnings
91 Understand the Tax Consequences
94 Know With Whom You're Investing
100 Financial Highlights for Eclipses Funds Inc.
114 Financial Highlights for Eclipse Funds
</TABLE>
<PAGE> 4
2
Investment Objectives,
Principal Investment Strategies and Principal Risks: An Overview
This prospectus discusses Eclipse Funds Inc., a Maryland corporation (formerly
MainStay Institutional Funds Inc.), which is a series mutual fund with 14
different series, and Eclipse Funds, a Massachusetts business trust, which is a
series mutual fund with four different series (the series of Eclipse Funds and
Eclipse Funds, Inc. are collectively referred to as the "Funds"). Each of the
Funds, which invest for varying combinations of income and growth, is managed by
New York Life Investment Management LLC ("NYLIM"). NYLIM is responsible for the
day-to-day portfolio management of ten of the Funds and has retained its
affiliate, MacKay Shields LLC ("MacKay Shields"), to act as Subadvisor to eight
of the Funds. Each Fund pursues somewhat different strategies to achieve its
objective, but all of the Equity Funds invest, under normal market conditions,
primarily in equity securities and all of the Fixed Income Funds invest, under
normal market conditions, primarily in debt or fixed income securities. The
Blended Funds normally invest in a mix of equity and fixed income investments.
In times of unusual or adverse conditions, for temporary defensive purposes,
each Fund may invest outside the scope of its principal investment focus.
Publicly held corporations may raise needed cash by issuing or selling equity
securities to investors. When you buy stock in a corporation you become part
owner. Equity securities may be purchased through principal stock exchanges,
such as the New York Stock Exchange, or in the over-the-counter market. There
are many different types of equity securities, including: stocks, convertible
securities, and American Depositary Receipts ("ADRs"). Investors buy equity
securities to make money through dividend payments and/or selling them for more
than they paid. Investment in common stocks and other equity securities is
particularly subject to the risks of:
- Changing economic conditions: Common stocks may fluctuate as a result of
general economic conditions, including changes in interest rates.
- Industry and company conditions: Certain industries may come in and out of
favor with investors. In addition, changing technology and competition may
make common stocks volatile.
<PAGE> 5
3
- Security selection: A manager may not be able to consistently select the
equity securities that appreciate in value, or to anticipate changes which can
adversely affect the value of a Fund's holdings. Investments in smaller
companies may be more volatile than investments in larger companies.
Investors buy debt securities primarily to profit through interest payments.
Both governments and companies raise cash by issuing or selling debt securities
to investors. Debt securities may be purchased directly from those issuers or in
the secondary trading markets. There are many different types of debt
securities, including:
- bonds
- notes
- debentures and others
Some debt securities pay fixed rates of return while others pay variable rates.
Interest may be paid at different intervals. Some debt securities do not make
regular interest payments, but instead are initially sold at a discount to the
principal amount to be paid at maturity.
The risks involved with investing in debt securities include:
- Credit Risk: The purchaser of a debt security lends money to the issuer of
that security. If the issuer does not pay back the loan, the holder of the
security may experience a loss on its investment.
- Maturity Risk: A debt security with a longer maturity may fluctuate more in
value than a debt security with a shorter maturity. A Fund that holds debt
securities with a longer average maturity may fluctuate in value more than a
Fund that holds debt securities with a shorter maturity.
- Market Risk: Like other securities, debt securities are subject to the forces
of supply and demand. Low demand may negatively impact the price of a debt
security.
- Interest Rate Risk: The value of debt securities usually changes when interest
rates change. Generally, when interest rates go up, the value of a debt
security goes down and when interest rates go down, the value of a debt
security goes up.
<PAGE> 6
4
NOT INSURED
An investment in the Funds is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Money Market Fund seeks to preserve the value of your
investment at $1.00 per share, you could lose money by investing in the Fund.
YOU COULD LOSE MONEY
Before considering one or more investments, you should understand that you could
lose money.
NAV WILL FLUCTUATE
The value of Fund shares, also known as net asset value ("NAV"), will fluctuate
based on the value of a Fund's holdings. In addition to the factors discussed
above, Fund share prices will fluctuate based on changes in:
- company or industry conditions
- economic or market conditions, and
- the value of U.S. dollars in relation to the value of other foreign currencies
MORE INFORMATION
The next section of this prospectus gives you more detailed information about
the investment objectives, policies, principal investment strategies, principal
risks, past performance and expenses of each of the Funds offered in this
prospectus. Please review it carefully.
<PAGE> 7
5
[This page intentionally left blank]
<PAGE> 8
6
---------------------------
"S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. The S&P 500 Index is an unmanaged index widely regarded as the
standard for measuring large-cap U.S. stock market performance. Typically,
companies included in the S&P 500 are the largest and most dominant firms in
their respective industries.
Growth Equity Fund
The Growth Equity Fund's investment objective is to seek long-term growth of
capital. Dividend income, if any, is a consideration incidental to the Fund's
objective of growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in equity securities.
INVESTMENT PROCESS
The Fund normally invests in securities of companies with investment
characteristics such as:
- participation in expanding product or service markets
- increasing unit sales volume
- growth in revenues and earnings per share superior to that of the average of
common stocks comprising indices such as the S&P 500 Index
- increasing return on investment
The Fund maintains a flexible approach towards investing in various types of
companies as well as types of securities, including common stocks, preferred
stocks, warrants and other equity securities, depending upon the economic
environment and the relative attractiveness of the various securities markets.
As a result, the Fund may invest in any other securities which, in the judgment
of MacKay Shields, the Fund's Subadvisor, are ready for a rise in price, or are
expected to undergo an acceleration in growth of earnings. The latter could
occur because of special factors such as:
- new management
- new products
- changes in consumer demand
- changes in the economy
<PAGE> 9
7
GROWTH EQUITY FUND
PRINCIPAL RISKS
Investment in common stocks and other equity securities is particularly subject
to the risk of changing economic, stock market, industry and company conditions
which can adversely affect the value of the Fund's holdings. Opportunities for
greater gain often come with greater risk of loss. Some of the securities,
therefore, may carry above-average risk, compared to common stock indexes, such
as the Dow Jones Industrial Average and the S&P 500 Index.
The principal risk of growth stocks is that investors expect growth companies to
increase their earnings at a certain rate which is generally higher than the
rate expected for non-growth companies. If these expectations are not met, the
market price of the stock may decline significantly, even if earnings showed an
absolute increase. Growth company stocks also typically lack the dividend yield
that can cushion stock prices in market downturns.
<PAGE> 10
8
GROWTH EQUITY FUND
[BAR GRAPH]
<TABLE>
<S> <C>
1991 67.00
1992 5.63
1993 9.59
1994 -2.23
1995 37.88
1996 21.62
1997 24.73
1998 40.50
1999 25.33
2000 [ ]
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1991-2000)
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in
the Fund. The bar chart shows you how the Fund's performance has
varied over the life of the Fund. The table shows how the Fund's
average annual total returns for one year, five year and ten year
periods compare to those of a broad-based securities market index.
Performance figures for the Service Class (formerly Institutional
Service Class) shares, first offered on January 1, 1995, include
the historical performance of the No-Load Class (formerly
Institutional Class) shares, since the Fund's inception (January 2,
1991) through December 31, 1994. Performance data for the classes
after that date vary based on differences in their expense
structures. As with all mutual funds, past performance is not
necessarily an indication of how the Fund will perform in the
future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1991-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter [ ] [ ]
Lowest return/worst quarter [ ] [ ]
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Growth Equity Fund
No-Load Class % % %
Service Class % % %
S&P 500 Index* % % %
</TABLE>
* The S&P 500 Index is an unmanaged index widely regarded as the standard for
measuring large-cap U.S. stock market performance. Results assume the
reinvestment of all income and capital gain distributions.
<PAGE> 11
9
GROWTH EQUITY FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES NO-LOAD SERVICE
(fees paid directly from your investment) CLASS CLASS
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (Load)
(as a percentage of redemption proceeds) None None
Exchange Fee* None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted
from Fund assets)
Management Fees .85% .85%
Distribution (12b-1) Fees None None
Other Expenses** .08% .33%
Total Annual Fund Operating Expenses*** .93% 1.18%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** Includes shareholder service fees of .25% for Service Class shares.
*** The Manager has voluntarily agreed to limit the Fund's annual total
operating expenses for the No-Load Class and Service Class shares to .93%
and 1.18% respectively, through the fiscal year ending October 31, 2001.
This waiver may be discontinued at any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD SERVICE
EXPENSES AFTER CLASS* CLASS*
<S> <C> <C>
1 year $ $
3 years $ $
5 years $ $
10 years $ $
</TABLE>
* Does not reflect fee waiver.
<PAGE> 12
10
---------------------------
TOTAL RETURN means a combination of income and realized and unrealized capital
gains.
VALUE EQUITY FUND
The Value Equity Fund's investment objective is to seek maximum long-term TOTAL
RETURN.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of total assets in equity securities.
INVESTMENT PROCESS
The Fund is not designed or managed primarily to produce current income.
The Fund principally invests in common stocks which:
- MacKay Shields, the Fund's Subadvisor, believes are "undervalued" (selling
below their value) when purchased
- typically pay dividends, although there may be non-dividend paying stocks if
they meet the "undervalued" criteria
- are listed on a national securities exchange or are traded in the over-
the-counter market
Usually, stocks deemed by the Subadvisor to be at full value will be replaced
with new, "undervalued" stocks. When assessing whether a stock is undervalued,
the Subadvisor considers many factors and will compare market price to:
- the company's "book" value;
- estimated value of the company's assets (liquidating value);
- the company's cash flow; and
- to a lesser extent, the Subadvisor will also look at trends and forecasts such
as growth rates and future earnings.
<PAGE> 13
11
VALUE EQUITY FUND
PRINCIPAL RISKS
Investment in common stocks and other equity securities is particularly subject
to the risk of changing economic, stock market, industry and company conditions
which can adversely affect the value of the Fund's holdings.
The principal risk of investing in value stocks is that they may never reach
what the Subadvisor believes is their full value or that they may even go down
in value. In addition, different types of stocks tend to shift in and out of
favor depending on market and economic conditions and therefore the Fund's
performance may be lower or higher than that of funds that invest in other types
of equity securities (such as those emphasizing growth stocks).
<PAGE> 14
12
VALUE EQUITY FUND
[BAR GRAPH]
<TABLE>
<S> <C>
1991 36.60
1992 20.71
1993 14.90
1994 1.22
1995 29.42
1996 22.41
1997 22.63
1998 -8.10
1999 9.22
2000 [ ]
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1991-2000)
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in
the Fund. The bar chart shows you how the Fund's performance has
varied over the life of the Fund. The table shows how the Fund's
average annual total returns for one year, five year and ten year
periods compare to those of a broad-based securities market index.
Performance figures for the Service Class (formerly Institutional
Service Class) shares, first offered on January 1, 1995, include
the historical performance of the No-Load Class (formerly
Institutional Class) shares, since the Fund's inception (January 2,
1991) through December 31, 1994. Performance data for the classes
after that date vary based on differences in their expense
structures. As with all mutual funds, past performance is not
necessarily an indication of how the Fund will perform in the
future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1991-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Value Equity Fund
No-Load Class % % %
Service Class % % %
S&P 500 Index* % % %
</TABLE>
* The S&P 500 Index is an unmanaged index and is widely regarded as the standard
for measuring large-cap U.S. stock market performance. Results assume the
reinvestment of all income and capital gain distributions.
<PAGE> 15
13
VALUE EQUITY FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES NO-LOAD SERVICE
(fees paid directly from your investment) CLASS CLASS
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (Load)
(as a percentage of redemption proceeds) None None
Exchange Fee* None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee .85% .85%
Distribution (12b-1) Fees None None
Other Expenses** .11% .36%
Total Annual Fund Operating Expenses*** .96% 1.21%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** Includes shareholder service fees of .25% for Service Class shares.
*** The Manager has voluntarily agreed to limit the Fund's annual total
operating expenses for the No-Load Class and Service Class shares to .94%
and 1.19%, respectively, through the fiscal year ending October 31, 2001.
This waiver may be discontinued at any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD SERVICE
EXPENSES AFTER CLASS* CLASS*
<S> <C> <C>
1 year $ $
3 years $ $
5 years $ $
10 years $ $
</TABLE>
* Does not reflect fee waiver.
<PAGE> 16
14
---------------------------
TOTAL RETURN means a combination of income and realized and unrealized capital
gains.
---------------------------
INDEX FUNDS seek to match their respective indices, unlike other funds which
generally seek to beat an index or indices. No attempt is made to manage the
portfolio in the traditional sense using economic, financial and market
analysis.
INDEXED EQUITY FUND
The Indexed Equity Fund's investment objective is to seek to provide investment
results that correspond to the TOTAL RETURN performance (reflecting reinvestment
of dividends) of common stocks in the aggregate, as represented by the S&P 500
Index.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 80% of total assets in stocks in the S&P 500
Index in the same proportion, to the extent feasible, as they are represented in
the S&P 500 Index.
INVESTMENT PROCESS
NYLIM, the Fund's Manager, uses statistical techniques to determine which stocks
are to be purchased or sold to replicate the S&P 500 Index to the extent
feasible. From time to time, adjustments may be made in the Fund's portfolio
because of changes in the composition of the S&P 500 Index. The correlation
between the performance of the Fund and the S&P 500 Index is expected to be at
least 0.95. A correlation of 1.00 would indicate perfect correlation, which
would be achieved when the NAV of the Fund, including the value of its dividend
and capital gains distributions, increases or decreases in exact proportion to
changes in the S&P 500 Index.
The Fund's investments also include S&P 500 Index futures which are used for
cash management purposes.
<PAGE> 17
15
INDEXED EQUITY FUND
---------------------------
"S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. Standard & Poor's does not sponsor, endorse, sell or promote
the Fund or represent the advisability of investing in the Fund. The S&P 500
Index is an unmanaged index and is widely regarded as the standard for measuring
large-cap U.S. stock market performance. Typically, companies included in the
S&P 500 are the largest and most dominant firms in their respective industries.
PRINCIPAL RISKS
Investment in common stocks and other equity securities is particularly subject
to the risk of changing economic, stock market, industry and company conditions
which can adversely affect the value of the Fund's holdings. If the value of the
S&P 500 Index declines, the net asset value of shares of the Fund will also
decline. The Fund's ability to mirror the S&P 500 Index may be affected by,
among other things:
- transactions costs
- changes in either the makeup of the S&P 500 Index or number of shares
outstanding for the components of the S&P 500 Index
- the timing and amount of contributions to, and redemptions from, the Fund by
shareholders
Consistent with its principal investment strategies, the Fund's investments
include S&P 500 Index futures which are a type of derivative. The Fund may lose
money using derivatives. The use of derivatives may increase the volatility of
the Fund's net asset value and may involve a small investment of cash relative
to the magnitude of risk assumed.
<PAGE> 18
16
INDEXED EQUITY FUND
[BAR GRAPH]
<TABLE>
<S> <C>
1991 29.80
1992 7.19
1993 9.41
1994 0.90
1995 36.88
1996 22.57
1997 32.88
1998 28.62
1999 20.83
2000 [ ]
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1991-2000)
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in
the Fund. The bar chart shows you how the Fund's performance has
varied over the life of the Fund. The table shows how the Fund's
average annual total returns for one year, five year and ten year
periods compare to those of a broad-based securities market index.
Performance figures for the Service Class (formerly Institutional
Service Class) shares, first offered on January 1, 1995, include
the historical performance of the No-Load Class (formerly
Institutional Class) shares, since the Fund's inception (January 2,
1991) through December 31, 1994. Performance data for the classes
after that date vary based on differences in their expense
structures. As with all mutual funds, past performance is not
necessarily an indication of how the Fund will perform in the
future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1991-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Indexed Equity Fund
No-Load Class % % %
Service Class % % %
S&P 500 Index* % % %
</TABLE>
* The S&P 500 Index is an unmanaged index and is widely regarded as the standard
for measuring large-cap U.S. stock market performance. Results assume the
reinvestment of all income and capital gain distributions.
<PAGE> 19
17
INDEXED EQUITY FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
NO-
SHAREHOLDER FEES LOAD SERVICE
(fees paid directly from your investment) CLASS CLASS
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (Load) (as a percentage of
redemption proceeds) None None
Exchange Fee* None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted
from Fund assets)
Management Fee .50% .50%
Distribution (12b-1) Fees None None
Other Expenses** .05% .30%
Total Annual Fund Operating Expenses*** .55% .80%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** Includes shareholder service fees of .25% for Service Class shares.
*** The Manager has voluntarily agreed to waive a portion of the fees otherwise
payable to it. With this reduction, for the ten months ended October 31,
1999 the management fee paid was .25% for No-Load Class shares and .25% for
Service Class shares and total fund operating expenses were .30% for No-Load
Class shares and .55% for Service Class shares. Management has further
voluntarily agreed to limit the Fund's annual total operating expenses for
the No-Load Class and Service Class shares to .30% and .55%, respectively,
through the fiscal year ending October 31, 2001. This waiver may be
discontinued at any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD SERVICE
EXPENSES AFTER CLASS* CLASS*
<S> <C> <C>
1 year $ $
3 years $ $
5 years $ $
10 years $ $
</TABLE>
* Does not reflect fee waiver.
<PAGE> 20
18
---------------------------
THE RUSSELL MIDCAP(R) INDEX includes the 800 smallest companies in the Russell
1000 Index, which represent approximately 24% of the total market capitalization
of the Russell 1000 Index.
Mid Cap Core Fund
The Mid Cap Core Fund's investment objective is to seek long-term growth of
capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of the value of its total assets in the
common stocks of U.S. companies with market capitalizations similar to the
market capitalization of those companies in the Russell Midcap Index. NYLIM, the
Fund's Manager, seeks those mid-cap companies that it believes will outperform
the average of the mid-cap universe.
INVESTMENT PROCESS
NYLIM uses a quantitative management approach that ranks stocks based on a
proprietary model. The model focuses on value, earnings, and behavioral
characteristics in the market. NYLIM ranks companies in the mid cap universe and
then generally invests in those companies ranked in the top 50% of the universe.
NYLIM ranks stocks based on the financial strength of the issuer and the
potential for strong, long-term earnings growth. This approach seeks to
overweight those mid-cap stocks that NYLIM believes will outperform the mid-cap
universe as a whole. Stocks are generally sold when they are no longer ranked in
the top half of the ranking by the proprietary model.
PRINCIPAL RISKS
Investment in common stocks and other equity securities is particularly subject
to the risk of changing economic, stock market, industry and company conditions
which can adversely affect the value of the Fund's holdings. Mid-cap stocks are
generally less established and may be more volatile and less liquid than stocks
of larger companies.
Due to its trading strategies, the Fund may experience a portfolio turnover rate
of over 100%. Portfolio turnover measures the amount of trading a Fund does
during the year. Funds with high turnover rates (over 100%) often have higher
transaction costs (which are paid by the Fund) and may generate short-term
capital gains (on which you will pay taxes, even if you don't sell any shares by
year-end).
PAST PERFORMANCE
Since the Fund commenced operations on January 2, 2001 there are no performance
figures reflecting the Fund's performance.
<PAGE> 21
19
MID CAP CORE FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
NO-
SHAREHOLDER FEES LOAD
(fees paid directly from your investment) CLASS
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
redemption proceeds) None
Exchange Fee* None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee .85%
Distribution (12b-1) Fees None
Other Expenses** .37%
-----
Total Annual Fund Operating Expenses*** 1.22%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** "Other Expenses" are based on estimated amounts for the current fiscal year.
*** The Manager has voluntarily agreed to waive a portion of the fees otherwise
payable to it to the extent that annual operating expenses exceed 1.00% of
average daily net assets of the Fund. As a result, for the fiscal year
ending October 31, 2001 it is estimated that the management fee paid will be
.63% and total annual fund operating expenses will be 1.00% of the Fund's
average daily net assets. This waiver may be discontinued at any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD
EXPENSES AFTER CLASS*
<S> <C>
1 year $ 124
3 years $ 387
</TABLE>
* Does not reflect fee waiver.
<PAGE> 22
20
---------------------------
TOTAL RETURN means a combination of income and realized and unrealized capital
gains.
---------------------------
In a SECURITIES LENDING transaction, a fund lends securities from its portfolio
to a broker-dealer (or other financial institution) for a period of time. The
fund receives interest and/or a fee and a promise that the securities will be
returned on a fixed date.
MID CAP VALUE FUND
The Mid Cap Value Fund seeks high TOTAL RETURN.
PRINCIPAL INVESTMENT STRATEGY
The Fund invests more than 65% of its assets in common and preferred stock.
INVESTMENT PROCESS
The Fund invests primarily in mid-capitalization stocks that NYLIM, the Fund's
Manager, determines are value stocks. "Value" stocks are stocks that the Manager
determines (1) have strong or improving fundamental characteristics (including
margins, working capital, leverage, cash flow, returns on equity and assets) and
(2) have been overlooked by the marketplace so that they are undervalued or
"cheap" relative to the rest of the equity market. In selecting stocks, the
Manager applies quantitative and statistical methods to analyze the relative
quality and value of the stocks:
- 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).
- 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.
- Under normal conditions, the Manager keeps the Fund fully invested rather than
taking temporary cash positions.
- The Manager does not attempt to time the market or to hedge returns.
- 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.
- The Manager does not visit companies; it relies on its statistical analysis of
the companies' financial statements.
- 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.
- The Manager does not use options or futures.
- 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.
<PAGE> 23
21
MID CAP VALUE FUND
---------------------------
A WARRANT is a security which entitles the owner of a bond or preferred stock to
buy certain amounts of common stock at a specified price for a defined period.
---------------------------
RESTRICTED SECURITIES 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. ILLIQUID SECURITIES are securities that have
no ready market.
The Fund may lend up to 20% of its assets and may invest:
- up to 5% of its assets in WARRANTS.
- up to 20% of its assets in securities of foreign issuers, but only in
countries the Manager considers stable and only in securities the Manager
considers high quality.
- up to 10% of its assets in RESTRICTED SECURITIES or ILLIQUID SECURITIES.
- in common stock, other equity securities and in equity-related securities,
such as preferred stock (including convertible preferred stock), and debt
securities convertible into stock.
The Fund may also purchase large-capitalization stocks for additional liquidity
and engage in active trading. The Fund considers large-capitalization stocks to
be the top 5% of companies sorted by market capitalization.
PRINCIPAL RISKS
The main risk associated with investing in the Fund includes:
- 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 less than you paid when you decide to sell. In other words, you could
lose money on your investment.
Since the Fund may invest up to 20% of its assets in foreign securities, it can
be subject to various risks of loss that are different from risks of investing
in securities of U.S.-based issuers. These include losses due to:
- fluctuating currency values
- less liquid trading markets
- greater price volatility
- political and economic instability
- less publicly available information about issuers
- changes in U.S. or foreign tax or currency laws
- changes in monetary policy
The Fund's use of an investment practice such as securities lending also
presents certain risks. The principal risk of SECURITIES LENDING is that the
financial institution that borrows securities from the Fund could go bankrupt
and the Fund might not be able to recover the securities or their value.
The Fund's investments may include restricted or illiquid securities. The
principal risk of investing in restricted securities and illiquid securities is
that they may be difficult to sell.
The Fund's investments may include warrants. The principal risk of investing in
warrants is that the price of the underlying common stock may decline below the
exercise price of the warrant.
<PAGE> 24
22
MID CAP VALUE FUND
[MID CAP VALUE FUND BAR GRAPH]
<TABLE>
<S> <C>
1995 26.82
1996 22.40
1997 32.46
1998 10.35
1999 0.04
2000 [ ]
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1995 -2000)
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in
the Fund. The bar chart shows you how the Fund's performance has
varied over the last five years. The table shows how the Fund's
average annual total returns for one year, five year and life of
the Fund periods compare to those of a broad-based securities
index. As with all mutual funds, past performance is not
necessarily an indication of how the fund will perform in the
future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1995 -2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
<S> <C> <C> <C>
Mid Cap Value Fund
No-Load Class % %
Russell Midcap Index** % %
Standard & Poor's 500
Index*** % %
</TABLE>
* The Fund's inception was 12/27/94; its annualized total return since
inception was 17.8%.
** The Russell Midcap(R) Index includes the 800 smallest companies in the
Russell 1000 Index, which represent approximately 24% of the total market
capitalization of the Russell 1000 Index.
*** The S&P 500 Index is an unmanaged index widely regarded as the standard for
measuring large-cap U.S. stock market performance. Results assume the
reinvestment of all income and capital gain distributions.
<PAGE> 25
23
MID CAP VALUE FUND
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you
buy and hold Fund shares.
<TABLE>
<CAPTION>
NO-
SHAREHOLDER FEES LOAD
(fees paid directly from your investment) CLASS
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
redemption proceeds) None
Exchange Fee* None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fee .90%
Distribution (12b-1) Fees None
Other Expenses .15%
-----
Total Annual Fund Operating Expenses** 1.05%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** The Manager has undertaken that there will be no increase in the ordinary
operating expense ratios of the Fund through December 31, 2002 from that of
the twelve months' ended December 31, 2000. Provided however, this limitation
shall not limit increases in transfer agency expenses incurred by the Fund in
accordance with the transfer agency expense arrangements in effect prior to
December 12, 2000.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD
EXPENSES AFTER CLASS
<S> <C>
1 year $
3 years $
5 years $
10 years $
</TABLE>
<PAGE> 26
24
---------------------------
TOTAL RETURN means a combination of income and realized and unrealized capital
gains.
---------------------------
SMALL-CAPITALIZATION STOCKS are common stocks of relatively small U.S. companies
that tend to have fewer shares outstanding and thus a smaller trading volume
than large-capitalization stocks. The Fund considers small-capitalization stocks
to be the bottom 80% of companies sorted by market capitalization.
---------------------------
In a SECURITIES LENDING transaction, a fund lends securities from its portfolio
to a broker-dealer (or other financial institution) for a period of time. The
fund receives interest and/or a fee and a promise that the securities will be
returned on a fixed date.
SMALL CAP VALUE FUND
The Small Cap Value Fund seeks high TOTAL RETURN.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in SMALL-CAPITALIZATION STOCKS that, NYLIM, the
Fund's Manager, determines are value stocks.
INVESTMENT PROCESS
"Value" stocks are stocks that the Manager determines (1) have strong or
improving fundamental characteristics (including margins, working capital,
leverage, cash flow, returns on equity and assets) and (2) have been overlooked
by the marketplace so that they are undervalued or "cheap" relative to the rest
of the equity market. The Manager seeks relatively low portfolio turnover. In
selecting stocks, the Manager applies quantitative and statistical methods to
analyze the relative quality and price of the stocks:
- 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).
- 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.
- Under normal conditions, the Manager keeps the Fund fully invested rather than
taking temporary cash positions.
- The Manager does not attempt to time the market or to hedge returns.
- 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.
- The Manager does not visit companies; it relies on its statistical analysis of
the companies.
- 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.
- The Manager does not use options or futures.
- 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.
<PAGE> 27
25
SMALL CAP VALUE FUND
---------------------------
A WARRANT is a security which entitles the owner of a bond or preferred stock to
buy certain amounts of common stock at a specified price for a defined period.
---------------------------
RESTRICTED SECURITIES 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. ILLIQUID SECURITIES are securities that have
no ready market.
---------------------------
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. Active trading may result in increased transactions costs and the
realization of greater net short-term or long-term capital gains.
The Fund may lend up to 20% of its assets and may invest:
- up to 5% of its assets in WARRANTS.
- 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.
- up to 10% of its assets in RESTRICTED SECURITIES or ILLIQUID SECURITIES.
- in common stock, and in other equity securities and in equity-related
securities, such as preferred stock (including convertible preferred stock),
and debt securities convertible into common stock.
The Fund may also purchase large-capitalization stocks for additional liquidity
and engage in ACTIVE TRADING. The Fund considers large-capitalization stocks to
be the top 5% of companies sorted by market capitalization.
PRINCIPAL RISKS
Market risk -- Stocks fluctuate in price. As the holdings fluctuate, so will the
price of the Fund's shares. Consequently, your investment could be worth less
than you paid when you decide to sell. In other words, you could lose money on
your investment.
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.
Since the Fund may invest up to 20% of its assets in foreign securities, it can
be subject to various risks of loss that are different from risks of investing
in securities of U.S.-based issuers. These include losses due to:
- fluctuating currency values
- less liquid trading markets
- greater price volatility
- political and economic instability
- less publicly available information about issuers
- changes in U.S. or foreign tax or currency laws
- changes in monetary policy
The Fund's use of an investment practice such as securities lending also
presents certain risks. The principal risk of SECURITIES LENDING is that the
financial institution that borrows securities from the Fund could go bankrupt
and the Fund might not be able to recover the securities or their value.
The Fund's investments may include restricted or illiquid securities. The
principal risk of investing in restricted securities and illiquid securities is
that they may be difficult to sell.
<PAGE> 28
26
SMALL CAP VALUE FUND
[BAR GRAPH]
<TABLE>
<S> <C>
1991 31.18
1992 19.38
1993 17.02
1994 -4.74
1995 19.69
1996 29.87
1997 33.30
1998 3.40
1999 3.05
2000 [ ]
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1991-2000)
The Fund's investments may include warrants. The principal risk of
investing in warrants is that the price of the underlying common
stock may decline below the exercise price of the warrant.
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in
the Fund. The bar chart shows you how the Fund's performance has
varied over the last ten years. The table shows how the Fund's
average annual total returns for one year, five year, and ten year
periods compare to those of a broad-based market index. As with all
mutual funds, past performance is not necessarily an indication of
how the Fund will perform in the future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1991-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Small Cap Value Fund
No-Load Class % % %
Standard & Poor's Small Cap 600
Index* % % %
Russell 2000 Index** % % %
Standard & Poor's 500 Index*** % % %
Lipper Small Cap Value Fund
Index**** % % %
</TABLE>
* This index is a market value weighted benchmark of 600 smaller
capitalization common stocks.
** This index tracks the smallest 2,000 companies in the Russell 3000 Index;
the Russell 3000 includes the largest 3,000 U.S. companies determined by
market capitalization.
*** The S&P 500 Index is an unmanaged index widely regarded as the standard for
measuring large-cap U.S. stock market performance. Results assume the
reinvestment of all income and capital gain distributions.
**** This index tracks the performance of the 30 largest small company value
funds, after expenses, adjusted for the reinvestment of capital gains
distributions and income dividends. Previously the Lipper Small Cap Fund
Index was used as one of the benchmarks. Lipper no longer provides that
Index. The Lipper Small Cap Value Index is now used, and also reflects the
category in which Lipper has placed Eclipse Small Cap Value Fund.
<PAGE> 29
27
SMALL CAP VALUE FUND
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you
buy and hold Fund shares.
<TABLE>
<CAPTION>
NO-
SHAREHOLDER FEES LOAD
(fees paid directly from your investment) CLASS
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
redemption proceeds) None
Exchange Fee* None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee 1.00%
Distribution (12b-1) Fees None
Other Expenses .18%
Total Annual Fund Operating Expenses** 1.18%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** The Manager has undertaken that there will be no increase in the ordinary
operating expense ratios of the Fund through December 31, 2002 from that of
the twelve months' ended December 31, 2000. Provided however, this limitation
shall not limit increases in transfer agency expenses incurred by the Fund in
accordance with the transfer agency expense arrangements in effect prior to
December 12, 2000.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD
EXPENSES AFTER CLASS
<S> <C>
1 year $
3 years $
5 years $
10 years $
</TABLE>
<PAGE> 30
28
---------------------------
TOTAL RETURN means a combination of income and realized and unrealized capital
gains.
---------------------------
FLOATERS (or securities with a floating rate of interest) are debt securities
with a variable interest rate that is tied to another interest rate, such as a
money-market index or Treasury bill rate.
---------------------------
MORTGAGE-RELATED (including mortgage-backed) SECURITIES are debt securities
whose values are based on underlying pools of mortgages. These securities may be
issued by U.S. governmental entities or private issuers.
BOND FUND
The Bond Fund's investment objective is to seek to maximize TOTAL RETURN,
consistent with liquidity, low risk to principal and investment in debt
securities.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 70% of its total assets in:
- debt or debt-related securities issued or guaranteed by the U.S. or foreign
governments, their agencies or instrumentalities
- obligations of international or supranational entities
- debt securities issued by U.S. or foreign corporate entities
- ZERO COUPON BONDS
- MUNICIPAL BONDS
- MORTGAGE-RELATED and other ASSET-BACKED SECURITIES
- loan participation interests
The effective maturity of this portion of the Fund's portfolio will usually be
in the intermediate range (three to ten years), although it may vary depending
on market conditions as determined by MacKay Shields, the Fund's Subadvisor.
At least 65% percent of the Fund's total assets will be invested in debt
securities rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or
BBB or better by S&P when purchased, or if unrated, determined by the Subadvisor
to be of comparable quality.
Normally the Fund may use up to 30% of its total assets to shorten or lengthen
the portfolio's effective maturity. This portion of the Fund's assets may be
invested in long-term U.S. Treasuries (ten to thirty years) and cash equivalent
short-term obligations, including: certificates of deposit, time deposits,
bankers' acceptances issued by U.S. or foreign banks, certificates of deposit
and time deposits issued by savings and loan associations, commercial paper,
repurchase agreements and reverse repurchase agreements.
As part of the Fund's principal investment strategies, the Subadvisor may use
investment practices such as MORTGAGE DOLLAR ROLLS and portfolio securities
lending.
INVESTMENT PROCESS
In pursuing the Fund's investment strategy, the Fund's Subadvisor conducts a
continuing review of yields and other information derived from a data base which
it maintains in managing fixed-income portfolios. Fundamental economic cycle
analysis, credit quality and interest rate trends are the principal factors
considered by the Subadvisor in determining whether to increase or decrease
<PAGE> 31
29
BOND FUND
---------------------------
ASSET-BACKED SECURITIES are debt securities whose values are based on underlying
pools of receivables.
---------------------------
In a MORTGAGE DOLLAR ROLL, the Fund sells a mortgage-backed security from its
portfolio to another party and agrees to buy a similar security from the same
party at a set price at a later date.
---------------------------
ZERO COUPON BONDS are debt obligations issued without any requirement for the
periodic payment of interest. They are issued at a significant discount to their
face value and tend to be more volatile than conventional debt securities.
---------------------------
MUNICIPAL BONDS are bonds issued by, or on behalf of, the states, the District
of Columbia, the territories, commonwealths and possessions of the United States
and their political subdivisions, and agencies, authorities and
instrumentalities of these entities.
the emphasis placed upon a particular type of security or industry sector within
the Fund's investment portfolio. Maturity shifts are based on a set of
investment decisions that take into account a broad range of fundamental and
technical indicators.
Consistent with its principal investment strategy, the Fund may purchase debt
securities of U.S. issuers, including derivatives such as mortgage-related and
asset-backed securities. Commercial paper must be, when purchased, rated Prime-1
by Moody's or A-1 by S&P, or if unrated, determined by the Subadvisor to be of
comparable quality. The Fund's principal investments may have fixed or FLOATING
rates of interest.
PRINCIPAL RISKS
The values of debt securities fluctuate depending upon various factors,
including:
- interest rates
- issuer creditworthiness
- market conditions
- maturities
Since the Fund can invest in foreign securities, it can be subject to various
risks of loss that are different from risks of investing in securities of
U.S.-based issuers. These include losses due to:
- fluctuating currency values
- less liquid trading markets
- greater price volatility
- political and economic instability
- less publicly available information about issuers
- changes in U.S. or foreign tax or currency laws
- changes in monetary policy
The Fund's investments include derivatives such as floaters and mortgage-related
and asset-backed securities. The Fund may use derivatives to try to enhance
returns or reduce the risk of loss (hedge) of certain of its holdings.
Regardless of the purpose, the Fund may lose money using derivatives. The use of
derivatives such as floaters may increase the volatility of the Fund's net asset
value and may involve a small investment of cash relative to the magnitude of
risk assumed.
The Fund's use of investment practices such as mortgage dollar rolls and
securities lending also presents certain risks. The principal risk of mortgage
dollar rolls is that the security the Fund receives at the end of the
transaction may be worth less than the security the Fund sold to the same
counterparty at the beginning of the transaction. The principal risk of
securities lending is that the financial institution that borrows securities
from the Fund could go bankrupt and the Fund might not be able to recover the
securities or their value.
<PAGE> 32
30
BOND FUND
[BAR GRAPH]
<TABLE>
<S> <C>
1991 14.00
1992 6.39
1993 9.74
1994 -3.31
1995 17.88
1996 2.80
1997 8.57
1998 7.93
1999 -2.47
2000 [ ]
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1991-2000)
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in the Fund. The
bar chart shows you how the Fund's performance has varied over the life of the
Fund. The table shows how the Fund's average annual total returns for one year,
five year and ten year periods compare to those of a broad-based securities
market index. Performance figures for the Service Class (formerly Institutional
Service Class) shares, first offered on January 1, 1995, include the historical
performance of the No-Load Class (formerly Institutional Class) shares, since
the Fund's inception (January 2, 1991) through December 31, 1994. Performance
data for the classes after that date vary based on differences in their expense
structures. As with all mutual funds, past performance is not necessarily an
indication of how the Fund will perform in the future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1991-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Bond Fund
No-Load Class % % %
Service Class % % %
Lehman Brothers Aggregate Index* % % %
</TABLE>
* The Lehman Brothers Aggregate Index (the "Aggregate Index") includes the
following other Lehman Brothers' indices: the Government Index, the Corporate
Index, the Mortgage-Backed Securities Index and the Asset-Backed Securities
Index. To qualify for inclusion in the Aggregate Index, securities must be
U.S. dollar-denominated and investment grade, and have a fixed-rate coupon, a
remaining maturity or average life of at least one year, and a par amount
outstanding of at least $150 million. Previously the Bond Fund has used the
Lehman Brothers Gov't/Corporate Bond Index as a comparative broad-based
securities market index. The Bond Fund has chosen the Lehman Brothers
Aggregate Index because it is more reflective of the mix of securities that
the Fund invests in.
<PAGE> 33
31
BOND FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
NO-
SHAREHOLDER FEES LOAD SERVICE
(fees paid directly from your investment) CLASS CLASS
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (Load) (as a percentage of
redemption proceeds) None None
Exchange Fee* None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee .75% .75%
Distribution (12b-1) Fees None None
Other Expenses** .10% .35%
Total Annual Fund Operating Expenses*** 0.85% 1.10%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** Includes shareholder service fees of .25% for Service Class shares.
*** The Manager has voluntarily agreed to waive a portion of the fees otherwise
payable to it. With this reduction, for the ten months ended October 31,
1999 the management fee paid was .65% for No-Load Class shares and .65% for
Service Class shares, and total fund operating expenses were .75% for
No-Load Class shares and 1.00% for Service Class shares. Management has
further voluntarily agreed to limit the Fund's annual total operating
expenses for the No-Load Class and Service Class shares to .75% and 1.00%,
respectively, through the fiscal year ending October 31, 2001. This waiver
may be discontinued at any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD SERVICE
EXPENSES AFTER CLASS* CLASS*
<S> <C> <C>
1 year $ $
3 years $ $
5 years $ $
10 years $ $
</TABLE>
* Does not reflect fee waiver.
<PAGE> 34
32
---------------------------
TOTAL RETURN is a combination of income and realized and unrealized capital
gains.
---------------------------
ZERO COUPON BONDS are debt obligations issued without any requirement for the
periodic payment of interest. They are issued at a significant discount to their
face value and tend to be more volatile than conventional debt securities.
CORE BOND PLUS FUND
The Core Bond Plus Fund's investment objective is to seek to maximize TOTAL
RETURN consistent with the preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in a diversified
portfolio of
- debt or debt related securities issued or guaranteed by the U.S. or foreign
governments, their agencies or instrumentalities
- obligations of international or supranational entities
- debt securities issued by U.S. or foreign corporate entities
- ZERO COUPON BONDS
- MORTGAGE-RELATED and other ASSET-BACKED SECURITIES
- loan participation interests
The Fund may also invest up to 20% of its total assets in debt securities rated
below investment grade and 10% of its total assets in foreign securities. The
Fund may purchase high-yield bonds and other debt securities that the Fund's
Subadvisor, MacKay Shields, believes may provide capital appreciation in
addition to income. As part of the principal investment strategy, the Fund's
Subadvisor may use MORTGAGE DOLLAR ROLLS and portfolio securities lending
techniques.
INVESTMENT PROCESS
The Fund seeks to identify investment opportunities based, in part, on the
financial condition and competitiveness of bond issuers. In addition, among the
principal factors considered in determining whether to increase or decrease the
emphasis placed upon a particular type of security or bond market sector are:
- fundamental economic cycle analysis
- credit quality
- interest rate trends.
The Fund also invests in a variety of countries, which may include countries
with established economies as well as emerging market countries that the
Subadvisor believes present favorable opportunities. Securities of issuers in
one country may be denominated in the currency of another country. The Fund's
principal investments also may include high yield debt securities rated below
BBB by S&P or Baa by Moody's or, if unrated, determined by the Subadvisor to be
of comparable quality. The Fund's principal investments also include
mortgage-related and asset-backed securities, and when-issued securities and
forward commitments.
The Fund may enter into mortgage dollar roll transactions, buy and sell currency
on a spot basis and may enter into foreign currency forward contracts for
hedging purposes. The Fund may also buy foreign currency options and may use
securities lending as a principal investment strategy.
<PAGE> 35
33
CORE BOND PLUS FUND
---------------------------
MORTGAGE-RELATED (including mortgage-backed) SECURITIES are debt securities
whose values are based on underlying pools of mortgages. These securities may be
issued by U.S. governmental entities or private issuers.
---------------------------
ASSET-BACKED SECURITIES are debt securities whose values are based on underlying
pools of receivables.
---------------------------
In a MORTGAGE DOLLAR ROLL, the Fund sells a mortgage-backed security from its
portfolio to another party and agrees to buy a similar security from the same
party at a set price at a later date.
The Subadvisor may sell a security if it no longer believes the security will
contribute to meeting the objective of the Fund. The Subadvisor may evaluate,
among other things, the condition of the economy, meaningful changes in the
issuer's financial condition, and changes in the condition and outlook for any
particular issuer's industry sector.
PRINCIPAL RISKS
The values of debt securities fluctuate depending upon various factors,
including:
- interest rates
- issuer creditworthiness
- market conditions
- maturities.
The Fund's principal investments can include high yield debt securities
(sometimes called "junk bonds"), which are generally considered speculative
because they present a greater risk of loss, including default, than higher
quality debt securities. These securities pay a premium -- a high interest rate
or yield -- because of this increased risk of loss. These securities can be also
subject to greater price volatility.
Due to its trading strategies, the Fund may experience a portfolio turnover rate
of over 100%. Portfolio turnover measures the amount of trading a Fund does
during the year. Funds with high turnover rates (over 100%) often have higher
transaction costs (which are paid by the Fund) and may generate short-term
capital gains (on which you will pay taxes, even if you don't sell any shares by
year-end).
Since the Fund principally invests in foreign securities, it will be subject to
various risks of loss that are different from risks of investing in securities
of U.S.-based issuers. These include losses due to:
- fluctuating currency values
- less liquid trading markets
- greater price volatility
- political and economic instability
- less publicly available information about issuers
- changes in U.S. or foreign tax or currency laws
- changes in monetary policy
The risks are likely to be greater in emerging market countries than in
developed market countries.
The Fund's principal investments include derivatives, such as floaters,
including inverse floaters, foreign currency options, foreign currency forward
contracts, securities and securities index options, swaps, futures contracts and
related options, and mortgage-related and asset-backed securities. The Fund may
use derivatives to try to enhance returns or reduce the risk of loss (hedge) of
certain of its holdings. Regardless of the purpose, the Fund may lose money
using derivatives. The use of derivatives (except for mortgage-related and
asset-backed securities) may increase the volatility of the Fund's net asset
value and may involve a small investment of cash relative to the magnitude of
risk assumed.
<PAGE> 36
34
CORE BOND PLUS FUND
The principal risk of mortgage dollar rolls is that the security
the Fund receives at the end of the transaction is worth less than
the security the Fund sold to the same counterparty at the
beginning of the transaction.
PAST PERFORMANCE
Since the Fund commenced operations on January 2, 2001, there are
no performance figures reflecting the Fund's performance.
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
NO-
SHAREHOLDER FEES LOAD
(fees paid directly from your investment) CLASS
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
redemption proceeds) None
Exchange Fee* None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee .60%
Distribution (12b-1) Fees None
Other Expenses** .47%
Total Annual Fund Operating Expenses*** 1.07%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** "Other Expenses" are based on estimated amounts for the current fiscal year.
*** The Manager has voluntarily agreed to waive a portion of the fees otherwise
payable to it to the extent that annual operating expenses exceed .70% of
average daily net assets of the Fund. As a result, for the fiscal year
ending October 31, 2001 it is estimated that the management fee paid will be
.23% and total annual fund operating expenses will be .70% of the Fund's
average daily net assets. This waiver may be discontinued at any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD
EXPENSES AFTER CLASS*
<S> <C>
1 year $109
3 years $340
</TABLE>
* Does not reflect fee waiver.
<PAGE> 37
35
[This page intentionally left blank]
<PAGE> 38
36
---------------------------
MORTGAGE-RELATED (including mortgage-backed) SECURITIES are debt securities
whose values are based on underlying pools of mortgages. These securities may be
issued by U.S. governmental entities or private issuers.
---------------------------
INDEX FUNDS seek to match their respective indices, unlike other funds which
generally seek to beat an index or indices. No attempt is made to manage the
portfolio in the traditional sense using economic, financial and market
analysis.
INDEXED BOND FUND
The Indexed Bond Fund's investment objective is to seek to provide investment
results that correspond to the total return performance of fixed income
securities in the aggregate, as represented by the BIG Index.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in fixed income
securities in the BIG INDEX. The BIG INDEX includes investment grade corporate
bonds, U.S. dollar-denominated securities of foreign issuers, U.S. Treasury or
agency issues, MORTGAGE-RELATED SECURITIES, and other securities. Corporate
bonds and securities of foreign issuers must be rated BBB or better by S&P or
Baa or better by Moody's.
As of January 31, 2000, the approximate weighting in the BIG Index was as
follows: U.S. Treasury and agency securities 43.3%, corporate debt securities
24.0% and mortgage-related securities 32.7%.
INVESTMENT PROCESS
NYLIM, the Fund's Manager, employs a stratified sampling method to track
performance of the BIG Index. Using this method, the Fund invests in fixed
income securities which in the aggregate are expected to mirror the performance
of the BIG Index. From time to time, adjustments may be made in the Fund's
portfolio because of changes in the composition of the BIG Index, but such
changes should be infrequent. The correlation between the performance of the
Fund and the BIG Index is expected to be at least 0.95. A correlation of 1.00
would indicate perfect correlation, which would be achieved when the NAV of the
Fund, including the value of its dividend and capital gains distributions,
increases or decreases in exact proportion to changes in the BIG Index.
The Fund's principal investments may have fixed, variable, FLOATING or INVERSE
FLOATING rates of interest.
The average life of the securities in the Fund's portfolio will approximate that
of securities in the BIG Index, which will vary from time to time. As of January
31, 2000, the average life of securities in the BIG Index was 8.91 years.
<PAGE> 39
37
INDEXED BOND FUND
---------------------------
The Salomon Smith Barney Broad Investment Grade Bond Index (the "BIG INDEX") is
a capitalization-weighted index that contains about 5,500 individually priced
fixed income securities. The BIG Index is an unmanaged index generally
considered to be representative of the U.S. bond market.
---------------------------
FLOATERS (or securities with a floating rate of interest) are debt securities
with a variable interest rate that is tied to another interest rate, such as a
money-market index or Treasury bill rate. The interest on an INVERSE FLOATER (or
a security with an inverse floating rate of interest) resets in the opposite
direction from the interest rate to which the inverse floater is indexed.
PRINCIPAL RISKS
The values of debt securities fluctuate depending upon various factors,
including:
- interest rates
- issuer creditworthiness
- market conditions
- maturities
The Fund's ability to track the BIG Index may be affected by, among other
things:
- transaction costs
- changes in either the composition of the BIG Index or the number of bonds
outstanding for the components of the BIG Index
- timing and amount of contributions to and redemptions from the Fund by
shareholders
Since the Fund can invest in foreign securities, it can be subject to various
risks of loss that are different from risks of investing in securities of U.S.
based issuers. These include losses due to:
- fluctuating currency values
- less liquid trading markets
- greater price volatility
- political and economic instability
- less publicly available information about issuers
- changes in U.S. or foreign tax or currency laws
- changes in monetary policy
The risks are likely to be greater in emerging market countries than in
developed market countries.
The Fund's principal investments include derivatives such as floaters, inverse
floaters and mortgage-related securities. The Fund may use derivatives to try to
enhance returns or reduce the risk of loss (hedge) of certain of its holdings.
Regardless of the purpose, the Fund may lose money using derivatives. The
derivatives may increase the volatility of the Fund's net asset value and may
involve a small investment of cash relative to the magnitude of risk assumed.
<PAGE> 40
38
INDEXED BOND FUND
[BAR GRAPH]
<TABLE>
<S> <C>
1991 14.70
1992 7.09
1993 9.64
1994 -3.44
1995 18.07
1996 2.55
1997 9.01
1998 8.21
1999 -2.18
2000 [ ]
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1991-2000)
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in
the Fund. The bar chart shows you how the Fund's performance has
varied over the life of the Fund. The table shows how the Fund's
average annual total returns for one year, five year and ten year
periods compare to those of a broad-based securities market index.
Performance figures for the Service Class (formerly Institutional
Service Class) shares, first offered on January 1, 1995, include
the historical performance of the No-Load Class (formerly
Institutional Class) shares, since the Fund's inception (January 2,
1991) through December 31, 1994. Performance data for the classes
after that date vary based on differences in their expense
structures. As with all mutual funds, past performance is not
necessarily an indication of how the Fund will perform in the
future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1991-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Indexed Bond Fund
No-Load Class % % %
Service Class % % %
BIG Index* % % %
</TABLE>
* The BIG Index is a capitalization-weighted index that contains about 5,500
individually priced fixed income securities. The BIG Index is an unmanaged
index generally considered representative of the U.S. bond market.
<PAGE> 41
39
INDEXED BOND FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES NO-LOAD SERVICE
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS CLASS
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (Load)
(as a percentage of redemption proceeds) None None
Exchange Fee* None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee .50% .50%
Distribution (12b-1) Fees None None
Other Expenses** .12% .37%
Total Annual Fund Operating Expenses*** .62% .87%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** Includes shareholder service fees of .25% for Service Class shares.
*** The Manager has voluntarily agreed to waive a portion of the fees otherwise
payable to it. With this reduction, for the ten months ended October 31,1999
the management fee paid was .38% for No-Load Class shares and .38% for
Service Class shares and total fund operating expenses were .50% for No-Load
Class shares and .75% for Service Class shares. Management has further
voluntarily agreed to limit the Fund's annual total operating expenses for
the No-Load Class and Service Class shares to .50% and .75%, respectively,
through the fiscal year ending October 31, 2001. This waiver may be
discontinued at any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD SERVICE
EXPENSES AFTER CLASS* CLASS*
<S> <C> <C>
1 year $ $
3 years $ $
5 years $ $
10 years $ $
</TABLE>
* Does not reflect fee waiver.
<PAGE> 42
40
TOTAL RETURN is a combination of income and realized and unrealized gains.
---------------------------
MORTGAGE-RELATED (including mortgage-backed) SECURITIES are debt securities
whose values are based on underlying pools of mortgages. These securities may be
issued by U.S. governmental entities or private issuers.
---------------------------
ASSET-BACKED SECURITIES are debt securities whose values are based on underlying
pools of receivables.
SHORT TERM BOND FUND
The Short Term Bond Fund's investment objective is to seek to maximize total
return, consistent with liquidity, preservation of capital and investment in
short-term debt securities.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in a diversified
portfolio of actively managed short-term debt securities, including securities
with special features (e.g. puts and variable or floating rates) which have
price characteristics similar to short-term debt securities.
As part of the Fund's principal strategies, MacKay Shields, the Fund's
Subadvisor, may use investment practices such as MORTGAGE DOLLAR ROLLS and
portfolio securities lending.
INVESTMENT PROCESS
In pursuing the Fund's investment strategy, the Subadvisor conducts a continuing
review of yields and other information derived from data bases which it
maintains in managing fixed-income portfolios. Fundamental economic cycle
analysis, credit quality and interest rate trends are the principal factors
considered by the Subadvisor in determining whether to increase or decrease the
investment emphasis placed on a particular type of security or industry sector
within the Fund's investment portfolio.
The Fund's principal investments include:
- obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities
- MORTGAGE-RELATED and ASSET-BACKED SECURITIES
- CDs, time deposits and bankers' acceptances issued by U.S. banks or savings
and loan associations
- debt securities issued by U.S. corporate entities
The Fund invests in securities rated Baa or better by Moody's or rated BBB or
better by S&P, or if unrated, determined by the Subadvisor to be of comparable
quality; and invests in corporate commercial paper only if rated, when
purchased, Prime-1 by Moody's or A-1 by S&P, or if unrated, determined by the
Subadvisor to be of comparable quality. The Fund's principal investments may
have fixed, variable or floating rates of interest. The effective maturity of
the Fund's portfolio will be less than three years.
<PAGE> 43
41
SHORT TERM BOND FUND
---------------------------
FLOATERS (or securities with a floating rate of interest) are debt securities
with a variable interest rate that is tied to another interest rate, such as a
money-market index or Treasury bill rate.
---------------------------
In a MORTGAGE DOLLAR ROLL, the Fund sells a mortgage-backed security from its
portfolio to another party and agrees to buy a similar security from the same
party at a set price at a later date.
PRINCIPAL RISKS
The values of debt securities fluctuate depending upon various factors,
including:
- interest rates
- issuer creditworthiness
- market conditions
- maturities
The Fund's investments include derivatives such as mortgage-related and
asset-backed securities and FLOATERS. The Fund may use derivatives to try to
enhance returns or reduce the risk of loss (hedge) of certain of its holdings.
Regardless of the purpose, the Fund may lose money using derivatives. The use of
derivatives such as floaters may increase the volatility of the Fund's net asset
value and may involve a small investment of cash relative to the magnitude of
risk assumed.
The Fund's use of investment practices such as mortgage dollar rolls and
securities lending also presents certain risks. The principal risk of mortgage
dollar rolls is that the security the Fund receives at the end of the
transaction may be worth less than the security the Fund sold to the same
counterparty at the beginning of the transaction. The principal risk of
securities lending is that the financial institution that borrows securities
from the Fund could go bankrupt and the Fund might not be able to recover the
securities or their value.
<PAGE> 44
42
SHORT TERM BOND FUND
[BAR GRAPH]
<TABLE>
<S> <C>
1991 11.30
1992 5.94
1993 5.67
1994 0.11
1995 10.27
1996 4.81
1997 6.13
1998 6.37
1999 2.40
2000 [ ]
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1991-2000)
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in
the Fund. The bar chart shows you how the Fund's performance has
varied over the life of the Fund. The table shows how the Fund's
average annual total returns for one year, five year and ten year
periods compare to those of a broad-based securities market index.
Performance figures for the Service Class (formerly Institutional
Service Class) shares, first offered on January 1, 1995, include
the historical performance of the No-Load Class (formerly
Institutional Class) shares, since the Fund's inception (January 2,
1991) through December 31, 1994. Performance data for the classes
after that date vary based on differences in their expense
structures. As with all mutual funds, past performance is not
necessarily an indication of how the Fund will perform in the
future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1991-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Short Term Bond Fund
No-Load Class % % %
Service Class % % %
Salomon Smith Barney 1-3
Year Treasury Index % % %
</TABLE>
<PAGE> 45
43
SHORT TERM BOND FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES NO-LOAD SERVICE
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS CLASS
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (Load) (as a percentage of
redemption proceeds) None None
Exchange Fee* None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee .60% .60%
Distribution (12b-1) Fees None None
Other Expenses** .25% .50%
Total Annual Fund Operating Expenses*** .85% 1.10%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** Includes shareholder service fees of .25% for Service Class shares.
*** The Manager has voluntarily agreed to waive a portion of the fees otherwise
payable to it. With this reduction, for the ten months ended October 31,
1999 the management fee paid was .35% for No-Load Class shares and .35% for
Service Class shares, and total fund operating expenses were .60% for
No-Load Class shares and .85% for Service Class shares. Management has
further voluntarily agreed to limit the Fund's annual total operating
expenses for the No-Load Class and Service Class shares to .60% and .85%,
respectively, through the fiscal year ending October 31, 2001. This waiver
may be discontinued at any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD SERVICE
EXPENSES AFTER CLASS* CLASS*
<S> <C> <C>
1 year $ $
3 years $ $
5 years $ $
10 years $ $
</TABLE>
* Does not reflect fee waiver.
<PAGE> 46
44
---------------------------
INVESTMENT GRADE SECURITIES are either rated Baa or better by Moody's or rated
BBB or better by S&P, or are unrated but of comparable quality in the view of
the Fund's Manager.
---------------------------
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. Duration provides a measure of the portfolio's sensitivity to
interest rate changes. For example, for every 1% rise in interest rates, the
price of a bond with a duration of 3 years would decline 3%. Generally, a
shorter duration indicates less sensitivity than a longer duration.
---------------------------
A LADDERED MATURITY SCHEDULE means a 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.
ULTRA SHORT TERM INCOME FUND
The Ultra Short Term Income Fund seeks a high level of current income, capital
preservation, and a relatively stable net asset value.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in short-term, INVESTMENT GRADE, fixed-income
securities (such as bonds) issued by U.S. corporations and U.S. government
agencies.
INVESTMENT PROCESS
The Fund's Manager, NYLIM, selects bonds based primarily on their credit quality
and DURATION. In addition, the Fund:
- Invests in investment grade bonds.
- Keeps its maximum duration at 13 months.
- Maintains a LADDERED MATURITY SCHEDULE.
- Invests a maximum of 25% of its assets in any one industry.
- Buys securities issued by companies considered to be SOCIALLY RESPONSIBLE.
- The 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.
The Fund may lend up to 20% of its assets and may invest:
- up to 5% of its assets in warrants.
- 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.
- up to 10% of its assets in RESTRICTED SECURITIES or ILLIQUID SECURITIES.
- in MORTGAGE-BACKED and ASSET-BACKED SECURITIES.
<PAGE> 47
45
ULTRA SHORT TERM INCOME FUND
---------------------------
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 energy, alcohol,
tobacco, and gambling.
---------------------------
In a SECURITIES LENDING transaction, a fund lends securities from its portfolio
to a broker-dealer (or other financial institution) for a period of time. The
fund receives interest and/or a fee and a promise that the securities will be
returned on a fixed date.
---------------------------
RESTRICTED SECURITIES 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. ILLIQUID SECURITIES are securities that have
no ready market.
---------------------------
MORTGAGE-RELATED (including mortgage-backed) SECURITIES are debt securities
whose values are based on underlying pools of mortgages. These securities may be
issued by U.S. governmental entities or private issuers.
---------------------------
ASSET-BACKED SECURITIES are debt securities whose values are based on underlying
pools of receivables.
PRINCIPAL RISKS
The main risks associated with investing in the Fund include:
- market risk
- interest rate risk
- credit risk
Since the Fund can invest in foreign securities, it can be subject to various
risks of loss that are different from risks of investing in securities of
U.S.-based issuers. These include losses due to:
- fluctuating currency values
- less liquid trading markets
- greater price volatility
- political and economic instability
- less publicly available information about issuers
- changes in U.S. or foreign tax or currency laws
- changes in monetary policy
The Fund's investments may include derivatives such as MORTGAGE-RELATED and
asset-backed securities. The Fund may use derivatives to try to enhance returns
or reduce the risk of loss (hedge) of certain of its holdings. Regardless of the
purpose, the Fund may lose money using derivatives. Prepayment risk is a risk
associated with mortgage-backed and asset-backed securities. If interest rates
fall, the underlying debt may be repaid ahead of schedule, thereby reducing the
value of the Fund's investments.
The Fund's use of an investment practice such as securities lending also
presents certain risks. The principal risk of SECURITIES LENDING is that the
financial institution that borrows securities from the Fund could go bankrupt
and the Fund might not be able to recover the securities or their value.
The Fund's investments may include restricted or illiquid securities. The
principal risk of investing in restricted securities and illiquid securities is
that they may be difficult to sell.
The Fund's investments may include warrants. The principal risk of investing in
warrants is that the price of the underlying common stock may decline below the
exercise price of the warrant.
<PAGE> 48
46
ULTRA SHORT TERM INCOME FUND
[BAR GRAPH]
<TABLE>
<S> <C>
1995 7.83
1996 5.48
1997 6.21
1998 6.27
1999 4.12
2000 [ ]
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1995-2000)
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in
the Fund. The bar chart shows you how the Fund's performance has
varied over the one year, five year and life of the Fund periods of
the Fund. The table shows how the Fund's average annual total
returns for one year and five year periods compare to those of a
broad-based securities index. As with all mutual funds, past
performance is not necessarily an indication of how the fund will
perform in the future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1995-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
<S> <C> <C> <C>
Ultra Short Term Income
Fund* % %
Salomon Brothers Treasury
Bill Index -- 1-Year** % %
Lipper Ultra Short
Obligations Funds
Average*** % %
</TABLE>
* The Fund's inception was 12/27/94; its annualized total return since
inception was 6.0%.
** This is the return of newly-issued one year Treasury bills auctioned
monthly.
*** 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.
<PAGE> 49
47
ULTRA SHORT TERM INCOME FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES NO-LOAD
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
redemption proceeds) None
Exchange Fee* None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee** .40%
Distribution (12b-1) Fees None
Other Expenses** .65%
-----
Total Annual Fund Operating Expenses** 1.05%
Fee Waiver .20%
-----
Net Annual Fund Operating Expenses** .85%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** The Manager has contractually waived 0.20% of its Management Fee through
December 31, 2002. In addition, the Manager has voluntarily waived the
remainder of its Management Fee and partially reimbursed the Fund for its
Other Expenses. With these waivers and reimbursement, for the most recent
fiscal year, the Fund's actual net annual fund operating expenses were 0.12%.
In addition, the Manager has undertaken that there will be no increase in the
ordinary operating expense ratios of the Fund through December 31, 2002 from
that of the twelve months' ended December 31, 2002. Provided however, this
limitation shall not limit increases in transfer agency expenses incurred by
the Fund in accordance with the transfer agency expense arrangements in
effect prior to December 12, 2000.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD
EXPENSES AFTER CLASS*
<S> <C>
1 year $
3 years $
5 years $
10 years $
</TABLE>
* Does not reflect fee waiver.
<PAGE> 50
48
---------------------------
MUNICIPAL BONDS are bonds issued by, or on behalf of, the states, the District
of Columbia, the territories, commonwealths and possessions of the United States
and their political subdivisions, and agencies, authorities and
instrumentalities of these entities.
---------------------------
ZERO COUPON BONDS are debt obligations issued without any requirement for the
periodic payment of interest. They are issued at a significant discount to their
face value and tend to be more volatile than conventional debt securities.
TAX FREE BOND FUND
The Tax Free Bond Fund's investment objective is to provide a high level of
current income free from regular federal income tax, consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests in tax-exempt securities that are, at the
time of purchase, rated in one of the top four categories (or short-term
tax-exempt securities rated in one of the top three categories) by either
Moody's, Standard & Poor's, or Fitch IBCA. Up to 20% of the Fund's net assets
may be invested in unrated tax-exempt securities that are deemed by the Fund's
Subadvisor, MacKay Shields, to be of a quality comparable to those securities
rated in the top four categories. As a fundamental policy, the Fund normally
invests at least 80% of its net assets in MUNICIPAL BONDS (exclusive of
municipal bonds subject to the federal alternative minimum tax (AMT) for
individual shareholders). This policy may not be changed without the consent of
shareholders. In addition, up to 20% of the Fund's net assets may be invested
in high yield municipal debt securities rated below BBB by S&P or Baa by
Moody's or, if unrated, determined by the Subadvisor to be of comparable
quality. The Fund may invest in tax-exempt securities of any maturity.
The two main types of municipal bonds are general obligation and revenue bonds.
The Fund may not invest more than 20% of its net assets in tax-exempt securities
subject to the federal alternative minimum tax (AMT) for individual
shareholders.
INVESTMENT PROCESS
The Subadvisor uses a combined approach to investing, analyzing economic trends
as well as factors pertinent to particular issuers and securities. Up to 25% of
the Fund's total assets may be invested in industrial development bonds. The
Fund also may invest in ZERO COUPON BONDS. The Fund may also invest more than
25% of its total assets in municipal bonds that are related in such a way that
an economic, business or political development or change affecting one such
security could also affect the other securities (for example, securities whose
issuers are located in the same state). Some of the Fund's earnings may be
subject to federal tax and most may be subject to state and local taxes. The
Fund generally may sell securities if it no longer appears that the security
will help the Fund meet its investment objective. In addition, the Fund may sell
a security if the credit risk of a security increases due to the deterioration
in the fundamentals supporting the issuer's ability to meet its interest and
principal payment obligations. Deterioration may be caused by falling revenue
projections, lower earnings trends, or slower population growth.
<PAGE> 51
49
TAX FREE BOND FUND
PRINCIPAL RISKS
The values of debt securities fluctuate depending upon various factors,
including:
- interest rates
- issuer creditworthiness
- market conditions
- maturities.
Consistent with its principal investment strategies, the Fund's investments
include derivatives, such as call and put options, futures contracts on debt
securities or securities indexes and options on futures contracts. The Fund may
use derivatives to try to enhance returns or reduce the risk of loss of (hedge)
certain of its holdings. Regardless of the purpose, the Fund may lose money
using derivatives. The use of derivatives may increase the volatility of the
Fund's net asset value and may involve a small investment of cash relative to
the magnitude of risk assumed.
Industrial development, pollution control, and revenue bonds are generally not
secured by the taxing power of the municipality but are secured by revenues paid
by the industrial user. This means that if the industrial user cannot repay
principal and/or interest on the bonds, the Fund may lose money.
High yield securities, sometimes called "junk bonds", generally are considered
speculative because they present a greater risk of loss, including default, than
higher quality debt securities. These securities pay investors a premium -- a
high interest rate or yield -- because of the increased risk of loss. These
securities also can be subject to greater price volatility.
Due to its trading strategies, the Fund may experience a portfolio turnover rate
of over 100%. Portfolio turnover measures the amount of trading a Fund does
during the year. Funds with high turnover rates (over 100%) often have higher
transaction costs (which are paid by the Fund) and may generate short-term
capital gains (on which you will pay taxes, even if you don't sell any shares by
year-end).
<PAGE> 52
50
TAX FREE BOND FUND
PAST PERFORMANCE
Since the Fund commenced operations on January 2, 2001, there are no performance
figures reflecting the Fund's performance.
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES NO-LOAD
(fees paid directly from your investment) CLASS
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of redemption proceeds) None
Exchange Fee* None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee .50%
Distribution (12b-1) Fees None
Other Expenses** .63%
Total Annual Fund Operating Expenses*** 1.13%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** "Other Expenses" are based on estimated amounts for the current fiscal year.
*** The Manager has voluntarily agreed to waive a portion of the fees otherwise
payable to it to the extent that annual operating expenses exceed .65% of
average daily net assets of the Fund. As a result, for the fiscal year
ending October 31, 2001 it is estimated that the management fee paid will be
.02% and total annual fund operating expenses will be .65% of the Fund's
average daily net assets. This waiver may be discontinued at any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD
Expenses after CLASS*
<S> <C>
1 year $115
3 years $359
</TABLE>
* Does not reflect fee waiver.
<PAGE> 53
51
[This page intentionally left blank]
<PAGE> 54
52
---------------------------
VARIABLE RATE NOTES are debt securities that provide for periodic adjustments to
their interest rates.
---------------------------
FLOATERS (or securities with a floating rate of interest) are debt securities
with a variable interest rate that is tied to another interest rate, such as a
money-market index or Treasury bill rate.
---------------------------
ASSET-BACKED SECURITIES are debt securities whose values are based on underlying
pools of receivables.
MONEY MARKET FUND
The Money Market Fund's investment objective is to seek a high level of current
income while preserving capital and maintaining liquidity.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests in high quality, short-term securities denominated in U.S.
dollars that mature in 397 days (13 months) or less. The weighted average
portfolio maturity will not exceed 90 days. The securities in which the Fund
invests may include:
- obligations issued or guaranteed by the U.S. government or any of its agencies
or instrumentalities
- bank and bank holding company obligations such as CDs and bankers' acceptances
- commercial paper which is short-term unsecured loans to corporations
- loans to U.S. and foreign issuers and securities of foreign branches of U.S.
banks, such as negotiable CDs, also known as Eurodollars
- time deposits
- repurchase agreements
- corporate debt securities
The Fund may also invest in VARIABLE RATE NOTES, FLOATERS and ASSET-BACKED
SECURITIES. All securities purchased by the Fund must meet the requirements of
Rule 2a-7 under the Investment Company Act of 1940 which are designed to
mitigate the risk of loss. There must be a reasonable expectation that at any
time until the final maturity of a floater or the period remaining until the
principal amount can be recovered through demand, the market value of the
floater will approximate its amortized cost.
<PAGE> 55
53
MONEY MARKET FUND
PRINCIPAL RISKS
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund. This could occur because of highly unusual
market conditions or a sudden collapse in the creditworthiness of a company once
believed to be an issuer of high quality, short-term securities.
Because the Fund invests in dollar-denominated foreign securities, it can be
subject to various risks of loss that are different from risks of investing in
securities of U.S.-based issuers. These may include:
- political and economic instability
- less publicly available information about issuers
- changes in U.S. or foreign tax or currency laws
The Fund's principal investments include derivatives such as variable rate
notes, floaters and asset-backed securities. If NYLIM, the Fund's Manager, is
wrong about its expectations about changes in interest rates or market
conditions, the use of derivatives could result in a loss. With respect to
asset-backed securities, if interest rates fall, the underlying debt may be paid
off, thereby reducing the value of the Fund's investments.
<PAGE> 56
54
MONEY MARKET FUND
[BAR GRAPH]
<TABLE>
<S> <C>
1991 5.95
1992 3.66
1993 2.89
1994 3.88
1995 5.63
1996 5.11
1997 5.27
1998 5.25
1999 4.89
2000 [ ]
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1991-2000)
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in
the Fund. The bar chart shows you how the Fund's performance has
varied over the life of the Fund. The table shows how the Fund's
average annual total returns for one year, five year and ten year
periods compare to those of a broad-based securities market index.
Performance figures for Service Class (formerly Institutional
Service Class) shares, first offered on January 1, 1995, include
the historical performance of the No-Load Class (formerly
Institutional Class) shares since the Fund's inception (January 2,
1991) through December 31, 1994. Performance data for the classes
after that date vary based on differences in their expense
structures. FOR CURRENT YIELD INFORMATION, CALL TOLL-FREE 1-866-
2ECLIPSE (1-866-232-5477). As with all mutual funds, past
performance is not necessarily an indication of how the Fund will
perform in the future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1991-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Money Market Fund
No-Load Class % % %
Service Class % % %
7-day yield
No-Load Class: %
Service Class: %
Average Lipper Institutional
Money Market Fund % % %
</TABLE>
<PAGE> 57
55
MONEY MARKET FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES NO-LOAD SERVICE
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS CLASS
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (Load) (as a percentage of
redemption proceeds) None None
Exchange Fee* None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted
from Fund assets)
Management Fee .50% .50%
Distribution (12b-1) Fees None None
Other Expenses** .12% .37%
Total Annual Fund Operating Expenses*** .62% .87%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** Includes shareholder service fees of .25% for Service Class Shares.
*** The Manager has voluntarily agreed to waive a portion of the fees otherwise
payable to it. With this reduction for the ten months ended October 31,
1999, the management fee paid was .38% for No-Load Class Shares and .38% for
Service Class Shares, and total fund operating expenses were .50% for
No-Load Class Shares and .75% for Service Class Shares. Management has
further voluntarily agreed to limit the Fund's annual total operating
expenses for the No-Load Class and Service Class shares to .50% and .75%,
respectively, through the fiscal year ending October 31, 2001. This waiver
may be discontinued at any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD SERVICE
EXPENSES AFTER CLASS CLASS
<S> <C> <C>
1 year $ $
3 years $ $
5 years $ $
10 years $ $
</TABLE>
<PAGE> 58
56
---------------------------
TOTAL RETURN means a combination of income and realized and unrealized capital
gains.
---------------------------
"S&P 500(R)," "S&P MIDCAP 400 INDEX," "S&P SMALLCAP 600 INDEX" and "S&P(R)" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use.
Standard & Poors does not sponsor, endorse, sell or promote the Fund or
represent the advisability of investing in the Fund. Each S&P Index is an
unmanaged index and is considered generally representative of a different
capitalization segment of the U.S. stock market.
ASSET MANAGER FUND
The Asset Manager Fund's investment objective is to seek to maximize TOTAL
RETURN, consistent with certain percentage constraints on amounts allocated to
each asset class, from a combination of common stocks, fixed income securities,
and money market investments.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests in three asset classes subject to the following
constraints:
- 30% to 80% of net assets in common stocks as follows:
i. 15% to 80% of net assets in common stocks and related derivatives selected
to parallel the performance of the Standard & Poor's ("S&P") 500 Composite
Stock Price Index (the "S&P 500 INDEX")
ii. 0% to 10% of net assets in common stocks selected to parallel the
performance of the S&P MIDCAP 400 INDEX
iii. 0% to 5% of net assets in common stocks selected to parallel the
performance of the S&P SMALLCAP 600 INDEX
iv. 0% to 5% of net assets in equity securities selected to parallel the
performance of the Morgan Stanley REIT INDEX
- 10% to 60% of net assets in fixed income securities and related derivatives
selected to parallel the performance of the Salomon Smith Barney Broad
Investment Grade Bond Index ("BIG INDEX") (although the securities do not have
to be in the BIG Index)
- 10% to 60% of net assets in selected money market instruments
The Fund invests in securities comprising the respective indexes in
approximately the same weightings used by such indexes, and where appropriate in
related derivatives. In selecting securities to parallel the BIG Index, the Fund
invests in fixed income securities and related derivatives that, in the
aggregate, approximate the important characteristics (duration, credit quality,
maturity, and yield) of the BIG Index.
In pursuing the Fund's investment objective, the Fund may also invest up to 20%
of total assets in foreign securities of developed and emerging market
countries. At least 30% of the Fund's net assets will be invested in U.S. equity
securities, including investments in REITs.
<PAGE> 59
57
ASSET MANAGER FUND
---------------------------
The REIT INDEX is a measure of real estate equity performance. A REIT is a
company that manages a portfolio of real estate investments.
---------------------------
The BIG INDEX is a capitalization-weighted index that contains about 5,500
individually priced fixed income securities. The BIG Index is an unmanaged index
generally considered representative of the U.S. bond market.
---------------------------
In a FORWARD CONTRACT, the Fund agrees to buy an issued security at a future
date at a price determined at the time of the commitment.
INVESTMENT PROCESS
The Fund attempts to achieve its objective through active management and
allocation of investments among the three asset classes by NYLIM, the Fund's
Manager. The presence of the constraints, however, may restrict the Manager's
ability to fully maximize total return. To determine the best investment
allocation, the Manager estimates risk, return and correlation for the three
asset groups based on a disciplined valuation methodology. Even if this method
occasionally indicates that the Fund should be fully invested in only one asset
group, the Manager will still follow the constraints on the percentage of assets
which may be allocated to each of the three asset groups.
In managing the Fund, the Manager uses a proprietary model as well as a
non-proprietary model to estimate expected returns on domestic and foreign stock
markets. The expected return on fixed income securities is the current yield to
maturity of bonds as measured by the BIG Index. The expected return for money
market instruments is the current yield on three month U.S. Treasury bills.
The Fund's allocations among the three asset groups is then structured to take
advantage of perceived imbalances in relative pricing. The Manager believes that
short-term imbalances occur periodically but tend to be corrected fairly
quickly. Although these allocations maintain the balanced nature of the overall
investments, they are not intended to act as a fully balanced investment
program.
As part of its investment strategy, the Fund may invest in derivatives such as
stock index futures to rebalance or alter its portfolio composition and risk
profile and to diversify the Fund's holdings where futures transactions are more
efficient than direct investment transactions. The Fund may also engage in
foreign currency exchange transactions using currencies, options, futures or
options on futures, or FORWARD CONTRACTS for any legally permissible purpose.
The average life of the securities in the fixed income sector of the Fund's
portfolio will approximate that of securities in the BIG Index, which will vary
from time to time. As of January 31, 2000, the average life of securities in the
BIG Index was 8.91 years.
<PAGE> 60
58
ASSET MANAGER FUND
PRINCIPAL RISKS
Investment in common stocks and other equity securities is particularly subject
to the risk of changing economic, stock market, industry and company conditions
which can adversely affect the value of the Fund's holdings. Historically,
mid-and small-cap stocks, such as those in the S&P MidCap 400 Index and the S&P
SmallCap 600 Index, have been more volatile than stocks in the S&P 500 Index.
The values of debt securities fluctuate depending upon various factors,
including:
- interest rates
- issuer creditworthiness
- market conditions
- maturity
Overall, the Fund's performance depends on the Manager's ability to consistently
and correctly determine the relative attractiveness of the asset classes.
However, prices change not only in response to economic factors but to
psychological factors as well. These factors are difficult to interpret and
quantify. It is therefore possible for the Fund to have a small investment in
stocks during a period of rising stock prices, or a small investment in bonds
during a period of rising bond prices.
Since the Fund may invest in foreign securities, it can be subject to various
risks of loss that are different from risks of investing in securities of
U.S.-based issuers. These include losses due to:
- fluctuating currency values
- less liquid trading markets
- greater price volatility
- political and economic instability
- less publicly available information about issuers
- changes in U.S. or foreign tax or currency laws
- changes in monetary policy
The risks are likely to be greater in emerging market countries than in
developed market countries.
The Fund's principal investments include derivatives such as options and stock
index futures. The Fund may use derivatives to try to enhance returns or reduce
the risk of loss (hedge) of certain of its holdings. Regardless of the purpose,
the Fund may lose money using derivatives. The derivatives may increase the
volatility of the Fund's net asset value and may involve a small investment of
cash relative to the magnitude of risk assumed.
<PAGE> 61
ASSET MANAGER FUND
[BAR GRAPH] 59
<TABLE>
<S> <C>
1991 17.90
1992 7.09
1993 8.79
1994 -0.86
1995 26.81
1996 16.16
1997 26.69
1998 21.31
1999 11.83
2000
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1991-2000)
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in
the Fund. The bar chart shows you how the Fund's performance has
varied over the life of the Fund. The table shows how the Fund's
average annual total returns for one year, five year and ten year
periods compare to those of a broad-based securities market index.
Performance figures for the Service Class (formerly Institutional
Service Class) shares, first offered on January 1, 1995, include
the historical performance of the No-Load Class (formerly
Institutional Class) shares, since the Fund's inception (January 2,
1991) through December 31, 1994. Performance data for the classes
after that date vary based on differences in their expense
structures. As with all mutual funds, past performance is not
necessarily an indication of how the Fund will perform in the
future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1991-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Asset Manager Fund
No-Load Class % % %
Service Class % % %
Asset Manager Composite Index* % % %
S&P 500 Index** % % %
BIG Index*** % % %
Average Lipper Flexible Portfolio Fund % % %
</TABLE>
* The Asset Manager Composite Index is comprised of the S&P 500 Index, the BIG
Index and 30-day Treasury Bills weighted 60% / 30% / 10%, respectively, using
monthly returns provided by Ibbotson Associates.
** The S&P 500 Index is an unmanaged index and is widely regarded as the
standard for measuring large-cap U.S. stock market performance. Results
assume the reinvestment of all income and capital gain distributions.
*** The BIG Index is a capitalization-weighted index that contains about 5,500
individually priced fixed income securities. The BIG Index is an unmanaged
index generally considered representative of the U.S. bond market.
<PAGE> 62
ASSET MANAGER FUND
60
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES NO-LOAD SERVICE
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS CLASS
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (Load) (as a percentage of
redemption proceeds) None None
Exchange Fee* None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee .65% .65%
Distribution (12b-1) Fees None None
Other Expenses** .13% .38%
Total Annual Fund Operating Expenses*** .78% 1.03%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** Includes shareholder service fees of .25% for Service Class shares.
*** The Manager has voluntarily agreed to limit the Fund's annual total
operating expenses for the No-Load Class and Service Class shares to .83%
and 1.08%, respectively, through the fiscal year ending October 31, 2001.
This waiver may be discontinued at any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD SERVICE
EXPENSES AFTER CLASS* CLASS*
<S> <C> <C>
1 year $ $
3 years $ $
5 years $ $
10 years $ $
</TABLE>
* Does not reflect fee waiver.
<PAGE> 63
61
[This page intentionally left blank]
<PAGE> 64
62
---------------------------
TOTAL RETURN means a combination of income and realized and unrealized capital
gains.
---------------------------
MID-CAPITALIZATION STOCKS are common stocks of mid-size U.S. companies that tend
to be well known, and to have large amounts of stock outstanding, such as those
listed in the S&P 400 and S&P 500 indexes. The Fund considers mid-capitalization
stocks to be those within the 80th through 95th percentiles of companies sorted
by market capitalization.
---------------------------
DURATION is related to the maturity of a portfolio of debt securities and
provides a measure of the portfolio's sensitivity to interest rate changes.
BALANCED FUND
The Balanced Fund seeks high TOTAL RETURN.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests 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.
INVESTMENT PROCESS
The Fund generally invests in dividend-paying, MID-CAPITALIZATION STOCKS that
NYLIM, the Fund's Manager, determines are value stocks. "Value" stocks are
stocks that the Manager determines (1) have strong or improving fundamental
characteristics (such as margins, working capital, leverage, cash flow, returns
on equity and assets) and (2) have been overlooked by the marketplace so that
they are undervalued or "cheap" relative to the rest of the equity market. In
selecting stocks, the Manager applies quantitative and statistical methods to
analyze the relative quality and value of the 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).
- To avoid concentration in a specific industry, which increases risk, the
Manager invests a maximum of 4% of the Fund's net assets in any one company
and 25% in any one industry, and it consistently re-balances its investments.
- Under normal conditions, the Manager keeps each Fund fully invested rather
than taking temporary cash positions.
- The Manager does not attempt to time the market.
- 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.
- The Manager does not visit companies; it relies on its statistical analysis of
the companies' financial statements.
- 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.
- The Manager does not use options or futures.
- 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.
<PAGE> 65
63
BALANCED FUND
---------------------------
In a SECURITIES LENDING transaction, a fund lends securities from its portfolio
to a broker-dealer (or other financial institution) for a period of time. The
fund may receives interest and/or a fee and a promise that the securities will
be returned on a fixed date.
---------------------------
A WARRANT is a security that entitles the owner of a bond or preferred stock to
buy certain amounts of common stock at a specified price for a defined period.
---------------------------
MORTGAGE-RELATED SECURITIES (including mortgage-backed securities) are debt
securities whose values are based on underlying pools of mortgages. These
securities may be issued by U.S. governmental entities or private issuers.
---------------------------
ASSET-BACKED SECURITIES are debt securities whose values are based on underlying
pools of receivables.
The Fund also 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 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. The fixed income portion of the portfolio:
- Has an intermediate term DURATION which ranges from three to five years.
- Has a laddered maturity schedule.
The Fund may lend up to 20% of its assets and may invest:
- up to 5% of its assets in WARRANTS.
- 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.
- up to 10% of its assets in restricted securities or illiquid securities.
- in mortgage-backed and asset-backed securities.
The Fund may also purchase large-capitalization stocks for general investment
purposes or for additional liquidity. The Fund considers large-capitalization
stocks to be the top 5% of companies sorted by market capitalization.
PRINCIPAL RISKS
The main risks associated with investing in the Fund include:
- Market risk
- Interest rate risk
- Credit risk
- Maturity risk
Since the Fund can invest in foreign securities, it can be subject to various
risks of loss that are different from risks of investing in securities of
U.S.-based issuers. These include losses due to:
- fluctuating currency values
- less liquid trading markets
- greater price volatility
- political and economic instability
- less publicly available information about issuers
- changes in U.S. or foreign tax or currency laws
- changes in monetary policy
The Fund's investments may include derivatives such as MORTGAGE-RELATED and
asset-backed securities. The Fund may use derivatives to try to enhance returns
or reduce the risk of loss (hedge) of certain of its holdings. Regardless of the
purpose, the Fund may lose money using derivatives. Prepayment risk is a risk
associated with mortgage-backed and asset-backed securities. If interest rates
fall, the underlying debt may be repaid ahead of schedule, reducing the value of
the Fund's investments.
<PAGE> 66
64
BALANCED FUND
[BALANCED FUND BAR GRAPH]
<TABLE>
<CAPTION>
<S> <C>
---- -----
1991 20.91
1992 12.01
1993 17.06
1994 0.01
1995 22.99
1996 12.91
1997 23.40
1998 8.03
1999 -0.36
2000
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1991-2000)
The Fund's use of an investment practice such as securities lending
also presents certain risks. The principal risk of securities
lending is that the financial institution that borrows securities
from the Fund could go bankrupt and the Fund might not be able to
recover the securities or their value.
The Fund's investments may include restricted or illiquid
securities. The principal risk of investing in restricted
securities and illiquid securities is that they may be difficult to
sell.
The Fund's investments may include warrants. The principal risk of
investing in warrants is that the price of the underlying common
stock may decline below the exercise price of the warrant.
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in
the Fund. The bar chart shows you how the Fund's performance has
varied over the last ten years. The table shows how the Fund's
average annual total returns for one year, five year and ten year
periods compare to those of a broad-based securities market index.
As with all mutual funds, past performance is not necessarily an
indication of how the Fund will perform in the future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1991-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Balanced Fund
No-Load Class* % % %
Merrill Lynch Corporate & Govt
1-9.99 Years Bond Index* % % %
Russell Mid Cap Index** % % %
Standard & Poor's 500 Index*** % % %
Lipper Balanced Fund Index**** % % %
</TABLE>
* 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.
** This index measures the performance of the smallest 800 securities in the
Russell 1000 Index, ranked by total market capitalization. It provides a
measure of the mid cap sector of the market.
*** The S&P 500 Index is an unmanaged index widely regarded as the standard for
measuring large-cap U.S. stock market performance.
**** This index tracks the performance of the 30 largest balanced funds,
adjusted for the reinvestment of capital gain and income distributions.
<PAGE> 67
65
BALANCED FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES NO-LOAD
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
redemption proceeds) None
Exchange Fee* None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee 0.75%
Distribution (12b-1) Fees None
Other Expenses 0.19%
Total Annual Fund Operating Expenses** 0.94%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** The Manager has undertaken that there will be no increase in the ordinary
operating expense ratios of the Fund through December 31, 2002 from that of
the twelve months' ended December 31, 2000. Provided however, this limitation
shall not limit increases in transfer agency expenses incurred by the Fund in
accordance with the transfer agency expense arrangements in effect prior to
December 12, 2000.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD
EXPENSES AFTER CLASS*
<S> <C>
1 year $
3 years $
5 years $
10 years $
</TABLE>
* Does not reflect fee waiver.
<PAGE> 68
66
---------------------------
In a typical SWAP transaction, two parties agree to exchange the returns (or
differentials in rates of returns) earned or realized on particular investments
or instruments.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term growth
of capital by investing in a portfolio consisting primarily of non-U.S. equity
securities. Current income is a secondary objective.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in equity securities
of issuers, wherever organized, that do business mainly outside the United
States. Investments will be made in a variety of countries with a minimum of
five countries other than the United States. This includes countries with
established economies as well as emerging market countries that MacKay Shields,
the Fund's Subadvisor, believes present favorable opportunities.
INVESTMENT PROCESS
In pursuing the Fund's investment strategy, the Fund's Subadvisor seeks to
identify investment opportunities by beginning with country selection. Local
currencies are then assessed for upside potential and downside risk. Finally,
individual securities are evaluated based on the financial condition and
competitiveness of individual companies. In making investments in foreign
markets, the Subadvisor considers several factors, including:
- prospects for currency exchange
- interest rates
- inflation
- relative economic growth
- governmental policies
As part of its investment strategy, the Fund may buy and sell currency on a spot
basis and enter into foreign currency forward contracts for hedging purposes or
to increase the Fund's investment return. In addition, the Fund may buy
derivatives such as foreign currency options, securities and securities index
options and enter into SWAP agreements and futures contracts and related
options. These techniques may be used for any legally permissible purpose,
including to increase the Fund's returns.
<PAGE> 69
67
INTERNATIONAL EQUITY FUND
PRINCIPAL RISKS
Investment in common stocks and other equity securities is particularly subject
to the risk of changing economic, stock market, industry and company conditions
which can adversely affect the value of the Fund's holdings.
Since the Fund principally invests in foreign securities, it will be subject to
various risks of loss that are different from risks of investing in securities
of U.S.-based issuers. These include losses due to:
- fluctuating currency values
- less liquid trading markets
- greater price volatility
- political and economic instability
- less publicly available information about issuers
- changes in U.S. or foreign tax or currency laws
- changes in monetary policy
The risks are likely to be greater in emerging market countries than in
developed market countries.
The Fund's investments include derivatives, such as: options, futures and
forwards. The Fund may use derivatives to try to enhance returns or reduce the
risk of loss (hedge) of certain of its holdings. Regardless of the purpose, the
Fund may lose money using derivatives. The derivatives may increase the
volatility of the Fund's net asset value and may involve a small investment of
cash relative to the magnitude of risk assumed.
<PAGE> 70
68
INTERNATIONAL EQUITY FUND
[BAR CHART]
<TABLE>
<S> <C>
1993 25.03
1994 8.36
1995 7.17
1996 12.09
1997 5.44
1998 22.41
1999 28.81
2000 [ ]
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1993-2000)
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in the Fund. The
bar chart shows you how the Fund's performance has varied over the life of the
Fund. The table shows how the Fund's average annual total returns for one year,
five year and life of the Fund periods compare to those of a broad-based
securities market index. Performance figures for the No-Load Class (formerly
Institutional Class) shares and Service Class (formerly Institutional Service
Class) shares each first offered on January 1, 1995, include the historical
performance of the predecessor separate account through December 31, 1994.
Performance data for the classes after that date vary based on differences in
their expense structures. As with all mutual funds, past performance is not
necessarily an indication of how the Fund will perform in the future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1993-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION*
<S> <C> <C> <C>
International Equity Fund
No-Load Class % % %
Service Class % % %
MSCI EAFE Index** % % %
</TABLE>
* The inception date was July 31, 1992 for the International Equity Fund's
predecessor separate account ("Separate Account"). Performance figures
include the historical performance of the Separate Account for the period
prior to the International Equity Fund's commencement of operations on
January 1, 1995. MacKay Shields LLC, the International Equity Fund's
Subadvisor, served as investment adviser to the Separate Account, and the
investment objective, policies, restrictions, guidelines and management style
of the Separate Account were materially equivalent to those of the
International Equity Fund. Performance figures for the period prior to
January 1, 1995 have been calculated by measuring the change in value of a
unit in the Separate Account from the time period specified to January 1,
1995, using the Separate Account's expense structure, which generally was
higher than the expense structure of the International Equity Fund. The
Separate Account was not registered under the Investment Company Act of 1940
("1940 Act") and therefore was not subject to certain investment restrictions
imposed under the 1940 Act. If the Separate Account had been registered under
the 1940 Act, the Separate Account's performance may have been adversely
affected.
** The MSCI EAFE Index is an unmanaged index generally considered to be
representative of the international stock market.
<PAGE> 71
69
INTERNATIONAL EQUITY FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES NO-LOAD SERVICE
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS CLASS
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (Load)
(as a percentage of redemption proceeds) None None
Exchange Fee* None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees .85% .85%
Distribution (12b-1) Fees None None
Other Expenses** .16% .41%
Total Annual Fund Operating Expenses*** 1.01% 1.26%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** Includes shareholder service fees of .25% for Service Class shares.
*** The Manager has voluntarily agreed to limit the Fund's annual total
operating expenses for the No-Load Class and Service Class shares to 1.03%
and 1.28%, respectively, through the fiscal year ending October 31, 2001.
This waiver may be discontinued at any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD SERVICE
EXPENSES AFTER CLASS CLASS
<S> <C> <C>
1 year $ $
3 years $ $
5 years $ $
10 years $ $
</TABLE>
* Does not reflect fee waiver.
<PAGE> 72
70
---------------------------
TOTAL RETURN means a combination of income and realized and unrealized capital
gains.
---------------------------
The EAFE INDEX is an unmanaged index generally considered representative of the
international stock market. The Fund is neither sponsored by nor affiliated with
Morgan Stanley Capital International Inc.
---------------------------
INDEX FUNDS seek to match their respective indices, unlike other funds which
generally seek to beat an index or indices. No attempt is made to manage the
portfolio in the traditional sense using economic, financial and market
analysis.
EAFE INDEX FUND
The EAFE Index Fund's investment objective is to provide investment results that
correspond to the TOTAL RETURN performance (reflecting reinvestment of
dividends) of common stocks in the aggregate, as represented by the Morgan
Stanley Capital International Europe, Australasia and Far East Index (the "EAFE
Index").
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in a statistically
selected sample of stocks in the EAFE INDEX, which is a capitalization-weighted
index of stock and stock-related securities, such as warrants and ADRs, from
countries outside the United States. This includes countries with established
economies as well as emerging market countries.
INVESTMENT PROCESS
NYLIM, the Fund's Manager, uses statistical techniques to determine which stocks
are to be purchased or sold to replicate the EAFE Index to the extent feasible.
From time to time, adjustments may be made in the Fund's portfolio because of
changes in the composition of the EAFE Index, but such changes should be
infrequent. The correlation between the performance of the Fund and the EAFE
Index is expected to be at least 0.95. A correlation of 1.00 would indicate
perfect correlation, which would be achieved when the NAV of the Fund, including
the value of its dividend and capital gains distributions, increases or
decreases in exact proportion to changes in the EAFE Index.
<PAGE> 73
71
EAFE INDEX FUND
PRINCIPAL RISKS
Investment in common stocks and other equity securities is particularly subject
to the risk of changing economic, stock market, industry and company conditions
which can adversely affect the value of the Fund's holdings.
Since the Fund principally invests in foreign securities, it will be subject to
risks that differ from risks of investing in securities of U.S.-based issuers.
These include losses due to:
- fluctuating currency values (the Fund does not hedge against the risk of
fluctuating currency exchange rates)
- less liquid trading markets
- greater price volatility
- political and economic instability
- less publicly available information about issuers
- changes in U.S. or foreign tax or currency laws
- changes in monetary policy
The risks are likely to be greater in emerging market countries than in
developed market countries.
The Fund's ability to mirror the EAFE Index may be affected by, among other
things:
- transaction costs
- changes in either the makeup of the EAFE Index or number of shares outstanding
for the components of the EAFE Index
- the timing and amount of contributions to, and redemptions from, the Fund by
shareholders
<PAGE> 74
72
EAFE INDEX FUND
[BAR GRAPH]
<TABLE>
<S> <C>
1991 10.10
1992 -12.22
1993 28.97
1994 6.83
1995 9.03
1996 6.45
1997 0.40
1998 19.15
1999 26.22
2000 [ ]
</TABLE>
ANNUAL RETURNS, NO-LOAD
CLASS SHARES
(by calendar year 1991-2000)
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in the Fund. The
bar chart shows you how the Fund's performance has varied over the life of the
Fund. The table shows how the Fund's average annual total returns for one year,
five year and ten year periods compare to those of a broad-based securities
market index. Performance figures for the Service Class (formerly Institutional
Service Class) shares, first offered on January 1, 1995, include the historical
performance of the No-Load Class (formerly Institutional Class) shares, since
the Fund's inception (January 2, 1991) up to December 31, 1994. Performance data
for the classes after that date vary based on differences in their expense
structures. As with all mutual funds, past performance is not necessarily an
indication of how the Fund will perform in the future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1991-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
EAFE Index Fund No-Load Class % % %
Service Class % % %
MSCI EAFE Index* % % %
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
</TABLE>
* The Morgan Stanley Capital International Europe, Australasia and Far East
Index -- the MSCI EAFE Index -- is an unmanaged index generally considered to
be representative of the international stock market.
<PAGE> 75
73
EAFE INDEX FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES NO-LOAD SERVICE
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS CLASS
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (Load)
(as a percentage of redemption proceeds) None None
Exchange Fee* None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted
from Fund assets)
Management Fee .95% .95%
Distribution (12b-1) Fees None None
Other Expenses** .37% .62%
Total Annual Fund Operating Expenses*** 1.32% 1.57%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may
be imposed per exchange.
** Includes shareholder service fees of .25% for Service Class shares.
*** The Manager has voluntarily agreed to waive a portion of the fees otherwise
payable to it. With this reduction, for the ten months ended October 31,
1999 the management fee paid was .57% for No-Load Class shares and .57% for
Service Class shares and total fund operating expenses were .94% for
No-Load Class shares and 1.19% for Service Class shares. Management has
voluntarily agreed to limit the Fund's annual total operating expenses for
the No-Load Class and Service Class shares to .94% and 1.19%, respectively,
through the fiscal year ending October 31, 2001. The waiver may be
discontinued at any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD SERVICE
EXPENSES AFTER CLASS* CLASS*
<S> <C> <C>
1 year $ $
3 years $ $
5 years $ $
10 years $ $
</TABLE>
* Does not reflect fee waiver.
<PAGE> 76
74
---------------------------
TOTAL RETURN is a combination of income and realized and unrealized capital
gains.
---------------------------
MORTGAGE-RELATED (including mortgage-backed) SECURITIES are debt securities
whose values are based on underlying pools of mortgages. These securities may be
issued by U.S. governmental entities or private issuers.
INTERNATIONAL BOND FUND
The International Bond Fund's investment objective is to seek to provide TOTAL
RETURN by investing primarily in a portfolio of non-U.S. (primarily government)
debt securities.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in foreign bonds
which include debt securities of foreign governments, agencies and supranational
organizations, and secondarily in debt securities of corporate issuers that are
located in a variety of countries with a minimum of five countries other than
the United States. This includes countries with established economies as well as
emerging market countries that MacKay Shields, the Fund's Subadvisor, believes
present favorable opportunities.
The Fund's principal investments also include high yield debt securities
(limited to a maximum of 25% of net assets) rated below BBB by S&P or Baa by
Moody's or, if unrated, determined by the Subadvisor to be of comparable
quality, and MORTGAGE-RELATED and ASSET-BACKED SECURITIES. The Fund's principal
investments may have fixed, variable, FLOATING or INVERSE FLOATING rates of
interest.
In a typical swap transaction, two parties agree to exchange the returns (or
differentials in rates of returns) earned or realized on particular investments
or instruments.
INVESTMENT PROCESS
In pursuing the Fund's investment strategy, the Fund's Subadvisor seeks to
identify investment opportunities by beginning with country selection. Local
currencies are then assessed for upside potential and downside risk. Finally,
individual securities are evaluated based on the financial condition and
competitiveness of individual companies. In making investments in foreign
markets, the Subadvisor considers several factors, including prospects for:
- currency exchange rates
- interest rates
- inflation
- relative economic growth
- governmental policies
As part of its investment strategy, the fund may buy and sell currency on a spot
basis and enter into foreign currency forward contracts for hedging purposes or
to increase the Fund's investment return.
<PAGE> 77
75
INTERNATIONAL BOND FUND
-------------------------------
ASSET-BACKED SECURITIES are debt securities whose values are based on underlying
pools of receivables.
-------------------------------
FLOATERS (or securities with a floating rate of interest) are debt securities
with a variable interest rate that is tied to another interest rate, such as a
money-market index or Treasury bill rate. The interest on an INVERSE FLOATER
resets in the opposite direction from the interest rate to which the inverse
floater is indexed.
Additionally, the Fund may buy and sell foreign currency options, securities and
securities index options, and enter into swaps and futures contracts and related
options. These techniques may be used for any legally permissible purpose.
The average maturity of the Fund's portfolio is expected to be five to ten
years.
PRINCIPAL RISKS
The values of debt securities fluctuate depending upon various factors,
including:
- interest rates
- issuer creditworthiness
- market conditions
- maturities
Since the Fund principally invests in foreign securities, it will be subject to
various risks of loss that are different from risks of investing in securities
of U.S.-based issuers. These include losses due to:
- fluctuating currency values
- less liquid trading markets
- greater price volatility
- political and economic instability
- less publicly available information about issuers
- changes in U.S. or foreign tax or currency laws
- changes in monetary policy
The risks are likely to be greater in emerging market countries than in
developed market countries.
The Fund's principal investments can include high yield debt securities
(sometimes called "junk bonds"), which are generally considered speculative
because they present a greater risk of loss, including default, than higher
quality debt securities. These securities pay a premium -- a high interest rate
or yield -- because of this increased risk of loss. These securities also can be
subject to greater price volatility.
The Fund's principal investments include derivatives, such as floaters,
including inverse floaters, foreign currency options, foreign currency forward
contracts, securities and securities index options, swaps, futures contracts and
related options, and mortgage-related and asset-backed securities. The Fund may
use derivatives to try to enhance returns or reduce the risk of loss (hedge) of
certain of its holdings. Regardless of the purpose, the Fund may lose money
using derivatives. The use of derivatives (except for mortgage-related and
asset-backed securities) may increase the volatility of the Fund's net asset
value and may involve a small investment of cash relative to the magnitude of
risk assumed.
The Fund is "non-diversified" which means that the Fund may invest a greater
percentage of its assets than do other funds in a particular issuer. This may
make it more susceptible than diversified funds to risks associated with a
single economic, political or regulatory occurrence.
<PAGE> 78
76
INTERNATIONAL BOND FUND
[BAR GRAPH]
<TABLE>
<S> <C>
1991 18.73
1992 7.68
1993 14.56
1994 3.11
1995 18.46
1996 14.32
1997 2.62
1998 12.53
1999 -7.65
2000 [ ]
</TABLE>
ANNUAL RETURNS, INSTITUTIONAL
CLASS SHARES
(by calendar year 1991-2000)
PAST PERFORMANCE
The bar chart and table indicate some of the risks of investing in
the Fund. The bar chart shows you how the Fund's performance has
varied over the life of the Fund. The table shows how the Fund's
average annual total returns for one year, five year and ten year
periods compare to those of a broad-based securities market index.
Performance figures for the No-Load Class (formerly Institutional
Class) shares and Service Class (formerly Institutional Service
Class) shares, each first offered on January 1, 1995, include the
historical performance of the Fund's predecessor separate account
through December 31, 1994. Performance data for the classes after
that date vary based on differences in their expense structures. As
with all mutual funds, past performance is not necessarily an
indication of how the Fund will perform in the future.
BEST AND WORST QUARTERLY RETURNS, NO-LOAD CLASS SHARES
(1991-2000)
<TABLE>
<CAPTION>
RETURN QUARTER/YEAR
<S> <C> <C>
Highest return/best quarter %
Lowest return/worst quarter %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(as of 12/31/00)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS*
<S> <C> <C> <C>
International Bond Fund
No-Load Class % % %
Service Class % % %
Salomon Smith Barney
Non-U.S. Dollar World
Government Bond Index** % % %
</TABLE>
* The inception date was January 31, 1990 for the International Bond Fund's
predecessor separate account ("Separate Account"). Performance figures
include the historical performance of the Separate Account for the period
prior to the International Bond Fund's commencement of operations on January
1, 1995. MacKay Shields LLC, the International Bond Fund's Subadvisor, served
as investment adviser to the Separate Account, and the investment objective,
policies, restrictions, guidelines and management style of the Separate
Account were materially equivalent to those of the International Bond Fund.
Performance figures for the period prior to January 1, 1995 have been
calculated by measuring the change in value of a unit in the Separate Account
from the time period specified to January 1, 1995, using the Separate
Account's expense structure, which generally was higher than the expense
structure of the International Bond Fund. The Separate Account was not
registered under the 1940 Act and therefore was not subject to certain
investment restrictions imposed under the 1940 Act. If the Separate Account
had been registered under the 1940 Act, the Separate Account's performance
might have been adversely affected.
** The Salomon Smith Barney Non-U.S. Dollar World Government Bond Index is an
unmanaged index generally considered to be representative of the world
government bond market.
<PAGE> 79
77
INTERNATIONAL BOND FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES NO-LOAD SERVICE
(fees paid directly from your investment) CLASS CLASS
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (Load) (as a percentage of
redemption proceeds) None None
Exchange Fee* None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee .80% .80%
Distribution (12b-1) Fees None None
Other Expenses** .27% .52%
Total Annual Fund Operating Expenses*** 1.07% 1.32%
</TABLE>
* Except for systematic exchanges processed via the Fund's transfer agent's
automated system, and as to certain accounts for which tracking data is not
available, after five exchanges per calendar year, a $10 Exchange Fee may be
imposed per exchange.
** Includes shareholder service fees of .25% for Service Class shares.
*** The Manager has voluntarily agreed to waive a portion of the fees otherwise
payable to it. With this reduction, for the ten months ended October 31,
1999 the management fee paid was .68% for No-Load Class shares and .68% for
Service Class shares and total fund operating expenses were .95% for No-Load
Class shares and 1.20% for Service Class shares. Management has further
agreed voluntarily to limit the Fund's annual total operating expenses for
the No-Load Class and Service Class shares to .95% and 1.20%, respectively,
through the year ending October 31, 2001. This waiver may be discontinued at
any time.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Your actual costs may be
higher or lower than those shown.
<TABLE>
<CAPTION>
NO-LOAD SERVICE
Expenses after CLASS* CLASS*
<S> <C> <C>
1 year $ $
3 years $ $
5 years $ $
10 years $ $
</TABLE>
* Does not reflect fee waiver.
<PAGE> 80
78
Information about each Fund's principal investments, investment practices and
principal risks appears at the beginning of the prospectus. The information
below describes in greater detail the investments, investment practices and
other risks pertinent to the Funds.
More About Investment Strategies and Risks
DERIVATIVE SECURITIES
The value of derivatives is based on certain underlying equity or fixed-income
securities, interest rates, currencies or indexes. Derivative securities may be
hard to sell and are very sensitive to changes in the underlying security,
interest rate, currency or index, and, as a result, can be highly volatile. If
the Manager or the Subadvisor is wrong about its expectations of changes in
interest rates or market conditions, the use of derivatives could result in a
loss. A Fund could also lose money if the counterparty to the transaction does
not meet its obligations. In addition, the leverage associated with inverse
floaters, a type of derivative, may result in greater volatility in their market
value than other income-producing securities.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES
Mortgage-related (including mortgage-backed) and asset-backed securities are
securities whose value is based on underlying pools of loans that may include
interests in pools of lower-rated debt securities, consumer loans or mortgages,
or complex instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities. The value of these securities may be significantly
affected by changes in interest rates, the market's perception of issuers and
the creditworthiness of the parties involved. NYLIM's or MacKay Shields' ability
to correctly forecast interest rates and other economic factors correctly will
impact the success of investments in mortgage-related and asset-backed
securities. Some securities may have a structure that makes their reaction to
interest rate changes and other factors difficult to predict, making their value
highly volatile. These securities may also be subject to prepayment risk if
interest rates fall and if the security has been purchased at a premium the
amount of some or all of the premium may be lost in the event of prepayment.
<PAGE> 81
79
SWAP AGREEMENTS
Certain Funds may enter into interest rate, index and currency exchange rate
swap agreements to attempt to obtain a desired return at a lower cost than a
direct investment in an instrument yielding that desired return.
Whether a Fund's use of swap agreements will be successful will depend on
whether the Manager or the Subadvisor correctly predicts movements in interest
rates, indexes and currency exchange rates. Because they are two-party contracts
and because they may have terms of greater than seven days, swap agreements may
be considered to be illiquid. Moreover, a Fund bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. See Tax Information in
the SAI for information regarding the tax considerations relating to swap
agreements.
FOREIGN SECURITIES
Foreign investments could be more difficult to sell than U.S. investments. They
also may subject a Fund to risks different from investing in domestic
securities. Investments in foreign securities involve difficulties in receiving
or interpreting financial and economic information, possible imposition of
taxes, higher brokerage and custodian fees, possible currency exchange controls
or other government restrictions, including possible seizure or nationalization
of foreign deposits or assets. Foreign securities also may be less liquid and
more volatile than U.S. securities. There may also be difficulty in invoking
legal protections across borders. In addition, investment in emerging market
countries presents risks in greater degree than those presented by investment in
foreign issuers in countries with developed securities markets and more advanced
regulatory systems.
Some foreign securities are issued by companies organized outside the United
States and are traded only or primarily in trading markets outside the United
States. These foreign securities can be subject to most, if not all, of the
risks of foreign investing. Some foreign securities are issued by companies
organized outside the United States but are traded in U.S. securities markets
and are denominated in U.S. dollars. For example, ADRs and shares of some large
foreign-based companies are traded on principal U.S. exchanges. Other securities
are not traded in the United States but are denominated in U.S. dollars. These
securities are not subject to all of the risks of foreign investing. For
example, foreign trading market or currency risks will not apply to dollar
denominated securities traded in U.S. securities markets.
Many of the foreign securities in which the Funds invest will be denominated in
foreign currencies. Changes in foreign exchange rates will affect the value of
securities denominated or quoted in foreign currencies. Exchange rate movements
can be large and can endure for extended periods of time, affecting either
favorably or unfavorably the
<PAGE> 82
80
value of the Funds' assets. However, a Fund may engage in foreign currency
transactions to attempt to protect itself against fluctuations in currency
exchange rates in relation to the U.S. dollar.
LENDING OF SECURITIES
Securities may be lent to brokers, dealers and financial institutions to realize
additional income under guidelines adopted by the Boards. The risks in lending
portfolio securities, as with other extensions of credit, consist of possible
loss of rights in the collateral should the borrower fail financially. In
determining whether to lend securities, the Manager or the Subadvisor will
consider all relevant facts and circumstances, including the creditworthiness of
the borrower.
RISK MANAGEMENT TECHNIQUES
Various techniques can be used to increase or decrease a Fund's exposure to
changing security prices, interest rates, currency exchange rates, commodity
prices or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling futures contracts and
options on futures contracts, entering into foreign currency transactions (such
as forward foreign currency exchange contracts and options on foreign
currencies) and purchasing put or call options on securities and securities
indexes.
These practices can be used in an attempt to adjust the risk and return
characteristics of a Fund's portfolios of investments. For example, to gain
exposure to a particular market, a Fund may be able to purchase a futures
contract with respect to that market. When a Fund uses such techniques in an
attempt to reduce risk it is known as "hedging." If the Manager or the
Subadvisor judges market conditions incorrectly or employs a strategy that does
not correlate well with the Fund's investments, these techniques could result in
a loss, regardless of whether the intent was to reduce risk or increase return.
These techniques may increase the volatility of a Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. In addition,
these techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
FORWARD COMMITMENTS
Debt securities are often sold on a forward commitment basis. The price (or
yield) of such securities is fixed at the time a commitment to purchase is made,
but delivery and payment for the securities take place at a later date. During
the period between purchase and settlement, no payment is made by the Fund and
no interest accrues to the Fund. The market value of the securities on the
settlement date may be more or less than the purchase price payable at
settlement date.
<PAGE> 83
81
RISKS OF INVESTING IN HIGH YIELD DEBT SECURITIES
("JUNK BONDS")
Debt securities rated lower than Baa by Moody's or BBB by S&P or, if not rated,
determined to be of equivalent quality by the Manager or the Subadvisor are
sometimes referred to as junk bonds and are considered speculative.
Investment in high yield bonds involves special risks in addition to the risks
associated with investments in higher rated debt securities. High yield bonds
may be regarded as predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments. Moreover, such
securities may, under certain circumstances, be less liquid than higher rated
debt securities.
TEMPORARY DEFENSIVE INVESTMENTS
In times of unusual or adverse conditions, for temporary defensive purposes,
each Fund may invest outside the scope of its principal investment focus. During
such times, a Fund may not invest in accordance with its investment objective or
investment strategies and, as a result, there is no assurance that the Fund will
achieve its investment objective. Under such conditions, each Fund (except the
Money Market Fund) may invest without limit in money market and other
investments as described in this Prospectus and the Statement of Additional
Information (the Growth Equity Fund and Value Equity Fund may only invest up to
50% of total assets). In addition, the International Equity Fund may invest all
or a portion of its assets in equity securities of U.S. issuers, investment
grade notes and bonds, cash and cash equivalents. The International Bond Fund
may also invest without limit in U.S. dollars, foreign currencies or in foreign
currency-denominated money market instruments.
PORTFOLIO TURNOVER
Portfolio turnover measures the amount of trading a Fund does during the year.
The portfolio turnover rate for each Fund is found in the Financial Highlights.
The use of certain investment strategies may generate increased portfolio
turnover. Funds with high turnover rates (over 100%) often have higher
transaction costs (which are paid by the Fund) and may generate short-term
capital gains (on which you'll pay taxes, even if you don't sell any shares by
year-end).
<PAGE> 84
82
Shareholder
Guide
The following pages are intended to help you understand the costs associated
with buying, holding and selling your Eclipse investments.
MULTI-CLASS STRUCTURE
This prospectus offers both No-Load Class and Service Class shares of the Asset
Manager Fund, EAFE Index Fund, Growth Equity Fund, Indexed Equity Fund,
International Equity Fund, Value Equity Fund, Bond Fund, Indexed Bond Fund,
International Bond Fund, Money Market Fund and Short-Term Bond Fund. The No-Load
Class and Service Class differ only in their service expense and any other
specific expenses the Boards may approve. Service Class shares have an annual
0.25% shareholder service fee that the No-Load Class shares do not have (see
description below). The Funds not listed above offer only No-Load Class shares.
SHAREHOLDER SERVICES PLAN
The Board of Directors of Eclipse Funds, Inc. has adopted a Shareholder Services
Plan with respect to Service Class shares. Under the terms of the Shareholder
Services Plan, each Fund with a Service Class is authorized to pay to NYLIM, as
compensation for services rendered by NYLIM, its affiliates or independent
third-party service providers, to the shareholders of the Service Class Shares,
a shareholder service fee at the rate of 0.25% on an annualized basis of average
daily net assets of the Service Class of such Funds.
Each such Fund may pay to service agents "service fees" as that term is defined
in the rules of the National Association of Securities Dealers, Inc. for
services provided to shareholders of the Service Class of such Funds. These fees
are for personal services, including assistance in establishing and maintaining
shareholder accounts and assisting shareholders who have questions or other
needs relating to their accounts.
Because service fees are on-going, over time they will increase the cost of an
investment in a Fund and may cost more than other types of sales charges.
<PAGE> 85
83
SHAREHOLDER GUIDE
---------------------------
"GOOD ORDER" means all the necessary information, signatures and documentation
are received.
BUYING, SELLING AND EXCHANGING ECLIPSE FUNDS SHARES:
HOW TO OPEN AN ACCOUNT
Return your completed Eclipse Funds application in GOOD ORDER with a check for
the amount of your investment to The Eclipse Funds, 260 Cherry Hill Road,
Parsippany, NJ 07054.
When you open your account, you may also want to choose certain buying and
selling options, including transactions by wire. In most cases, these choices
can be made later in writing, but it may be quicker and more convenient to
decide on them when you open your account.
You buy shares at net asset value ("NAV"). NAV is generally calculated as of the
close of regular trading (usually 4:00 pm Eastern time) on the New York Stock
Exchange (the "Exchange") every day the Exchange is open. When you buy shares,
you must pay the NAV next calculated after Eclipse Shareholder Services ("ESS"),
a division of NYLIM Service Company LLC, the Funds' transfer agent receives your
order in good order.
INVESTMENT MINIMUMS*:
The following minimums apply if you are investing in the Funds:
- $1,000 for an initial investment in any single Fund;
- $100 for each subsequent investment in any of the Funds; or
- $100 for initial and subsequent purchases through a systematic investment
plan.
- The minimum initial investment amount is waived for purchases by the Trustees,
Directors and employees of New York Life and its affiliates and subsidiaries
and their employees, officers, directors or agents.
* The Funds may also accept investments of smaller amounts at its discretion.
<PAGE> 86
84
SHAREHOLDER GUIDE
BUYING AND SELLING ECLIPSE SHARES
OPENING YOUR ACCOUNT
<TABLE>
<CAPTION>
HOW DETAILS
<S> <C> <C>
BY WIRE: You or your registered The wire must include:
representative should call ESS * your name
toll-free at 1-866-2ECLIPSE * your account number
(1-866-232-5477) to obtain an * name(s) of the Fund(s) and Class of shares
account number and wiring Your bank may charge a fee for the wire
instructions. transfer.
Wire the purchase amount to:
State Street Bank and Trust Company
ABA #011 0000 28
Eclipse Funds (DDA #99046179)
Attn: Custody and Shareholder
Services
BY PHONE: Have your investment professional ESS must receive your application and check
call ESS at 1-866-2ECLIPSE in good order within three business days. If
(1-866-232-5477) between 8 am and 6 not, ESS can cancel your order and hold you
pm Eastern time any day the New liable for costs incurred in placing it.
York Stock Exchange is open. Call Make your check payable to Eclipse Funds
before 4 pm to buy shares at the Be sure to write on your check:
current day's Net Asset Value * your account number
(NAV). * your Fund name and Class
You cannot buy Money Market Fund shares by
To take advantage of this option, phone.
the minimum investment amount is
$1,000.
BY MAIL: Return your completed Eclipse Funds Make your check payable to Eclipse Funds.
Application with a check for the
amount of your investment to
Eclipse Funds
260 Cherry Hill Road
Parsippany, NJ 07054
</TABLE>
<PAGE> 87
85
SHAREHOLDER GUIDE
BUYING ADDITIONAL SHARES
<TABLE>
<CAPTION>
HOW DETAILS
<S> <C> <C>
BY WIRE: Call ESS toll-free at The wire must include:
1-866-2ECLIPSE (1-866-232-5477) * your name
between 8 am and 6 pm Eastern time * your account number
any day the Exchange is open; to * Fund name and Class of shares
buy shares at the current day's * the minimum order for subsequent purchases
NAV. ESS must receive your wired is $100
money by 4 pm.
Wire the purchase amount to:
State Street Bank and Trust Company
ABA #011 0000 28
Eclipse Funds (DDA #99046179)
Attn: Custody and Shareholder
Services
ELECTRONICALLY: Call ESS toll-free at Eligible investors can purchase shares by
1-866-2ECLIPSE (1-866-232-5477) using electronic debits from a designated
between 8 am and 6 pm Eastern time bank account.
any day the Exchange is open to * the minimum order for subsequent purchases
make an ACH purchase; call before 4 is $100
pm to buy shares at the current
day's NAV.
BY MAIL: Address your order to: Make your check payable to Eclipse Funds.
Eclipse Funds Be sure to write on your check:
P.O. Box 8407 * your account number
Boston, MA 02266-8407 * Fund name and Class of shares
* the minimum order for subsequent purchases
Send overnight orders to: is $100
Eclipse Funds
c/o Boston Financial Data Services
66 Brooks Drive
Braintree, MA 02184
</TABLE>
<PAGE> 88
86
SHAREHOLDER GUIDE
SELLING SHARES
<TABLE>
<CAPTION>
HOW DETAILS
<S> <C> <C>
BY PHONE: TO RECEIVE PROCEEDS
BY CHECK:
Call ESS toll-free at ESS will only send checks to the account's
1-866-2ECLIPSE (1-866-232-5477) owner at the owner's address of record and
between 8 am and 6 pm Eastern time generally will not send checks to addresses
any day the Exchange is open; call on record for 30 days or less.
before 4 pm to sell shares at the * The maximum order ESS can process is
current day's NAV. $100,000.
TO RECEIVE PROCEEDS
BY WIRE:
Call ESS toll-free at Generally, after receiving your sell order
1-866-2ECLIPSE (1-866-232-5477) by phone, ESS will send the proceeds by bank
between 8 am and 6 pm Eastern time wire to your designated bank account the
any day banks and the Exchange are next business day, although it may take up
open. Eligible investors may sell to seven days to do so. Your bank may charge
shares and have proceeds you a fee to receive the wire transfer.
electronically credited to a
designated bank account. ESS must have your bank account information
on file.
* There is a $11 fee for wire redemptions.
* the minimum wire transfer amount is $1000.
BY MAIL: Address your order to: Write a letter of instruction that includes:
Eclipse Funds * your name(s) and signature(s)
P.O. Box 8407 * your account number
Boston, MA 02266-8407 * Fund name and Class of shares
* dollar or share amount you want to sell
Send overnight orders to: Obtain a signature guarantee or other
Eclipse Funds documentation, if required.
c/o Boston Financial Data Services * There is a $15 fee for checks mailed to
66 Brooks Drive you overnight.
Braintree, MA 02184
</TABLE>
<PAGE> 89
87
SHAREHOLDER GUIDE
---------------------------
CONVENIENT, YES . . .
BUT NOT RISK-FREE.
Telephone redemption privileges are convenient, but you give up some security.
When you sign the application to buy shares, you agree that Eclipse Funds will
not be liable for following phone instructions that they reasonably believe are
genuine. When using the Eclipse Audio Response System, you bear the risk of any
loss from your errors unless the Funds or ESS fails to use established
safeguards for your protection. These safeguards are among those currently in
place at Eclipse Funds:
- all phone calls with service representatives are tape recorded, and
- written confirmation of every transaction is sent to your address of record.
REDEMPTIONS-IN-KIND
Eclipse reserves the right to pay certain large redemptions, either totally or
partially, by a distribution-in-kind of securities (instead of cash) from the
applicable Fund's portfolio.
SHAREHOLDER SERVICES
AUTOMATIC SERVICES
Buying or selling shares automatically is easy with the services described
below. You select your schedule and amount, subject to certain restrictions. You
can set up most of these services with your application, or by calling ESS
toll-free at 1-866-2ECLIPSE (1-866-232-5477) for a form.
SYSTEMATIC INVESTING
Eclipse offers three automatic investment plans.
1. AUTOINVEST
If you are authorized, you can automatically debit your designated bank account
by:
- making regularly scheduled investments
- purchasing shares whenever you choose.
2. DIVIDEND REINVESTMENT
Automatically reinvest dividends and distributions from one Eclipse Fund into
the same Fund or the same Class of any other Eclipse Fund.
3. PAYROLL DEDUCTIONS
If your employer offers this option, you can make automatic investments through
payroll deduction.
SYSTEMATIC WITHDRAWAL PLAN
Withdrawals must be at least $100. You must have at least $10,000 in your
account at the time of the initial request and shares must not be in certificate
form.
The Funds will not knowingly permit systematic withdrawals if, at the same time,
you are making systematic investments.
EXCHANGING SHARES AMONG ECLIPSE FUNDS
You exchange shares when you sell all or a portion of shares in one Fund and use
the proceeds to purchase shares in another Fund. You may exchange shares of the
same class between Funds. Exchanges will be based upon each Fund's NAV per share
next computed following receipt of a properly executed exchange request. You may
request an exchange by calling ESS toll-free at 1-866-2ECLIPSE (1-866-232-5477).
INVESTING FOR RETIREMENT
Except for the Tax Free Bond Fund, you can purchase shares of any of the Funds
for retirement plans providing tax-deferred investments for individuals and
institutions. You can use the Funds in established plans
<PAGE> 90
88
SHAREHOLDER GUIDE
or the Distributor may provide the required plan documents for selected plans. A
plan document must be adopted for a plan to be in existence.
Custodial services are available for IRA, ROTH IRA, SEP, SARSEP, SIMPLE IRA and
Education IRA plans and for 403(b)(7) TSA Custodial Accounts. Plan
administration is also available for select qualified retirement plans. An
investor should consult with his or her tax adviser before establishing any
tax-deferred retirement plan.
MONEY MARKET FUND EXCHANGES
If you exchange all your shares in the Money Market Fund for shares of the same
class in another Fund, any dividends that have been declared but not yet
distributed will be credited to the new Fund account. If you exchange all your
shares in the Money Market Fund for shares in more than one Fund, undistributed
dividends will be credited to each of the new Funds according to the number of
exchanged shares in each Fund.
GENERAL POLICIES
BUYING SHARES
- All investments must be in U.S. dollars with funds drawn on a U.S. bank.
- ESS does not accept third-party checks, and it reserves the right to limit the
number of checks processed at one time. If your check or ACH purchase is
returned unpaid, your order will be canceled and your account will be charged
a $20 fee for each returned check or ACH purchase. In addition, the Fund may
also redeem shares to cover any losses it incurs as a result. If an AutoInvest
payment is returned unpaid for two consecutive periods, the privilege will be
suspended until you notify us to reinstate it.
SELLING SHARES
- If you have share certificates, you must return them with a written redemption
request.
- Your shares will be sold at the next NAV calculated after ESS receives your
request in good order. ESS will make the payment, within seven days after
receiving your request in good order.
- If you buy shares by check or by ACH purchase and quickly decide to sell them
the Fund may withhold payment for 10 days from the date the check or ACH
purchase order is received.
- There will be no redemption during any period in which the right of redemption
is suspended or date of payment is postponed because the Exchange is closed or
trading on the Exchange is restricted or the SEC deems an emergency to exist.
- Unless you decline telephone privileges on your application, you may be
responsible for any fraudulent telephone order as long as ESS takes reasonable
measures to verify the order.
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- Reinvestment won't relieve you of any tax consequences on gains realized from
a sale. The deductions for losses may, however, be denied.
ESS may require a written order to sell shares if:
- an account has submitted a change of address during the previous 30 days;
ESS may require a written order to sell shares and a signature guarantee if:
- ESS does not have on file required bank information;
- the proceeds from the sale will exceed $100,000;
- the proceeds of the sale are to be sent to an address other than the address
of record; or
- the proceeds are to be payable to someone other than the account holder.
In the interests of all shareholders, Eclipse reserves the right to:
- change or discontinue its exchange privilege upon notice to shareholders, or
temporarily suspend this privilege without notice under extraordinary
circumstances.
- change or discontinue the systematic withdrawal plan on notice to
shareholders.
- charge a $12 annual account fee (maximum of $36 per social security or tax
I.D. number) on accounts with balances less than $1000. The fee is not charged
on retirement plan accounts, accounts with automatic investment plans and
accounts for which tracking data is not available.
- change its minimum investment amounts.
ADDITIONAL INFORMATION
When you buy and sell shares directly from the Fund, you will receive
confirmation statements that describe your transaction. You should review the
information in the confirmation statements carefully. If you notice an error,
you should call ESS immediately. If you fail to notify ESS within one year of
the transaction, you may be required to bear the costs of correction.
A signature guarantee helps protect against fraud. You can obtain one from most
banks, credit unions and securities dealers, but not from a notary public. For
joint accounts, each signature must be guaranteed. Please call ESS toll-free at
1-866-2ECLIPSE (1-866-232-5477) to ensure that your signature will be guaranteed
by an appropriate institution.
The policies and fees described in this prospectus govern transactions with
Eclipse Funds. If you invest through a third party -- bank, broker, 401(k) plan,
financial adviser or financial supermarket -- there may be transaction fees for,
and you may be subject to, different investment minimums or limitations on
buying or selling shares. Consult a representative of your plan or financial
institution if in doubt.
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DETERMINING THE FUNDS' SHARE PRICES (NAV) AND THE VALUATION OF SECURITIES
The Funds generally calculate the share price of each Fund (also known as its
net asset value, or NAV) at the close of regular trading on the Exchange
(usually 4:00 pm Eastern time). The value of the Funds' investments is based on
current market prices. If current market values are not available, investments
will be valued by another method that the Boards believe accurately reflects
fair value. Changes in the value of the Funds' securities after the close of
regular trading will not be reflected in the calculation of NAV unless the
Manager or the Subadvisor deems a particular event would materially affect NAV.
In this case, an adjustment in the valuing of the securities may be made.
FUND EARNINGS
DIVIDENDS AND INTEREST
Most Funds earn either dividends from stocks, interest from bonds and other
securities, or both. A mutual fund, however, always pays this income to you as
"dividends." The dividends paid by each Fund will vary based on the income from
its investments and the expenses incurred by the Fund.
CAPITAL GAINS
The Funds earn capital gains when they sell securities at a profit.
WHEN THE FUNDS PAY DIVIDENDS
The Funds declare and distribute any dividends at least once a year.
WHEN THE FUNDS PAY CAPITAL GAINS
At each fiscal year-end, each Fund matches its gains against its losses. If the
balance results in a gain, the Fund will distribute the gain to shareholders.
If you prefer to reinvest dividends and/or capital gains in another Fund, you
must first establish an account in that Class of shares of the Fund.
HOW TO TAKE YOUR EARNINGS
You may receive your share of Fund earnings in one of five ways. You can make
your choice at the time of application, and change it as often as you like by
notifying your investment professional (if permitted) or the Funds directly. The
five choices are:
1. Reinvest earnings in:
- the same Fund or
- another Eclipse Fund of your choice.
2. Take the dividends in cash and reinvest the capital gains in:
- the same Fund or
- another Eclipse Fund of your choice.
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---------------------------
SEEK PROFESSIONAL ASSISTANCE.
Your investment professional can help you keep your investment goals coordinated
with your tax considerations. But for tax counsel, always rely on your tax
adviser.
3. Take the capital gains in cash and reinvest the dividends in:
- the same Fund or
- another Eclipse Fund of your choice.
4. Take a percentage of dividends or capital gains in cash and reinvest the
remainder in the same Fund.
5. Take earnings in cash.
If you do not make one of these choices on your application, your earnings will
be automatically reinvested in the same class of shares of the same Fund.
UNDERSTAND THE TAX CONSEQUENCES
Any dividends and capital gains distributions you receive from the Funds are
taxable, whether you take them as cash or automatically reinvest them. A Fund's
realized earnings are taxed based on the length of time a Fund holds its
investments, regardless of how long you hold Fund shares. If a Fund realizes
long-term capital gains, the earnings are taxed as long-term capital gains;
earnings from short-term capital gains and income generated on debt investments
and other sources are generally taxed as ordinary income. Earnings of an Equity
Fund, if any, will generally be a result of capital gains that may be taxed as
either long-term capital gains or short-term capital gains (taxed as ordinary
income). Earnings generated by interest received on fixed income securities
(particularly earnings generated by a Fixed Income Fund) generally will be a
result of income generated on debt investments and will be taxable as ordinary
income.
Eclipse will mail your tax report each year by January 31. This report will tell
you which distributions should be treated as taxable ordinary income, which, if
any, as tax-exempt income, and which, if any, as long-term capital gains.
Buy After the Dividend Payment. Avoid buying shares shortly before a dividend
payment. Part of your investment may be returned in the form of a dividend,
which may be taxable.
Exchanges. An exchange of shares of one Eclipse Fund for shares of another will
be treated as a sale of shares of the first Eclipse Fund and a purchase of
shares of the second Fund. Any gain on the transaction may be subject to taxes.
"Tax-Free" Rarely Means "totally Tax-Free." Dividends paid by the Tax Free Bond
Fund generally will be exempt from federal tax. It should be noted, however,
that:
- Tax-exempt dividends still may be subject to state and local taxes.
- A portion of the distributions may be treated as ordinary income and/or
long-term capital gains.
- Any time you sell shares -- even shares of a tax-free fund -- you will be
subject to tax on any gain (the rise in the share price).
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- If you sell shares of a tax-free fund at a loss after receiving a tax-exempt
dividend, and you have held those shares for six months or less, then you may
not be allowed to claim the loss on the sale.
- If you sell shares in a tax-free fund before you become entitled to receive
tax-exempt interest as a dividend, the amount that would have been treated as
a tax-free dividend will instead be treated as a taxable part of the sales
proceeds.
- Some tax-exempt income may be subject to the alternative minimum tax.
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KNOW WITH WHOM
YOU'RE INVESTING
WHO RUNS THE FUNDS' DAY-TO-DAY BUSINESS?
New York Life Investment Management LLC ("NYLIM" or the "Manager"), 300
Interpace Parkway, Building A, Parsippany, NJ 07054, serves as the Funds'
manager. In conformity with the stated policies of the Funds, NYLIM administers
each Fund's business affairs and manages the investment operations of each Fund
and the composition of the portfolio of each Fund, subject to the supervision of
the Board of Directors of Eclipse Funds Inc. and the Board of Trustees of
Eclipse Funds, as appropriate. The Manager was formed as an independently
managed, wholly-owned subsidiary of New York Life Insurance Company ("New York
Life") in April, 2000. The Manager provides offices and conducts clerical,
recordkeeping and bookkeeping services, and keeps most of the financial and
accounting records required for the Funds. The Manager has delegated its
portfolio management responsibilities for the Bond Fund, Core Bond Plus Fund,
Growth Equity Fund, International Bond Fund, International Equity Fund, Short
Term Bond Fund, Tax Free Bond Fund and Value Equity Fund to its affiliate MacKay
Shields LLC ("MacKay Shields" or the "Subadvisor"), 9 West 57th Street, New
York, NY 10019.
The Manager pays the salaries and expenses of all personnel affiliated with the
Funds, and all the operational expenses that aren't the responsibility of the
Funds, including the fee paid to the Subadvisor. Pursuant to a management
contract with each Fund, the Manager is entitled to receive fees from each Fund,
accrued daily and payable monthly,
For the fiscal period ended October 31, 2000, the following Funds paid the
Manager an aggregate fee for services performed as a percentage of the average
daily net assets of each such Fund as follows:
<TABLE>
<CAPTION>
RATE PAID FOR THE
FISCAL PERIOD ENDED
OCTOBER 31, 2000
<S> <C>
Growth Equity Fund .85%
Value Equity Fund .85%
Indexed Equity Fund .25%
Bond Fund .65%
Indexed Bond Fund .38%
Short Term Bond Fund .35%
Money Market Fund .38%
Asset Manager Fund .65%
International Equity Fund .85%
EAFE Index Fund .57%
International Bond Fund .68%
</TABLE>
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For the fiscal year ended December 31, 2000, the following Funds
paid Towneley Capital Management, Inc. an aggregate fee for
services performed as a percentage of the average daily net assets
of each such Fund as follows:
<TABLE>
<CAPTION>
RATE PAID FOR THE
YEAR ENDED
DECEMBER 31, 2000
<S> <C>
Mid Cap Value Fund(1) .90%
Small Cap Value Fund(1) 1.00%
Ultra Short Term Income Fund(1)(2) .00%
Balanced Fund(1) .75%
</TABLE>
(1) Prior to December 12, 2000 and since the inception of the Balanced Fund, Mid
Cap Value Fund, Small Cap Value Fund and Ultra Short Term Income Fund,
Towneley Capital Management, Inc. ("Towneley") served as investment adviser
for these Funds. On December 12, 2000, Towneley sold to NYLIM Holdings LLC
certain segments of its portfolio management businesses including the
business, operations and activities that Towneley conducted relating to
providing investment advisory services to these four Funds (the
"Transaction"). As a result of the Transaction, NYLIM entered into a new
management agreement with the Funds beginning December 12, 2000. NYLIM has
undertaken that there will be no increase in the ordinary expense ratios of
the Funds through December 31, 2002 from that of the twelve months' ended
December 31, 2000. Provided however, this limitation shall not limit
increases in transfer agency expense arrangements in effect prior to
December 12, 2000.
(2) The Ultra Short Term Income Fund did not pay Towneley a management fee for
the fiscal year ending December 31, 1999. Towneley contractually waived
0.20% and voluntarily waived the remaining 0.20% of the Fund's 0.40% annual
management fee. NYLIM has contractually agreed to waive fees of 0.20% of the
Ultra Short Term Income Fund's average daily net assets through December 31,
2002 and has voluntarily agreed to waive the remaining 0.20% through the
same date. NYLIM may discontinue all or part of the voluntary waiver at any
time after December 31, 2002.
For calendar year 2001, the following Funds will pay the Manager an
aggregate fee for services performed as a percentage of the average
daily net assets of each such Fund as follows:
<TABLE>
<CAPTION>
RATE PAYABLE FOR
CALENDAR YEAR 2001
<S> <C>
Mid Cap Core Fund(1) .85%
Core Bond Plus Fund(1) .60%
Tax Free Bond Fund(1) .50%
</TABLE>
(1) NYLIM has voluntarily agreed to waive a portion of the fees otherwise
payable to it to the extent that annual fund operating expenses exceed 0.70%
of average daily net assets of the Core Bond Plus Fund, 1.00% of average
daily net assets of the Mid Cap Core Fund and 0.65% of average daily net
assets of the Tax Free Bond Fund.
The Manager is not responsible for records maintained by the Funds'
Custodian, Transfer Agent, Dividend Disbursing and Shareholder
Servicing Agent, or Subadvisors, except to the extent expressly
provided in the Management Agreements between the Manager and the
Funds.
Under the supervision of the Manager, the Subadvisor is responsible
for making the specific decisions about buying, selling and holding
securities; selecting brokers and brokerage firms to trade for it;
maintaining accurate records; and, if possible, negotiating
favorable commissions and fees with the brokers and brokerage
firms. For these services, the Subadvisor is paid a monthly fee by
the Manager, not the Funds. (See the SAI for a breakdown of fees.)
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SHAREHOLDER GUIDE
WHO MANAGES YOUR MONEY?
NYLIM serves as Manager of the assets of the Funds. NYLIM was formed in April,
2000 as a Delaware limited liability company. NYLIM is an indirect wholly-owned
subsidiary of New York Life Insurance Company.
MacKay Shields is the Subadvisor to the Bond Fund, Core Bond Plus Fund, Growth
Equity Fund, International Bond Fund, International Equity Fund, Short Term Bond
Fund, Tax Free Bond Fund and Value Equity Fund. The firm was incorporated in
1969 as an independent investment advisory firm and was privately held until
1984 when it became a wholly-owned but autonomously managed subsidiary of New
York Life. As of September 30, 2000, MacKay Shields managed over $30 billion in
assets.
PORTFOLIO MANAGERS: BIOGRAPHIES
CLAUDE ATHAIDE Mr. Athaide became a manager of the Short Term Bond Fund in July
2000. Mr. Athaide joined MacKay Shields in 1996 and became an Associate Director
in 1999. Prior to joining MacKay Shields, Mr. Athaide taught graduate and
undergraduate level courses at George Washington University and The Wharton
School of the University of Pennsylvania and was a Quantitative Analyst with
Republic National Bank from May 1995 to August 1995.
JEFFERSON C. BOYCE Mr. Boyce has managed the EAFE Index, Indexed Equity, Asset
Manager and Indexed Bond Funds since March 1999. Mr. Boyce has been the Chairman
and Chief Executive Officer of Monitor Capital Advisors LLC since 1997. Prior to
that he was the Senior Vice President of Monitor Capital from 1992 to 1997. Mr.
Boyce is also a Senior Vice President at New York Life and serves as an officer
and/or director of various other subsidiaries and affiliated entities of New
York Life. As of January 2, 2000, Mr. Boyce will manage the Funds as an employee
of NYLIM.
ELIAS BELESSAKOS Mr. Belessakos is a Director and Senior Portfolio Manager of
NYLIM. Mr. Belessakos has overall responsibility for the management of the Asset
Manager Fund. Prior to joining Monitor Capital Advisors LLC, Mr. Belessakos was
a senior researcher and portfolio manager in the Global Asset Allocation group
of Deutsche Asset Management. Prior to holding that position, Mr. Bellesakos
worked for JP Morgan Investment Management in the capital markets research
group. Mr. Bellessakos joined Monitor Capital Advisors in 2000. As of January 2,
2000, Mr. Belessakos will manage the Fund as an employee of NYLIM.
MARK C. BOYCE Mr. Boyce serves as Portfolio Manager of the Money Market Fund.
Mr. Boyce has managed the Money Market Fund since December 1999 and the Money
Markets Group of New York Life and its subsidiaries since May 1997. He is a
member of the fixed income portfolio management team at New York Life. From 1992
to 1997,
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Mr. Boyce was an Investment Vice President responsible for Structured Finance
Investments at New York Life.
RUDOLPH C. CARRYL Mr. Carryl has managed the Growth Equity Fund since August
1992. Mr. Carryl is a Senior Managing Director of MacKay Shields. He joined
MacKay Shields as a Director in 1992 with twelve years of investment management
and research experience. Mr. Carryl was Research Director and Senior Portfolio
Manager at Value Line, Inc. from 1978 to 1992.
DAVID CLEMENT Mr. Clement has managed the Money Market Fund since inception and
is a member of the fixed income portfolio management team at New York Life. Mr.
Clement joined the Asset Management Group of New York Life in 1990.
JOHN FITZGERALD Mr. Fitzgerald is a portfolio manager of the Tax Free Bond Fund
and has managed the Fund since its inception. Mr. Fitzgerald became a manager of
the MainStay Funds California Tax Free Fund and the MainStay Funds New York Tax
Free Fund in July 2000. Prior to joining MacKay Shields, Mr. Fitzgerald was
Senior Portfolio Manager at SSB Citibank Asset Management where he managed
tax-exempt fixed income accounts for institutions and high net-worth individuals
from August 1999 to May 2000. Prior to this, Mr. Fitzgerald was a Vice President
and Portfolio Manager at BlackRock Inc. and an Assistant Vice President at TCW
Insurance Advisors.
HARVEY FRAM Mr. Fram is a portfolio manager of the Mid Cap Core Fund. Mr. Fram
joined Monitor Capital Advisors LLC in February 1999 as a Portfolio Manager and
Research Strategist. He is responsible for the management of quantitative equity
portfolios. Prior to joining Monitor, he was a quantitative equity research
analyst at ITG, a technology based equity brokerage firm. Mr. Fram was awarded
his CFA designation in 1999 and has an MBA from the Wharton School at the
University of Pennsylvania. As of January 2, 2000, Mr. Fram will manage the Fund
as an employee of NYLIM.
GARY GOODENOUGH Mr. Goodenough became a manager of the Bond Fund and the
Short-Term Bond Fund in July 2000. Mr. Goodenough is also a portfolio manager of
the Core Bond Plus Fund and has managed the Fund since its inception. Mr.
Goodenough joined MacKay Shields as Managing Director and Co-head of the Bond
Team in 2000. Prior to joining MacKay Shields, Mr. Goodenough was a Senior
Portfolio Manager at Loomis Sayles & Co. from December 1993 to May 2000. Prior
to this, he was a Managing Director at Bear Stearns & Company and was a Managing
Director of High Yield Bonds and a Managing Director of Global Bonds at Salomon
Brothers.
CHRISTOPHER HARMS Mr. Harms has managed the Short Term Bond Fund and the Bond
Fund since April 1999 and has managed the Core
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SHAREHOLDER GUIDE
Bond Plus Fund since its inception. Mr. Harms is a Managing Director of MacKay
Shields. He joined MacKay Shields in 1991.
STEPHEN B. KILLIAN Mr. Killian has managed the Indexed Equity Fund since
February 1999, the EAFE Index Fund since March 1999 and the Mid Cap Core Fund
since its inception. Mr. Killian is a Managing Director of NYLIM. In these roles
he has portfolio management responsibility for international equity funds,
active quantitative equity portfolios and development of quantitative
strategies. He joined Monitor Capital Capital Advisors LLC in 1997. Mr. Killian
was a Partner and Senior Portfolio Manager at RhumbLine Advisers from 1992 to
1997.
WESLEY G. MCCAIN Mr. McCain was the founder of Towneley Capital Management,
Inc. and is an officer of NYLIM. Mr. McCain has been directing the investment
process and co-managing the Balanced Fund, Mid Cap Value Fund. Small Cap Value
Fund and Ultra Short Term Income Fund since each Fund began operations. 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.
KATHY O'CONNOR Ms. O'Connor has been co-managing the Mid Cap Value Fund since
its inception in 1994 and the Small Cap Value Fund since 1987. She is an officer
of NYLIM and worked at Towneley since 1987. She holds a BBA from the University
of Massachusetts, an MBA from Babson College, and is a Chartered Financial
Analyst (CFA).
JOSEPH PORTERA Mr. Portera has managed the International Equity Fund since
September 1998. Mr. Portera is a Managing Director of MacKay Shields
specializing in international securities. He returned to MacKay Shields in
December 1996 after working at Fiduciary Trust Company International as a
portfolio manager in international bonds. Mr. Portera joined MacKay Shields in
1991 and was portfolio manager of the International Bond Fund from its inception
to August 1995 and from December 1996 to the present.
RICHARD A. ROSEN Mr. Rosen has managed the Value Equity Fund since February
1999. Mr. Rosen is a Managing Director of MacKay Shields in the Equity Division.
He joined MacKay Shields in January 1999 after working as a Managing Director
and equity portfolio manager at Prudential Investments from August 1991 to
January 1999.
JOAN SABELLA Ms. Sabella has been co-managing the Ultra Short Term Income Fund
since 1994 and the Balanced Fund since 1989. She is an officer of NYLIM and
worked at Towneley since 1978. She holds a BBA from Baruch College and is a
Certified Financial Planner (CFP).
EDMUND C. SPELMAN Mr. Spelman has managed the Growth Equity Fund since February
1991. Mr. Spelman is a Senior Managing Director of
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SHAREHOLDER GUIDE
MacKay Shields, and specializes in equity securities. He joined MacKay Shields
in 1991 after working as a securities analyst at Oppenheimer & Co., Inc. from
1984 to 1991.
LAURIE WALTERS Ms. Walters is a portfolio manager of the Tax Free Bond Fund and
has managed the Fund since its inception. Ms. Walters became a manager of the
MainStay Funds California Tax Free Fund and the MainStay Funds New York Tax Free
Fund in July 2000. Ms. Walters, who joined MacKay Shields in 1997, was a
Mortgage Trader at Bear Stearns & Company from September 1994 to February 1995
and with Nomura Securities International from 1987 to 1994. Prior to this, she
was an investment banking analyst at PaineWebber, Inc. Ms. Walters has 13 years
of investment management and research experience.
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FINANCIAL HIGHLIGHTS
Eclipse Funds Inc.
The financial highlights tables are intended to help you understand the Funds'
financial performance for the past 5 years or, if shorter, the period of the
Funds' operations. Certain information reflects financial results for a single
Fund share. The total returns in the tables represent the rate that an investor
would have earned or lost on an investment in the Funds (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Funds' financial
statements, are included in the annual reports, which are available upon
request.
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FINANCIAL HIGHLIGHTS
ASSET MANAGER FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
Year ended January 1, 1999 through Year ended December 31
October 31, 2000 October 31, 1999* 1998
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $14.57 $14.50 $15.36 $15.33 $14.83 $14.81
-------- ------- -------- ------- -------- -------
Net investment income 0.51 0.50 0.41 0.39 0.43 0.39
Net realized and unrealized gain (loss) on
investments 1.08 1.05 0.41 0.38 2.70 2.69
Net realized and unrealized gain (loss) on
foreign currency transactions (0.01) (0.01) (0.03) (0.03) 0.02 0.02
-------- ------- -------- ------- -------- -------
Total from investment operations 1.58 1.54 0.79 0.74 3.15 3.10
-------- ------- -------- ------- -------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income (0.50) (0.46) (0.01) (0.00)(a) (0.43) (0.39)
From net realized gain on investments (0.44) (0.44) (1.57) (1.57) (2.19) (2.19)
In excess of net realized gain on
investments -- -- -- -- -- --
-------- ------- -------- ------- -------- -------
Total dividends and distributions (0.94) (0.90) (1.58) (1.57) (2.62) (2.58)
-------- ------- -------- ------- -------- -------
Net asset value at end of period $15.21 $15.14 $14.57 $14.50 $15.36 $15.33
======== ======= ======== ======= ======== =======
Total investment return 11.18% 10.96% 5.58%(b) 5.31%(b) 21.31% 21.00%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income 3.45% 3.20% 3.40%+ 3.15%+ 2.64% 2.39%
Net expenses 0.83% 1.08% 0.78%+ 1.03%+ 0.80% 1.05%
Expenses (before reimbursement) 0.83% 1.08% 0.78%+ 1.03%+ 0.80% 1.05%
Portfolio turnover rate 49% 49% 18% 18% 55% 55%
Net assets at end of period (in 000's) $561,329 $27,978 $513,860 $29,087 $500,449 $16,853
</TABLE>
EAFE INDEX FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
Year ended January 1, 1999 through Year ended December 31
October 31, 2000 October 31, 1999* 1998
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $12.59 $12.51 $11.27 $11.22 $10.24 $10.20
------- ------- -------- ------- -------- -------
Net investment income 0.11 0.09 0.11 0.09 0.11 0.08
Net realized and unrealized gain (loss) on
investments (0.37) (0.36) 1.39 1.38 1.84 1.83
Net realized and unrealized gain (loss) on
foreign currency transactions (0.05) (0.05) (0.11) (0.11) 0.00(a) 0.00(a)
------- ------- -------- ------- -------- -------
Total from investment operations (0.31) (0.32) 1.39 1.36 1.95 1.91
------- ------- -------- ------- -------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income -- -- -- -- (0.11) (0.08)
From net realized gain on investments and
foreign currency transactions (1.06) (1.06) (0.06) (0.06) (0.72) (0.72)
In excess of net investment income -- -- (0.01) (0.01) (0.09) (0.09)
------- ------- -------- ------- -------- -------
Total dividends and distributions (1.06) (1.06) (0.07) (0.07) (0.92) (0.89)
------- ------- -------- ------- -------- -------
Net asset value at end of period $11.22 $11.13 $12.59 $12.51 $11.27 $11.22
======= ======= ======== ======= ======== =======
Total investment return (3.52)% (3.63)% 12.31%(b) 12.08%(b) 19.15% 18.83%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income 0.78% 0.53% 1.14%+ 0.89%+ 0.90% 0.65%
Net expenses 0.95%(d) 1.20%(d) 0.94%+ 1.19%+ 0.94% 1.19%
Expenses (before reimbursement) 1.29% 1.54% 1.32%+ 1.57%+ 1.38% 1.63%
Portfolio turnover rate 11% 11% 19% 19% 24% 24%
Net assets at end of period (in 000's) $68,513 $576 $67,582 $549 $65,087 $499
</TABLE>
(*) The Fund changed its fiscal year end from December 31 to October 31.
(+) Annualized.
(a) Less than one cent per share.
(b) Total return is not annualized.
(c) Service Class commenced January 1, 1995.
(d) The effect of non-reimbursable interest expense on the expense ratio was
0.01%.
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FINANCIAL HIGHLIGHTS
ASSET MANAGER FUND
<TABLE>
<CAPTION>
NO- NO- NO- NO-
LOAD SERVICE LOAD SERVICE LOAD SERVICE LOAD
CLASS CLASS CLASS CLASS CLASS CLASS(c) CLASS
Year Ended December 31
1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
$13.19 $13.19 $11.79 $11.79 $10.67 $10.67 $11.67
-------- ------ -------- ------ -------- ------ --------
0.34 0.31 0.38 0.34 0.48 0.47 0.45
3.15 3.13 1.53 1.53 2.39 2.39 (0.55)
(0.00)(a) (0.00)(a) (0.00)(a) (0.00)(a) (0.01) (0.01) --
-------- ------ -------- ------ -------- ------ --------
3.49 3.44 1.91 1.87 2.86 2.85 (0.10)
-------- ------ -------- ------ -------- ------ --------
(0.34) (0.31) (0.38) (0.34) (0.48) (0.47) (0.45)
(1.51) (1.51) (0.13) (0.13) (1.18) (1.18) (0.42)
-- -- -- -- (0.08) (0.08) (0.03)
-------- ------ -------- ------ -------- ------ --------
(1.85) (1.82) (0.51) (0.47) (1.74) (1.73) (0.90)
-------- ------ -------- ------ -------- ------ --------
$14.83 $14.81 $13.19 $13.19 $11.79 $11.79 $10.67
======== ====== ======== ====== ======== ====== ========
26.69% 26.30% 16.16% 15.89% 26.81% 26.70% (0.86%)
2.27% 2.02% 2.99% 2.74% 4.03% 3.78% 3.63%
0.76% 1.01% 0.70% 0.95% 0.70% 0.95% 0.70%
0.76% 1.01% 0.75% 1.00% 0.77% 1.02% 0.75%
19% 19% 103% 103% 261% 261% 128%
$414,824 $9,889 $323,790 $5,508 $273,351 $3,536 $229,079
</TABLE>
EAFE INDEX FUND
<TABLE>
<CAPTION>
NO- NO- NO- NO-
LOAD SERVICE LOAD SERVICE LOAD SERVICE LOAD
CLASS CLASS CLASS CLASS CLASS CLASS(c) CLASS
YEAR ENDED DECEMBER 31
1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
$14.00 $13.97 $13.56 $13.51 $12.63 $12.63 $12.03
-------- ------ -------- ------ -------- ------ --------
0.22 0.19 0.16 0.12 0.13 0.14 0.10
(0.28) (0.29) 0.71 0.73 1.11 1.05 0.70
(0.00)(a) (0.00)(a) (0.00)(a) (0.00)(a) (0.10) (0.10) 0.03
-------- ------ -------- ------ -------- ------ --------
(0.06) (0.10) 0.87 0.85 1.14 1.09 0.83
-------- ------ -------- ------ -------- ------ --------
(0.22) (0.19) (0.16) (0.12) (0.04) (0.04) (0.09)
(3.39) (3.39) (0.25) (0.25) (0.14) (0.14) (0.14)
(0.09) (0.09) (0.02) (0.02) (0.03) (0.03) --
-------- ------ -------- ------ -------- ------ --------
(3.70) (3.67) (0.43) (0.39) (0.21) (0.21) (0.23)
-------- ------ -------- ------ -------- ------ --------
$10.24 $10.20 $14.00 $13.97 $13.56 $13.51 $12.63
======== ====== ======== ====== ======== ====== ========
0.40% 0.08% 6.45% 6.37% 9.03% 8.63% 6.83%
1.04% 0.79% 1.11% 0.86% 1.01% 0.76% 0.57%
0.94% 1.19% 0.94% 1.19% 1.03% 1.28% 1.26%
1.26% 1.51% 1.23% 1.48% 1.24% 1.49% 1.26%
6% 6% 4% 4% 6% 6% 7%
$55,177 $439 $89,029 $396 $80,087 $257 $72,265
</TABLE>
<PAGE> 106
104
FINANCIAL HIGHLIGHTS
GROWTH EQUITY FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
Year Ended January 1, 1999 through Year ended December 31
October 31, 2000 October 31, 1999* 1998
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $36.45 $35.99 $33.48 $33.13 $25.43 $25.24
---------- ------- ---------- ------- ---------- -------
Net investment income (loss) (0.20)(b) (0.29)(b) (0.14)(b) (0.21)(b) (0.09)(b) (0.16)(b)
Net realized and unrealized gain
(loss) on investments 4.66 4.59 3.45 3.41 10.35 10.26
---------- ------- ---------- ------- ---------- -------
Total from investment operations 4.46 4.30 3.31 3.20 10.26 10.10
---------- ------- ---------- ------- ---------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income -- -- -- -- -- --
From net realized gain on investments (3.41) (3.41) (0.34) (0.34) (2.21) (2.21)
In excess of net investment income -- -- -- -- -- --
In excess of net realized gain on
investments -- -- -- -- -- --
---------- ------- ---------- ------- ---------- -------
Total dividends and distributions (3.41) (3.41) (0.34) (0.34) (2.21) (2.21)
---------- ------- ---------- ------- ---------- -------
Net asset value at end of period $37.50 $36.88 $36.45 $35.99 $33.48 $33.13
========== ======= ========== ======= ========== =======
Total investment return 12.24% 11.93% 9.96%(c) 9.74%(c) 40.50% 40.18%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income (loss) (0.52%) (0.77%) (0.49%)+ (0.74%)+ (0.31%) (0.56%)
Net expenses 0.93% 1.18% 0.93%+ 1.18%+ 0.94% 1.19%
Portfolio turnover rate 48% 48% 27% 27% 29% 29%
Net assets at end of period (in 000's) $1,197,216 $24,732 $1,049,756 $25,987 $975,010 $15,814
</TABLE>
INDEXED EQUITY FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
Year Ended January 1, 1999 through Year ended December 31
October 31, 2000 October 31, 1999* 1998
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $36.99 $36.80 $33.39 $33.28 $27.05 $26.99
---------- ------- ---------- ------- ---------- -------
Net investment income 0.37 0.27 0.31 0.21 0.38 0.31
Net realized and unrealized gain
(loss) on investments 1.86 1.85 3.60 3.62 7.36 7.31
---------- ------- ---------- ------- ---------- -------
Total from investment operations 2.23 2.12 3.91 3.83 7.74 7.62
---------- ------- ---------- ------- ---------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income (0.38) (0.30) -- -- (0.38) (0.31)
From net realized gain on investments (1.46) (1.46) (0.31) (0.31) (1.02) (1.02)
In excess of net realized gain on
investments -- -- -- -- -- --
---------- ------- ---------- ------- ---------- -------
Total dividends and distributions (1.84) (1.76) (0.31) (0.31) (1.40) (1.33)
---------- ------- ---------- ------- ---------- -------
Net asset value at end of period $37.38 $37.16 $36.99 $36.80 $33.39 $33.28
========== ======= ========== ======= ========== =======
Total investment return 5.98% 5.72% 11.80%(c) 11.60%(c) 28.62% 28.24%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income 0.95% 0.70% 1.06%+ 0.81%+ 1.29% 1.04%
Net expenses 0.30% 0.55% 0.30%+ 0.55%+ 0.30% 0.55%
Expenses (before reimbursement) 0.54% 0.79% 0.55%+ 0.80%+ 0.56% 0.81%
Portfolio turnover rate 11% 11% 7% 7% 8% 8%
Net assets at end of period (in 000's) $1,503,224 $64,254 $1,641,591 $61,647 $1,472,263 $36,442
</TABLE>
(*) The Fund changed its fiscal year end from December 31 to October 31.
(+) Annualized.
(a) Less than one cent per share.
(b) Per share data based on average shares outstanding during the period.
(c) Total return is not annualized.
(d) Service Class commenced January 1, 1995.
<PAGE> 107
105
FINANCIAL HIGHLIGHTS
GROWTH EQUITY FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD
CLASS CLASS CLASS CLASS CLASS CLASS(d) CLASS
Year ended December 31
1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
$21.99 $21.88 $18.84 $18.80 $13.68 $13.68 $14.40
-------- ------- -------- ------ -------- ------ --------
(0.08)(b) (0.14)(b) (0.06)(b) (0.11)(b) 0.02 (0.01) 0.01
5.45 5.43 4.14 4.12 5.16 5.14 (0.33)
-------- ------- -------- ------ -------- ------ --------
5.37 5.29 4.08 4.01 5.18 5.13 (0.32)
-------- ------- -------- ------ -------- ------ --------
-- -- -- -- (0.02) (0.01) (0.01)
(1.93) (1.93) (0.93) (0.93) -- -- (0.39)
-- -- -- -- (0.00)(a) (0.00)(a) --
-- -- -- -- (0.00)(a) (0.00)(a) (0.00)(a)
-------- ------- -------- ------ -------- ------ --------
(1.93) (1.93) (0.93) (0.93) (0.02) (0.01) (0.40)
-------- ------- -------- ------ -------- ------ --------
$25.43 $25.24 $21.99 $21.88 $18.84 $18.80 $13.68
======== ======= ======== ====== ======== ====== ========
24.73% 24.50% 21.62% 21.29% 37.88% 37.50% (2.23%)
(0.31%) (0.56%) (0.27%) (0.52%) 0.12% (0.13%) 0.04%
0.93% 1.18% 0.92% 1.17% 0.93% 1.18% 0.92%
36% 36% 22% 22% 33% 33% 37%
$700,070 $10,668 $541,212 $6,842 $412,129 $2,729 $284,388
</TABLE>
INDEXED EQUITY FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD
CLASS CLASS CLASS CLASS CLASS CLASS(d) CLASS
Year ended December 31
1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
$21.05 $21.01 $17.82 $17.81 $13.53 $13.53 $13.86
-------- ------- -------- ------ -------- ------ --------
0.37 0.32 0.34 0.31 0.35 0.33 0.33
6.54 6.52 3.69 3.66 4.64 4.64 (0.20)
-------- ------- -------- ------ -------- ------ --------
6.91 6.84 4.03 3.97 4.99 4.97 0.13
-------- ------- -------- ------ -------- ------ --------
(0.37) (0.32) (0.34) (0.31) (0.34) (0.33) (0.33)
(0.54) (0.54) (0.46) (0.46) (0.36) (0.36) (0.13)
-- -- -- -- -- -- 0.00(a)
-------- ------- -------- ------ -------- ------ --------
(0.91) (0.86) (0.80) (0.77) (0.70) (0.69) (0.46)
-------- ------- -------- ------ -------- ------ --------
$27.05 $26.99 $21.05 $21.01 $17.82 $17.81 $13.53
======== ======= ======== ====== ======== ====== ========
32.88% 32.60% 22.57% 22.21% 36.88% 36.70% 0.90%
1.56% 1.31% 1.96% 1.71% 2.21% 1.96% 2.43%
0.30% 0.55% 0.44% 0.69% 0.50% 0.75% 0.50%
0.56% 0.81% 0.59% 0.84% 0.59% 0.84% 0.58%
3% 3% 8% 8% 4% 4% 5%
$966,217 $13,828 $617,716 $5,865 $354,420 $969 $244,685
</TABLE>
<PAGE> 108
106
FINANCIAL HIGHLIGHTS
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
Year ended January 1, 1999 through Year ended December 31
October 31, 2000 October 31, 1999* 1998
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $13.10 $12.97 $11.81 $11.72 $9.93 $9.85
-------- ------ -------- ------ -------- ------
Net investment income 0.05 0.02 0.10 0.05 0.13 0.11
Net realized and unrealized gain (loss) on
investments (0.81) (0.79) 1.30 1.31 2.12 2.11
Net realized and unrealized gain (loss) on
foreign currency transactions (0.37) (0.37) (0.08) (0.08) (0.03) (0.03)
-------- ------ -------- ------ -------- ------
Total from investment operations (1.13) (1.14) 1.32 1.28 2.22 2.19
-------- ------ -------- ------ -------- ------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income and net
realized gain on foreign currency
transactions -- -- -- -- (0.24) (0.22)
From net realized gain on investments (0.53) (0.53) -- -- -- --
In excess of net investment income -- -- (0.03) (0.03) (0.10) (0.10)
-------- ------ -------- ------ -------- ------
Total dividends and distributions (0.53) (0.53) (0.03) (0.03) (0.34) (0.32)
-------- ------ -------- ------ -------- ------
Net asset value at end of period $11.44 $11.30 $13.10 $12.97 $11.81 $11.72
======== ====== ======== ====== ======== ======
Total investment return (9.44)% (9.62)% 11.23%(a) 10.96%(a) 22.41% 22.20%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income 0.38% 0.13% 1.00%+ 0.75%+ 1.14% 0.89%
Net expenses 1.03% 1.28% 1.01%+ 1.26%+ 1.00% 1.25%
Expenses (before reimbursement) 1.03% 1.28% 1.01%+ 1.26%+ 1.03% 1.28%
Portfolio turnover rate 39% 39% 35% 35% 51% 51%
Net assets at end of period (in 000's) $141,316 $486 $152,928 $671 $140,630 $675
</TABLE>
VALUE EQUITY FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
Year ended January 1, 1999 through Year ended December 31
October 31, 2000 October 31, 1999* 1998
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $12.69 $12.66 $11.76 $11.76 $16.36 $16.35
-------- ------ -------- ------ -------- ------
Net investment income 0.15 0.10 0.09 0.06 0.18 0.14
Net realized and unrealized gain (loss) on
investments 1.27 1.28 0.84 0.84 (1.58) (1.57)
-------- ------ -------- ------ -------- ------
Total from investment operations 1.42 1.38 0.93 0.90 (1.40) (1.43)
-------- ------ -------- ------ -------- ------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income (0.11) (0.07) (0.00)(b) (0.00)(b) (0.18) (0.14)
From net realized gain on investments -- -- -- -- (2.90) (2.90)
In excess of net realized gain on
investments -- -- -- -- (0.12) (0.12)
-------- ------ -------- ------ -------- ------
Total dividends and distributions (0.11) (0.07) (0.00)(b) (0.00)(b) (3.20) (3.16)
-------- ------ -------- ------ -------- ------
Net asset value at end of period $14.00 $13.97 $12.69 $12.66 $11.76 $11.76
======== ====== ======== ====== ======== ======
Total investment return 11.31% 11.00% 7.91%(a) 7.65%(a) (8.10%) (8.30%)
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income 1.12% 0.87% 0.84%+ 0.59%+ 1.04% 0.79%
Net expenses 0.94% 1.19% 0.96%+ 1.21%+ 0.98% 1.23%
Portfolio turnover rate 96% 96% 49% 49% 76% 76%
Net assets at end of period (in 000's) $742,924 $5,776 $741,300 $7,418 $800,993 $9,740
</TABLE>
(*) The Fund changed its fiscal year end from December 31 to October 31.
(+) Annualized.
(a) Total return is not annualized.
(b) Less than one cent per share.
(c) Commencement of operations.
(d) Service Class commenced January 1, 1995.
<PAGE> 109
107
FINANCIAL HIGHLIGHTS
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
Year ended December 31 January 1, 1995(c) through
1997 1996 December 31, 1995
<S> <C> <C> <C> <C> <C> <C>
$10.63 $10.58 $10.35 $10.33 $10.00 $10.00
-------- ------- -------- ------- -------- ------
1.14 1.11 0.64 0.62 0.36 0.35
(0.10) (0.10) 0.09 0.09 0.17 0.16
(0.49) (0.52) 0.51 0.48 0.18 0.17
-------- ------- -------- ------- -------- ------
0.55 0.49 1.24 1.19 0.71 0.68
-------- ------- -------- ------- -------- ------
(0.96) (0.93) (0.84) (0.82) (0.10) (0.09)
(0.29) (0.29) (0.12) (0.12) (0.26) (0.26)
-- -- -- -- (0.00)(b) (0.00)(b)
-------- ------- -------- ------- -------- ------
(1.25) (1.22) (0.96) (0.94) (0.36) (0.35)
-------- ------- -------- ------- -------- ------
$9.93 $9.85 $10.63 $10.58 $10.35 $10.33
======== ======= ======== ======= ======== ======
5.44% 4.88% 12.09% 11.59% 7.17% 6.86%
1.23% 0.98% 0.83% 0.58% 1.05% 0.80%
1.00% 1.25% 1.00% 1.25% 1.00% 1.25%
1.04% 1.29% 1.07% 1.32% 1.07% 1.32%
37% 37% 23% 23% 26% 26%
$113,774 $607 $126,280 $725 $96,714 $213
</TABLE>
VALUE EQUITY FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD
CLASS CLASS CLASS CLASS CLASS CLASS(d) CLASS
Year Ended December 31
1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
$15.87 $15.85 $14.43 $14.43 $11.58 $11.58 $12.40
-------- ------- -------- ------- -------- ------ --------
0.23 0.16 0.25 0.23 0.21 0.20 0.17
3.31 3.32 2.98 2.96 3.20 3.20 (0.02)
-------- ------- -------- ------- -------- ------ --------
3.54 3.48 3.23 3.19 3.41 3.40 0.15
-------- ------- -------- ------- -------- ------ --------
(0.23) (0.16) (0.25) (0.23) (0.21) (0.20) (0.17)
(2.82) (2.82) (1.54) (1.54) (0.35) (0.35) (0.80)
-- -- -- -- -- -- --
-------- ------- -------- ------- -------- ------ --------
(3.05) (2.98) (1.79) (1.77) (0.56) (0.55) (0.97)
-------- ------- -------- ------- -------- ------ --------
$16.36 $16.35 $15.87 $15.85 $14.43 $14.43 $11.58
======== ======= ======== ======= ======== ====== ========
22.63% 22.28% 22.41% 22.10% 29.42% 29.32% 1.22%
1.30% 1.05% 1.70% 1.45% 1.64% 1.39% 1.50%
0.93% 1.18% 0.92% 1.17% 0.93% 1.18% 0.92%
66% 66% 50% 50% 51% 51% 43%
$984,220 $11,010 $821,725 $14,752 $603,749 $3,213 $396,537
</TABLE>
<PAGE> 110
108
FINANCIAL HIGHLIGHTS
BOND FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
Year ended January 1, 1999 through Year ended December 31
October 31, 2000 October 31, 1999* 1998
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $9.75 $9.69 $9.91 $9.88 $9.71 $9.68
-------- ------ -------- ------ -------- ------
Net investment income 0.57 0.55 0.47 0.47 0.57 0.54
Net realized and unrealized gain (loss) on
investments (0.01) (0.01) (0.63) (0.66) 0.20 0.20
-------- ------ -------- ------ -------- ------
Total from investment operations 0.56 0.54 (0.16) (0.19) 0.77 0.74
-------- ------ -------- ------ -------- ------
LESS DIVIDENDS:
From net investment income (0.56) (0.53) (0.00)(b) (0.00)(b) (0.57) (0.54)
-------- ------ -------- ------ -------- ------
Net asset value at end of period $9.75 $9.70 $9.75 $9.69 $9.91 $9.88
======== ====== ======== ====== ======== ======
Total investment return 6.21% 5.96% (1.61%)(a) (1.92%)(a) 7.93% 7.73%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income 6.05% 5.80% 5.55%+ 5.30%+ 5.57% 5.32%
Net expenses 0.75% 1.00% 0.75%+ 1.00%+ 0.75% 1.00%
Expenses (before reimbursement) 0.83% 1.08% 0.85%+ 1.10%+ 0.86% 1.11%
Portfolio turnover rate 361% 361% 245% 245% 335% 335%
Net assets at end of period (in 000's) $193,466 $3,181 $174,521 $3,742 $182,402 $4,290
</TABLE>
INDEXED BOND FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
Year ended January 1, 1999 through Year ended December 31
October 31, 2000 October 31, 1999* 1998
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $10.76 $10.74 $10.93 $10.92 $10.74 $10.74
-------- ------ -------- ------ -------- ------
Net investment income 0.72 0.67 0.62 0.61 0.69 0.66
Net realized and unrealized gain (loss) on
investments 0.00(b) 0.01 (0.79) (0.79) 0.19 0.18
-------- ------ -------- ------ -------- ------
Total from investment operations 0.72 0.68 (0.17) (0.18) 0.88 0.84
-------- ------ -------- ------ -------- ------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income (0.75) (0.72) -- -- (0.69) (0.66)
From net realized gain on investments -- -- -- -- -- --
-------- ------ -------- ------ -------- ------
Total dividends and distributions (0.75) (0.72) -- -- (0.69) (0.66)
-------- ------ -------- ------ -------- ------
Net asset value at end of period $10.73 $10.70 $10.76 $10.74 $10.93 $10.92
======== ====== ======== ====== ======== ======
Total investment return 7.27% 6.87% (1.56%)(a) (1.65%)(a) 8.21% 7.86%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income 6.63% 6.38% 6.42%+ 6.17%+ 6.37% 6.12%
Net expenses 0.50% 0.75% 0.50%+ 0.75%+ 0.50% 0.75%
Expenses (before reimbursement) 0.63% 0.88% 0.62%+ 0.87%+ 0.65% 0.90%
Portfolio turnover rate 20% 20% 31% 31% 14% 14%
Net assets at end of period (in 000's) $136,033 $3,634 $145,427 $3,345 $156,244 $3,881
</TABLE>
(*) The Fund changed its fiscal year end from December 31 to October 31.
(+) Annualized.
(a) Total return is not annualized.
(b) Less than one cent per share.
(c) Service Class commenced January 1, 1995.
<PAGE> 111
109
FINANCIAL HIGHLIGHTS
BOND FUND
<TABLE>
<CAPTION>
NO- NO- NO-
LOAD SERVICE LOAD SERVICE LOAD SERVICE NO-LOAD
CLASS CLASS CLASS CLASS CLASS CLASS(c) CLASS
Year ended December 31
1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
$9.51 $9.49 $9.85 $9.83 $8.93 $8.93 $9.98
-------- ------ -------- ------ -------- ------ --------
0.61 0.59 0.62 0.60 0.68 0.67 0.72
0.20 0.19 (0.34) (0.34) 0.92 0.90 (1.05)
-------- ------ -------- ------ -------- ------ --------
0.81 0.78 0.28 0.26 1.60 1.57 (0.33)
-------- ------ -------- ------ -------- ------ --------
(0.61) (0.59) (0.62) (0.60) (0.68) (0.67) (0.72)
-------- ------ -------- ------ -------- ------ --------
$9.71 $9.68 $9.51 $9.49 $9.85 $9.83 $8.93
======== ====== ======== ====== ======== ====== ========
8.57% 8.21% 2.80% 2.62% 17.88% 17.55% (3.31%)
6.21% 5.96% 6.10% 5.85% 6.62% 6.37% 7.13%
0.75% 1.00% 0.75% 1.00% 0.75% 1.00% 0.75%
0.85% 1.10% 0.86% 1.11% 0.86% 1.11% 0.82%
338% 338% 398% 398% 470% 470% 478%
$183,846 $1,531 $177,009 $1,597 $193,518 $749 $202,970
</TABLE>
INDEXED BOND FUND
<TABLE>
<CAPTION>
NO- NO- NO-
LOAD SERVICE LOAD SERVICE LOAD SERVICE NO-LOAD
CLASS CLASS CLASS CLASS CLASS CLASS(c) CLASS
Year ended December 31
1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
$10.52 $10.52 $10.99 $10.99 $10.06 $10.06 $11.08
-------- ------ -------- ------ -------- ------ --------
0.73 0.70 0.76 0.74 0.82 0.81 0.65
0.22 0.22 (0.48) (0.48) 1.00 1.00 (1.03)
-------- ------ -------- ------ -------- ------ --------
0.95 0.92 0.28 0.26 1.82 1.81 (0.38)
-------- ------ -------- ------ -------- ------ --------
(0.73) (0.70) (0.75) (0.73) (0.82) (0.81) (0.64)
-- -- -- -- (0.07) (0.07) --
-------- ------ -------- ------ -------- ------ --------
(0.73) (0.70) (0.75) (0.73) (0.89) (0.88) (0.64)
-------- ------ -------- ------ -------- ------ --------
$10.74 $10.74 $10.52 $10.52 $10.99 $10.99 $10.06
======== ====== ======== ====== ======== ====== ========
9.01% 8.75% 2.55% 2.34% 18.07% 17.97% (3.44%)
6.60% 6.35% 6.21% 5.96% 6.38% 6.13% 6.13%
0.50% 0.75% 0.50% 0.75% 0.50% 0.75% 0.50%
0.65% 0.90% 0.65% 0.90% 0.63% 0.88% 0.61%
32% 32% 312% 312% 284% 284% 274%
$117,922 $3,015 $109,482 $2,764 $163,219 $471 $169,404
</TABLE>
<PAGE> 112
110
FINANCIAL HIGHLIGHTS
INTERNATIONAL BOND FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
Year Ended January 1, 1999 through Year ended December 31
October 31, 2000 October 31, 1999* 1998
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $9.80 $9.74 $10.56 $10.52 $10.05 $10.01
-------- -------- -------- ------ -------- --------
Net investment income 0.38 0.33 0.35 0.37 0.56 0.53
Net realized and unrealized gain (loss) on
investments (0.89) (0.86) (0.62) (0.65) 0.71 0.71
Net realized and unrealized gain (loss) on
foreign currency transactions (0.78) (0.77) (0.30) (0.30) (0.01) (0.01)
-------- -------- -------- ------ -------- --------
Total from investment operations (1.29) (1.30) (0.57) (0.58) 1.26 1.23
-------- -------- -------- ------ -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income and net
realized gain on foreign currency
transactions (0.15) (0.11) (0.04) (0.04) (0.63) (0.60)
From net realized gain on investments -- -- (0.13) (0.13) (0.12) (0.12)
In excess of net investment income -- -- (0.02) (0.03) -- --
-------- -------- -------- ------ -------- --------
Total dividends and distributions (0.15) (0.11) (0.19) (0.20) (0.75) (0.72)
-------- -------- -------- ------ -------- --------
Net asset value at end of period $8.36 $8.33 $9.80 $9.74 $10.56 $10.52
======== ======== ======== ====== ======== ========
Total investment return (13.34%) (13.49%) (5.33%)(c) (5.50%)(c) 12.53% 12.30%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income 4.15% 3.90% 4.36%+ 4.11%+ 5.61% 5.36%
Net expenses 0.97%(e) 1.22%(e) 0.95%+ 1.20%+ 0.95% 1.20%
Expenses (before reimbursement) 1.08% 1.33% 1.07%+ 1.32%+ 1.08% 1.33%
Portfolio turnover rate 175% 175% 251% 251% 299% 299%
Net assets at end of period (in 000's) $43,348 $114 $58,585 $199 $62,549 $234
</TABLE>
MONEY MARKET FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
Year Ended January 1, 1999 through Year ended December 31
October 31, 2000 October 31, 1999* 1998
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- ------ -------- --------
Net investment income 0.06 0.06 0.04 0.04 0.05 0.05
-------- -------- -------- ------ -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income (0.06) (0.06) (0.04) (0.04) (0.05) (0.05)
From net realized gain on investments -- -- -- -- -- --
-------- -------- -------- ------ -------- --------
Total dividends and distributions (0.06) (0.06) (0.04) (0.04) (0.05) (0.05)
-------- -------- -------- ------ -------- --------
Net asset value at end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ====== ======== ========
Total investment return 5.98% 5.72% 3.96%(c) 3.74%(c) 5.25% 4.99%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income 5.81% 5.56% 4.68%+ 4.43%+ 5.12% 4.87%
Net expenses 0.50% 0.75% 0.50%+ 0.75%+ 0.50% 0.75%
Expenses (before reimbursement) 0.57% 0.82% 0.62%+ 0.87%+ 0.63% 0.88%
Net assets at end of period (in 000's) $160,942 $1,586 $246,713 $5,630 $194,338 $103,765
</TABLE>
(*) The Fund changed its fiscal year end from December 31 to October 31.
(+) Annualized.
(a) Commencement of operations.
(b) Less than one cent per share.
(c) Total return is not annualized.
(d) Service Class commenced January 1, 1995.
(e) The effect of non-reimbursable interest expense on the expense ratio was
0.02%.
<PAGE> 113
111
FINANCIAL HIGHLIGHTS
INTERNATIONAL BOND FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
Year ended December 31 January 1, 1995(a) through
1997 1996 December 31, 1995
<S> <C> <C> <C> <C> <C> <C>
$11.10 $11.07 $11.16 $11.14 $10.00 $10.00
-------- ------- -------- ------- ------- ------
1.01 0.98 1.21 1.19 0.70 0.70
(1.11) (1.13) 0.11 0.11 1.12 1.10
0.40 0.41 0.27 0.26 0.02 0.02
-------- ------- -------- ------- ------- ------
0.30 0.26 1.59 1.56 1.84 1.82
-------- ------- -------- ------- ------- ------
(0.99) (0.96) (1.37) (1.35) (0.55) (0.55)
(0.36) (0.36) (0.28) (0.28) (0.13) (0.13)
-- -- -- -- -- --
-------- ------- -------- ------- ------- ------
(1.35) (1.32) (1.65) (1.63) (0.68) (0.68)
-------- ------- -------- ------- ------- ------
$10.05 $10.01 $11.10 $11.07 $11.16 $11.14
======== ======= ======== ======= ======= ======
2.62% 2.27% 14.32% 14.08% 18.46% 18.26%
5.86% 5.61% 6.02% 5.77% 6.61% 6.36%
0.95% 1.20% 0.95% 1.20% 0.95% 1.20%
1.10% 1.35% 1.08% 1.33% 1.03% 1.28%
186% 186% 57% 57% 92% 92%
$48,613 $235 $51,980 $225 $44,388 $6
</TABLE>
MONEY MARKET FUND
<TABLE>
<CAPTION>
NO- NO- NO-
LOAD SERVICE LOAD SERVICE LOAD SERVICE NO-LOAD
CLASS CLASS CLASS CLASS CLASS CLASS(d) CLASS
Year ended December 31
1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
$1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- ------- -------- ------- ------- ------ -------
0.05 0.05 0.05 0.05 0.05 0.05 0.04
-------- ------- -------- ------- ------- ------ -------
(0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.04)
(0.00)(b) (0.00)(b) -- -- -- -- --
-------- ------- -------- ------- ------- ------ -------
(0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.04)
-------- ------- -------- ------- ------- ------ -------
$1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ======= ======== ======= ======= ====== =======
5.27% 5.01% 5.11% 4.85% 5.63% 5.46% 3.88%
5.18% 4.93% 5.00% 4.75% 5.48% 5.23% 3.89%
0.50% 0.75% 0.50% 0.75% 0.50% 0.75% 0.50%
0.61% 0.86% 0.67% 0.92% 0.73% 0.98% 0.68%
$190,319 $64,228 $110,760 $34,664 $67,869 $2,784 $65,106
</TABLE>
<PAGE> 114
112
FINANCIAL HIGHLIGHTS
SHORT TERM BOND FUND
<TABLE>
<CAPTION>
NO-LOAD SERVICE NO-LOAD SERVICE NO-LOAD SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
Year ended October 31, January 1, 1999 through Year ended December 31
2000 October 31, 1999* 1998
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $9.63 $9.59 $9.43 $9.41 $9.39 $9.38
------- ------ ------- ------ ------- ------
Net investment income 0.57(c) 0.54(c) 0.47 0.45 0.56 0.53
Net realized and unrealized gain (loss)
on investments (0.03) (0.03) (0.27) (0.27) 0.04 0.03
------- ------ ------- ------ ------- ------
Total from investment operations 0.54 0.51 0.20 0.18 0.60 0.56
------- ------ ------- ------ ------- ------
LESS DIVIDENDS:
From net investment income (0.81) (0.78) -- -- (0.56) (0.53)
------- ------ ------- ------ ------- ------
Net asset value at end of period $9.36 $9.32 $9.63 $9.59 $9.43 $9.41
======= ====== ======= ====== ======= ======
Total investment return 6.05% 5.78% 2.12%(a) 1.91%(a) 6.37% 5.98%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income 6.20% 5.95% 5.42%+ 5.17%+ 5.95% 5.70%
Net expenses 0.61%(d) 0.86%(d) 0.60%+ 0.85%+ 0.60% 0.85%
Expenses (before reimbursement) 0.99% 1.24% 0.85%+ 1.10%+ 0.89% 1.14%
Portfolio turnover rate 165% 165% 105% 105% 125% 125%
Net assets at end of period (in 000's) $31,146 $1,061 $48,150 $1,036 $42,219 $1,273
</TABLE>
(*) The Fund changed its fiscal year end from December 31 to October 31.
(+) Annualized.
(a) Total return is not annualized.
(b) Service Class commenced January 1, 1995.
(c) Per share data based on average shares outstanding during the year.
(d) The effect of non-reimbursable interest expense on the expense ratio was
0.01%.
<PAGE> 115
113
FINANCIAL HIGHLIGHTS
SHORT TERM BOND FUND
<TABLE>
<CAPTION>
NO- NO- NO-
LOAD SERVICE LOAD SERVICE LOAD SERVICE NO-LOAD
CLASS CLASS CLASS CLASS CLASS CLASS(b) CLASS
Year ended December 31
1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
$9.48 $9.46 $9.68 $9.67 $9.37 $9.37 $10.33
------- ------ ------- ------ ------- ------ -------
0.67 0.64 0.66 0.64 0.65 0.64 0.97
)
(0.09 (0.08) (0.20) (0.21) 0.31 0.30 (0.96)
------- ------ ------- ------ ------- ------ -------
0.58 0.56 0.46 0.43 0.96 0.94 0.01
------- ------ ------- ------ ------- ------ -------
(0.67) (0.64) (0.66) (0.64) (0.65) (0.64) (0.97)
------- ------ ------- ------ ------- ------ -------
$9.39 $9.38 $9.48 $9.46 $9.68 $9.67 $9.37
======= ====== ======= ====== ======= ====== =======
6.13% 5.98% 4.81% 4.46% 10.27% 10.07% 0.11%
6.24% 5.99% 5.85% 5.60% 6.38% 6.13% 5.90%
0.60% 0.85% 0.60% 0.85% 0.60% 0.85% 0.60%
0.82% 1.07% 0.79% 1.04% 0.82% 1.07% 0.72%
153% 153% 195% 195% 171% 171% 269%
$46,674 $1,485 $57,805 $1,316 $50,902 $1,128 $62,340
</TABLE>
<PAGE> 116
114
FINANCIAL HIGHLIGHTS
ECLIPSE FUNDS
This financial highlights table is intended to help you understand the Funds'
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). The information
for 2000 has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Eclipse Funds' financial statements, is included in the annual report,
which is available upon request. The information for years prior to 2000 was
audited by other independent accountants.
<PAGE> 117
115
FINANCIAL HIGHLIGHTS
ECLIPSE MID CAP VALUE FUND
<TABLE>
<CAPTION>
NO-LOAD NO-LOAD NO-LOAD NO-LOAD NO-LOAD
CLASS CLASS CLASS CLASS CLASS NO-LOAD
2000 1999 1998 1997 1996 CLASS
For the year ended December 31, 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $17.73 $17.76 $13.49 $12.31 $10.00
------- ------- -------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.11 0.06 0.03 0.22 0.11
Net gains or losses on securities
(both realized and unrealized) (0.13) 1.76 4.34 2.54 2.57
------- ------- -------- -------- -------- ------
Total from investment operations (0.02) 1.82 4.37 2.76 2.68
------- ------- -------- -------- -------- ------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.11) (0.06) (0.03) (0.23) (0.11)
Distributions from net realized
gains (1.54) (1.79) (0.07) (1.35) (0.26)
------- ------- -------- -------- -------- ------
Total distributions (1.65) (1.85) (0.10) (1.58) (0.37)
------- ------- -------- -------- -------- ------
Net asset value, end of year $16.06 $17.73 $17.76 $13.49 $12.31
======= ======= ======== ======== ======== ======
Total return 0.04% 10.35% 32.46% 22.40% 26.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
thousands) $83,064 $124,525 $109,452 $9,737 $7,960
Ratios to average net assets:
Expenses+ 1.05% 0.98% 0.94% 0.90% 1.00%#
Net investment income+ 0.51% 0.33% 0.36% 1.66% 1.57%
Portfolio turnover rate 50.65% 80.72% 51.66% 102.24% 63.16%
</TABLE>
+ Net of management fee waived, expressed as a percentage of average net assets,
equivalent to: 1999, 0.0%; 1998, 0.1%; 1997, 0.2%; 1996, 0.7%; 1995, 0.9%.
Also, net of expenses reimbursed by the Manager, expressed as a percentage of
average net assets, equivalent to: 1995, 0.05%.
# Includes expenses paid indirectly, which amounted to 0.10% of average net
assets.
<PAGE> 118
116
FINANCIAL HIGHLIGHTS
ECLIPSE SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
NO-LOAD NO-LOAD NO-LOAD NO-LOAD NO-LOAD NO-LOAD
CLASS CLASS CLASS CLASS CLASS CLASS
2000 1999 1998 1997 1996 1995
For the year ended December 31,
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $11.93 $14.19 $13.47 $13.56 $11.82
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.01 (0.00)* (0.02) 0.14 0.07
Net gains on securities
(both realized and unrealized) 0.35 0.42 4.40 3.89 2.26
-------- -------- -------- -------- -------- --------
Total from investment operations 0.36 0.42 4.38 4.03 2.33
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.01) -- -- (0.14) (0.07)
Distributions from net realized
gains (0.52) (2.68) (3.66) (3.98) (0.52)
-------- -------- -------- -------- -------- --------
Total distributions (0.53) (2.68) (3.66) (4.12) (0.59)
-------- -------- -------- -------- -------- --------
Net asset value, end of year $11.76 $11.93 $14.19 $13.47 $13.56
======== ======== ======== ======== ======== ========
Total return 3.05% 3.40% 33.30% 29.87% 19.69%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
thousands) $251,229 $201,492 $189,965 $170,747 $174,705
Ratios to average net assets:
Expenses 1.18%# 1.14%# 1.14%# 1.15%# 1.14%#
Net investment income (loss) 0.05% (0.00%)** (0.12%) 0.81% 0.45%
Portfolio turnover rate 56.09% 73.39% 55.47% 82.05% 74.40%
</TABLE>
* Less than one cent per share.
** Less than 0.01% of average net assets.
# Includes custodian fees and other expenses paid indirectly, which amounted to
less than 0.01% of average net assets for each year indicated.
<PAGE> 119
117
FINANCIAL HIGHLIGHTS
ECLIPSE BALANCED FUND
<TABLE>
<CAPTION>
NO-LOAD NO-LOAD NO-LOAD NO-LOAD NO-LOAD NO-LOAD
CLASS CLASS CLASS CLASS CLASS CLASS
2000 1999 1998 1997 1996 1995
For the year ended December 31,
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $21.37 $22.15 $21.00 $20.59 $17.76
------- ------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.58 0.61 0.66 0.78 0.64
Net gains or losses on securities
(both realized and unrealized) (0.68) 1.14 4.14 1.85 3.39
------- ------- -------- ------- ------- -------
Total from investment operations (0.10) 1.75 4.80 2.63 4.03
------- ------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.58) (0.61) (0.66) (0.78) (0.64)
Distributions from net realized
gains (1.16) (1.84) (2.99) (1.44) (0.56)
Distributions in excess of net
realized gains -- (0.08) -- -- --
------- ------- -------- ------- ------- -------
Total distributions (1.74) (2.53) (3.65) (2.22) (1.20)
------- ------- -------- ------- ------- -------
Net asset value, end of year $19.53 $21.37 $22.15 $21.00 $20.59
======= ======= ======== ======= ======= =======
Total return (0.36%) 8.03% 23.40% 12.91% 22.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
thousands) $77,169 $128,865 $84,246 $83,825 $85,922
Ratios to average net assets:
Expenses+ 0.94% 0.87% 0.84%# 0.80% 0.81%#
Net investment income+ 2.61% 2.76% 2.85% 3.56%
Portfolio turnover rate 33.17% 69.85% 46.66% 71.51% 74.72%
</TABLE>
+ Net of management fee waived by the Manager, expressed as a percentage of
average net assets: 1999, 0.0%; 1998, 0.1%; 1997, 0.2%; 1996, 0.2%; 1995,
0.3%.
# Includes expenses paid indirectly, which amounted to less than 0.01% of
average net assets.
<PAGE> 120
118
FINANCIAL HIGHLIGHTS
ECLIPSE ULTRA SHORT TERM INCOME FUND
<TABLE>
<CAPTION>
NO-LOAD NO-LOAD NO-LOAD NO-LOAD NO-LOAD
CLASS CLASS CLASS CLASS CLASS NO-LOAD
2000 1999 1998 1997 1996 CLASS
For the year ended December 31, 1995(a)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.03 $10.00 $10.03 $10.20 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.63 0.59 0.64 0.71 0.57
Net gains or losses on securities
(both realized and unrealized) (0.22) 0.03 (0.03) (0.16) 0.20
------ ------ ------ ------ ------ ------
Total from investment operations 0.41 0.62 0.61 0.55 0.77
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.63) (0.59) (0.64) (0.72) (0.57)
------ ------ ------ ------ ------ ------
Total distributions (0.63) (0.59) (0.64) (0.72) (0.57)
------ ------ ------ ------ ------ ------
Net asset value, end of year $9.81 $10.03 $10.00 $10.03 $10.20
====== ====== ====== ====== ====== ======
Total return 4.12% 6.27% 6.21% 5.48% 7.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
thousands) $7,693 $8,721 $5,393 $4,461 $4,610
Ratios to average net assets:
Expenses+# 0.12% 0.05% 0.00% 0.00% 0.22%
Net investment income+ 6.11% 6.20% 6.61% 6.76% 6.92%
Portfolio turnover rate 43.57% 36.02% 45.10% 46.82% 39.26%
</TABLE>
+ Net of management fee waived each year equivalent to 0.4% of average net
assets. Also net of expenses reimbursed, expressed as a percentage of average
net assets, equivalent to: 1999, 0.53%; 1998, 0.80%; 1997, 0.82%; 1996, 0.80%;
1995, 1.27%.
# Includes expenses paid indirectly which amounted to: 1999, 0.00%; 1998, less
than 0.01%; 1997, 0.00%; 1996, less than 0.01%; 1995, 0.04%.
a Per share amounts for years ended prior to December 31, 1996 have been
restated to reflect a 1 for 5 share split effective June 14, 1996.
<PAGE> 121
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and in the related Statements of Additional Information, in
connection with the offer contained in this Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by Eclipse or the Distributor. This Prospectus and the related
Statements of Additional Information do not constitute an offer by Eclipse or by
the Distributor to sell or a solicitation of any offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
STATEMENTS OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Funds. The current SAI for Eclipse Funds and
Eclipse Funds Inc. are incorporated by reference into this prospectus and have
been filed with the SEC.
ANNUAL/SEMIANNUAL REPORTS
Provide additional information about the Funds' investments and include
discussions of market conditions and investment strategies that significantly
affected the Funds' performance during the last fiscal year or fiscal period.
TO OBTAIN INFORMATION:
More information about the Funds, including the SAI and the Annual/Semiannual
Reports is available free upon request. To obtain information or for shareholder
inquiries, write to NYLIFE Distributors Inc., attn: Eclipse Marketing Dept., 300
Interpace Parkway, Building A, Parsippany, N.J. 07054, or call toll-free 1-866-
2ECLIPSE (1-866-232-5477).
You can also review and copy information about the Fund (including the SAI) by
visiting the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the public reference room may be obtained by calling the SEC at
1-800-SEC-0330. You may also visit the SEC's website at http://www.sec.gov, or
you may obtain copies of this information, by sending your written request and
duplicating fee to the Public Reference Section of the SEC, Washington, D.C.
20549-6009.
ECLIPSE FUNDS
SEC File Number: 811-6175 (Eclipse Funds Inc.)
SEC File Number: 811-4847 (Eclipse Funds)
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway
Building A
Parsippany, New Jersey 07054
Distributor of Eclipse Funds
NYLIFE Distributors Inc. is an indirect wholly owned
subsidiary of New York Life Insurance Company.
RECYCLE.LOGO
More information about the Funds is available free upon request. Call
1-866-2ECLIPSE (1-866-232-5477)
<PAGE> 122
ECLIPSE FUNDS
EQUITY FUNDS
Eclipse Growth Equity Fund
Eclipse Value Equity Fund
Eclipse Indexed Equity Fund
Eclipse Mid Cap Core Fund
Eclipse Mid Cap Value Fund
Eclipse Small Cap Value Fund
FIXED-INCOME FUNDS
Eclipse Bond Fund
Eclipse Core Bond Plus Fund
Eclipse Indexed Bond Fund
Eclipse Short Term Bond Fund
Eclipse Ultra Short Term Income Fund
Eclipse Tax Free Bond Fund
Eclipse Money Market Fund
BLENDED FUNDS
Eclipse Asset Manager Fund
Eclipse Balanced Fund
INTERNATIONAL FUNDS
Eclipse International Equity Fund
Eclipse EAFE Index Fund
Eclipse International Bond Fund
THIS COVER IS NOT PART OF THE PROSPECTUS.
For more information call toll-free 1-866-2ECLIPSE (1-866-232-5477).
[ECLIPSE LOGO]
<PAGE> 123
ECLIPSE FUNDS
ECLIPSE FUNDS INC.
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2001
This Statement of Additional Information (the "SAI") supplements the
information contained in the Prospectus dated March 1, 2001 for Eclipse Funds, a
Massachusetts business trust (the "Trust") and Eclipse Funds Inc., a Maryland
corporation (the "Company"), and should be read in conjunction with the
Prospectus. The Prospectus is available without charge by writing to Eclipse
Funds Inc., 260 Cherry Hill Road, Parsippany, New Jersey 07054-1108, or by
calling 1-866-2ECLIPS (866-232-5477). This SAI, although not in itself a
prospectus, is incorporated in its entirety by reference in and is made a part
of the Prospectus.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
SAI or in the related Prospectus, in connection with the offer contained herein,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Company, the Trust or NYLIFE
Distributors, Inc. (the "Distributor"). This SAI and the related Prospectus do
not constitute an offer by the Company or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction.
Shareholder inquiries should be made by writing directly to Eclipse Funds
Inc., 260 Cherry Hill Road, Parsippany, New Jersey 07054-1108, or by calling
1-866-2ECLIPS (866-232-5477). In addition, you can make inquiries through your
registered representatives.
The financial statements of each of the portfolios of the Company, including
the Statement of Assets and Liabilities and the Portfolios of Investments for
the year ended October 31, 2000, the Statement of Operations for the year ended
October 31, 2000, and the ten months ended October 31, 1999, the Statement of
Changes in Net Assets for the year ended October 31, 2000, the ten months ended
October 31, 1999 and the year ended December 31, 1998, the notes to the
Financial Statements, and the Report of the Independent Accountants, and each
Portfolio of Eclipse Funds, including the Statement of Assets and Liabilities
and the Portfolio of Investments for the year ended December 31, 2000, the
Statement of Operations for the year ended December 31, 2000, the Statement of
Changes in Net Assets for the years ended December 31, 2000 and 1999, the notes
to the Financial Statements, and the Report of Independent Accountants, all of
which are included in the Company's and the Trust's 2000 Annual Report to
Shareholders, are hereby incorporated by reference into this Statement of
Additional Information.
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TABLE OF CONTENTS
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ADDITIONAL INFORMATION ABOUT THE FUNDS..........................................
EQUITY FUNDS
ECLIPSE GROWTH EQUITY FUND.............................................
ECLIPSE VALUE EQUITY FUND..............................................
ECLIPSE INDEXED EQUITY FUND............................................
ECLIPSE MID CAP CORE FUND..............................................
ECLIPSE MID CAP VALUE FUND.............................................
ECLIPSE SMALL CAP VALUE FUND...........................................
FIXED INCOME FUNDS
ECLIPSE BOND FUND......................................................
ECLIPSE CORE BOND PLUS FUND............................................
ECLIPSE INDEXED BOND FUND..............................................
ECLIPSE SHORT TERM BOND FUND...........................................
ECLIPSE ULTRA SHORT TERM INCOME FUND...................................
ECLIPSE TAX FREE BOND FUND.............................................
ECLIPSE MONEY MARKET FUND..............................................
BLENDED FUNDS
ECLIPSE ASSET MANAGER FUND.............................................
ECLIPSE BALANCED FUND..................................................
INTERNATIONAL FUNDS
ECLIPSE INTERNATIONAL EQUITY FUND......................................
ECLIPSE EAFE INDEX FUND................................................
ECLIPSE INTERNATIONAL BOND FUND........................................
INVESTMENT PRACTICES, INSTRUMENTS AND RISKS COMMON TO MULTIPLE FUNDS............
DEPOSITARY RECEIPTS....................................................
ARBITRAGE..............................................................
BORROWING..............................................................
COMMERCIAL PAPER.......................................................
TEMPORARY DEFENSIVE POSITION; CASH EQUIVALENTS.........................
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS................
U.S. GOVERNMENT SECURITIES.............................................
STRIPPED CORPUS INTERESTS IN U.S. TREASURY SECURITIES..................
CORPORATE DEBT SECURITIES..............................................
LENDING OF PORTFOLIO SECURITIES........................................
ILLIQUID AND RESTRICTED SECURITIES.....................................
MUNICIPAL SECURITIES...................................................
BANKING INDUSTRY AND SAVINGS AND LOAN INDUSTRY OBLIGATIONS.............
FLOATING AND VARIABLE RATE SECURITIES..................................
FOREIGN SECURITIES.....................................................
FOREIGN GOVERNMENT AND SUPRANATIONAL ENTITY SECURITIES.................
FORWARD FOREIGN CURRENCY CONTRACTS.....................................
FOREIGN INDEX-LINKED INSTRUMENTS.......................................
WHEN-ISSUED AND FIRM OR STANDBY COMMITMENT AGREEMENTS..................
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES.....................
MORTGAGE DOLLAR ROLLS..................................................
BRADY BONDS............................................................
LOAN PARTICIPATION INTERESTS...........................................
REAL ESTATE INVESTMENT TRUSTS..........................................
RISK MANAGEMENT TECHNIQUES.............................................
OPTIONS ON SECURITIES..................................................
OPTIONS ON FOREIGN CURRENCIES..........................................
FUTURES TRANSACTIONS...................................................
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<TABLE>
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SWAP AGREEMENTS........................................................
WARRANTS
SHORT SALES AGAINST THE BOX............................................
RISKS ASSOCIATED WITH DEBT SECURITIES..................................
HIGH YIELD/HIGH RISK SECURITIES........................................
ZERO COUPON BONDS......................................................
SPECIAL CONSIDERATIONS FOR ECLIPSE EAFE INDEX FUND, ECLIPSE INDEXED EQUITY FUND,
ECLIPSE ASSET MANAGER FUND AND ECLIPSE INDEXED BOND FUND.....................
FUNDAMENTAL INVESTMENT RESTRICTIONS.............................................
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS.........................................
DIRECTORS, TRUSTEES AND OFFICERS................................................
THE MANAGER, THE SUBADVISOR AND THE DISTRIBUTOR.................................
MANAGEMENT AGREEMENT...................................................
SUB-ADVISORY AGREEMENT.................................................
SUB-ADMINISTRATION AGREEMENT...........................................
DISTRIBUTION AGREEMENT.................................................
SERVICE FEES...........................................................
PURCHASES AND REDEMPTIONS.......................................................
PORTFOLIO TRANSACTIONS AND BROKERAGE............................................
NET ASSET VALUE.................................................................
TAX INFORMATION.................................................................
PERFORMANCE INFORMATION.........................................................
OTHER INFORMATION...............................................................
CAPITALIZATION.........................................................
EFFECTIVE MATURITY.....................................................
CONTROL PERSONS AND SHARE OWNERSHIP OF THE FUNDS.......................
CODE OF ETHICS.........................................................
INDEPENDENT ACCOUNTANTS................................................
LEGAL COUNSEL..........................................................
TRANSFER AGENT.........................................................
CUSTODIAN..............................................................
REGISTRATION STATEMENT.................................................
APPENDIX A......................................................................
MOODY'S INVESTORS SERVICE, INC..................................................
STANDARD & POOR'S...............................................................
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ECLIPSE FUNDS
The Company was incorporated in Maryland on September 21, 1990 and is an
open-end management investment company (or mutual fund) currently consisting of
fourteen separate investment portfolios: Eclipse Growth Equity Fund, Eclipse
Value Equity Fund, Eclipse Indexed Equity Fund, Eclipse Mid Cap Core Fund,
Eclipse Bond Fund, Eclipse Core Bond Plus Fund, Eclipse Indexed Bond Fund,
Eclipse Short Term Bond Fund, Eclipse Tax Free Bond Fund, Eclipse Money Market
Fund, Eclipse Asset Manager Fund, Eclipse International Equity Fund, Eclipse
EAFE Index Fund, and Eclipse International Bond Fund. The Company was formerly
known as MainStay Institutional Funds Inc.
The Trust was established in Massachusetts by an Agreement and Declaration
of Trust dated July 30, 1986 and is an open-end diversified management
investment company. 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"). 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.
Eclipse Funds and Eclipse Funds Inc. are hereinafter collectively referred
to as "Eclipse" or the "Funds". The Board of Directors of the Company will
hereinafter be referred to as the "Directors" and the Board of Trustees of the
Trust will hereinafter be referred to as the "Trustees." The Directors and the
Trustees will collectively be referred to as the "Board." Each Fund, other than
the Eclipse International Bond Fund, is a diversified fund as defined under the
1940 Act.
New York Life Investment Management LLC ("NYLIM" or the "Manager") serves as
the manager for the Funds and has entered into Sub-Advisory agreements with
MacKay Shields LLC ("MacKay Shields" or the "Subadvisor") with respect to the
Eclipse Bond Fund, Eclipse Core Bond Plus Fund, Eclipse Growth Equity Fund,
Eclipse International Bond Fund, Eclipse International Equity Fund, Eclipse
Short Term Bond Fund, Eclipse Tax Free Bond Fund and Eclipse Value Equity Fund.
ADDITIONAL INFORMATION ABOUT THE FUNDS
The Prospectus discusses the investment objectives, principal investment
strategies and principal risks of the Funds. This section contains supplemental
information concerning certain of the securities and other instruments in which
the Funds may invest, the investment policies and portfolio strategies the Funds
may utilize, and certain risks involved with those investments, policies and
strategies. The Manager or the Subadvisor 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.
NONE OF THE FUNDS ALONE CONSTITUTES A COMPLETE INVESTMENT PROGRAM.
Investment decisions for each Fund are made independently from those of the
other accounts and investment companies that may be managed by the Manager or
the Subadvisor. However, if such other accounts or investment companies are
prepared to invest in, or desire to dispose of, securities in which one Fund
invests at the same time as another Fund managed by the Manager or the
Subadvisor, available investments or opportunities for sales will be allocated
equitably to each. In some cases, this procedure may adversely affect the size
of the position obtained for or disposed of by a Fund or the price paid or
received by a Fund.
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ECLIPSE GROWTH EQUITY FUND
The Eclipse Growth Equity Fund will invest at least 65% of its total assets,
under normal market conditions, in equity securities, including common stocks,
nonconvertible preferred stocks, securities convertible into or exchangeable for
common stocks (e.g., convertible preferred stocks and convertible debentures)
and warrants. Convertible preferred stocks and debentures must be rated when
purchased Baa or better by Moody's Investors Service Inc. ("Moody's") or BBB or
better by Standard & Poor's ("S&P" or "Standard & Poor's"), or if unrated,
considered by the Subadvisor to be of comparable quality.
The Eclipse Growth Equity Fund may also invest in options on common stocks
and stock indices, futures contracts and related options, stocks represented by
American Depositary Receipts ("ADRs") or European Depositary Receipts ("EDRs"),
foreign equity securities, obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities or by any of the states,
cash equivalents, or cash.
The Fund may enter into foreign currency exchange transactions using
currencies, options, futures or options on futures, or forward contracts to help
protect against foreign currency exchange risks involving foreign securities the
Fund owns or plans to own. Use of these contracts do, however, involve risks.
See "Risk Management Techniques" and related sections in this SAI.
Although it is not the Fund's policy generally to invest or trade for short
term profits, portfolio securities may be disposed of without regard to the
length of time held whenever the Subadvisor is of the opinion that a security no
longer has an appropriate appreciation potential or has reached its anticipated
level of performance, or when another security appears to offer relatively
greater appreciation potential or a relatively greater anticipated level of
performance.
However, certain requirements that must be satisfied in order for the Fund
to qualify as a regulated investment company for Federal income tax purposes may
limit the extent to which the Fund can sell securities and other assets held for
less than three months. (See "Tax Information".)
ECLIPSE VALUE EQUITY FUND
The Fund intends to purchase those securities which it believes to be
undervalued in the market relative to comparable securities. In assessing
whether a stock is undervalued, MacKay Shields, the Fund's Subadvisor,
considers, among other factors, a company's financial strength and earnings
predictability. The Fund may provide some protection on the downside through its
investment in companies whose current stock prices reflect, in MacKay Shields'
opinion, either unwarranted pessimism or unrecognized value.
Equity securities in which the Eclipse Value Equity Fund may invest include
common stocks and securities that can be exchanged for or converted into common
stocks (e.g., convertible preferred stocks and convertible debentures),
nonconvertible preferred stocks and warrants.
The Fund may also invest up to 35% of its total assets in options on common
stocks and stock indices, stocks represented by ADRs or EDRs, foreign equity
securities, zero coupon bonds, obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities or by any of the states,
cash equivalents or cash.
The convertible preferred stocks, debentures and zero coupon bonds in which
the Fund may invest, when purchased, must be, rated Baa or better by Moody's or
BBB or better by Standard & Poor's; or unrated but judged by the Subadvisor to
be of comparable quality.
The Fund may also invest in stock index futures contracts and related
options to protect against changes in stock prices.
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The Fund may participate in foreign currency exchange transactions using
currencies, options, futures or options on futures, or forward contracts to help
protect against foreign currency exchange risks involving foreign securities the
Fund owns or plans to own.
ECLIPSE INDEXED EQUITY FUND
In addition to the investments discussed in the Prospectus, the Eclipse
Indexed Equity Fund may invest up to 20% of total assets in options and futures
contracts to maintain cash reserves while being fully invested, to facilitate
trading or to reduce transaction costs. The Fund may also invest up to 10% of
its total assets in index swap agreements.
ECLIPSE MID CAP CORE FUND
The Eclipse Mid Cap Core Fund's investment objective is to seek long-term
growth of capital. The Fund normally invests at least 65% of the value of its
total assets in the stocks of companies with market capitalizations similar to
the market capitalization of those companies in the Russell Midcap Index. NYLIM,
the Fund's Manager, seeks those mid-cap companies that it believes will
outperform the average of the mid cap universe.
NYLIM uses a quantitative management approach that ranks stocks based on a
proprietary model. The model focuses on value, earnings, and behavioral
characteristics in the market. NYLIM ranks companies in the mid cap universe and
then generally invests in those companies ranked in the top 50% of the universe.
NYLIM ranks stocks based on the financial strength of the issuer and the
potential for strong, long-term earnings growth. This approach seeks to
overweight those mid cap stocks that NYLIM believes will outperform the mid cap
universe as a whole. Stocks are generally sold when they are no longer ranked in
the top half of the ranking by the proprietary model.
ECLIPSE MID CAP VALUE FUND
The investment objective of the Eclipse Mid Cap Value Fund is to seek high total
return. The Fund invests more than 65% of its assets in common and preferred
stock. The Fund invests primarily in mid-capitalization stocks that NYLIM, the
Fund's Manager, determines are value stocks. "Value" stocks are stocks that the
Manager determines (1) have strong or improving fundamental characteristics
(including margins, working capital, leverage, cash flow, returns on equity and
assets) and (2) have been overlooked by the marketplace so that they are
undervalued or "cheap" relative to the rest of the equity market. In selecting
stocks, the Manager applies quantitative and statistical methods to analyze the
relative quality and value of the stocks:
- 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).
- 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.
- Under normal conditions, the Manager keeps the Fund fully invested rather
than taking temporary cash positions.
- The Manager does not attempt to time the market or to hedge returns.
- 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.
- The Manager does not visit companies; it relies on statistical analysis of
the companies' financial statements.
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- 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.
- The Manager does not use options or futures.
- 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.
ECLIPSE SMALL CAP VALUE FUND
The investment objective of the Eclipse Small Cap Value Fund is to seek high
total return. The Fund invests primarily in small-capitalization stocks that
NYLIM, the Fund's Manager, determines are value stocks. "Value" stocks are
stocks that the Manager determines (1) have strong or improving fundamental
characteristics (including margins, working capital, leverage, cash flow,
returns on equity and assets) and (2) have been overlooked by the marketplace so
that they are undervalued or "cheap" relative to the rest of the equity market.
The Manager seeks relatively low portfolio turnover. In selecting stocks, the
Manager applies quantitative and statistical methods to analyze the relative
quality and price of the stocks.
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.
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. 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.
ECLIPSE BOND FUND
In addition to the investment discussed in the Prospectus, the Fund may
invest up to 20% of total assets in securities denominated in foreign
currencies. To the extent possible, the Fund will attempt to protect these
investments against risks stemming from differences in foreign exchange rates.
The Fund may enter into foreign currency exchange transactions using
currencies, options, futures or options on futures, or forward contracts to
protect against foreign exchange risks involving securities the Fund owns or
plans to own.
The Fund may also invest in interest rate and bond index futures contracts,
and options on these contracts, and options on debt securities.
MacKay Shields, the Fund's Subadvisor, will alter the average maturity of
the portfolio in accordance with its research and other methods.
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ECLIPSE CORE BOND PLUS FUND
The Eclipse Core Bond Plus Fund's investment objective is to seek to
maximize total return consistent with the preservation of capital. The Fund
normally invests at least 65% of its total assets in a diversified portfolio of
- Debt or debt-related securities issued or guaranteed by the US or foreign
governments, their agencies or instrumentalities;
- Obligations of international or supranational entities;
- Debt securities issued by US or foreign corporate entities;
- Zero coupon bonds;
- Mortgage-related and other asset-backed securities;
- Loan participation interests.
The Fund may also invest up to 20% of its total assets in debt securities
rated below investment grade and 10% of its total assets in foreign securities.
As part of the principal investment strategy, the Fund's Subadvisor may use
mortgage dollar rolls and portfolio securities lending techniques.
ECLIPSE INDEXED BOND FUND
The Eclipse Indexed Bond Fund invests primarily in a representative sample
of the securities in the Salomon Smith Barney Broad Investment Grade Bond Index
(the "BIG Index"). Bonds are selected for inclusion in the Fund's portfolio
based on credit quality, sector, maturity, coupon, current yield, yield to
maturity, duration, and convexity. NYLIM believes the indexing approach is an
effective method of simulating percentage changes in the BIG Index. It is a
reasonable expectation that there will be a close correlation between the Fund's
performance and that of the BIG Index in both rising and falling markets.
The Eclipse Indexed Bond Fund may invest up to 20% of total assets in bond
and interest rate index options and futures and options on these futures to
maintain cash reserves while fully invested, to facilitate trading, or reduce
transaction costs.
NYLIM may effect certain portfolio transactions involving when-issued,
delayed delivery and other types of securities that may have the effect of
increasing nominal portfolio turnover of the Fund.
ECLIPSE SHORT TERM BOND FUND
The Eclipse Short Term Bond Fund may invest in obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
mortgage-related and other asset-backed securities; certificates of deposits,
time deposits and bankers' acceptances issued by domestic or foreign banks or
savings and loan associations and denominated in U.S. dollars or foreign
currencies.
The Fund may also invest in domestic and foreign corporate debt securities,
municipal bonds, zero coupon bonds and variable or floating rate securities
rated Baa or better by Moody's or BBB or better by S&P when purchased; or, if
unrated, determined by the Subadvisor to be of comparable quality.
The Fund may invest up to 20% of total assets in securities denominated in
foreign currencies. To the extent possible, the Fund's Subadvisor will attempt
to protect against risks stemming from differences in foreign exchange rates.
The Fund may invest in foreign currency exchange transactions using currencies,
options, futures or options
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on futures, or forward contracts to protect against foreign currency exchange
risks involving securities the Fund owns or plans to own. See "Risk Management
Techniques" and related sections in this SAI.
The Fund may invest in interest rate and bond index futures contracts and
options on these contracts; and options on debt securities and in U.S. dollar-
or foreign currency-denominated obligations of foreign governments or their
subdivisions, agencies or instrumentalities, international agencies or
supranational entities.
In seeking to achieve capital appreciation, as an integral component of
total return, the Fund may use, among other research methods, historical yield
spread analysis, economic analysis, fundamental credit analysis and technical
(supply/demand) analysis.
The Fund may, to the extent permitted by law, invest in leveraged inverse
floating rate debt instruments ("inverse floaters"). Certain inverse floaters
may be deemed to be illiquid securities for purposes of the Fund's 10%
limitation on investments in such securities.
ECLIPSE ULTRA SHORT TERM INCOME FUND
The investment objective of the Eclipse 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 Eclipse 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.
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 Eclipse 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.
ECLIPSE TAX FREE BOND FUND
The Eclipse Tax Free Bond Fund's investment objective is to provide a high
level of current income free from regular federal income tax, consistent with
the preservation of capital. The Subadvisor uses a combined approach to
investing, analyzing economic trends as well as factors pertinent to particular
issuers and securities. Up to 25% of the Fund's total assets may be invested in
industrial development bonds. The Fund also may invest in pollution control
bonds and zero coupon bonds. The Fund may also invest more than 25% of its total
assets in municipal
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bonds that are related in such a way that an economic, business or political
development or change affecting one such security could also affect the other
securities (for example, securities whose issuers are located in the same
state). Some of the Fund's earnings may be subject to federal tax and most may
be subject to state and local taxes.
The values of debt securities fluctuate depending upon various factors,
including:
- interest rates
- issuer creditworthiness
- market conditions
- maturities.
Consistent with its principal investment strategies, the Fund's investments
include derivatives, such as call and put options, futures contracts on debt
securities or securities indexes and options on futures contracts. The Fund may
use derivatives to try to enhance returns or reduce the risk of loss of (hedge)
certain of its holdings. Regardless of the purpose, the Fund may lose money
using derivatives. The use of derivatives may increase the volatility of the
Funds, net asset value and may involve a small investment of cash relative to
the magnitude of risk assumed.
The duration of the Fund's portfolio will be managed in light of current and
projected economic and market conditions and other factors considered relevant
by the Subadvisor.
ECLIPSE MONEY MARKET FUND
The Eclipse Money Market Fund may invest its assets in U.S.
dollar-denominated securities of U.S. or foreign issuers and in securities of
foreign branches of U.S. banks, such as negotiable certificates of deposit
(Eurodollars). Since the portfolio of the Fund may contain such securities, an
investment therein involves investment risks that are different in some respects
from an investment in a fund which invests only in debt obligations of U.S.
domestic issuers. Such risks may include future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on the securities held in the portfolio, possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of the principal of and interest on securities in
the portfolio.
All of the assets of the Fund generally will be invested in obligations
which mature in 397 days or less and substantially all of these investments will
be held to maturity; however, securities collateralizing repurchase agreements
may have maturities in excess of 397 days. The Fund will, to the extent
feasible, make portfolio investments primarily in anticipation of or in response
to changing economic and money market conditions and trends. The dollar-weighted
average maturity of the Fund's portfolio may not exceed 90 days. Consistent with
the provisions of Rule 2a-7 under the 1940 Act, the Fund invests only in U.S.
dollar-denominated money market instruments that present minimal credit risk
and, with respect to 95% of its total assets, measured at the time of
investment, that are of the highest quality. NYLIM, the Fund's Manager, shall
determine whether a security presents minimal credit risk under procedures
adopted by the Company's Board of Directors. A money market instrument will be
considered to be of the highest quality (1) if rated in the highest rating
category (i.e., Aaa or Prime-1 by Moody's, AAA or A-1 by S&P's) by (i) any two
nationally recognized statistical rating organizations ("NRSROs") or, (ii) if
rated by only one NRSRO, by that NRSRO; (2) if issued by an issuer that has
received a short term rating from an NRSRO with respect to a class of debt
obligations that is comparable in priority and security, and that are rated in
the highest rating category by (i) any two NRSROs or, (ii) if rated by only one
NRSRO, by that NRSRO; (3) an unrated security that is of comparable quality to a
security in the highest rating category as determined by the Manager; (4)(i)
with respect to a security that is subject to any features that entitle the
holder, under certain circumstances, to receive the approximate amortized cost
of the underlying security or securities plus accrued
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interest ("Demand Feature") or obligations of a person other than the issuer of
the security, under certain circumstances, to undertake to pay the principal
amount of the underlying security plus interest ("Guarantee"), the Guarantee has
received a rating from an NRSRO or the Guarantee is issued by a guarantor that
has received a rating from an NRSRO with respect to a class of debt obligations
that is comparable in priority and security to the Guarantee, with certain
exceptions, and (ii) the issuer of the Demand Feature or Guarantee, or another
institution, has undertaken promptly to notify the holder of the security in the
event that the Demand Feature or Guarantee is substituted with another Demand
Feature or Guarantee; (5) if it is a security issued by a money market fund
registered with the Securities and Exchange Commission ("SEC") under the 1940
Act; or (6) if it is a Government Security. With respect to 5% of its total
assets, measured at the time of investment, the Fund may also invest in money
market instruments that are in the second-highest rating category for short term
debt obligations (i.e., rated Aa or Prime-2 by Moody's or AA or A-2 by S&P).
The Fund may not invest more than 5% of its total assets, measured at the
time of investment, in securities of any one issuer, except that the Fund may
exceed this 5% limitation with respect to 25% of its total assets for up to
three business days after the purchase of "First Tier" securities of any one
issuer and except that this limitation shall not apply to U.S. government
securities or securities subject to certain Guarantees. Immediately after the
acquisition of any Demand Feature or Guarantee, the Fund, with respect to 75% of
its total assets, shall not have invested more than 10% of its assets in
securities issued by or subject to Demand Features or Guarantees from the
institution that issued the Demand Feature or Guarantee, with certain
exceptions. In addition, immediately after the acquisition of any Demand Feature
or Guarantee (or a security after giving effect to the Demand Feature or
Guarantee) that is not within the highest rating category by NRSROs, the Fund
shall not have invested more than 5% of its total assets in securities issued by
or subject to Demand Features or Guarantees from the institution that issued the
Demand Feature or Guarantee. The Fund may invest up to 5% of its total assets in
securities that were "Second Tier" when acquired. The Fund may not invest more
than the greater of 1% of its total assets or $1 million, measured at the time
of investment, in "Second Tier" securities of any one issuer, except that this
limitation shall not apply to U.S. government securities or securities subject
to certain Guarantees. In the event that an instrument acquired by the Fund is
downgraded or otherwise ceases to be of the quality that is eligible for the
Fund, NYLIM, under procedures approved by the Board, shall promptly reassess
whether such security presents minimal credit risk and shall recommend to the
Valuation Committee of the Board ("the Valuation Committee") that the Fund take
such action as it determines is in the best interest of the Fund and its
shareholders. The Valuation Committee, after consideration of the recommendation
of the Subadvisor and such other information as it deems appropriate, shall
cause the Fund to take such action as it deems appropriate, and shall report
promptly to the Board the action it has taken and the reasons for such action.
Pursuant to the rule, the Fund uses the amortized cost method of valuing its
investments, which facilitates the maintenance of the Fund's per share net asset
value at $1.00. The amortized cost method, which is normally used to value all
of the Fund's portfolio securities, involves initially valuing a security at its
cost and thereafter amortizing to maturity any discount or premium, regardless
of the impact of fluctuating interest rates on the market value of the
instrument.
The Directors have also established procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures include review of the
Fund's portfolio by the Directors, at such intervals as they deem appropriate,
to determine whether the Fund's net asset value calculated by using available
market quotations or market equivalents (the determination of value by reference
to interest rate levels, quotations of comparable securities and other factors)
deviates from $1.00 per share based on amortized cost.
The extent of deviation between the Fund's net asset value based upon
available market quotations or market equivalents and $1.00 per share based on
amortized cost will be periodically examined by the Directors. If such deviation
exceeds 1/2 of 1%, the Directors will promptly consider what action, if any,
will be initiated. In the event the Directors determine that a deviation exists
which may result in material dilution or other unfair results to investors or
existing shareholders, they will take such corrective action as they regard to
be necessary and appropriate, including the sale of portfolio instruments prior
to maturity to realize capital gains or losses or to
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shorten average portfolio maturity; withholding part or all of dividends or
payment of distributions from capital or capital gains; redemptions of shares in
kind; or establishing a net asset value per share by using available market
quotations or equivalents. In addition, in order to stabilize the net asset
value per share at $1.00, the Directors have the authority (1) to reduce or
increase the number of shares outstanding on a pro rata basis; and (2) to offset
each shareholder's pro rata portion of the deviation between the net asset value
per share and $1.00 from the shareholder's accrued dividend account or from
future dividends.
The Fund may hold cash for the purpose of stabilizing its net asset value
per share. Holdings of cash, on which no return is earned, would tend to lower
the yield on the Fund's shares.
The Fund may also, consistent with the provisions of the rule, invest in
securities with a face maturity of more than 397 days, provided that the
security is a variable or floating rate security that meets the guidelines of
Rule 2a-7 with respect to maturity.
The Fund may borrow money for temporary or emergency purposes, purchase
securities on a when-issued basis, and enter into firm or standby commitments to
purchase securities.
In addition, the weighted average portfolio maturity may not exceed 90 days.
ECLIPSE ASSET MANAGER FUND
Within the asset class constraints discussed in the prospectus, the Eclipse
Asset Manager Fund may also invest up to 20% of total its assets in foreign
securities (defined as "traded primarily in a market outside the United States")
of developed and emerging market countries; up to 10% of total assets in
interest rate, index, and currency exchange rate swap agreements; and in futures
transactions to rebalance or alter its portfolio composition and risk profile
and to diversify the Fund's holdings where futures transactions are more
efficient than direct investment transactions.
Within the asset class constraints discussed in the prospectus, the Fund may
also invest in foreign currency exchange transactions using currencies, options,
futures or options on futures, or forward contracts for any legally permissible
purpose, including to protect against foreign currency exchange risks involving
securities the Fund owns or plans to own.
At times, the actual allocation for each asset class may differ from the
constraints, due to market fluctuations or cash entering or leaving the Fund.
This could happen for instance, if the Subadvisor has positioned the assets
close to a minimum or maximum for one or more asset classes, and the Fund's cash
position changes because of investors buying or selling the Fund's shares. To
correct the situation, the Manager will move cash or reallocate assets within
seven days.
The Fund's allocation among the three asset groups is then structured to
take advantage of perceived imbalances in relative pricing. NYLIM believes that
short term imbalances occur periodically but tend to be corrected fairly
quickly. The models used by the Subadvisor to estimate returns on domestic and
foreign stock markets may from time to time cause significant shifts in the
Fund's allocation among the asset groups which may in turn result in greater
portfolio volatility.
The Fund may buy common stocks that the Eclipse EAFE Index Fund and Eclipse
Indexed Equity Fund may buy, fixed income securities that the Eclipse Indexed
Bond Fund may buy and money market instruments that the Eclipse Money Market
Fund may buy.
ECLIPSE BALANCED FUND
The investment objective of the Eclipse Balanced Fund is to seek high total
return. The Fund invests approximately 60% of its assets in stocks and 40% in
fixed-income securities (such as bonds) and cash equivalents.
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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.
The Fund generally invests in dividend-paying, mid-capitalization stocks
that NYLIM, the Fund's Manager, determines are value stocks. "Value" stocks are
stocks that the Manager determines (1) have strong or improving fundamental
characteristics (such as margins, working capital, leverage, cash flow, returns
on equity and assets) and (2) have been overlooked by the marketplace so that
they are undervalued or "cheap" relative to the rest of the equity market. In
selecting stocks, the Manager applies quantitative and statistical methods to
analyze the relative quality and value of the stocks.
The Eclipse 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.
The equity component of the Eclipse Balanced Fund will be invested in shares
of mid- to large-capitalization companies. The Fund ranks all U.S. publicly
traded companies based on market capitalization. The 5% with the highest market
capitalization are considered large. The next 15% 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-capitalization may become mid- or small-capitalization 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.
The fixed-income component of the Eclipse 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 in the section entitled "Investment
Practices, Instruments and Risks Common to Multiple Funds."
ECLIPSE INTERNATIONAL EQUITY FUND
The Eclipse International Equity Fund will primarily invest in a diversified
portfolio of securities, including common stocks, preferred stocks, warrants and
other comparable equity securities of corporations which do business mainly
outside of the United States.
The Eclipse International Equity Fund may invest in ADRs, EDRs, GDRs (Global
Depository Receipts); IDRs (International Depositary Receipts) or other similar
securities convertible into securities of foreign issuers.
To enhance returns, manage risk more efficiently and protect against price
changes in securities, the Fund may invest in currencies on a spot or forward
basis, securities and securities index options, foreign currency options,
futures contracts and related options, and may enter into swap agreements.
Futures and related options may be used for any legal purpose including to
reduce trading costs.
The Fund may also invest in U.S. equity securities; notes and bonds which,
when purchased, are rated in one of the top four categories by Moody's or
Standard & Poor's; cash, including foreign currency, or cash equivalents such as
obligations of banks, commercial paper and short term obligations of U.S. or
foreign issuers.
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The Fund is actively managed and invests primarily in international
(non-U.S.) stocks, but the Fund may acquire other securities including cash
equivalents. Eligible investments for the Fund include any equity-related
investment, domestic or foreign, whether denominated in foreign currencies or
U.S. dollars.
In selecting investments for the Fund, the Fund's Subadvisor considers
factors such as prospects for currency exchange, interest and inflation rates,
relative economic growth, government policies influencing exchange rates and
business conditions, and the quality of individual issuers. MacKay Shields will
also determine, using good faith judgment, (1) country allocation among the
international equity markets, (2) currency exposure (asset allocation across
currencies), and (3) diversified security holdings within each market.
The Fund may use futures and options contracts (1) in an effort to manage
cash flow and remain fully invested in the stock and currency markets, instead
of, or in addition to, buying and selling stocks and currencies; or (2) in an
effort to hedge against a decline in the value of securities or currencies owned
by it or an increase in the price of securities which it plans to purchase. The
Fund may also purchase and sell foreign currency exchange contracts and foreign
currency options for purposes of seeking to enhance portfolio returns or to
manage risk more efficiently.
MacKay Shields also believes that active currency management can enhance
portfolio returns through opportunities arising from interest rate differentials
between instruments denominated in different currencies and/or changes in value
between currencies. Moreover, MacKay Shields believes active currency management
can be employed as an overall portfolio risk management tool. For example, in
its view, foreign currency management can provide overall portfolio risk
diversification when combined with a portfolio of foreign securities, and the
market risks of investing in specific foreign markets can at times be reduced by
currency strategies which may not involve the currency in which the foreign
security is denominated. See "Risk Management Techniques" and related sections
of this SAI.
ECLIPSE EAFE INDEX FUND
The Eclipse EAFE Index Fund will generally invest in stocks in the Morgan
Stanley Capital International Europe, Australasia and Far East Index ("EAFE
Index"). However, not all EAFE Index companies within a country will be
represented in the Fund's portfolio of securities at the same time. The Fund may
not invest in certain stocks (numbering approximately 50) included in the EAFE
Index because corporate charters have provisions prohibiting ownership by
foreign investors.
In addition to the investments discussed in the Prospectus, the Eclipse EAFE
Index Fund may invest up to 20% of total assets in stock index options, futures
contracts and options on futures to maintain cash reserves while fully invested,
to facilitate trading, or to reduce transaction costs. The Fund may also invest
up to 10% of its total assets in index and currency exchange rate swap
agreements. The Fund may engage in foreign currency exchange transactions using
currencies, options, futures or options on futures, or forward contracts for any
legally permissible purpose, including to protect against foreign currency
exchange risks involving securities the Fund owns or plans to own.
There are a variety of risks associated with using options and futures. For
example, some options on foreign currencies could force the Manager to buy or
sell foreign currencies at unfavorable exchange rates, creating losses. It is
also possible that the Fund could forfeit the entire amount of the premium paid
for the purchased options plus transaction costs. A lack of market activity may
keep the Manager from closing out a futures contract or a futures option
position when it wants to. The Fund would remain obligated to make margin
deposits until it could close the position. Furthermore, there are no guarantees
that hedging transactions or the use of options and futures will successfully
protect investments, or lead to better Fund performance. In some instances, the
Fund may lose money.
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ECLIPSE INTERNATIONAL BOND FUND
The Eclipse International Bond Fund may invest in any debt or debt-related
investment, domestic or foreign, denominated in foreign or U.S. currency.
However, the Fund will invest at least 65% of total assets, under normal market
conditions, in foreign bonds which include debt securities of foreign
governments, agencies and supranational organizations denominated in foreign
currencies or U.S. dollars. The Fund may also purchase debt securities of
corporate issuers. Some of these securities may be privately issued and/or
convertible into common stock or they may be traded together with warrants for
the purchase of common stock.
To enhance returns, manage risk more efficiently and help protect against
price changes in securities the Fund owns or may own, the Fund may also invest
in currencies on a spot or forward basis, securities or securities index
options, foreign currency options, futures contracts and related options on
futures contracts. The Fund also may enter into swap agreements. Futures and
related options may be used for any legal purpose including to reduce trading
costs. The Fund may also purchase and sell foreign exchange contracts and
foreign currency options for purposes of seeking to enhance portfolio returns or
to manage portfolio risk more efficiently. See "Risk Management Techniques" and
related sections in this SAI.
In selecting investments for the Fund, the Fund's Subadvisor, MacKay
Shields, considers factors such as prospects for currency exchange, interest and
inflation rates, relative economic growth, government policies influencing
exchange rates and business conditions, and the quality of individual issuers.
MacKay Shields will also determine, using good faith judgment, (1) country
allocation, (2) currency exposure (asset allocation across currencies), and (3)
diversified security holdings within each market.
Generally, the Fund's average maturity will be shorter when interest rates
worldwide or in a particular country are expected to rise, and longer when
interest rates are expected to fall. The Fund may use various techniques to
shorten or lengthen the dollar-weighted average maturity of its portfolio,
including transactions in futures and options on futures, interest rate swaps,
caps, floors and short sales against the box.
INVESTMENT PRACTICES, INSTRUMENTS AND RISKS
COMMON TO MULTIPLE FUNDS
The Funds may engage in the following investment practices, or invest in the
following instruments to the extent permitted in the Prospectus and elsewhere in
this SAI.
DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") (sponsored or unsponsored) are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying foreign securities. Most ADRs are traded on a U.S. stock
exchange. Issuers of unsponsored ADRs are not contractually obligated to
disclose material information in the U.S. and, therefore, there may not be a
correlation between such information and the market value of the unsponsored
ADR. European Depositary Receipts and International Depositary Receipts are
receipts typically issued by a European bank or trust company evidencing
ownership of the underlying foreign securities. Global Depositary Receipts are
receipts issued by either a U.S. or non-U.S. banking institution evidencing
ownership of the underlying foreign securities.
ARBITRAGE
Each Fund may sell in one market a security which it owns and simultaneously
purchase the same security in another market, or it may buy a security in one
market and simultaneously sell it in another market, in order to take advantage
of differences in the price of the security in the different markets. The Funds
do not actively engage in arbitrage. Such transactions may be entered into only
with respect to debt securities and will occur only in a dealer's market where
the buying and selling dealers involved confirm their prices to the Fund at the
time of the transaction,
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thus eliminating any risk to the assets of a Fund. Such transactions, which
involve costs to a Fund, may be limited by the requirements imposed on each Fund
to qualify as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code").
BORROWING
A Fund may borrow from a bank up to a limit of 15% of its total assets, but
only for temporary or emergency purposes. This borrowing may be unsecured. The
1940 Act requires a Fund to maintain continuous asset coverage (that is, total
assets including borrowings, less liabilities exclusive of borrowings) of 300%
of the amount borrowed. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, a Fund may be required to sell some of its
portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time and could cause the Fund to be unable
to meet certain requirements for qualification as a regulated investment company
for Federal tax purposes. To avoid the potential leveraging effects of a Fund's
borrowings, a Fund will repay any money borrowed in excess of 5% of its total
assets prior to purchasing additional securities. Borrowing may exaggerate the
effect on a Fund's net asset value of any increase or decrease in the market
value of the Fund's portfolio securities. Money borrowed will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased. A Fund also may be required to maintain minimum average
balances in connection with such borrowing or to pay a commitment or other fee
to maintain a line of credit; either of these requirements would increase the
cost of borrowing over the stated interest rate.
COMMERCIAL PAPER
Each Fund may invest in commercial paper. Each Fund will invest in
commercial paper only if rated at the time of investment Prime-1 by Moody's or
A-1 by S&P, or, if not rated by Moody's or S&P, if the Fund's Manager or
Subadvisor determines that the commercial paper is of comparable quality.
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.
TEMPORARY DEFENSIVE POSITION; CASH EQUIVALENTS
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
"Repurchase Agreements and Reverse 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 or the
Subadvisor deems appropriate for cash reserves.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
The Funds may enter into domestic or foreign repurchase agreements with
certain sellers determined by the Manager or the Subadvisor to be creditworthy.
A repurchase agreement, which provides a means for a Fund to earn income on
uninvested cash for periods as short as overnight, is an arrangement under which
the purchaser (i.e., the Fund) purchases securities (the "Obligation") and the
seller agrees, at the time of sale, to repurchase the Obligation
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at a specified time and price. Repurchase agreements with foreign banks may be
available with respect to government securities of the particular foreign
jurisdiction. The custody of the Obligation will be maintained by a custodian
appointed by the Fund. The Fund attempts to assure that the value of the
purchased securities, including any accrued interest, will at all times exceed
the value of the repurchase agreement. The repurchase price may be higher than
the purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund together with the repurchase price upon repurchase. In either case, the
income to the Fund is unrelated to the interest rate on the Obligation subject
to the repurchase agreement.
In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delays and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. The Manager and the Subadvisor seek to
minimize the risk of loss from repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the security. However, if the market
value of the Obligation subject to the repurchase agreement becomes less than
the repurchase price (including accrued interest), the Fund will direct the
seller of the Obligation to deliver additional securities so that the market
value of all securities subject to the repurchase agreement equals or exceeds
the repurchase price. No Fund will invest more than 10% of its net assets (taken
at current market value) (15% in the case of the International Equity and
International Bond Funds) in repurchase agreements maturing in more than seven
days.
Each Fund may enter into reverse repurchase agreements with banks or
broker-dealers, which involve the sale of a security by a Fund and its agreement
to repurchase the instrument at a specified time and price. The Fund will
maintain a segregated account consisting of liquid assets to cover its
obligations under reverse repurchase agreements. Each Fund will limit its
investments in reverse repurchase agreements and other borrowing to no more than
one-third of its total assets. The use of reverse repurchase agreements by a
Fund creates leverage which increases a Fund's investment risk. If the income
and gains on securities purchased with the proceeds of reverse repurchase
agreements exceed the cost of the agreements, the Fund's earnings or net asset
value will increase faster than otherwise would be the case; conversely, if the
income and gains fail to exceed the costs, earnings or net asset value would
decline faster than otherwise would be the case.
The Board has reviewed and approved certain sellers who it believes to be
creditworthy and has authorized each Fund to enter into repurchase agreements
with such sellers. If the other party to a repurchase agreement were to become
bankrupt, a Fund could experience delays in recovering its investment or losses.
U.S. 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 Eclipse
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 Other Asset-Backed Securities" below.)
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
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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 Eclipse Ultra
Short Term Income Fund and Eclipse Balanced Fund 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.
CORPORATE DEBT AND CORPORATE FIXED INCOME SECURITIES
A Fund's (other than the Eclipse Mid Cap Value Fund and the Eclipse Small
Cap Value Fund) investment in U.S. dollar- or foreign currency-denominated
corporate debt securities of domestic or foreign issuers are limited to
corporate debt securities (corporate bonds, debentures, notes and other similar
corporate debt instruments) which meet the credit quality and maturity criteria
set forth for the particular Fund. The rate of return or return of principal on
some debt obligations may be linked to indexes or stock prices or indexed to the
level of exchange rates between the U.S. dollar and foreign currency or
currencies. 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. Non-rated securities will be considered for
investment by the Funds when the Manager or the Subadvisor 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.
Corporate debt securities with a rating lower than BBB by S&P, and corporate
debt securities rated Baa or lower by Moody's, have speculative characteristics,
and changes in economic conditions or individual corporate developments are more
likely to lead to a weakened capacity to make principal and interest payments
than in the case of high grade bonds. (See Appendix A attached hereto for a
description of corporate debt ratings.) Should any individual bond held by a
Fund, other than the Eclipse International Bond Fund or Eclipse International
Equity Fund, fall below a rating of BBB by S&P or Baa by Moody's, the Fund's
Manager or Subadvisor will dispose of such bond as soon as reasonably
practicable in light of then-existing market and tax considerations. The Eclipse
International Bond Fund may invest up to 25% of its net assets in debt
securities which are rated below investment grade.
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 or Subadvisor
will attempt to reduce the overall portfolio credit risk through diversification
and selection of portfolio securities based on considerations mentioned above.
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LENDING OF PORTFOLIO SECURITIES
In accordance with guidelines adopted by the Board, each Fund may seek to
increase its income by lending portfolio securities. Under present regulatory
policies, such loans may be made to institutions, such as broker-dealers, and
would be required to be secured continuously by collateral in cash or U.S.
government securities maintained on a current basis at an amount at least equal
to the market value of the securities loaned. The total market value of
securities loaned will not exceed 33% of the total assets of a Fund (20% in the
case of the Eclipse Balanced Fund, Eclipse Mid Cap Value Fund, Eclipse Small Cap
Value Fund and Eclipse Ultra Short Term Income Fund). The Fund would have the
right to call a loan and obtain the securities loaned at any time generally on
less than five days' notice. For the duration of a loan, the Fund would continue
to receive the equivalent of the interest or dividends paid by the issuer on the
securities loaned and would also receive compensation from the investment of the
collateral. The Fund would not, however, have the right to vote any securities
having voting rights during the existence of the loan, but the Fund would call
the loan in anticipation of an important vote to be taken among holders of the
securities or of the giving or withholding of their consent on a material matter
affecting the investment. The Company, on behalf of certain of the Funds, has
entered into an agency agreement with Metropolitan West Securities, Inc. which
acts as the Funds' agent in making loans of portfolio securities and short term
money market investments of the cash collateral received, subject to the
supervision and control of the Manager or the Subadvisor, as the case may be.
As with other extensions of credit, there are risks of delay in recovery of,
or even loss of rights in, the collateral should the borrower of the securities
fail financially or breach its agreement with a Fund. However, the loans would
be made only to firms deemed by the Manager or the Subadvisor to be creditworthy
and approved by the Board, and when, in the judgment of the Manager or the
Subadvisor, the consideration which can be earned currently from securities
loans of this type justifies the attendant risk. If the Manager or the
Subadvisor, as the case may be, determines to make securities loans, it is
intended that the value of the securities loaned will not exceed 33% of the
value of the total assets of the lending Fund (20% in the case of the Eclipse
Balanced Fund, Eclipse Mid Cap Value Fund, Eclipse Small Cap Value Fund and
Eclipse Ultra Short Term Income Fund). Under the guidelines adopted by the
Board, a Fund is prohibited from lending more than 5% of the Fund's total assets
to any one counterparty.
ILLIQUID AND RESTRICTED SECURITIES
The Funds (except the Eclipse Ultra Short Term Income Fund and Eclipse Mid
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 of 1933, as amended (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
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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 Funds (except the Eclipse Balanced Fund and Eclipse Small 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.
MUNICIPAL SECURITIES
The Eclipse Bond Fund, Eclipse Short Term Bond Fund and Eclipse Tax Free
Bond Fund may purchase municipal securities which are debt obligations of state
and local governments, agencies and authorities. Municipal securities, which may
be issued in various forms, including notes and bonds, are issued to obtain
funds for various public purposes. The other Funds may purchase municipal
securities for temporary defensive purposes. Two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, credit and taxing
power for the payment of principal and interest. Revenue bonds are payable only
from the revenues derived from a particular facility or class of facilities, or,
in some cases, from the proceeds of a special excise or specific revenue source.
Industrial development bonds or private activity bonds are issued by or on
behalf of public authorities to obtain funds for privately operated facilities
and are, in most cases, revenue bonds which do not generally carry the pledge of
the full faith and credit of the issuer of such bonds, but depend for payment on
the ability of the industrial user to meet its obligations (or any property
pledged as security).
BANKING INDUSTRY AND SAVINGS AND LOAN INDUSTRY OBLIGATIONS
Each Fund may invest in certificates of deposit, time deposits, bankers'
acceptances, and other short term debt obligations issued by commercial banks
and, with the exception of the Eclipse Money Market Fund, in certificates of
deposit, time deposits and other short term obligations issued by savings and
loan associations.
Certificates of deposit are receipts from a bank or savings and loan
association ("S&L"), for funds deposited for a specified period of time at a
specified rate of return. Time deposits in banks or S&Ls are generally similar
to certificates of deposit, but are uncertificated. Bankers' acceptances are
time drafts drawn on commercial banks by borrowers, usually in connection with
international commercial transactions. Each Fund may not invest in time deposits
maturing in more than seven days which are subject to withdrawal penalties. Each
Fund will limit its investment in time deposits for which there is a penalty for
early withdrawal to 10% of its net assets.
Each Fund will not invest in any obligation of a domestic or foreign bank
unless (i) the bank has capital, surplus, and individual profits (as of the date
of the most recently published financial statements) in excess of $100 million
(one billion dollars in the case of the Eclipse Balanced Fund, Eclipse Mid Cap
Value Fund, Eclipse Small Cap Value Fund and Eclipse Ultra Short Term Income
Fund), or the equivalent in other currencies, and (ii) in the case of a U.S.
bank, its deposits are insured by the Federal Deposit Insurance Corporation.
These limitations do not prohibit investments in the securities issued by
foreign branches of U.S. banks, provided such U.S. banks meet the foregoing
requirements.
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FLOATING AND VARIABLE RATE SECURITIES
Each Fund, other than the Eclipse EAFE Index Fund, Eclipse Growth Equity
Fund, Eclipse Indexed Equity Fund and Eclipse Value Equity Fund may invest in
floating rate debt instruments. Floating and variable rate securities provide
for a periodic adjustment in the interest rate paid on the obligations. The
terms of such obligations must provide that interest rates are adjusted
periodically based upon an interest rate adjustment index as provided in the
respective obligations. The adjustment intervals may be regular, and range from
daily up to annually, or may be event based, such as based on a change in the
prime rate.
The interest rate on a floating rate debt instrument ("floater") is a
variable rate which is tied to another interest rate, such as a money-market
index or Treasury bill rate. The interest rate on a floater resets periodically,
typically every six months. While, because of the interest rate reset feature,
floaters provide a Fund with a certain degree of protection against rises in
interest rates, a Fund will participate in any declines in interest rates as
well. To be an eligible investment for the Eclipse Money Market Fund, there must
be a reasonable expectation that, at any time until the final maturity for the
floater or the period remaining until the principal amount can be recovered
through demand, the market value of a floater will approximate its amortized
cost.
The Eclipse Bond Fund, Eclipse Core Bond Plus Fund, Eclipse International
Bond Fund, Eclipse International Equity Fund, Eclipse Mid Cap Core Fund, Eclipse
Short Term Bond Fund and Eclipse Tax Free Bond Fund may invest in leveraged
inverse floating rate debt instruments ("inverse floaters"). The interest rate
on an inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be determined to be illiquid securities for purposes of a
Fund's limitation on investments in such securities.
FOREIGN SECURITIES
The Eclipse EAFE Index Fund, Eclipse International Bond Fund and Eclipse
International Equity Fund will, and the remaining Funds (other than the Eclipse
Tax Free Bond Fund) may, invest in securities of foreign issuers. The Eclipse
Ultra Short Term Income 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. The Eclipse
Money Market Fund may purchase U.S. dollar-denominated securities of foreign
issuers. The Eclipse Indexed Equity Fund and Eclipse Indexed Bond Fund will
invest in foreign securities to the extent such securities are included in the
securities that comprise the S&P 500 and the BIG Index, respectively. The
Eclipse Core Bond Plus Fund, Eclipse International Bond Fund, Eclipse
International Equity Fund, Eclipse Mid Cap Core Fund and Eclipse Tax Free Bond
Fund may invest, without limit, subject to the other investment policies
applicable to the Fund, in U.S. dollar-denominated and non-dollar denominated
foreign debt securities and in certificates of deposit issued by foreign banks
and foreign branches of United States banks, to any extent deemed appropriate by
the Manager or the Subadvisor, as the case may be. Securities acquired by the
Eclipse International Bond Fund may be denominated in multi-national currency
units. Securities of issuers within a given country may be denominated in the
currency of another country.
Foreign investing involves the possibility of expropriation,
nationalization, confiscatory taxation, foreign taxation of income earned in the
foreign nation (including withholding taxes on interest and dividends) or other
foreign taxes imposed with respect to investments in the foreign nation, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country), default in foreign government securities,
political or social instability or diplomatic developments which could affect
investments in securities of issuers in those nations. In addition, in many
countries there is less publicly available information about issuers than is
available in reports about companies in the United States. There may be less
publicly available information about a foreign issuer than about a domestic
issuer because foreign companies are not generally subject to uniform accounting
and auditing and financial reporting standards, and auditing practices and
requirements may not be
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comparable to those applicable to U.S. companies. In many foreign countries,
there is less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the United
States. Foreign securities transactions may be subject to higher brokerage and
custodial costs than domestic securities transactions. In addition, the foreign
securities markets of many of the countries in which the Funds may invest may
also be smaller, less liquid and subject to greater price volatility than those
in the United States.
Many of the foreign securities in which the Funds (other than the Eclipse
Money Market Fund and the Eclipse Tax Free Bond Fund) invest will be denominated
in foreign currencies. Changes in foreign exchange rates will affect the value
of securities denominated or quoted in foreign currencies. Exchange rate
movements can be large and can endure for extended periods of time, affecting
either favorably or unfavorably the value of the Funds' assets. A Fund may,
however, engage in foreign currency transactions to protect itself against
fluctuations in currency exchange rates in relation to the U.S. dollar. Such
foreign currency transactions may include forward foreign currency contracts,
currency exchange transactions on a spot (i.e., cash) basis, put and call
options on foreign currencies, and foreign exchange futures contracts.
The Eclipse Core Bond Plus Fund, Eclipse Growth Equity Fund, Eclipse Indexed
Bond Fund, Eclipse International Bond Fund, Eclipse International Equity Fund,
Eclipse Mid Cap Core Fund, Eclipse Asset Manager Fund and Eclipse Value Equity
Fund may invest in emerging market countries, which presents risks in greater
degree than, and in addition to, those presented by investment in foreign
issuers in general. A number of emerging market countries restrict, to varying
degrees, foreign investment in stocks. Repatriation of investment income,
capital and the proceeds of sales by foreign investors may require governmental
registration and/or approval in some emerging market countries. A number of the
currencies of developing countries have experienced significant declines against
the U.S. dollar in recent years and devaluation may occur subsequent to
investments in these currencies by the Funds. Inflation and rapid fluctuations
in inflation rates have had and may continue to have negative effects on the
economies and securities markets of certain emerging market countries.
Many of the emerging securities markets are relatively small, have low
trading volumes, suffer periods of relative illiquidity, and are characterized
by significant price volatility. There is a risk in emerging market countries
that a future economic or political crisis could lead to price controls, forced
mergers of companies, expropriation or confiscatory taxation, seizure,
nationalization or creation of government monopolies, any of which may have a
detrimental effect on the Funds' investments.
FOREIGN GOVERNMENT AND SUPRANATIONAL ENTITY SECURITIES
To different degrees, the Eclipse Bond Fund, Eclipse Core Bond Plus Fund,
Eclipse Indexed Bond Fund, Eclipse International Bond Fund, Eclipse
International Equity Fund, Eclipse Mid Cap Core Fund and Eclipse Short Term Bond
Fund are permitted to invest in debt securities or obligations of foreign
governments, agencies, and supranational organizations ("Sovereign Debt"). The
Eclipse Ultra Short Term Income Fund may invest up to 10% of its total assets,
and the Eclipse 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. The Funds' portfolios may
include government securities of a number of foreign countries or, depending
upon market conditions, those of a single country. Investments in Sovereign Debt
can involve greater risks than investing in U.S. Government Securities. The
issuer of the debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt, and a Fund may have limited legal
recourse in the event of default.
The Manager's or Subadvisor'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 or Subadvisor currently considers to be stable, among others, are
the governments of Canada, Germany, Japan, Sweden and the United Kingdom. The
Manager or Subadvisor 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
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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
Eclipse Ultra Short Term Income Fund's and Eclipse Balanced Fund's portfolios
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.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect a Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While the Manager and the Subadvisor intend to manage the
Funds' portfolios in a manner that will minimize the exposure to such risks,
there can be no assurance that adverse political changes will not cause a Fund
to suffer a loss of interest or principal on any of its holdings.
FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract (a "forward contract") is an obligation
to purchase or sell a specific currency for an agreed price at a future date
(usually less than a year), which is individually negotiated and privately
traded by currency traders and their customers. These contracts may be used to
gain exposure to a particular currency or to hedge against the risk of loss due
to changing currency exchange rates.
A forward contract generally has no deposit requirement, and no commissions
are charged at any stage for trades. Although foreign exchange dealers do not
charge a fee for commissions, they do realize a profit based on the difference
between the price at which they are buying and selling various currencies.
Although these contracts are intended, when hedging, to minimize the risk of
loss due to a decline in the value of the hedged currencies, at the same time,
they tend to limit any potential gain which might result should the value of
such currencies increase.
While a Fund (other than the Eclipse Tax Free Bond Fund) may enter into
forward contracts to reduce currency exchange risks, changes in currency
exchange rates may result in poorer overall performance for the Fund than if it
had not engaged in such transactions. Moreover, there may be an imperfect
correlation between a Fund's portfolio holdings of securities denominated in a
particular currency and forward contracts entered into by the Fund. Such
imperfect correlation may prevent the Fund from achieving the intended hedge or
expose the Fund to the risk of currency exchange loss.
A Fund will hold liquid assets in a segregated account with its custodian in
an amount equal (on a daily marked-to-market basis) to the amount of the
commitments under these contracts. At the maturity of a forward contract, a
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Fund may either accept or make delivery of the currency specified in the
contract, or prior to maturity, enter into a closing purchase transaction
involving the purchase or sale of an offsetting contract. Closing purchase
transactions with respect to forward contracts are usually effected with the
currency trader who is a party to the original forward contract. A Fund will
only enter into such a forward contract if it is expected that there will be a
liquid market in which to close out the contract. However, there can be no
assurance that a liquid market will exist in which to close a forward contract,
in which case the Fund may suffer a loss.
Generally, consideration of the prospect for currency parities will be
incorporated in a longer term investment decision made with regard to overall
diversification strategies. However, the Manager and the Subadvisor believe that
it is important to have the flexibility to enter into such forward contracts
when it determines that the best interest of a Fund will be served by entering
into such a contract. Generally, the Manager and the Subadvisor believe that the
best interest of a Fund will be served by entering into such a contract under
various circumstances, some of which are described below. For example, when a
Fund enters into, or anticipates going into, a contract for the purchase or sale
of a security denominated in a foreign currency, it may desire to "lock in" the
U.S. dollars price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign
currency involved in the underlying security transaction, a Fund will be able to
insulate itself from a possible loss resulting from a change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which payment is made or received, although a Fund would
also forego any gain it might have realized had rates moved in the opposite
direction. This technique is sometimes referred to as a "settlement" hedge or
"transaction" hedge.
In addition, when the Manager or the Subadvisor believes that the currency
of a particular foreign country may suffer a substantial decline against the
U.S. dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of a Fund's portfolio securities denominated in such foreign currency. Such a
hedge (sometimes referred to as a "position hedge") will tend to offset both
positive and negative currency fluctuations, but will not offset changes in
security values caused by other factors. The Fund also may hedge the same
position by using another currency (or a basket of currencies) expected to
perform in a manner substantially similar to the hedged currency ("proxy"
hedge). The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. With respect to positions that
constitute "transaction" or "position" hedges (including "proxy" hedges), a Fund
will not enter into forward contracts to sell currency or maintain a net
exposure to such contracts if the consummation of such contracts would obligate
the Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency (or the
related currency, in the case of a "proxy" hedge).
A Fund also may enter into forward contracts to shift its investment
exposure from one currency into another currency that is expected to perform
inversely with respect to the hedged currency relative to the U.S. dollar. This
type of strategy, sometimes known as a "cross-currency" hedge, will tend to
reduce or eliminate exposure to the currency that is sold, and increase exposure
to the currency that is purchased, much as if the Fund had sold a security
denominated in one currency and purchased an equivalent security denominated in
another. "Cross-currency" hedges protect against losses resulting from a decline
in the hedged currency, but will cause the Fund to assume the risk of
fluctuations in the value of the currency it purchases.
A Fund may also enter into currency transactions to profit from changing
exchange rates based upon the Manager's or the Subadvisor's assessment of likely
exchange rate movements. These transactions will not necessarily hedge existing
or anticipated holdings of foreign securities and may result in a loss if the
Manager's or the Subadvisor's currency assessment is incorrect.
At the consummation of the forward contract, a Fund may either make delivery
of the foreign currency or terminate its contractual obligation to deliver the
foreign currency by purchasing an offsetting contract obligating it to purchase
at the same maturity date the same amount of such foreign currency. If a Fund
chooses to make delivery of the foreign currency, it may be required to obtain
such currency for delivery through the sale of portfolio
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securities denominated in such currency or through conversion of other assets of
the Fund into such currency. If a Fund engages in an offsetting transaction, the
Fund will realize a gain or a loss to the extent that there has been a change in
forward contract prices. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract.
A Fund's dealing in forward contracts will be limited to the transactions
described above. Of course, a Fund is not required to enter into such
transactions with regard to its foreign currency-denominated securities and will
not do so unless deemed appropriate by the Manager or the Subadvisor. A Fund
generally will not enter into a forward contract with a term of greater than one
year.
In cases of transactions which constitute "transaction" or "settlement"
hedges or "position" hedges (including "proxy" hedges) or "cross-currency"
hedges that involve the purchase and sale of two different foreign currencies
directly through the same forward foreign currency contact, a Fund may deem its
forward currency hedge position to be covered by underlying Fund portfolio
securities or may establish a Segregated Account with its Custodian in an amount
equal to the value of the Fund's total assets committed to the consummation of
the subject hedge. The Segregated Account will consist of liquid assets. In the
case of "anticipatory" hedges and "cross-currency" hedges that involve the
purchase and sale of two different foreign currencies indirectly through
separate forward currency contracts, the Fund will establish a Segregated
Account with its Custodian as described above. In the event a Fund establishes a
Segregated Account, the Fund will mark-to-market the value of the assets in the
Segregated Account. If the value of the assets placed in the Segregated Account
declines, additional liquid assets will be placed in the account by the Fund on
a daily basis so that the value of the account will equal the amount of the
Fund's commitments with respect to such contracts.
It should be realized that this method of protecting the value of a Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which can be achieved at some future point in
time. It also reduces any potential gain which may have otherwise occurred had
the currency value increased above the settlement price of the contract.
Forward contracts are intended to minimize the risk of loss to a Fund from
adverse changes in the relationship between the U.S. dollar and foreign
currencies. Such contracts do not eliminate fluctuations in the underlying
prices of securities held by the Funds. Although such contracts tend to minimize
the risk of loss due to a decline in the value of a currency that has been sold
forward, and the risk of loss due to an increase in the value of a currency that
has been purchased forward, at the same time they tend to limit any potential
gain that might be realized should the value of such currency increase.
The Funds cannot assure that their use of forward contracts will always be
successful. Successful use of forward contracts depends on the Manager's or the
Subadvisor's skill in analyzing and predicting relative currency values. Forward
contracts alter a Fund's exposure to currency exchange rate activity and could
result in losses to the Fund if currencies do not perform as the Subadvisor
anticipates. A Fund may also incur significant costs when converting assets from
one currency to another. Contracts to sell foreign currency would limit any
potential gain which might be realized by a Fund if the value of the hedged
currency increases.
The Manager and the Subadvisor believe that active currency management can
enhance portfolio returns through opportunities arising from interest rate
differentials between securities denominated in different currencies and/or
changes in value between currencies. Moreover, the Manager and the Subadvisor
believe active currency management can be employed as an overall portfolio risk
management tool. For example, in their view, foreign currency management can
provide overall portfolio risk diversification when combined with a portfolio of
foreign securities, and the market risks of investing in specific foreign
markets can at times be reduced by currency strategies which may not involve the
currency in which the foreign security is denominated.
The Funds cannot assure that their use of forward contracts will always be
successful. Successful use of forward contracts depends on the Subadvisor's
skill in analyzing and predicting relative currency values. Forward contracts
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alter a Fund's exposure to currency exchange rate activity and could result in
losses to the Fund if currencies do not perform as the Manager or the
Subadvisor, as the case may be, anticipates. A Fund may also incur significant
costs when converting assets from one currency to another. Contracts to sell
foreign currency would limit potential gain which might be realized by a Fund if
the value of the hedged currency increases.
A Fund's foreign currency transactions may be limited by the requirements of
Subchapter M of the Code for qualification as a regulated investment company.
FOREIGN INDEX-LINKED INSTRUMENTS
As part of its investment program, and to maintain greater flexibility, the
Eclipse Core Bond Plus Fund, Eclipse EAFE Index Fund, Eclipse International
Equity Fund, Eclipse Asset Manager Fund, Eclipse International Bond Fund and
Eclipse Mid Cap Core Fund may, subject to compliance with its respective
limitations applicable to its investment in debt securities, invest in
instruments issued by the U.S. or a foreign government or by private issuers
that return principal and/or pay interest to investors in amounts which are
linked to the level of a particular foreign index ("foreign index-linked
instruments"). Foreign index-linked instruments have the investment
characteristics of particular securities, securities indexes, futures contracts
or currencies. Such instruments may take a variety of forms, such as debt
instruments with interest or principal payments determined by reference to the
value of a currency or commodity at a future point in time. Foreign index-linked
instruments have the investment characteristics of particular securities,
securities indexes, futures contracts or currencies. Such instruments may take a
variety of forms, such as debt instruments with interest or principal payments
determined by reference to the value of a currency or commodity at a future
point in time.
A foreign index may be based upon the exchange rate of a particular currency
or currencies or the differential between two currencies, or the level of
interest rates in a particular country or countries or the differential in
interest rates between particular countries. In the case of foreign index-linked
instruments linking the interest components to a foreign index, the amount of
interest payable will adjust periodically in response to changes in the level of
the foreign index during the term of the foreign index-linked instrument. The
risks of such investments would reflect the risks of investing in the index or
other instrument, the performance of which determines the return for the
instrument. Tax considerations may limit the Funds' ability to invest in foreign
index-linked instruments.
WHEN-ISSUED AND FIRM OR STANDBY COMMITMENT AGREEMENTS
Each Fund may from time to time purchase securities on a "when-issued" or
"firm commitment" or "standby commitment" basis. Debt securities are often
issued in this manner. The price of such securities, which may be expressed in
yield terms, is fixed at the time a commitment to purchase is made, but delivery
of and payment for the when-issued, or firm or standby commitment securities
take place at a later date. Normally, the settlement date occurs within one
month of the purchase (60 days for municipal bonds and notes). During the period
between purchase and settlement, no payment is made by the Fund and no interest
accrues to the Fund. To the extent that assets of a Fund are held in cash
pending the settlement of a purchase of securities, that Fund would earn no
income; however, it is the Company's intention that each Fund will be fully
invested to the extent practicable and subject to the policies stated herein.
Although when-issued, or firm or standby commitment securities may be sold prior
to the settlement date, the Company intends to purchase such securities with the
purpose of actually acquiring them unless a sale appears desirable for
investment reasons.
The transactions are entered into in order to secure what is considered to
be an advantageous price and yield to a Fund and not for purposes of leveraging
the Fund's assets. However, a Fund will not accrue any income on these
securities prior to delivery. The value of when-issued securities and firm and
standby commitment agreements may vary prior to and after delivery depending on
market conditions and changes in interest rate levels. There is a risk that a
party with whom a Fund has entered into such transactions will not perform its
commitment, which could result in a gain or loss to the Fund.
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At the time the Company makes the commitment on behalf of a Fund to purchase
a security on a when-issued, or firm or standby commitment basis, it will record
the transaction and reflect the amount due and the value of the security in
determining the Fund's net asset value. The market value of the when-issued, or
firm or standby commitment securities may be more or less than the purchase
price payable at the settlement date. The Directors do not believe that a Fund's
net asset value or income will be exposed to additional risk by the purchase of
securities on a when-issued or firm commitment basis. Each Fund will establish a
segregated account in which it will maintain liquid assets at least equal in
value to any commitments to purchase securities on a when-issued, firm, or
standby commitment basis. Such segregated securities either will mature or, if
necessary, be sold on or before the settlement date.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES
Mortgage-related and asset-back securities, which include mortgage-backed
securities, are securities that derive their value from underlying pools of
loans that may include interests in pools of lower-rate debt securities,
consumer loans or mortgages, or complex instruments such as collateralized
mortgage obligations and stripped mortgage-backed securities. 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
value of these securities may be significantly affected by changes in interest
rates, the market's perception of issuers and the creditworthiness of the
parties involved. The ability of a Fund to successfully utilize these
instruments may depend in part upon the ability of the Fund's Manager or
Subadvisor to forecast interest rates and other economic factors correctly. Some
securities may have a structure that makes their reaction to interest rate
changes and other factors difficult to predict, making their value highly
volatile. These securities may also be subject to prepayment risk and if the
security has been purchased at a premium the amount of the premium would be lost
in the event of prepayment. The Eclipse Money Market Fund may only invest in
mortgage-backed and asset-backed securities that meet the requirements of Rule
2a-7 under the 1940 Act. While principal and interest payments on some
mortgage-related securities may be guaranteed by the U.S. government, government
agencies or other guarantors, the market value of such securities is not
guaranteed.
A Fund will invest only in mortgage-related (or other asset-backed)
securities either (i) issued by U.S. government-sponsored corporations
(currently Government National Mortgage Association ("GNMA"), the Federal Home
Loan Mortgage Corporation ("FHLMC") and the Federal National Mortgage
Association ("FNMA"), or (ii) privately issued securities rated Baa or better by
Moody's or BBB or better by S&P or, if not rated, of comparable investment
quality as determined by the Fund's investment adviser. The Eclipse Money Market
Fund observes the strict SEC mandated requirements of Rule 2a-7. In addition, if
any such security is determined to be illiquid, a Fund will limit its
investments in these and other illiquid instruments to not more than 10% of its
net assets (15% in the case of the Eclipse International Bond Fund and Eclipse
International Equity Fund).
MORTGAGE PASS-THROUGH SECURITIES. The Funds (other than the Eclipse Mid Cap
Value Fund and Eclipse Small Cap Value Fund) may invest in mortgage pass-through
securities, which are securities interests in pools of mortgage-related
securities. Such interests differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities (such as
securities issued by GNMA) are described as "modified pass-through." These
securities entitle the holder to receive all interest and principal payments
owed on the mortgage pool, net of certain fees, at the scheduled payment dates
regardless of whether or not the mortgagor actually makes the payment. Some
mortgage pass-through certificates may include securities backed by
adjustable-rate mortgages which bear interest at a rate that will be adjusted
periodically.
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Early repayment of principal on mortgage pass-through securities (arising
from prepayments of principal due to sale of the underlying property,
refinancing, or foreclosure, net of fees and costs which may be incurred) may
expose a Fund to a lower rate of return upon reinvestment of principal. Also, if
a security subject to prepayment has been purchased at a premium, in the event
of prepayment, the value of the premium would be lost.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. government (in the case of securities
guaranteed by GNMA); or guaranteed by agencies or instrumentalities of the U.S.
government (in the case of securities guaranteed by FNMA or FHLMC), which are
supported only by the discretionary authority of the U.S. government to purchase
the agency's obligations).
If either fixed or variable rate pass-through securities issued by the U.S.
government or its agencies or instrumentalities are developed in the future, the
Funds, reserve the right to invest in them.
GNMA CERTIFICATES. The principal governmental guarantor of mortgage-related
securities is the GNMA. GNMA is a wholly-owned U.S. government corporation
within the U.S. 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. Government-related guarantors (i.e., not backed by the
full faith and credit of the U.S. government) include the FNMA and the FHLMC.
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. It is subject to general regulation by the Secretary of Housing and Urban
Development and acts as a government instrumentality under authority granted by
Congress. FNMA provides funds to the mortgage market primarily by purchasing
conventional (i.e., not insured or guaranteed by any government agency)
residential mortgages from a list of approved seller/servicers which include
state and federally chartered savings and loan associations, mutual savings
banks, commercial banks, credit unions and mortgage bankers, thereby
replenishing their funds for additional lending. Pass-through securities issued
by FNMA are guaranteed as to timely payment of principal and interest by FNMA
but are not backed by the full faith and credit of the U.S. government. FNMA is
authorized to borrow from the U.S. Treasury to meet its obligations.
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
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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. FHLMC was
formerly owned by the twelve Federal Home Loan Banks and is now owned entirely
by private stockholders. 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. Commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers also create pass-through pools of conventional
residential mortgage loans. Such issuers may, in addition, be the originators
and/or servicers of the underlying mortgage loans as well as the guarantors of
the mortgage-related securities. Pools created by such non-governmental issuers
generally offer a higher rate of interest than government and government-related
pools because there are no direct or indirect government or agency guarantees of
payments in the former pools. However, timely payment of interest and principal
of these pools may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance and letters of
credit. The insurance and guarantees are issued by governmental entities,
private insurers and the mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets a Fund's investment quality standards.
There can be no assurance that the private insurers or guarantors can meet their
obligations under the insurance policies or guarantee arrangements. A Fund may
buy mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the originator/servicers and
poolers, the Fund's Manager or Subadvisor determines that the securities meet
the Fund's
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quality standards. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. No Fund will purchase mortgage-related securities or any
other assets which in the opinion of the Fund's Manager or Subadvisor are
illiquid if, as a result, more than 10% of the value of the Fund's net assets
will be illiquid (15% in the case of the International Bond or International
Equity Funds).
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple series
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third-party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
The eligible Funds will not invest in any privately issued CMOs that do not
meet the requirements of Rule 3a-7 under the 1940 Act if, as a result of such
investment, more than 5% of a Fund's net assets would be invested in any one
CMO, more than 10% of the Fund's net assets would be invested in CMOs and other
investment company securities in the aggregate, or the Fund would hold more than
3% of any outstanding issue of CMOs.
FHLMC COLLATERALIZED MORTGAGE OBLIGATIONS. FHLMC CMOs are debt obligations of
FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCS, payments of principal and interest on the CMOs are made
semiannually, as opposed to monthly. The amount of principal payable on each
semiannual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which, in turn, is equal to approximately 100% of FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum
sinking fund obligation for any payment date are paid to the holders of the CMOs
as additional sinking fund payments. Because of the "pass-through" nature of all
principal payments received on the collateral pool in excess of FHLMC's minimum
sinking fund requirement, the rate at which principal of the CMOs is actually
repaid is likely to be such that each class of bonds will be retired in advance
of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
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Criteria for the mortgage loans in the pool backing the CMOs are identical to
those of FHLMC PCS. FHLMC has the right to substitute collateral in the event of
delinquencies and/or defaults.
OTHER MORTGAGE-RELATED SECURITIES. Other mortgage-related securities include
securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals and stripped mortgaged-backed
securities, and may be structured in classes with rights to receive varying
proportions of principal and interest. Other mortgage-related securities may be
equity or debt securities issued by agencies or instrumentalities of the U.S.
government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, homebuilders, mortgage banks,
commercial banks, investment banks, partnerships, trusts and special purpose
entities of the foregoing.
The Funds' Manager or Subadvisor expects that governmental,
government-related or private entities may create mortgage loan pools and other
mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term fixed
rate mortgages. As new types of mortgage-related securities are developed and
offered to investors, a Fund's Manager or Subadvisor, as the case may be, will,
consistent with the Fund's investment objectives, policies and quality
standards, consider making investments in such new types of mortgage-related
securities.
CMO RESIDUALS. CMO residuals are derivative mortgage securities issued by
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs is
applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Stripped
Mortgage-Backed Securities." In addition, if a series of a CMO includes a class
that bears interest at an adjustable rate, the yield to maturity on the related
CMO residual will also be extremely sensitive to changes in the level of the
index upon which interest rate adjustments are based. As described below with
respect to stripped mortgage-backed securities, in certain circumstances, a
portfolio may fail to recoup fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may or, pursuant to an exemption therefrom, may not have
been registered under the Securities Act of 1933, as amended. CMO residuals,
whether or not registered under such Act, may be subject to certain restrictions
on transferability, and may be deemed "illiquid" and subject to a portfolio's
limitations on investment in illiquid securities. Each of the Funds limits its
investment in CMO residuals to less than 5% of its net assets.
CMOs may offer a higher yield than U.S. government securities, but they may
also be subject to greater price fluctuation and credit risk. In addition, CMOs
typically will be issued in a variety of classes or series, which have different
maturities and are retired in sequence. Privately issued CMOs are not government
securities nor are they
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supported in any way by any governmental agency or instrumentality. In the event
of a default by an issuer of a CMO, there is no assurance that the collateral
securing such CMO will be sufficient to pay principal and interest. It is
possible that there will be limited opportunities for trading CMOs in the
over-the-counter market, the depth and liquidity of which will vary from time to
time.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities
("SMBS") are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. 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 entities
of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the IO class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on a Fund's yield to maturity from these securities. If the underlying
mortgage assets experience greater than anticipated prepayments of principal, a
Fund may fail to fully recoup its initial investment in these securities even if
the security is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
RISKS ASSOCIATED WITH MORTGAGE-RELATED SECURITIES. As in the case with other
fixed income securities, when interest rates rise, the value of a
mortgage-related security generally will decline; however, when interest rates
are declining, the value of mortgage-related securities with prepayment features
may not increase as much as other fixed income securities. The value of some
mortgage-related securities in which the Funds may invest may be particularly
sensitive to changes in prevailing interest rates, and, like the other
investments of the Funds, the ability of a Fund to successfully utilize these
instruments may depend in part upon the ability of the Manager or the Subadvisor
to forecast interest rates and other economic factors correctly. If the Manager
or the Subadvisor incorrectly forecasts such factors and has taken a position in
mortgage-related securities that is or becomes contrary to prevailing market
trends, the Funds could be exposed to the risk of a loss.
Investment in mortgage-related securities poses several risks, including
prepayment, market, and credit risk. Prepayment risk reflects the chance that
borrowers may prepay their mortgages faster than expected, thereby affecting the
investment's average life and perhaps its yield. Whether or not a mortgage loan
is prepaid is almost entirely controlled by the borrower. Borrowers are most
likely to exercise their prepayment options at a time when it is least
advantageous to investors, generally prepaying mortgages as interest rates fall,
and slowing payments as interest rates rise. Besides the effect of prevailing
interest rates, the rate of prepayment and refinancing of mortgages may also be
affected by home value appreciation, ease of the refinancing process and local
economic conditions.
Market risk reflects the chance that the price of the security may fluctuate
over time. The price of mortgage-related securities may be particularly
sensitive to prevailing interest rates, the length of time the security is
expected to be outstanding, and the liquidity of the issue. In a period of
unstable interest rates, there may be decreased demand for certain types of
mortgage-related securities, and a Fund invested in such securities wishing to
sell them may find it difficult to find a buyer, which may in turn decrease the
price at which they may be sold.
Credit risk reflects the chance that a Fund may not receive all or part of
its principal because the issuer or credit enhance has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to
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the payment of principal and interest, but are not backed by the full faith and
credit of the U.S. government. The performance of private label mortgage-related
securities, issued by private institutions, is based on the financial health of
those institutions.
OTHER ASSET-BACKED SECURITIES. The Funds' Manager and Subadvisor expect that
other asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. 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. Several types of asset-backed securities have already been offered to
investors, including credit card receivables and Certificates for Automobile
Receivables ("CARs(SM)"). CARs(SM) represent undivided fractional interests in a
trust ("trust") whose assets consist of a pool of motor vehicle retail
installment sales contracts and security interests in the vehicles securing the
contracts. Payments of principal and interest on CARs(SM) are passed-through
monthly to certificate holders, and are guaranteed up to certain amounts and for
a certain time period by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the trust.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. 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. An
investor's return on CARs(SM) may be affected by early prepayment of principal
on the underlying vehicle sales contracts. If the letter of credit is exhausted,
the trust may be prevented from realizing the full amount due on a sales
contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of Federal and state bankruptcy and insolvency laws, or other
factors. As a result, certificate holders may experience delays in payments or
losses if the letter of credit is exhausted.
Consistent with a Fund's investment objective and policies, and in the case
of the Eclipse Money Market Fund, the requirements of Rule 2a-7, a Fund also may
invest in other types of asset-backed securities. Certain asset-backed
securities may present the same types of risks that may be associated with
mortgage-related securities.
MORTGAGE DOLLAR ROLLS
A mortgage dollar roll ("MDR") is a transaction in which a Fund sells
mortgage-related securities ("MBS") from its portfolio to a counter party from
whom it simultaneously agrees to buy a similar security on a delayed delivery
basis. The Fund maintains a segregated account with its custodian containing
securities from its portfolio having a value not less than the repurchase price,
including accrued interest. MDR transactions involve certain risks, including
the risk that the MBS returned to the Fund at the end of the roll, while
substantially similar, could be inferior to what was initially sold to the
counter party.
BRADY BONDS
The Eclipse Core Bond Plus Fund, Eclipse International Bond Fund, Eclipse Mid
Cap Core Fund and Eclipse Tax Free Bond Fund may invest a portion of their
assets in Brady Bonds, which are securities created through the exchange of
existing commercial bank loans to sovereign entities for new obligations in
connection with debt restructurings. Brady Bonds may be collateralized or
uncollateralized and are issued in various currencies (primarily the U.S.
dollar). Brady Bonds are not considered U.S. Government securities. U.S.
dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are generally collateralized in full as
to principal by U.S. Treasury zero coupon bonds having the same maturity as the
Brady Bonds. Interest payments on these Brady Bonds generally are collateralized
on a one-year or longer rolling-forward basis by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's interest payments based on the
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applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest payments
but generally are not collateralized. Brady Bonds are often viewed as having
three or four valuation components: (i) the collateralized repayment of
principal at final maturity; (ii) the collateralized interest payments; (iii)
the uncollateralized interest payments; and (iv) any uncollateralized repayment
of principal at maturity (these uncollateralized amounts constitute the
"residual risk").
Brady Bonds involve various risk factors, including the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds. Investments in Brady Bonds are to be viewed as
speculative. There can be no assurance that Brady Bonds in which the Fund may
invest will not be subject to restructuring arrangements or to requests for new
credit, which may cause the Fund to suffer a loss of interest or principal on
any of its holdings.
LOAN PARTICIPATION INTERESTS
The Funds may invest in participation interests in loans. A Fund's investment
in loan participation interests may take the form of participation interests in,
assignments of or novations of a corporate loan ("Participation Interests"). The
Participation Interests may be acquired from an agent bank, co-lenders or other
holders of Participation Interests ("Participants"). In a novation, a Fund would
assume all of the rights of the lender in a corporate loan, including the right
to receive payments of principal and interest and other amounts directly from
the borrower and to enforce its rights as a lender directly against the
borrower. As an alternative, a Fund may purchase an assignment of all or a
portion of a lender's interest in a corporate loan, in which case, the Fund may
be required generally to rely on the assigning lender to demand payment and
enforce its rights against the borrower, but would otherwise be entitled to all
of such lender's rights in the corporate loan. A Fund also may purchase a
Participation Interest in a portion of the rights of a lender in a corporate
loan. In such a case, the Fund will be entitled to receive payments of
principal, interest and fees, if any, but generally will not be entitled to
enforce its rights directly against the agent bank or the borrower; rather the
Fund must rely on the lending institution for that purpose. A Fund will not act
as an agent bank, a guarantor or sole negotiator of a structure with respect to
a corporate loan.
In a typical corporate loan involving the sale of Participation Interests,
the agent bank administers the terms of the corporate loan agreement and is
responsible for the collection of principal and interest and fee payments to the
credit of all lenders which are parties to the corporate loan agreement. The
agent bank in such cases will be qualified under the 1940 Act to serve as a
custodian for a registered investment company such as Eclipse. A Fund generally
will rely on the agent bank or an intermediate Participant to collect its
portion of the payments on the corporate loan. The agent bank monitors the value
of the collateral and, if the value of the collateral declines, may take certain
action, including accelerating the corporate loan, giving the borrower an
opportunity to provide additional collateral or seeking other protection for the
benefit of the Participants in the corporate loan, depending on the terms of the
corporate loan agreement. Furthermore, unless under the terms of a participation
agreement a Fund has direct recourse against the borrower (which is unlikely),
the Fund will rely on the agent bank to use appropriate creditor remedies
against the borrower. The agent bank also is responsible for monitoring
compliance with covenants contained in the corporate loan agreement and for
notifying holders of corporate loans of any failures of compliance. Typically,
under corporate loan agreements, the agent bank is given broad discretion in
enforcing the corporate loan agreement, and is obligated to use only the same
care it would use in the management of its own property. For these services, the
borrower compensates the agent bank. Such compensation may include special fees
paid on structuring and funding the corporate loan and other fees paid on a
continuing basis.
A financial institution's employment as an agent bank may be terminated in
the event that it fails to observe the requisite standard of care or becomes
insolvent, or has a receiver, conservator, or similar official appointed for it
by the appropriate bank regulatory authority or becomes a debtor in a bankruptcy
proceeding. A successor agent bank generally will be appointed to replace the
terminated bank, and assets held by the agent bank under the corporate loan
agreement should remain available to holders of corporate loans. If, however,
assets held by the agent bank for the benefit of a Fund were determined by an
appropriate regulatory authority or court to be subject to the claims of the
agent bank's general or secured creditors, the Fund might incur certain costs
and delays in realizing payment on a
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corporate loan, or suffer a loss of principal and/or interest. In situations
involving intermediate Participants similar risks may arise.
When a Fund acts as co-lender in connection with a Participation Interest or
when a Fund acquires a Participation Interest the terms of which provide that
the Fund will be in privity of contract with the corporate borrower, the Fund
will have direct recourse against the borrower in the event the borrower fails
to pay scheduled principal and interest. In all other cases, the Fund will look
to the agent bank to enforce appropriate credit remedies against the borrower.
In acquiring Participation Interests a Fund's Manager or Subadvisor will conduct
analysis and evaluation of the financial condition of each such co-lender and
participant to ensure that the Participation Interest meets the Fund's
qualitative standards. There is a risk that there may not be a readily available
market for loan Participation Interests and, in some cases, this could result in
a Fund disposing of such securities at a substantial discount from face value or
holding such security until maturity. When a Fund is required to rely upon a
lending institution to pay the Fund principal, interest, and other amounts
received by the lending institution for the loan participation, the Fund will
treat both the borrower and the lending institution as an "issuer" of the loan
participation for purposes of certain investment restrictions pertaining to the
diversification and concentration of the Fund's portfolio. The Funds consider
Participation Interests not subject to puts to be illiquid.
The principal credit risk associated with acquiring Participation Interests
from a co-lender or another Participant is the credit risk associated with the
underlying corporate borrower. A Fund may incur additional credit risk, however,
when it is in the position of Participant rather than a co-lender because the
Fund must assume the risk of insolvency of the co-lender from which the
Participation Interest was acquired and that of any person interpositioned
between the Fund and the co-lender.
REAL ESTATE INVESTMENT TRUSTS
The Asset Manager Fund may invest in securities issued by equity real estate
investment trusts ("REITs"). REITs pool investors' funds for investment
primarily in income-producing commercial real estate or real-estate related
loans. REITs are similar to holding companies in that they are essentially
holding companies that rely on professional managers to supervise their
investments. A REIT is not taxed on income distributed to shareholders if it
complies with several requirements relating to its organization, ownership,
assets, and income and the requirement that it distribute to its shareholders at
least 95% of its taxable income (other than net capital gains) for each taxable
year.
Investment in REITs may be subject to many of the same risks as a direct
investment in real estate. This is due to the fact that the value of the REIT
may be affected by the value of the real estate owned by the companies in which
it invests. These risks include changes in economic conditions, interest rates,
property values, property tax increases, overbuilding and increased competition,
environmental contamination zoning and natural disasters.
RISK MANAGEMENT TECHNIQUES
The Funds can use various techniques to increase or decrease their exposure
to changing security prices, interest rates, currency exchange rates, commodity
prices or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling futures contracts and
options on futures contracts, entering into foreign currency transactions (such
as forward foreign currency exchange contracts and options on foreign
currencies) and purchasing or writing put or call options on securities and
securities indexes.
The Funds can use these practices in an attempt to adjust the risk and return
characteristics of their portfolios of investments. When a Fund uses such
techniques in an attempt to reduce risk it is known as "hedging". If a Fund's
Manager or Subadvisor judges market conditions incorrectly or employs a strategy
that does not correlate well with the Fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk or
increase return. These techniques may increase the volatility of a Fund and may
involve a small investment of cash relative to the magnitude of the risk
assumed. In addition, these techniques could result in a loss if the counter
party to the transaction does not perform as promised.
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OPTIONS ON SECURITIES
WRITING CALL OPTIONS. Subject to any limitations stated in the Prospectus or
in this SAI, each Fund may sell ("write") covered call options on its portfolio
securities in an attempt to enhance investment performance. A call option sold
by a Fund is a short term contract, having a duration of nine months or less,
which gives the purchaser of the option the right to buy, and the writer of the
option--in return for a premium received--the obligation to sell, the underlying
security at the exercise price upon the exercise of the option at any time prior
to the expiration date, regardless of the market price of the security during
the option period. A call option on a stock or bond index gives the purchaser of
the option, in return for the premium paid, the right to receive from the seller
cash equal to the difference between the closing price of the index and the
exercise price of the option. A call option may be covered by, among other
things, the writer's owning the underlying security throughout the option
period, or by holding, on a share-for-share basis, a call on the same security
as the call written, where the exercise price of the call held is equal to or
less than the price of the call written, or greater than the exercise price of a
call written if the difference is maintained by the Fund in liquid assets in a
segregated account with its custodian.
A Fund will write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, the Fund will give up
the opportunity to profit from an increase in the market price of the underlying
security above the exercise price so long as its obligations under the contract
continue, except insofar as the premium represents a profit. Moreover, in
writing the call option, the Fund will retain the risk of loss should the price
of the security decline, which loss the premium is intended to offset in whole
or in part. A Fund, in writing "American Style" call options, must assume that
the call may be exercised at any time prior to the expiration of its obligations
as a writer, and that in such circumstances the net proceeds realized from the
sale of the underlying securities pursuant to the call may be substantially
below the prevailing market price. In contrast, "European Style" options may
only be exercised on the expiration date of the option. Covered call options and
the securities underlying such options will be listed on national securities
exchanges, except for certain transactions in options on debt securities and
foreign securities.
A Fund may protect itself from further losses due to a decline in value of
the underlying security or from the loss of ability to profit from appreciation
by buying an identical option, in which case the purchase cost may offset the
premium. In order to do this, the Fund makes a "closing purchase
transaction"--the purchase of a call option on the same security with the same
exercise price and expiration date as the covered call option which it has
previously written on any particular security. The Fund will realize a gain or
loss from a closing purchase transaction if the amount paid to purchase a call
option in a closing transaction is less or more than the amount received from
the sale of the covered call option. Also, because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the closing out of a call option is
likely to be offset in whole or in part by unrealized appreciation of the
underlying security owned by the Fund. When a security is to be sold from the
Fund's portfolio, the Fund will first effect a closing purchase transaction so
as to close out any existing covered call option on that security.
A closing purchase transaction may be made only on a national or foreign
securities exchange (an "Exchange") which provides a secondary market for an
option with the same exercise price and expiration date, except as discussed
below. There is no assurance that a liquid secondary market on an Exchange or
otherwise will exist for any particular option, or at any particular time, and
for some options no secondary market on an Exchange or otherwise may exist. If a
Fund is unable to effect a closing purchase transaction involving an
exchange-traded option, the Fund will not sell the underlying security until the
option expires or the Fund delivers the underlying security upon exercise.
Over-the-counter options differ from exchange-traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller, and generally do not have as much market liquidity as exchange-traded
options. Therefore, a closing purchase transaction for an over-the-counter
option may in many cases only be made with the other party to the option. Once
an option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver or purchase the underlying securities at the exercise price.
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Each Fund pays brokerage commissions and dealer spreads in connection with
writing covered call options and effecting closing purchase transactions, as
well as for purchases and sales of underlying securities. The writing of covered
call options could result in significant increases in a Fund's portfolio
turnover rate, especially during periods when market prices of the underlying
securities appreciate. Subject to the limitation that all call and put option
writing transactions be covered, and limitations imposed on regulated investment
companies under Federal tax law, the International Bond Fund and International
Equity Fund may, to the extent determined appropriate by such Funds' Subadvisor,
engage without limitation in the writing of options on their portfolio
securities.
WRITING PUT OPTIONS. Subject to any limitations in the Prospectus or in this
SAI, each Fund may also write covered put options. A put option is a short term
contract which gives the purchaser of the put option, in return for a premium,
the right to sell the underlying security to the seller of the option at a
specified price during the term of the option. A put option written by a Fund is
"covered" if the Fund maintains liquid assets with a value equal to the exercise
price in a segregated account with its custodian. A put option is also "covered"
if the Fund holds on a share-for-share basis a put on the same security as the
put written, where the exercise price of the put held is equal to or greater
than the exercise price of the put written, or less than the exercise price of
the put written if the difference is maintained by the Fund in liquid assets in
a segregated account with its custodian.
The premium which the Funds receive from writing a put option will reflect,
among other things, the current market price of the underlying security, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security, the option period, supply and demand and
interest rates.
A covered put writer assumes the risk that the market price for the
underlying security will fall below the exercise price, in which case the writer
would be required to purchase the security at a higher price than the
then-current market price of the security. In both cases, the writer has no
control over the time when it may be required to fulfill its obligation as a
writer of the option.
The Funds may effect a closing purchase transaction to realize a profit on an
outstanding put option or to prevent an outstanding put option from being
exercised. The Funds may also effect a closing purchase transaction, in the case
of a put option, to permit the Funds to maintain their holdings of the deposited
U.S. Treasury obligations, to write another put option to the extent that the
exercise price thereof is secured by the deposited U.S. Treasury obligations, or
to utilize the proceeds from the sale of such obligations to make other
investments.
If a Fund is able to enter into a closing purchase transaction, the Fund will
realize a profit or loss from such transaction if the cost of such transaction
is less or more than the premium received from the writing of the option,
respectively. After writing a put option, the Fund may incur a loss equal to the
difference between the exercise price of the option and the sum of the market
value of the underlying security plus the premium received from the sale of the
option.
In addition, the Funds may also write straddles (combinations of covered puts
and calls on the same underlying security). The extent to which the Funds may
write covered put and call options and enter into so-called "straddle"
transactions involving put or call options may be limited by the requirements of
the Internal Revenue Code of 1986, as amended (the "Code") for qualification as
a regulated investment company and the Company's intention that each Fund
qualify as such.
PURCHASING OPTIONS. Each Fund, as specified for the Fund in the Prospectus,
may purchase put or call options which are traded on an Exchange or in the
over-the-counter market. Options traded in the over-the-counter market may not
be as actively traded as those listed on an Exchange. Accordingly, it may be
more difficult to value such options and to be assured that they can be closed
out at any time. The Funds will engage in such transactions only with firms the
Manager or the Subadvisor deems to be of sufficient creditworthiness so as to
minimize these risks.
The Funds may purchase put options on securities to protect their holdings in
an underlying or related security against a substantial decline in market value.
Securities are considered related if their price movements generally correlate
with one another. The purchase of a put option would entitle the Fund, in
exchange for the premium paid,
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to sell a security at a specified price upon exercise of the option during the
option period. The purchase of put options on securities held in the portfolio
or related to such securities will enable a Fund to preserve, at least
partially, unrealized gains occurring prior to the purchase of the option on a
portfolio security without actually selling the security. In addition, the Fund
will continue to receive interest or dividend income on the security. The put
options purchased by the Fund may include, but are not limited to, "protective
puts," in which the security to be sold is identical or substantially identical
to a security already held by the Fund or to a security which the Fund has the
right to purchase. The Fund would ordinarily recognize a gain if the value of
the securities decreased during the option period below the exercise price
sufficiently to cover the premium. The Fund would recognize a loss if the value
of the securities remained above the difference between the exercise price and
the premium.
The Funds may also purchase call options on securities, which the Funds
intend to purchase, to protect against substantial increases in prices of such
securities pending their ability to invest in an orderly manner in such
securities. The purchase of a call option would entitle the Fund, in exchange
for the premium paid, to purchase a security at a specified price upon exercise
of the option during the option period. The Fund would ordinarily realize a gain
if the value of the securities increased during the option period above the
exercise price sufficiently to cover the premium. The Fund would have a loss if
the value of the securities remained below the sum of the premium and the
exercise price during the option period. In order to terminate an option
position, the Funds may sell put or call options identical to those previously
purchased, which could result in a net gain or loss depending on whether the
amount received on the sale is more or less than the premium and other
transaction costs paid on the put or call option when it was purchased.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON SECURITIES. Exchange markets in U.S.
government securities options are a relatively new and untested concept, and it
is impossible to predict the amount of trading interest that may exist in such
options. The same types of risk apply to over-the-counter trading in options.
There can be no assurance that viable markets will develop or continue in the
United States or abroad.
A Fund's purpose in selling covered options is to realize greater income than
would be realized on portfolio securities transactions alone. A Fund may forego
the benefits of appreciation on securities sold pursuant to call options, or pay
a higher price for securities acquired pursuant to put options written by the
Fund. If a put or call option purchased by a Fund is not sold when it has
remaining value, and if the market price of the underlying security, in the case
of a put, remains equal to or greater than the exercise price, or, in the case
of a call, remains less than or equal to the exercise price, the Fund will not
be able to exercise profitably the option and will lose its entire investment in
the option. Also, the price of a put or call option purchased to hedge against
price movements in a related security may move more or less than the price of
the related security.
The Fund would ordinarily realize a gain if the value of the securities
increased during the option period above the exercise price sufficiently to
cover the premium. The Fund would have a loss if the value of the securities
remained below the sum of the premium paid and the exercise price during the
option period.
The ability of a Fund to successfully utilize options may depend in part upon
the ability of the Manager or the Subadvisor to forecast interest rates and
other economic factors correctly.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the
options markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the options markets.
OPTIONS ON FOREIGN CURRENCIES
Subject to any limitation stated in the Prospectus or this SAI, each Fund may
purchase and write options on foreign currencies. A Fund may use foreign
currency options contracts for various reasons, including: to manage its
exposure to changes in currency exchange rates; as an efficient means of
adjusting its overall exposure to certain currencies; or in an effort to enhance
its return. A Fund may purchase and write put and call options on foreign
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currencies for the purpose of protecting against declines in the dollar value of
foreign portfolio securities and against increases in the U.S. dollar cost of
foreign securities to be acquired. A Fund may also use foreign currency options
to protect against potential losses in positions denominated in one foreign
currency against another foreign currency in which the Fund's assets are or may
be invested. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such declines in the value of portfolio securities, a
Fund may purchase put options on the foreign currency. If the value of the
currency does decline, that Fund will have the right to sell such currency for a
fixed amount of dollars which exceeds the market value of such currency,
resulting in a gain that may offset, in whole or in part, the negative effect of
currency depreciation on the value of the Fund's securities denominated in that
currency.
Conversely, if a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, a Fund may purchase call options on such currency. If the value of
such currency does increase, the purchase of such call options would enable the
Fund to purchase currency for a fixed amount of dollars which is less than the
market value of such currency, resulting in a gain that may offset, at least
partially, the effect of any currency-related increase in the price of
securities the Fund intends to acquire. As in the case of other types of options
transactions, however, the benefit a Fund derives from purchasing foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, if currency exchange rates do not move in the
direction or to the extent anticipated, a Fund could sustain losses on
transactions in foreign currency options which would deprive it of a portion or
all of the benefits of advantageous changes in such rates.
If a Fund anticipates a decline in the dollar value of foreign
currency-denominated securities due to declining exchange rates, it could,
instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received by the Fund.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, a Fund
could write a put option on the relevant currency. If rates move in the manner
projected, the put option will expire unexercised and allow the Fund to offset
such increased cost up to the amount of the premium. As in the case of other
types of options transactions, however, the writing of a foreign currency option
will constitute only a partial hedge up to the amount of the premium, and only
if rates move in the expected direction. If unanticipated exchange rate
fluctuations occur, the option may be exercised and a Fund would be required to
purchase or sell the underlying currency at a loss which may not be fully offset
by the amount of the premium. As a result of writing options on foreign
currencies, a Fund also may be required to forego all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
currency exchange rates.
A call option written on foreign currency by a Fund is "covered" if that Fund
owns the underlying foreign currency subject to the call or securities
denominated in that currency or has an absolute and immediate right to acquire
that foreign currency without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other foreign currency held in its portfolio. A call
option is also covered if a Fund holds a call on the same foreign currency for
the same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the amount of the
difference is maintained by a Fund in liquid assets in a segregated account with
its custodian.
Options on foreign currencies to be written or purchased by a Fund will be
traded on U.S. and foreign exchanges or over-the- counter. Exchange-traded
options generally settle in cash, whereas options traded over-the-counter may
settle in cash or result in delivery of the underlying currency upon exercise of
the option. As with other kinds of option transactions, however, the writing of
an option on foreign currency will constitute only a partial hedge up to the
amount of the premium received and a Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may
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constitute an effective hedge against exchange rate fluctuations, although, in
the event of rate movements adverse to a Fund's position, a Fund may forfeit the
entire amount of the premium plus related transaction costs.
There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Fund may be unable to close
out a position.
Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of a Fund to reduce foreign currency risk
using such options. Over-the-counter options differ from traded options in that
they are two-party contracts with price and other terms negotiated between buyer
and seller and generally do not have as much market liquidity as
exchanged-related options. Foreign currency exchange-traded options generally
settle in cash, whereas options traded over-the counter may settle in cash or
result in delivery of the underlying currency upon exercise of the option.
FUTURES TRANSACTIONS
Subject to any limitations in the Prospectus or this SAI, each Fund, as
specified for the Fund in the Prospectus, may purchase and sell futures
contracts on securities, interest rates, foreign currency and on indexes of
securities to hedge against anticipated changes in interest rates and other
economic factors that might otherwise have an adverse effect upon the value of a
Fund's portfolio securities or to gain market experience to particular segments
of the market represented by the futures contract. An interest rate or stock
index futures contract is an agreement to take or make delivery of an amount of
cash based on the difference between the value of the index at the beginning and
at the end of the contract period. A futures contract on a foreign currency is
an agreement to buy or sell a specified amount of a currency for a set price on
a future date. The Funds may also enter into such futures contracts in order to
lengthen or shorten the average maturity or duration of the Fund's portfolio.
For example, a Fund may purchase futures contracts as a substitute for the
purchase of longer-term debt securities to lengthen the average duration of a
Fund's portfolio of fixed-income securities. A Fund may purchase and sell stock
index futures to hedge its securities portfolio with regard to market
(systematic) risk (involving the market's assessment of overall economic
prospects), as distinguished from stock-specific risk (involving the market's
evaluation of the merits of the issuer of a particular security).
The Funds, as specified for each Fund in the Prospectus, may also purchase
and sell other futures contracts when deemed appropriate, in order to hedge the
equity or non-equity portions of their portfolios. In addition, each Fund, as
specified for the Fund in the Prospectus, may enter into contracts for the
future delivery of foreign currencies to hedge against changes in currency
exchange rates. Each of the Funds may also purchase and write put and call
options on futures contracts of the type into which such Fund is authorized to
enter and may engage in related closing transactions. In the United States, all
such futures on securities, debt index futures, stock index futures, foreign
currency futures and related options will be traded on exchanges that are
regulated by the Commodity Futures Trading Commission ("CFTC"). Subject to
compliance with applicable CFTC rules, the Funds also may enter into futures
contracts traded on foreign futures exchanges as long as trading on the
aforesaid foreign futures exchanges does not subject a Fund to risks that are
materially greater than the risks associated with trading on U.S. exchanges.
A futures contract is an agreement to buy or sell a security or currency (or
to deliver a final cash settlement price in the case of a contract relating to
an index or otherwise not calling for physical delivery at the end of trading in
the contracts), for a set price at a future date. When interest rates are
changing and portfolio values are falling, futures contracts can offset a
decline in the value of a Fund's current portfolio securities. When interest
rates are changing and portfolio values are rising, the purchase of futures
contracts can secure better effective rates or purchase prices of the Fund than
might later be available in the market when the Fund makes anticipated
purchases. In the United States, futures contracts are traded on boards of trade
which have been designated "contract markets" by the CFTC. Futures contracts
trade on these markets through an "open outcry" auction on the exchange floor.
Currently, there are futures contracts based on a variety of instruments,
indexes and currencies, including long-term U.S. Treasury
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bonds, Treasury notes, GNMA certificates, three-month U.S. Treasury bills,
three-month domestic bank certificates of deposit, a municipal bond index and
various stock indexes.
When a purchase or sale of a futures contract is made by a Fund, the Fund is
required to deposit with its custodian (or broker, if legally permitted) a
specified amount of liquid assets ("initial margin") as a partial guarantee of
its performance under the contract. The margin required for a futures contract
is set by the exchange on which the contract is traded and may be modified
during the term of the contract. The initial margin is in the nature of a
performance bond or good faith deposit on the futures contract which is returned
to the Fund upon termination of the contract assuming all contractual
obligations have been satisfied. Each Fund expects to earn interest income on
its initial margin deposits. A futures contract held by a Fund is valued daily
at the official settlement price of the exchange on which it is traded. Each
day, as the value of the security, currency or index fluctuates, the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking-to-market." Variation
margin does not represent a borrowing or loan by a Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, each Fund
will mark-to-market its open futures positions.
A Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
Positions taken in the futures markets are not normally held until delivery
or final cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss. While futures
positions taken by a Fund will usually be liquidated in this manner, the Fund
may instead make or take delivery of underlying securities or currencies
whenever it appears economically advantageous to the Fund to do so. A clearing
organization associated with the exchange on which futures are traded assumes
responsibility for closing-out transactions and guarantees that as between the
clearing members of an exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
FUTURES ON DEBT SECURITIES. A futures contract on a debt security is a
binding contractual commitment which, if held to maturity, will result in an
obligation to make or accept delivery, during a particular future month, of
securities having a standardized face value and rate of return. By purchasing
futures on debt securities--assuming a "long" position--a Fund will legally
obligate itself to accept the future delivery of the underlying security and pay
the agreed-upon price. By selling futures on debt securities--assuming a "short"
position--it will legally obligate itself to make the future delivery of the
security against payment of the agreed-upon price. Open futures positions on
debt securities will be valued at the most recent settlement price, unless such
price does not appear to the Manager or the Subadvisor to reflect the fair value
of the contract, in which case the positions will be valued by or under the
direction of the Directors.
Hedging by use of futures on debt securities seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities. A Fund may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Fund (or securities having characteristics similar to those held by
the Fund) in order to hedge against an anticipated rise in interest rates that
would adversely affect the value of the Fund's portfolio securities. When
hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position.
On other occasions, a Fund may take a "long" position by purchasing futures
on debt securities. This would be done, for example, when the Fund intends to
purchase particular securities and it has the necessary cash, but expects the
rate of return available in the securities markets at that time to be less
favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Fund of purchasing
the securities will be offset, at least to some extent, by the rise in the value
of the futures position taken in anticipation of the subsequent securities
purchase. A Fund may also
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purchase futures contracts as a substitute for the purchase of longer-term
securities to lengthen the average duration of the Fund's portfolio.
The Fund could accomplish similar results by selling securities with long
maturities and investing in securities with short maturities when interest rates
are expected to increase or by buying securities with long maturities and
selling securities with short maturities when interest rates are expected to
decline. However, by using futures contracts as a risk management technique,
given the greater liquidity in the futures market than in the cash market, it
may be possible to accomplish the same result more easily and more quickly.
SECURITIES INDEX FUTURES. A securities index futures contract does not
require the physical delivery of securities, but merely provides for profits and
losses resulting from changes in the market value of the contract to be credited
or debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date a final cash
settlement occurs and the futures positions are simply closed out. Changes in
the market value of a particular stock index futures contract reflect changes in
the specified index of equity securities on which the contract is based. A stock
index is designed to reflect overall price trends in the market for equity
securities.
Stock index futures may be used to hedge the equity portion of a Fund's
securities portfolio with regard to market (systematic) risk, as distinguished
from stock-specific risk. The Funds may enter into stock index futures to the
extent that they have equity securities in their portfolio. Similarly, the Funds
may enter into futures on debt securities indexes (including the municipal bond
index) to the extent they have debt securities in their portfolios. By
establishing an appropriate "short" position in securities index futures, a Fund
may seek to protect the value of its portfolio against an overall decline in the
market for securities. Alternatively, in anticipation of a generally rising
market, a Fund can seek to avoid losing the benefit of apparently low current
prices by establishing a "long" position in securities index futures and later
liquidating that position as particular securities are in fact acquired. To the
extent that these hedging strategies are successful, the Fund will be affected
to a lesser degree by adverse overall market price movements, unrelated to the
merits of specific portfolio securities, than would otherwise be the case. A
Fund may also purchase futures on debt securities or indexes as a substitute for
the purchase of longer-term debt securities to lengthen the average duration of
the Fund's debt portfolio.
CURRENCY FUTURES. A sale of a currency futures contract creates an obligation
by a Fund, as seller, to deliver the amount of currency called for in the
contract at a specified future time for a specified price. A purchase of a
currency futures contract creates an obligation by a Fund, as purchaser, to take
delivery of an amount of currency at a specified future time at a specified
price. A Fund may sell a currency futures contract if the Manager or the
Subadvisor anticipates that exchange rates for a particular currency will fall,
as a hedge against a decline in the value of the Fund's securities denominated
in such currency. If the Subadvisor anticipates that exchange rates will rise,
the Fund may purchase a currency futures contract to protect against an increase
in the price of securities denominated in a particular currency the Fund intends
to purchase. Although the terms of currency futures contracts specify actual
delivery or receipt, in most instances the contracts are closed out before the
settlement date without the making or taking of delivery of the currency.
Closing out of a currency futures contract is effected by entering into an
offsetting purchase or sale transaction. To offset a currency futures contract
sold by a Fund, the Fund purchases a currency futures contract for the same
aggregate amount of currency and delivery date. If the price in the sale exceeds
the price in the offsetting purchase, the Fund is immediately paid the
difference. Similarly, to close out a currency futures contract purchased by the
Fund, the Fund sells a currency futures contract. If the offsetting sale price
exceeds the purchase price, the Fund realizes a gain, and if the offsetting sale
price is less than the purchase price, the Fund realizes a loss.
A risk in employing currency futures contracts to protect against the price
volatility of portfolio securities denominated in a particular currency is that
changes in currency exchange rates or in the value of the futures position may
correlate imperfectly with changes in the cash prices of a Fund's securities.
The degree of correlation may be distorted by the fact that the currency futures
market may be dominated by short term traders seeking to profit from changes in
exchange rates. This would reduce the value of such contracts for hedging
purposes over a short term period. Such distortions are generally minor and
would diminish as the contract approached maturity.
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Another risk is that the Manager or the Subadvisor could be incorrect in its
expectation as to the direction or extent of various exchange rate movements or
the time span within which the movements take place.
OPTIONS ON FUTURES. For bona fide hedging and other appropriate risk
management purposes, the Funds also may purchase and write call and put options
on futures contracts which are traded on exchanges that are licensed and
regulated by the CFTC for the purpose of options trading, or, subject to
applicable CFTC rules, on foreign exchanges. A "call" option on a futures
contract gives the purchaser the right, in return for the premium paid, to
purchase a futures contract (assume a "long" position) at a specified exercise
price at any time before the option expires. A "put" option gives the purchaser
the right, in return for the premium paid, to sell a futures contract (assume a
"short" position), for a specified exercise price at any time before the option
expires.
Upon the exercise of a "call," the writer of the option is obligated to sell
the futures contract (to deliver a "long" position to the option holder) at the
option exercise price, which will presumably be lower than the current market
price of the contract in the futures market. Upon exercise of a "put," the
writer of the option is obligated to purchase the futures contract (deliver a
"short" position to the option holder) at the option exercise price, which will
presumably be higher than the current market price of the contract in the
futures market. When an entity exercises an option and assumes a long futures
position, in the case of a "call," or a short futures position, in the case of a
"put," its gain will be credited to its futures margin account, while the loss
suffered by the writer of the option will be debited to its account. However, as
with the trading of futures, most participants in the options markets do not
seek to realize their gains or losses by exercise of their option rights.
Instead, the writer or holder of an option will usually realize a gain or loss
by buying or selling an offsetting option at a market price that will reflect an
increase or a decrease from the premium originally paid.
Options on futures contracts can be used by a Fund to hedge substantially the
same risks and for the same duration and risk management purposes as might be
addressed or served by the direct purchase or sale of the underlying futures
contracts. If the Fund purchases an option on a futures contract, it may obtain
benefits similar to those that would result if it held the futures position
itself.
The purchase of put options on futures contracts is a means of hedging a
Fund's portfolio against the risk of rising interest rates, declining securities
prices or declining exchange rates for a particular currency. The purchase of a
call option on a futures contract represents a means of hedging against a market
advance affecting securities prices or currency exchange rates when the Fund is
not fully invested or of lengthening the average maturity or duration of a
Fund's portfolio. Depending on the pricing of the option compared to either the
futures contract upon which it is based or upon the price of the underlying
securities or currencies, it may or may not be less risky than ownership of the
futures contract or underlying securities or currencies.
In contrast to a futures transaction, in which only transaction costs are
involved, benefits received in an option transaction will be reduced by the
amount of the premium paid as well as by transaction costs. In the event of an
adverse market movement, however, the Fund will not be subject to a risk of loss
on the option transaction beyond the price of the premium it paid plus its
transaction costs, and may consequently benefit from a favorable movement in the
value of its portfolio securities or the currencies in which such securities are
denominated that would have been more completely offset if the hedge had been
effected through the use of futures.
If a Fund writes options on futures contracts, the Fund will receive a
premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Fund will realize a gain in the
amount of the premium, which may partially offset unfavorable changes in the
value of securities held by or to be acquired for the Fund. If the option is
exercised, the Fund will incur a loss in the option transaction, which will be
reduced by the amount of the premium it has received, but which may partially
offset favorable changes in the value of its portfolio securities or the
currencies in which such securities are denominated.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the underlying securities or the currencies in
which such securities are denominated. If the futures price at expiration is
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below the exercise price, the Fund will retain the full amount of the option
premium, which provides a partial hedge against any decline that may have
occurred in the Fund's holdings of securities or the currencies in which such
securities are denominated.
The writing of a put option on a futures contract is analogous to the
purchase of a futures contract. For example, if the Fund writes a put option on
a futures contract on debt securities related to securities that the Fund
expects to acquire and the market price of such securities increases, the net
cost to a Fund of the debt securities acquired by it will be reduced by the
amount of the option premium received. Of course, if market prices have
declined, the Fund's purchase price upon exercise may be greater than the price
at which the debt securities might be purchased in the securities market.
While the holder or writer of an option on a futures contract may normally
terminate its position by selling or purchasing an offsetting option of the same
series, a Fund's ability to establish and close out options positions at fairly
established prices will be subject to the maintenance of a liquid market. The
Funds will not purchase or write options on futures contracts unless the market
for such options has sufficient liquidity such that the risks associated with
such options transactions are not at unacceptable levels.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS. A Fund will only enter into futures contracts or related options
which are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system. In
general, the Funds will engage in transactions in futures contracts and related
options only for bona fide hedging and other appropriate risk management
purposes, and not for speculation. The Funds will not enter into futures
contracts for which the aggregate contract amounts exceed 100% of the Fund's net
assets. In addition, with respect to positions in futures and related options
that do not constitute bona fide hedging positions, a Fund will not enter into a
futures contract or futures option contract if, immediately thereafter, the
aggregate initial margin deposits relating to such positions plus premiums paid
by it for open futures option positions, less the amount by which any such
options are "in-the-money," would exceed 5% of the Fund's total assets. A call
option is "in-the-money" if the value of the futures contract that is the
subject of the option exceeds the exercise price. A put option is "in-the-money"
if the exercise price exceeds the value of the futures contract that is the
subject of the option.
When purchasing a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) liquid assets that, when added to the
amounts deposited with a futures commission merchant as margin, are equal to the
market value of the futures contract. Alternatively, the Fund may "cover" its
position by purchasing a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by the Fund.
When selling a futures contract, a Fund will maintain with its custodian (and
mark-to-market on a daily basis) liquid assets that, when added to the amount
deposited with a futures commission merchant as margin, are equal to the market
value of the instruments underlying the contract. Alternatively, the Fund may
"cover" its position by owning the instruments underlying the contract (or, in
the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Fund's custodian).
When selling a call option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) liquid assets that, when
added to the amounts deposited with a futures commission merchant as margin,
equal the total market value of the futures contract underlying the call option.
Alternatively, the Fund may cover its position by entering into a long position
in the same futures contract at a price no higher than the strike price of the
call option, by owning the instruments underlying the futures contract, or by
holding a separate call option permitting the Fund to purchase the same futures
contract at a price not higher than the strike price of the call option sold by
the Fund.
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When selling a put option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) liquid assets that equal the
purchase price of the futures contract, less any margin on deposit.
Alternatively, the Fund may cover the position either by entering into a short
position in the same futures contract, or by owning a separate put option
permitting it to sell the same futures contract so long as the strike price of
the purchased put option is the same or higher than the strike price of the put
option sold by the Fund.
The requirements for qualification as a regulated investment company also may
limit the extent to which a Fund may enter into futures, options on futures or
forward contracts. See "Tax Information."
RISKS ASSOCIATED WITH FUTURES AND OPTIONS ON FUTURES CONTRACTS. There are
several risks associated with the use of futures contracts and options on
futures contracts as hedging techniques. There can be no assurance that hedging
strategies using futures will be successful. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract, which in some cases may be unlimited. There can be no guarantee that
there will be a correlation between price movements in the hedging vehicle and
in the Fund's securities being hedged. An incorrect correlation could result in
a loss on both the hedged securities or currencies and the hedging vehicle so
that the portfolio return might have been better had hedging not been attempted.
In addition, there are significant differences between the securities and
futures markets that could result in an imperfect correlation between the
markets, causing a given hedge not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as variations in
speculative market demand for futures and futures options on securities,
including technical influences in futures trading and futures options, and
differences between the financial instruments being hedged and the instruments
underlying the standard contracts available for trading in such respects as
interest rate levels, maturities, and creditworthiness of issuers. A decision as
to whether, when and how to hedge involves the exercise of skill and judgment,
and even a well-conceived hedge may be unsuccessful to some degree because of
market behavior or unexpected interest rate trends. It is also possible that,
when a Fund has sold stock index futures to hedge its portfolio against a
decline in the market, the market may advance while the value of the particular
securities held in the Fund's portfolio may decline. If this occurred, the Fund
would incur a loss on the futures contracts and also experience a decline in the
value of its portfolio securities.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures or an options on futures position, and that
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.
Lack of a liquid market for any reason may prevent the Fund from liquidating an
unfavorable position and the Fund would remain obligated to meet margin
requirements until the position is closed.
In addition to the risk that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid market in the options. It is not certain
that such a market will develop. Although the Funds generally will purchase only
those options and futures contracts for which there appears to be an active
market, there is no assurance that a liquid market on an exchange will exist for
any particular option or futures contract at any particular time. In the event
no such market exists for particular options, it might not be possible to effect
closing transactions in such options with the result that a Fund would have to
exercise options it has purchased in order to realize any profit and would be
less able to limit its exposure to losses on options it has written.
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Many of the contracts discussed above are relatively new instruments without
a significant trading history. As a result, there can be no assurance that an
active secondary market will develop or continue to exist. If the price of a
futures contract changes more than the price of the securities or currencies,
the Fund will experience either a loss or a gain on the futures contracts which
will not be completely offset by changes in the price of the securities or
currencies which are the subject of the hedge. In addition, it is not possible
to hedge fully or perfectly against currency fluctuations affecting the value of
securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
ADDITIONAL RISKS OF OPTIONS ON SECURITIES, FUTURES CONTRACTS, OPTIONS ON
FUTURES CONTRACTS, AND FORWARD CURRENCY EXCHANGE CONTRACTS AND OPTIONS THEREON.
Options on securities, futures contracts, options on futures contracts,
currencies and options on currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the
United States; may not involve a clearing mechanism and related guarantees; and
are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be
adversely affected by (i) other complex foreign political, legal and economic
factors; (ii) lesser availability than in the United States of data on which to
make trading decisions; (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States; (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States; and (v) lesser
trading volume.
SWAP AGREEMENTS
The Eclipse International Bond Fund, Eclipse International Equity Fund,
Eclipse Asset Manager Fund and Eclipse Tax Free Bond Fund may enter into
interest rate, index and currency exchange rate swap agreements for purposes of
attempting to obtain a particular desired return at a lower cost to the Fund
than if the Fund had invested directly in an instrument that yielded that
desired return or for other portfolio management purposes. The Eclipse EAFE
Index Fund may enter into index and currency exchange rate swap agreements, the
Eclipse Indexed Bond Fund may invest up to 10% of its total assets in interest
rate and index swap agreements and the Eclipse Indexed Equity Fund may enter
into index swap agreements. Swap agreements are two party contracts entered into
primarily by institutional investors for periods ranging from a few weeks to
more than one year. In a standard "swap" transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments. The gross returns to be
exchanged or "swapped" between the parties are calculated with respect to a
"notional amount," i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index. The
"notional amount" of the swap agreement is only a fictive basis on which to
calculate the obligations that the parties to a swap agreement have agreed to
exchange. Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net" basis. Consequently, a
Fund's obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). A Fund's obligations under a swap agreement will be accrued daily
(offset against any amounts owing to the Fund) and any accrued but unpaid net
amounts owed to a swap counter party will be covered by the maintenance of a
segregated account consisting of liquid assets to avoid any potential leveraging
of the Fund's portfolio. The Eclipse International Bond Fund and Eclipse
International Equity Fund will not enter into a swap agreement with any single
party if the net amount owed or to be received under existing contracts with
that party would exceed 5% of the Fund's total assets. The Eclipse EAFE Index
Fund, Eclipse Indexed Bond Fund, Eclipse Indexed Equity Fund, Eclipse Asset
Manager Fund and Eclipse Tax Free Bond Fund may enter into swap agreements only
to the extent that obligations under such agreements represent not more than 10%
of the Fund's total assets.
Commonly used swap agreements include interest rate caps, under which, in
return for a premium, one party agrees to make payments to the other to the
extent that interest rates exceed a specified rate, or "cap"; interest rate
floors, under which, in return for a premium, one party agrees to make payments
to the other to the extent that interest rates fall below a specified level, or
"floor"; and interest rate collars, under which a party sells a cap and
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purchases a floor or vice versa in an attempt to protect itself against interest
rate movements exceeding given minimum or maximum levels.
Whether a Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the Manager's or the Subadvisor's ability to
correctly predict whether certain types of investments are likely to produce
greater returns than other investments. Because they are two party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid. Moreover, a Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counter party. The Manager or the Subadvisor will
cause a Fund to enter into swap agreements only with counter parties that would
be eligible for consideration as repurchase agreement counter parties under the
Fund's repurchase agreement guidelines. Certain restrictions imposed on the
Funds by the Internal Revenue Code may limit the Funds' ability to use swap
agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect a Fund's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements.
Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations approved by the
Commodity Futures Trading Commission ("CFTC"). To qualify for this exemption, a
swap agreement must be entered into by "eligible participants," which includes
the following, provided the participants' total assets exceed established
levels: a bank or trust company, savings association or credit union, insurance
company, investment company subject to regulation under the Investment Company
Act of 1940, commodity pool, corporation, partnership, proprietorship,
organization, trust or other entity, employee benefit plan, governmental entity,
broker-dealer, futures commission merchant, natural person, or regulated foreign
person. To be eligible, natural persons and most other entities must have total
assets exceeding $10 million; commodity pools and employee benefit plans must
have assets exceeding $5 million. In addition, an eligible swap transaction must
meet three conditions. First, the swap agreement may not be part of a fungible
class of agreements that are standardized as to their material economic terms.
Second, the creditworthiness of parties with actual or potential obligations
under the swap agreement must be a material consideration in entering into or
determining the terms of the swap agreement, including pricing, cost or credit
enhancement terms. Third, swap agreements may not be entered into and traded on
or through a multilateral transaction execution facility.
This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a safe harbor for swap transactions from regulation as futures
or commodity option transactions under the CEA or its regulations. The Policy
Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange-style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.
WARRANTS
Each Fund may invest in warrants which entitle the holder of a warrant to
purchase a given number of shares of a particular issuer at a specified price
until expiration of the warrant. Such investments can provide a greater
potential for profit or loss than an equivalent investment in the underlying
security. Prices of warrants do not necessarily move in tandem with the prices
of the underlying securities, and are speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. If a warrant is not
exercised by the date of its expiration, the Fund will lose its entire
investment in such warrant. The Eclipse Mid Cap Value Fund, Eclipse Small Cap
Value Fund, Eclipse Ultra Short Term Income Fund and Eclipse Balanced Fund will
not, however, purchase any warrant if, as a result of such purchase, 5% or more
of such Fund's total assets would be invested in warrants. Included in that
amount, but not to exceed 2% of the value of such 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.
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SHORT SALES AGAINST THE BOX
A short sale is a transaction in which a Fund (other than the Eclipse Ultra
Short Term Income Fund, Eclipse Balanced Fund, Eclipse Mid Cap Value Fund and
Eclipse Small Cap Value Fund) sells through a broker a security it does not own
in anticipation of a possible decline in market price. A short sale "against the
box" is a short sale in which, at the time of the short sale, a Fund owns or has
the right to obtain securities equivalent in kind and amount. Each of the Funds
will only enter into short sales against the box. A Fund (other than the Eclipse
Ultra Short Term Income Fund, Eclipse Balanced Fund, Eclipse Mid Cap Value Fund
and Eclipse Small Cap Value Fund) may enter into a short sale against the box
among other reasons, to hedge against a possible market decline in the value of
a security owned by the Fund. If the value of a security sold short against the
box increases, the Fund would suffer a loss when it purchases or delivers to the
selling broker the security sold short. The proceeds of the short sale are
retained by the broker pursuant to applicable margin rules. In addition, the
Fund may segregate assets, equal in value to 50% of the value of the short sale,
in a special account with the Fund's custodian. The segregated assets are
pledged to the broker pursuant to applicable margin rules. If a broker, with
which the Fund has open short sales, were to become bankrupt, a Fund could
experience losses or delays in recovering gains on short sales. The Funds (other
than the Eclipse Ultra Short Term Income Fund, Eclipse Balanced Fund, Eclipse
Mid Cap Value Fund and Eclipse Small Cap Value Fund) will only enter into short
sales against the box with brokers the Manager or the Subadvisor believes are
creditworthy. Short sales against the box will be limited to no more than 25% of
a Fund's total assets.
RISKS ASSOCIATED WITH DEBT SECURITIES
To the extent that a Fund invests in debt securities, it will be subject to
certain risks. The value of the debt securities held by a Fund, and thus the net
asset value of the shares of beneficial interest of the Fund, generally will
fluctuate depending on a number of factors, including, among others, changes in
the perceived creditworthiness of the issuers of those securities, movements in
interest rates, the average maturity of the Fund's investments, changes in the
relative values of the currencies in which the Fund's investments are
denominated relative to the U.S. dollar, and the extent to which the Fund hedges
its interest rate, credit and currency exchange rate risks. Generally, a rise in
interest rates will reduce the value of fixed income securities held by a Fund,
and a decline in interest rates will increase the value of fixed income
securities held by a Fund. Longer term debt securities generally pay higher
interest rates than do shorter term debt securities but also may experience
greater price volatility as interest rates change.
Since shares of the Funds represent an investment in securities with
fluctuating market prices, the value of shares of each Fund will vary as the
aggregate value of the Funds' portfolio securities increases or decreases.
Moreover, the value of lower rated debt securities that a Fund purchases may
fluctuate more than the value of higher rated debt securities. Lower rated debt
securities generally carry greater risk that the issuer will default on the
payment of interest and principal. Lower rated fixed income securities generally
tend to reflect short term corporate and market developments to a greater extent
than higher rated securities which react primarily to fluctuations in the
general level of interest rates. Changes in the value of securities subsequent
to their acquisition will not affect cash income or yields to maturity to the
Funds but will be reflected in the net asset value of the Funds' shares.
Corporate debt securities may bear fixed, contingent, or variable rates of
interest and may involve equity features, such as conversion or exchange rights
or warrants for the acquisition of stock of the same or a different issuer,
participations based on revenues, sales or profits, or the purchase of common
stock in a unit transaction (where corporate debt securities and common stock
are offered as a unit).
When and if available, debt securities may be purchased at a discount from
face value. From time to time, each Fund may purchase securities not paying
interest or dividends at the time acquired if, in the opinion of the Subadvisor,
such securities have the potential for future income (or capital appreciation,
if any).
45
<PAGE> 171
HIGH YIELD/HIGH RISK SECURITIES
Securities rated below BBB by S&P or Baa by Moody's (sometimes called "junk
bonds") are not considered "investment grade". There is more price volatility,
more risk of losing your principal interest, a greater possibility of the issuer
going bankrupt, plus additional risks. These securities are considered
speculative.
The Eclipse Core Bond Plus Fund, Eclipse Mid Cap Core Fund and the Eclipse
Tax Free Bond Fund may invest up to 20% of their total assets and the Eclipse
International Bond Fund may invest up to 25% of its total assets in debt
securities, including short term instruments, which are rated below investment
grade (i.e., below BBB by S&P or Baa by Moody's) or, if not rated, determined to
be of equivalent quality by the Subadvisor. The lower the ratings of such
securities, the greater their risks render them like equity securities. Moody's
considers bonds it rates Baa to have speculative elements as well as investment
grade characteristics. The Funds may invest in securities which are rated D by
S&P or, if unrated, are of equivalent quality. Securities rated D may be in
default with respect to payment of principal or interest.
Investors should be willing to accept the risk associated with investment in
high yield/high risk securities. Investment in high yield/high risk bonds
involves special risks in addition to the risks associated with investments in
higher rated debt securities. High yield/high risk bonds may be regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Moreover, such securities may under
certain circumstances be less liquid than higher rated debt instruments.
Analysis of the creditworthiness of issuers of high yield/high risk bonds may
be more complex than for issuers of higher quality debt securities, and the
ability of the Fund to achieve its investment objective may, to the extent of
its investment in high yield/high risk bonds, be more dependent upon such
creditworthiness analysis than would be the case if the Fund were investing in
higher quality bonds.
High yield/high risk bonds may be more susceptible to real or perceived
adverse economic and competitive industry conditions than higher grade bonds.
The prices of high yield/high risk bonds have been found to be less sensitive to
interest rate changes than more highly rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. If the issuer
of high yield/high risk bonds defaults, the Fund may incur additional expenses
to seek recovery. In the case of high yield/high risk bonds structured as zero
coupon or payment-in-kind securities, the market prices of such securities are
affected to a greater extent by interest rate changes and, therefore, tend to be
more volatile than securities which pay interest periodically and in cash.
The secondary market on which high yield/high risk bonds are traded may be
less liquid than the market for higher grade bonds. Less liquidity in the
secondary trading market could adversely affect the price at which the Fund
could sell a high yield/high risk bond, and could adversely affect and cause
large fluctuations in the daily net asset value of the Fund's shares. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in high yield/high risk bond prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of high yield/high risk bonds, especially in a
thinly traded market.
Legislation designed to limit the use of high yield/high risk bonds in
corporate transactions may have a material adverse effect on the International
Bond Fund's net asset value and investment practices. In addition, there may be
special tax considerations associated with investing in high yield/high risk
bonds structured as zero coupon or payment-in-kind securities. Interest on these
securities is recorded annually as income even though no cash interest is
received until the security's maturity or payment date. As a result, the amounts
which have accrued each year are required to be distributed to shareholders and,
such amounts will be taxable to shareholders. Therefore, the Fund may have to
sell some of its assets to distribute cash to shareholders. These actions are
likely to reduce the Fund's assets and may thereby increase its expense ratios
and decrease its rate of return.
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<PAGE> 172
The use of credit ratings as the sole method for evaluating high yield/high
risk bonds also involves certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield/high risk bonds. Also, credit rating agencies may fail to change credit
ratings on a timely basis to reflect subsequent events.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations issued without any requirement for the
periodic payment of interest. Zero coupon bonds are issued at a significant
discount from the face value. The discount approximates the total amount of
interest the bonds would accrue and compound over the period until maturity at a
rate of interest reflecting the market rate at the time of issuance. Cash to pay
dividends representing unpaid, accrued interest may be obtained from sales
proceeds of portfolio securities and Fund shares and from loan proceeds. Because
interest on zero coupon obligations is not paid to the Fund on a current basis
but is, in effect, compounded, the value of the securities of this type is
subject to greater fluctuations in response to changing interest rates than the
value of debt obligations which distribute income regularly. Zero coupon bonds
tend to be subject to greater market risk than interest paying securities of
similar maturities. The discount represents income, a portion of which a Fund
must accrue and distribute every year even though the Fund receives no payment
on the investment in that year. Zero coupon bonds tend to be more volatile than
conventional debt securities.
SPECIAL CONSIDERATIONS FOR ECLIPSE EAFE INDEX FUND,
ECLIPSE INDEXED EQUITY FUND, ECLIPSE ASSET MANAGER FUND AND
ECLIPSE INDEXED BOND FUND
Standard & Poor's(R), "S&P" 500(R), "S&P(R)", "Standard & Poor's 500", "500",
"S&P MidCap 400 Index" and "S&P SmallCap 600 Index" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by an affiliate of
NYLIM. S&P does not sponsor, endorse, sell or promote the Eclipse Indexed Equity
Fund or the Eclipse Asset Manager Fund or represent the advisability of
investing in the Funds.
The Eclipse Indexed Equity Fund and the Eclipse Asset Manager Fund are not
sponsored, endorsed, sold or promoted by Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. ("S&P"). S&P makes no representation or warranty,
express or implied, to the owners of the Funds, or any member of the public
regarding the advisability of investing in securities generally or in the Funds
particularly or the ability of the S&P 500 Index, the S&P MidCap 400 Index or
the S&P SmallCap 600 Index to track general stock market performance. S&P's only
relationship to NYLIM is the licensing of certain trademarks and trade names of
S&P and of the S&P 500 Index, the S&P MidCap 400 Index or the S&P SmallCap 600
Index which are determined, composed and calculated by S&P without regard to
NYLIM or the Funds. S&P has no obligation to take the needs of Monitor or the
owners of the Funds into consideration in determining, composing or calculating
the S&P 500 Index, the S&P MidCap 400 Index or the S&P SmallCap 600 Index. S&P
is not responsible for and has not participated in the determination of the
prices and amount of the Funds or the timing of the issuance or sale of the
Funds or in the determination or calculation of the equation by which the Funds
are to be converted into cash. S&P has no obligation or liability in connection
with the administration, marketing or trading of the Funds.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index, S&P MidCap 400 Index, S&P SmallCap 600 Index or any data included therein
and S&P shall have no liability for any errors, omissions, or interruptions
therein. S&P makes no warranty, express or implied, as to results to be obtained
by NYLIM, owners of the Funds, or any other person or entity from the use of the
S&P Index or any data included therein. S&P makes no express or implied
warranties, and expressly disclaims all warranties of merchantability or fitness
for a particular purpose or use with respect to the S&P 500 Index, S&P MidCap
400 Index, S&P SmallCap 600 Index or any data included therein. Without limiting
any of the foregoing, in no event shall S&P have any liability for any special,
punitive, indirect, or consequential damages (including lost profits), even if
notified of the possibility of such damages.
47
<PAGE> 173
The inclusion of a security in the MSCI EAFE Index, the S&P 500 Index or the
BIG Index in no way implies an opinion by the index sponsors, Morgan Stanley,
Standard & Poor's or Salomon Smith Barney, as to the attractiveness of that
security as an investment. The Eclipse Funds that are managed as index funds
(Eclipse EAFE Index Fund, Eclipse Indexed Equity Fund and Eclipse Indexed Bond
Fund) are not sponsored by or affiliated with the sponsors of their respective
indexes.
The Eclipse Indexed Equity Fund and, in part, the Eclipse Asset Manager Fund
are managed to parallel the S&P 500 Index. Because of the market-value
weighting, as of December 31, 2000, the 10 largest companies account for
approximately [___%] of the Index. As of that date, the six largest weightings
in the S&P 500 Index as a percentage of net assets accounted for [___%] of the
Index.
- The Eclipse Asset Manager Fund also invests in common stocks selected to
replicate the S&P MidCap 400 Index, the S&P SmallCap 600 Index and the
Morgan Stanley REIT Index.
- The S&P MidCap 400 Index consists of 400 domestic common stocks chosen for
market size, liquidity, and industry group representation. The S&P MidCap
400 Index is an unmanaged market-value weighted index in which each
stock's weight is proportionate to its market value. As of December 31,
2000, the range of market capitalization of companies within the S&P
MidCap 400 Index was [$___ MILLION TO $___BILLION.]
- The S&P SmallCap 600 Index consists of 600 domestic common stocks
chosen for market size, liquidity, and industry group representation
(bid-asked spread, ownership, share turnover and number of no trade
days). The S&P SmallCap 600 Index is an unmanaged market-value weighted
index in which each stock's weight is proportionate to its market
value. As of __________, 20__, the range of market capitalization of
companies in the S&P SmallCap 600 Index was $___ million to $___
billion.
- The Morgan Stanley REIT Index is a capitalization-weighted index of the
most actively traded real estate investment trusts, and is designed to
be a measure of real estate equity performance. The Morgan Stanley
REIT Index is calculated by Morgan Stanley and Co., Inc. and reflects
reinvestment of all applicable dividends, capital gains and interest.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The fourteen Funds which constitute the Company have adopted as fundamental
policies certain investment restrictions, set forth below, which may not be
changed with respect to a Fund without a majority vote of the outstanding shares
of that Fund, as defined in the 1940 Act. Except for those investment policies
of a Fund specifically identified as fundamental in the Prospectus and this
Statement of Additional Information, and the Funds objectives as described in
the Prospectus, all other investment policies and practices described may be
changed by the Board of Directors without the approval of shareholders.
The four Funds which constitute the Trust have adopted as fundamental
policies certain investment restrictions, set forth below, which may not be
changed without the approval of each Fund's shareholders, by a vote of a
majority of its outstanding voting shares, as defined in the 1940 Act
Unless otherwise indicated, all of the percentage limitations below, and in
the investment restrictions recited in the Prospectus, apply to each Fund on an
individual basis, and apply only at the time a transaction is entered into.
Accordingly, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in the percentage which results from a
relative change in values or from a change in a Fund's net assets will not be
considered a violation of the Fund's policies or restrictions.
48
<PAGE> 174
EACH OF THE COMPANY'S FUNDS MAY NOT:
(1) invest in a security if, as a result of such investment, 25% or more of
its total assets would be invested in the securities of issuers in any
particular industry, except that this restriction does not apply to
securities issued or guaranteed by the U.S. government or its agencies
or instrumentalities (or repurchase agreements with respect thereto)
and at such time that the 1940 Act is amended to permit a registered
investment company to elect to be "periodically industry concentrated,"
(i.e., a fund that does not concentrate its investments in a particular
industry would be permitted, but not required, to invest 25% or more of
its assets in a particular industry) the Funds elect to be so
classified and the foregoing limitation shall no longer apply with
respect to the Funds;
(2) invest in a security if, with respect to 75% of its total assets, more
than 5% of its total assets would be invested in the securities of any
one issuer, except that this restriction does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities (this restriction is not applicable to the
International Bond Fund);
(3) invest in a security if, with respect to 75% of its assets, it would
hold more than 10% of the outstanding voting securities of any one
issuer, except that this restriction does not apply to U.S. government
securities (this restriction is not applicable to the International
Bond Fund);
(4) borrow money or issue senior securities, except that a Fund may (i)
borrow from banks or enter into reverse repurchase agreements, but only
if immediately after each borrowing there is asset coverage of 300%,
and (ii) issue senior securities to the extent permitted under the 1940
Act;
(5) lend any funds or other assets, except that a Fund may, consistent with
its investment objectives and policies: (i) invest in debt obligations
including bonds, debentures or other debt securities, bankers'
acceptances and commercial paper, even though the purchase of such
obligations may be deemed to be the making of loans; (ii) enter into
repurchase agreements; and (iii) lend its portfolio securities in
accordance with applicable guidelines established by the Securities and
Exchange Commission and any guidelines established by the Company's
Directors;
(6) purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by
companies which invest in real estate, or interests therein);
(7) purchase or sell commodities or commodities contracts, except that,
subject to restrictions described in the Prospectus and in this
Statement of Additional Information, (i) a Fund may enter into futures
contracts on securities, currencies or on indexes of such securities or
currencies, or any other financial instruments and options on such
futures contracts; (ii) a Fund may enter into spot or forward foreign
currency contracts and foreign currency options; or
(8) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities,
it may be deemed to be an underwriter under the Federal securities
laws.
EACH OF THE TRUST'S FUNDS 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 9 below 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
49
<PAGE> 175
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 Eclipse Balanced
Fund and the Eclipse 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 Eclipse Ultra Short Term
Income Fund and the Eclipse 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 Eclipse Ultra Short Term Income Fund and the Eclipse
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 Eclipse Ultra
Short Term Income Fund and the Eclipse 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 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 2 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.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
In addition to the Company's fundamental investment restrictions, the
Directors have voluntarily adopted certain policies and restrictions, set forth
below, which are observed in the conduct of the affairs of its fourteen Funds.
50
<PAGE> 176
These represent intentions of the Directors based upon current circumstances.
They differ from fundamental investment policies in that the following
additional investment restrictions may be changed or amended by action of the
Directors without requiring prior notice to or approval of shareholders.
In addition to the Trust's fundamental investment restrictions, the Trustees
have adopted certain additional investment restrictions, set forth below, which
are observed in the conduct of the affairs of its four Funds. These additional
investment restrictions may be changed by the Board without shareholder
approval.
Unless otherwise indicated, all percentage limitations apply to each of the
Funds on an individual basis, and apply only at the time a transaction is
entered into. Accordingly, if a percentage restriction is adhered to at the time
of investment, a later increase or decrease in the percentage which results from
a relative change in values or from a change in a Fund's net assets will not be
considered a violation.
UNDER THESE RESTRICTIONS, THE COMPANY'S FUNDS MAY NOT:
(1) (except for the Eclipse International Bond Fund and Eclipse
International Equity Fund) purchase puts, calls, straddles, spreads and
any combination thereof if, as a result, the value of its aggregate
investment in such classes of securities would exceed 5% of its total
assets;
(2) purchase securities that may not be sold without first being registered
under the Securities Act of 1933, as amended ("restricted securities")
other than Rule 144A securities and Section 4(2) commercial paper
determined to be liquid pursuant to guidelines adopted by the Company's
Board of Directors; enter into repurchase agreements having a duration
of more than seven days; purchase loan participation interests that are
not subject to puts; purchase instruments lacking readily available
market quotations ("illiquid instruments"); or purchase or sell
over-the-counter options, if as a result of the purchase or sale, the
Fund's aggregate holdings of restricted securities, repurchase
agreements having a duration of more than seven days, loan
participation interests that are not subject to puts, illiquid
instruments, and over-the-counter options purchased by the Fund and the
assets used as cover for over-the-counter options written by the Fund
exceed 10% of the Fund's net assets (15% of net assets in the case of
the Eclipse International Bond Fund and Eclipse International Equity
Fund);
(3) invest in other companies for the purpose of exercising control;
(4) purchase the securities of other investment companies, except to the
extent permitted by the 1940 Act or in connection with a merger,
consolidation, acquisition or reorganization;
(5) purchase securities on margin, except that the Fund may obtain such
short term credits as are necessary for the clearance of transactions,
and provided that margin payments in connection with futures contracts
and options on futures contracts shall not constitute the purchase of
securities on margin;
(6) sell securities short, except for covered short sales or unless it owns
or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in options,
futures and forward contracts are deemed not to constitute short sales
of securities.
The Directors have the ultimate responsibility for determining whether
specific securities are liquid or illiquid. The Directors have delegated the
function of making day-to-day determinations of liquidity to the Manager or the
Subadvisor pursuant to guidelines approved by the Directors.
The Manager or the Subadvisor takes into account a number of factors in
determining whether a Rule 144A security being considered for purchase by a Fund
is liquid, including at least the following:
51
<PAGE> 177
(i) the frequency and size of trades and quotes for the Rule 144A security
relative to the size of the Fund's holding;
(ii) the number of dealers willing to purchase or sell the 144A security and
the number of other potential purchasers;
(iii) dealer undertaking to make a market in the 144A security; and
(iv) the nature of the 144A security and the nature of the market for the
144A security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer).
To make the determination that an issue of 4(2) commercial paper is liquid, a
Subadvisor must conclude that the following conditions have been met:
(a) the 4(2) commercial paper is not traded flat or in default as to
principal or interest;
(b) the 4(2) commercial paper is rated:
(i) in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations ("NRSROs");
or
(ii) if only one NRSRO rates the security, the 4(2) commercial paper is
rated in one of the two highest rating categories by that NRSRO;
or
(iii) if the security is unrated, the Manager or the Subadvisor has
determined that the security is of equivalent quality based on
factors commonly used by rating agencies; and
(c) there is a viable trading market for the specific security, taking into
account all relevant factors (e.g., whether the security is the subject
of a commercial paper program that is administered by an issuing and
paying agent bank and for which there exists a dealer willing to make a
market in the security, the size of trades relative to the size of the
Fund's holding or whether the 4(2) commercial paper is administered by
a direct issuer pursuant to a direct placement program).
UNDER THESE RESTRICTIONS, THE TRUST'S FUNDS MAY NOT:
(1) purchase or retain the securities of any issuer if the Trust's officers
or 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.
(2) neither the Eclipse Balanced Fund nor the Eclipse 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;
(3) neither the Eclipse Mid Cap Value Fund nor the Eclipse 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).
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<PAGE> 178
DIRECTORS, TRUSTEES AND OFFICERS
The Directors and the Trustees oversee the Funds, the Manager and the
Subadvisor. Information pertaining to the Directors, Trustees and officers is
set forth below. Directors and Trustees deemed to be "interested persons" of
Eclipse for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, POSITION(S) WITH POSITION(S) WITH PRINCIPAL OCCUPATION(S)
ADDRESS AND AGE THE COMPANY THE TRUST DURING PAST 5 YEARS
--------------- ----------- --------- -------------------
<S> <C> <C> <C>
Stephen C. Roussin*, 37 Director and Chairman Trustee Mr. Roussin has been Director and Chairman
51 Madison Avenue of MainStay Institutional Funds Inc., 1997
New York, NY 10010 to present; President and Chief Operating
Officer, New York Life Investment
Management Holdings LLC, (formerly, New
York Life Asset Management LLC) from 1999
to present; President and Chief Operating
Officer, New York Life Investment
Management LLC (formerly, New York Life
Asset Management Operating Company LLC),
from 1999 to present; President, Chief
Executive Officer and Trustee, The
MainStay Funds, from 1997 to present;
Senior Vice President, New York Life
Insurance Company, from 1997 to present;
Director, New York Life Trust Company,
from 1997 to present; Manager, New York
Life Benefit Services LLC (formerly,
Director, New York Life Benefit Services
Inc.), from 1997 to present; Director,
NYLIFE Securities, Inc., from 1997 to
present; Manager and Chairman, MainStay
Shareholder Services LLC (formerly,
MainStay Shareholder Services Inc.), from
1997 to present; Director, Eagle
Strategies Corp., from 1997 to present;
and Manager, President and Chief Executive
Officer, MainStay Management LLC
(formerly, MainStay Management Inc.), from
1997 to March 2000, and Chairman and
Manager, from March 2000 to present;
Director, NYLIFE Distributors Inc., from
1997 to present, Chairman, from March 2000
to present, and Senior Vice President,
from 1997 to March 2000; Chairman and
Director, New York Life Trust Company,
FSB, from June 2000 to present.
Previously, he served as Senior Vice
President of Smith Barney from 1994 to
1997 and Division Sales Manager of
Prudential Securities from 1989 to 1994.
Patrick G. Boyle*, 46 Director Executive Mr. Boyle has served as Senior Vice
51 Madison Avenue Vice President President, New York Life Investment
New York, NY Management Holdings LLC (formerly New York
10010 Life Operating Company LLC), 1999 to
present; Senior Vice President, Pension
Department New York Life Insurance
Company, 1991 to present; Director, NYLIFE
Distributors, Inc., 1993 to 1996;
Chairman, Monitor Capital Advisors LLC,
1996 to 2000, and Director, 1991 to
present; Director, New York Life
International Investment Inc., 1995 to
present; Director, New York Life Trust
Company, 1995 to present; Director, NYL
Capital Management Limited, 1994 to
present; Member, American Council of Life
Insurance Pension Committee, 1992 to 1998;
Director, MBL Life Assurance Co., Inc.,
1997 to present.
Lawrence Glacken, 73 Director Trustee Mr. Glacken has served as a Director of
353 Canterbury Drive the MainStay Institutional Funds Inc.
Ramsey, NJ 07446 since their inception in January 1991. He
served as Vice President of Investment
Banking for The First Boston Corporation
from 1964 to 1987 and has been retired
since 1987.
Robert P. Mulhearn, 53 Director Trustee Mr. Mulhearn has served as a Director of
60 Twin Brooks Road the MainStay Institutional Funds Inc.
Saddle River, NJ 07458 since their inception in January 1991. He
was a Managing Director at Morgan Stanley
from 1979 to 1987. Mr. Mulhearn has been
a Private Investor from 1987 to present.
</TABLE>
53
<PAGE> 179
<TABLE>
<CAPTION>
NAME, POSITION(S) WITH POSITION(S) WITH PRINCIPAL OCCUPATION(S)
ADDRESS AND AGE THE COMPANY THE TRUST DURING PAST 5 YEARS
--------------- ----------- --------- -------------------
<S> <C> <C> <C>
Susan B. Kerley, 49 Director Trustee Ms. Kerley has served as a Director of the
P.O. Box 9572 MainStay Institutional Funds Inc. since
New Haven, CT 06535 their inception in January 1991. She has
been President of Global Research
Associates since 1990. From 1988 to 1990,
she served as Manager of Special
Investments at Rockefeller & Co. She was
Director of Research at Rogers, Casey and
Barksdale from 1983-1988. She has also
served as a Director of Citifunds from
1991 to present.
Linda M. Livornese, 48 President N/A Vice President, Pension Department, New
51 Madison Avenue York Life Insurance Company, 1990 to
New York, NY 10010 present; Pension Vice President, Pension
Department, New York Life Insurance
Company, 1988-1990; Assistant Vice
President, Pension Department, New York
Life Insurance Company, 1986-1988; Vice
President, NYLIFE Distributors Inc., 1993
to present; Vice President, NYLIFE
Securities Inc., 1992 to present.
Marc J. Brookman, 36 Executive Executive Mr. Brookman has served as Vice President
51 Madison Avenue Vice President Vice President of New York Life Insurance Company from
New York, NY 10010 1998 to present; Senior Vice
President-Product Development MainStay
Institutional Funds, Inc. and Retirement
Plans, 1998 to present; National Sales
Director, Vice President, United Asset
Management Retirement Plan Services, 1996
to 1998.
Jefferson C. Boyce, 42 Senior Vice Senior Vice Mr. Boyce has served as Senior Vice
51 Madison Avenue President President President New York Life Insurance Company,
New York, NY 10010 1994 to present; Senior Vice President The
MainStay Funds, 1995 to present; Director,
Monitor Capital Advisors LLC, 1991 to 2000
and Senior Vice President, 1996 to 2000;
Director, MSC Holding, Inc., 1992 to
present and Secretary, 1994 to present,
Director, Eagle Strategies Corp., 1993 to
present, Director, NYLIFE Equity, Inc.,
1993 to present, President and Chief
Executive Officer, NYLIFE Distributors,
Inc., 1996 to present and Director, 1993
to present Director, NYLIFE LLC, 1993 to
present; Director, NYLIFE Structured Asset
Management Company Ltd., 1993 to present;
Director, CNP Realty Investments, Inc.,
1994 to present; Director, New York Life
Benefit Services, LLC, 1994 to present;
Director, NYLIFE Depositary Corporation,
present; Director, NYLIFE SFD Holding Inc.
(formerly NAFCO, Inc.), 1994 to present;
Director, President and Chief Executive
Officer, NYLIFE Securities Inc., 1996 to
present; Chairman and Director, MainStay
Shareholder Services LLC, 1997 to present.
Richard W. Zuccaro, 50 Tax Vice Tax Vice Mr. Zuccaro has served as Vice President,
51 Madison Avenue President President New York Life Insurance Company, 1995 to
New York, NY 10010 present; Tax Vice President, NYLIFE
Securities Inc., 1987 to present; Tax Vice
President, NYLIFE SFD Holding Inc., 1990
to present; Tax Vice President, NYLIFE
Depositary Inc., 1990 to present; Tax Vice
President NYLIFE LLC, 1990 to present; Tax
Vice President NYLIFE Insurance Company of
Arizona, 1990 to present; Tax Vice
President, NYLIFE Realty Inc., 1991 to
present; Tax Vice President NYLICO Inc.,
1991 to present; Tax Vice President, New
York Life Fund Inc., 1991 to present, Tax
Vice President, New York Life
International Investment, Inc., 1991 to
present; Tax Vice President NYLIFE Funding
Inc., 1991 to present Tax Vice President,
NYLCO, 1991 to present; Tax Vice
President, NYLIFE Equity Inc., 1991 to
present; Tax Vice President MainStay VP
Series Fund, Inc., 1991 to present; Tax
Vice President, CNP Realty Investments,
Inc., 1991 to present;
</TABLE>
54
<PAGE> 180
<TABLE>
<CAPTION>
NAME, POSITION(S) WITH POSITION(S) WITH PRINCIPAL OCCUPATION(S)
ADDRESS AND AGE THE COMPANY THE TRUST DURING PAST 5 YEARS
--------------- ----------- --------- -------------------
<S> <C> <C> <C>
Tax Vice President, New York Life
Worldwide Holding, Inc., 1992 to present;
Tax Vice President, NYLIFE Structured
Asset Management Company Ltd., 1992 to
present; Tax Vice President, The MainStay
Funds, 1991 to present; Tax Vice President
Eagle Strategies Corp. (registered
investment adviser), 1993 to present; Tax
Vice President, NYLIFE Distributors Inc.,
1993 to present; Vice President &
Assistant Controller, New York Life
Insurance and Annuity Corp., 1995 to
present; Vice President, NYLCare Health
Plans, Inc., 1995 to present; Vice
President -Tax, New York Life and Health
Insurance Co., 1996 to present; Tax Vice
President New York Life Trust Company,
1996 to present; Tax Vice President,
Monitor Capital Advisors LLC, 1996 to
2000; Tax Vice President, NYLINK Insurance
Agency Incorporated, 1996 to present; Tax
Vice President, MainStay Shareholder
Services LLC, 1997 to present.
John Flanagan, 54 Treasurer (Principal Treasurer Mr. Flanagan has served as Vice President
51 Madison Avenue Financial and (Principal and Treasurer, New York Life Investment
New York, NY 10010 Accounting Officer) Financial and Management LLC, 1999 to present; Vice
Accounting Officer) President, New York Life Insurance
and Secretary Company, 1999 to present; Vice President
and Chief Financial Officer, The MainStay
Funds, 1999 to present; Director, Vice
President and Chief Financial Officer, New
York Life Investment Management (formerly
MainStay Management LLC), 1999 to present;
Director, Vice President and Chief
Financial Officer, MainStay Shareholder
Services LLC, 1999 to present; Senior Vice
President and Chief Financial Officer,
NYLIFE Distributors, Inc., 1999 to
present; Treasurer, Strong Funds and
Senior Vice President, Strong Capital
Management, Inc., 1997 to 1998; Partner,
predecessor to PricewaterhouseCoopers LLP,
1994 to 1997.
ANTOINETTE B. CIRILLO N/A Assistant Ms. Cirillo has been Assistant Treasurer
(Age 46) Treasurer of The MainStay Funds from 1992 to the
present, Assistant Treasurer of MainStay
Institutional Funds Inc. from 1992 to the
present, and Assistant Treasurer of
MainStay VP Series Fund, Inc. from 1993 to
the present, and was Corporate Vice
President, Assistant Vice President,
Director and Senior Accountant of Mutual
Fund Accounting Operations, NYLIFE
Distributors, Inc. and MainStay Management
LLC from 1988 to 1999. She held various
positions in New York Life Insurance
Company from 1987 to 1988.
PATRICK J. FARRELL N/A Assistant Mr. Farrell has served as Managing
(Age 40) Treasurer Director, New York Life Investment
and Assistant Management LLC, 1998 to present; Corporate
Secretary Vice President, New York Life Insurance
Company, 1996 to 1998; Assistant
Treasurer, The MainStay Funds, 1996 to
present; Assistant Treasurer, MainStay
Institutional Funds, 1996 to present,
Assistant Treasurer, Eclipse Funds, 1996
to present, Assistant Treasurer, MainStay
VP Funds, 1996 to present. Previously, he
was Vice President, Alliance Fund
Services, 1988 to 1996.
</TABLE>
----------
* Messrs. Boyle and Roussin are Directors who are "interested persons" of the
Company and Trust as that term is defined in the 1940 Act.
As indicated in the above table, certain Directors, Trustees and Officers
also hold positions with NYLIM, MacKay Shields, New York Life Insurance Company
("New York Life"), NYLIFE Securities, Inc. and/or NYLIFE Distributors, Inc.
55
<PAGE> 181
<TABLE>
<CAPTION>
COMPENSATION TABLE
====================================================================================================================
Name of Trustee/Director Aggregate Compensation Aggregate Compensation
from from
the Trust(1) the Company(2) Total Compensation From
For Year Ended For Year Ended Fund
December 31, 2000 October 31, 2000 Complex Paid(3)
====================================================================================================================
<S> <C> <C> <C>
Lawrence Glacken(4) $____________ $24,000 $24,000
Sigrid A. Hess(5) $____________ $0 $____________
Susan B. Kerley(4) $____________ $23,000 $23,000
Wesley G. McCain(5) $____________ $0 $____________
Robert P. Mulhearn(4) $____________ $23,000 _________
John C. Novogrod(5) $________ $0 $5,000
John C. Van Eck(5) $_________ $0 _________
Yung Wong(5) $_________ $0 _________
</TABLE>
----------
(1) Trustees of the Trust not affiliated with the Manager, Towneley Capital
Management, Inc. ("Towneley") or New York Life Investment Management LLC
(formerly MainStay Management LLC) 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
the Manager, Towneley or New York Life Investment Management LLC do not
receive compensation from the Trust.
(2) The Independent Directors of the Company receive from the Company an annual
retainer of $24,000 and a fee of $1,000 for each Board of Directors meeting
and for each Board committee meeting attended and are reimbursed for all
out-of-pocket expenses related to attendance at such meetings. Directors
who are affiliated with New York Life Insurance Company do not receive
compensation from the Company.
(3) The Fund Complex consists of Eclipse Funds and Eclipse Funds Inc.
(4) Accepted appointment as a Trustee of the Trust on December 12, 2000.
(5) Resigned as Trustee of the Trust on December 12, 2000.
As of October 31, 2000, the Directors and Officers of the Company as a group
owned less than 1% of the outstanding shares of any Class of each of the Funds.
As of December 31, 2000, The Trustees and Officers of the Trust owned ____%.
56
<PAGE> 182
THE MANAGER, THE SUBADVISOR AND THE DISTRIBUTOR
MANAGEMENT AGREEMENT
Pursuant to the Management Agreements for the Funds dated November 21, 1997
and December 12, 2000, New York Life Investment Management LLC ("NYLIM" or the
"Manager"), subject to the supervision of the Directors and the Trustees and in
conformity with the stated policies of the Funds, administers the Funds'
business affairs and investment advisory responsibilities. NYLIM is a direct
subsidiary of New York Life Insurance Company.
The Directors, including the Independent Directors, approved the Management
Agreements at in-person meetings held on September 9, 1997 and on December 12,
2000. On November 17, 1997 and December 12, 2000, the shareholders of each of
the Funds approved the Management Agreements for each of the Funds. The
Management Agreements will remain in effect for two years following their
respective effective dates, and will continue in effect thereafter only if such
continuance is specifically approved at least annually by the Directors or by a
vote of a majority of the outstanding voting securities of each of the Funds (as
defined in the 1940 Act and the rules thereunder) and, in either case by a
majority of the Directors who are not "interested persons" of the Company or the
Manager (as the term is defined in the 1940 Act). Prior to January 2, 2001, the
Manager of the Funds was MainStay Management LLC, an indirect subsidiary of New
York Life Insurance Company. On December 5, 2000 the Directors of the Company
approved a Substitution Agreement which substituted NYLIM for MainStay
Management LLC as Manager to the Funds.
Prior to December 29, 2000, the Fund was managed by MainStay Management LLC
and sub-advised by New York Life Asset Management Operating Company LLC
("NYLAMOC"). The previous manager and sub-adviser were each indirect
subsidiaries of New York Life. On October 19, 2000, the Directors of the Company
approved a Substitution Agreement which substituted NYLIM for MainStay
Management LLC as Manager to the Fund.
The Manager has authorized any of its directors, trustees, officers and
employees who have been elected or appointed as Directors, Trustees or officers
to serve in the capacities in which they have been elected or appointed.
The Management Agreement provides that the Manager shall not be liable to a
Fund for any error or judgment by the Manager or for any loss sustained by a
Fund except in the case of the Manager's willful misfeasance, bad faith, gross
negligence or reckless disregard of duty. The Management Agreement also provides
that it shall terminate automatically if assigned and that it may be terminated
without penalty by either party upon no more than 60 days' nor less than 30
days' written notice.
In connection with its administration of the business affairs of each of the
Funds, and except as indicated in the Prospectus under the heading "Know With
Whom You're Investing," the Manager bears the following expenses:
(a) the salaries and expenses of all personnel of the Company and the
Manager, except the fees and expenses of the Directors not affiliated with the
Manager or the Subadvisor;
(b) the fees to be paid to the Subadvisor pursuant to the Sub-Advisory
Agreement; and
(c) all expenses incurred by the Manager in connection with administering
the ordinary course of the Funds' business, other than those assumed by the
Company.
For its services, each Fund pays the Manager a monthly fee. (See the
Prospectus, "Know With Whom You're Investing".)
Prior to December 12, 2000 and since the inception of the Eclipse Mid Cap
Value Fund, Eclipse Small Cap Value Fund, Eclipse Ultra Short Term Income Fund
and Eclipse Balanced Fund, Towneley Capital Management, Inc. ("Towneley") served
as investment adviser for such Funds. On December 12, 2000, Towneley sold
certain segments of its portfolio management businesses including the business,
operations and activities that Towneley
57
<PAGE> 183
conducts relating to providing investment advisory services to certain
institutional and private accounts and to such Funds, to NYLIM Holdings (the
"Transaction"). As a result of the Transaction, NYLIM LLC replaced Towneley as
the investment adviser to the Eclipse Mid Cap Value Fund, Eclipse Small Cap
Value Fund, Eclipse Ultra Short Term Income Fund and Eclipse Balanced Fund
beginning December 12, 2000. The Transaction did not result in any increase in
advisory fees for any of the Funds.
For the fiscal year ended October 31, 2000, the ten month period ended
October 31, 1999 and the fiscal year ended December 31, 1998, the amount of the
management fee paid by the Company's Funds to the Manager was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR TEN MONTH PERIOD FISCAL YEAR
ENDED ENDED ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999 DECEMBER 31, 1998
---------------- ---------------- -----------------
<S> <C> <C> <C>
Eclipse Growth Equity Fund $___________ $7,314,578 6,963,032
Eclipse Value Equity Fund $___________ $5,585920 7,963,179
Eclipse Indexed Equity Fund $___________ $6,695,784 6,263,846
Eclipse Mid Cap Core Fund* N/A N/A N/A
Eclipse International Equity $___________ $1,013,499 1,104,413
Fund
Eclipse Bond Fund $___________ $1,156,712 1,373,917
Eclipse Core Bond Plus Fund* N/A N/A N/A
Eclipse Indexed Bond Fund $___________ $662,306 744,747
Eclipse Short Term Bond Fund $___________ $264,919 260,453
Eclipse Tax Free Bond Fund* N/A N/A N/A
Eclipse Money Market Fund $___________ $1,470,982 1,386,536
Eclipse Asset Manager Fund $___________ $2,927,643 $ 3,114,621
Eclipse International Bond Fund $___________ $393,177 440,402
Eclipse EAFE Index $___________ $561,256 562,217
</TABLE>
----------
* Because the Eclipse Core Bond Plus Fund, Eclipse Mid Cap Core Fund and
Eclipse Tax Free Bond Fund have not yet begun operations, no fees were
payable under the Management Agreement.
For the fiscal year ended December 31, 1997, the fiscal year ended December
31, 1998 and the fiscal year ended December 31, 1999, the amount of the
management fee paid by the Trust's Funds to Towneley was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR TEN MONTHS
ENDED ENDED ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Eclipse Mid Cap Value Fun(1) $918,205 $1,038,228
Eclipse Small Cap Value Fund 2,183,901 $1,978,256
Eclipse Ultra Short Term Income Fund(2) N/A N/A
Eclipse Balanced Fund(3) $673,283 $779,459
</TABLE>
----------
(1) During the fiscal year ended December 31, 1998, Towneley voluntarily waived
fees for the Eclipse Mid Cap Value Fund totaling $70,826, respectively.
(2) During the fiscal years ended December 31, 1998, December 31, 1999 and
December 31, 2000, Towneley voluntarily waived fees for the Eclipse Ultra
Short Term Income Fund totaling $27,820, $32,290 and _________
respectively, (in each case, its entire fee) .
(3) During the fiscal year ended December 31, 1998, Towneley voluntarily waived
fees for the Balanced Fund totaling $136,778.
58
<PAGE> 184
As of November 21, 1997, the Manager limited certain Funds' expenses. In
connection with the voluntary expense limitations, the Manager assumed the
following expenses for the fiscal year ended October 31, 2000, the ten months
ended October 31, 1999, and the year ended December 31, 1998.
<TABLE>
<CAPTION>
FISCAL YEAR TEN MONTHS FISCAL YEAR
ENDED ENDED ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999 DECEMBER 31, 1998
---------------- ---------------- -----------------
<S> <C> <C> <C>
Eclipse Indexed Equity Fund $________ $3,292,206 * 3,269,934 *
Eclipse International Equity $________ $--- 36,690
Fund
Eclipse Bond Fund $________ $159,149 192,482
Eclipse Indexed Bond Fund $________ $164,813 222,581
Eclipse Short Term Bond Fund $________ $109,252 127,949
Eclipse Money Market Fund $________ $343,743 383,039
Eclipse International Bond Fund $________ $57,982 70,444
Eclipse EAFE Index Fund $________ $222,379 257,925
</TABLE>
----------
* For the year ended October 31, 2000, the Manager assumed $_________ and
Monitor, the Funds Subadvisor, assumed $_________. For the ten months ended
October 31, 1999, the Manager assumed $2,622,628 and Monitor, the Funds
sub-adviser, assumed $669,578. For the year ended December 31, 1998, the
Manager assumed $2,643,549 and Monitor assumed $626,385.
As long as expense limitations continue, they may lower the Funds' expenses
and increase their respective yields. The voluntary expense limitations of the
Funds may be terminated or revised at any time, at which time the Funds'
expenses may increase and their respective yields may be reduced, depending on
the total assets of each of the Funds.
SUB-ADVISORY AGREEMENT
Pursuant to the Sub-Advisory Agreements between NYLIM, the Manager, and
MacKay Shields, the Subadvisor, regarding the Eclipse Bond Fund, Eclipse Core
Bond Plus Fund, Eclipse Growth Equity Fund, Eclipse International Bond Fund,
Eclipse International Equity Fund, Eclipse Short Term Bond Fund, Eclipse Tax
Free Bond Fund and Eclipse Value Equity Fund, and subject to the supervision of
the Board and the Manager in conformity with the stated policies of each of the
Funds, the Company and the Trust, the Subadvisor manages such Funds' portfolios,
including the purchase, retention, disposition and loan of securities. As
compensation for service, the Manager, not the Funds, pays the Subadvisor a
monthly fee calculated on the basis of each of the following Fund's average
daily net assets at the following annual rates:
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
FUND DAILY NET ASSETS
---- ----------------
<S> <C>
Eclipse Growth Equity Fund 0.25%
Eclipse Value Equity Fund 0.25%
Eclipse International Equity Fund 0.35%
Eclipse Bond Fund 0.20%
Eclipse Core Bond Plus Fund 0.30%
Eclipse Short Term Bond Fund 0.15%
Eclipse Tax Free Bond Fund 0.25%
Eclipse International Bond Fund 0.30%
</TABLE>
The Directors, including the Independent Directors, approved the
Sub-Advisory Agreements at in-person meetings held September 9, 1997 and
December 5, 2000. On November 17, 1997 and December 5, 2000, the shareholders of
the Funds approved the Sub-Advisory Agreements with MacKay Shields. The
Sub-Advisory
59
<PAGE> 185
Agreements will remain in effect for two years following their respective
effective dates, and will continue in effect thereafter only if such continuance
is specifically approved at least annually by the Board or by a vote of a
majority of the outstanding voting securities of each of the Funds (as defined
in the 1940 Act and the rules thereunder) and, in either case by a majority of
the Directors who are not "interested persons" of the Company, the Manager, or
the Subadvisor (as the term is defined in the 1940 Act). Prior to January 2,
2001, the Eclipse EAFE Index Fund, the Eclipse Indexed Bond Fund, the Eclipse
Indexed Equity Fund and the Eclipse Asset Manager Fund were sub-advised by
Monitor Capital Advisors ("Monitor") and the Eclipse Money Market Fund was
sub-advised by New York Life Asset Management Operating Company ("NYLAMOC"). On
January 2, 2001, NYLIM replaced Monitor and NYLAMOC pursuant to a substitution
agreement and these Funds are advised by NYLIM directly, without a subadvisor.
The Subadvisor has authorized any of its directors, officers and employees
who have been elected or appointed as Directors or officers of the Company or
Trustees or officers of the Trust to serve in the capacities in which they have
been elected or appointed. In connection with the services they render, the
Subadvisor bears the salaries and expenses of all of their personnel.
The Sub-Advisory Agreements provide that the Subadvisor shall not be liable
to a Fund for any error of judgment by the Subadvisor or for any loss sustained
by a Fund except in the case of the Subadvisor's willful misfeasance, bad faith,
gross negligence or reckless disregard of duty. The Sub-Advisory Agreements also
provide that they shall terminate automatically if assigned and that they may be
terminated without penalty by either party upon no more than 60 days' nor less
than 30 days' written notice.
For the fiscal year ended December 31, 1998, the ten months ended October
31, 1999 and the fiscal year ended October 31, 2000, the amount of the
sub-advisory fees paid by the Manager to NYLAMOC, MacKay Shields or Monitor, if
applicable, was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR TEN MONTHS FISCAL YEAR
ENDED ENDED ENDED
FUND OCTOBER 31, 2000 OCTOBER 31, 1999 DECEMBER 31, 1998
---- ---------------- ---------------- -----------------
<S> <C> <C> <C>
Eclipse Growth Equity Fund $___________ $2,151,346 $2,047,951
Eclipse Value Equity Fund $___________ 1,642,918 2,342,112
Eclipse Indexed Equity Fund* $___________ 1,339,157* 1,252,770*
Eclipse International Equity $___________ 417,323 454,158
Fund
Eclipse Bond Fund $___________ 308,456 366,373
Eclipse Core Bond Plus Fund** $___________ N/A N/A
Eclipse Indexed Bond Fund $___________ 132,461 148,950
Eclipse Short Term Bond Fund $___________ 66,230 65,113
Eclipse Tax Free Bond Fund** $___________ N/A N/A
Eclipse Money Market Fund $___________ 294,196 277,307
Eclipse Asset Manager Fund $___________ 675,610 718,759
Eclipse International Bond $___________ 147,441 165,151
Fund
Eclipse EAFE Index Fund $___________ 88,619 88,771
</TABLE>
----------
* For the fiscal year ended October 31, 2000, the ten months ended October
31, 1999 and the fiscal year ended December 31, 1998, the Subadvisor for
the Eclipse Indexed Equity Fund waived or reimbursed fees in the amounts of
$_________, $669,578 and $626,385, respectively.
** Because the Eclipse Core Bond Plus Fund and Eclipse Tax Free Bond Fund have
not yet commenced operations, no fees were payable under the Sub-Advisory
Agreements.
60
<PAGE> 186
SUB-ADMINISTRATION AGREEMENT
Prior to April 1, 2000 the Manager had delegated certain of its
administrative responsibilities to New York Life Insurance Company ("New York
Life") pursuant to a Sub-Administration Agreement between the Manager and New
York Life. Under the Sub-Administration Agreement, among other things, New York
Life responded to shareholder inquiries and prepared shareholder reports. For
these services, the Manager paid a percentage of its management fee to New York
Life, calculated on the basis of each Fund's average daily net assets at the
annual rates set forth below. For the year ended December 31, 1998, the Manager
paid New York Life $1,109,299, and $383,039 was waived or reimbursed. For the
ten months ended October 31, 1999, the Manager paid New York Life $1,176,785,
and $343,743 was waived or reimbursed. The Board, including the Independent
Directors and Independent Trustees, approved amendments to the
Sub-Administration Agreement at an in-person meeting held on September 7, 1999
to reflect the conversion of MainStay Management from a corporation to a limited
liability company under the laws of the State of Delaware.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
FUND DAILY NET ASSETS*
<S> <C>
Eclipse Growth Equity Fund 0.50%
Eclipse Value Equity Fund 0.50%
Eclipse Indexed Equity Fund 0.30%
Eclipse International Equity 0.40%
Fund
Eclipse Bond Fund 0.45%
Eclipse Indexed Bond Fund 0.30%
Eclipse Short Term Bond Fund 0.35%
Eclipse Money Market Fund 0.30%
Eclipse Asset Manager Fund 0.40%
Eclipse International Bond 0.40%
Fund
Eclipse EAFE Index Fund 0.70%
</TABLE>
* Expense reimbursement due to voluntary expense limitations will be borne by
the Sub-Administrator (in the case of the Eclipse Indexed Equity Fund,
together with the Manager).
In previous years, prior to a change in management structure, each Fund paid
an administrative fee directly to New York Life as administrator. After the
restructuring, and until April 1, 2000, the Manager paid the sub-administration
fee to New York Life. For the year ended October 31, 2000, the ten month period
ended October 31, 1999 and the year ended December 31, 1998, the amount of the
administration fee paid and waived and/or reimbursed for each Fund was as
follows:
<TABLE>
<CAPTION>
TEN MONTH
YEAR ENDED OCTOBER 31, 2000 PERIOD ENDED OCTOBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
--------------------------- ----------------------------- ----------------------------
ADMINISTRATION ADMINISTRATION ADMINISTRATION
FEE WAIVED FEE WAIVED FEE WAIVED
ADMINISTRATION AND/OR ADMINISTRATION AND/OR ADMINISTRATION AND/OR
FUND FEE PAID REIMBURSED FEE PAID REIMBURSED FEE PAID REIMBURSED
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eclipse Growth Equity Fund $_____________ $_____________ 5,163,231 N/A (1) 5,621,068 N/A (1)
Eclipse Value Equity Fund $_____________ $_____________ 3,943,002 N/A (1) 5,621,068 N/A (1)
Eclipse Indexed Equity Fund $_____________ $_____________ 5,356,627 3,292,206 (2) 5,011,077 3,269,934(3)
Eclipse International Equity $_____________ $_____________ 596,176 N/A (1) 649,656 36,690
Fund
Eclipse Bond Fund $_____________ $_____________ 848,255 159,149 1,007,539 192,482
Eclipse Indexed Bond Fund $_____________ $_____________ 529,845 164,813 595,798 222,581
Eclipse Short Term Bond Fund $_____________ $_____________ 198,689 109,252 195,341 127,949
Eclipse Money Market Fund $_____________ $_____________ 1,176,788 343,743 1,109,229 383,039
Eclipse Asset Manager Fund $_____________ $_____________ $ 2,252,033 $ N/A (1) $2,395,862 $ N/A (1)
Eclipse International Bond $_____________ $_____________ 245,735 57,982 275,251 70,444
Fund
Eclipse EAFE Index Fund $_____________ $_____________ 472,637 36,690 473,446 257,925
</TABLE>
(1) Fund had no expense limitation during period.
(2) New York Life assumed $2,622,628.
(3) New York Life assumed $2,643,549.
61
<PAGE> 187
DISTRIBUTION AGREEMENT
NYLIFE Distributors, Inc., a corporation organized under the laws of
Delaware, serves as the Company's distributor and principal underwriter (the
"Distributor") pursuant to a Distribution Agreement, dated January 1, 1994.
Prior to that time, NYLIFE Securities Inc. ("NYLIFE Securities"), an affiliated
company, had acted as principal underwriter. NYLIFE Securities sells shares of
the Funds pursuant to a dealer agreement with the Distributor. The Distributor
is not obligated to sell any specific amount of the Company's shares, and
receives no compensation from Eclipse pursuant to the Distribution Agreement.
Eclipse anticipates making a continuous offering of its shares, although it
reserves the right to suspend or terminate such offering at any time. The
Distribution Agreement was most recently approved by the Board, including a
majority of Directors and Trustees who are not "interested persons" (as defined
in the 1940 Act) of Eclipse or the Distributor, nor have any direct or indirect
financial interest in the operation of the distribution plan or in any related
agreement (the "Independent Directors") at meetings held on December 5, 2000 and
December 12, 2000.
The Distribution Agreement is subject to annual approval by the Board. The
Distribution Agreement is terminable with respect to a Fund at any time, without
payment of a penalty, by vote of a majority of Directors and Trustees who are
not "interested persons" (as defined in the 1940 Act) of Eclipse upon 60 days'
written notice to the Distributor, by vote of a majority of the outstanding
voting securities of that Fund, upon 60 days' written notice to the Distributor,
or by the Distributor, upon 60 days' written notice to Eclipse. The Distribution
Agreement will terminate in the event of its assignment.
SERVICE FEES
Eclipse has adopted a Shareholder Services Plan with respect to the Service
Class of each applicable Fund. Under the terms of the Plan, Eclipse is permitted
to pay, out of the Service Class assets of each Fund, a fee in the amount of
0.25% on an annual basis of the average daily net assets attributable to that
class, to the Manager, its affiliates or independent third party service
providers, for providing services in connection with the administration of plans
or programs that use Fund shares as their funding medium.
Under the terms of the Shareholder Services Plan, each Fund may pay to
service agents "service fees" as that term is defined in the rules of the
National Association of Securities Dealers for services provided to shareholders
of the Service Class of the Fund. These fees are for personal services,
including assistance in establishing and maintaining shareholder accounts and
assisting shareholders that have questions or other needs relating to their
accounts.
The Plan provides that it may not be amended to materially increase the
costs which holders of Service Class of a Fund may bear under the Plan without
the approval of a majority of both (i) the Board and (ii) those Directors and
Trustees who are not "interested persons" of Eclipse (as defined in the 1940
Act) and who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to it (the "Independent Directors" and
"Independent Trustees"), cast in person at a meeting called for the purpose of
voting on such amendments, and by a majority of the outstanding voting
securities as defined in the 1940 Act for the Service Class of the Fund.
The Plan provides that it may not take effect until approved by vote of a
majority of both (i) the Board and (ii) the Independent Directors and
Independent Trustees. The Plan provides that it shall continue in effect so long
as such continuance is specifically approved at least annually by the Board and
the Independent Directors and Independent Trustees. The Plan was last approved
by the Directors, including the Independent Directors, at a meeting held
December 5, 2000, and by the Trustees, including the Independent Trustees, at a
meeting held on December 12, 2000. The Plan was originally approved by the
Directors, including the Independent Directors, at a meeting held on September
13, 1994 and amended at a meeting held on March 4, 1997.
The Plan provides that the Manager shall provide to the Board, and the Board
shall review at least quarterly, a written report of the amounts expended in
connection with the performance of service activities, and the purposes for
which such expenditures were made.
62
<PAGE> 188
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus under the heading
"Shareholder Guide," and that information is incorporated herein by reference.
Certain clients of the Manager and the Subadvisor may purchase shares of a
Fund with liquid assets with a value which is readily ascertainable (and not
established only by evaluation procedures) as evidenced by a listing on a bona
fide domestic or foreign exchange and which would be eligible for purchase by
the Fund (consistent with such Fund's investment policies and restrictions).
These transactions will be effected only if the Fund's Manager or Subadvisor
intends to retain the security in the Fund as an investment. Assets so purchased
by a Fund will be valued in generally the same manner as they would be valued
for purposes of pricing the Fund's shares, if such assets were included in the
Fund's assets at the time of the purchase. The Fund reserves the right to amend
or terminate this practice at any time.
Eclipse determines the net asset value per share of each Fund on each day
the New York Stock Exchange is open for trading. (See "Net Asset Value" below.)
Shares of each Fund are redeemable at net asset value, at the option of the
Fund's shareholders.
The Company reserves the right to suspend or postpone redemptions during any
period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the SEC, or that Exchange is closed for other than customary
weekend and holiday closings; (b) the SEC has by order permitted such
suspension; or (c) an emergency, as determined by the SEC, exists, making
disposal of portfolio securities or valuation of net assets of one or more of
the Funds not reasonably practicable.
For shares of the Company's Funds redeemed within any 90-day period, each
Fund reserves the right to pay the shareholder a maximum of $250,000 in cash, or
cash equal to 1% of the Fund's net assets, whichever is less. To protect the
remaining shareholders in the Fund, anything redeemed above this amount may not
be paid in cash, but could be paid entirely, or in part, in the same kinds of
securities held by the Fund. These securities would be valued at the same value
that was assigned to them in calculating the net asset value of the shares
redeemed. Even though it is highly unlikely that shares would ever actually be
redeemed in kind, shareholders would probably have to pay transaction costs to
sell the securities distributed to you, should such a distribution occur.
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. Payment of
the redemption price for the shares redeemed may be made either in cash or in
portfolio securities (selected at the discretion of the Trustees and taken at
their value used in determining the net asset value per share of the particular
Fund, or partly in cash and partly in portfolio securities. Payments will be
made in cash unless the Trustees determine 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.
Certain of the Funds have entered into a committed line of credit with The
Bank of New York, as agent, and various other lenders, from whom a Fund may
borrow up to 5% of its net assets in order to honor redemptions. The credit
facility is expected to be utilized in periods when the Funds experience
unusually large redemption requests.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Purchases and sales of securities on a securities exchange are effected by
brokers, and the Funds pay a brokerage commission for this service. In
transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on many foreign stock exchanges these commissions are fixed.
In the over-the-counter markets, securities (i.e., municipal bonds and other
debt 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. Transactions in certain
over-the-counter securities also may be effected on an agency basis when the
total price paid (including commission) is equal to or better than the best
total prices available from other sources. 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,
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certain money market instruments may be purchased directly from an issuer, in
which case no commissions or discounts are paid.
In effecting purchases and sales of portfolio securities for the account of
a Fund, the Fund's Manager or Subadvisor will seek the best execution of the
Fund's orders. The Manager or the Subadvisor attempts to achieve this result by
selecting broker-dealers to execute portfolio transactions on behalf of the Fund
and its other clients on the basis of the broker-dealers' professional
capability, the value and quality of their brokerage services and the level of
their brokerage commissions. Consistent with the foregoing primary
considerations, the Conduct Rules of the NASD and such other policies as the
Directors and Trustees may determine, the Manager and the Subadvisor may
consider sales of shares of the Funds as a factor in the selection of
broker-dealers to execute the Funds' portfolio transactions.
NYLIFE Securities (the "Affiliated Broker") may act as broker for the Funds.
In order for the Affiliated Broker to effect any portfolio transactions for the
Funds on an exchange, the commissions, fees or other remuneration received by
the Affiliated Broker must be reasonable and fair compared to the commissions,
fees or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on an exchange
during a comparable period of time. This standard would allow the Affiliated
Broker to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker in a commensurate arms-length transaction.
The Funds will not deal with the Affiliated Broker in any portfolio transaction
in which the Affiliated Broker acts as principal.
As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the
"1934 Act"), the Manager or the Subadvisor may cause a Fund to pay a
broker-dealer (except the Affiliated Broker) which provides brokerage and
research services to the Manager or the Subadvisor an amount of commission for
effecting a securities transaction for a Fund in excess of the amount other
broker-dealers would have charged for the transaction if the Manager or the
Subadvisor determines in good faith that the greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
the Manager's or the Subadvisor's overall responsibilities to Eclipse or to its
other clients. The term "brokerage and research services" includes advice as to
the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or of purchasers or
sellers of securities; furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts; and effecting securities transactions and performing
functions incidental thereto such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of the
Manager or the Subadvisor be reasonable in relation to the value of the
brokerage services provided, commissions exceeding those which another broker
might charge may be paid to broker-dealers (except the Affiliated Broker) who
were selected to execute transactions on behalf of Eclipse and the Manager's or
the Subadvisor's other clients in part for providing advice as to the
availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and performing functions
incidental thereto such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and other
factual information or services ("Research") to the Manager or the Subadvisor
for no consideration other than brokerage or underwriting commissions.
Securities may be bought or sold through such broker-dealers, but at present,
unless otherwise directed by Eclipse, a commission higher than one charged
elsewhere will not be paid to such a firm solely because it provided Research to
the Manager or the Subadvisor. Research provided by brokers is used for the
benefit of all of the Manager's or the Subadvisor's clients and not solely or
necessarily for the benefit of Eclipse. The Manager's or the Subadvisor's
investment management personnel attempt to evaluate the quality of Research
provided by brokers. Results of this effort are sometimes used by the Manager or
the Subadvisor as a consideration in the selection of brokers to execute
portfolio transactions.
In certain instances there may be securities which are suitable for a Fund's
portfolio as well as for that of another Fund or one or more of the other
clients of the Manager or the Subadvisor. Investment decisions for a Fund and
for the Manager's or the Subadvisor's other clients are made with a view to
achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling that same security. Some simultaneous transactions are inevitable
when several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
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purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security in a particular transaction as far as a Fund is concerned. Eclipse
believes that over time its ability to participate in volume transactions will
produce better executions for the Funds.
The management fees paid by Eclipse on behalf of each Fund to the Manager
and the Sub-Advisory fee that the Manager pays on behalf of certain Funds to the
Subadvisor will not be reduced as a consequence of the Manager's or the
Subadvisor's receipt of brokerage and research services. To the extent a Fund's
portfolio transactions are used to obtain such services, the brokerage
commissions paid by the Fund will exceed those that might otherwise be paid, by
an amount which cannot be presently determined. Such services would be useful
and of value to the Manager and the Subadvisor in serving both the Funds and
other clients and, conversely, such services obtained by the placement of
brokerage business of other clients would be useful to the Manager and the
Subadvisor in carrying out their obligations to the Funds.
For the the fiscal year ended October 31, 2000, the ten months ended October
31, 1999 and the fiscal year ended December 31, 1998, each of the Company's
Funds* paid brokerage commissions as follows:
<TABLE>
<CAPTION>
TOTAL BROKERAGE TOTAL BROKERAGE COMMISSIONS
COMMISSIONS PAID PAID TO AFFILIATED PERSONS
FISCAL YEAR TEN MONTHS FISCAL YEAR FISCAL TEN MONTHS FISCAL YEAR
ENDED ENDED ENDED YEAR ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, DECEMBER OCTOBER OCTOBER 31, DECEMBER
2000 1999 31, 1998 31, 2000 1999 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Eclipse Growth Equity
Fund..................... _______ 491,121 423,326 _________ 0(0%)(1) 0(0%)(1)
Eclipse Value Equity
Fund..................... _______ 1,556,063 1,976,646 _________ 0(0%)(1) 0(0%)(1)
Eclipse Indexed Equity
Fund..................... _______ 171,747 302,291 _________ 0(0%)(1) 0(0%)(1)
Eclipse International
Equity Fund.............. _______ 325,822 230,372 _________ 0(0%)(1) 0(0%)(1)
Eclipse Short Term Bond
Fund..................... _______ N/A N/A _________ 0(0%)(1) 0(0%)(1)
Eclipse Asset Manager
Fund..................... _______ $ 10,104 $ 161,159 _________ 0(0%)(1) 0(0%)(1)
Eclipse EAFE Index Fund.. _______ 56,634 72,602 _________ 0(0%)(1) 0(0%)(1)
</TABLE>
<TABLE>
<CAPTION>
TOTAL AMOUNT OF TRANSACTIONS TOTAL BROKERAGE
WHERE COMMISSIONS PAID COMMISSIONS PAID
FISCAL YEAR TEN MONTHS FISCAL YEAR FISCAL YEAR TEN MONTHS FISCAL YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31, OCTOBER 31, OCTOBER DECEMBER 31,
2000 1999 1998 2000 31, 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Eclipse Growth Equity
Fund..................... _________ 440,538,560 349,425,106 __________ 785,891 423,326
Eclipse Value Equity
Fund..................... _________ 810,608,991 1,275,820,583 __________ 2,023,439 1,976,646
Eclipse Indexed Equity
Fund..................... _________ 207,061,153 315,577,968 __________ N/A N/A
Eclipse International
Equity Fund............. _________ 95,050,660 84,406,014 __________ 346,449 230,372
Eclipse Short Term Bond
Fund..................... _________ N/A N/A __________ N/A N/A
Eclipse Asset Manager
Fund..................... _________ $10,528,527 $ 176,370,188 $N/A $ N/A N/A
Eclipse EAFE Index Fund.. _________ 32,365,794 __________ N/A N/A
</TABLE>
* The Eclipse Bond Fund, Eclipse Indexed Bond Fund, Eclipse International
Bond Fund, Eclipse Money Market Fund and Eclipse Short Term Bond Fund paid
no brokerage commissions during the ten months ended October 31, 1999 and
the year ended December 31, 1998. In addition, because the Eclipse Core
Bond Plus Fund, Eclipse Mid Cap Core Fund and Eclipse Tax Free Bond Fund
began operations on January 2, 2001, they paid no brokerage commissions
during the fiscal year ended October 31, 2000, the ten months ended October
31, 1999 and the year ended December 31, 1998.
(1) Percent of total commissions paid.
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For the fiscal year ended December 31, 2000, December 31, 1999 and December
31, 1998, each of the Trust's Funds paid brokerage commissions to Towneley as
follows:
<TABLE>
<CAPTION>
TOTAL AMOUNT OF TRANSACTION TOTAL BROKERAGE
WHERE COMMISSIONS PAID COMMISSIONS PAID
FISCAL YEAR FISCAL YEAR TEN MONTHS FISCAL YEAR FISCAL YEAR TEN MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998 2000 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Eclipse Mid Cap Value
Fund(1)...................... $ 126,202,558 $ 155,541,175 $ 190,381 $ 232,585
Eclipse Small Cap Value
Fund(2)...................... 193,773,912 213,001,442 494,637 455,544
Eclipse Ultra Short Term
Income Fund(3) .............. N/A N/A N/A N/A
Eclipse Balanced Fund(4)..... 71,514,631 92,974,609 109,621 134,156
</TABLE>
(1) Of these amounts, $162,736 in brokerage commissions with respect to
portfolio transactions aggregating $109,601,735 was placed with brokers
or dealers who provide research and investment services.
(2) Of these amounts, $189,811 in brokerage commissions with respect to
portfolio transactions aggregating $72,575,150 was placed with brokers
or dealers who provide research and investment services.
(3) 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, 1997, December 31, 1998, and December
31, 1999.
(4) Of these amounts, $100,071 in brokerage commissions with respect to
portfolio transactions aggregating $63,129,553 was placed with brokers
or dealers who provide research and investment services.
As of October 31, 2000, the following Funds held securities in issuers with
whose broker-dealer subsidiaries or affiliates the Funds regularly conduct
business:
<TABLE>
<CAPTION>
FUND BROKER-DEALER MARKET VALUE
<S> <C> <C>
Eclipse Growth Equity Fund Merrill Lynch & Co., Inc. $__________
Eclipse Value Equity Fund American Express Credit Corp. __________
Merrill Lynch & Co., Inc. __________
Eclipse Indexed Equity Fund Bear Stearns Cos., Inc. (The) __________
Lehman Brothers Holdings Inc. __________
Merrill Lynch & Co., Inc. __________
Schwab (Charles) Corp. (The) __________
Eclipse Bond Fund American Express Credit Corp. __________
Salomon Smith Barney Inc. __________
Donaldson, Lufkin & Jenrette __________
Lehman Brothers Holdings, Inc. __________
Salomon Smith Barney Inc. __________
Eclipse Indexed Bond Fund American Express Credit Corp. __________
Morgan Stanley, Dean Witter & Co. __________
Eclipse Money Market Fund Goldman, Sachs Group Inc. (The) __________
Merrill Lynch & Co., Inc. __________
Morgan (J.P.) & Co. Inc. __________
Morgan Stanley, Dean Witter & Co. __________
Salomon Smith Barney Inc. __________
Morgan Stanley, Dean Witter & Co. __________
Eclipse Asset Manager Fund Bear Stearns Cos., Inc. (The) __________
Lehman Brothers Holdings Inc. __________
Merrill Lynch & Co., Inc. __________
Paine Webber Group Inc. __________
Schwab (Charles) Corp. (The) __________
</TABLE>
(1) Represents investment in commercial paper.
(2) Represents investment in common stock.
(3) Represents investment in corporate bonds.
A Fund's portfolio turnover rate is calculated by dividing the lesser of
sales or purchases of portfolio securities by the average monthly value of the
Fund's portfolio securities. For purposes of this calculation, portfolio
securities will exclude purchases and sales of debt securities having a maturity
at the date of purchase of one year or less.
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<PAGE> 192
The turnover rate for a Fund will vary from year-to-year and depending on
market conditions, turnover could be greater in periods of unusual market
movement and volatility. A higher turnover rate generally would result in
greater brokerage commissions or other transactional expenses which must be
borne, directly or indirectly, by the Fund and, ultimately, by the Fund's
shareholders. High portfolio turnover may result in increased brokerage
commissions and in the realization of a substantial increase in net short term
capital gains by the Fund which, when distributed to non-tax-exempt
shareholders, will be treated as dividends (ordinary income).
NET ASSET VALUE
Eclipse determines the net asset value per share of each class of each Fund
on each day the New York Stock Exchange is open for trading. Net asset value per
share is calculated as of the close of the first session of the New York Stock
Exchange (currently 4:00 p.m., New York City time) for each class of shares of
each Fund (except the Eclipse Money Market Fund, which is determined at noon),
by dividing the current market value (amortized cost, in the case of the Eclipse
Money Market Fund) of the total assets attributable to a class, less liabilities
attributable to that class, by the total number of outstanding shares of that
class.
Portfolio securities of the Eclipse Money Market Fund are valued at their
amortized cost, which does not take into account unrealized securities gains or
losses. This method involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any premium paid or
discount received. While this method provides certainty in valuation, it may
result in periods during which value, as determined by amortized cost, is higher
or lower than the price the Fund would receive if it sold the instrument. During
such periods, the yield to an investor in a Fund may differ somewhat than that
obtained in a similar investment company which uses available market quotations
to value all of its portfolio securities.
Portfolio securities of each of the other Funds are valued (a) by appraising
common and preferred stocks which are traded on the New York Stock Exchange at
the last sale price of the first session on that day or, if no sale occurs, at
the mean between the closing bid price and asked price; (b) by appraising other
common and preferred stocks as nearly as possible in the manner described in
clause (a) if traded on any other exchange, including the National Association
of Securities Dealers National Market System and foreign securities exchanges;
(c) by appraising over-the-counter common and preferred stocks quoted on the
National Association of Securities Dealers NASDAQ system (but not listed on the
National Market System) at the closing bid price supplied through such system;
(d) by appraising over-the-counter common and preferred stocks not quoted on the
NASDAQ system and securities listed or traded on certain foreign exchanges whose
operations are similar to the U.S. over-the-counter market at prices supplied by
a pricing agent selected by a Fund's Manager or Subadvisor if the prices are
deemed by the Manager or the Subadvisor to be representative of market values at
the close of the first session of the New York Stock Exchange; (e) by appraising
debt securities at prices supplied by a pricing agent or, determined using
pricing procedures approved by the Board, which prices reflect
broker-dealer-supplied valuations or electronic data processing techniques
and/or matrix pricing if those prices are deemed by a Fund's Manager or
Subadvisor to be representative of market values at the close of the first
session of the New York Stock Exchange; (f) by appraising exchange-traded
options and futures contracts at the last posted settlement price on the market
where any such option or futures contract is principally traded, and (g) by
appraising all other securities and other assets, including over-the-counter
common and preferred stocks not quoted on the NASDAQ system, securities not
listed or traded on foreign exchanges whose operations are similar to the U.S.
over-the-counter market and debt securities for which prices are supplied by a
pricing agent but are not deemed by a Fund's Manager or Subadvisor to be
representative of market values, but excluding money market instruments with a
remaining maturity of 60 days or less and including restricted securities and
securities for which no market quotation is available, at fair value in
accordance with procedures approved by and determined in good faith by the
Board, although the actual calculations may be done by others. Money Market
instruments held by the Funds with a remaining maturity of 60 days or less are
valued by the amortized cost method unless such method does not represent fair
value. Forward foreign currency exchange contracts held by the Funds are valued
at their respective fair market values determined on the basis of the mean
between the last current bid and asked prices based on dealer or exchange
quotations.
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<PAGE> 193
Portfolio securities traded on more than one U.S. national securities
exchange or foreign securities exchange are valued at the last sale price on the
business day as of which such value is being determined on the close of the
exchange representing the principal market for such securities. The value of all
assets and liabilities expressed in foreign currencies will be converted into
U.S. dollar values, using the W.M. Company exchange rates that have been adopted
as the standard for exchange rate valuations by major indices. If such
quotations are not available, the rate of exchange will be determined in
accordance with policies established by the Board. For financial accounting
purposes, the Company and the Trust recognize dividend income and other
distributions on the ex-dividend date, except certain dividends from foreign
securities are recognized as soon as the Company and Trust are informed on or
after the ex-dividend date.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the New York Stock
Exchange is open for trading). In addition, European or Far Eastern securities
trading in a particular country or countries may not take place on all business
days in New York. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not business
days in New York and on which the Funds' net asset values are not calculated.
Such calculation of net asset value does not take place contemporaneously with
the determination of the prices of the portfolio securities used in such
calculation.
Events affecting the values of portfolio securities that occur between the
time their prices are determined and the close of the New York Stock Exchange
generally will not be reflected in the Fund's calculation of net asset values.
However, the Manager or Subadvisor, in consultation with the Manager, may, in
its judgment, determine that an adjustment to a Fund's net asset value should be
made because intervening events have caused the Fund's net asset value to be
materially inaccurate.
The proceeds received by each Fund for each issue or sale of its shares, and
all net investment income, realized and unrealized gain and proceeds thereof,
subject only to the rights of creditors, will be specifically allocated to such
Fund and constitute the underlying assets of that Fund. The underlying assets of
each Fund will be segregated on the books of account, and will be charged with
the liabilities in respect to such Fund and with a share of the general
liabilities of the Company. Expenses with respect to any two or more Funds will
be allocated in proportion to the net asset values of the respective funds
except where allocation of direct expenses can otherwise be fairly made in the
judgment of the Manager or the Subadvisor.
TAX INFORMATION
While it is anticipated that many shareholders of the Funds will be
tax-exempt institutions, the following discussion may be of general interest to
these shareholders as well as for those shareholders of the Funds who do not
have tax-exempt status. Although the discussion below refers in certain
instances to distributions and other transactions as being taxable to a
shareholder, tax-exempt shareholders will, of course, not be taxed to the extent
provided by applicable tax exemptions. The discussion herein relating to taxes
is presented for general informational purposes only. Since the tax laws are
complex and tax results can vary depending upon specific circumstances,
investors should consult tax advisers regarding investment in a Fund.
Each Fund intends to qualify annually and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If a Fund so qualifies and elects, it generally will not
be subject to Federal income tax on its investment company taxable income (which
includes, among other items, dividends, interest, and the excess, if any, of net
short term capital gains over net long-term capital losses) and its net capital
gains (net long-term capital gains in excess of net short term capital losses)
that it distributes to its shareholders.
Each Fund intends to distribute, at least annually, to its shareholders
substantially all of its investment company taxable income and its net capital
gains. In determining amounts of capital gains to be distributed, any capital
loss carryovers from prior years will be applied against capital gains.
To qualify for treatment as a regulated investment company, a Fund generally
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, gains from the sale or other disposition of securities or foreign
currencies, and other income
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<PAGE> 194
(including gains from certain options, futures, and forward contracts) derived
with respect to its business of investing in securities or foreign currencies;
(b) diversify its holdings so that at the end of each quarter of the taxable
year, (i) at least 50% of the market value of a Fund's assets is represented by
cash, cash items, 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 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), or of two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses; and (c) distribute in each taxable year at least 90% of the sum of
its investment company taxable income and its net tax-exempt interest income. If
a Fund does not meet all of these Code requirements, it will be taxed as an
ordinary corporation and its distributions (to the extent of available earnings
and profits) will be taxed to shareholders as ordinary income (except to the
extent a shareholder is exempt from tax).
The Treasury Department is authorized to issue regulations to provide that
foreign currency gains that are not directly related to a Fund's principal
business of investing in securities (or options and futures with respect to
securities) may be excluded from the income which qualifies for purposes of the
90% gross income requirement described above. To date, however, no such
regulations have been issued.
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, a Fund must distribute for the calendar
year an amount equal to the sum of (1) at least 98% of its ordinary taxable
income (excluding any capital gains or losses) for the calendar year, (2) at
least 98% of the excess of its capital gains over capital losses (adjusted for
certain ordinary losses) for the one-year period ending October 31 of such year,
and (3) all ordinary taxable income and capital gain net income (adjusted for
certain ordinary losses) for previous years that were not distributed during
such years. A distribution will be treated as paid on December 31 of the
calendar year if it is declared by a Fund in October, November or December of
that year to shareholders on a record date in such a month and paid by the Fund
during January of the following calendar year. Such a distribution will be
includable in the gross income of shareholders in the calendar year in which it
is declared, rather than the calendar year in which it is received. To prevent
application of the excise tax, the Funds intend to make distributions in
accordance with the calendar year distribution requirement.
If a portion of a Fund's net investment income is derived from dividends
from domestic corporations, then a portion of such distributions may be eligible
for the corporate dividends-received deduction. The dividends-received deduction
is reduced to the extent shares of a Fund are treated as debt-financed under the
Code and is generally eliminated unless such shares are deemed to have been held
for more than 45 days. The 45-day holding period must occur during the 90-day
period beginning 45 days before the date on which the shares become ex-dividend.
In the case of dividends on certain preferred stock, the holding period
requirement is 90 days during a 180-day period. In addition, the entire dividend
(including the deducted portion) is includable in the corporate shareholder's
alternative minimum taxable income. Finally, if such dividends are large enough
to constitute "extraordinary dividends" under Section 1059 of the Code and the
applicable holding period requirements are not met, the shareholder's basis in
its shares could be reduced by all or a portion of the amount of the dividends
that qualifies for the dividends-received deduction.
A Fund's deduction for interest expense may be restricted where the Fund
invests in obligations the interest on which is exempt in whole or in part from
Federal income tax.
Distributions of investment company taxable income generally are
characterized as ordinary income. If a Fund's income consists in whole or in
part of dividends paid by U.S. corporations, a portion of the dividends paid by
a Fund may be eligible for the corporate dividends-received deduction. The
dividends-received deduction is reduced to the extent shares of a Fund or the
underlying company paying dividends to a Fund are treated as debt-financed under
the Code and is eliminated if applicable holding period requirements are not
met. In addition, dividends (including the deducted portion) are includable in
the corporate shareholder's alternative minimum taxable income. A portion of the
dividends paid by the Growth Equity Fund, Indexed Equity Fund, Asset Manager
Fund, and Value Equity Fund, may qualify for the dividends-received deduction
available to corporations. The dividends paid by the other Funds
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<PAGE> 195
are not expected to so qualify. The alternative minimum tax and environmental
tax applicable to corporations may reduce the value of the dividends-received
deduction.
Distributions of a Fund's net capital gains, if any, designated by a Fund as
capital gain dividends, will generally be taxable to shareholders as long-term
capital gains, regardless of how long a shareholder has held the Fund's shares.
Net capital gains from assets held for one year or less will be taxed as
ordinary income. Capital gain distributions will not be eligible for the
dividends-received deduction. All distributions are includable in the gross
income of a shareholder whether reinvested in additional shares or received in
cash. Shareholders will be notified annually as to the Federal tax status of
distributions.
A Fund's distributions with respect to a given taxable year may exceed its
current and accumulated earnings and profits available for distribution. In that
event, distributions in excess of such earnings and profits would be
characterized as a return of capital to shareholders for Federal income tax
purposes, thus reducing each shareholder's cost basis in his Fund shares.
Distributions in excess of a shareholder's cost basis in his shares would be
treated as a gain realized from a sale of such shares.
Distributions by a Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, such distribution, nevertheless, would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by a Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution.
Those purchasing just prior to a distribution will receive a distribution which
will nevertheless generally be taxable to them.
Upon the taxable disposition (including a sale or redemption) of shares of a
Fund, a shareholder may realize a gain or loss depending generally upon his
basis in his shares. Such gain or loss will be treated as capital gain or loss
if the shares are capital assets in the shareholder's hands and will be
long-term or short term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of shares of a Fund with respect to which capital gain dividends
have been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. Further, a loss realized on a disposition will be disallowed to
the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of a Fund on the reinvestment date.
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time a Fund accrues income or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time a 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
and on disposition of certain financial contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains and losses, may increase or decrease the amount of a
Fund's investment company taxable income to be distributed to its shareholders
as ordinary income. For example, fluctuations in exchange rates may increase the
amount of income that a Fund must distribute in order to qualify for treatment
as a regulated investment company and to prevent application of an excise tax on
undistributed income. Alternatively, fluctuations in exchange rates may decrease
or eliminate income available for distribution. If section 988 losses exceed
other investment company taxable income during a taxable year, a Fund generally
would not be able to make ordinary dividend distributions, or distributions made
before the losses were realized would be recharacterized as return of capital to
shareholders for Federal income tax purposes, rather than as an ordinary
dividend, reducing each shareholder's basis in his Fund shares.
Foreign investing involves the possibility of confiscatory taxation, foreign
taxation of income earned in the foreign nation (including withholding taxes on
interest and dividends) or other foreign taxes imposed with respect to
investments in the foreign nation.
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<PAGE> 196
Income received by a Fund from sources within a foreign country may be
subject to withholding and other income or similar taxes imposed by that
country. If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to the
Funds' current investment policies and practices, only the Eclipse EAFE Index
Fund and the Eclipse International Equity Fund are expected to invest in foreign
securities sufficient in amount to be eligible to permit this election to be
made. Pursuant to this election, a shareholder will be required to include in
gross income (in addition to taxable dividends actually received) his pro rata
share of the foreign income and similar taxes paid by a Fund, and will be
entitled either to claim a deduction (as an itemized deduction) for his pro rata
share of such foreign taxes in computing his taxable income or to use it as a
foreign tax credit against his U.S. Federal income taxes, subject to
limitations. Foreign taxes may not be deducted by a shareholder that is an
individual in computing the alternative minimum tax. Each shareholder will be
notified within 60 days after the close of a Fund's taxable year whether the
foreign taxes paid by the Fund will "pass-through" for that year and, if so,
such notification will designate (a) the shareholder's portion of the foreign
taxes paid to each such country and (b) the portion of the dividend which
represents income derived from sources within each such country.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his total foreign
source taxable income. For this purpose, if a Fund makes the election described
in the preceding paragraph, the source of a Fund's income flows through to its
shareholders. With respect to the Funds, gains from the sale of securities
generally will be treated as derived from U.S. sources and section 988 gains
generally will be treated as ordinary income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
passive income (as defined for purposes of the foreign tax credit), including
foreign source passive income received from a Fund. In addition, the foreign tax
credit may offset only 90% of the alternative minimum tax imposed on
corporations and individuals. If a Fund is not eligible to make the election
described above, the foreign income and similar taxes it pays generally will
reduce investment company taxable income and distributions by a Fund will be
treated as United States source income.
The foregoing is only a general description of the foreign tax credit under
current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
A Fund may invest in shares of foreign corporations which may be classified
under the Code as passive foreign investment companies ("PFICs"). Pursuant to
the Funds' current investment policies and practices, the Eclipse EAFE Index
Fund, Eclipse International Bond Fund, Eclipse International Equity Fund,
Eclipse Asset Manager Fund and Eclipse Indexed Bond Fund are expected to invest
in shares of foreign corporations. In general, a foreign corporation is
classified as a PFIC for a taxable year 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 a 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. A 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.
A Fund may be eligible to elect alternative tax treatment with respect to
PFIC shares. Under an election that currently is available in some
circumstances, a 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. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. Alternatively, a Fund may elect to mark to
market its PFIC shares at the end of each taxable year, with the result that
unrealized gains would be treated as though they were realized and reported as
ordinary income. Any mark-to-market losses and any loss from an actual
disposition of PFIC shares would be deductible as ordinary losses to the extent
of any net mark-to-market gains included in income in prior years.
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<PAGE> 197
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject a Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
A Fund may invest in municipal bonds or obligations issued or guaranteed by
a state, the interest on which may be exempt from Federal income tax. It is
expected that shareholders will be subject to tax on dividends distributed by a
Fund that are derived from tax-exempt interest income.
Some of the debt securities that may be acquired by a Fund may be treated as
debt securities that are originally issued at a discount. Original issue
discount can generally be defined as the difference between the price at which a
security was issued and its stated redemption price at maturity. Although no
cash income is actually received by the Funds, original issue discount on a
taxable debt security earned in a given year generally is treated for Federal
income tax purposes as interest and, therefore, such income would be subject to
the distribution requirements of the Code.
Some of the debt securities may be purchased by a Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any debt security acquired after April
30, 1993 or any taxable debt security acquired prior to May 1, 1993 having
market discount will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by a
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of a Fund, at a constant yield to maturity which takes into
account the semi-annual compounding of interest.
If a Fund holds zero coupons bonds in its portfolio it will recognize income
currently for Federal tax purposes in the amount of the unpaid, accrued interest
(determined under tax rules) and generally will be required to distribute
dividends representing such income to shareholders currently, even through funds
representing such income have not been received by the Fund.
Certain of the options, futures contracts, and forward contracts in which
the Funds may invest may be "section 1256 contracts." With certain exceptions,
gains or losses on section 1256 contracts generally are considered 60% long-term
and 40% short term capital gains or losses ("60/40"). Also, section 1256
contracts held by a Fund at the end of each taxable year are "marked-to-market"
with the result that unrealized gains or losses are treated as though they were
realized and the resulting gain or loss generally is treated as 60/40 gain or
loss. These contracts also may be marked-to-market at other times during the
year under rules prescribed pursuant to the Code.
The transactions undertaken by the Funds involving options, futures and
forward contracts may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains (or losses) realized by a Fund.
In addition, losses realized by a Fund on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences to the Funds of transactions involving
options, futures and forward contracts are not entirely clear. These
transactions may increase the amount of short term capital gain realized by a
Fund which is taxed as ordinary income when distributed to shareholders.
The Funds may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be
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<PAGE> 198
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a Fund that did not engage in such transactions.
Rules governing the tax aspects of swap agreements are in a developing stage
and are not entirely clear in certain respects. Accordingly, while the Funds
eligible to enter into swap agreements intend to account for such transactions
in a manner deemed to be appropriate, the Internal Revenue Service ("IRS") might
not accept such treatment. If it did not, the status of a Fund as a regulated
investment company might be affected. It is possible that developments in the
swap market and the laws relating to swaps, including potential government
regulation, could have tax consequences. The Funds intend to monitor
developments in this area.
Certain requirements that must be met under the Code in order for a Fund to
qualify as a regulated investment company may limit the extent to which a Fund
will be able to engage in transactions in options, futures, forward contracts,
and swaps.
Recently enacted rules may affect the timing and character of gain if a Fund
engages in transactions that reduce or eliminate its risk of loss with respect
to appreciated financial positions. If a Fund enters into certain transactions
in property while holding substantially identical property (for example, a short
sale against the box), the Fund would be treated as if it had sold and
immediately repurchased the property and would be taxed on any gain (but not
loss) from the constructive sale. The character of gain from a constructive sale
would depend upon the Fund's holding period in the property. Loss from a
constructive sale would be recognized when the property was subsequently
disposed of, and its character would depend on the Fund's holding period and the
application of various loss deferral provisions of the Code.
Each Fund is required to report to the IRS all distributions except in the
case of certain exempt shareholders. All such distribution and redemption
proceeds generally are subject to withholding of Federal income tax at a rate of
31% ("backup withholding") in the case of non-exempt shareholders if (1) the
shareholder fails to furnish the Fund with and to certify the shareholder's
correct taxpayer identification number, (2) the IRS notifies the Fund or
shareholder that the shareholder has failed to report properly certain interest
and dividend income to the IRS and to respond to notices to that effect, or (3)
when required to do so, the shareholder fails to certify that he is not subject
to backup withholding. If the withholding provisions are applicable, any such
distributions, whether reinvested in additional shares or taken in cash, will be
reduced by the amounts required to be withheld. Backup withholding is not an
additional tax and any amounts withheld may be credited against the
shareholder's U.S. Federal income tax liability. Investors may wish to consult
their tax advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates only to Federal income tax law as applicable
to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Distributions by the Funds also
may be subject to state and local taxes and their treatment under state and
local income tax laws may differ from the Federal income tax treatment.
Shareholders should consult their tax advisers with respect to particular
questions of Federal, state and local taxation. Shareholders who are not U.S.
persons should consult their tax advisers regarding U.S. and foreign tax
consequences of ownership of shares of the Funds including the likelihood that
distributions to them would be subject to withholding of U.S. tax at a rate of
30% (or at a lower rate under a tax treaty).
PERFORMANCE INFORMATION
Eclipse may, from time to time, include the yield and effective yield of its
Eclipse Money Market Fund, the yield of the other Funds or Classes, and the
total return of all Funds or Classes in advertisements, sales literature, or
reports to shareholders or prospective investors. Due to the deduction of the
shareholder service fee, performance of the Service Class of each Fund will be
lower than the performance of the No-Load Class of the Funds.
Certain Funds began offering Service Class shares (formerly Institutional
Service Class) on January 1, 1995. Thus, the performance figures for Service
Class shares prior to that date have been calculated based on the historical
performance of the Funds' No-Load Class shares (formerly Institutional Class)
from inception through December 31, 1994, except for the Eclipse International
Equity and Eclipse International Bond Funds, which began offering both classes
of shares on January 1, 1995. Performance data for the Eclipse International
Bond Fund and
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<PAGE> 199
the Eclipse International Equity Fund includes the historical performance of
each Fund's predecessor separate account from its inception up to December 31,
1994.
YIELD. Quotations of "yield" for the Funds (other than the Eclipse Money
Market Fund) will be based on all investment income per share earned during a
particular 30-day period (including dividends and interest), less expenses
accrued during the period ("net investment income"), and are computed by
dividing net investment income by the maximum offering price per share on the
last day of the period, according to the following formula:
Yield = 2[((a-b)/cd + 1)6 - 1]
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period.
For the 30-day period ended October 31, 2000, the yield for the [Eclipse
Short Term Bond Fund was 4.02% for the No-Load Class, and was 3.77% for the
Service Class.]
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations purchased by the Eclipse Ultra Short Term Income
Fund or by the Eclipse 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.
Current yield for the Eclipse Money Market Fund will be based on the change
in the value of a hypothetical investment (exclusive of capital charges) over a
particular seven-day period, less a pro rata share of Fund expenses accrued over
that period (the "base period"), and stated as a percentage of the investment at
the start of the base period (the "base period return"). The base period return
is then annualized by multiplying by 365/7, with the resulting yield figure
carried to at least the nearest hundredth of one percent. "Effective yield" for
the Eclipse Money Market Fund assumes that all dividends received during an
annual period have been reinvested. Calculation of "effective yield" begins with
the same "base period return" used in the calculation of yield, which is then
annualized to reflect weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)(365/7)] - 1
[The current and effective seven-day average yields as of October 31, 2000
for the Eclipse Money Market Fund were 5.15% and 5.28%, respectively, for the
No-Load Class, and were 4.90% and 5.02%, respectively, for the Service Class.
Had certain expenses not been assumed by the Manager, these yields would have
been 5.07% and 5.20%, respectively, for the No-Load Class, and 4.82% and 4.94%,
respectively, for the Service Class.]
AVERAGE TOTAL RETURN. The "average total return" figure for a Fund 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. Quotations of average annual total return for a Fund will
be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund or Class over certain periods calculated
pursuant to the following formula:
P(1 + T)n = ERV
where P = a hypothetical initial payment of $1,000,
T = the total return for the period,
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<PAGE> 200
n = the number of periods, and
ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period assuming reinvestment of
all dividends and distributions).
Quotations of total return may also be shown for other periods. All total
return figures reflect the deduction of a proportional share of Fund or Class
expenses on an annual basis, reflect fee waivers or reimbursements in effect for
each period and assume that all dividends and distributions are reinvested when
paid.
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.
The average annual total return of the Company's Funds for the one-year and
five-years ended October 31, 2000 and since inception were as follows:
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS SINCE
ENDED ENDED INCEPTION
OCTOBER OCTOBER
FUND 31, 2000 31, 2000
<S> <C> <C> <C>
Eclipse Growth Equity Fund
No-Load Class (1)....... % % %
------- ------ ------
Service Class(2)........ % % %
------- ------ ------
Eclipse Value Equity Fund
No-Load Class (1)....... % % %
------- ------ ------
Service Class(2)........ % % %
------- ------ ------
Eclipse Indexed Equity Fund
No-Load Class (1)....... % % %
------- ------ ------
Service Class(2)........ % % %
------- ------ ------
Eclipse Mid Cap Core Fund*
No-Load Class........... N/A N/A N/A
Eclipse International Equity
Fund**
No-Load Class (3)....... % % %(3)
------- ------ ------
Service Class(3)........ % % %(3)
------- ------ ------
Eclipse Bond Fund
No-Load Class (1)....... % % %
------- ------ ------
Service Class(2)........ % % %
------- ------ ------
Eclipse Core Bond Plus Fund*
No-Load Class........... N/A N/A N/A
Eclipse Indexed Bond Fund
No-Load Class (1)....... % % %
------- ------ ------
Service Class(2)........ % % %
------- ------ ------
Eclipse Short Term Bond Fund
No-Load Class (1)....... % % %
------- ------ ------
Service Class(2)........ % % %
------- ------ ------
Eclipse Tax Free Bond Fund*
No-Load Class........... N/A N/A N/A
</TABLE>
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<PAGE> 201
<TABLE>
<S> <C> <C> <C>
Eclipse Money Market Fund
No-Load Class........... % % %
------- ------ ------
Service Class........... % % %
------- ------ ------
Eclipse Asset Manager Fund
(formerly Multi-Asset Fund)
No-Load Class (1)....... % % %
------- ------ -------
Service Class(2)........ % % %
------- ------ -------
Eclipse International Bond
Fund*
No-Load Class (3)....... % % %(3)
------- ------ ------
Service Class(3)........ % % %(3)
------- ------ ------
Eclipse EAFE Index Fund
No-Load Class (1)....... % % %
------- ------ -------
Service Class (2)....... % % %
------- ------ -------
</TABLE>
----------
(1) The inception date of these No-Load Class shares is 1/2/91.
(2) Performance figures for the Service Class, first offered to the public on
1/1/95, include the historical performance of the No-Load Class from the
Funds' inception (1/2/91) up to 12/31/94.
(3) The inception date of the International Equity Fund and International Bond
Fund shares is 1/1/95.
* Because the Eclipse Core Bond Plus Fund, Eclipse Mid Cap Core Fund and
Eclipse Tax Free Bond Fund had not begun operations, they do not have
performance history for periods indicated.
** Performance figures include the historical performance of the Separate
Accounts for the period prior to commencement of operations of the
International Bond Fund and the International Equity Fund on January 1,
1995. MacKay Shields LLC, the current Subadvisor to both the International
Bond Fund and the International Equity Fund, served as investment adviser
to both corresponding Separate Accounts, and the objectives, policies,
restrictions, guidelines and management styles of the Separate Accounts
were materially equivalent to those of their corresponding Funds.
Performance figures for the period prior to January 1, 1995, have been
calculated by measuring the change in value of a unit in the Separate
Account from the time period indicated to January 1, 1995 using the expense
structure of each Separate Account, which generally was higher than the
expense structure of its corresponding Fund. Neither Separate Account was
registered under the 1940 Act and therefore was not subject to certain
investment restrictions imposed under the 1940 Act. If the Separate
Accounts had been registered under the 1940 Act, their performance may have
been adversely affected. The International Equity Fund's predecessor
Separate Account commenced operations on July 31, 1992; the International
Bond Fund's predecessor Separate Account commenced operations on January
31, 1990.
The following are average annual total return and principal only performance
for the indicated time periods for the Trust's Funds.
<TABLE>
<CAPTION>
ECLIPSE ULTRA SHORT ONE YEAR FIVE YEARS INCEPTION
TERM INCOME FUND: ENDED ENDED (DECEMBER 27,1994)
DECEMBER 31, 2000 DECEMBER 31, 2000 TO DECEMBER 31, 2000
<S> <C> <C> <C>
Average Annual
Compounded Total Return % % %
----- ------- -------
Principal Only
Performance % % %
----- ------- -------
</TABLE>
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS
ENDED ENDED ENDED
DECEMBER 31, 2000 DECEMBER 31, 2000 DECEMBER 31, 2000
<S> <C> <C> <C>
ECLIPSE BALANCED
FUND:
Average Annual
Compounded Total Return % % %
----- ----- -----
Principal Only
Performance % % %
----- ----- -----
</TABLE>
76
<PAGE> 202
<TABLE>
<CAPTION>
ECLIPSE MID CAP VALUE FUND: ONE YEAR FIVE YEARS INCEPTION
ENDED ENDED (DECEMBER 27, 1994)
DECEMBER 31, 2000 DECEMBER 31, 2000 TO DECEMBER 31, 2000
<S> <C> <C> <C>
Average Annual
Compounded Total Return ______% ______% ______%
Principal Only
Performance ______% ______% ______%
</TABLE>
<TABLE>
<CAPTION>
ECLIPSE SMALL CAP VALUE ONE YEAR FIVE YEARS TEN YEARS
FUND: ENDED ENDED ENDED
DECEMBER 31, 2000 DECEMBER 31, 2000 DECEMBER 31, 2000
<S> <C> <C> <C>
Average Annual Compounded
Total Return ______% ______% ______%
Principal Only Performance ______% ______% ______%
</TABLE>
A Fund's investment performance is not fixed and will fluctuate in response
to prevailing market conditions or as a function of the type and quality of the
securities in the Fund's portfolio and the Fund's expenses. 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.
In addition, advertising for a Fund may indicate that investors may consider
diversifying their investment portfolios in order to seek protection of the
value of their assets against inflation. From time to time, advertising
materials for a Fund may refer to or discuss current or past business,
political, economic or financial conditions, including events as they relate to
those conditions, such as any U.S. monetary or fiscal policies and the current
rate of inflation. In addition, from time to time, advertising materials for a
Fund may include information concerning retirement and investing for retirement
and may refer to the approximate number of then-current Fund shareholders,
shareholder accounts and Fund assets.
From time to time, advertising and sales literature for a Fund may discuss
the investment philosophy, personnel and assets under management of the Fund's
Manager or Subadvisor, and other pertinent facts relating to the management of
the Fund by the Manager or the Subadvisor.
From time to time any of the Funds may publish an indication of its past
performance as measured by independent sources such as Lipper Analytical
Services, Incorporated, Weisenberger Investment Companies Service, Donoghue's
Money Fund Report, Spot Market Prices, Barron's, Business Week, Kiplinger's
Personal Finance, Financial World, Forbes, Money, Morningstar, Personal
Investor, Sylvia Porter's Personal Finance, The Wall Street Journal and such
other publications as the Manager deems appropriate.
In addition, performance information for a Fund may be compared, in
advertisements, sales literature, and reports to shareholders, to: (i) unmanaged
indexes, such as the Standard & Poor's 500 Composite Stock Price Index, the BIG
Index, the Morgan Stanley Capital International indexes, the Dow Jones
Industrial Average, Donoghue Money Market Institutional Averages, the Merrill
Lynch 1 to 3 Year Treasury Index, the Salomon Smith Barney World Government
Benchmark Bond Index, the Salomon Smith Barney non-U.S. Dollar World Government
Bond Index, the Lehman Brothers Municipal Bond Index and the Lehman Brothers
Government Corporate Index; (ii) other groups of mutual funds tracked by
Morningstar Inc. or Lipper Inc., widely used independent research firms which
rank mutual funds by overall performance, investment objectives and assets, or
tracked by other services, companies, publications or persons who rank mutual
funds on overall performance or other criteria; and (iii) the Consumer Price
Index (measure for inflation) and other measures of the performance of the
economy to assess the real rate of return from an investment in the Funds.
Advertisements for a Fund may also include general information about the
performance of unmanaged indexes with investment parameters similar to the
Fund's. Unmanaged indexes
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may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
From time to time, advertisements for the Funds may include general
information about the services and products offered by Eclipse, The MainStay
Funds and New York Life Insurance Company and its subsidiaries. For example,
such advertisements may include statistical information about those entities
including, but not limited to, the number of current shareholder accounts, the
amount of assets under management, sales information, the distribution channels
through which the entities' products are available, marketing efforts and
statements about this information by the entities' officers, directors and
employees.
It is important to note that yield and total return figures are based on
historical earnings and are not intended to indicate future performance.
OTHER INFORMATION
CAPITALIZATION
The Funds are separate portfolios of the Company and the Trust. In addition
to the No-load Class and the Service Class, the Eclipse Money Market Fund offers
another class of shares, the Sweep Shares. The Board may establish additional
portfolios (with different investment objectives and fundamental policies) at
any time in the future. Establishment and offering of additional portfolios will
not alter the rights of Eclipse's shareholders. When issued, shares are fully
paid, non-assessable, redeemable, and freely transferable.
EFFECTIVE MATURITY
Certain Funds may use an effective maturity for determining the maturity of
their portfolio. Effective maturity means the average expected repayment date of
the portfolio taking into account prospective calls, puts and mortgage
prepayments, in addition to the maturity dates of the securities in the
portfolio.
CONTROL PERSONS AND SHARE OWNERSHIP OF THE FUNDS
[On ___________, 2001, there were _________ shares of beneficial interest of
the Eclipse Ultra Short Term Income Fund outstanding; _________ shares of
beneficial interest of the Eclipse Balanced Fund outstanding; _________ shares
of beneficial interest of the Eclipse Mid Cap Value Fund outstanding; and
_________ shares of beneficial interest of the Eclipse Small Cap Value Fund
outstanding. On ___________, 2001, the officers and Trustees of the Trust as a
group beneficially owned, directly or indirectly, including the power to vote or
to dispose of, less than 1% of the outstanding shares of beneficial interest of
the Eclipse Small Cap Value Fund, less than 1% of the outstanding shares of
beneficial interest of the Eclipse Balanced Fund, less than 1% of the
outstanding shares of beneficial interest of the Eclipse Ultra Short Term Income
Fund, and less than 1% of the outstanding shares of beneficial interest of the
Eclipse Mid Cap Value Fund.]
The following table sets forth the information concerning beneficial and
record ownership as of February 1, 2001, of the Funds' shares by each person who
beneficially or of record owned more than 5% of the voting securities of any
Fund:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHAREHOLDER FUND* SHARES OWNED PERCENTAGE OF
OUTSTANDING
SHARES
<S> <C> <C> <C>
________________________________
________________________________
________________________________
________________________________
________________________________
________________________________
</TABLE>
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<PAGE> 204
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHAREHOLDER FUND* SHARES OWNED PERCENTAGE OF
OUTSTANDING
SHARES
<S> <C> <C> <C>
________________________________
________________________________
________________________________
________________________________
FTC & Co. Eclipse Ultra Short Term
DataLynx House Account Income Fund
P.O. Box 173136
Denver, CO 80217-3136
Hopke Partnership TCM Eclipse Ultra Short Term
c/o Rochdale Securities Corp. Income Fund
570 Lexington Avenue Floor 8
New York, NY 10022-6837
Richard C. Dalsemer [record owner] Eclipse Ultra Short Term
2554 Santa Lucia Avenue Income Fund
Carmel, CA 93923-9105
Mellon Bank as Trustee Eclipse Balanced Fund
Agent Omnibus
135 Santilli Way
Everett, MA 02149-1906
FTC & Co. Eclipse Balanced Fund
DataLynx House Account
P.O. Box 173136
Denver, CO 80217-3136
Vernat Company Eclipse Balanced Fund
Trust Department
P.O. Box 800
Brattleboro, VT 05302-0800
American Express Trust Company Eclipse Balanced Fund
American Express Retirement Services
FBO NIBCO 401(K)
ATTN Chris Hunt N10/996
P.O. Box 534
Minneapolis, MN 55440-0534
FTC & Co. Eclipse Balanced Fund
DataLynx House Account
PO Box 2052
Jersey City, NJ 07303-2052
National Financial Services Corp Eclipse Small Cap
200 Liberty Street Value Fund
One World Financial Center
New York, NY 10281-1003
Charles Schwab & Co. Inc. Eclipse Small Cap
101 Montgomery Street Value Fund
San Francisco, CA 94104-4122
</TABLE>
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<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHAREHOLDER FUND* SHARES OWNED PERCENTAGE OF
OUTSTANDING
SHARES
<S> <C> <C> <C>
The Northern Trust Company TTEE Eclipse Small Cap
Guident Corporation Value Fund
FBD Master Investment Trust U/A 3-22-99
P.O. Box 92-956
Chicago, IL 60675-2956
Boston Safe Deposit & Trust TTEE Eclipse Small Cap
TWA Pilots DAP/401(k) Plan U/A Date 10-1-92 Value Fund
Attn: Jennifer Lacoria
135 Santilli Highway
Everett, MA. 02149-1906
</TABLE>
----------
* Because the Eclipse Core Bond Plus Fund, Eclipse Mid Cap Core Fund and
Eclipse Tax Free Bond Fund have not yet begun operations, there are no
control persons or beneficial and record owners of 5% or more of the Funds'
shares.
(1) This information, not being within the knowledge of the Company, has been
furnished by each of the above persons. Beneficial ownership is as defined
under Section 13(d) of the Securities Exchange Act of 1934. Fractional
shares have been omitted.
(2) Only the ownership of at least one-tenth of one percent is listed.
NYLIFE Distributors, Inc. is a corporation organized under the laws of
Delaware. NYLIFE Distributors, Inc. is a wholly owned subsidiary of NYLIFE LLC
and an indirect wholly owned subsidiary of New York Life.
CODE OF ETHICS
Eclipse has adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940
Act ("Code of Ethics") governing personal trading activities of all Directors,
Trustees and officers, and persons who, in connection with their regular
functions, play a role in the recommendation of any purchase or sale of a
security by Eclipse or obtain information pertaining to such purchase or sale or
who have the power to influence the management or policies of Eclipse or the
Manager or the Subadvisor unless such power is the result of their position with
Eclipse or the Manager or the Subadvisor. Such persons are generally required to
preclear all security transactions with Eclipse's Compliance Officer or his
designee and to report all transactions on a regular basis. Subject to these
restrictions, these persons are permitted to invest in securities, including
securities that may be purchased or held by the Funds. Eclipse has developed
procedures for administration of the Code of Ethics.
The Distributor has adopted its own Code of Ethics which is designed to
identify and address certain conflicts of interest between personal investment
activities of its employees and the interests of its clients such as each fund,
in compliance with Rule 17j-1 under the 1940 Act. The Code of Ethics permits
employees of the Distributor to engage in personal securities transactions,
including with respect to securities held by one or more Funds, subject to
certain requirements and restrictions. The employees of the Distributor must
disclose all personal securities holdings immediately upon commencement of
employment, as well as on an annual basis thereafter.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, has been selected as independent accountants of Eclipse. The Fund's
Annual Reports, which are incorporated by reference in this SAI, have been
incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL COUNSEL
Dechert (formerly known as Dechert Price & Rhoads), 1775 Eye Street,
N.W., Washington, D.C. 20006, passes upon certain legal matters in connection
with the shares offered by Eclipse, and also acts as counsel to Eclipse.
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<PAGE> 206
TRANSFER AGENT
Eclipse Shareholder Services ("ESS"), a division of NYLIM Service Company
LLC, and affiliate of New York Life Investment Management LLC, is the Funds'
Transfer, Dividend, Disbursing and Shareholder Servicing Agent. ESS, whose
address is 260 Cherry Hill Road, Parsippany, NJ 07054, is an indirect wholly
owned subsidiary of New York Life Insurance Company. ESS provides customer
service, is responsible for preparing and sending statements, confirms and
checks, and keeps certain financial and accounting records. ESS is paid a per
account fee and out-of-pocket expenses by the Funds. ESS has entered into an
agreement with Boston Financial Data Services ("BFDS"), whose address is 2
Heritage Drive, North Quincy, MA 02171. BFDS will perform certain of the
services for which ESS is responsible. In addition, the Fund or ESS may contract
with other service organizations, including affiliates of ESS and broker-dealers
and other financial institutions, which will establish a single omnibus account
for their clients with the Fund. The service organizations will provide
shareholder services to the shareholders within the omnibus accounts and receive
service fees for those services from the Fund.
CUSTODIAN
The Bank of New York, 90 Washington Street, New York, NY 10286, is custodian
of certain Funds' (other than the Eclipse Ultra Short Term Income Fund, Eclipse
Balanced Fund, Eclipse Mid Cap Value Fund and Eclipse Small Cap Value Fund)
investments and has subcustodial agreements for holding such Funds' foreign
investments.
State Street, 801 Pennsylvania Avenue, Kansas City, Missouri 64105, is the
Custodian for assets held by the Eclipse Ultra Short Term Income Fund, Eclipse
Balanced Fund, Eclipse Mid Cap Value Fund and Eclipse Small Cap Value Fund.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not contain
all the information included in Eclipse's registration statements filed with the
SEC under the Securities Act of 1933, as amended, with respect to the securities
offered hereby, certain portions of which have been omitted pursuant to the
rules and regulations of the SEC. The registration statements, including the
exhibits filed therewith, may be examined at the offices of the SEC in
Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the registration statements, each such statement being
qualified in all respects by such reference.
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.
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APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
MOODY'S INVESTORS SERVICE, INC.
Corporate and Municipal Bond Ratings
Aaa: Bonds which are rated Aaa are 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 fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than the 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.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classified from Aa through Caa. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
midrange ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Advance refunded issues that are secured by escrowed funds held in cash,
held in trust, reinvested in direct noncallable United States government
obligations or noncallable obligations unconditionally guaranteed by the U.S.
government are identified with a hatchmark (#) symbol, i.e., #Aaa.
Moody's assigns conditional ratings to bonds for which the security depends
upon the completion of some act or the fulfillment of some condition. These are
bonds secured by: (a) earnings of projects under construction; (b) earnings of
projects unseasoned in operating experience; (C) rentals that begin when
facilities are completed; or (d) payments to which some other limiting condition
attaches. The parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition, e.g.,
Con.(Baa).
Municipal Short Term Loan Ratings
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MIG 1/VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG 3/VMIG 3: This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
MIG 4/VMIG 4: This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
SG: This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.
Corporate Short Term Debt Ratings
Moody's short term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S
Corporate and Municipal Long-Term Debt Ratings
Investment Grade
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Debt rated AA differs from the highest rated issues only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Debt rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
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SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having significant
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated B is more vulnerable to nonpayment than obligations rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated CCC is currently vulnerable to nonpayment and is dependent
upon favorable business, financial and economic conditions for the obligor. In
the event of adverse business, financial or economic conditions, the obligor is
not likely to have the capacity to meet its financial commitment on the
obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy petition
has been filed or a similar action has been taken, but debt service payments are
continued.
D: Debt rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The D rating will also be used upon the filing of
a bankruptcy petition, or the taking of similar action, if debt service payments
are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
SHORT TERM RATING DEFINITIONS
A-1: A short term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign(+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2: A short term obligation rated 'A-2' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
B: A short term obligation rated 'B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C: A short term obligation rated 'C' is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
D: A short term obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The 'D'
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
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PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
a. Articles of Organization:
(1) Articles of Incorporation. (1)
(2) Agreement and Declaration of Trust. (20)
(3) Amendment to Agreement and Declaration of Trust. (18)
(4) Second Amendment to Agreement and Declaration of Trust. (21)
(5) Articles Supplementary. (2)
(6) Articles of Amendment. (4)
(7) Certificate of Designation. (15)
(8) Certificate of Redesignation. (16)
(9) Form of Articles Supplementary. (6)
(10) Articles of Amendment. (7)
(11) Form of Articles Supplementary. (12)
(12) Articles Supplementary. (*)
(13) Articles of Amendment. (*)
b. By-laws
(1) By-Laws of Eclipse Funds Inc. (1)
(2) By-Laws of Eclipse Funds. (20)
c. Specimen Certificates for Common Stock (3)
d. (1) (a) Form of (composite) Management Agreement between MainStay
Institutional Funds Inc., on behalf of the Bond Fund, EAFE
Index Fund, Growth Equity Fund, Indexed Bond Fund, Indexed
Equity Fund, International Bond Fund, International Equity
Fund, Money Market Fund, Asset Manager Fund (formerly
Multi-Asset Fund), Short-Term Bond Fund and Value Equity
Fund, and MainStay Management LLC. (11)
(b) Form of Management Agreement between MainStay
Institutional Funds Inc., on behalf of the Core Bond Plus
Fund, Mid Cap Core Fund and Tax Free Bond Fund, and New
York Life Investment Management LLC. (13)
(c) Substitution Agreement between MainStay Institutional
Funds Inc. and New York Life Investment Management LLC.
(**)
(d) Management Agreement between MainStay Institutional Funds
Inc., on behalf of Core Bond Plus Fund, and New York Life
Investment Management LLC. (**)
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(2) (a) Copy of Amended Management Contract between the Trust and
Towneley Capital Management, Inc. (14)
(b) Form of Management Contract between the Trust and Towneley
Capital Management, Inc. relating to the Ultra Short-Term
Income Fund and the Growth and Income Fund. (15)
(c) Copy of Amendment to Management Contract dated January 7,
1987, as amended between the Trust and Towneley Capital
Management, Inc. relating to the Eclipse Ultra Short-Term
Income Fund, Eclipse Balanced Fund, Eclipse Mid Cap Value
Fund (formerly Growth and Income Fund), and Eclipse
Small-Cap Value Fund (formerly Equity Fund). (16)
(d) Management Agreement between Eclipse Funds and New York
Life Investment Management. (**)
(e) Copy of Fee Waiver Between the Trust and Towneley Capital
Management, Inc., with respect to Eclipse Ultra Short-Term
Income Fund. (16)
(3) Form of (composite) Sub-Advisory Agreement between
MainStay Management LLC, on behalf of the Bond Fund,
Growth Equity Fund, International Bond Fund, International
Equity Fund, Short-Term Bond Fund and Value Equity Fund,
and MacKay Shields LLC. (11)
(4) Form of (composite) Sub-Advisory Agreement between
MainStay Management LLC, on behalf of the EAFE Index Fund,
Indexed Bond Fund, Indexed Equity Fund and Asset Manager
Fund (formerly Multi-Asset Fund), and Monitor Capital
Advisors LLC. (11)
(5) Form of Sub-Advisory Agreement between MainStay Management
LLC, on behalf of the Money Market Fund and New York Life
Insurance Company. (11)
(6) Form of Sub-Advisory Agreement between New York Life
Investment Management LLC, on behalf of the Core Bond Plus
Fund and the Tax Free Bond Fund, and MacKay Shields LLC.
(13)
e. Distribution Agreements:
(1) Distribution Agreement. (5)
(2) Form of Distribution Agreement Between Eclipse Funds and
NYLIFE Distributors Inc. (*)
f. Not Applicable.
g. (1) Form of Custody Agreement. (6)
(2) Copy of Custody Agreement between the Trust and Investors
Fiduciary Trust Company. (14)
(3) Amended Schedule C to the Custody Agreement. (*)
(4) Form of Custody Agreement between Eclipse Funds and The
Bank of New York (**)
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h. (1) (a) Form of Transfer Agency and Service Agreement. (2)
(b) Amended Fee Schedule to the Transfer Agency and Service
Agreement (*)
(c) Copy of Transfer Agency Agreement between the Trust and
Investors Fiduciary Trust Company. (14)
(d) Form of Transfer Agency and Service Agreement between
Eclipse Funds and NYLIM Shareholder Services LLC.(*)
(2) Form of License Agreement. (2)
(3) Form of Service Agreement with New York Life Benefit
Services LLC. (10)
(4) Form of Service Agreement with New York Life Insurance
Company. (10)
(5) Copy of Administration Contract between the Trust and
NYLIFE Securities Inc. (17)
(6) (a) Sub-Transfer Agency and Service Agreement. (*)
(b) Amended Fee Schedule to Sub-Transfer Agency and
Service Agreement. (**)
i. Opinion and Consent of Counsel. (*)
j. Auditors' consent. (**)
k. Not Applicable.
l. (1) Initial Subscription Agreement. (3)
(2) Investment representation letter of initial purchaser of shares
of beneficial interest of the Trust. (18)
m. (1) Form of Account Application. (3)
(2) Shareholder Services Plan. (10)
(3) Amended and Restated Shareholder Services Plan. (12)
(4) Shareholder Services Plan for Money Market Fund Sweep Shares.
(12)
(5) Plan of Distribution Pursuant to Rule 12b-1 for Money Market Fund
Sweep Shares. (12)
n. Not Applicable.
o. (1) Multiple Class Plan. (11)
(a) Amendment to Multiple Class Plan. (*)
(2) Form of Amended and Restated Multiple Class Plan. (12)
p. (1) Form of Code of Ethics for The MainStay Institutional Funds Inc.
(13)
(2) Form of Code of Ethics for MainStay Management LLC. (13)
(3) Form of Code of Ethics for MacKay Shields LLC. (13)
(4) Form of Code of Ethics for Monitor Capital Advisors LLC. (13)
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(5) Form of Code of Ethics for NYLIM. (13)
(6) Form of Code of Ethics for NYLIFE Distributors, Inc. (13)
(7) Form of Code of Ethics for the Trust. (19)
--------------
* Filed herewith.
** To be filed by amendment.
1. Filed with Registration Statement No. 33-36962 on September 21, 1990.
2. Filed with Pre-Effective Amendment No. 1 to Registration Statement No.
33-36962 on November 19, 1990.
3. Filed with Pre-Effective Amendment No. 2 to Registration Statement No.
33-36962 on December 26, 1990.
4. Filed with Post-Effective Amendment No. 4 to Registration Statement No.
33-36962 on November 2, 1992.
5. Filed with Post-Effective Amendment No. 6 to Registration Statement No.
33-36962 on April 29, 1994.
6. Filed with Post-Effective Amendment No. 7 to Registration Statement No.
33-36962 on October 14, 1994.
7. Filed with Post-Effective Amendment No. 8 to Registration Statement No.
33-36962 on December 29, 1994.
8. Filed with Post-Effective Amendment No. 10 to Registration Statement No.
33-36962 on April 28, 1995.
9. Filed with Post-Effective Amendment No. 12 to Registration Statement No.
33-36962 on February 28, 1996.
10. Filed with Post-Effective Amendment No. 14 to Registration Statement No.
33-36962 on May 1, 1997.
11. Filed with Post-Effective Amendment No. 17 to Registration Statement No.
33-36962 on May 1, 1997.
12. Filed with Post-Effective Amendment No. 19 to Registration Statement No.
33-36962 on September 25, 1998.
13. Filed with Post-Effective Amendment No. 24 to Registration Statement No.
33-36962 on October 18, 2000.
14. Filed with Post-Effective Amendment No. 6 to Registration Statement No.
33-8865 on April 30, 1990.
15. Filed with Post-Effective Amendment No. 12 to Registration Statement No.
33-8865 on October 13, 1994.
16. Filed with Post-Effective Amendment No. 19 to Registration Statement No.
33-8865 on April 30, 1999.
17. Filed with Post-Effective Amendment No. 9 to Registration Statement No.
33-8865 on April 30, 1991.
18. Filed with Pre-Effective Amendment No. 1 to Registration Statement No.
33-8865 on January 9, 1987.
19. Filed with Post-Effective Amendment No. 20 to Registration Statement No.
33-8865 on April 27, 2000.
20. Filed with Initial Registration Statement No. 33-8865 on September 19, 1986.
21. Filed with Post-Effective Amendment No. 17 to Registration Statement No.
33-8865 on February 27, 1998.
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ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANTS
The following chart indicates the persons controlled by New York Life.
Ownership is 100% unless otherwise indicated. Subsidiaries of other subsidiaries
are indicated accordingly.
NAME OF ORGANIZATION (JURISDICTION) (1)
MainStay VP Series Fund, Inc. (Maryland) (2)
The MainStay Funds (Massachusetts) (2)
New York Life Investment Management Holdings LLC (Delaware)
MacKay Shields LLC (Delaware)
MacKay Shields Domestic General Partner LLC (Delaware)
Madison Square Advisors LLC (Delaware)
NYLCAP Manager LLC (Delaware)
New York Life Capital Partners LLC (Delaware)
MainStay Management LLC (Delaware)
MainStay Shareholder Services LLC (Delaware)
Monitor Capital Advisors LLC (Delaware)
New York Life Investment Management LLC (Delaware)
New York Life Benefit Services LLC (Delaware)
New York Life International Investment Asia Ltd. (Mauritius)
NYLIFE Distributors Inc. (Delaware)
New York Life Insurance and Annuity Corporation (Delaware)
New York Life International, Inc. (Delaware)
GEO New York Life, S.A. (Mexico)
New York Life Insurance Ltd. (South Korea)
La Buenos Aires New York Life Seguros de Vida S.A. (Argentina) 40%
La Buenos Aires New York Life Seguros de Retiro S.A. (Argentina) 40%
Maxima S.A. AFJP (Argentina) 40%
New York Life Insurance Worldwide Ltd. (Hong Kong) [incorporated in
Bermuda]
New York Life International Holdings Ltd. (Mauritius)
New York Life International India Fund LLC (Mauritius) (90%)
New York Life Insurance (Philippines), Inc.
New York Life Worldwide Capital, Inc. (DE)
NYLife Thailand, Inc. (Thailand)
NYLI-VB Asset Management Co. LLC (Mauritius) (90%)
P.T. Asuransi Jiwa Sewu-New York Life (50.2%) (Indonesia)
Seguros Monterrey, S.A.
Corporativo Seguros
Centro Nacional de Servicios y Operaciones
Centro de Capacitacion Monterrey
Fianzas Monterrey, S.A.
Operadora FMA
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Max New York Life Insurance Company PVD Ltd. (26%)
New York Life Settlement Corporation
New York Life Irrevocable Trust of 1996(3)
NYLIFE LLC (Delaware)
Avanti Corporate Health Systems, Inc. (Delaware)
Avanti of the District, Inc. (Maryland)
Eagle Strategies Corp. (Arizona)
New York Life Capital Corporation (Delaware)
New York Life (U.K.) Ltd. (England)(4) (99.97%)
Life Assurance Holding Corporation Limited (23%) (South Korea)
Windsor Life Assurance Company Limited (Indonesia)
Windsor Construction Company Limited
New York Life International Investment Inc. (Delaware)
Monetary Research Ltd. (Bermuda)
NYL Management Limited (formerly Quorum Capital Management Limited)
(England)
New York Life International Investment Asia Ltd. (Mauritius)
New York Life Trust Company (New York)
NYLCare NC Holdings, Inc. (Delaware)
WellPath Community Health Plans LLC (North Carolina) (NYLCare
NC Holdings, Inc. owns 25%; Duke Medical Strategies, Inc. owns
remaining 75%)
ETHIX Southeast, Inc. (North Carolina)
WPCHP Holdings, Inc. (formerly Sanus-New England, Inc.)
(Delaware)
WellPath Preferred Services LLC (99.9%; WPCHP
Holdings, Inc. owns other 0.1%) (Delaware)
WellPath Select Holdings LLC (99.9%; WPCHP Holdings,
Inc. owns other 0.1%) (North Carolina)
WellPath Select, Inc. (formerly WellPath Community
Health Plans, Inc.)
NYLIFE Administration Corp. (Delaware)
NYLIFE Structured Asset Management Company Ltd.
NYLIFE HealthCare Management, Inc. (Delaware)
Express Scripts, Inc. (39.4% of total combined stock and 89.6%
of the voting rights) (Delaware)
Express Scripts Vision Corporation (Delaware)
ESI Canada Holdings, Inc. (Canada)
ESI Canada, Inc. (Canada)
ESI/VRX Sales Development Co.
Diversified Pharmaceutical Services (P.R.), Inc.
Diversified Pharmaceutical Services, Inc.
Diversified NY IPA, Inc.
Express Scripts Specialty Distribution Services, Inc.
ESI Utilization Management Co.
ESI Claims, Inc.
ESI Mail Pharmacy Services, Inc.
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Great Plains Reinsurance Company
IVTx, Inc.
Practice Patterns Science, Inc.
Value Health, Inc.
ValueRx of Michigan, Inc.
Your Pharmacy.com, Inc. (Delaware)
NYLIFE Refinery Inc.
NYLIFE Securities Inc. (Delaware)
NYLINK Insurance Agency Incorporated (Delaware)
NYLINK Insurance Agency of Alabama, Incorporated (Alabama)
NYLINK Insurance Agency of Hawaii, Incorporated (Hawaii)
NYLINK Insurance Agency of Idaho, Incorporated (Idaho)(5)(4)
NYLINK Insurance Agency of Massachusetts, Incorporated (Massachusetts)
NYLINK Insurance Agency of Montana, Incorporated (Montana)
NYLINK Insurance Agency of Nevada, Incorporated (Nevada)
NYLINK Insurance Agency of New Mexico, Incorporated (New Mexico)
NYLINK Insurance Agency of Ohio, Incorporated (Ohio)(4)
NYLINK Insurance Agency of Oklahoma, Incorporated (Oklahoma)(4)
NYLINK Insurance Agency of Texas, Incorporated (Texas)(4)
NYLINK Insurance Agency of Washington, Incorporated (Washington)
NYLINK Insurance Agency of Wyoming, Incorporated (Wyoming)
NYLTEMPS Inc.
Prime Provider Corp.
Prime Provider Corp. of Texas
WellPath of Arizona Reinsurance company (formerly Sanus Reinsurance
Company)
NYLIFE Insurance Company of Arizona (Arizona)
----------
(1) By including the indicated corporation in this list, New York Life is
not stating or admitting that said corporations are under its actual
control; rather, these corporations are listed here to ensure full
compliance with the requirements of this Form N-1A.
(2) This entity is an unaffiliated registered investment company for which
New York Life and/or its subsidiaries perform investment management,
administrative, distribution and underwriting services. It is not a
subsidiary of New York Life but is included for informational purposes
only.
(3) An unaffiliated trust formed solely for the purpose of holding shares of
New York Life Settlement Corporation. It is not a subsidiary of New York
Life but is included for informational purposes only.
(4) One Share is held in the name of a Nominee as required by British law.
(5) These entities are unaffiliated insurance agencies for which New York
Life and its subsidiaries perform administrative services. They are not
subsidiaries of New York Life but are included for informational
purposes only.
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ITEM 25. INDEMNIFICATION
Reference is made to Article VI of the Company's By-Laws (Exhibit 2),
and Article VII, Section 2 of the Company's Articles of Incorporation (Exhibit
1), which are incorporated by reference herein.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to trustees,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a trustee, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Trust 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 OR OTHER CONNECTIONS OF INVESTMENT ADVISERS
The business of New York Life Investment Management LLC and MacKay
Shields LLC is summarized under "Know with Whom You're Investing" in the
Prospectus constituting Part A of this Registration Statement, which summary is
incorporated herein by reference.
The business or other connections of each manager and officer of New
York Life Investment Management LLC is currently listed in the investment
adviser registration on Form ADV for New York Life Investment Management LLC
(File No. 801-57396) and is hereby incorporated herein by reference.
The business or other connections of each manager and officer of MacKay
Shields LLC is currently listed in the investment adviser registration on Form
ADV for MacKay Shields LLC (File No. 801-5594) and is hereby incorporated herein
by reference.
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ITEM 27. PRINCIPAL UNDERWRITERS
a. NYLIFE Distributors Inc. also acts as the principal underwriter for:
The MainStay Funds (File No. 33-2610)
NYLIAC Variable Universal Life Separate Account I
NYLIAC Multi-Funded Annuity Separate Account I
NYLIAC Multi-Funded Annuity Separate Account II
NYLIAC Variable Annuity Separate Account I
NYLIAC Variable Annuity Separate Account II
NYLIAC Variable Annuity Separate Account III
NYLIAC Variable Life Insurance Separate Account
NYLIAC Corporate Sponsored Variable Universal Life Separate Account I
NYLIAC Institutionally Owned Life Insurance Separate Account
<TABLE>
<CAPTION>
b.
NAME AND PRINCIPAL POSITION(S) AND POSITION(S) AND
BUSINESS ADDRESS OFFICE(S) WITH NYLIFE OFFICE(S) WITH
DISTRIBUTORS, INC. REGISTRANT
---------------------------- -------------------------- -------------------------
<S> <C> <C>
Brady, Robert E. Director and Vice None
260 Cherry Hill Road President
Parsippany, NJ 07054
Boyce, Jefferson C. Director Senior Vice President
504 Carnegie Center
Princeton, NJ 08540
Roussin, Stephen C. Senior Vice President Director and Chairman
300 Interpace Parkway and Director
Parsippany, NJ 07054
Gallo, Michael G. Director None
51 Madison Avenue
New York, NY 10010
Rock, Robert D. Director None
51 Madison Avenue
New York, NY 10010
Boccio, Frank M. Director None
51 Madison Avenue
New York, NY 10010
Hildebrand, Phillip J. Director None
51 Madison Avenue
New York, NY 10010
Levy, Richard D. Director None
51 Madison Avenue
New York, NY 10010
Adasse, Louis H. Corporate Vice President None
51 Madison Avenue
New York, NY 10010
</TABLE>
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<TABLE>
<S> <C> <C>
Flanagan, John A. Senior Vice President Treasurer, Chief
300 Interpace Parkway and Chief Financial Financial
Parsippany, NJ 07054 Officer
and Accounting Officer
Calhoun, Jay S. Senior Vice President None
51 Madison Avenue and Treasurer
New York, NY 10010
Warga, Thomas J. Senior Vice President None
51 Madison Avenue and General Auditor
New York, NY 10010
Livornese, Linda M. Vice President President
Morris Corporate Center I
Building A, 300
Interpace Parkway
Parsippany, NJ 27054
Murray, Thomas J. Corporate Vice President None
51 Madison Avenue
New York, NY 10010
Krystel, David J. Vice President None
51 Madison Avenue
New York, NY 10010
McInerney, Barbara Vice President None
51 Madison Avenue
New York, NY 10010
Leier, Albert W. Assistant Vice President None
300 Interpace Parkway
Parsippany, NJ 07054
Arizmendi, Arphiela Assistant Vice President Assistant Treasurer
300 Interpace Parkway
Parsippany, NJ 07054
Cirillo, Antoinette B. Assistant Vice President Assistant Treasurer
300 Interpace Parkway
Parsippany, NJ 07054
Lorito, Geri Assistant Vice President Assistant Treasurer
300 Interpace Parkway
Parsippany, NJ 07054
Gomez, Mark A. Secretary None
51 Madison Avenue
New York, NY 10010
Whittaker, Lori S. Assistant Secretary None
51 Madison Avenue
New York, NY 10010
c. Not Applicable.
</TABLE>
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ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
Certain accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended (the "Investment
Company Act"), and the Rules promulgated thereunder are maintained at the
offices of the Company and Trust, and New York Life Insurance Company, 51
Madison Avenue, New York, NY 10010, at the offices of New York Life Investment
Management LLC and NYLIFE Distributors Inc., 300 Interpace Parkway, Parsippany
NJ 07054, and at the offices of MacKay Shields LLC, 9 West 57th Street, New
York, NY 10019. Records relating to the duties of the custodian for the Funds
are maintained by The Bank of New York, 90 Washington Street, New York, NY
10286. Records relating to the duties of the Company's and Trust's transfer
agent are maintained by Boston Financial Data Services, 2 Heritage Drive, North
Quincy, MA 02171.
ITEM 29. MANAGEMENT SERVICES.
Not Applicable.
ITEM 30. UNDERTAKINGS.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, Eclipse Funds has duly caused this Post-Effective Amendment to its
Registration Statement to be signed on their behalf by the undersigned,
thereunto duly authorized, in the City of New York in the State of New York, on
the 29th day of December, 2000.
ECLIPSE FUNDS
By: /s/ Stephen C. Roussin
----------------------
Stephen C. Roussin
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 21 to the Eclipse Funds' Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------------- ---------------------------- -----------------------
<S> <C> <C>
/s/ STEPHEN C. ROUSSIN
---------------------------------
Stephen C. Roussin* Chairperson, Trustee and December 29, 2000
President
/s/ LAURENCE GLACKEN
---------------------------------
Lawrence Glacken* Trustee December 29, 2000
/s/ ROBERT P. MULHEARN
---------------------------------
Robert P. Mulhearn* Trustee December 29, 2000
/s/ SUSAN B. KERLEY
---------------------------------
Susan B. Kerley* Trustee December 29, 2000
/s/ JOHN A. FLANAGAN
---------------------------------
John A. Flanagan Treasurer (Principal December 29, 2000
Financial and Accounting
Officer)
</TABLE>
*By: /s/ John A. Flanagan
as Attorney-in-Fact
* Pursuant to Powers of Attorney filed with Post-Effective Amendment No.
23 to the Registration Statement filed on February 29, 2000 for file No.
33-36962.
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Exhibit INDEX
(a)(12) Articles Supplementary.
(a)(13) Articles of Amendment.
(e)(2) Form of Distribution Agreement Between Eclipse Funds and NYLIFE
Distributors Inc.
(g)(3) Amended Schedule C to the Custody Agreement.
(h)(1)(b) Amended Fee Schedule to the Transfer Agency and Service Agreement
(h)(1)(d) Form of Transfer Agency and Service Agreement between Eclipse
Funds and NYLIM Service Company LLC.
(h)(6)(a) Sub-Transfer Agency and Service Agreement.
(i) Opinion and Consent of Counsel.
(o)(1)(a) Amendment to Multiple Class Plan.
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