UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
ECLIPSE FUNDS
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1) Title of each class of securities to which transaction applies: N/A
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ECLIPSE FUNDS
MAINSTAY SMALL CAP OPPORTUNITY FUND
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 20, 2009
To Our Shareholders:
Please take note that a SPECIAL MEETING OF SHAREHOLDERS ("Special Meeting")
of the MAINSTAY SMALL CAP OPPORTUNITY FUND (the "Fund"), a series of Eclipse
Funds (the "Trust"), will be held on Tuesday, January 20, 2009, beginning at
11:00 a.m. Eastern time, at the offices of New York Life Investment Management
LLC ("NYLIM"), 169 Lackawanna Avenue, Parsippany, New Jersey 07054.
The Trust, a Massachusetts business trust, currently consists of 3 series.
THE ACCOMPANYING NOTICE OF SPECIAL MEETING AND PROXY STATEMENT RELATE SOLELY TO
THE MAINSTAY SMALL CAP OPPORTUNITY FUND, as specified in the Proxy Statement.
At the Special Meeting, as explained in the accompanying Proxy Statement,
you will be asked to approve a Subadvisory Agreement between NYLIM and MacKay
Shields LLC ("MacKay") with respect to the Fund.
AFTER CAREFUL CONSIDERATION, THE BOARD OF TRUSTEES OF THE FUND HAS APPROVED
THE ABOVE-REFERENCED PROPOSAL AND RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
PROPOSAL.
Your vote is very important to us regardless of the number of shares of the
Fund you own. Whether or not you plan to attend the Special Meeting in person,
please read the Proxy Statement and cast your vote promptly. It is important
that your vote be received by no later than the time of the Special Meeting on
January 20, 2009. A proxy card accompanies the Proxy Statement. There are
several ways to vote your shares, including by mail, telephone and through the
Internet. Please refer to the proxy card for more information on how to vote. If
we do not receive a response by one of these methods, you may receive a
telephone call from our proxy solicitor, [ ], reminding you to vote. If
you have any questions before you vote, please contact the Fund by calling toll-
free 800-MAINSTAY (624-6782). We will get you the answers that you need
promptly.
We appreciate your participation and prompt response in this matter and
thank you for your continued support.
Sincerely,
/s/ STEPHEN P. FISHER
Stephen P. Fisher
President
Enclosure
ECLIPSE FUNDS
MAINSTAY SMALL CAP OPPORTUNITY FUND
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 20, 2009
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that a SPECIAL MEETING OF SHAREHOLDERS (the "Special
Meeting") of the MainStay Small Cap Opportunity Fund (the "Fund"), a series of
Eclipse Funds (the "Trust"), a Massachusetts business trust, will be held at the
offices of New York Life Investment Management LLC ("NYLIM"), 169 Lackawanna
Avenue, Parsippany, New Jersey 07054, on Tuesday, January 20, 2009, beginning at
11:00 a.m., Eastern time.
At the Special Meeting, and as specified in greater detail in the Proxy
Statement accompanying this Notice, shareholders will be asked to consider and
approve the following proposal:
To approve a Subadvisory Agreement between NYLIM and MacKay Shields
LLC ("MacKay") to appoint MacKay as the subadvisor to the Fund.
In addition, shareholders will be asked to consider and approve such other
matters as may properly come before the Special Meeting.
Your attention is directed to the accompanying Proxy Statement for further
information regarding the Special Meeting and the Proposal above. You may vote
at the Special Meeting if you are the record owner of shares of the Fund as of
the close of business on October 22, 2008 ("Record Date"). If you attend the
Special Meeting, you may vote your shares in person. Even if you do not attend
the Special Meeting, you may authorize your proxy by simply completing, signing,
and returning the enclosed proxy card by mail in the postage-paid the envelope
provided or follow the instructions on the voting instruction card for
authorizing your proxy by submitting your vote via telephone or the Internet.
Please refer to the proxy card for more information on how you may vote. You may
revoke the proxy at any time prior to the date the proxy is to be exercised in
the manner described in the Proxy Statement.
Your vote is very important to us. Whether or not you plan to attend the
Special Meeting in person, please vote the enclosed proxy. If you have any
questions, please contact the Fund for additional information by calling toll-
free 800-MAINSTAY (624-6782).
By Order of the Board of Trustees,
/s/ MARGUERITE E. H. MORRISON
----------------------------------------
Marguerite E. H. Morrison
Chief Legal Officer and Secretary
[Date]
------------
IMPORTANT NOTICE:
PLEASE VOTE USING THE ENCLOSED PROXY AS SOON AS POSSIBLE. YOUR VOTE IS VERY
IMPORTANT TO US NO MATTER HOW MANY SHARES YOU OWN. YOU CAN HELP AVOID THE
ADDITIONAL EXPENSE OF FURTHER SOLICITATIONS BY PROMPTLY VOTING THE ENCLOSED
PROXY.
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INSTRUCTIONS FOR SIGNING PROXY CARDS
THE FOLLOWING GENERAL RULES FOR SIGNING PROXY CARDS MAY BE OF ASSISTANCE TO
YOU AND MAY HELP AVOID THE TIME AND EXPENSE INVOLVED IN VALIDATING YOUR VOTE IF
YOU FAIL TO SIGN YOUR PROXY CARD PROPERLY.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the
registration on the proxy card.
2. JOINT ACCOUNTS: Both parties must sign: the names of the parties
signing should conform exactly to the names shown in the registration on
the proxy card.
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the
proxy card should be indicated unless it is reflected in the form of
registration.
FOR EXAMPLE:
<Table>
<Caption>
REGISTRATION VALID
- ------------ -------------------------------
CORPORATE ACCOUNTS
(1) ABC Corp. ................. ABC Corp. John Doe, Treasurer
(2) ABC Corp. ................. John Doe
(3) ABC Corp. c/o John Doe..... John Doe
(4) ABC Corp. Profit Sharing
Plan......................... John Doe
PARTNERSHIP ACCOUNTS
(1) The XYZ Partnership........ Jane B. Smith, Partner
(2) Smith and Jones, Limited
Partnership.................. Jane B. Smith, General Partner
TRUST ACCOUNTS
(1) ABC Trust.................. Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee u/t/d
12/28/78..................... Jane B. Doe, Trustee u/t/d/
12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust f/b/o
John B. Smith, Jr.
UGMA/UTMA.................... John B. Smith, Custodian f/b/o/
John B. Smith Jr., UGMA/UTMA
(2) Estate of John B. Smith.... John B. Smith, Jr., Executor
Estate of John B. Smith
</Table>
1
PLEASE CHOOSE ONE OF THE FOLLOWING OPTIONS TO VOTE YOUR SHARES:
- AUTHORIZE YOUR PROXY THROUGH THE INTERNET. You may authorize your proxy
by logging into the Internet site located on your proxy card and
following the instructions on the website. In order to log on, you will
need the control number found on your proxy card.
- AUTHORIZE YOUR PROXY BY TELEPHONE. You may authorize your proxy by
telephone by calling the toll-free number located on your proxy card.
Please make sure to have your proxy card available at the time of the
call.
- VOTE BY MAIL. You may cast your vote by signing, dating, and mailing the
enclosed proxy card in the postage-paid envelope provided.
- VOTE IN PERSON AT THE SPECIAL MEETING.
2
ECLIPSE FUNDS
MAINSTAY SMALL CAP OPPORTUNITY FUND
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 20, 2009
INTRODUCTION
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Trustees of Eclipse Funds (the "Trust"), a
Massachusetts business trust, on behalf of the MainStay Small Cap Opportunity
Fund (the "Fund"), a series of the Trust, for a Special Meeting of Shareholders
of the Fund (the "Special Meeting"). The Special Meeting will be held on
Tuesday, January 20, 2009 at 11:00 a.m., eastern time at the offices of New York
Life Investment Management LLC ("NYLIM"), 169 Lackawanna Avenue, Parsippany, New
Jersey 07054.
As is more fully described in this Proxy Statement, shareholders of the
Fund will be asked to vote on the following proposal:
To approve a new Subadvisory Agreement between NYLIM and MacKay
Shields LLC ("MacKay") to appoint MacKay as the subadvisor to the Fund.
In addition, shareholders will be asked to consider and approve such other
matters as may properly come before the Special Meeting.
Only shareholders of record who owned shares of any class of the Fund at
the close of business on October 22, 2008 (the "Record Date") are entitled to
vote at the Special Meeting and at any adjournments or postponements thereof.
Each share of the Fund that you own entitles you to one (1) vote with respect to
any Proposal on which the Fund's shareholders are entitled to vote (a fractional
share has a fractional vote).
The Board plans to distribute this Proxy Statement, the attached Notice of
Special Meeting and the enclosed proxy card on or about November 17, 2008 to all
shareholders of record of the Fund as of the Record Date.
It is important for you to vote on the Proposal described in this Proxy
Statement. We recommend that you read this Proxy Statement in its entirety as
the explanations will help you to decide how to vote on the Proposal.
3
------------
PROPOSAL
APPROVAL OF A SUBADVISORY AGREEMENT
BETWEEN NEW YORK LIFE INVESTMENT MANAGEMENT LLC
AND MACKAY SHIELDS LLC
------------
At a meeting held on September 25, 2008, the Board of Trustees of the Trust
(the "Board"), including a majority of the Trustees who are not interested
persons (as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Trust, (the "Independent Trustees"), approved a
subadvisory agreement between NYLIM and MacKay (the "Subadvisory Agreement") on
behalf of the Fund. The Subadvisory Agreement provides that MacKay will manage
the assets of the Fund as directed by NYLIM, and pursuant to the Fund's
registration statement, if shareholders approve the Proposal.
Also at the Board meeting held on September 25, 2008, the Board approved a
separate but related initiative for the MainStay Small Cap Value Fund ("Small
Cap Value Fund"), a series of The MainStay Funds. This separate initiative was
directed to shareholders of the Small Cap Value Fund seeking approval of an
Agreement and Plan of Reorganization providing for (i) the acquisition of all
the assets and the assumption of all the liabilities of the Small Cap Value Fund
by the Small Cap Opportunity Fund, in exchange for shares of the Small Cap
Opportunity Fund having an aggregate net asset value equal to the aggregate net
asset value of the shares of the Small Cap Value Fund; and (ii) the subsequent
redemption of the shares and liquidation and dissolution of the Small Cap Value
Fund (the "Small Cap Value Fund Merger").
Assuming shareholders of the Fund approve the Proposal and shareholders of
the Small Cap Value Fund approve the Agreement and Plan of Reorganization, then
the Small Cap Value Fund will merge with and into the Small Cap Opportunity
Fund, and will be renamed the Small Company Value Fund, on or about February 13,
2009.
WHY AM I RECEIVING THIS PROXY STATEMENT?
You are receiving this Proxy Statement because you own shares of the Small
Cap Opportunity Fund. Mutual fund companies are required to obtain shareholder
approval for certain types of changes affecting their funds, such as the change
contemplated in the Proposal. This Proxy Statement is being furnished to you in
connection with the solicitation of votes with respect to the Fund.
4
WHAT ARE SHAREHOLDERS BEING ASKED TO APPROVE?
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE SUBADISORY AGREEMENT,
WHICH PROVIDES THAT MACKAY WILL SERVE AS THE SUBADVISOR TO THE FUND AND WILL
MANAGE THE FUND'S ASSETS ON AN ONGOING BASIS.
As discussed in greater detail below, NYLIM has proposed that MacKay serve
as subadvisor to the Fund based, among other things, on the nature, quality and
extent of the services MacKay would provide to the Fund. The Board of Trustees
(the "Board") believes it is in the best interests of the Fund and its
shareholders to retain MacKay's services.
WHY IS THE SUBADVISORY AGREEMENT NECESSARY?
Pursuant to a Management Agreement dated December 12, 2000, as amended and
restated August 1, 2008, between NYLIM and the Trust on behalf of the Fund,
Equity Investors Group ("EIG"), NYLIM's quantitative-oriented equity investment
team, has been responsible for the day-to-day management of the Fund's assets.
At a meeting held on September 25, 2008, the Board approved NYLIM's
recommendation to retain the services of MacKay Shields, a NYLIM affiliate, to
serve as the subadvisor to the Fund. As discussed in more detail in the next
section, entitled, "WHAT DID THE BOARD CONSIDER IN APPROVING THE SUBADVISORY
AGREEMENT," the Board approved the Subadvisory Agreement between NYLIM and
MacKay to appoint MacKay as the subadvisor to the Fund.
HOW WILL THE SMALL CAP OPPORTUNITY FUND BE IMPACTED BY THE SMALL CAP VALUE FUND
MERGER?
If shareholders of the Fund approve the Proposal, the Fund will adopt the
investment objective, strategies and process of the Small Cap Value Fund in
anticipation of the Small Cap Value Fund Merger. Changing the Fund's investment
objective, strategies and process does not require shareholder approval. The
table below compares the Fund's current investment objective, principal
investment strategies, investment process and principal risks with the Fund's
new investment objective, principal investment strategies, investment process
and principal risks assuming shareholders approve the Proposal:
<Table>
<Caption>
FOLLOWING SHAREHOLDER
CURRENT APPROVAL OF PROPOSAL
------------------------- -------------------------
INVESTMENT To seek high total To seek long-term capital
OBJECTIVE return. appreciation by investing
primarily in securities
of small-cap companies.
</Table>
5
<Table>
<Caption>
FOLLOWING SHAREHOLDER
CURRENT APPROVAL OF PROPOSAL
------------------------- -------------------------
PRINCIPAL The Fund normally invests The Fund normally invests
INVESTMENT at least 80% of its at least 80% of its
STRATEGY assets in common and assets in companies with
preferred stock of market capitalizations at
companies with market the time of investment
capitalizations, at the comparable to companies
time of investment, in the Russell 2000(R)
similar to the companies Value Index and invests
in the Russell 2000(R) primarily in common
Index, the S&P SmallCap stocks and securities
600(R) Index or a convertible into common
universe selected from stock. The Fund may also
the smallest 2,000 engage in the lending of
companies of the largest portfolio securities.
3,000 companies ranked by
market capitalization.
INVESTMENT The Fund invests MacKay Shields, the
PROCESS primarily in small- Fund's Subadvisor, uses
capitalization stocks an investment selection
that NYLIM, the Fund's process that focuses on
Manager, determines are stocks that meet three
value stocks. "Value" criteria: inexpensive
stocks are stocks that valuations, free cash
NYLIM determines (1) have flow, and multiple
strong or improving sources of potential
fundamental growth or earnings. The
characteristics Subadvisor looks for
(including margins, stocks that are
working capital, inexpensive relative to
leverage, cash flow, the benchmark, their peer
returns on equity and group or historical
assets) and (2) have been valuations. The
overlooked by the Subadvisor takes a long-
marketplace so that they term approach to
are undervalued or investing, and relies
"underpriced" relative to primarily on its
the rest of the Fund's proprietary fundamental
small cap universe. research. The portfolio
is constructed using this
- In selecting stocks, bottom-up process. Stocks
the Manager applies will be sold either when
quantitative and they meet the
statistical methods to Subadvisor's price
</Table>
6
<Table>
<Caption>
FOLLOWING SHAREHOLDER
CURRENT APPROVAL OF PROPOSAL
------------------------- -------------------------
analyze the relative objective, or when the
quality and price of Subadvisor believes that
the stocks: there is a negative
change in the fundamental
- In selecting stocks, performance of the
the Manager analyzes issuer.
financial and operating
data of over one
thousand companies on a
weekly basis, searching
for companies with
improving operating
characteristics, but
which are still
underpriced or
inexpensive relative to
the rest of the Fund's
small cap universe. The
Manager evaluates
company operations
compared to other
companies (both
competitors and
companies in other
industries).
- Under normal
conditions, the Manager
keeps the Fund fully
invested rather than
taking temporary cash
positions.
The Manager will sell a
stock if it becomes
relatively overvalued, if
better opportunities are
identified, or if it
determines the initial
investment expectations
are not being met.
The Fund may lend its
portfolio securities and
may invest in common
</Table>
7
<Table>
<Caption>
FOLLOWING SHAREHOLDER
CURRENT APPROVAL OF PROPOSAL
------------------------- -------------------------
stock, 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 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.
The Fund may also invest
in foreign securities,
but only in countries the
Manager considers stable
and only in securities
the Manager considers to
be of high quality.
PRINCIPAL RISKS Investment in common Investment in common
stocks and other equity stocks and other equity
securities is securities is
particularly subject to particularly subject to
the risk of changing the risk of changing
economic, stock market, economic, stock market,
industry and company industry and company
conditions and the risks conditions and the risks
inherent in management's inherent in management's
ability to anticipate ability to anticipate
such changes that can such changes that can
adversely affect the adversely affect the
value of the Fund's value of the Fund's
holdings. holdings. Opportunities
for greater gain often
In comparison to stocks come with greater risk of
of companies with larger loss. Some of the
capitalizations, stocks
of
</Table>
8
<Table>
<Caption>
FOLLOWING SHAREHOLDER
CURRENT APPROVAL OF PROPOSAL
------------------------- -------------------------
small capitalization securities, therefore,
companies may have: may carry above-average
- more price volatility, risk, compared to common
stock indices such as the
- greater spreads between Dow Jones Industrial
their bid and ask Average and the S&P
prices, 500(R) Index.
- significantly lower In comparison to stocks
trading volumes, and/or of companies with larger
capitalizations, stocks
- cyclical, static or of small-capitalization
moderate growth companies may have:
prospects.
- more price volatility,
Small-capitalization
companies may be more - greater spreads between
vulnerable to adverse their bid and ask
business or market prices,
developments than large-
capitalization companies. - significantly lower
trading volumes, and/or
The principal risk of
investing in value stocks - cyclical, static or
is that they may never moderate growth
reach what the Manager prospects.
believes is their full
value or that they may Small-capitalization
even go down in value. companies may be more
vulnerable to adverse
In addition, different business or market
types of stocks tend to developments than large-
shift in and out of favor capitalization companies.
depending on market and
economic conditions, and The principal risk of
therefore the Fund's investing in value stocks
performance may be lower is that they may never
or higher than that of reach what the Subadvisor
funds that invest in believes is their full
other types of equity value or that they may
securities (such as those even go down in value. In
emphasizing growth addition, different types
stocks). of stocks tend to shift
in and out of favor
The principal risk of depending on market and
securities lending is economic conditions, and
that
</Table>
9
<Table>
<Caption>
FOLLOWING SHAREHOLDER
CURRENT APPROVAL OF PROPOSAL
------------------------- -------------------------
the financial institution therefore the Fund's
that borrows securities performance may be lower
from the Fund could go or higher than that of
bankrupt or otherwise funds that invest in
default on its commitment other types of equity
under the securities securities (such as those
lending agreement and the emphasizing growth
Fund might not be able to stocks).
recover the securities or
their value. The principal risk of
securities lending is
Due to its trading that the financial
strategies, the Fund may institution that borrows
experience a portfolio securities from the Fund
turnover rate of over could go bankrupt or
100%. Funds with high otherwise default on its
turnover rates (over commitment under the
100%) often have higher securities lending
transaction costs (which agreement and the Fund
are paid by the Fund) and might not be able to
may generate short-term recover the loaned
capital gains (on which securities or their
you will pay taxes, even value.
if you do not sell any
shares by year-end). Due to its trading
strategies, the Fund may
experience a portfolio
turnover rate of over
100%. 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 do not sell any
shares by year-end).
</Table>
If shareholders of the Small Cap Value Fund approve the Small Cap Value
Fund Merger, then the Small Cap Value Fund will be merged with and into the
Small Cap Opportunity Fund, and will be renamed the Small Company Value Fund, on
or about February 13, 2009.
10
WHAT DID THE BOARD CONSIDER IN APPROVING THE SUBADVISORY AGREEMENT?
In connection with its review of NYLIM's recommendation to approve the
Proposal, the members of the Board, including members of its Contracts Committee
and Investment Committee, undertook a review of MacKay's qualifications to serve
as the Fund's subadvisor. On behalf of the Board, a member of the Board's
Investment Committee conducted an in-person meeting with the Fund's proposed new
portfolio management team at MacKay's headquarters in New York, New York. The
Contracts Committee considered factors relevant to the proposed new sub-advisory
relationship at a special meeting held on August 19, 2008, and the Contracts and
Investment Committees both further reviewed various matters relating to the
proposed new sub-advisory relationship at their regular meetings on September
24, 2008. Following these meetings, the Contracts Committee and Investment
Committee of the Board each recommended Board approval of the Subadvisory
Agreement.
In reaching its decision to approve the Subadvisory Agreement, the Board
considered information furnished to the Board from NYLIM. The Board also
requested and received responses from MacKay to a list of questions encompassing
a variety of topics prepared on behalf of the Board by independent legal counsel
to the Board.
In determining to approve the Subadvisory Agreement, the members of the
Board reviewed and evaluated all of this information and factors they believed
to be relevant and appropriate in light of legal advice furnished to them by
independent legal counsel and through the exercise of their own business
judgment. The broad factors considered by the Board are discussed in greater
detail below, and included, among other things: (i) the nature, extent, and
quality of the services to be provided to the Fund by MacKay; (ii) the
investment performance of the Fund and the historical investment performance of
similar portfolios managed by the Fund's proposed portfolio management team at
MacKay; (iii) the costs of the services to be provided, and profits anticipated
to be received, by MacKay and NYLIM from its relationship with the Fund; (iv)
the extent to which economies of scale may be realized as the Fund grows, and
the extent to which economies of scale may benefit Fund investors; and (v) the
reasonableness of the Fund's management and sub-advisory fee levels and overall
total ordinary operating expenses.
While the members of the Board may have weighed certain factors
differently, the Board's decision to approve the Subadvisory Agreement was based
on a comprehensive consideration of all the information provided to the Board in
connection with its review of MacKay. A more detailed discussion of the factors
that figured prominently in the Board's decision to approve the new Subadvisory
Agreement is provided below.
11
Nature, Extent and Quality of Services to be Provided by MacKay
In considering the approval of the Subadvisory Agreement, the Board
examined the nature, extent and quality of the services that MacKay proposed to
provide to the Fund. The Board evaluated MacKay's experience in serving as
manager of other similar portfolios. In this regard, the Board took note of the
significant experience of the Fund's proposed portfolio management team, the
number of accounts managed by the portfolio managers and MacKay's method for
compensating portfolio managers. The Board also considered the experience of
senior personnel at MacKay, as well as MacKay's reputation and financial
condition. Based on these considerations, the Board concluded, within the
context of its overall determinations regarding the Subadvisory Agreement, that
the Fund is likely to benefit from the nature, extent and quality of these
services as a result of MacKay's experience, personnel, operations and
resources.
Investment Performance
In evaluating investment performance, the Board considered the Fund's
historical investment performance results in light of the Fund's investment
objective, strategies and risks, as disclosed in the Fund's prospectus. The
Board noted that the investment performance of the Fund had not met the Board's
expectations in recent years, as evidenced in part by its investment performance
relative to its peers and its benchmark (the Russell 2000(R) Value Index). The
Board compared the Fund's historical investment performance to the investment
performance of similar portfolios managed by the proposed portfolio management
team at MacKay, as well as the strength of MacKay's resources that may result in
stronger long-term investment performance for the Fund over time. Based on these
considerations, the Board concluded, within the context of its overall
determinations regarding the Subadvisory Agreement, that the selection of MacKay
as subadvisor to the Fund could reasonably be expected to produce to benefit the
Fund's long-term investment performance.
Costs of the Services Provided, and Profits to be Realized, by MacKay and NYLIM
In connection with its considerations of the Subadvisory Agreement and its
past consideration of the Fund's contractual arrangements, the Board considered
the estimated costs of the services to be provided by MacKay under the
Subadvisory Agreement and the profitability of NYLIM and its affiliates,
including MacKay, due to their relationship with the Fund. Because MacKay is an
affiliate of NYLIM whose subadvisory fee for advising the Fund is paid directly
by NYLIM, the Board considered the cost and profitability information for NYLIM
and MacKay in the aggregate.
12
The Board considered, among other things, MacKay's investments in
personnel, systems, equipment and other resources necessary to manage the Fund.
The Board acknowledged that MacKay must be in a position to pay and retain
experienced professional personnel to provide services to the Fund, and that
MacKay's ability to maintain a strong financial position is important in order
for MacKay to provide high-quality ongoing services to the Fund and its
shareholders.
The Board also considered information from NYLIM from a recent 15(c) review
process regarding the estimated profitability to be realized by NYLIM and its
affiliates, including MacKay, due to their overall relationship with the Fund.
The Board considered information from NYLIM illustrating the revenues and
expenses allocated by NYLIM to the Fund, noting the difficulty in obtaining
reliable comparative data about mutual fund managers' profitability, since such
information generally is not publicly available and may be impacted by numerous
factors, including the structure of a fund manager's organization, the types of
funds it manages, and the manager's capital structure and costs of capital.
While recognizing the difficulty in evaluating a manager's profitability with
respect to the Fund, and noting that other profitability methodologies may also
be reasonable, the Board concluded that the profitability methodology presented
by NYLIM to the Board with respect to the Fund was reasonable in all material
respects.
In considering the costs and profitability of the Fund, the Board also
considered certain fall-out benefits that may be realized by NYLIM and its
affiliates, including MacKay, due to their relationship with the Fund. The Board
recognized, for example, the benefits to MacKay from legally permitted "soft-
dollar" arrangements by which brokers provide research and other services to
MacKay in exchange for commissions paid by the Fund with respect to trades on
the Fund's portfolio securities.
After evaluating the information presented to the Board, the Board
concluded, within the context of its overall determinations regarding the
Subadvisory Agreement, that the profit to be realized by NYLIM and its
affiliates, including MacKay, due to their relationship with the Fund is fair
and reasonable.
Extent to Which Economies of Scale May be Realized as the Fund Grows
The Board also considered whether the Fund's expense structure permitted
economies of scale to be shared with Fund investors. The Board considered the
extent to which the Fund benefits from economies of scale through expense
waivers and reimbursements. The Board also observed that NYLIM historically has
subsidized the Fund's overall expenses through the operation of contractual
expense limitations that may be lifted only with prior approval of the Board.
13
Based on this information, the Board concluded, within the context of its
overall determinations regarding the Subadvisory Agreement, that the Fund's
expense structure appropriately reflects economies of scale for the benefit of
Fund investors. The Board noted, however, that it would continue to evaluate the
reasonableness of the Fund's expense structure as a Fund continues to grow over
time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the
existing management and new Subadvisory Agreement and the Fund's total ordinary
operating expenses. Because MacKay is an affiliate of NYLIM whose subadvisory
fee for advising the Fund is paid directly by NYLIM, the Board primarily
considered the reasonableness of the overall management fees paid by the Fund to
NYLIM. The Board considered positively NYLIM's proposal to reduce the Fund's
management fee to 85 bps in the event that the Small Cap Value Fund Merger is
consummated.
In assessing the reasonableness of the Fund's management and subadvisory
fees and total ordinary operating expenses, the Board took note of fee and
expense arrangements that had been negotiated by the Board with NYLIM in recent
years and observed that NYLIM has subsidized the total ordinary operating
expenses of Fund share classes through the imposition of expense limitation
arrangements that may be modified only with the prior approval of the Board. The
Board also considered NYLIM's agreement to impose lower contractual expense caps
on the Fund's expenses in the event that the Small Cap Value Fund Merger is
approved.
Based on these considerations, the Board concluded that the Fund's
management and subadvisory fees and total ordinary operating expenses were
within a range that is competitive and, within the context of the Board's
overall conclusions regarding the Subadvisory Agreement, supports the conclusion
that these fees to be paid under the Subadvisory Agreement are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof,
the Board, which consisted entirely of Independent Trustees, unanimously
approved the new Subadvisory Agreement with MacKay.
14
WHAT ARE THE TERMS OF THE SUBADVISORY AGREEMENT?
The form of the Subadvisory Agreement is included as Exhibit A to this
Proxy Statement and the description of terms in this section is qualified in its
entirety by reference to Exhibit A.
Pursuant to the Subadvisory Agreement, MacKay will serve as Subadvisor to
the Fund, select its investments and place all orders for purchases and sales of
securities, subject to the general supervision of the Board and NYLIM and in
accordance with the Fund's investment objectives, policies and restrictions.
NYLIM will continue to manage the Fund and will monitor MacKay's investment
activities to help ensure compliance with regulatory restrictions.
More specifically, MacKay will perform the following services:
- provide a continuous investment program for the Fund, subject to the
supervision of the Board and NYLIM, and in accordance with the Fund's
investment objectives, policies, and restrictions;
- provide investment research and conduct a continuous program of
evaluation, investment, sales, and reinvestment of the Fund's assets by
determining the securities and other investments that shall be purchased,
entered into, sold, closed, or exchanged for the Fund, when these
transactions should be executed, and what portion of the assets of the
Fund should be held in the various securities and other investments in
which it may invest;
- maintain all books and records with respect to the Fund's securities
transactions required to be maintained by it under the 1940 Act and the
rules thereunder;
- deliver to NYLIM and the Trustees such periodic and special reports as
NYLIM or the Trustees may reasonably request;
- monitor, on a daily basis, the determination by the portfolio accounting
agent for the Fund of the valuation of portfolio securities; and
- provide the Fund's custodian, on each business day, with information
relating to the execution of all portfolio transactions pursuant to
standing instructions.
In consideration for its services, MacKay will be entitled to receive an
annual fee based on the average daily net assets of the Fund as follows:
Effective from Date of Approval of Proposed Merger
0.500% on assets up to $1.0 billion; and
15
0.475% on assets over $1.0 billion*
Effective upon Completion of Merger of Small Cap Value Fund into Small Cap
Opportunity Fund**
0.425% on assets up to $1.0 billion; and
0.400% on assets over $1.0 billion*
If approved by shareholders, the Subadvisory Agreement will become
effective on or about January 21, 2009 and, unless sooner terminated, will
continue for an initial term ending in two years. Thereafter, the Subadvisory
Agreement will continue for successive one-year terms, provided that such
continuation is specifically approved at least annually by a vote of a majority
of the Trustees, or by a vote of a majority of the outstanding shares of the
Fund, and, in either case, by a majority of the Independent Trustees, by vote
cast in person at a meeting called for such purpose. The Subadvisory Agreement
will terminate automatically in the event of its assignment (as defined in the
1940 Act) or the assignment or termination of the Fund's Amended and Restated
Management Agreement, which is discussed below.
The Subadvisory Agreement provides that MacKay will not be liable to NYLIM,
the Fund, or any shareholder of the Fund, for any act or omission in the course
of, or connected with, its services under the Subadvisory Agreement, or for any
losses that may be sustained in the purchase, holding or sale of any security,
except a loss resulting from MacKay's willful misfeasance, bad faith, or gross
negligence in the performance of its duties under the New Subadvisory Agreement,
or reckless disregard of its obligations or duties under the Subadvisory
Agreement.
HOW CAN YOU VOTE YOUR SHARES?
PLEASE CHOOSE ONE OF THE FOLLOWING OPTIONS TO VOTE YOUR SHARES:
- By mail, with the enclosed proxy card;
- By touch-tone telephone, with a toll-free call to the telephone number
that appears on your proxy card;
- Through the Internet, by using the Internet address located on you proxy
card and following the instructions on the site; or
- In person at the Special Meeting.
- ----------
* To the extent NYLIM has agreed to waive its management fee or reimburse
expenses, MacKay Shields, as Subadvisor for the Fund, has agreed to voluntarily
waive or reimburse its fee proportionately.
** Although NYLIM expects the Small Cap Value Fund Merger to be approved by
shareholders, there can be no assurance that the merger will take place. If it
does not take place, the subadvisory fee will remain as set forth above.
16
CURRENT MANAGEMENT AGREEMENT
NYLIM serves as manager to the Fund pursuant to a Management Agreement
dated December 12, 2000, as amended and restated August 1, 2008, between NYLIM
and the Trust, on behalf of the Fund ("Management Agreement"), NYLIM and its
predecessor have managed the Fund since its inception.
In conformity with the stated policies of the Fund and pursuant to the
Management Agreement, NYLIM manages the investment operations of the Fund and
the composition of the Fund's portfolio, subject to the supervision of the
Board. NYLIM provides offices, conducts clerical, recordkeeping, and bookkeeping
services, and maintains most of the financial and accounting records required
for the Fund.
The Management Agreement was last approved by shareholders on November 17,
1997, and most recently renewed by the Board at a meeting held on June 17, 2008.
It will continue in effect from year to year only if such continuance is
approved at least annually by the Board or by vote of a majority of the
outstanding shares of the Fund (as defined in the 1940 Act) and, in either case,
by a majority of the Independent Trustees, by vote cast in person at a meeting
called for such purpose. The Management Agreement may be terminated as to the
Fund at any time on 60 days' written notice without penalty by the Trustees, by
vote of a majority of the outstanding shares of the Fund, or by NYLIM. The
Management Agreement also terminates automatically in the event of its
assignment (as defined in the 1940 Act).
Under the Management Agreement, NYLIM may make the day-to-day investment
decisions for the Fund or delegate any or all of its duties and responsibilities
to one or more subadvisors, at its own expense. If it chooses to delegate to a
subadvisor, NYLIM monitors such subadvisor's investment activities to help
ensure compliance with regulatory restrictions. Regardless of whether it employs
a subadvisor, NYLIM continuously reviews, supervises and administers the Fund's
investment program, including monitoring for compliance with regulatory
restrictions by those managing the Fund's assets.
In consideration for its services, NYLIM receives an annual fee of 1.00% of
the average daily net assets of the Fund up to $1.0 billion; and 0.95% of
average daily net assets over $1.0 billion. From NYLIM's management fee, MacKay
Shields will receive its subadvisory fee as detailed in the section above
entitled "What are the terms of the Subadvisory Agreement?" During the fiscal
year ended October 31, 2007, NYLIM received $14,015,199 in advisory fees from
the Fund.
Although there can be no assurances of the following event taking place,
contigent upon shareholder approval of the proposal to merge Small Cap Value
Fund with and into Small Cap Opportunity Fund, the
17
Board voted to reduce the management fee payable to NYLIM to 0.85% on assets up
to $1.0 billion, and 0.80% on assets in excess of $1.0 billion, based on the
average daily net assets of the Fund. Had the Proposed Agreement been in effect
during that same fiscal period, NYLIM's advisory fee would have been
$11,712,160, of which, MacKay would have received $5,856,080 in subadvisory
fees, assuming all other factors to be equal.
INFORMATION ABOUT MACKAY SHIELDS LLC ("MACKAY")
NYLIM has proposed that MacKay, 9 West 57th Street, New York, New York
10019, serve as the subadvisor to the Fund. Under NYLIM's supervision, MacKay
would be responsible for making the specific decisions about buying, selling and
holding securities; selecting and negotiating with brokers and brokerage firms;
and maintaining accurate records for the Fund. For these services, MacKay would
be paid a monthly fee by NYLIM, and not by the Fund.
MacKay 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 Insurance Company, 51 Madison Avenue, New
York, New York 10010. As of August 31, 2008, MacKay managed approximately $35.3
billion in assets.
Exhibit B to this Proxy Statement sets forth the principal executive
officers of MacKay.
The MacKay investment team of Jordan Alexander and Stephen Friscia would be
jointly and primarily responsible for the day-to-day management of the Fund.
Their biographical information is set forth below:
JORDAN D. ALEXANDER, CFA, CPA Mr. Alexander joined MacKay Shields in
August 2008 as a Managing Director. Immediately prior to joining MacKay
Shields, he was a portfolio manager with Bear Stearns Asset Management from
June 2006 through July 2008. Prior to that, Mr. Alexander was a portfolio
manager at BKF Asset Management Inc. from December 2003 through June 2006;
a senior analyst at Palisade Capital Management from June 2003 through
December 2003; a portfolio manager and research analyst at Evergreen
Investment Management Company, LLC from September 1998 through June 2003;
an Associate Research Analyst at PaineWebber, Inc. from August 1995 through
September 1998; and a Senior Financial Analyst and Auditor at Arthur
Andersen & Co., LLP from July 1990 through August 1995. He earned a BA from
Binghamton University and an MBA from New York University -- Stern School
of Business. He holds the Chartered Financial Analyst and Certified Public
Accountant designations.
18
STEPHEN A. FRISCIA, JR., CFA Mr. Friscia joined MacKay Shields in
August 2008. Immediately prior to joining MacKay Shields, he was a
portfolio manager with Bear Stearns Asset Management from June 2006 through
July 2008. Prior to that, Mr. Friscia was a portfolio manager at BKF Asset
Management Inc. from December 2003 through June 2006; a senior analyst at
Palisade Capital Management from June 2003 through December 2003; and a co-
portfolio manager, equity research analyst, fixed income securities analyst
and accountant at Evergreen Investment Management Company, LLC from April
1993 through May 2003. Mr. Friscia earned a BS from State University of New
York New Paltz and an MBA from Pace University -- Lubin School of Business.
He holds the Chartered Financial Analyst designation.
BROKERAGE COMMISSIONS ON FUND TRANSACTIONS
In effecting purchases and sales of Fund securities for the account of the
Fund, MacKay will seek the best execution of the Fund's orders. In the course of
achieving best execution, MacKay may place such orders with brokers and dealers
who provide market, statistical and other research information to it. MacKay
will be authorized, under certain circumstances, when placing Fund transactions
for equity securities, to pay a brokerage commission (to the extent applicable)
in excess of that which another broker might charge for executing the same
transaction due to MacKay's receipt of market, statistical and other research
information.
NYLIFE Securities Inc. ("NYLIFE Securities"), an affiliate of NYLIM, may
act as broker for the Fund. NYLIFE Securities is a wholly-owned subsidiary of
NYLIFE LLC, which is a wholly-owned subsidiary of New York Life Insurance
Company, the indirect parent of NYLIM. NYLIFE Securities is therefore an
"Affiliated Broker" as that term is defined in Schedule 14A under the Securities
Exchange Act of 1934, as amended. There were no brokerage commissions paid by
the Fund to NYLIFE Securities or any other affiliated broker for the most
recently completed fiscal year.
BOARD RECOMMENDATION
THE INDEPENDENT TRUSTEES RECOMMEND THAT
SHAREHOLDERS OF THE FUND VOTE "FOR" THE
APPROVAL OF THE SUBADVISORY AGREEMENT.
VOTING INFORMATION
This Proxy Statement, along with a Notice of the Special Meeting and a
proxy card, is first being mailed to shareholders of the Fund on or about
November 17, 2008. Only shareholders of record as of the close of
19
business on the Record Date, October 22, 2008, will be entitled to notice of,
and to vote at, the Special Meeting. If the enclosed form of proxy card is
properly executed and returned in time to be voted at the Special Meeting, the
proxies named therein will vote the shares represented by the proxy in
accordance with the instructions marked thereon. Unmarked but properly executed
proxy cards will be voted "FOR" the proposed Reorganization and in the
discretion of the proxy holders on any other matters.
A proxy may be revoked at any time on or before the Special Meeting by
written notice to the Secretary of the Trust at the address on the cover of this
Proxy Statement or by attending and voting at the Special Meeting. Unless
revoked, all valid and executed proxies will be voted in accordance with the
specifications thereon or, in the absence of such specifications, for approval
of the Proposal.
VOTING OF PROXIES. If you attend the Special Meeting you may vote in
person. If you do not plan to attend the Special Meeting, please cast your vote
by completing, signing, and returning the enclosed proxy card by mail in the
envelope provided.
You may also authorize your proxy on the Internet or by touch-tone
telephone. These options require you to input a control number, which is located
on each proxy card. After inputting the control number, you will be prompted to
authorize your proxy on the Proposal. You will have an opportunity to review
your authorization and make any necessary changes before submitting your
authorization and terminating your telephone call or Internet connection.
Timely and properly completed and submitted proxies will be voted as
instructed by shareholders. A shareholder who executes and returns a proxy may
revoke the proxy at any time prior to the date the proxy is to be exercised by
(1) delivering to the Fund written notice of the revocation, (2) delivering to
the Fund a proxy with a later date, or (3) voting in person at the Special
Meeting.
In the event a shareholder signs and returns the proxy but does not
indicate his or her vote as to a Proposal, such proxy will be voted "FOR" the
Proposal and in the discretion of the proxy holder with regard to any other
proposal.
QUORUM REQUIREMENTS. A quorum of shareholders is necessary to hold a valid
meeting and to consider the Proposal. The presence in person or by proxy of the
holders of the majority of stock of the Fund on the Record Date shall constitute
a quorum. The following chart reflects
20
the total number of shares outstanding as of the Record Date for each class of
the Fund:
<Table>
<Caption>
NUMBER OF SHARES OUTSTANDING
------------------------------------------------------
INVESTOR CLASS CLASS A CLASS B CLASS C CLASS I
-------------- ------- ------- ------- -------
SMALL CAP OPPORTUNITY
FUND.................. [ ] [ ] [ ] [ ] [ ]
------- ------- ------- ------- -------
</Table>
VOTES NECESSARY TO APPROVE THE PROPOSAL. Approval of the Proposal will
require the affirmative vote of the holders of a "majority of the outstanding
voting securities" of the Fund, which is defined in the 1940 Act as the lesser
of : (1) 67% of the voting securities of the Fund present at the meeting, if
more than 50% of the outstanding voting securities of the Fund are present in
person or by proxy, or (2) more than 50% of the outstanding voting securities of
the Fund.
EFFECT OF ABSTENTIONS AND BROKER "NON-VOTES." The Fund expects that,
before the Special Meeting, broker-dealer firms holding shares of the Fund in
"street name" for their customers will request voting instructions from their
customers and beneficial owners. If a shareholder abstains from voting as to any
matter, or if a broker returns a "non-vote" proxy indicating a lack of authority
to vote on a matter, then the shares represented by such abstention or broker
non-vote will be considered to be present at the Special Meeting for purposes of
determining the existence of a quorum. Abstentions and broker non-votes will
not, however, be counted as votes in favor of the Proposal. Therefore,
abstentions and broker non-votes will have the effect of a "no" vote with
respect to the Proposal.
ADJOURNMENTS. If a quorum is not present at the Special Meeting or if a
quorum is present but sufficient votes to approve the Proposal have not been
received at the time of the Special Meeting, the persons named as proxies may
propose one or more adjournments of the Special Meeting in accordance with
applicable law to permit further solicitation of votes. The persons named as
proxies will vote in favor of adjournment with respect to those proxies that may
be voted in favor of a Proposal(s) and will vote against any such adjournment
with respect to those proxies which have been voted against the Proposal(s).
PAYMENT OF SOLICITATION EXPENSES. The cost of the Special Meeting,
including costs of solicitation of proxies and voting instructions, will be
borne by the Fund, and are estimated to be between $[ ] and $[ ]. The
Fund, or NYLIM on behalf of the Fund, has retained [ ] to provide proxy
solicitation services in connection with the Special Meeting. The Fund may incur
additional expenses as a result of this proxy solicitation. Proxies will be
solicited via regular mail and also may be solicited via telephone, e-mail or
other personal contact by personnel of NYLIM, the Fund, their respective
affiliates, or, in NYLIM's discretion, a commercial firm retained for this
purpose.
21
OTHER MATTERS TO COME BEFORE THE SPECIAL MEETING. The Fund does not know
of any matters to be presented at the Special Meeting other than those described
in this Proxy Statement. If any other matters come before the Special Meeting,
including any Proposal to adjourn the Special Meeting to permit the continued
solicitation of proxies in favor of the Proposal, it is the intention of the
Fund that proxies not containing specific restrictions to the contrary will be
voted as described above under "Adjournments" with respect to proposals to
adjourn the Special Meeting to solicit additional proxies in favor of the
Proposal and in the discretion of the proxy holder on any other matters.
FUTURE SHAREHOLDER PROPOSALS. A shareholder may request inclusion in the
Trust's proxy statement and on the Trust's proxy card for shareholder meetings
certain proposals for action which the shareholder intends to introduce at such
meeting. Shareholders wishing to submit proposals for inclusion in a proxy
statement for a subsequent shareholders' meeting should send their written
proposals to the Trust at 51 Madison Avenue, New York, NY 10010. Any shareholder
proposals must be presented a reasonable time before the proxy materials for the
next meeting are sent to shareholders to be considered for inclusion in the
proxy materials. The timely submission of a proposal does not guarantee its
inclusion in the proxy statement and is subject to limitations under the federal
securities laws. The Trust is not required to hold regular meetings of
shareholders, and in order to minimize its costs, does not intend to hold
meetings of shareholders unless so required by applicable law, regulation,
regulatory policy, or unless otherwise deemed advisable by the Board or the
Trust's management.
Therefore, it is not practicable to specify a date by which proposals must
be received in order to be incorporated in an upcoming proxy statement for a
meeting of shareholders.
OTHER INFORMATION
FORM OF ORGANIZATION. The Fund is a diversified series of the Eclipse
Funds, an open-end management investment company, organized as Massachusetts
business trust. The Fund is governed by a Board of Trustees consisting of seven
members, all "non-interested" persons as defined in the 1940 Act. For more
information on the history of the Fund, please see the Fund's Statement of
Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR. NYLIM, 51 Madison Avenue, New York,
New York 10010, serves as the investment adviser to the Fund. NYLIM commenced
operations in April 2000, and is an independently-managed, wholly-owned indirect
subsidiary of New York Life Insurance Company, 51 Madison Avenue, New York, New
York 10010. As of August 31, 2008, NYLIM and its affiliates managed
approximately $246 billion in assets.
22
DISTRIBUTOR. NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany,
New Jersey 07054, a limited liability company organized under the laws of
Delaware, serves as the Trust's distributor and principal underwriter (the
"Distributor") pursuant to a Distribution Agreement, dated December 12, 2000.
The Distribution Agreement provides that the Distributor will use its best
efforts to distribute the Funds' shares. The Distributor is a wholly-owned
subsidiary of NYLIM.
CUSTODIAN. Pursuant to an agreement with NYLIM, State Street Bank & Trust
Company ("State Street"), One Lincoln Street, Boston, Massachusetts, 02111-2900
serves as the Custodian for the Fund's assets. State Street also provides sub-
administration and sub-accounting services for the Fund. These services include
calculating the Fund's daily net asset value, maintaining general ledger and
sub-ledger accounts for the calculation of the Fund's net asset value, and
assisting NYLIM in conducting various aspects of the Fund's administrative
operations. For providing these non-custody services to the Fund, State Street
is compensated by NYLIM. Custodian fees and expenses are paid by the Fund.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. KPMG LLP, 1601 Market
Street, Philadelphia, Pennsylvania 19103-2499, serves as the Fund's independent
registered public accounting firm. KPMG is responsible for auditing the annual
financial statements of the Funds. Representatives of KPMG LLP are not expected
to be present at the Special Meeting, but have been given the opportunity to
make a statement if they so desire and will be available should any matter arise
requiring their presence.
SHAREHOLDER REPORTS. The Fund will furnish, without charge, upon request,
a printed version of the most recent annual report to shareholders of the Fund
(and any subsequent semi-annual report). Such requests may be directed to the
Fund by contacting the Distributor of the Fund's shares by writing NYLIFE
Distributors LLC, Attn: MainStay Funds, 169 Lackawanna Avenue, Parsippany, New
Jersey 07054, or by calling toll-free 800-MAINSTAY (624-6782). Please include
the name of the Fund for which you request reports.
INFORMATION REQUIREMENTS. The Fund is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and certain
other federal securities statutes, and files reports and other information with
the SEC. Proxy materials, reports and other information filed by the Fund can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
100 F Street, NE, Washington, DC 20549. The SEC maintains an Internet website
(at http://www.sec.gov), which contains other information about the Fund.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL HOLDERS. As of the Record
Date, the current officers and Trustees of Eclipse Funds, in the aggregate
beneficially owned less than 1% of a class of shares of the Fund. A list of the
5% shareholders of the Fund as of the Record Date are listed in Exhibit C.
23
VOTE OF FUND SHARES BY NYLIM. The MainStay Asset Allocation Funds and the
MainStay Retirement Funds may receive this proxy statement as shareholders of
the Fund. In that event, NYLIM and/or its affiliates have the discretion to some
or all of the Fund shares on this proposal in accordance with the
recommendations of an independent service provider or vote the shares in the
same proportion as the other shareholders in the Fund. The Fund has been advised
by NYLIM that these shares will be voted pursuant to established policies and
procedures designed to address potential conflicts of interest.
"HOUSEHOLDING" OF PROXY STATEMENTS. The Fund may furnish only one copy of
this proxy statement to a household, even if more than one shareholder resides
in the household, unless the Fund has received contrary instructions from one or
more of the household's shareholders. If you are a shareholder and would like
additional copies of this proxy statement, please contact the Distributor by
writing NYLIFE Distributors LLC, Attn: MainStay Funds, 169 Lackawanna Avenue,
Parsippany, New Jersey 07054, or by calling toll-free 800-MAINSTAY (624-6782).
If in the future you do not want the mailing of your proxy statement to be
combined with other members of your household, or if the Fund has furnished
multiple proxy statements to your household and you would like the Fund to
furnish only one statement to your household in the future, please inform the
Distributor in writing or via telephone at the address or telephone number
listed above.
24
EXHIBIT A
ECLIPSE FUNDS
FORM OF SUBADVISORY AGREEMENT
This Subadvisory Agreement, made as of the [21(st)] day of [January, 2009]
(the "Agreement"), between New York Life Investment Management LLC, a Delaware
limited liability company (the "Manager") and MacKay Shields LLC, a Delaware
limited liability company (the "Subadvisor").
WHEREAS, Eclipse Funds (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end, management
investment company; and
WHEREAS, the Trust is authorized to issue separate series, each of which
may offer a separate class of shares of beneficial interest, each series having
its own investment objective or objectives, policies and limitations; and
WHEREAS, the Trust currently offers shares in multiple series, may offer
shares of additional series in the future, and intends to offer shares of
additional series in the future; and
WHEREAS, the Manager entered into the Amended and Restated Management
Agreement dated August 1, 2008 with the Trust, on behalf of its series, as
amended (the "Management Agreement"); and
WHEREAS, under the Management Agreement, the Manager has agreed to provide
certain investment advisory and related administrative services to the Trust;
and
WHEREAS, the Management Agreement permits the Manager to delegate certain
of its investment advisory duties under the Management Agreement to one or more
subadvisors; and
WHEREAS, the Manager wishes to retain the Subadvisor to furnish certain
investment advisory services to one or more of the series of the Trust and
manage such portion of the Trust as the Manager shall from time to time direct,
and the Subadvisor is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and the promises and
mutual covenants herein contained, it is agreed between the Manager and the
Subadvisor as follows:
1. APPOINTMENT. The Manager hereby appoints MacKay Shields LLC to act as
Subadvisor to the series designated on Schedule A of this Agreement (the
"Series") with respect to all or a portion of the assets of the Series
designated by the Manager as allocated to the Subadvisor ("Allocated Assets")
subject to such written instructions, including any redesignation of Allocated
Assets and supervision as the Manager may from time to time furnish for the
periods and on the terms set forth in this Agreement. The Subadvisor accepts
such appointment and agrees to
A-1
furnish the services herein set forth for the compensation herein provided.
In the event the Trust designates one or more series other than the Series
with respect to which the Manager wishes to retain the Subadvisor to render
investment advisory services hereunder, it shall notify the Subadvisor in
writing. If the Subadvisor is willing to render such services, it shall notify
the Manager in writing, whereupon such series shall become a Series hereunder,
and be subject to this Agreement, and Schedule A shall be revised accordingly.
2. PORTFOLIO MANAGEMENT DUTIES. Subject to the supervision of the Trust's
Board of Trustees ("Board") and the Manager, the Subadvisor will provide a
continuous investment program for the Series' Allocated Assets and determine the
composition of the assets of the Series' Allocated Assets, including
determination of the purchase, retention or sale of the securities, cash and
other investments contained in the portfolio. The Subadvisor will conduct
investment research and conduct a continuous program of evaluation, investment,
sales and reinvestment of the Series' Allocated Assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed or exchanged for the Series, when these transactions should be executed,
and what portion of the Allocated Assets of the Series should be held in the
various securities and other investments in which it may invest, and the
Subadvisor is hereby authorized to execute and perform such services on behalf
of the Series. The Subadvisor will provide the services under this Agreement in
accordance with the Series' investment objective or objectives, policies and
restrictions as stated in the Trust's Registration Statement filed with the
Securities and Exchange Commission (the "SEC"), as amended, copies of which
shall be delivered to the Subadvisor by the Manager. The Subadvisor further
agrees as follows:
(a) The Subadvisor understands that the Allocated Assets of the Series
need to be managed so as to permit the Series to qualify or continue to
qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code, and will coordinate efforts with the Manager with
that objective.
(b) The Subadvisor will conform with the 1940 Act and all rules and
regulations thereunder, all other applicable federal and state laws and
regulations, any applicable procedures adopted by the Trust's Board of
which a copy has been delivered to the Subadvisor, and the provisions of
the Registration Statement of the Trust under the Securities Act of 1933,
as amended (the "1933 Act"), and the 1940 Act, as supplemented or amended,
copies of which shall be delivered to the Subadvisor by the Manager.
(c) On occasions when the Subadvisor deems the purchase or sale of a
security to be in the best interest of the Series as well as of other
investment advisory clients of the Subadvisor or any of its
A-2
affiliates, the Subadvisor may, to the extent permitted by applicable laws
and regulations, but shall not be obligated to, aggregate the securities to
be so sold or purchased with those of its other clients where such
aggregation is not inconsistent with the policies set forth in the
Registration Statement. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
will be made by the Subadvisor in a manner that, over time, is fair and
equitable in the judgment of the Subadvisor in the exercise of its
fiduciary obligations to the Trust and to such other clients, subject to
review by the Manager and the Board. The Manager recognizes that in some
cases this procedure may adversely affect the results obtained for the
Series or Trust.
(d) In connection with the purchase and sale of securities for the
Series, the Subadvisor will arrange for the transmission to the custodian
and portfolio accounting agent for the Series, on a daily basis, such
confirmation, trade tickets and other documents and information, including,
but not limited to, CUSIP, Sedol or other numbers that identify securities
to be purchased or sold on behalf of the Series, as may be reasonably
necessary to enable the custodian and portfolio accounting agent to perform
their administrative and recordkeeping responsibilities with respect to the
Series. With respect to portfolio securities to be purchased or sold
through the Depository Trust and Clearing Corporation, the Subadvisor will
arrange for the automatic transmission of the confirmation of such trades
to the Trust's custodian and portfolio accounting agent.
(e) The Subadvisor will assist the custodian and portfolio accounting
agent for the Trust in determining or confirming, consistent with the
procedures and policies stated in the Registration Statement for the Trust,
the value of any portfolio securities or other Allocated Assets of the
Series for which the custodian and portfolio accounting agent seek
assistance from, or which they identify for review by, the Subadvisor.
(f) The Subadvisor will make available to the Trust and the Manager,
promptly upon request, all of the Series' investment records and ledgers
maintained by the Subadvisor (which shall not include the records and
ledgers maintained by the custodian or portfolio accounting agent for the
Trust) as are necessary to assist the Trust and the Manager to comply with
requirements of the 1940 Act and the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), as well as other applicable laws. The
Subadvisor will furnish to regulatory agencies having the requisite
authority any information or reports in connection with such services that
may be requested in order to ascertain whether the operations of the Trust
are being conducted in a manner consistent with applicable laws and
regulations.
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(g) The Subadvisor will provide reports to the Trust's Board, for
consideration at meetings of the Board, on the investment program for the
Series and the issuers and securities represented in the Series' Allocated
Assets, and will furnish the Trust's Board with respect to the Series such
periodic and special reports as the Trustees and the Manager may reasonably
request.
(h) In rendering the services required under this Agreement, the
Subadvisor may, from time to time, employ or associate with itself such
entity, entities, person or persons as it believes necessary to assist it
in carrying out its obligations under this Agreement. The Subadvisor may
not, however, retain as subadvisor any company that would be an "investment
adviser" as that term is defined in the 1940 Act, to the Series unless the
contract with such company is approved by a majority of the Trust's Board
and by a majority of Trustees who are not parties to any agreement or
contract with such company and who are not "interested persons" as defined
in the 1940 Act, of the Trust, the Manager, the Subadvisor or any such
company that is retained as subadvisor, and also is approved by the vote of
a majority of the outstanding voting securities of the applicable Series of
the Trust to the extent required by the 1940 Act. The Subadvisor shall be
responsible for making reasonable inquiries and for reasonably ensuring
that any employee of the Subadvisor, any subadvisor that the Subadvisor has
employed or with which it has associated with respect to the Series, or any
employee thereof has not, to the best of the Subadvisor's knowledge, in any
material connection with the handling of Trust assets:
(i) been convicted, within the last ten (10) years, of any felony
or misdemeanor arising out of conduct involving embezzlement,
fraudulent conversion or misappropriation of funds or securities,
involving violations of Sections 1341, 1342, or 1343 of Title 18,
United States Code, or involving the purchase or sale of any security;
or
(ii) been found by any state regulatory authority, within the
last ten (10) years, to have violated or to have acknowledged
violation of any provision of any state insurance law involving fraud,
deceit or knowing misrepresentation; or
(iii) been found by any federal or state regulatory authorities,
within the last ten (10) years, to have violated or to have
acknowledged violation of any provision of federal or state securities
laws involving fraud, deceit or knowing misrepresentation.
(i) The Subadvisor is authorized to retain legal counsel and financial
advisors and to negotiate and execute documentation relating to investments
in the Allocated Assets or Series, at the expense of the Allocated Assets
or Series. Such documentation may relate to
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investments to be made or sold, currently held or previously held. The
authority shall include, without limitation: (i) documentation relating to
private placements and bank debt; (ii) waivers, consents, amendments or
other modifications relating to investments; and (iii) purchase agreements,
sales agreements, commitment letters, pricing letters, registration rights
agreements, indemnities and contributions, escrow agreements and other
investment related agreements. Manager represents that the Allocated Assets
or Series can settle such private placements.
3. COMPENSATION. For the services provided and the expenses assumed
pursuant to this Agreement, the Manager shall pay the Subadvisor as full
compensation therefor, a fee equal to the percentage of the Allocated Assets
constituting the respective Series' average daily net assets as described in the
attached Schedule A. Liability for payment of compensation by the Manager to the
Subadvisor under this Agreement is contingent upon the Manager's receipt of
payment from the Trust for management services described under the Management
Agreement between the Trust and the Manager.
4. BROKER-DEALER SELECTION. The Subadvisor is responsible for decisions
to buy and sell securities and other investments for the Series' Allocated
Assets, for broker-dealer selection and for negotiation of brokerage commission
rates. The Subadvisor's primary consideration in effecting a security
transaction will be to obtain the best execution for the Series, taking into
account the factors specified in the Prospectus and/or Statement of Additional
Information for the Trust, which include the following: price (including the
applicable brokerage commission or dollar spread); the size of the order; the
nature of the market for the security; the timing of the transaction; the
reputation, experience and financial stability of the broker-dealer involved;
the quality of the service; the difficulty of execution, and the execution
capabilities and operational facilities of the firm involved; and the firm's
risk in positioning a block of securities. Accordingly, the price to the Series
in any transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified, in the judgment of the
Subadvisor in the exercise of its fiduciary obligations to the Trust, by other
aspects of the portfolio execution services offered. Subject to such policies as
the Board may determine, and consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, and the rules and interpretations of the SEC
thereunder, the Subadvisor shall not be deemed to have acted unlawfully or to
have breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Series to pay a broker-dealer for effecting a portfolio
investment transaction in excess of the amount of commission another broker-
dealer would have charged for effecting that transaction, if the Subadvisor or
its affiliate determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such
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broker-dealer, viewed in terms of either that particular transaction or the
Subadvisor's or its affiliate's overall responsibilities with respect to the
Series and to their other clients as to which they exercise investment
discretion. To the extent consistent with these standards and the Trust's
Procedures for Securities Transactions with Affiliated Brokers pursuant to Rule
17e-1, the Subadvisor is further authorized to allocate the orders placed by it
on behalf of the Series to the Subadvisor if it is registered as a broker-dealer
with the SEC, to its affiliated broker-dealer, or to such brokers and dealers
who also provide research, statistical material or other services to the Series,
the Subadvisor or an affiliate of the Subadvisor. Such allocation shall be in
such amounts and proportions as the Subadvisor shall determine consistent with
the above standards and the Subadvisor will report on said allocation regularly
to the Board, indicating the broker-dealers to which such allocations have been
made and the basis therefor.
5. DISCLOSURE ABOUT SUBADVISOR. The Subadvisor has reviewed the post-
effective amendment to the Registration Statement for the Trust filed with the
SEC that contains disclosure about the Subadvisor and represents and warrants
that, with respect to the disclosure about the Subadvisor or information
relating directly or indirectly to the Subadvisor, such Registration Statement
contains, as of the date hereof, no untrue statement of any material fact and
does not omit any statement of a material fact which was required to be stated
therein or necessary to make the statements contained therein not misleading.
The Subadvisor further represents and warrants that it is a duly registered
investment adviser under the Advisers Act and has notice filed in all states in
which the Subadvisor is required to make such filings.
6. EXPENSES. During the term of this Agreement, the Subadvisor will pay
all expenses incurred by it and its staff and for their activities in connection
with its portfolio management duties under this Agreement. The Manager or the
Trust shall be responsible for all the expenses of the Trust's operations,
including, but not limited to:
(a) the fees and expenses of Trustees who are not interested persons
of the Manager or of the Trust;
(b) the fees and expenses of each Series which relate to: (i) the
custodial function and recordkeeping connected therewith; (ii) the
maintenance of the required accounting records of the Series not being
maintained by the Manager; (iii) the pricing of the Series' shares,
including the cost of any pricing service or services that may be retained
pursuant to the authorization of the Trustees of the Trust; and (iv) for
both mail and wire orders, the cashiering function in connection with the
issuance and redemption of the Series' shares;
(c) the fees and expenses of the Trust's transfer and dividend
disbursing agent, that may be the custodian, which relate to the
maintenance of each shareholder account;
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(d) the charges and expenses of legal counsel (including an allocable
portion of the cost of maintaining internal legal (provided pursuant to a
separate legal services agreement) and compliance department) and
independent accountants for the Trust;
(e) brokers' commissions and any issue or transfer taxes chargeable to
the Trust in connection with its securities transactions on behalf of the
Series;
(f) all taxes and business fees payable by the Trust or the Series to
federal, state or other governmental agencies;
(g) the fees of any trade association of which the Trust may be a
member;
(h) the cost of share certificates representing the Series' shares;
(i) the fees and expenses involved in registering and maintaining
registrations of the Trust and of its Series with the SEC, registering the
Trust as a broker or dealer and qualifying its shares under state
securities laws, including the preparation and printing of the Trust's
registration statements and prospectuses for filing under federal and state
securities laws for such purposes;
(j) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing reports to shareholders in the amount
necessary for distribution to the shareholders;
(k) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Trust's business; and
(l) any expenses assumed by the Series pursuant to a Plan of
Distribution adopted in conformity with Rule 12b-1 under the 1940 Act.
7. COMPLIANCE.
(a) The Subadvisor agrees to assist the Manager and the Trust in complying
with the Trust's obligations under Rule 38a-1 under the 1940 Act, including but
not limited to: (i) periodically providing the Trust's Chief Compliance Officer
with information about and independent third-party reports (if available) in
connection with the Subadvisor's compliance program adopted pursuant to Rule
206(4)-7 under the Advisers Act ("Subadvisor's Compliance Program"); (ii)
reporting any material deficiencies in the Subadvisor's Compliance Program to
the Trust's Chief Compliance Officer within a reasonable time; and (iii)
reporting any material changes to the Subadvisor's Compliance Program to the
Trust's Chief Compliance Officer within a reasonable time. The Subadvisor
understands that the Board is required to approve the Subadvisor's Compliance
Program on at least an annual basis, and acknowledges that
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this Agreement is conditioned upon the Board' approval of the Subadvisor's
Compliance Program.
(b) The Subadvisor agrees that it shall immediately notify the Manager and
the Trust's Chief Compliance Officer: (i) in the event that the SEC has censured
the Subadvisor, placed limitations upon its activities, functions or operations,
suspended or revoked its registration as an investment adviser or commenced
proceedings or an investigation that may result in any of these actions; or (ii)
upon having a reasonable basis for believing that the Series has ceased to
qualify or might not qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code. The Subadvisor further agrees to notify the
Manager immediately of any material fact known to the Subadvisor respecting or
relating to the Subadvisor that is not contained in the Registration Statement
or prospectus for the Trust, or any amendment or supplement thereto, or of any
statement contained therein that becomes untrue in any material respect.
(c) The Manager agrees that it shall immediately notify the Subadvisor: (i)
in the event that the SEC has censured the Manager or the Trust, placed
limitations upon either of their activities, functions or operations, suspended
or revoked the Manager's registration as an investment adviser or commenced
proceedings or an investigation that may result in any of these actions; or (ii)
upon having a reasonable basis for believing that the Series has ceased to
qualify or might not qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code.
8. DOCUMENTS. The Manager has delivered to the Subadvisor copies of each
of the following documents and will deliver to it all future amendments and
supplements, if any:
(a) Declaration of Trust of the Trust, as amended from time to time,
as filed with the Secretary of the Commonwealth of the Commonwealth of
Massachusetts (such Declaration of Trust, as in effect on the date hereof
and as amended from time to time, are herein called the "Declaration of
Trust");
(b) By-Laws of the Trust, as amended from time to time (such By-Laws,
as in effect on the date hereof and as amended from time to time, are
herein called the "By-Laws");
(c) Certified Resolutions of the Trustees of the Trust authorizing the
appointment of the Subadvisor and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-lA, as filed with the SEC relating to the
Series and the Series' shares, and all amendments thereto;
(e) Notification of Registration of the Trust under the 1940 Act on
Form N-8A, as filed with the SEC, and all amendments thereto; and
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(f) Prospectus and Statement of Additional Information of the Series.
9. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Subadvisor hereby agrees that all records that it
maintains for the Series are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's or the
Manager's request; provided, however, that the Subadvisor may, at its own
expense, make and retain a copy of such records. The Subadvisor further agrees
to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-l under the 1940 Act and to
preserve the records required by Rule 204-2 under the Advisers Act for the
period specified in the Rule.
10. COOPERATION. Each party to this Agreement agrees to cooperate with
each other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the SEC) in connection
with any investigation or inquiry relating to this Agreement or the Trust.
11. REPRESENTATIONS RESPECTING SUBADVISOR. The Manager and the Trust agree
that neither the Trust, the Manager, nor affiliated persons of the Trust or the
Manager shall, except with the prior permission of the Subadvisor, give any
information or make any representations or statements in connection with the
sale of shares of the Series concerning the Subadvisor or the Series other than
the information or representations contained in the Registration Statement,
Prospectus or Statement of Additional Information for the Trust shares, as they
may be amended or supplemented from time to time, or in reports or proxy
statements for the Trust, or in sales literature or other promotional material
approved in advance by the Subadvisor. The parties agree that, in the event that
the Manager or an affiliated person of the Manager sends sales literature or
other promotional material to the Subadvisor for its approval and the Subadvisor
has not commented within five (5) business days, the Manager and its affiliated
persons may use and distribute such sales literature or other promotional
material, although, in such event, the Subadvisor shall not be deemed to have
approved of the contents of such sales literature or other promotional material.
12. CONFIDENTIALITY. The Subadvisor will treat as proprietary and
confidential any information obtained in connection with its duties hereunder,
including all records and information pertaining to the Series and its prior,
present or potential shareholders. The Subadvisor will not use such information
for any purpose other than the performance of its responsibilities and duties
hereunder. Such information may not be disclosed except after prior notification
to and approval in writing by the Series or if such disclosure is expressly
required or requested by applicable federal or state regulatory authorities.
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13. CONTROL. Notwithstanding any other provision of the Agreement, it is
understood and agreed that the Manager shall at all times retain the ultimate
responsibility for and control of all functions performed pursuant to this
Agreement, and reserves the right to direct, approve or disapprove any action
hereunder taken on its behalf by the Subadvisor.
14. LIABILITY. Except as may otherwise be required by the 1940 Act or the
rules thereunder or other applicable law, the Trust and the Manager agree that
the Subadvisor, any affiliated person of the Subadvisor, and each person, if
any, who, within the meaning of Section 15 of the 1933 Act controls the
Subadvisor, shall not be liable for, or subject to any damages, expenses or
losses in connection with, any act or omission connected with or arising out of
any services rendered under this Agreement, except by reason of willful
misfeasance, bad faith or gross negligence in the performance of the
Subadvisor's duties, or by reason of reckless disregard of the Subadvisor's
obligations and duties under this Agreement.
Nothing in this section shall be deemed a limitation or waiver of any
obligation or duty that may not by law be limited or waived.
15. INDEMNIFICATION.
(a) The Manager agrees to indemnify and hold harmless the Subadvisor, any
affiliated person of the Subadvisor, and each person, if any, who, within the
meaning of Section 15 of the 1933 Act controls ("controlling person") the
Subadvisor (all of such persons being referred to as "Subadvisor Indemnified
Persons") against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses) to which a Subadvisor Indemnified Person
may become subject under the 1933 Act, the 1940 Act, the Advisers Act, the
Internal Revenue Code, under any other statute, at common law or otherwise,
arising out of the Manager's responsibilities to the Trust, which: (i) may be
based upon any willful misfeasance, bad faith or gross negligence in the
performance of the Manager's duties or reckless disregard of the Manager's
obligations and duties under this Agreement, or by any of its employees or
representatives or any affiliate of or any person acting on behalf of the
Manager, or (ii) may be based upon any untrue statement or alleged untrue
statement of a material fact supplied by, or which is the responsibility of, the
Manager and contained in the Registration Statement or Prospectus covering
shares of the Trust or a Series, or any amendment thereof or any supplement
thereto, or the omission or alleged omission to state therein a material fact
known or which should have been known to the Manager and was required to be
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon information
furnished to the Manager, the Trust or to any affiliated person of the Manager
by a Subadvisor Indemnified Person; provided, however, that in no case shall the
indemnity in
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favor of the Subadvisor Indemnified Person be deemed to protect such person
against any liability to which any such person would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of its reckless disregard of obligations and duties
under this Agreement.
(b) Notwithstanding Section 14 of this Agreement, the Subadvisor agrees to
indemnify and hold harmless the Manager, any affiliated person of the Manager,
and each person, if any, who, within the meaning of Section 15 of the 1933 Act,
controls ("controlling person") the Manager (all of such persons being referred
to as "Manager Indemnified Persons") against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
a Manager Indemnified Person may become subject under the 1933 Act, 1940 Act,
the Advisers Act, the Internal Revenue Code, under any other statute, at common
law or otherwise, arising out of the Subadvisor's responsibilities as Subadvisor
of the Series, which: (i) may be based upon any willful misfeasance, bad faith
or gross negligence in the performance of the Subadvisor's duties, or by reason
of reckless disregard of the Subadvisor's obligations and duties under this
Agreement, or by any of its employees or representatives, or any affiliate of or
any person acting on behalf of the Subadvisor; (ii) may be based upon a failure
to comply with Section 2, Paragraph (a) of this Agreement; or (iii) may be based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or Prospectus covering the shares of the
Trust or a Series, or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact known or which should have
been known to the Subadvisor and was required to be stated therein or necessary
to make the statements therein not misleading, if such a statement or omission
was made in reliance upon information furnished to the Manager, the Trust or any
affiliated person of the Manager or Trust by the Subadvisor or any affiliated
person of the Subadvisor; provided, however, that in no case shall the indemnity
in favor of a Manager Indemnified Person be deemed to protect such person
against any liability to which any such person would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of its reckless disregard of its obligations and
duties under this Agreement.
(c) The Manager shall not be liable under Paragraph (a) of this Section 15
with respect to any claim made against a Subadvisor Indemnified Person unless
such Subadvisor Indemnified Person shall have notified the Manager in writing
within a reasonable time after the summons, notice or other first legal process
or notice giving information of the nature of the claim shall have been served
upon such Subadvisor Indemnified Person (or after such Subadvisor Indemnified
Person shall have received notice of such service on any designated agent), but
failure to notify the Manager of any such claim shall not relieve the Manager
from
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any liability that it may have to the Subadvisor Indemnified Person against whom
such action is brought otherwise than on account of this Section 15. In case any
such action is brought against the Subadvisor Indemnified Person, the Manager
will be entitled to participate, at its own expense, in the defense thereof or,
after notice to the Subadvisor Indemnified Person, to assume the defense
thereof, with counsel satisfactory to the Subadvisor Indemnified Person. If the
Manager assumes the defense of any such action and the selection of counsel by
the Manager to represent both the Manager and the Subadvisor Indemnified Person
would result in a conflict of interest and, therefore, would not, in the
reasonable judgment of the Subadvisor Indemnified Person, adequately represent
the interests of the Subadvisor Indemnified Person, the Manager will, at its own
expense, assume the defense with counsel to the Manager and, also at its own
expense, with separate counsel to the Subadvisor Indemnified Person, which
counsel shall be satisfactory to the Manager and to the Subadvisor Indemnified
Person. The Subadvisor Indemnified Person shall bear the fees and expenses of
any additional counsel retained by it, and the Manager shall not be liable to
the Subadvisor Indemnified Person under this Agreement for any legal or other
expenses subsequently incurred by the Subadvisor Indemnified Person
independently in connection with the defense thereof other than reasonable costs
of investigation. The Manager shall not have the right to compromise on or
settle the litigation without the prior written consent of the Subadvisor
Indemnified Person if the compromise or settlement results, or may result, in a
finding of wrongdoing on the part of the Subadvisor Indemnified Person.
(d) The Subadvisor shall not be liable under Paragraph (b) of this Section
15 with respect to any claim made against a Manager Indemnified Person unless
such Manager Indemnified Person shall have notified the Subadvisor in writing
within a reasonable time after the summons, notice or other first legal process
or notice giving information of the nature of the claim shall have been served
upon such Manager Indemnified Person (or after such Manager Indemnified Person
shall have received notice of such service on any designated agent), but failure
to notify the Subadvisor of any such claim shall not relieve the Subadvisor from
any liability that it may have to the Manager Indemnified Person against whom
such action is brought otherwise than on account of this Section 15. In case any
such action is brought against the Manager Indemnified Person, the Subadvisor
will be entitled to participate, at its own expense, in the defense thereof or,
after notice to the Manager Indemnified Person, to assume the defense thereof,
with counsel satisfactory to the Manager Indemnified Person. If the Subadvisor
assumes the defense of any such action and the selection of counsel by the
Subadvisor to represent both the Subadvisor and the Manager Indemnified Person
would result in a conflict of interest and, therefore, would not, in the
reasonable judgment of the Manager Indemnified Person, adequately represent the
interests of the Manager
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Indemnified Person, the Subadvisor will, at its own expense, assume the defense
with counsel to the Subadvisor and, also at its own expense, with separate
counsel to the Manager Indemnified Person, which counsel shall be satisfactory
to the Subadvisor and to the Manager Indemnified Person. The Manager Indemnified
Person shall bear the fees and expenses of any additional counsel retained by
it, and the Subadvisor shall not be liable to the Manager Indemnified Person
under this Agreement for any legal or other expenses subsequently incurred by
the Manager Indemnified Person independently in connection with the defense
thereof other than reasonable costs of investigation. The Subadvisor shall not
have the right to compromise on or settle the litigation without the prior
written consent of the Manager Indemnified Person if the compromise or
settlement results, or may result, in a finding of wrongdoing on the part of the
Manager Indemnified Person.
15. SERVICES NOT EXCLUSIVE. The services furnished by the Subadvisor
hereunder are not to be deemed exclusive, and except as the Subadvisor may
otherwise agree in writing, the Subadvisor shall be free to furnish similar
services to others so long as its services under this Agreement are not impaired
thereby. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Subadvisor, who may also be a trustee,
officer or employee of the Trust, to engage in any other business or to devote
his or her time and attention in part to the management or other aspects of any
other business, whether of a similar nature or a dissimilar nature.
16. DURATION AND TERMINATION. This Agreement shall become effective on the
date first indicated above. Unless terminated as provided herein, the Agreement
shall remain in full force and effect for an initial period of two (2) years
from the date first indicated above when following a shareholder approval, and
otherwise a period of one (1) year, and continue on an annual basis thereafter
with respect to the Series, provided that such continuance is specifically
approved each year by: (a) the vote of a majority of the entire Board or by the
vote of a majority of the outstanding voting securities (as defined in the 1940
Act) of the Series; and (b) the vote of a majority of those Trustees who are not
parties to this Agreement or interested persons (as such term is defined in the
1940 Act) of any such party to this Agreement cast in person at a meeting called
for the purpose of voting on such approval. Any approval of this Agreement by
the holders of a majority of the outstanding shares (as defined in the 1940 Act)
of a Series shall be effective to continue this Agreement with respect to the
Series notwithstanding: (i) that this Agreement has not been approved by the
holders of a majority of the outstanding shares of any other Series; or (ii)
that this Agreement has not been approved by the vote of a majority of the
outstanding shares of the Trust, unless such approval shall be required by any
other applicable law or otherwise. Notwithstanding the foregoing, this Agreement
may be terminated for each or any Series hereunder: (A) by the Manager at any
time without
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penalty, upon sixty (60) days' written notice to the Subadvisor and the Trust;
(B) at any time without payment of any penalty by the Trust, upon the vote of a
majority of the Trust's Board or a majority of the outstanding voting securities
of each Series, upon sixty (60) days' written notice to the Manager and the
Subadvisor; or (C) by the Subadvisor at any time without penalty, upon sixty
(60) days' written notice to the Manager and the Trust. In the event of
termination for any reason, all records of each Series for which the Agreement
is terminated shall promptly be returned to the Manager or the Trust, free from
any claim or retention of rights in such record by the Subadvisor; provided,
however, that the Subadvisor may, at its own expense, make and retain a copy of
such records. The Agreement shall automatically terminate in the event of its
assignment (as such term is described in the 1940 Act) or in the event the
Management Agreement between the Manager and the Trust is assigned or terminates
for any other reason. In the event this Agreement is terminated or is not
approved in the manner described above, the Sections numbered 2(f), 8, 9, 10,
12, 15, and 18 of this Agreement shall remain in effect, as well as any
applicable provision of this Section 16.
17. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no material amendment of this Agreement shall be
effective until approved by an affirmative vote of: (i) the holders of a
majority of the outstanding voting securities of the Series; and (ii) the
Trustees of the Trust, including a majority of the Trustees of the Trust who are
not interested persons of any party to this Agreement, cast in person at a
meeting called for the purpose of voting on such approval, if such approval is
required by applicable law.
18. USE OF NAME.
(a) It is understood that the name MainStay or any derivative thereof or
logo associated with that name is the valuable property of the Manager and/or
its affiliates, and that the Subadvisor has the right to use such name (or
derivative or logo) only with the approval of the Manager and only so long as
the Manager is Manager to the Trust and/or the Series. Upon termination of the
Management Agreement between the Trust and the Manager, the Subadvisor shall
forthwith cease to use such name (or derivative or logo).
(b) It is understood that the name MacKay Shields LLC or any derivative
thereof or logo associated with that name is the valuable property of the
Subadvisor and its affiliates and that the Trust and/or the Series have the
right to use such name (or derivative or logo) in offering materials of the
Trust or sales materials with respect to the Trust with the approval of the
Subadvisor and for so long as the Subadvisor is a Subadvisor to the Trust and/or
the Series. Upon termination of this
A-14
Agreement, the Trust shall forthwith cease to use such name (or derivative or
logo).
19. PROXIES; CLASS ACTIONS.
(a) The Manager has provided the Subadvisor a copy of the Manager's Proxy
Voting Policy, setting forth the policy that proxies be voted for the exclusive
benefit and in the best interests of the Trust. Absent contrary instructions
received in writing from the Trust, the Subadvisor will vote all proxies
solicited by or with respect to the issuers of securities held by the Series in
accordance with applicable fiduciary obligations. The Subadvisor shall maintain
records concerning how it has voted proxies on behalf of the Trust, and these
records shall be available to the Trust upon request.
(b) Manager acknowledges and agrees that the Subadvisor shall not be
responsible for taking any action or rendering advice with respect to any class
action claim relating to any assets held in the Allocated Assets or Series.
Manager will instruct the applicable service providers not to forward to the
Subadvisor any information concerning such actions. The Subadvisor will,
however, forward to Manager any information it receives regarding any legal
matters involving any asset held in the Allocated Assets or Series.
20. NOTICE. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at NYLIM Center, 169
Lackawanna Avenue, Parsippany, New Jersey 07054, Attention: President; or (2) to
the Subadvisor at MacKay Shields LLC, 9 West 57th Street, 33rd Floor, New York,
New York 10019, Attention: President.
21. MISCELLANEOUS.
(a) This Agreement shall be governed by the laws of the State of New York,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. The
term "affiliate" or "affiliated person" as used in this Agreement shall mean
"affiliated person" as defined in Section 2(a)(3) of the 1940 Act;
(b) The captions of this Agreement are included for convenience only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect;
(c) To the extent permitted under Section 16 of this Agreement, this
Agreement may only be assigned by any party with the prior written consent of
the other parties;
A-15
(d) If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby, and to this extent, the provisions of this
Agreement shall be deemed to be severable;
(e) Nothing herein shall be construed as constituting the Subadvisor as an
agent of the Manager, or constituting the Manager as an agent of the Subadvisor.
* * *
A-16
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the [21(st)] day of [January,
2009]. This Agreement may be signed in counterparts.
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
<Table>
Attest: ----------------------- By: ---------------------------
Name: Jeffrey A. Engelsman Name: Barry A. Schub
Title: Executive Vice
Title: Director President
</Table>
MACKAY SHIELDS LLC
<Table>
Attest: ----------------------- By: ---------------------------
Name: Name:
Title: Title:
</Table>
A-17
SCHEDULE A
(AS OF [JANUARY 21, 2009])
As compensation for services provided by Subadvisor the Manager will pay
the Subadvisor and Subadvisor agrees to accept as full compensation for all
services rendered hereunder, at an annual subadvisory fee equal to the
following:
<Table>
<Caption>
FUND ANNUAL RATE
- ---- -----------
Effective from Date of
Approval of Proposed Merger
Small Cap Opportunity Fund.... 0.500% on assets up to $1
billion; and
0.475% on assets over $1
billion*
Effective upon Completion of
Merger of Small Cap Value
Fund into Small Cap
Opportunity Fund**
Small Company Value Fund...... 0.425% up to $1 billion; and
0.400% in excess of $1
billion*
</Table>
The portion of the fee based upon the average daily net assets of the
respective Fund shall be accrued daily at the rate of 1/(number of days in
calendar year) of the annual rate applied to the daily net assets of the Fund.
Payment will be made to the Subadvisor on a monthly basis.
- ----------
* For certain Funds listed above, NYLIM has agreed to waive a portion of
each Fund's management fee or reimburse the expenses of the appropriate class of
the Fund so that the class' total ordinary operating expenses do not exceed
certain amounts. These waivers or expense limitations may be changed with Board
approval. To the extent NYLIM has agreed to waive its management fee or
reimburse expenses, MacKay Shields LLC, as Subadvisor for these Funds, has
voluntarily agreed to waive or reimburse its fee proportionately.
** Although NYLIM expects the Small Cap Value Fund Merger to be approved by
shareholders, there can be no assurance that the merger will take place. If it
does not take place, the subadvisory fee will remain as set forth above.
A-18
EXHIBIT B
ADDITIONAL INFORMATION ABOUT
MACKAY SHIELDS LLC
The names and titles of the principal executive officer(s) of MacKay
Shields LLC are shown below. Their principal address is 9 West 57(th) Street,
New York, New York 10019.
<Table>
<Caption>
NAME POSITION(S) WITH MACKAY OTHER BUSINESS
- ----------------------- ----------------------- -----------------------
Osbert M. Hood Chairman and Chief Mr. Hood joined MacKay
Executive Officer, Shields in January 2007
Chairman of the Board as President. He became
Chief Executive Officer
in July 2007 and
Chairman in January
2008. He was most
recently CEO of Pioneer
Investment Management
USA Inc., where he was
previously its chief
executive officer after
joining Pioneer in
2000.
Lucille Protas Chief Operating None
Officer, Treasurer and
Senior Managing
Director
Rupal J. Bhansali Senior Managing None
Director; Head of
International Equity
Team
Gary L. Goodenough Senior Managing None
Director; Head of the
Fixed Income Team
Ellen Metzger Senior Managing None
Director and General
Counsel
J. Matthew Philo Senior Managing None
Director; Head of the
High Yield Team
John Prom Senior Managing None
Director; Head of
Subadvisory and
International Business
Development
Dan C. Roberts Senior Managing None
Director; Head of the
High Yield Active Core
Team
Richard Rosen Senior Managing None
Director; Head of the
Value Equity Team
Edmund C. Spelman Senior Managing None
Director; Head of the
Growth Equity Team
Timothy West Senior Managing None
Director; Head of
Institutional Business
Development
Rene Bustamante Managing Director and None
Chief Compliance
Officer
Edward Silverstein Managing Director None
</Table>
B-1
EXHIBIT C
SHARE OWNERSHIP OF SHAREHOLDERS
MAINSTAY SMALL CAP OPPORTUNITY FUND
As of the Record Date, the shareholders with respect to the Fund were known
by the Fund to own or beneficially own 5% or more of the outstanding interest of
each class of the Fund's shares are described below:
<Table>
<Caption>
NAME AND ADDRESS OF AMOUNT OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- -------------- ------------------- -------------------- --------
INVESTOR CLASS........... [ ] [ ] [ ]
CLASS A.................. [ ] [ ] [ ]
CLASS B.................. [ ] [ ] [ ]
CLASS C.................. [ ] [ ] [ ]
CLASS I.................. [ ] [ ] [ ]
</Table>
C-1