SENECA FUNDS, N-1A EL, 1995-12-19

SENECA FUNDS
N-1A EL, 1995-12-19

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<PAGE>

File No. 33-
File No. 811-

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1995.

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A
_____
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

_____
Pre-Effective Amendment No. ____ / /

_____
Post-Effective Amendment No. ____ / /

and/or

_____
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/

_____
Amendment No. ____ / /

(Check appropriate box or boxes)

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

909 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94133
(Address of Principal Executive Office) Zip Code

(415) 677-1500
(Registrant's Telephone Number, Including Area Code)

<PAGE>

DELAWARE CORPORATION ORGANIZERS, INC.

1201 NORTH MARKET STREET
WILMINGTON, DELAWARE 19801

(Name and Address of Agent for Service)

Copy to:
MARK D. WHATLEY, ESQ.
HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN
A PROFESSIONAL CORPORATION
THREE EMBARCADERO CENTER
SAN FRANCISCO, CA 94111
(415) 434-1600

Approximate Date of Proposed Public Offering: As soon as practicable after
the effectiveness of the registration under the Securities Act of 1933.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to Section 8(a), may determine.

Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended,
Registrant hereby elects to register an indefinite number of shares of
Registrant and any series thereof.

<PAGE>

SENECA FUNDS
ADMINISTRATIVE SHARES

SENECA GROWTH FUND
SENECA MID-CAP GROWTH FUND
SENECA BOND FUND
SENECA REAL ESTATE INVESTMENT FUND

Cross-Reference Sheet Showing Location in Prospectus
and Statement of Additional Information of
Information Required by Items of the Registration Form

N-1A Item No. and Caption Location:
<S> <C>

Part A Prospectus

1. Cover Page............................................ Cover Page

2. Synopsis.............................................. Fund Expenses

3. Condensed Financial Information....................... Not Applicable

4. General Description of Registrant..................... The Seneca Funds At A Glance;
Management; Investment Practices
and Risk Considerations; The
Seneca Funds in Detail;
General Information

5. Management of the Fund................................ Fund Expenses; Management;
Investment Manager
and Administrator;
General Information

5A. Management's Discussion of Fund Performance........... Not Applicable

6. Capital Stock and Other Securities.................... Dividends and Capital Gains;
General Information

7. Purchase of Securities Being Offered.................. Purchase of Shares

<PAGE>

8. Redemption or Repurchase............................... Redemption of Shares

9. Pending Legal Proceedings.............................. Not Applicable

Statement of
Part B Additional Information

10. Cover Page............................................. Cover Page

11. Table of Contents...................................... Table of Contents

12. General Information and History........................ Not Applicable

13. Investment Objectives and Policies..................... General Investment
Objectives and
Policies; Investment
Restrictions; Portfolio
Turnover

14. Management of the Fund................................. Trustees and Officers; Organization

15. Control Persons and Principal Holders of Securities.... Trustees and Officers

16. Investment Advisory and Other Services................. Advisory and Administrative Services

17. Brokerage Allocation and Other Practices............... Portfolio Brokerage; Portfolio Turnover

18. Capital Stock and Other Securities..................... Organization

19. Purchase, Redemption and Pricing of
Securities Being Offered............................... Net Asset Value

20. Tax Status............................................. Dividends, Distributions and Tax Status

21. Underwriters........................................... Advisory and Administrative Services

22. Calculation of Performance Data........................ Calculation of the Funds' Return

<PAGE>

23. Financial Statements................................... Not Applicable
</TABLE>

<PAGE>

SENECA FUNDS
INSTITUTIONAL SHARES

SENECA GROWTH FUND
SENECA MID-CAP GROWTH FUND
SENECA BOND FUND
SENECA REAL ESTATE INVESTMENT FUND

Cross-Reference Sheet Showing Location in Prospectus
and Statement of Additional Information of
Information Required by Items of the Registration Form

N-1A Item No. and Caption Location:
<S> <C>

Part A Prospectus

1. Cover Page.............................................. Cover Page

2. Synopsis................................................ Fund Expenses

3. Condensed Financial Information......................... Not Applicable

4. General Description of Registrant....................... The Seneca Funds At A Glance;
Management; Investment Practices
and Risk Considerations; The
Seneca Funds in Detail;
General Information

5. Management of the Fund.................................. Fund Expenses; Management;
Investment Manager
and Administrator;
General Information

5A. Management's Discussion of Fund Performance............. Not Applicable

6. Capital Stock and Other Securities...................... Dividends and Capital Gains;
General Information

7. Purchase of Securities Being Offered.................... Purchase of Shares

<PAGE>

8. Redemption or Repurchase................................ Redemption of Shares

9. Pending Legal Proceedings............................... Not Applicable

Part B Statement of
Additional Information

10. Cover Page.............................................. Cover Page

11. Table of Contents....................................... Table of Contents

12. General Information and History......................... Not Applicable

13. Investment Objectives and Policies...................... General Investment
Objectives and
Policies; Investment
Restrictions; Portfolio
Turnover

14. Management of the Fund.................................. Trustees and Officers; Organization

15. Control Persons and Principal Holders of Securities..... Trustees and Officers

16. Investment Advisory and Other Services.................. Advisory and Administrative Services

17. Brokerage Allocation and Other Practices................ Portfolio Brokerage; Portfolio Turnover

18. Capital Stock and Other Securities...................... Organization

19. Purchase, Redemption and Pricing of
Securities Being Offered................................ Net Asset Value

20. Tax Status.............................................. Dividends, Distributions and Tax Status

21. Underwriters............................................ Advisory and Administrative Services

<PAGE>

22. Calculation of Performance Data......................... Calculation of the Funds' Return

23. Financial Statements.................................... Not Applicable
</TABLE>

<PAGE>

SUBJECT TO COMPLETION, DATED DECEMBER 18, 1995

SENECA FUNDS
ADMINISTRATIVE SHARES

PROSPECTUS: FEBRUARY , 1996

- ------------------------------------------------------------------------------
SENECA GROWTH FUND seeks capital appreciation primarily through investments
in equity securities of companies that, in the Investment Manager's opinion,
have the potential for above average market appreciation. Production of
income will be incidental to this objective. The Fund will seek a rate of
appreciation higher than the Standard & Poor's Index of 500 Stocks.

SENECA MID-CAP GROWTH FUND seeks capital appreciation primarily through
investments in equity securities of companies that, in the Investment
Manager's opinion, have the potential for above average market appreciation,
primarily companies with market capitalizations between $500 million and $5
billion. Production of income will be incidental to this objective. The
Fund will seek a rate of appreciation higher than the Standard & Poor's
Mid-Cap 400 Index.

SENECA BOND FUND seeks both current income and capital appreciation primarily
by investing in a diversified portfolio of corporate bonds and other debt
securities. The Fund will seek a total return higher than that of the Lehman
Brothers Government/Corporate Index.

SENECA REAL ESTATE SECURITIES FUND seeks a high total return through both
long-term capital appreciation and current income from investments related to
United States real estate. The Fund will invest primarily in securities of
issuers that are engaged principally in or whose businesses relate to
ownership and operation of real estate in the United States.

THERE CAN BE NO ASSURANCE THAT ANY OF THE FUNDS WILL ACHIEVE ITS INVESTMENT
OBJECTIVES OR SUCCEED IN OUTPERFORMING THE INDICES DESCRIBED ABOVE. FOR
INFORMATION ABOUT SOME OF THE PRINCIPAL RISKS INVOLVED IN INVESTMENTS IN THE
FUNDS, SEE "INVESTMENT PRACTICES AND RISKS."

This Prospectus is intended to set forth concisely the information an
investor should know before investing in any of the Funds. Please read it
carefully and save it for future reference. A Statement of Additional
Information dated February , 1996 (the "SAI") has been filed with the
Securities and Exchange Commission. The SAI, as amended or supplemented from
time to time, is incorporated into this Prospectus by this reference and is a
part of this Prospectus. It is available free of charge by writing to
Genesis Merchant Group Securities, L.P. (the "Distributor") or by calling
1-800-XXX-YYYY.

Each Fund is separately managed by GMG/Seneca Capital Management, L.P., and
has its own levels of expenses and charges. The minimum investment is
$10,000 per Fund, or less in some instances. See "Minimum Investment
Amounts."

FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY,
ANY BANK OR OTHER FINANCIAL INSTITUTION, AND THEY ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY OF THE UNITED
STATES GOVERNMENT OR ANY OTHER GOVERNMENTAL SUBDIVISION.

<PAGE>

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION

<PAGE>

PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
THE SENECA FUNDS AT A GLANCE 4

FUND EXPENSES 5

INVESTMENT MANAGER'S PERFORMANCE 7

MANAGEMENT 10

THE SENECA FUNDS IN DETAIL 10

SENECA GROWTH FUND and SENECA MID-CAP GROWTH FUND 11

SENECA BOND FUND 12

SENECA REAL ESTATE SECURITIES FUND 13

INVESTMENT PRACTICES AND RISK CONSIDERATIONS 14

PURCHASE OF SERVICES 19

REDEMPTION OF SHARES 21

PORTFOLIO TRANSACTIONS 22

NET ASSET VALUE 24

DIVIDENDS AND CAPITAL GAINS 24

INCOME TAX CONSIDERATIONS 25

INVESTMENT MANAGER AND ADMINISTRATOR 26

GENERAL INFORMATION 27
</TABLE>

<PAGE>

THE SENECA FUNDS AT A GLANCE

SENECA FUNDS (the "Trust") is an open-end management investment company,
consisting of the four separate investment portfolios described below (the
"Funds"). Each Fund is managed separately and has its own investment
objective, strategies and policies designed to meet different goals. The
following summary is qualified in its entirety by the more detailed
information that appears elsewhere in this Prospectus. A more detailed
description for each Fund may be found under the heading "The Seneca Funds in
Detail."

The Seneca Growth Fund seeks capital appreciation. Production of income will
be incidental to this objective. This Fund will invest primarily in common
stocks of companies that, in the Investment Manager's opinion, have the
potential for above average market appreciation. The Fund may invest in
companies at all levels of market capitalization. For a portion of its
portfolio, the Fund will favor large, well-known companies that have
established histories of continuous dividend payment and, for another portion
its portfolio, will generally invest in smaller firms that the Investment
Manager believes have the potential for faster growth. The Fund will seek a
rate of appreciation higher than the Standard & Poor's Index of 500 Stocks
(the "S&P 500").

The Seneca Mid-Cap Growth Fund seeks capital appreciation. Production of
income will be incidental to this objective. This Fund will invest primarily
in common stocks of companies, that in the Investment Manager's opinion, have
the potential for above average market appreciation, focussing on companies
with market capitalizations between $500 million and $5 billion. The Fund
will attempt to provide a rate of appreciation higher than the Standard &
Poor's Mid-Cap Index (the "S&P Mid-Cap 400 Index").

The Seneca Bond Fund seeks both current income and capital appreciation.
This Fund will invest in a diversified portfolio of corporate bonds and other
debt securities, attempting to outperform the Lehman Brothers
Government/Corporate Index. The Fund will normally maintain a
dollar-weighted average maturity of between two and ten years and a
dollar-weighted average duration of between two and eight years.

The Seneca Real Estate Securities Fund seeks a high total return through both
long-term capital appreciation and current income. This Fund will be
non-diversified and will invest primarily in securities of issuers operating
principally in the U.S. real estate industry or whose businesses relate to
ownership and operation of real estate in the United States, including equity
real estate investment trusts ("REITs"), mortgage REITs, real estate brokers
and developers, companies that manage or own real estate, manufacturers and
distributors of building supplies, and financial institutions that originate
or service mortgage loans.

There can be no assurance that the Funds will achieve their objectives or
succeed in outperforming the indices described above. Investors should read
this Prospectus carefully, particularly "Investment Practices and Risk
Considerations," for information about certain risks relevant to an
investment in the Funds. In particular, investors should note that the value
of all securities and other investments a Fund may hold and, as a result, the
Fund's net asset value per share, will vary from time to time in response to
a variety of factors. The value of securities may fluctuate in response to
the activities of individual companies as well as general market and economic
conditions. The values of small-to-medium-capitalization equity securities
may be particularly susceptible to fluctuation as a result of factors
unrelated to the issuers' underlying businesses. The value of debt
securities can be expected to vary inversely with changes in prevailing
interest rates. The net asset value per share of any Fund may be less at the
time of redemption than it was at the time of purchase.

<PAGE>

FUND EXPENSES

Each Fund will bear the costs of its operations. These costs may include
fees for investment management, distribution, independent directors,
brokerage services, security pricing services, custody, transfer agency,
recordkeeping services, insurance, federal and state registration, legal and
accounting services, amortized expenses, taxes, and any extraordinary
expenses.

Each Fund offers two classes of shares: Institutional Shares and
Administrative Shares. Administrative Shares are offered primarily to
employee benefit plans and to other investors purchasing through accounts
maintained with broker-dealers and other financial service companies. The
minimum investment for Administrative Shares is $10,000. Institutional
Shares are offered directly by the Distributor to institutional investors
such as pension and profit sharing plans, employee benefit trusts,
endowments, foundations, and corporations. The minimum investment for
Institutional Shares is $100,000. This Prospectus describes only
Administrative Shares. To receive a free prospectus describing the
Institutional Shares, call 1-800-XXX-YYYY or write to the Distributor.

Each class of shares will be charged separately for expenses related solely
to that class. Each class may have different sales charges and other
expenses, which may affect performance. Fund expenses that are not related
to the distribution of shares of a particular class or to services provided
specifically to a particular class will be allocated between the classes
based on the net assets of each class.

The following table describes shareholder transaction-related expenses and
anticipated annual expenses (excluding portfolio brokerage expenses) as to
Administrative Shares.

=================================================================================================================
SHAREHOLDER TRANSACTION EXPENSES

SENECA REAL
ESTATE
SENECA MID-CAP CORPORATE SECURITIES
SENECA GROWTH GROWTH BOND FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Load on Purchases None None None None
- -----------------------------------------------------------------------------------------------------------------
Sales Load on Reinvested Dividends None None None None
- -----------------------------------------------------------------------------------------------------------------
Deferred Sales Load None None None None
- -----------------------------------------------------------------------------------------------------------------
Early Withdrawal Fee(1) 1.00% 1.00% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------
Exchange Fee None None None None
- -----------------------------------------------------------------------------------------------------------------
Annual Fund Expenses Percentage of Average Net Assets(after expense reimbursement and
fee waiver arrangements)(2)

</TABLE>

- -----------------------
(1)Applies only to redemptions (including by exchange) of shares held
less than 90 days. The fee is paid to the Fund and is intended to protect
long-term investors from the cost of frequent investments and redemptions
by short-term investors. See "Redemption of Shares."

<PAGE>

- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.70% 0.80% 0.50% 0.85%
- -----------------------------------------------------------------------------------------------------------------
12b-1 Fees(3) 0.25% 0.25% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------
Other Expenses(4) 0.55% 0.55% 0.55% 0.60%
- -----------------------------------------------------------------------------------------------------------------
Total Expenses 1.50% 1.60% 1.30% 1.70%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

The Annual Fund Expenses table summarizes estimates of operating expenses
relating to Administrative Shares. The purpose of both of these tables is to
assist investors in understanding the varying costs and expenses they will
bear directly or indirectly. Without any fee waiver or expense reimbursement
by the Investment Manager or the Administrator, the estimated total operating
expenses for Administrative Shares during the first year of the Funds'
operation, are ___%, ___%, ___% and ___%, respectively.

EXAMPLE

Using the above tables of transaction expenses and operating expenses, an
investor would pay the following expenses based on a $1,000 investment and an
assumed 5% annual return. The expenses are the same whether or not the
investor redeems the shares at the end of each time period.

(...continued)

(2)The Investment Manager has agreed to waive some or all
of its Management Fee and to assume other operating expenses of each Fund
other than certain extraordinary or nonrecurring expenses, until the earlier
of September 30, 1996 or such time as the Fund's assets exceed $50 million to
the extent necessary to prevent the Total Expenses of the Administrative
Shares of each Fund from exceeding the levels set forth in the table. The
Investment Manager may, from time to time, assume additional expenses. Fee
waivers and expense reimbursement or assumption arrangements will increase a
Fund's return.

(3)Consists of distribution fees payable to the Distributor to cover,
among other things, costs of advertising and marketing the Administrative
Shares. See "General Information--Distribution and Administrative Services
Plan." These fees may result in long-term shareholders paying more than the
economic equivalent of the maximum front-end sales charge permitted under the
rules of the National Association of Securities Dealers, Inc.

(4)Includes Administrative Fee and 0.10% PER ANNUM other expenses not
covered by the Management Fees, the 12b-1 Fees and the Administrative Fees.
Also includes other fees the Funds may pay to employee benefit plan
administrators, broker-dealers, and other financial services companies for
sub-accounting, account maintenance and other, related services. Those fees,
the Administrative Fee, and some other expenses can differ between classes
depending on the particular services provided to the different classes.
Examples of fees and expenses that may vary between classes include transfer
agency fees, state and federal securities registration fees, legal and
accounting fees, directors' fees and expenses incurred as a result of issues
relating solely to a class, and fees and payments for specific class services
including account maintenance or subaccounting expenses.

<PAGE>

==============================================================================
1 YEAR 3 YEARS
- ------------------------------------------------------------------------------
<S> <C> <C>
Seneca Growth Fund $15 $48
- ------------------------------------------------------------------------------
Seneca Mid-Cap Growth Fund $16 $51
- ------------------------------------------------------------------------------
Seneca Bond Fund $13 $41
- ------------------------------------------------------------------------------
Seneca Real Estate Securities Fund $17 $53
- ------------------------------------------------------------------------------
</TABLE>

THE INFORMATION IN THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS
THAN THOSE SHOWN. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, EACH FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN A
RETURN GREATER OR LESS THAN 5%.

INVESTMENT MANAGER'S PERFORMANCE

Because the Funds did not begin in operating before February 1996, no past
performance information is available for the Funds. However, the Investment
Manager, GMG/Seneca Capital Management, L.P., has been managing investment
accounts for a variety of institutional and individual investment advisory
clients for over six years. The Funds have substantially the same investment
objectives and policies and use the same investment strategies and techniques
as certain of those accounts. The performance of these accounts is
illustrated in the tables and graphs that follow.

There can be no assurance that the Fund's performance will be the same as
that of the individual accounts. The Funds may have total assets that will
be more or less than the total assets in the individual accounts. The
Investment Manager believes that asset size is not a significant factor in
the Funds' ability to achieve their investment objectives.

For comparison purposes, the individually-managed account composites match up
to the Funds as follows:

SENECA GROWTH FUND Core Growth Equity Account Composite

SENECA MID-CAP GROWTH FUND Mid-Cap Growth Equity Account
Composite

SENECA BOND FUND Fixed-Income Account Composite

SENECA REAL ESTATE SECURITIES FUND Real Estate Securities Account

<PAGE>

COMPOSITE

The following table shows how the individually-managed account composites'
annualized performance compares to recognized industry indices over the last
one-year, three-year, and five-year periods or, where shorter, since the
relevant composite's inception.

Nine
Months
Ended
Calendar Calendar Calendar Calendar Calendar Sept. 30,
Year 1990 Year 1991 Year 1992 Year 1993 Year 1994 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Core Growth Equity Account Composite 8.43% 38.69% 7.74% 10.82% 1.49% 23.21%
S&P 500 Index -3.20% 30.45% 7.62% 10.05% 1.32% 29.77%
- ----------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Equity Account Composite --(6) -- -- -- 11.00% 27.74%
S&P Mid-Cap 400 Index -- -- -- -- -3.58% 29.09%
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed-Income Account Composite 9.06% 18.16% 9.07% 15.61% -2.71% 14.33%
Lehman Brothers Government/Corporate Index 8.28% 16.13% 7.58% 11.03% -3.51% 13.78%
- ----------------------------------------------------------------------------------------------------------------------------------
GMG/Seneca Real Estate Securities Account Composite(7) -- -- -- -- -- 10.66%
National Associate of Real Estate Investment Trust -- -- -- -- -- -- %
Equity Index
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Following are graphs showing the performance of the four individually-managed
account composites from their respective inception dates compared with the
performance of recognized industry indices for the same periods. Rates of
return are calculated using a time-weighted total rate of return with the
periods linked to create the long-term rates of return. Account values were
calculated and cash flows permitted quarterly. This method was used for each
of the individually-managed account composites.

CORE GROWTH EQUITY ACCOUNT COMPOSITE

The following graph shows that $10,000 invested in an individually-managed
account that achieved the performance of the Core Growth Equity account
composite when the Investment Manager first began managing those accounts on
January 1, 1990, would have grown to about $22,453 as of September 30, 1995.
This is equivalent to a 15.10% return per year. By comparison, $10,000
invested at the same time in a portfolio of the securities comprising the S&P
500 Index (weighted as in that index) would have grown to about $19,662 for a
rate of return of 12.51% per year. The S&P 500 Index is a selection of 500
common stocks, is unmanaged, and is regarded by some as a benchmark for the
equity market in general.

- -----------------------
(1)Periods with "--" are before GMG/Seneca began managing the accounts in
this composite.

(2)Inception of management of accounts in this composite was May 1, 1995.
The percentage return is not annualized.

<PAGE>

[CORE GROWTH EQUITY ACCOUNT COMPOSITE GRAPH APPEARS HERE]

MID-CAP GROWTH EQUITY ACCOUNT COMPOSITE

The following graph shows that $10,000 invested in an individually-managed
account that achieved the performance of the Mid-Cap Growth Equity account
composite when the Investment Manager first began managing those accounts on
January 1, 1994 would have grown to about $14,179 as of September 30, 1995.
This is equivalent to a 22.23% return per year. By comparison, $10,000
invested at the same time in a portfolio of the securities comprising the S&P
Mid-Cap 400 Index (weighted as in that index) would have grown to about
$12,447 for a rate of return of 13.47% per year. The S&P Mid-Cap 400 Index
is a capitalization-weighted, unmanaged index of common stocks, which has a
market capitalizations of approximately $700 million.

[MID-CAP GROWTH EQUITY ACCOUNT COMPOSITE GRAPH APPEARS HERE]

FIXED-INCOME ACCOUNT COMPOSITE

The following graph shows that $10,000 invested in an individually-managed
account that achieved the performance of the Fixed-Income Account Composite
when the Investment Manager first began managing those accounts on January 1,
1990 would have grown to about $18,075 as of September 30, 1995. This is
equivalent to a 10.86% return per year. By comparison, $10,000 invested at
the same time in a portfolio of the securities comprising the Lehman Brothers
Government/Corporate Index (weighted as in that index) would have grown to
about $16,490 for a rate of return of 9.11% per year. The Lehman Brothers
Government/Corporate Index is an unmanaged index consisting of a mixture of
both corporate and government bonds that are rated within the "investment
grade" categories by Moody's Investor Services, Standard & Poor's Company or
Fitch Investors Service.

[FIXED-INCOME ACCOUNT COMPOSITE GRAPH APPEARS HERE]

REAL ESTATE SECURITIES ACCOUNT COMPOSITE

The following graph shows that $10,000 invested in an individually-managed
account that achieved the performance of the Real Estate Investment Account
Composite when the Investment Manager first began managing those accounts on
May 1, 1995 would have grown to about $______ as of September 30, 1995. This
is equivalent to a ____% return per year. By comparison, $10,000 invested at
the same time in a portfolio of the securities comprising the NAREIT Equity
Index (weighted as in that index) would have grown to about $[________] for a
rate of return of ___% per year. The NAREIT Equity Index is a
capitalization-weighted, unmanaged index consisting of common stocks of all
tax-qualified REITs listed on the New York Stock Exchange, the American Stock
Exchange, or NASDAQ.

[REAL ESTATE SECURITIES ACCOUNT COMPOSITE GRAPH APPEARS HERE]

The composite performance of individually-managed accounts is shown after
reduction for investment management fees. For the Core Growth Equity Account
Composite and the Mid-Cap Growth Equity Account Composite, those fees were
assumed to be 1% PER ANNUM, for the Fixed-Income Account Composite, those
fees were assumed to be 0.50% PER ANNUM, and for the Real Estate Securities
Account Composite, those fees were ___% PER ANNUM, in each case applied to
the value of the accounts at the end of each quarter. These fees represent
GMG/Seneca's standard fees for accounts of these types, although some of the
accounts may have paid lower fees. The industry indices are shown in the
graphs for comparison purposes only. They are

<PAGE>

unmanaged indices that pay no management fees and reflect no expenses. An
individual cannot invest in an index.

THE FUNDS' PERFORMANCE MAY DIFFER FROM THE COMPOSITE PERFORMANCE OF
INDIVIDUALLY-MANAGED ACCOUNTS DUE TO DIFFERENCES IN, AMONG OTHER THINGS,
AVAILABILITY OF CASH FOR NEW INVESTMENTS, TIMING OF PURCHASES AND SALES,
OVERALL EXPENSES, BROKERAGE COMMISSIONS, AND DIVERSIFICATION OF SECURITIES.
IT IS POSSIBLE THAT BY USING DIFFERENT METHODS TO CALCULATE PERFORMANCE, THE
RESULTS COULD DIFFER FROM THOSE GIVEN ABOVE. INVESTORS SHOULD NOT RELY ON
THIS PERFORMANCE DATA WHEN DECIDING WHETHER TO INVEST IN A PARTICULAR SENECA
FUND. PERFORMANCE FIGURES ARE BASED ON HISTORICAL EARNINGS. PAST
PERFORMANCE OF THE INDIVIDUALLY-MANAGED ACCOUNTS AND INDICES IS NO GUARANTEE
OF FUTURE RESULTS FOR THE FUNDS.

MANAGEMENT

Overall responsibility for the management and supervision of the Trust and
the Funds rests with the Trustees of Seneca Funds (the "Trustees"). The
Investment Manager and the Administrator are subject to the direction of the
Trustees.

The Funds' Investment Manager is GMG/Seneca Capital Management, L.P. (the
"Investment Manager"), 909 Montgomery Street, San Francisco, California
94133. The Investment Manager's duties include: (1) supervising and
managing the investments of each Fund and directing the purchase and sale of
its investments; and (2) ensuring that investments follow the investment
objective, strategies, and policies and comply with government regulations.

The Investment Manger is a limited partnership whose general partners are
Gail P. Seneca and Genesis Merchant Group, L.P. The general partners of the
Genesis Merchant Group, L.P. are also the principals in the general partner
of the Distributor. The Trust has entered into a Distribution and Services
Agreement with Seneca Distributors, Inc., a corporation wholly-owned by the
Investment Manager ("Seneca Distributors"), pursuant to which, upon becoming
fully-registered as a broker-dealer under the Securities Exchange Act of 1934
and other applicable laws, Seneca Distributors will become a principal
underwriter of the Funds' shares. It is expected that the Distributor will
then terminate its agreement with the Trust and Seneca Distributors will
become the sole distributor. Ms. Seneca is the principal portfolio manager
for each of the Funds.

The Funds' Administrator is State Street Bank and Trust Company (the
"Administrator"), 1776 Heritage Drive, North Quincy, Massachusetts 01701.
The Administrator's duties include, but are not limited to: (1) providing
the Funds with administrative and clerical services, and overseeing the
maintenance of the Funds' books and records by the Fund's custodian; (2)
preparing the Funds' income tax returns; (3) registering the Fund shares with
those states and other jurisdictions where its shares are offered or sold and
arranging periodic updating of the Funds' prospectus; (4) initial preparation
and filing of proxy materials and reports to Fund shareholders and the
Securities and Exchange Commission ("SEC"); and (5) providing the Funds with
adequate office space and all necessary office equipment to perform the
foregoing services.

For more information about the Investment Manager, the Administrator, their
functions, and their affiliates, see "Investment Manager and Administrator."

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THE SENECA FUNDS IN DETAIL

Fund Objectives, Strategies and Policies. The investment objectives,
strategies, and policies of each Fund are described below. There can be no
assurance that these objectives will be met. The "Investment Practices and
Risk Considerations" section describes in greater detail some specific risks
of the types of securities in which the Funds invest and practices in which
the Funds may engage.

FUNDAMENTAL POLICIES. An investment policy that a Fund has adopted as
"fundamental" may be changed only with the approval of a majority of
shareholders. Most of the strategies and policies described below and
described in the SAI are NOT fundamental. This means strategies and policies
can be changed by the Trustees without shareholder approval.

SENECA GROWTH FUND and SENECA MID-CAP GROWTH FUND

INVESTMENT OBJECTIVE: Capital appreciation; production of income will be
incidental. The Seneca Growth Fund seeks appreciation greater than that of
the S&P 500 Index and the Seneca Mid-Cap Growth Fund seeks appreciation
greater than that of the S&P Mid-Cap 400 Index.

INVESTMENT STRATEGIES AND POLICIES. Each of these Funds will invest primarily
in common stocks of growth companies that meet certain fundamental standards
and that the Investment Manager believes have the potential for above average
market appreciation. These Funds will generally invest at least 65% of their
assets in common stocks. The Seneca Growth Fund will have no limitations as
to the market capitalizations of companies in which it invests, but will
generally focus a portion of its portfolio on large, well-known companies,
many with market capitalizations in excess of $5 billion, that have an
established history of profitability and/or dividend payment. The Seneca
Mid-Cap Growth Fund will invest primarily in companies with market
capitalizations between $500 million and $5 billion, although it may at times
have significant investments in companies with higher or lower market
capitalizations. At times, both Funds may invest in some of the same
securities. Prices of securities issued by medium-capitalization companies
are often more volatile than those of large, well-established companies, in
part because of the relatively fewer shares available and the potential for
developments in a smaller company's business to have a relatively greater
impact on its earnings and revenues than developments in the business of
larger companies. In addition, the risk of insolvency (with attendant losses
to shareholders) is greater for smaller companies than for larger companies.
As a result, because of its investment focus on companies with
medium-capitalizations, the Seneca Mid-Cap Growth Fund's performance can be
expected to be more volatile than that of the Seneca Growth Fund.

In evaluating companies' potential for market appreciation, the Investment
Manager seeks companies it believes will demonstrate greater long-term
earnings growth than the average company included in, for the Seneca Growth
Fund, the S&P 500 or, for the Seneca Mid-Cap Growth Fund, the S&P Mid-Cap 400
Index. This approach is based on the belief that growth in a company's
earnings will correlate with growth in the price of its stock. The
Investment Manager will identify strong market sectors and then identify
companies within those sectors that have the most attractive earnings
prospects.

These Funds may also invest in preferred stocks, warrants, and debt
instruments, including bonds convertible into common stocks. When the
Investment Manager determines that market conditions warrant, the Funds may
invest without limit in cash and cash equivalents for temporary defensive
purposes, although this is not expected to occur routinely. These Funds may
engage in hedging transactions using, among other things, options and futures
contracts. SEE "Options, Futures, and Other Derivatives."

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These Funds may invest as much as 20% of their assets in foreign securities
if those securities meet the same criteria described above for the Funds'
investments in general. At times the Funds may have no foreign investments.
Generally, the Funds' foreign investments will be made through American
depositary receipts ("ADR's") or stocks of foreign issuers that are traded
directly on U.S. stock exchanges or in the Nasdaq Stock Market.

To enable the Seneca Mid-Cap Growth Fund to invest effectively in companies
with small- to medium-sized market capitalizations, the Trust currently does
not expect to offer shares of that Fund to the public at any time when the
net assets of the Fund exceed $500 million. This limit is subject to change.

As these Funds invest primarily in common stocks, their investments are
subject to stock market price volatility. The Funds are intended for
investors who have the perspective, patience, and financial ability to take
on above-average stock market volatility in pursuit of long-term capital
growth.

SENECA BOND FUND

INVESTMENT OBJECTIVE: High total return--both current income and capital
appreciation. This fund will seek to outperform the Lehman Brothers
Government/Corporate Index.

INVESTMENT STRATEGIES AND POLICIES. This Fund will invest in a diversified
portfolio of corporate bonds and other debt securities. It will normally
maintain a dollar-weighted average maturity of between two and ten years,
although maturities of individual securities may be significantly longer.
The Fund will also generally seek to maintain a dollar-weighted average
duration of between two and eight years. The Investment Manager will
actively manage this Fund's portfolio, adjusting the weighted average
portfolio maturity in response to expected changes in interest rates. During
periods of rising interest rates, the Investment Manager may shorten the
portfolio's average maturity to reduce the effect of bond price declines on
the Fund's net asset value. Conversely, when interest rates are falling and
bond prices rising, the Fund may lengthen its average maturity. The
Investment Manager will also consider bond performance in particular industry
sectors and individual issue characteristics and may engage in opportunistic
trading activities.

"Duration" will be an important criterion in selecting securities for this
Fund. Duration is a measure of the expected life of a debt security that was
developed as a more precise alternative to the concept of "term to maturity."
Traditionally, a debt security's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (the
"interest rate risk" or "volatility" of the security). But "term to
maturity" measures only the time until a security provides its final payment,
taking no account of the pattern of payments before maturity. Duration is a
measure of the expected life of a debt security on a present-value basis,
incorporating a bond's yield, coupon interest payments, final maturity, and
call features into one measure. It takes the length of the time intervals
between the present time and the time that interest and principal payments
are scheduled or, in the case of a callable bond, expected to be received,
and weights them by the present values of the cash to be received at each
future time. For any debt security with interest payments occurring before
the payment of principal, duration is always less than maturity. In general,
all other things being equal, the lower the stated or coupon rate of interest
on a security, the longer the security's duration. Conversely, the higher
the stated or coupon rate of interest, the shorter the duration.

There are situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example,
floating- and variable-rate securities often have final maturities of ten or
more years. However, their interest rate exposure corresponds to the
frequency of the coupon reset. And with mortgage pass-through securities,
the stated final maturity is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure.

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The Fund will normally invest at least 65% of its assets in investment grade
bonds (I.E., rated Baa or higher by Moody's Investors Service ("Moodys") or
BBB or higher by Standard & Poor's Corporation ("S&P")), although it may
invest to a lesser extent in securities rated as low as B by Moody's or S&P.
The Fund may also invest in unrated securities of similar qualities, as
determined by the Investment Manager. For more information on lower-rated
securities, see "Below-Investment Grade Securities" below. For more
information on S&P and Moody's ratings, see "Summary of Bond Ratings."

The Fund's investments may include securities issued or guaranteed by the
U.S. Government or its agencies and instrumentalities, publicly-traded and
privately-placed corporate securities, as well as municipal obligations. The
Fund may also invest in mortgage-backed securities issued by various federal
agencies and government sponsored enterprises and in other mortgage-related
or asset-backed securities. Investments in mortgage-related securities can be
subject to the risk of early repayment of principal. For more information,
see "Mortgage-Backed and Asset-Backed Securities" and the Statement of
Additional Information.

The Fund may invest as much as 20% of its assets in securities of issuers
organized in jurisdictions outside the United States if they meet the same
criteria described above for the Fund's investments in general. At times the
Fund may have no foreign investments. See "Risks -- Foreign Securities."

In general, lower-rated bonds, which will be a lesser component of this Fund,
offer higher returns, than investment-grade bonds. But they also carry
higher risks. These can include: a) a higher risk of insolvency, especially
during economic downturns; b) a lower degree of liquidity; and c) greater
price volatility. The Fund will not purchase below-investment-grade
securities if the purchase would increase the Fund's holdings of such
securities to more than 35% of the Portfolio's value. If the Fund owns a
security that was "investment grade" when the Fund acquired it but is
downgraded by a ratings service, the Fund may or may not choose to sell the
security. This depends on the Investment Manager's assessment of the
issuer's prospects. SEE "Summary of Bond Ratings" for a description of bond
ratings and "Below-Investment Grade Securities" for a discussion of some of
the risks involved in investments in low-rated bonds.

This Fund may engage in hedging transactions using, among other things,
options and futures contracts. See "Options, Futures and Other Derivatives"
and the Statement of Additional Information. The Fund ordinarily will invest
in common stock only as a result of conversion of bonds, exercise of
warrants, or other extraordinary business events.

SENECA REAL ESTATE SECURITIES FUND

INVESTMENT OBJECTIVE: High total return, both current income and long-term
capital appreciation, through investments in real estate-related securities.

INVESTMENT STRATEGIES AND POLICIES. This Fund will invest primarily in equity
or debt securities of issuers that are principally engaged in businesses in
the United States real estate industry or in related businesses. An issuer
will be considered "principally" engaged in such a business if at least 50%
of the issuer's assets, gross income, or net income are attributable to
ownership, construction, management, or sale of real estate located in the
United States, or to products or services related to the real estate
industry. Examples of issuers participating directly in the real estate
industry include equity REITs (which own real estate directly), mortgage
REITs (which make short-term construction or real estate development loans or
invest in long-term mortgages or mortgage pools), real estate brokers and
developers, companies that manage real estate, and companies that own
substantial amounts of real estate. Examples of issuers whose products or
services are related to the real estate industry include manufacturers and
distributors of building supplies and financial institutions that originate
or service mortgage loans.

<PAGE>

This Fund will generally focus on investments in common stocks but also may
invest in debt securities of REITs and other real estate-related issuers,
preferred stocks, convertible securities, warrants, and publicly-traded
limited partnerships that invest in real estate. In addition, the Fund may
invest up to 35% of its assets in equity and debt securities outside the real
estate industry. Investments in debt securities will be primarily limited to
investment-grade securities, but the Fund may invest up to 35% of its assets
in securities rated lower than BBB by S&P or Baa by Moody's and unrated debt
securities that the Adviser considers to be of comparable quality. In
general, lower-rated debt securities offer higher returns than
investment-grade bonds but also carry higher risks. SEE "Summary of Bond
Ratings" for a description of bond ratings and "Below-Investment Grade
Securities" for a discussion of some of the risks involved in investments in
low-rated debt securities.

This Fund will be classified as a non-diversified investment company under
the 1940 Act, which means that it is not limited by that Act in the
proportion of its assets it may invest in the obligations of any single
issuer. The Fund will, however, comply with diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. As a non-diversified
investment company, the Fund may invest a greater proportion of its assets in
the securities of a small number of issuers and, as a result, may be subject
to a greater risk as to portfolio securities. If the Fund takes concentrated
positions in a small number of issuers, its return may fluctuate more than
that of a diversified company as a result of changes in the price of any of
those securities.

This Fund will not make direct investments in real estate. However, because
it may invest in debt securities of issuers primarily engaged in real estate
ownership, it is possible that the Fund could become the direct owner of real
estate as a result of a default on those securities. Rental income or income
from the disposition of such assets could adversely affect the Fund's status
as a regulated investment company for Federal income tax purposes. SEE
"Income Tax Considerations."

INVESTMENT PRACTICES AND RISK CONSIDERATIONS

PORTFOLIO TURNOVER. The rate of portfolio turnover will generally not be
important in investment decisionmaking for any of the Funds. Decisions to
buy and sell securities will be based on the anticipated contribution of a
security to achievement of a Fund's investment objectives. Sales can result
from, for example, securities reaching a price objective, anticipated changes
in interest rates, changes in the creditworthiness of issuers, or general
financial or market developments. The Funds may sell one security and
simultaneously buy another of comparable quality and may simultaneously buy
and sell the same security to take advantage of short-term differentials and
bond yields. Funds may buy individual securities in anticipation of
relatively short-term price gains. A Fund's liquidity needs may also
necessitate sales. Because these factors generally are not tied to the
length of time a security has been held, a significant number of short-term
transactions may result.

The Funds cannot predict their turnover rates precisely but, based on
experience with the individually managed accounts described above under the
caption "Investment Manager's Performance," it is estimated that annual
turnover rates will generally be within the following ranges: 80%-50% for the
Seneca Growth Fund; 100%-200% for the Seneca Mid-Cap Growth Fund; 40%-100%
for the Seneca Bond Fund; and 40% to 100% for the Seneca Real Estate
Securities Fund. A 100% annual turnover rate would occur if all of a Fund's
securities were replaced one time during a one year period.

While portfolio transactions will be necessary to achieve a Fund's investment
objectives, a high level of turnover entails certain costs. The higher the
turnover, the higher the overall brokerage commissions, dealer mark-ups and
mark-downs, and other direct transaction costs. High turnover can also
result in acceleration of the realization of gains, which may be short-term
in nature and thus taxable to shareholders at ordinary rates.

<PAGE>

Certain tax considerations can restrict a Fund's ability to sell securities
in some circumstances when those securities have been held for less than
three months. See "Income Tax Considerations" and the Statement of
Additional Information.

REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements. In a
repurchase agreement, a Fund buys a security and the seller simultaneously
agrees to repurchase the security on a specified future date at an
agreed-upon price. The repurchase price reflects an agreed-upon interest
rate during the time the Fund's money is invested in the security. Because
the security constitutes collateral for the repurchase obligation, a
repurchase agreement can be considered a collateralized loan. The Fund's
risk is the ability of the seller to pay the agreed-upon price on the
delivery date. If the seller is unable to make a timely repurchase, the Fund
could experience delays in the receipt of expected proceeds, suffer a loss in
principal or current interest, or incur costs in liquidating the collateral.
The Trustees has established criteria to evaluate the creditworthiness of
parties with whom the Funds may enter into repurchase agreements.

The securities underlying repurchase agreements are not subject to the
average weighted maturity or duration restrictions otherwise applicable to
the Seneca Bond Fund's investments. The Funds will limit repurchase
agreements to securities issued by the United States Government, its
agencies, and its instrumentalities.

A Fund will not invest in a repurchase agreement maturing in more than seven
days, if, as a result, the aggregate amount of repurchase agreements with
more than seven remaining days to maturity would constitute more than 15% of
the Fund's net assets.

BORROWING; REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow money from
banks for temporary or emergency purposes in an amount up to one-third of its
net assets and, to secure borrowings, may mortgage or pledge securities. If
a Fund borrows money, its share price may be subject to greater fluctuation
until the borrowing is paid off.

Funds may enter into reverse repurchase agreements with selected banks, U.S.
securities dealers and other financial institutions. In a reverse repurchase
agreement, a Fund sells securities and simultaneously agrees to repurchase
them at a price that reflects an agreed-upon rate of interest. Funds will
use the proceeds of reverse repurchase agreements to make other investments
that either mature or are subject to an agreement to resell at or before the
date the reverse repurchase agreement expires. A Fund may use reverse
repurchase agreements only if the income to be earned from the proceeds of
the transaction is greater than the interest expense of the reverse
repurchase transaction. When a Fund enters into a reverse repurchase
agreement, it will maintain a segregated account consisting of cash or
high-quality liquid debt securities in an amount at least equal to its
repurchase obligation under the agreement. Reverse repurchase agreements are
a form of leverage that increases the opportunity for gain and the risk of
loss for a given change in market value, potentially causing the net asset
value of a Fund's shares to rise or fall faster than would otherwise be the
case. There may also be a risk of delay in the recovery of the underlying
securities if the counterpart has financial difficulties.

A Fund's obligations under all borrowings, including reverse repurchase
agreements, will not exceed one-third of the Fund's net assets. Funds will
not make any additional investments, other than through reverse repurchase
agreements, while the level of borrowing exceeds 5% of the Fund's total
assets.

<PAGE>

time. If this happens, a Fund would lose income and could expect a decline
in the market value of the securities affected. Prices of such securities
tend to react more to prevailing economic and industry conditions, issuers'
unique financial situations, and the bonds' coupon rates than to small
changes in prevailing interest rates. However, during an economic downturn
or a period of rising interest rates, issuers of these securities, generally
highly-leveraged companies, can have trouble making principal and interest
payments, meeting projected business goals, and obtaining additional
financing.

Each Fund may also invest in unrated debt securities. Unrated debt, while
not necessarily of lower quality than rated securities, may not have as broad
a market. Because of the size and perceived demand for an issue, among other
factors, certain issuers may decide not to pay the cost of getting a rating
for their bonds. The Investment Manager will analyze the creditworthiness of
the issuer of an unrated security, as well as any financial institution or
other party responsible for payments on the security. Unrated debt
securities will be included in the 35% limit on below-investment grade debt
of the Seneca Bond Fund unless the Investment Manager determines them to be
the equivalent of investment grade securities. See "Summary of Bond Ratings"
and the Statement of Additional Information for a description of bond rating
categories.

REITS AND OTHER REAL ESTATE-RELATED INVESTMENTS. The value of investments in
issuers that hold real estate, particularly equity REITs, may be affected by
changes in the values of real properties owned by the issuers, and the value
of investments in mortgage REITs may also be affected by the quality of the
credit they have extended. Further, REITs often are not diversified and are
therefore subject to the risk of financing a limited number of projects or
properties. REITs depend on the skills of their management and are often
heavily dependent on cash flow from properties. Mortgage REITs are subject
to risks of default by borrowers. Some REITs are "self-liquidating" -- I.E.,
their existence is limited to a specific term--and present the risk of
liquidating at a time that is not economically opportune for their investors.
REITs also run the risks of failing to qualify for special tax treatment
under the U.S. Internal Revenue Code and of maintaining exemptions under the
Investment Company Act of 1940.

DELAYED DELIVERY TRANSACTIONS. Funds may sometimes purchase or sell
securities on a when-issued or forward commitment basis. In such "delayed
delivery" transactions, the price of securities is established at the time
the commitment to purchase or sell is made. Delivery of and payment for
these securities typically occur up to 90 days after the commitment is made.
The market price of a security at the time of delivery may be higher or lower
than the price contracted for, and there is some risk the transaction may not
be consummated. When a Fund makes a commitment to buy securities on a
forward commitment or when-issued basis, it will maintain a segregated
account consisting of cash or high-quality liquid debt securities in an
amount at least equal to the commitments. When a Fund makes a forward
commitment to sell portfolio securities, it will hold the securities
themselves in a segregated account.

SHORT SALES. A Fund may sell securities short--sell securities that it does
not own, or that it owns but does not intend to deliver to the buyer--if it
owns or has the right to acquire an equal amount of the security being sold
short at no additional cost. These transactions allow a Fund to hedge against
price fluctuations by locking in a sale price for securities the Fund does
not wish to sell immediately. A Fund may engage in short sales to take
advantage of an attractive price while postponing recognition of a gain or
loss for federal income tax purposes or satisfying certain tests applicable
to regulated investment companies under the Code. When a Fund engages in
short sales OTHER THAN when it owns or has the right to acquire an equal
amount of the security being sold short at no additional cost (short sales
"against the box"), it will maintain a segregated account cash or
high-quality liquid debt securities in an amount at least equal to the
difference between the market value of the securities sold short at the time
of the sale and any amounts required to be deposited as collateral with the
selling broker in connection with the short sale (not including the proceeds
of the short sale). It is currently expected that a Fund will not sell
securities short if, as a result, the total amount of all "open" short
positions would exceed one-third of the value of the Fund. This limitation
can be changed at any time.

<PAGE>

ILLIQUID SECURITIES. A Fund may invest up to 15% of its net assets in
illiquid securities -- securities that may not be sold within seven days at
approximately the price used in determining the Fund's net asset value.
Securities may be illiquid when they are held subject to legal or contractual
restrictions on resale, usually because they have not been registered for
sale to the general public ("restricted securities"), or when there is a
limited market for them. Repurchase agreements that mature in more than
seven days are considered illiquid securities.

Certain restricted securities that may be resold to institutional investors
pursuant to Rule 144A under the Federal Securities Act of 1933 may not be
considered illiquid if a sufficient dealer or institutional trading market
exists for them. The Investment Manager will determine whether such a market
exists as to Rule 144A securities, and whether such securities must be
considered illiquid, under guidelines approved by the Trustees.
Institutional trading markets for Rule 144A securities are relatively new.
Liquidity of the Funds' investments could be impaired if trading for these
securities does not further develop or declines.

FOREIGN SECURITIES. Each Fund may invest in securities, including U.S.
Dollar- or foreign currency-denominated debt securities, of foreign issuers.
Foreign equity investments are limited to securities traded on the U.S.
exchanges or in the Nasdaq Stock Market and American depositary receipts
("ADRs") evidencing ownership of foreign securities. ADR's are
dollar-denominated and are issued by domestic banks or securities firms and
traded in the U.S.

Securities of foreign issuers involve different, and sometimes greater, risks
than securities of U.S. issuers. These include an increased risk of adverse
political and economic developments, and, as to certain countries, the
possibility of expropriation, nationalization or confiscatory taxation or
limitations on the removal of the funds or other assets of a Fund.

Currency exchange rates may fluctuate significantly over short periods and
can be subject to unpredictable change based on such factors as political
developments and currency controls by foreign governments. Because the
Funds, particularly the Seneca Bond Fund, may invest in securities
denominated in foreign currencies, they may seek to hedge foreign currency
risks by engaging in foreign currency exchange transactions. These may
include buying or selling foreign currencies on a spot basis, entering into
foreign currency forward contracts, and buying and selling foreign currency
options, foreign currency futures, and options on foreign currency futures.
Many of these activities constitute "derivatives" transactions. SEE
"Options, Futures, and Other Derivatives."

LENDING SECURITIES. As a way to earn additional income, each of the Funds may
lend its portfolio securities to creditworthy persons not affiliated with the
Funds. Such loans must be secured by cash collateral or by irrevocable
letters of credit maintained on a current basis in an amount at least equal
to the market value of the securities lent. Under the terms of these loans,
a Fund must continue to receive the equivalent of the interest and dividends
paid by the issuer on the securities lent and interest on the investment of
the collateral and must have the right to call the loan and obtain the
securities lent at any time on five trading days' notice. This includes the
right to call the loan to enable the Fund to exercise its voting rights.
Such loans may not exceed one-third of the lending Fund's net assets at
market value. This percentage limitation constitutes a "fundamental" policy
that can be changed only by a vote of a majority of shareholders. Lending
securities to broker-dealers and institutions could result in a loss or a
delay in recovering the Fund's securities.

<PAGE>

Each Fund will maintain segregated accounts consisting of liquid assets, such
as cash, U.S. Government securities, or other high-grade debt securities (or,
as permitted by applicable regulations, enter into certain offsetting
positions to cover its obligations under derivatives transactions) to avoid
"leveraging" the Fund.

Risks in the use of these derivatives include: a) the risk that interest
rates, securities prices, or currency exchange rates or other factors
affecting the value of the Fund's investments do not move in the directions
being hedged against, in which case the Fund will have incurred the cost of
the derivative (either its purchase price or, by writing an option, losing
the opportunity to profit from increases in the value of the securities
covered) with no tangible benefit; b) imperfect correlation between the price
of derivatives and the movements of the securities prices, interest rates or
currency exchange rates being hedged; c) the possible absence of a liquid
secondary market for any particular derivative at any time; d) the potential
loss if the counterparty to the transaction does not perform as promised; and
e) the possible need to defer closing out certain positions to avoid adverse
tax consequences. More information on derivatives is contained in the
Statement of Additional Information.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund may invest in
mortgage-backed and asset-backed securities. The Seneca Bond Fund and the
Seneca Real Estate Securities Fund are more likely to invest in such
securities than the other Funds. Mortgage-backed and asset-backed securities
are generally pools of many individual mortgages or other loans. Part of the
cash flow of these securities is from the early payoff of some of the
underlying loans. The specific amount and timing of such prepayments are
difficult to predict, creating "prepayment risk." For example, prepayments
on Government National Mortgage Association ("GNMA's") are more likely to
increase during periods of declining long-term interest rates because
borrowers tend to refinance when interest rates drop. In the event of very
high prepayments, a Fund may be required to invest these proceeds at a lower
interest rate, causing the Fund to earn less than if the prepayments had not
occurred. Prepayments are more likely to decrease during periods of rising
interest rates, causing the expected average life to become longer. This
variability of prepayments will tend to limit price gains when interest rates
drop and to exaggerate price declines when interest rates rise.

ZERO COUPON BONDS. Each Fund may invest in zero coupon bonds and strips. The
Seneca Bond Fund is more likely to invest in such securities than the other
Funds. Zero coupon bonds do not make regular interest payments. Instead,
they are sold at a discount from face value. A single lump sum that
represents both principal and interest is paid at maturity. Strips are debt
securities whose interest coupons are taken out and traded separately after
the securities are issued, but otherwise are comparable to zero coupon bonds.
The market value of zero coupon bonds and strips generally is more sensitive
to interest rate fluctuations than interest-paying securities of comparable
term and quality.

VARIABLE RATE, FLOATING RATE, OR VARIABLE AMOUNT SECURITIES. Each Fund may
invest in variable rate, floating rate, or variable amount securities. These
are short-term unsecured promissory notes issued by corporations to finance
short-term credit needs. They are interest-bearing notes on which the
interest rate generally fluctuates on a scheduled basis.

INVESTMENTS IN OTHER INVESTMENT COMPANIES. Each Fund may invest up to 10% of
its total assets in the shares of other investment companies, but only up to
5% of its assets in any one other investment company. In addition, a Fund
may not purchase more than 3% of the securities of any one investment
company. The Funds intend to keep these investments to a minimum.

DIVERSIFICATION. Diversifying a Fund's investment portfolio can reduce the
risks of investing. With the exception of the Seneca Real Estate Securities
Fund, no Fund will invest more than 5% of its total assets in any one issuer
or more than 25% of its assets in any one industry. These limitations do
not apply to U.S. government securities.

<PAGE>

PURCHASE OF SHARES

Each Fund offers two classes of shares: "Institutional Shares" and
"Administrative Shares." Administrative Shares are offered to investors
primarily through accounts with broker-dealers, employee benefit plan
administrators and other financial service companies. The Funds pay fees to
those entities for subaccounting, recordkeeping, and similar services they
provide with respect to Administrative Shares. Institutional Shares are
offered primarily for direct investment by institutional investors and high
net worth individuals.

No sales charges are assessed upon the sale of either class of shares,
although shares may be purchased through certain financial intermediaries,
such as broker-dealers, that charge their customers transaction or other fees
relating to customers' investments in the Funds. Sales are all at the
respective net asset value of the shares for the particular class.

The minimum initial investment for Administrative Shares is currently $10,000
and the minimum initial investment for Institutional shares is currently
$100,000. Certain exceptions to these minimum requirements may apply.

INITIAL INVESTMENT

An account may be opened by signing a Client Registration Application and
mailing it to Seneca Funds, c/o Investors Fiduciary Trust Company (the
"Transfer Agent"), at 127 West 10th Street, Kansas City, Missouri 64105.

Purchases can only be made by wiring Federal funds to the Transfer Agent.
Before wiring Federal funds, an investor must first telephone the Trust at
(800) XXX-YYYY to receive instructions for wire transfer. On the telephone
the following information will be requested: name of authorized person;
shareholder account number; name of Fund and share class; amount being wired;
and wiring bank name.

All purchase orders are effected at the relevant net asset value for that
class next determined after receipt of the purchase order. A purchase order
received prior to the close of business (4:00 p.m., Eastern Time) on a day
the Trust is open for business will be effected at that business day's net
asset value. An order received after the close of business will be effected
at the net asset value determined on the next business day. The Trust is
"open for business" on each day the New York Stock Exchange is open for
trading, which excludes the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Purchase orders will be accepted only on days on which
the Trust is open for business.

ADDITIONAL INVESTMENTS

Additional investments may be made at any time at the relevant net asset
value for that class by calling the Trust and wiring Federal funds to the
Transfer Agent as outlined above.

OTHER PURCHASE INFORMATION

Purchases of a Fund's shares will be made in full and fractional shares. In
the interest of economy and convenience, certificates for shares will
generally not be issued.

<PAGE>

information provided in the Client Registration Application proves to be
incorrect in any material manner (E.G., in a manner such as to render the
shareholder ineligible to purchase shares).

Shares of the Trust may not be qualified or registered for sale in all
states. Prospective investors should inquire as to whether shares of a
particular Fund are available for offer and sale in their state of residence.
Shares may not be offered or sold in any state unless registered or
qualified in that jurisdiction or unless an exemption from registration or
qualification is available.

Investors may, subject to the approval of the Trust, purchase shares of a
Fund with liquid securities that are eligible for purchase by the Fund
(consistent with such Fund's investment policies and restrictions) and that
have a value that is readily ascertainable. The transactions will be
effected only if the Investment Manager intends to retain the securities in
the Fund as an investment. Assets so purchased by a Fund will be valued in
generally the same manner as they would be valued for purposes of pricing the
Fund's shares, if such assets were included in the Fund's assets at the time
of purchase. The Trust reserves the right to amend or terminate this
practice at any time.

REDEMPTION OF SHARES

Each class of a Fund will redeem its shares at the relevant net asset value
for that class next determined following receipt of the request. Redemptions
may be made by mail or, if elected on the Trust's Client Registration
Application (or subsequently in writing), by telephone. Although no charge
is generally made for redemptions, when shares have been held for fewer than
90 days, a fee of 1% of the amount redeemed will be assessed on an average
price basis. This amount will be retained by the appropriate Fund and is
intended to prevent long-term shareholders from bearing the expense involved
in short-term purchases and redemptions. Shares may be worth more or less
upon redemption than their purchase price, generally, depending on the market
value of the investment securities held by the particular Fund at the time of
redemption.

REDEMPTIONS BY MAIL

Shares may be redeemed by submitting a written request to Seneca Funds, c/o
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, stating the Fund from which the shares are to be redeemed,
the class of shares, the number or dollar amount of the shares to be redeemed
and the account number. The request must be signed exactly as the names of
the registered owners appear on the Trust's account records, and the request
must be signed by the minimum number of persons designated on the Client
Registration Application that are required to effect a redemption.

REDEMPTIONS BY TELEPHONE OR OTHER WIRE COMMUNICATIONS

If an election is made on the Client Registration Applications (or
subsequently in writing), redemptions of shares may be requested by calling
the Trust at (800) XXX-YYYY, by sending a facsimile to Seneca Funds, c/o
Investors Fiduciary Trust Company, at (AAA) XXX-YYYY or by other means of
wire communication. Investors should state the Fund and class from which the
shares are to be redeemed. The number or dollar amount of the shares to be
redeemed and the account number.

<PAGE>

were to redeem their shares in writing. Furthermore, interruptions in
telephone service may mean that a shareholder will be unable to effect a
redemption by telephone when desired. The Transfer Agent provides written
confirmation of transactions initiated by telephone as a procedure designed
to confirm that telephone instructions are genuine (written confirmation is
also provided for redemption request received in writing). All redemptions,
whether initiated by letter or telephone, will be processed in a timely
manner and proceeds will be forwarded by wire in accordance with the
redemption policies of the Trust detailed under the heading "Other Redemption
Information."

OTHER REDEMPTION INFORMATION

Payment of the redemption price will ordinarily be wired to the investor's
bank three business days after the tender request, but may take up to seven
business days. Redemption proceeds will be sent by wire only to the bank
name designated on the Client Registration Application. The Fund may suspend
the right of redemption or postpone the payment date at time when the New
York Stock Exchange is closed, or during certain other periods as permitted
under the federal securities laws.

For shareholder protection, a request to change information contained in an
shareholder's account registration (for example, a request to change the bank
designated to receive wire redemption proceeds) must be received in writing,
signed by the minimum number of persons designated on the Client Registration
Application that are required to effect a redemption, and accompanied by a
signature guarantee from any eligible guarantor institution, as determined in
accordance with the Trust's procedures. Shareholders should inquire as to
whether a particular institution is an eligible guarantor institution. A
signature guarantee cannot be provided by a notary public. In addition,
corporations, trust and other institutional organizations are required to
furnish evidence of the authority of the persons designated on the Client
Registration Application to effect transactions for the organizations.

Due to the relatively high cost of maintaining small accounts, the Trust
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the investor) if at any time, due to
redemption by the investor, the shares in the account do not have a value of
at least $10,000. A shareholder will receive advance notice of a mandatory
redemption and will be given at least 30 days to bring the value of its
account up to at least $10,000.

The Trust agrees to redeem shares of each Fund solely in cash up to the
lesser of $250,000 or 1% of its net assets during any 90-day period for any
one shareholder. In consideration of the best interests of the remaining
shareholders, the Trust reserves the right to pay any redemption price
exceeding this amount in whole or in part by a distribution in kind of
securities held by a Fund in lieu of cash. Although it is highly unlikely
that shares would ever be redeemed in kind, if they are, the redeeming
shareholder should expect to incur transaction costs upon the disposition of
the securities received.

EXCHANGE PRIVILEGE

Shares of a Fund may be exchanged for shares of the same class of any other
Fund based on the respective net asset values of the shares involved.
Exchanges may be made only as to Funds registered in the state of residence
of the investor or where an exemption from registration is available. An
exchange order is treated the same as a redemption followed by a purchase and
may result in a capital gain or loss for tax purposes, and special rules may
apply in computing tax basis when determining gain or loss. See "Income Tax
Considerations" in the Statement of Additional Information. An exchange may
be made by following the redemption procedure described above under
"Redemptions by Mail" or, if the telephone redemption option has been
elected, by calling the Trust at (800) XXX-YYYY.

<PAGE>

PORTFOLIO TRANSACTIONS

Pursuant to the Management Agreement, the Investment Manager places orders
for the purchase and sale of portfolio investments for the Funds' accounts
with brokers or dealers selected by it in its discretion. In effecting
purchases and sales of portfolio securities for the account of the Funds, the
Investment Manager will seek the best price and execution of the Funds'
orders. Commission rates are a component of the Investment Manager's
analysis of price. Factors the Investment Manager will consider in
evaluating execution quality include the ability of a broker or dealer to
effect the transaction, the broker's or dealer's clearance and settlement
facilities and capabilities, its reliability and financial stability, a
dealer's willingness to commit capital, the size of the transaction, and the
market for the security involved.

Many securities, both debt and equity, are traded primarily in the
over-the-counter market. For transactions traded in that market, dealers
generally act as principal rather than as agent and receive a markup or
markdown on the transaction price rather than a commission. The Funds intend
to deal with primary market makers for securities traded in the
over-the-counter markets except where more favorable execution and price can
be obtained elsewhere. Funds may also purchase securities directly from
issuers or from underwriters or dealers as part of an offering of securities.
Purchases from dealers and underwriters in such offerings will include a
discount or concession granted by the issuer to the underwriter.

In selecting brokers and dealers, the Investment Manager will consider not
only the factors described above relating to price and execution quality, but
also the value of research services and products provided to the Investment
Manager. As a result, a Fund may pay higher commission rates to such brokers
than the lowest available when the Investment Manager believes it is
reasonable to do so in light of the value of the brokerage and research
services provided by the broker effecting the transaction. The Investment
Manager also may consider sales of shares of the Trust as a factor in
selection of broker-dealers to execute portfolio transactions of the Trust.

Subject to the foregoing analysis of price and execution, the Funds may use
the Distributor or Genesis Merchant Group Securities, L.P. (also referred to
as "GMG Securities") in connection with portfolio transactions in
exchange-traded securities. GMG Securities is a member of the American Stock
Exchange and the National Association of Securities Dealers, Inc. It is a
limited partnership whose general partner is controlled by the general
partners of Genesis Merchant Group, L.P., which is one of two general
partners of the Investment Manager. Gail P. Seneca, the other general
partner of the Investment Manager, is a principal shareholder of GMG
Securities' general partner.

GMG Securities will receive brokerage commissions from the Funds, limited to
"usual and customary broker's commissions," as contemplated by the Investment
Company Act of 1940. The Funds intend to continue to use GMG Securities as
their primary broker for exchange-traded securities, provided GMG Securities
is able to provide execution at least as favorable as that provided by other
qualified brokers. The Trustees have developed procedures to ensure that the
commissions paid to GMG Securities are limited to "usual and customary
broker's commissions" as contemplated in the Investment Company Act. On a
quarterly basis, the Trustees will review the securities transactions of each
Fund effected by GMG Securities to assure their compliance with those
procedures.

Some securities considered for investment by the Funds may also be
appropriate for other clients served by the Investment Manager, including
accounts in which the Investment Manager or persons associated with the
Investment Manager are investors, such as investment partnerships of which
the Investment Manager or such associated persons is the general partner. If
a purchase or sale of securities consistent with the investment policies of a
Fund and one or more of these clients served by the Investment Manager is
considered at or about

<PAGE>

the same time, transactions in such securities will be allocated among the
Fund and clients in a manner deemed fair and reasonable by the Investment
Manager.

NET ASSET VALUE

The net asset value per share of each class of each Fund will be determined
as of the close of trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time) by dividing the total market value of a Fund's portfolio
investments and other assets attributable to that class, less that class'
proportionate share of the Fund's liabilities that are not attributable to a
particular class and any liabilities attributable to that class, by the
number of total outstanding shares of that class. Net asset value will not
be determined on days on which the New York Stock Exchange is closed.

Portfolio securities and other assets for which market quotations are readily
available will be stated at market value. Market value will be determined on
the basis of last reported sales prices, or if no sales are reported, at the
mean between representative bid and asked quotations obtained from a
quotation reporting system or from established market makers. Fixed income
securities, including those to be purchased under firm commitment agreements
(other than obligations having a maturity of 60 days of less), will normally
be valued on the basis of quotes obtained from brokers and dealers or pricing
services, which take into account appropriate factors such as
institutional-sized trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other
market data. Quotations of foreign securities in foreign currency will be
converted to U.S. dollar equivalents using foreign exchange quotations
received from independent dealers. Short-term investments having a maturity
of 60 days or less will be valued at amortized cost, when the Trustees
determines that amortized cost is their fair market value. Certain debt
securities for which daily market quotations are not available may be valued,
pursuant to guidelines established by the Trustees, with reference to fixed
income securities whose prices are more readily obtainable and whose
durations are comparable to the securities being valued. Subject to the
foregoing, other securities for which market quotations are not readily
available will be valued at fair value as determined in good faith by the
Trustees.

DIVIDENDS AND CAPITAL GAINS

The Funds will distribute substantially all of their net investment income in
the form of dividends to shareholders. The following table shows how often
each Fund will pay dividends.

Fund Dividend Paid
- -----------------------------------------------------------------------------
<S> <C>
Seneca Growth Fund Annually
- -----------------------------------------------------------------------------
Seneca Mid-Cap Growth Fund Annually
- -----------------------------------------------------------------------------
Seneca Bond Fund Monthly
- -----------------------------------------------------------------------------
Seneca Real Estate Securities Fund Quarterly
=============================================================================
</TABLE>

Each of the Funds will distribute net capital gains, if any, annually.

Shareholders may select from among the following distribution options:

<PAGE>

Reinvested Have all dividends and capital gains distributions
reinvested in additional shares of the same or any
other Fund. If a shareholder does not choose one of
the other options this option will be selected
automatically.

Cash and Reinvested Have either dividends or capital gains paid in cash
and the other reinvested in additional shares in the
same or any other Fund; or

All Cash Have dividends and capital gains distributions paid
in cash.

Each Fund will make distributions on a per share basis to the shareholders of
record as of the distribution date of that Fund, regardless of how long the
shares have been held. That means if an investor buys shares just before or
on a record date, he or she will pay the full price for the shares and then
may receive a portion of the price back as a taxable distribution.

INCOME TAX CONSIDERATIONS

FEDERAL TAXES. For each taxable year, each Fund intends to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), Qualifying regulated investment companies
distributing substantially all of their ordinary income and capital gains are
not subject to federal income or excise tax on any net investment income and
net realized capital gains distributed to shareholders. However, the
shareholders are subject to tax on these distributions.

Dividends paid by a Fund from net investment income, the excess of net
short-term capital gain over net long-term capital loss, and original issue
discount or certain market discount income will be taxable to shareholders as
ordinary income. Distributions paid by a Fund from the excess of net
long-term capital gain over net short-term capital loss will be taxable as
long-term capital gains regardless of how long the shareholders have held
their shares. These tax consequences will apply regardless of whether
distributions are received in cash or reinvested in shares. A portion of the
dividends paid to corporate shareholders may qualify for the corporate
dividends-received deduction to the extent the Fund earns qualifying
dividends. Each Fund will notify shareholders after each calendar year of
the amount and character of distributions they received from that Fund for
federal tax purposes.

For IRAs and pension plans, dividends and capital gains will be are
reinvested and NOT taxed until the beneficiary receives a qualified
distribution from the IRA or pension plan.

Shareholders should consider the tax implications of buying shares
immediately before to a distribution. Investors who purchase shares shortly
before the record date for a distribution will pay a per share price that
includes the value of the anticipated distribution. They will be taxed when
they receive the distribution even though the distribution represents a
return of a portion of the purchase price.

Redemptions and exchanges of shares are taxable events that may represent a
gain or a loss for the shareholder.

Individuals and certain other types of shareholders may be subject to backup
withholding of federal income tax on distributions, redemptions and exchange
if they fail to furnish their correct taxpayer identification number.
Individuals, corporations and other shareholders that are not U.S. persons
under the Code are subject to different tax rules. They may be subject to
nonresident alien withholding on amounts considered ordinary dividends from
the Fund.

<PAGE>

New investors must certify that their social security or taxpayer
identification numbers are correct. They must also certify that they are not
subject to backup withholding for failure to report income to the Internal
Revenue Service.

OTHER TAXES. In addition to federal taxes, investors may be subject to state
and local taxes on payments received from a Fund. Depending on the state tax
rules pertaining to a shareholder, a portion of the dividends paid by a Fund
that come from direct obligations of the U.S. Treasury and certain agencies
may be exempt from state and local taxes. Investors should consult their tax
advisers regarding specific questions as to federal, state and local taxes.

INVESTMENT MANAGER AND ADMINISTRATOR

INVESTMENT MANAGER SERVICES. The Investment Manager is responsible for
making investment decisions for the Funds and for selecting brokers and
dealers to execute transactions for each Fund.

Investment and trading decisions for each Fund will be made by a team of
managers and analysts headed by a team leader. Each team leader will be
primarily responsible for the day-to-day decisions related to his or her
Fund. Team leaders are supported by GMG/Seneca's entire group of managers
and analysts. The team leader of any one Fund may be on another Fund team.
The transactions and performance of the Funds are reviewed continuously by
the Investment Manager's senior officers.

Gail P. Seneca is the team leader for the Seneca Growth Fund, the Seneca
Mid-Cap Growth Fund and the Seneca bond Fund. She is one of two General
Partners and the Chief Investment Officer of GMG/Seneca and is one of three
general partners of Genesis Merchant Group, L.P., which is the other general
partner of GMG/Seneca. From October 1987 until October 1989, she was Senior
Vice President of the Asset Management Division of Wells Fargo Bank and from
October 1983 to September 1987, she was chief investment strategist for Chase
Lincoln Bank.

MANAGEMENT FEE. For its services to the Funds, the Investment Manager will
receive a Management Fee based on an annual percentage of the average daily
net assets of each Fund. It is accrued daily, and paid monthly. The annual
fee percentages are 0.70% for the Seneca Growth Fund, 0.80% for the Seneca
Mid-Cap Growth Fund, 0.50% for the Seneca Bond Fund, and 0.85% for the Seneca
Real Estate Securities Fund. The Investment Manager will reduce the
Management Fee each Fund must pay if the fee exceeds any state-imposed
restrictive expense limitations. This excludes permissible items, such as
brokerage commissions, Rule 12b-1 payments, interest, taxes and litigation
expenses. The Investment Manager may waive some or all of these fees from
time to time at its discretion, and may reimburse a Fund for a portion of the
Fund's expenses. These practices will increase a Fund's return and will be
intended to make the Fund more competitive. The Investment Manager has
agreed to effect such waivers and reimbursements to the extent necessary to
prevent the Funds' overall expenses from exceeding the levels in the expense
table set forth elsewhere in this Prospectus through September 30, 1996.
Thereafter, any such waivers or reimbursements the Investment Manager may
provide may be terminated at any time.

ADMINISTRATIVE SERVICES. The day-to-day administrative functions of the
Trust are provided by State Street Bank and Trust Company, as Administrator.
Among other things, the Administrator provides the Trust and each Fund with
clerical, data processing, and other, similar services and support; handles
the registration of the Funds' shares under the securities laws of those
states and other jurisdictions where the shares are offered; assists in the
preparation of SEC registration materials, periodic reports, and proxy
materials; and provides bookkeeping and accounting services, including
maintaining the accounts, books and records that are required under
applicable laws. For these services, the Administrative class of each Fund
pays the Administrator a fee at an

<PAGE>

annual rate of 0.20% of the average daily net assets of that class. The
Institutional class of each Fund pays a lower fee in recognition of the fact
that fewer services are required.

The Administrator may from time to time waive some or all of its fee and/or
reimburse a Fund for a portion of the Fund's operating expenses. Such
reimbursements will increase a Fund's return. This is intended to make the
Funds more competitive. Any such waivers or reimbursements may be terminated
at any time.

GENERAL INFORMATION

SENECA FUNDS. Seneca Funds was organized as a Delaware business trust on
December 13, 1995. The Trust is registered with the Securities and Exchange
Commission under the 1940 Act as an open-end, diversified management
investment company of the series type. Each Fund constitutes a separate
series. The fiscal year-end of each of the Funds is ____________.

The Trust is authorized to issue and sell multiple classes of shares for each
of the Funds. Each of the Trust's existing series currently has two classes
of shares, Administrative Shares and Institutional Shares. The Trust may
issue additional series and additional classes of existing series of shares
in the future with such rights, preferences, and privileges as the Trustees
may determine (subject to compliance with applicable law), without the
consent of shareholders.

Except for the differences noted below and elsewhere in this Prospectus, each
share of a Fund has equal dividend, redemption and liquidation rights with
other shares of that Fund and when issued, will be fully paid and
nonassessable. Each share of each class represents an identical legal
interest in the same investments of a Fund, except that each class has
certain expenses related solely to that class. In particular, Administrative
Shares have higher fees and expenses relating to the way in which they are
distributed and the services provided to their class. Each class will have
exclusive voting rights under the 12b-1 Distribution and Administrative
Services Plan. In the event that a special meeting of shareholders is
called, separate votes are taken by each class only if a matter affects, or
requires the vote of, just that class. Although the legal rights of holders
of each class of shares are identical, it is likely that the difference in
expenses will result in different net asset values and dividends. The
classes may have different exchange privileges.

As a Delaware business trust, the Trust is not required to hold regular
annual meetings of shareholders. Ordinarily there will be no shareholder
meetings, unless called by the Trustees, requested by shareholders holding
10% or more of the outstanding shares under circumstances in which the 1940
Act or Delaware law require that a meeting be held upon such request, or
required by the 1940 Act or Delaware law. Shareholders are entitled to cast
one vote for each dollar of net asset value of their shares on the record
date. At a special shareholders meeting, if one is called, issues that
affect all the Funds and classes in substantially the same way will be voted
on by all shareholders of all Funds. Issues that do not affect a Fund or a
class will not be voted on by shareholders of that Fund or class. Issues
that affect all Funds, but in which their interests are not substantially the
same, will be voted on separately by each Fund.

CUSTODIAN AND TRANSFER AGENT. Under a Custodian Agreement, the Transfer
Agent, 127 West 10th Street, Kansas City, Missouri 64105, holds all
securities and cash assets of the Funds, provides certain recordkeeping
services, and serves as the Funds' custodian. In its capacity as the
Custodian, the Transfer Agent is authorized to deposit securities in
securities depositories or to use services of sub-custodians.

Under a Transfer Agency Agreement, the Transfer Agent also serves as the
Funds' transfer agent. The Transfer Agent is responsible for: a) opening
and maintaining shareholder accounts; b) reporting account information to
shareholders; c) paying dividends and capital gains, and d) handling requests
for exchanges, transfers and redemptions.

<PAGE>

DISTRIBUTOR. GMG Securities is currently the principal underwriter and
distributor of the shares of each of the Funds and will distribute
Administrative as well as Institutional Shares. Seneca Distributors has also
entered into a Distribution and Services Agreement with the Trust pursuant to
which, upon its registration as a broker-dealer under the Securities Exchange
Act of 1934 and all applicable state securities laws, and becoming a member
of the National Association of Securities Dealers, Inc., Seneca Distributors
will become a principal underwriter and distributor of the Funds' shares. It
is expected that GMG Securities will then terminate its agreement with the
Trust and Seneca Distributors will become the sole Distributor. Seneca
Distributors is a wholly-owned subsidiary of GMG/Seneca.

DISTRIBUTION AND ADMINISTRATIVE SERVICES PLAN. Pursuant to the Distribution
Agreement the Distributor will be paid a Distribution Fee at an annual rate
0.25% of the average daily net assets attributable to the Administrative
Shares of each Fund. No Distribution Fee will be paid as to the
Institutional Shares of any Fund. The Distribution Fee will be paid pursuant
to a Distribution and Administrative Services Plan. Amounts paid under the
Distribution and Administrative Services Plan may be used by the Distributor
to cover expenses that are primarily intended to result in, or are primarily
attributable to (i) the sale of Administrative Shares, (ii) ongoing servicing
and/or maintenance of accounts of holders of Administrative Shares, and (iii)
subaccounting, subtransfer agency, recordkeeping, and administrative services
related to the sale of Administrative Shares, all as set forth in the
Distribution and Administrative Services Plan. Payments under the
Distribution and Administrative Services Plan are not tied directly to the
expenses actually incurred by the Distributor in connection with the
foregoing activities and may exceed those expenses. The Trustees will
evaluate the appropriateness of the Distribution and Administrative Services
Plan on an ongoing basis. For a more complete disclosure of the Plans and
their terms, see the Statement of Additional Information.

Institutional Shares may also be offered through certain brokers and
financial intermediaries ("service agents"). Service agents may impose
additional or different conditions on the purchase or redemption of Trust
shares by their customers and may charge their customers transactions or
other account fees on the purchase and redemption of Trust shares. Each
service agent is responsible for transmitting to its customers a schedule of
any such fees and information regarding any additional or different
conditions regarding purchases and redemptions. Shareholders who are
customers of service agents should consult their service agent for
information regarding these fees and conditions.

OTHER EXPENSES

The Trust bears all costs of its operations. Trust expenses directly
attributable to a Fund or a class of shares are charged to that Fund or
class; other expenses are allocated among all the Funds. Administrative
Shares may be purchased in employee benefit plan accounts and in accounts
maintained with financial institutions and financial services companies such
as broker-dealers. Employee benefit plan administrators and financial
institutions and financial services companies through which Administrative
Shares are purchased may be paid fees by the Funds for transfer agency,
accounting, recordkeeping, and administrative and other services provided
with respect to such shares. Those services may include maintaining account
records, aggregating and processing orders to purchase, redeem, and exchange
Administrative Shares, processing dividend payments, forwarding shareholder
communications, and providing subaccounting services for shares held
beneficially.

<PAGE>

PERFORMANCE INFORMATION.

The Trust may publish performance information about the Funds. Fund
performance usually will be shown either as cumulative total return or
average periodic total return compared with other mutual funds by public
ranking services, such as Lipper Analytical Services, Inc. Cumulative total
return is the actual performance over a stated period of time. Average
annual total return is the hypothetical return, compounded annually, that
would have produced the same cumulative return if the Fund's performance had
been over the entire period. Each Fund's total return shows its overall
dollar or percentage change in value. This includes changes in the share
price and reinvestment of dividends and capital gains.

The performance of a Fund can also be measured in terms of yield. Each
Fund's yield shows the rate of income the Fund earns on its investments as a
percentage of the Fund's share price.

A Fund can also separate its cumulative and average annual total returns into
income results and capital gains or losses. Each Fund can quote its total
returns on a before-tax or after-tax basis.

The performance information that may be published for the Funds is
historical. It is not intended to represent or guarantee future results.
The value of Fund shares can be more or less than their original cost when
they are redeemed. For more information, see the Statement of Additional
Information.

MATERIAL LEGAL PROCEEDINGS. There are no material legal proceedings to which
the Trust is subject, or to which the Investment Manager or the Distributor
are subject, that are likely to have a material adverse effect on their
ability to perform their obligations to the Trust or on the Trust itself.

SUMMARY OF BOND RATINGS. Following is a summary of the grade indicators used
by two of the most prominent, independent rating agencies (Moody's Investors
Service, Inc. and Standard & Poor's Corporation) to rate the quality of
bonds. The first four categories are generally considered investment quality
bonds. Those below that level are of lower quality and are sometimes
referred to as "junk bonds."

Investment Grade Moody's Standard & Poor's
- ------------------------------------------------------------------------------
<S> <C> <C>
Highest quality Aaa AAA
- ------------------------------------------------------------------------------
High quality Aa AA
- ------------------------------------------------------------------------------
Upper medium A A
- ------------------------------------------------------------------------------
Medium, speculative features Baa BBB
- ------------------------------------------------------------------------------

Lower Quality
- ------------------------------------------------------------------------------
Moderately speculative Ba BB

<PAGE>

- ------------------------------------------------------------------------------
Speculative B B
- ------------------------------------------------------------------------------
Very Speculative Caa CCC
- ------------------------------------------------------------------------------
Very high risk Ca CC
- ------------------------------------------------------------------------------
Highest risk, may not be paying interest C C
- ------------------------------------------------------------------------------
In arrears or default C D
- ------------------------------------------------------------------------------
</TABLE>

For more detailed information on bond ratings, including gradations within
each category of quality, see the Statement of Additional Information.

<PAGE>

SUBJECT TO COMPLETION, DATED DECEMBER 18, 1995

SENECA FUNDS
INSTITUTIONAL SHARES

PROSPECTUS: FEBRUARY , 1996

This Prospectus is intended to set forth concisely the information an
investor should know before investing in any of the Funds. Please read it
carefully and save it for future reference. A Statement of Additional
Information dated February __, 1996 (the "SAI") has been filed with the
Securities and Exchange Commission. The SAI, as amended or supplemented from
time to time, is incorporated into this Prospectus by this reference and is a
part of this Prospectus. It is available free of charge by writing to
Genesis Merchant Group Securities, L.P. (the "Distributor") or by calling
1-800-XXX-YYYY.

<PAGE>

PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
THE SENECA FUNDS AT A GLANCE 4

FUND EXPENSES 5

INVESTMENT MANAGER'S PERFORMANCE 7

MANAGEMENT 10

THE SENECA FUNDS IN DETAIL 10

SENECA GROWTH FUND and SENECA MID-CAP GROWTH FUND 11

SENECA BOND FUND 12

SENECA REAL ESTATE SECURITIES FUND 13

INVESTMENT PRACTICES AND RISK CONSIDERATIONS 14

PURCHASE OF SERVICES 19

REDEMPTION OF SHARES 21

PORTFOLIO TRANSACTIONS 22

NET ASSET VALUE 24

DIVIDENDS AND CAPITAL GAINS 24

INCOME TAX CONSIDERATIONS 25

INVESTMENT MANAGER AND ADMINISTRATOR 26

GENERAL INFORMATION 27

</TABLE>

<PAGE>

THE SENECA FUNDS AT A GLANCE

<PAGE>

FUND EXPENSES

Each Fund offers two classes of shares: Institutional Shares and
Administrative Shares. Administrative Shares are offered primarily to
employee benefit plans and to other investors purchasing through accounts
maintained with broker-dealers and other financial service companies. The
minimum investment for Administrative Shares is $10,000. Institutional
Shares are offered directly by the Distributor to institutional investors
such as pension and profit sharing plans, employee benefit trusts,
endowments, foundations, and corporations. The minimum investment for
Institutional Shares is $100,000. This Prospectus describes only
Institutional Shares. To receive a free prospectus describing the
Administrative Shares, call 1-800-XXX-YYYY or write to the Distributor.

The following table describes shareholder transaction-related expenses and
anticipated annual expenses (excluding portfolio brokerage expenses) as to
Institutional Shares.

==============================================================================================================
Shareholder Transaction Expenses

Seneca Real
Estate
Seneca Mid-Cap Corporate Securities
Seneca Growth Growth Bond Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Sales Load on Purchases None None None None
- --------------------------------------------------------------------------------------------------------------
Sales Load on Reinvested Dividends None None None None
- --------------------------------------------------------------------------------------------------------------
Deferred Sales Load None None None None
- --------------------------------------------------------------------------------------------------------------
Early Withdrawal Fee(8) 1.00% 1.00% 1.00% 1.00%
- --------------------------------------------------------------------------------------------------------------
Exchange Fee None None None None
- --------------------------------------------------------------------------------------------------------------
Annual Fund Expenses Percentage of Average Net Assets(after expense reimbursement and
fee waiver arrangements)(9)
</TABLE>

- -----------------------
(1)Applies only to redemptions (including by exchange) of shares held
less than 90 days. The fee is paid to the Fund and is intended to protect
long-term investors from the cost of frequent investments and redemptions by
short-term investors. See "Redemption of Shares."

<PAGE>

- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.70% 0.80% 0.50% 0.85%
- --------------------------------------------------------------------------------------------------------------
12b-1 Fees None None None None
- --------------------------------------------------------------------------------------------------------------
Other Expenses(10) 0.15% 0.15% 0.15% 0.20%
- --------------------------------------------------------------------------------------------------------------
Total Expenses 0.85% 0.95% 0.65% 1.05%
- --------------------------------------------------------------------------------------------------------------
</TABLE>

The Annual Fund Expenses table summarizes estimates of operating expenses
relating to Institutional Shares. The purpose of both of these tables is to
assist investors in understanding the varying costs and expenses they will
bear directly or indirectly. Without any fee waiver or expense reimbursement
by the Investment Manager or the Administrator, the estimated total operating
expenses for Institutional Shares during the first year of the Funds'
operation, are ___%, ___%, ___% and ___%, respectively.

EXAMPLE

============================================================
1 Year 3 Years
------------------------------------------------------------

(...continued)
(2)The Investment Manager has agreed to waive some or all of its
Management Fee and to assume other operating expenses of each Fund other than
certain extraordinary or nonrecurring expenses, until the earlier of
September 30, 1996 or such time as the Fund's assets exceed $50 million to
the extent necessary to prevent the Total Expenses of the Institutional
Shares of each Fund from exceeding the levels set forth in the table. The
Investment Manager may, from time to time, assume additional expenses. Fee
waivers and expense reimbursement or assumption arrangements will increase a
Fund's return.

(3)Includes Administrative Fee and 0.10% PER ANNUM other expenses not
covered by the Management Fees and the Administrative Fees. Also includes
other fees the Funds may pay to employee benefit plan administrators,
broker-dealers, and other financial services companies for sub-accounting,
account maintenance and other, related services. Those fees, the
Administrative Fee, and some other expenses can differ between classes
depending on the particular services provided to the different classes.
Examples of fees and expenses that may vary between classes include transfer
agency fees, state and federal securities registration fees, legal and
accounting fees, directors' fees and expenses incurred as a result of issues
relating solely to a class, and fees and payments for specific class services
including account maintenance or subaccounting expenses.

<PAGE>

1 Year 3 Years
------------------------------------------------------------
Seneca Growth Fund $9 $27
------------------------------------------------------------
Seneca Mid-Cap Growth Fund $10 $30
------------------------------------------------------------
Seneca Bond Fund $7 $21
------------------------------------------------------------
Seneca Real Estate Securities Fund $11 $34
------------------------------------------------------------

THE INFORMATION IN THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR
LESS THAN THOSE SHOWN. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5%
ANNUAL RETURN, EACH FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY
RESULT IN A RETURN GREATER OR LESS THAN 5%.

INVESTMENT MANAGER'S PERFORMANCE

For comparison purposes, the individually-managed account composites match up
to the Funds as follows:

SENECA GROWTH FUND Core Growth Equity Account Composite

SENECA MID-CAP GROWTH FUND Mid-Cap Growth Equity Account
Composite

SENECA BOND FUND Fixed-Income Account Composite

SENECA REAL ESTATE SECURITIES FUND Real Estate Securities Account
Composite

<PAGE>

S&P 500 Index -3.20% 30.45% 7.62% 10.05% 1.32% 29.77%
- ----------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Equity Account Composite --(12) -- -- -- 11.00% 27.74%

S&P Mid-Cap 400 Index -- -- -- -- -3.58% 29.09%
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed-Income Account Composite 9.06% 18.16% 9.07% 15.61% -2.71% 14.33%

Lehman Brothers Government/Corporate Index 8.28% 16.13% 7.58% 11.03% -3.51% 13.78%
- ----------------------------------------------------------------------------------------------------------------------------------
GMG/Seneca Real Estate Securities Account Composite(13) -- -- -- -- -- 10.66%

National Associate of Real Estate Investment Trust Equity Index -- -- -- -- -- -- %
==================================================================================================================================
</TABLE>

CORE GROWTH EQUITY ACCOUNT COMPOSITE

[CORE GROWTH EQUITY ACCOUNT COMPOSITE GRAPH APPEARS HERE]

- ---------------------
(1)Periods with "--" are before GMG/Seneca began managing the accounts
in this composite.

(2)Inception of management of accounts in this composite was May 1,
1995. The percentage return is not annualized.

<PAGE>

MID-CAP GROWTH EQUITY ACCOUNT COMPOSITE

[MID-CAP GROWTH EQUITY ACCOUNT COMPOSITE GRAPH APPEARS HERE]

FIXED-INCOME ACCOUNT COMPOSITE

[FIXED-INCOME ACCOUNT COMPOSITE GRAPH APPEARS HERE]

REAL ESTATE SECURITIES ACCOUNT COMPOSITE

[REAL ESTATE SECURITIES ACCOUNT COMPOSITE GRAPH APPEARS HERE]

MANAGEMENT

For more information about the Investment Manager, the Administrator, their
functions, and their affiliates, see "Investment Manager and Administrator."

THE SENECA FUNDS IN DETAIL

<PAGE>

SENECA GROWTH FUND and SENECA MID-CAP GROWTH FUND

INVESTMENT STRATEGIES AND POLICIES. Each of these Funds will invest
primarily in common stocks of growth companies that meet certain fundamental
standards and that the Investment Manager believes have the potential for
above average market appreciation. These Funds will generally invest at
least 65% of their assets in common stocks. The Seneca Growth Fund will have
no limitations as to the market capitalizations of companies in which it
invests, but will generally focus a portion of its portfolio on large,
well-known companies, many with market capitalizations in excess of $5
billion, that have an established history of profitability and/or dividend
payment. The Seneca Mid-Cap Growth Fund will invest primarily in companies
with market capitalizations between $500 million and $5 billion, although it
may at times have significant investments in companies with higher or lower
market capitalizations. At times, both Funds may invest in some of the same
securities. Prices of securities issued by medium-capitalization companies
are often more volatile than those of large, well-established companies, in
part because of the relatively fewer shares available and the potential for
developments in a smaller company's business to have a relatively greater
impact on its earnings and revenues than developments in the business of
larger companies. In addition, the risk of insolvency (with attendant losses
to shareholders) is greater for smaller companies than for larger companies.
As a result, because of its investment focus on companies with
medium-capitalizations, the Seneca Mid-Cap Growth Fund's performance can be
expected to be more volatile than that of the Seneca Growth Fund.

<PAGE>

SENECA BOND FUND

INVESTMENT OBJECTIVE: High total return--both current income and capital
appreciation. This fund will seek to outperform the Lehman Brothers
Government/Corporate Index.

<PAGE>

The Fund's investments may include securities issued or guaranteed by the
U.S. Government or its agencies and instrumentalities, publicly-traded and
privately-placed corporate securities, as well as municipal obligations. The
Fund may also invest in mortgage-backed securities issued by various federal
agencies and government sponsored enterprises and in other mortgage-related
or asset-backed securities. Investments in mortgage- related securities can
be subject to the risk of early repayment of principal. For more
information, see "Mortgage-Backed and Asset-Backed Securities" and the
Statement of Additional Information.

SENECA REAL ESTATE SECURITIES FUND

INVESTMENT OBJECTIVE: High total return, both current income and long-term
capital appreciation, through investments in real estate-related securities.

INVESTMENT STRATEGIES AND POLICIES. This Fund will invest primarily in
equity or debt securities of issuers that are principally engaged in
businesses in the United States real estate industry or in related
businesses. An issuer will be considered "principally" engaged in such a
business if at least 50% of the issuer's assets, gross income, or net income
are attributable to ownership, construction, management, or sale of real
estate located in the United States, or to products or services related to
the real estate industry. Examples of issuers participating directly in the
real estate industry include equity REITs (which own real estate directly),
mortgage REITs (which make short-term construction or real estate development
loans or invest in long-term mortgages or mortgage pools), real estate
brokers and developers, companies that manage real estate, and companies that
own substantial amounts of real estate. Examples of issuers whose products
or services are related to the real estate industry include manufacturers and
distributors of building supplies and financial institutions that originate
or service mortgage loans.

<PAGE>

general, lower-rated debt securities offer higher returns than
investment-grade bonds but also carry higher risks. SEE "Summary of Bond
Ratings" for a description of bond ratings and "Below-Investment Grade
Securities" for a discussion of some of the risks involved in investments in
low-rated debt securities.

INVESTMENT PRACTICES AND RISK CONSIDERATIONS

<PAGE>

money is invested in the security. Because the security constitutes
collateral for the repurchase obligation, a repurchase agreement can be
considered a collateralized loan. The Fund's risk is the ability of the
seller to pay the agreed-upon price on the delivery date. If the seller is
unable to make a timely repurchase, the Fund could experience delays in the
receipt of expected proceeds, suffer a loss in principal or current interest,
or incur costs in liquidating the collateral. The Trustees has established
criteria to evaluate the creditworthiness of parties with whom the Funds may
enter into repurchase agreements.

BELOW-INVESTMENT GRADE SECURITIES. Each Fund may invest up to 35% of its net
assets in debt securities that are rated below "investment grade" by S&P or
Moody's, although a Fund will not invest in securities rated lower than B by
S&P or Moody's or unrated securities whose quality the Investment Manager
determines to be lower than those ratings. "Investment grade" refers to
securities rated BBB or better by S&P or Baa or better by Moody's.
Below-investment grade securities involve higher current income but may be
considered speculative because they present a greater risk that the issuer
will not be able to make interest or principal payments on time. If this
happens, a Fund would lose income and could expect a decline in the market
value of the securities affected. Prices of such securities tend to react
more to prevailing economic and industry conditions, issuers' unique
financial situations, and the bonds' coupon rates than to small changes in
prevailing interest rates. However, during an economic downturn or a period
of rising interest rates, issuers of these securities, generally
highly-leveraged companies, can have trouble making principal and interest
payments, meeting projected business goals, and obtaining additional
financing.

<PAGE>

REITS AND OTHER REAL ESTATE-RELATED INVESTMENTS. The value of investments in
issuers that hold real estate, particularly equity REITs, may be affected by
changes in the values of real properties owned by the issuers, and the value
of investments in mortgage REITs may also be affected by the quality of the
credit they have extended. Further, REITs often are not diversified and are
therefore subject to the risk of financing a limited number of projects or
properties. REITs depend on the skills of their management and are often
heavily dependent on cash flow from properties. Mortgage REITs are subject
to risks of default by borrowers. Some REITs are "self-liquidating" --
I.E., their existence is limited to a specific term--and present the risk of
liquidating at a time that is not economically opportune for their investors.
REITs also run the risks of failing to qualify for special tax treatment
under the U.S. Internal Revenue Code and of maintaining exemptions under the
Investment Company Act of 1940.

<PAGE>

LENDING SECURITIES. As a way to earn additional income, each of the Funds
may lend its portfolio securities to creditworthy persons not affiliated with
the Funds. Such loans must be secured by cash collateral or by irrevocable
letters of credit maintained on a current basis in an amount at least equal
to the market value of the securities lent. Under the terms of these loans,
a Fund must continue to receive the equivalent of the interest and dividends
paid by the issuer on the securities lent and interest on the investment of
the collateral and must have the right to call the loan and obtain the
securities lent at any time on five trading days' notice. This includes the
right to call the loan to enable the Fund to exercise its voting rights.
Such loans may not exceed one-third of the lending Fund's net assets at
market value. This percentage limitation constitutes a "fundamental" policy
that can be changed only by a vote of a majority of shareholders. Lending
securities to broker-dealers and institutions could result in a loss or a
delay in recovering the Fund's securities.

OPTIONS, FUTURES, AND OTHER DERIVATIVES. The Funds may buy and write call
and put options on securities, securities indices, and foreign currencies,
and may enter into futures contracts and use options on futures contracts.
The Funds may also enter into swap agreements relating to interest rates,
foreign currencies, and securities indices. All of these may be referred to
as "derivatives" transactions. The Funds may use these techniques to hedge
against changes in interest rates, foreign currency exchange rates, changes
in securities prices or other factors affecting the value of their
investments, or as part of their overall investment strategies. Each Fund
will maintain segregated accounts consisting of liquid assets, such as cash,
U.S. Government securities, or other high-grade debt securities (or, as
permitted by applicable regulations, enter into certain offsetting positions
to cover its obligations under derivatives transactions) to avoid
"leveraging" the Fund.

<PAGE>

price or, by writing an option, losing the opportunity to profit from
increases in the value of the securities covered) with no tangible benefit;
b) imperfect correlation between the price of derivatives and the movements
of the securities prices, interest rates or currency exchange rates being
hedged; c) the possible absence of a liquid secondary market for any
particular derivative at any time; d) the potential loss if the counterparty
to the transaction does not perform as promised; and e) the possible need to
defer closing out certain positions to avoid adverse tax consequences. More
information on derivatives is contained in the Statement of Additional
Information.

ZERO COUPON BONDS. Each Fund may invest in zero coupon bonds and strips.
The Seneca Bond Fund is more likely to invest in such securities than the
other Funds. Zero coupon bonds do not make regular interest payments.
Instead, they are sold at a discount from face value. A single lump sum that
represents both principal and interest is paid at maturity. Strips are debt
securities whose interest coupons are taken out and traded separately after
the securities ar issued, but otherwise are comparable to zero coupon bonds.
The market value of zero coupon bonds and strips generally is more sensitive
to interest rate fluctuations than interest-paying securities of comparable
term and quality.

PURCHASE OF SHARES

<PAGE>

INITIAL INVESTMENT

ADDITIONAL INVESTMENTS

Additional investments may be made at any time at the relevant net asset
value for that class by calling the Trust and wiring Federal funds to the
Transfer Agent as outlined above.

OTHER PURCHASE INFORMATION

Purchases of a Fund's shares will be made in full and fractional shares. In
the interest of economy and convenience, certificates for shares will
generally not be issued.

The Trust reserves the right, in its sole discretion, to suspend the offering
of shares of either class of any Fund or to reject purchase orders when, in
the judgment of management, such suspension or rejection is in the best
interests of the Trust; to waive the minimum initial investment for certain
investors; and to redeem shares if information provided in the Client
Registration Application proves to be incorrect in any material manner (E.G.,
in a manner such as to render the shareholder ineligible to purchase shares).

<PAGE>

REDEMPTION OF SHARES

REDEMPTIONS BY MAIL

REDEMPTIONS BY TELEPHONE OR OTHER WIRE COMMUNICATIONS

In electing a telephone redemption, the investor authorizes the Transfer
Agent to act on telephone instructions from any person representing himself
to be the investor, and reasonably believed by them to be genuine. Neither
the Trust nor its Transfer Agent will be liable for any loss, cost or expense
for acting on instructions (whether in writing or by telephone) believed by
the party receiving such instructions to be genuine and in accordance with
the procedures described in this Prospectus. Shareholders should realize
that by electing the telephone or wire redemption option, they may be giving
up a measure of security that they might have if they were to redeem their
shares in writing. Furthermore, interruptions in telephone service may mean
that a shareholder will be unable to effect a redemption by telephone when
desired. The Transfer Agent provides written confirmation of transactions
initiated by telephone as a procedure designed to confirm that telephone
instructions are genuine (written confirmation is also provided for
redemption request received in writing). All redemptions, whether initiated
by letter or telephone, will be processed in a timely manner and proceeds
will be forwarded by wire in accordance with the redemption policies of the
Trust detailed under the heading "Other Redemption Information."

<PAGE>

OTHER REDEMPTION INFORMATION

EXCHANGE PRIVILEGE

<PAGE>

PORTFOLIO TRANSACTIONS

<PAGE>

the same time, transactions in such securities will be allocated among the
Fund and clients in a manner deemed fair and reasonable by the Investment
Manager.

NET ASSET VALUE

DIVIDENDS AND CAPITAL GAINS

The Funds will distribute substantially all of their net investment income in
the form of dividends to shareholders. The following table shows how often
each Fund will pay dividends.

<TABLE>
<CAPTION>
Fund Dividend Paid
<S> <C>
- --------------------------------------------------------------------------------
Seneca Growth Fund Annually
- --------------------------------------------------------------------------------
Seneca Mid-Cap Growth Fund Annually
- --------------------------------------------------------------------------------
Seneca Bond Fund Monthly
- --------------------------------------------------------------------------------
Seneca Real Estate Securities Fund Quarterly
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>

Each of the Funds will distribute net capital gains, if any, annually.

Shareholders may select from among the following distribution options:
<PAGE>

Cash and Reinvested Have either dividends or capital gains paid in cash
and the other reinvested in additional shares in the
same or any other Fund; or

All Cash Have dividends and capital gains distributions paid
in cash.

INCOME TAX CONSIDERATIONS

For IRAs and pension plans, dividends and capital gains will be are
reinvested and NOT taxed until the beneficiary receives a qualified
distribution from the IRA or pension plan.

Redemptions and exchanges of shares are taxable events that may represent a
gain or a loss for the shareholder.

<PAGE>

INVESTMENT MANAGER AND ADMINISTRATOR

INVESTMENT MANAGER SERVICES. The Investment Manager is responsible for
making investment decisions for the Funds and for selecting brokers and
dealers to execute transactions for each Fund.

<PAGE>

annual rate of 0.20% of the average daily net assets of that class. The
Institutional class of each Fund pays a lower fee in recognition of the fact
that fewer services are required.

GENERAL INFORMATION

<PAGE>

OTHER EXPENSES

<PAGE>

PERFORMANCE INFORMATION.

The performance of a Fund can also be measured in terms of yield. Each
Fund's yield shows the rate of income the Fund earns on its investments as a
percentage of the Fund's share price.

A Fund can also separate its cumulative and average annual total returns into
income results and capital gains or losses. Each Fund can quote its total
returns on a before-tax or after-tax basis.

Investment Grade Moody's Standard &
Poor's
- -----------------------------------------------------------------------------
<S> <C> <C>
Highest quality Aaa AAA
- -----------------------------------------------------------------------------
High quality Aa AA
- -----------------------------------------------------------------------------
Upper medium A A
- -----------------------------------------------------------------------------
Medium, speculative features Baa BBB
- -----------------------------------------------------------------------------

Lower Quality
- -----------------------------------------------------------------------------
Moderately speculative Ba BB

</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------
Speculative B B
- -----------------------------------------------------------------------------
Very Speculative Caa CCC
- -----------------------------------------------------------------------------
Very high risk Ca CC
- -----------------------------------------------------------------------------
Highest risk, may not be paying interest C C
- -----------------------------------------------------------------------------
In arrears or default C D
- -----------------------------------------------------------------------------
</TABLE>

For more detailed information on bond ratings, including gradations within
each category of quality, see the Statement of Additional Information.

<PAGE>

PART B

SENECA FUNDS

SENECA GROWTH FUND
SENECA MID-CAP GROWTH FUND
SENECA BOND FUND
SENECA REAL ESTATE SECURITIES FUND

(each a "Fund" and collectively, the "Funds")

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

STATEMENT OF ADDITIONAL INFORMATION

February , 1996

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

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Institutional Shares or Administrative Shares
prospectus of the Funds, dated February __, 1996, as amended and/or
supplemented from time to time (the "Prospectuses"), copies of which may be
obtained without charge by writing to Seneca Funds (the "Trust"), care of its
transfer agent, Investors Fiduciary Trust Company, 127 West 10th Street,
Kansas City, Missouri 64105, or by calling 1-800-XXX-YYYY.

THE STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL 1

INVESTMENT OBJECTIVES AND POLICIES 1

INVESTMENT RESTRICTIONS 19

CALCULATION OF THE FUNDS' RETURNS 23

ADVISORY AND ADMINISTRATIVE SERVICES 25

TRUSTEES AND OFFICERS 29

NET ASSET VALUE 31

DIVIDENDS, DISTRIBUTIONS AND TAX STATUS 32

PORTFOLIO BROKERAGE 35

PORTFOLIO TURNOVER 38

ORGANIZATION 39

CUSTODIAN 41

TRANSFER AGENT 41

INDEPENDENT AUDITORS 41

APPENDIX 42

GLOSSARY 43
</TABLE>

<PAGE>

GENERAL

The Trust consists of four separate Funds: The Seneca Growth Fund; the
Seneca Mid-Cap Growth Fund; the Seneca Bond Fund; and the Seneca Real Estate
Investment Fund. Each Fund offers two classes of shares: Institutional
Shares and Administrative Shares. Institutional Shares are offered directly
by the Funds' "Distributor" (see "Service Plans") to institutional investors
such as pension and profit sharing plans, employee benefit trusts,
endowments, foundations, and corporations. Administrative Shares are offered
primarily to investors through accounts with broker-dealers, employee benefit
plan administrators and other financial intermediaries. The Administrative
class pays fees to those entities for subaccounting, recordkeeping, and
similar services they provide that class.

All capitalized terms not defined herein have the meanings set forth in the
Prospectus.

INVESTMENT OBJECTIVES AND POLICIES

The investment objective and general investment policies of each Fund are
described in the Prospectuses. This Statement of Additional Information
should be read in conjunction with the Prospectus. See in particular "Seneca
Funds in Detail" and "Investment Practices and Risk Considerations" in the
Prospectus. Additional information concerning the characteristics of certain
securities in which the Funds may invest and certain practices in which they
may engage are set forth below. The Appendix to this Statement of Additional
Information contains a description of the quality categories of corporate
bonds in which the Funds may invest, and a Glossary describing some of the
Funds' investments.

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements with banks, broker-dealers or
other financial institutions in order to generate additional current income.
Under a repurchase agreement, a Fund acquires a security from a seller
subject to resale to the seller at an agreed upon price and date. The resale
price reflects an agreed upon interest rate effective for the time period the
security is held by the Fund. The repurchase price may be higher than the
purchase price, the difference being income to the Fund, or the purchase and
repurchase price may be the same, with interest payable to the Fund at a
stated rate together with the repurchase price on repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the
security. Typically, repurchase agreements are in effect for one week or
less, but may be in effect for longer periods of time. Repurchase agreements
of more than one week's duration are subject to each Fund's limitation on
investments in illiquid securities.

Repurchase agreements are considered by the Securities and Exchange
Commission (the "SEC") to be loans by the purchaser collateralized by the
underlying securities. In an attempt to reduce the risk of incurring a loss
on a repurchase agreement, the Funds will generally enter into repurchase
agreements only with domestic banks with total assets in excess of one
billion dollars, primary dealers in U.S. Government securities reporting to
the Federal Reserve Bank of New York or broker-dealers approved by the
Trustees of the Trust. The Investment Manager will monitor the value of the
underlying securities throughout the term of the agreement to ensure that
their market value always equals or exceeds the agreed-upon repurchase price
to be paid to a Fund. Each Fund will maintain a segregated account with its
custodian, Investors Fiduciary Trust Company (the "Custodian"), or a
subcustodian for the securities and other collateral, if any, acquired under
a repurchase agreement for the term of the agreement.

In addition to the risk of the seller's default or a decline in value of the
underlying security (see "Investment Practices and Risk Considerations --
Repurchase Agreements" in the Prospectus), a Fund also might incur

<PAGE>

disposition costs in connection with liquidating the underlying securities.
If the seller becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by a Fund not within the control
of that Fund and therefore subject to sale by the seller's trustee in
bankruptcy. Finally, it is possible that a Fund may not be able to perfect
its interest in the underlying security and may be deemed an unsecured
creditor of the seller. While the Trust acknowledges these risks, it is
expected that they can be controlled through careful monitoring procedures.

CORPORATE DEBT SECURITIES

A Fund's investments in debt securities of domestic or foreign corporate
issuers are limited to bonds, debentures, notes and other similar corporate
debt instruments, including convertible securities that meet the Fund's
minimum ratings criteria or if unrated are, in the Investment Manager's
opinion, comparable in quality to corporate debt securities that meet those
criteria. The rate of return or return of principal on some debt obligations
may be linked or indexed to the level of exchange rates between the U.S.
dollar and a foreign currency or currencies or to the value of commodities,
such as gold.

CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
or other security that entitles the holder to acquire common stock or other
equity securities of the same or a different issuer. It generally entitles
the holder to receive interest paid or accrued until the security matures or
is redeemed, converted, or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible debt securities.
Convertible securities rank senior to common stock in a corporation's capital
structure and, therefore, generally entail less risk than the corporation's
common stock, although the extent to which this is true depends in large
measure on the degree to which the convertible security sells above its value
as a fixed- income security.

A convertible security may be subject to redemption or conversion at the
option of the issuer at a predetermined price. If a convertible security
held by a Fund is called for redemption, the Fund could be required to permit
the issuer to redeem the security and convert it to the underlying common
stock. The Seneca Bond Fund generally would invest in convertible securities
for their favorable price characteristics and total return potential and
would normally not exercise an option to convert. The Seneca Growth Fund and
Seneca Mid-Cap Growth Fund might be more willing to convert such securities
to common stock.

BELOW-INVESTMENT GRADE SECURITIES. Investments in below-investment grade
securities (SEE Appendix for an explanation of the various ratings) generally
provide greater income (leading to the name "high-yield" securities) and
increased opportunity for capital appreciation than investments in higher
quality securities, but they also typically entail greater price volatility
and principal and income risk. These securities are regarded as
predominantly speculative as to the issuer's continuing ability to meet
principal and interest payment obligations. The markets for these securities
are relatively new and many of the outstanding high- yield securities have
not endured a major business recession. A long-term track record on default
rates, such as that for investment-grade corporate bonds, does not exist for
these securities. Analysis of the creditworthiness of issuers of
lower-quality debt securities may be more complex than for issuers of higher-
quality debt securities.

High-yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment-grade
securities. The prices of high-yield securities have been found to be less
sensitive to interest-rate changes than higher-quality investments, but more
sensitive to adverse economic developments or individual corporate
developments. A projection of an economic downturn or of a period of rising
interests rates, for example, could cause a decline in high-yield securities
prices because the advent of a recession could lessen the ability of a
highly-leveraged company to make principal and interest payments. If an
issuer of high-yield securities defaults, in addition to risking payment of
all or a portion of interest and

<PAGE>

principal, the Funds may incur additional expenses to seek recovery. Market
prices of high-yield securities structured as zero-coupon or pay-in-kind
securities are affected to a greater extent by interest rate changes, and
therefore tend to be more volatile than securities that pay interest
periodically and in cash.

The secondary market on which high-yield securities are traded may be less
liquid than the market for higher- grade securities. Less liquidity could
adversely affect the price at which a Fund could sell a high-yield security
and could adversely affect the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of high-yield
securities, especially in a thinly-traded market. When secondary markets for
these securities are less liquid than the market for higher-grade securities,
it may be more difficult to value the high-yield securities because the
valuation may require more research and judgment may play a greater role in
valuation because of the lack of reliable, objective data. The Investment
Manager will seek to minimize the risks of investing in all securities
through diversification, credit analysis, and attention to current
developments in interest rates and market conditions.

DELAYED DELIVERY TRANSACTIONS

Each Fund may purchase securities on a when-issued or forward commitment
basis. These transactions are also know as delayed delivery transactions.
(The phrase "delayed delivery" is not intended to address transactions
involving the purchase of securities where the delay in delivery involves
only the brief period usually required by the selling party and its agent
solely to locate appropriate certificates and prepare them for submission for
clearance and settlement in the customary way.) Delayed delivery
transactions involve a commitment by a Fund to purchase or sell securities at
a future date (ordinarily up to 90 days later). The price of the underlying
securities (usually expressed in terms of yield) and the date when the
securities will be delivered and paid, for (the settlement date) are fixed at
the time the transaction is negotiated. When-issued purchases and forward
commitments are negotiated directly with the selling party.

When-issued purchases and forward commitments enable a Fund to lock in what
is believed to be an attractive price or yield on a particular security for a
period of time, regardless of future changes in interest rates. For example,
in periods of rising interest rates and falling bond prices, a Fund might
sell debt securities it owns on a forward commitment basis to limit its
exposure to falling prices. In periods of falling interest rates and rising
prices, a Fund might sell securities it owns and purchase the same or a
similar security on a when-issued or forward commitment basis, thereby
obtaining the benefit of currently higher yields. A Fund will not enter into
such transactions for the purpose of leverage.

The value of securities a Fund purchases on a when-issued or forward
commitment basis and any subsequent fluctuations in their value will be
reflected in the computation of the Fund's net asset value starting on the
date of the agreement to purchase the securities, and the Fund will be
subject to the rights and risks of ownership of the securities on that date.
A Fund will not earn interest on the securities it has committed to purchase
until they are paid for and delivered on the settlement date. When a Fund
makes a forward commitment to sell securities it owns, the proceeds to be
received upon settlement will be included in the Fund's assets. Fluctuations
in the market value of the underlying securities will not be reflected in the
Fund's net asset value as long as the commitment to sell remains in effect.
Settlement of when-issued purchases and forward commitment transactions
generally takes place up to 90 days after the date of the transaction, but a
Fund may agree to a longer settlement period.

A Fund will make commitments to purchase securities on a when-issued basis or
to purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling
the securities. If deemed advisable as a matter of investment strategy,
however, a Fund may dispose of or renegotiate a commitment after it is
entered into. A Fund also may sell securities it has committed to

<PAGE>

purchase before those securities are delivered to the Fund on the settlement
date. The Fund may realize a capital gain or loss in connection with these
transactions.

When a Fund purchases securities on a when-issued or forward-commitment
basis, the Custodian will maintain in a segregated account securities having
a value (determined daily) at least equal to the amount of the Fund's
purchase commitments. In a forward commitment to sell portfolio securities,
the Custodian will hold the portfolio securities themselves in a segregated
account while the commitment is outstanding. These procedures are designed
to ensure that each Fund will maintain sufficient assets at all times to
cover its obligations under when-issued purchases and forward commitments.

MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES

MORTGAGE PASS-THROUGH SECURITIES. These are interests in pools of mortgage
loans, assembled and issued by various governmental, government-related, and
private organizations. Unlike other forms of debt securities, which normally
provide for periodic payment of interest in fixed amounts with principal
payments at maturity or specified call dates, these securities provide a
monthly payment consisting of both interest and principal payments. In
effect, these payments are a "pass-through" of the monthly payments made by
the individual borrowers on their residential or commercial mortgage loans,
net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying property, refinancing or foreclosure, net of fees or
costs. "Modified pass-through" securities (such as securities issued by the
Government national Mortgage Association) entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain
fees, at the scheduled payment dates regardless of whether or not the
mortgagor actually makes the payment.

The principal governmental guarantor of mortgage-related securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly owned
United States Government corporation within the Department of Housing and
Urban Development. GNMA is authorized to guarantee, with the full faith and
credit of the United States Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as
savings and loan institutions, commercial banks and mortgage bankers) and
backed by pools of FHA-insured or VA-guaranteed mortgages.

Government-related guarantors whose obligations are not backed by the full
faith and credit of the United States Government include the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). FNMA is a government-sponsored corporation owned entirely by
private stockholders. It is subject to general regulation by the Secretary
of Housing and Urban Development. FNMA purchases conventional (I.E., not
insured or guaranteed by any government agency) residential mortgages from a
list of approved seller/servicers which include state and federally chartered
savings and loan associations, mutual savings banks, commercial banks and
credit unions and mortgage bankers. FHLMC is a government- sponsored
corporation formerly owned by the twelve Federal Home Loan Banks and now
owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") that represent interests in conventional mortgages from
FHLMC's national portfolio. FMNA and FHLMC guarantee the timely payment of
interest and ultimate collection of principal on securities they issue, but
their guarantees are not backed by the full faith and credit of the United
States Government.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers
may, in addition, be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate
of interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments for such
securities. However, timely payment

<PAGE>

of interest and principal of these pools may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance and letters of credit. The insurance and guarantees are issued by
governmental entities, private insurers and the mortgage poolers. Such
insurance and guarantees and the creditworthiness of the issuers thereof will
be considered in determining whether a mortgage-related security meets a
Fund's investment quality standards. There can be no assurance that the
private insurers or guarantors can meet their obligations under the insurance
policies or guarantee arrangements. Funds may buy mortgage-related
securities without insurance or guarantees if, through an examination of the
loan experience and practices of the originator/servicers and poolers, the
Investment Manager determines that the securities meet the Funds' quality
standards. Securities issued by certain private organizations may not be
readily marketable.

Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the Funds'
industry concentration restrictions, set forth below under "Investment
Restrictions," by virtue of the exclusion from the test available to all U.S.
Government securities. The Funds will take the position that
privately-issued mortgage-related securities do not represent interests in
any particular "industry" or group of industries. The assets underlying such
securities may be represented by a portfolio of first lien residential
mortgages (including both whole mortgage loans and mortgage participation
interests) or portfolios of mortgage pass-through securities issued or
guaranteed by GNMA, FNMA or FHLMC. Mortgage loans underlying a
mortgage-related security may in turn be insured or guaranteed by the Federal
Housing Administration or the Department of Veterans Affairs. In the case of
private issue mortgage-related securities whose underlying assets are neither
U.S. Government securities nor U.S. Government-insured mortgages, to the
extent that real properties securing such assets may be located in the same
geographical region, the security may be subject to a greater risk of default
than other comparable securities in the event of adverse economic, political
or business developments that may affect such region and, ultimately, the
ability of residential homeowners to make payments of principal and interest
on the underlying mortgages.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a
bond, interest and prepaid principal is paid, in most cases, semiannually.
CMOs may be collateralized by whole mortgage loans, but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed
by GNMA, FHLMC, or FNMA, and their income streams.

CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a DE FACTO breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is
first returned to investors holding the shortest maturity class. Investors
holding the longer maturity classes receive principal only after the first
class has been retired. An investor is partially guarded against a sooner
than desired return of principal because of the sequential payments.

FHLMC COLLATERALIZED MORTGAGE OBLIGATIONS. FHLMC CMOs are debt obligations
of FHLMC issued in multiple classes having different maturity dates and are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are
made semiannually rather than monthly. The amount of principal payable on
each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule. Sinking fund payments in the CMOs are
allocated to the retirement of the individual classes of bonds in the order
of their stated maturities. Payments of principal on the mortgage loans in
the collateral pool in excess of the amount of FHLMC's minimum sinking fund
obligation for any payment date are paid to the holders of the CMOs as
additional sinking-fund payments. Because of the "pass-through" nature of
all principal payments received on the collateral pool in excess of FHLMC's
minimum sinking fund requirement, the rate at which principal of the CMOs is
actually repaid is likely to be such that each class of bonds will be retired
in advance of its scheduled maturity date.

<PAGE>

If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.

Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute
collateral in the event of delinquencies and/or defaults.

OTHER MORTGAGE-RELATED SECURITIES. Other mortgage-related securities include
securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage
loans on real property, including CMO residuals or stripped mortgage-backed
securities. Other mortgage-related securities may be equity or debt
securities issued by agencies or instrumentalities of the U.S. Government or
by private originators of, or investors in, mortgage loans, including savings
and loan association, homebuilders, mortgage banks, commercial banks,
investment banks, partnerships, trusts and special purpose entities of the
foregoing.

CMO RESIDUALS. CMO residuals are derivative mortgage securities issued
by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans.

The cash flow generated by the mortgage assets underlying a series of CMOs is
applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
"residual" in a CMO structure generally represents the interest in any excess
cash flow remaining after making the foregoing payments. Each payment of
such excess cash flow to a holder of the related CMO residual represents
income and/or a return of capital. The amount of residual cash flow
resulting from a CMO will depend on, among other things, the characteristics
of the mortgage assets, the coupon rate of each class of CMO, prevailing
interest rates, the amount of administrative expenses and, in particular, the
prepayment experience on the mortgage assets. In addition, if a series of a
CMO includes a class that bears interest at an adjustable rate, the yield to
maturity on the related CMO residual will also be extremely sensitive to
changes in the level of the index upon which interest rate adjustments are
based. As described below with respect to stripped mortgage-backed
securities, in certain circumstances a Fund may fail to recoup fully its
initial investment in a CMO residual.

CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The
CMO residual market has only very recently developed and CMO residuals
currently may not have the liquidity of other more established securities
trading in other markets. Transactions in CMO residuals are generally
completed only after careful review of the characteristics of the securities
in question. CMO residuals may be subject to certain restrictions on
transferability, and may be deemed "illiquid" and subject to a Fund's
limitations on investment in illiquid securities.

STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed
securities ("SMBS") are derivative multi- class mortgage securities. They
may be issued by agencies or instrumentalities of the U.S. Government, or by
private originators of, or investors in, mortgage loans. SMBS are usually
structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. A common
type of SMBS will have one class receiving some of the interest and most of
the principal from the mortgage assets, while the other class will receive
most of the interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the interest-only or "IO"
class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is
extremely sensitive to the rate of principal payments (including prepayments)
on the related underlying mortgage assets, and a rapid rate of principal
payments may have a material adverse effect on a Fund's yield to maturity
from these securities. If the underlying mortgage assets experience greater
than anticipated

<PAGE>

prepayments of principal, a Fund may fail to recoup fully its initial
investment in these securities even if the security is in one of the highest
rating categories.

Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these
securities were only recently developed. As a result, established trading
markets have not yet developed and, accordingly, these securities may be
deemed "illiquid" and subject to a Fund's limitations on investment in
illiquid securities.

OTHER ASSET-BACKED SECURITIES. Similarly, the Investment Manager expects
that other asset-backed securities (unrelated to mortgage loans) will be
offered to investors in the future. Several types of asset-backed securities
have already been offered to investors, including CARS_ ("Certificates for
Automobile Receivables_ "). CARS_ represent undivided fractional interests
in a trust whose assets consist of a pool of motor vehicle retail installment
sales contracts and security interests in the vehicles security the
contracts. Payments of principal and interest on CARS_ are passed through
monthly to certificate holders, and are guaranteed up to certain amounts and
for a certain time period by a letter of credit issued by a financial
institution unaffiliated with the trustee or originator of the trust. An
investor's return on CARS_ may be affected by early prepayment of principal
on the underlying vehicle sales contracts. If the letter of credit is
exhausted, the trust may be prevented from realizing the full amount due on a
sales contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of federal and state bankruptcy and insolvency laws, or other
factors. As a result, certificate holders may experience delays in payments
or losses if the letter of credit is exhausted.

Consistent with a Fund's investment objectives and policies, the Investment
Manager also may cause a Fund to invest in other types of asset-backed
securities.

FOREIGN SECURITIES

All Funds may invest in U.S. dollar- or foreign currency-denominated
corporate debt securities of foreign issuers (including preferred or
preference stock), certain foreign bank obligations and U.S. dollar- or
foreign currency-denominated obligations of foreign governments or their
subdivisions, agencies and instrumentalities, international agencies and
supranational entities. The Seneca Growth Fund and the Seneca Mid-Cap Growth
Fund may each invest up to 20% of its total assets directly in common stocks
issued by foreign companies or in securities represented by American
Depository Receipts ("ADRs"). Each Fund will limit its investment in
securities denominated in foreign currencies to no more than 20% of the
Fund's total assets.

Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies.
These include differences in accounting, auditing and financial reporting
standards, generally higher commission rates on foreign portfolio
transactions, the possibility of expropriation or confiscatory taxation,
adverse changes in investment or exchange control regulations (which may
include suspension of the ability to transfer currency from a country),
political instability which can affect U.S. investments in foreign countries
and potential restrictions on the flow of international capital. In
addition, foreign securities and dividends and interest payable on those
securities may be subject to foreign taxes, including taxes withheld from
payments on those securities. Foreign securities often trade with less
frequency and volume than domestic securities and therefore may exhibit
greater price volatility. Changes in foreign exchange rates will affect the
value of those securities which are denominated or quoted in currencies other
than the U.S. dollar.

ADRs are dollar-denominated receipts issued generally by domestic banks and
representing the deposit with the bank of a security of a foreign issuer, and
are publicly traded on exchanges or over-the-counter in the

<PAGE>

United States. ADRS may be issued as sponsored or unsponsored programs. In
sponsored programs, an issuer has made arrangements to have its securities
trade in the form of ADRs. In unsponsored programs, the issuer may not be
directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from
an issuer that has participated in the creation of a sponsored program.

All Funds also may purchase and sell foreign currency options and foreign
currency futures contracts and related options and enter into forward foreign
currency exchange contracts in order to protect against uncertainty in the
level of future foreign exchange rates in the purchase and sale of
securities. The Funds may also use foreign currency options and foreign
currency forward contracts to increase exposure to a foreign currency or to
shift exposure to foreign currency fluctuations from one country to another.

A forward foreign currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. These contracts may be bought or sold to
protect a Fund against a possible loss resulting from an adverse change in
the relationship between foreign currencies and the U.S. dollar or to
increase exposure to a particular foreign currency. Open positions in
forward contracts are covered by the segregation with the Trust's custodian
of high quality short-term investments and are marked to market daily.
Although such contracts are intended to minimize the risk of loss due to a
decline in the value of the currencies being hedged against, at the same
time, they tend to limit any potential gain which might result should the
value of such currencies increase.

OPTIONS

In pursuing their individual objectives the Funds may, as described in the
Prospectuses, purchase and sell (write) both put options and call options on
securities, securities indexes, and foreign currencies, and enter into
interest rate, foreign currency and index futures contracts and purchase and
sell options on such futures contracts ("futures options") for hedging
purposes. The Funds also may enter into swap agreements with respect to
foreign currencies, interest rates and securities indices. If other types of
financial instruments, including other types of options, futures contracts,
or futures options are traded in the future, a Fund may also use those
instruments, provided that the Trustees determine that their use is
consistent with the Fund's investment objective, and provided that their use
is consistent with restrictions applicable to options and futures contracts
currently eligible for use by the Trust (i.e., that written call or put
options will be "covered" or "secured" and that futures and futures options
will be used only for hedging purposes).

The purpose of writing covered put and call options is to hedge against
fluctuations in the market value of a Fund's portfolio securities. Each Fund
may purchase or sell call and put options on securities indices for a similar
purpose. Such a hedge is limited to the degree that the extent of the price
change of the underlying security is less than the difference between the
option premium received by the Fund and the option strike price. To the
extent the underlying security's price change exceeds this amount, written
put and call options will not provide an effective hedge.

WRITING COVERED CALL OPTIONS. Each Fund may write (sell) covered call
options on securities ("calls") when the Investment Manager considers such
sales appropriate. When a Fund writes a call, it receives a premium and
grants the purchaser the right to buy the underlying security at any time
during the call period (usually between three and nine months) at a fixed
exercise price regardless of market price changes during the call period. If
the call is exercised, the Fund forgoes any gain but is not subject to any
loss on any change in the market price of the underlying security relative to
the exercise price. A Fund will write such options subject to any applicable
limitations or restrictions imposed by law.

<PAGE>

A written call option would be covered if the Fund owns the security
underlying the option. A written call option may also be covered by
purchasing an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces the Fund's net exposure on its written
option position. Further, instead of "covering" a written call option, the
Fund may simply maintain cash or High-Grade Debt Securities in a segregated
account in amounts sufficient to ensure that it is able to meet its
obligations under the written call should it be exercised. This method does
not reduce the potential loss to the Fund should the value of the underlying
security increase and the option be exercised.

PURCHASING CALL OPTIONS. Each Fund may purchase a call option when the
Investment Manager believes the value of the underlying security will rise or
to effect a "closing purchase transaction" as to a call option the Fund has
written (sold). A Fund will realize a profit (or loss) from a closing
purchase transaction if the amount paid to purchase a call is less (or more)
than the amount received from the sale thereof.

WRITING PUT OPTIONS. A put option written by a Fund obligates the Fund to
purchase the specified security at a specified price if the option is
exercised at any time before the expiration date. A written put option may
be covered by maintaining in a segregated account cash or liquid securities
rated within one of the top three ratings categories by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Ratings Group ("Standard &
Poor's"), or, if unrated, deemed by the Investment Manager to be of
comparable credit quality ("High-Grade Debt Securities"). While this will
ensure that a Fund will have sufficient assets to meet its obligations under
the option contract should it be exercised, it will not reduce the potential
loss to the Fund should the value of the underlying security decrease and the
option be exercised.

PURCHASING PUT OPTIONS. A Fund may purchase a put option when the Investment
Manager believes the value of the underlying security will decline. A Fund
may purchase put options on securities in its portfolio in order to hedge
against a decline in the value of such securities ("protective puts") or to
effect closing purchase transactions as to puts it has written.

OPTIONS ON SECURITIES INDICES. Unlike a stock option, which gives the holder
the right to purchase or sell a specified stock at a specified price, an
option on a securities index gives the holder the right to receive a cash
"exercise settlement amount" equal to (i) the difference between the exercise
price of the option and the value of the underlying securities index on the
exercise date multiplied by (ii) a fixed "index multiplier." Like an option
on a specific security, when a Fund purchases a put or a call option or an
index, it places the entire amount of the premium paid at risk, for if, at
the expiration date, the value of the index has decreased below the exercise
price (in the case of a call) or increased above the exercise price (in the
case of a put), the option will expire worthless.

A securities index fluctuates with changes in the market values of the stocks
included in the index. For example, some securities index options are based
on a broad market index such as the S&P 500. Others are based on a narrower
market index such as the Standard & Poor's 100 Stock Index ("S&P 100").
Indices may also be based on an industry or market segment such as the AMEX
Oil and Gas Index or the Computer and Business Equipment Index. Options on
securities indices are currently traded on the Chicago Board Options
Exchange, the NYSE and the American Stock Exchange.

Funds may purchase put options on securities indices to hedge against an
anticipated decline in stock market prices that might adversely affect the
value of a Fund's portfolio securities. If a Fund purchases such a put
option, the amount of the payment it would receive upon exercising the option
would depend on the extent of any decline in the level of the securities
index below the exercise price. Such payments would tend to offset a decline
in the value of the Fund's portfolio securities. However, if the level of
the securities index increases and remains above the exercise price while the
put option is outstanding, a Fund will not be able to profitably

<PAGE>

exercise the option and will lose the amount of the premium and any
transaction costs. Such loss may be partially or wholly offset by an
increase in the value of a Fund's portfolio securities.

A Fund may purchase call options on securities indices in order to
participate in an anticipated increase in stock market prices or to offset
anticipated price increases on securities that it intends to buy in the
future. If a Fund purchases a call option on a securities index, the amount
of the payment it would receive upon exercising the option would depend on
the extent of any increase in the level of the securities index above the
exercise price. Such payments would in effect allow the Fund to benefit from
stock market appreciation even though it may not have had sufficient cash to
purchase the underlying stocks. Such payments may also offset increases in
the prices of stocks that the Fund intends to purchase. If, however, the
level of the securities index declines and remains below the exercise price
while the call option is outstanding, a Fund will not be able to exercise the
option profitably and will lose the amount of the premium and transaction
costs. Such loss may be partially or wholly offset by a reduction in the
price a Fund pays to buy additional securities for its portfolio.

The Funds may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those of the underlying
index or by having an absolute and immediate right to acquire such securities
without additional cash consideration or for additional cash consideration
(held in a segregated account by its custodian) upon conversion or exchange
of other securities in their respective portfolios. The Funds may also cover
call and put options on a securities index by maintaining cash or High-Grade
Debt Securities with a value equal to the exercise price in a segregated
account with the Custodian or by using the other methods described above.

The extent to which options on securities indices will provide a Fund with an
effective hedge against interest rate or stock market risk will depend on the
extent to which the stocks comprising the indices correlate with the
composition of the Fund's portfolio. Moreover, the ability to hedge
effectively depends upon the ability to predict movements in interest rates
or the stock market. Some options on securities indices may not have a broad
and liquid secondary market, in which case options purchased by the Fund may
not be closed out and the Fund could lose more than its option premium when
the option expires.

The purchase and sale of option contracts is a highly specialized activity
that involves investment techniques and risks different from those ordinarily
associated with investment companies. Transaction costs relating to options
transactions may tend to be higher than the costs of transactions in
securities. In addition, if a Fund were to write a substantial number of
option contracts that are exercised, the portfolio turnover rate of that Fund
could increase.

FOREIGN CURRENCY OPTIONS. A Fund may buy or sell put and call options on
foreign currencies either on exchanges or in the over-the-counter market. A
call option on a foreign currency gives the purchaser of the option the right
to buy a foreign currency at the exercise price until the option expires. A
put option gives the option-holder a similar right to sell the underlying
currency. Currency options traded on U.S. or other exchanges may be subject
to position limits which may limit the ability of a Fund to reduce foreign
currency risk using such options. Over-the-counter options differ from
exchange-traded options in that they are two-party contracts with price and
other terms negotiated between buyer and seller, and generally do not have as
much market liquidity as exchange-traded options.

<PAGE>

FUTURES TRANSACTIONS

Each Fund may purchase and sell futures contracts for hedging purposes and in
an attempt to increase total return. A futures contract is an agreement
between two parties to buy and sell a security for a set price at a future
time. Each Fund may also enter into index-based futures contracts and
interest rate futures contracts. Futures contracts on indices provide for a
final cash settlement on the expiration date based on changes in the relevant
index. All futures contracts are traded on designated "contract markets"
licensed and regulated by the Commodity Futures Trading Commission (the
"CFTC") which, through their clearing corporations, guarantee performance of
the contracts.

Generally, while market interest rates increase, the value of outstanding
debt securities declines (and vice versa). If a Fund holds long-term the
Fund debt securities and the Investment Manager anticipates a rise in
long-term interest rates, it could, in lieu of disposing of its portfolio
securities, enter into futures contracts for the sale of similar long-term
securities. If rates increased and the value of a Fund's portfolio securities
declined, the value of that Fund's futures contract would increase, thereby
preventing net asset value from declining as much as it otherwise would have.
If the Investment Manager expects long-term interest rates to decline, a
Fund might enter into futures contracts for the purchase of long-term
securities, so that it could offset anticipated increases in the cost of such
securities it intends to purchase while continuing to hold higher-yielding
short-term securities or waiting or the long-term market to stabilize.
Similar techniques may be used by the Funds to hedge stock market risk.

Each Fund also may purchase and sell listed put and call options on futures
contracts. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the option period.
When an option on a futures contract is exercised, settlement is effected by
the payment of cash representing the difference between the current market
price of the futures contract and the exercise price of the option. The risk
of loss to a Fund purchasing an option on a futures contract is limited to
the premium paid for the option.

A Fund may purchase put options on futures contracts in lieu of, and for the
same purpose as, its sale of a futures contract: to hedge a long position in
the underlying futures contract. The purchase of call options on futures
contracts is intended to serve the same purpose as the actual purchase of the
futures contract.

A Fund would write a call option on a futures contract in order to hedge
against a decline in the prices of the securities underlying the futures
contracts. If the price of the futures contract at expiration is below the
exercise price, the applicable Fund would retain the option premium, which
would offset, in part, any decline in the value of its portfolio securities.

The writing of a put option on a futures contract is similar to the purchase
of the futures contract, except that, if market price declines, a Fund would
pay more than the market price for the underlying securities. The net cost
to a Fund will be reduced, however, by the premium received on the sale of
the put, less any transaction costs.

Each Fund may engage in "straddle" transactions, which involve the purchase
or sale of combinations of call and put options on the same underlying
securities or futures contracts.

In purchasing and selling futures contracts and related options, each Fund
intends to comply with rules and interpretations of the CFTC and of the SEC.

<PAGE>

LIMITATIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES

Each Fund will engage in futures and related options transactions only for
hedging purposes in accordance with CFTC regulations or in an attempt to
increase total return to the extent permitted by such regulations. The Fund
will determine that the price fluctuations in the futures contracts and on
futures contracts used for hedging purposes are substantially related to
price fluctuations in securities held by the Fund or which it expects to
purchase. Except as stated below, a Fund's futures transactions will be
entered into for traditional hedging purposes--that is, futures contracts
will be sold to protect against a decline in the price of securities that the
Fund owns, or futures contracts will be purchased to protect the Fund against
an increase in the price of securities it intends to purchase. As evidence
of this hedging intent, the Fund expects that on 75% or more of the occasions
on which it takes a long futures (or option) position (involving the purchase
of futures contracts), a Fund will have purchased, or will be in the process
of purchasing, equivalent amounts of related securities in the cash market at
the time when the futures (or option) position is closed out. However, in
particular cases, when it is economically advantageous for a Fund to do so, a
long futures position may be terminated (or an option may expire) without the
corresponding purchase of securities. As an alternative to compliance with
the bona fide hedging definition, a CFTC regulation permits a Fund to elect
to comply with a different test, under which the sum of the amounts of
initial margin deposits on its existing futures positions and premiums paid
for options on futures entered into for the purpose of seeking to increase
total return (net of the amount the positions were "in the money" at the time
of purchase) would not exceed 5% of that Fund's net assets, after taking into
account unrealized gains and losses on such positions. A Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), for maintaining its qualification as a
regulated investment company for Federal income tax purposes (see "Dividends,
Distributions, and Tax Status").

A Fund will be required, in connection with transactions in futures contracts
and the writing of options on futures contracts, to make margin deposits,
which will be held by a Fund's custodian for the benefit of the merchant
through whom a Fund engages in such futures and options transactions. In the
case of futures contracts or options thereon requiring the Fund to purchase
securities, the Fund must segregate cash or high-grade debt securities in an
account maintained by the Custodian to cover such contracts and options.
Cash or high-grade debt securities required to be in a segregated account
will be marked to market daily.

SPECIAL CONSIDERATIONS AND RISKS RELATED TO OPTIONS AND FUTURES TRANSACTIONS

Exchange markets in options on certain securities are a relatively new and
untested concept. It is impossible to predict the amount of trading interest
that may exist in such options, and there can be no assurance that viable
exchange markets will develop or continue.

The exchanges will not continue indefinitely to introduce new expirations to
replace expiring options on particular issues because trading interest in
many issues of longer duration tends to center on the most recently auctioned
issues. The expirations introduced at the commencement of options trading on
a particular issue will be allowed to run out, with the possible addition of
a limited number of new expirations as the original expirations expire.
Options trading on each issue of securities with longer durations will thus
be phased out as new options are listed on more recent issues, and a full
range of expirations will not ordinarily be available for every issue on
which options are traded.

In the event of a shortage of the underlying securities deliverable on
exercise of an option, the Options Clearing Corporation ("OCC") has the
authority to permit other, generally comparable, securities to be delivered
in fulfillment of option exercise obligations. If the it may also adjust the
exercise prices of the affected options by

<PAGE>

setting different prices at which otherwise ineligible securities may be
delivered. As an alternative to permitting such substitute deliveries, the
OCC may impose special exercise settlement procedures.

The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent the markets
for underlying securities close before the options markets, significant price
and rate movements can take place in the options markets that cannot be
reflected in the underlying markets. In addition, to the extent that the
options markets close before the markets for the underlying securities, price
and rate movements can take place in the underlying markets that cannot be
reflected in the options markets.

Prior to exercise or expiration, an option position can be terminated only by
entering into a closing purchase or sale transaction. This requires a
secondary market on an exchange for call or put options of the same series.
Similarly, positions in futures may be closed out only on an exchange which
provides a secondary market for such futures. There can be no assurance that
a liquid secondary market will exist for any particular call or put option or
futures contract at any specific time. Thus, it may not be possible to close
an option or futures position. In the event of adverse price movements, a
Fund would continue to be required to make daily payments of maintenance
margin for futures contracts or options on futures contracts position written
by that Fund. A Fund may have to sell portfolio securities at a time when it
may be disadvantageous to do so if it has insufficient cash to meet the daily
maintenance margin requirements. In addition, a Fund may be required to take
or make delivery of the instruments underlying futures contracts it holds.
The inability to close options and futures positions also could have an
adverse impact on a Fund's ability to effectively hedge its portfolios.

Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security (whether or not
covered) that may be written by a single investor, whether acting alone or in
concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written on one or more accounts or
through one or more brokers). An exchange may order the liquidation of
positions found to be in violation of applicable trading limits and it may
impose other sanctions or restrictions. The Trust and other clients advised
by the Investment Manager and its affiliates may be deemed to constitute a
group for these purposes. In light of these limits, the Trustees may
determine at any time to restrict or terminate the Funds' transactions in
options. The Investment Manager does not believe that these trading and
position limits will have any adverse investment techniques for hedging the
Trust's portfolios.

Over-the-counter ("OTC") options are purchased from or sold to securities
dealers, financial institutions or other parties ("Counterparties") through
direct agreement with the Counterparty. In contrast to exchange-listed
options, which generally have standardized terms and performance mechanics,
all the terms of an OTC option, including such terms as method of settlement,
term, exercise price, premium, guarantees and security, are set by
negotiation of the parties.

Unless the parties provide for it, there is no central clearing or guaranty
function in the OTC option market. As a result, if the Counterparty fails to
make delivery of the security or other instrument underlying an OTC option it
has entered into with a Fund or fails to make a cash settlement payment due
in accordance with the terms of that option, the Fund will lose any premium
it paid for the option as well as any anticipated benefit of the transaction.
Accordingly, the Investment Manager must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The staff of the SEC currently takes the position
that OTC options purchased by a Fund, and portfolio securities "covering" the
amount of a Fund's obligation pursuant to an OTC option sold by it (the cost
of the sell-back plus the in-the-money amount, if any) are illiquid, and are
subject to each Fund's limitation on investing no more than 15% of its assets
in illiquid securities. However, for options written with "primary dealers"
in U.S. Government securities pursuant to an agreement requiring a

<PAGE>

closing transaction at a formula price, the amount considered to be illiquid
may be calculated by reference to a formula price.

Utilization of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and movements in
the price of the securities which are the subject of the hedge. If the price
of the futures contract moves more or less than the price of the security, a
Fund will experience a gain or loss that will not be completely offset by
movements in the price of the securities which are the subject of the hedge.
There is also a risk of imperfect correlation where the securities underlying
futures contracts have different maturities than the portfolio securities
being hedged. Transactions in options on futures contracts involve similar
risks.

SWAP AGREEMENTS. The Funds may enter into interest rate, index and currency
exchange rate swap agreements in attempts to obtain a particular desired
return at a lower cost to the Fund than if the Fund had invested directly in
an instrument that yielded that desired return. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments
or instruments. The gross returns to be exchanged or "swapped" between the
parties are calculated with respect to a "notional amount," i.e., the return
on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a "basket"
of securities representing a particular index. The "notional amount" of the
swap agreement is only a fictive basis on which to calculate the obligations
the parties to a swap agreement have agreed to exchange. A Fund's
obligations (or rights) under a swap agreement will generally be equal only
to the amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the
"net amount"). A Fund's obligations under a swap agreement will be accrued
daily (offset against any amounts owing to the Fund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash, U.S. Government
securities, or high grade debt obligations, to avoid any potential leveraging
of the Fund's portfolio. A Fund will not enter into a swap agreement with
any single party if the net amount owed or to be received under existing
contracts with that party would exceed 5% of the Fund's assets.

Whether a Fund's use of swap agreements enhance the Fund's total return will
depend on the Investment Manager's ability correctly to predict whether
certain types of investments are likely to produce greater returns than other
investments. Because they are two-party contracts and may have terms of
greater than seven days, swap agreements may be considered to be illiquid.
Moreover, a Fund bears the risk of loss of the amount expected to be received
under a swap agreement in the event of the default or bankruptcy of a swap
agreement counterparty. The Investment Manager will cause a Fund to enter
into swap agreements only with counterparties that would be eligible for
consideration as repurchase agreement counterparties under the Funds'
repurchase agreement guidelines. Certain restrictions imposed on the Funds
by the Internal Revenue Code may limit the Funds' ability to use swap
agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect a Fund's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements.

Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or
commodity option transactions under the CEA, pursuant to regulations of the
Commodity Futures Trading Commission ("CFTC"). To qualify for this
exemption, a swap agreement must be entered into by "eligible participants,"
which include the following, provided the participants' total assets exceed
established levels: a bank or trust company, savings association or credit
union, insurance company, investment company subject to regulation under the
Investment Company Act of 1940, commodity pool, corporation, partnership,
proprietorship, organization, trust or other entity, employee benefit plan,

<PAGE>

governmental entity, broker-dealer, futures commission merchant, natural
person, or regulated foreign person. To be eligible, natural persons and
most other entities must have total assets exceeding $10 million; commodity
pools and employees benefit plans must have assets exceeding $5 million. In
addition, an eligible swap transaction must meet three conditions. First,
the swap agreement may not be part of a fungible class of agreements that are
standardized as to their material economic terms. Second, the
creditworthiness of parties with actual or potential obligations under the
swap agreement must be a material consideration in entering into or
determining the terms of the swap agreement, including pricing, cost or
credit enhancement terms. Third, swap agreements may not be entered into and
traded on or through a multilateral transaction execution facility.

FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES

FOREIGN CURRENCY WARRANTS. Foreign currency warrants such as Currency
Exchange Warrants ("CEWs") are warrants that entitle the holder to receive
from the issuer an amount of cash (generally, for warrants issued in the
United States, in U.S. dollars) that is calculated pursuant to a
predetermined formula and based on the exchange rate between a specified
foreign currency and the U.S. dollar as of the exercise date of the warrant.
Foreign currency warrants generally are exercisable upon their issuance and
expire as of a specified date and time. Foreign currency warrants have been
issued in connection with U.S. dollar-denominated debt offerings by major
corporate issuers in an attempt to reduce the foreign currency exchange risk
that, from the point of view of prospective purchasers of the securities, is
inherent in the international fixed-income marketplace. Foreign currency
warrants may be used to reduce the foreign exchange risk assumed by
purchasers of a security by, for example, providing for a supplemental
payment in the event the U.S. Dollar depreciates against the value of a major
foreign currency such as the Japanese Yen or German Deutschmark. The formula
used to determine the amount payable upon exercise of a foreign currency
warrant may make the warrant worthless unless the applicable foreign currency
exchange rate moves in a particular direction (E.G., unless the U.S. dollar
appreciates or depreciates against the particular foreign currency to which
the warrant is linked or indexed). Foreign currency warrants are severable
from the debt obligations with which they may be offered, and may be listed
on exchanges. Foreign currency warrants may be exercisable only in certain
minimum amounts, and an investor wishing to exercise warrants who possesses
less than the minimum number required for exercise may be required either to
sell the warrants or to purchase additional warrants, thereby incurring
additional transaction costs. Upon exercise of warrants, there may be a
delay between the time the holder gives instructions to exercise and the time
the exchange rate relating to exercise is determined, thereby affecting both
the market and cash settlement values of the warrants being exercised. The
expiration date of the warrants may be accelerated if the warrants should be
delisted from an exchange or if their trading should be suspended
permanently, which would result in the loss of any remaining "time value" of
the warrants (i.e., the difference between the current market value and the
exercise value of the warrants), and, if the warrants were
"out-of-the-money," in a total loss of the purchase price of the warrants.
Warrants are generally unsecured obligations of their issuers and are not
standardized foreign currency options issued by the OCC. Unlike foreign
currency options issued by OCC, the terms of foreign exchange warrants
generally will not be amended in the event of governmental or regulatory
actions affecting exchange rates or in the event of the imposition of other
regulatory controls affecting the international currency markets. The
initial public offering price of foreign currency warrants is generally
considerably in excess of the price that a commercial user of foreign
currencies might pay in the interbank market for a comparable option
involving significantly larger amounts of foreign currencies. Foreign
currency warrants are subject to significant foreign exchange risk, including
risks arising from complex political or economic factors.

PRINCIPAL EXCHANGE RATE LINKED SECURITIES. Principal exchange rate linked
securities (or "PERLS") are debt obligations the principal on which is
payable at maturity in an amount that may vary based on the exchange rate
between the U.S. dollar and a particular foreign currency at or about that
time. The return on "standard" principal exchange rate linked securities is
enhanced if the foreign currency to which the security is linked

<PAGE>

appreciates against the U.S. dollar, and is adversely affected by increases
in the foreign exchange value of the U.S. dollar; "reverse" PERLS are like
the "standard" securities, except that their return is enhanced by increases
in the value of the U.S. dollar and adversely impacted by increases in the
value of foreign currency. Interest payments on the securities are generally
made in U.S. dollars at rates that reflect the degree of foreign currency
risk assumed or given up by the purchaser of the notes (i.e., at relatively
higher interest rates if the purchaser has assumed some of the foreign
exchange risk, or relatively lower interest rates if the issuer has assumed
some of the foreign exchange risk, based on the expectations of the current
market). PERLS may in limited cases be subject to acceleration of maturity
(generally, not without the consent of the holders of the securities), which
may have an adverse impact on the value of the principal payment to be made
at maturity.

PERFORMANCE INDEXED PAPER. Performance indexed paper (or "PIPs_") is U.S.
dollar-denominated commercial paper the yield of which is linked to certain
foreign exchange rate movements. The yield to the investor on performance
indexed paper is established at maturity as a function of spot exchange rates
between the U.S. dollar and a designated currency as of or about that time
(generally, the index maturity two days prior to maturity). The yield to the
investor will be within a range stipulated at the time of purchase of the
obligation, generally with a guaranteed minimum rate of return that is below,
and a potential maximum rate of return that is above, market yields on U.S.
dollar-denominated commercial paper, with both the minimum and maximum rates
of return on the investment corresponding to the minimum and maximum values
of the spot exchange rate two business days prior to maturity.

WARRANTS TO PURCHASE SECURITIES

The Funds may invest in or acquire warrants to purchase equity or fixed
income securities. Bonds with warrants attached to purchase equity
securities have many characteristics of convertible bonds and their prices
may, to some degree, reflect the performance of the underlying stock. Bonds
also may be issued with warrants attached to purchase additional fixed income
securities at the same coupon rate. A decline in interest rates would permit
a Fund to buy additional bonds at the favorable rate or to sell the warrants
at a profit. If interest rates rise, the warrants would generally expire
with no value.

A Fund will not invest more than 5% of its net assets, valued at the lower of
cost or market, in warrants to purchase securities. Included within that
amount, but not to exceed 2% of the Fund's net assets, may be warrants that
are not listed on the New York or American Stock Exchanges. Warrants
acquired in units or attached to securities will be deemed to be without
value for purposes of this restriction.

PARTICIPATION INTERESTS

The Seneca Bond Fund may purchase from banks participation interests in all
or part of specific holdings of debt obligations. Each participation
interest is backed by an irrevocable letter of credit or guarantee of the
selling bank that the Investment Manager has determined meets the prescribed
quality standards of each Fund. Thus, even if the credit of the issuer of
the debt obligation does not meet the quality standards of the Fund, the
credit of the selling bank will.

RESTRICTED AND ILLIQUID SECURITIES

Each Fund may invest up to 15% of its total assets in "illiquid investments,"
including "restricted securities" (i.e., securities that would be required to
be registered prior to distribution to the public), securities that are not
readily marketable, repurchase agreements maturing in more than seven days
and privately issued stripped mortgage-backed securities.

<PAGE>

Certain "restricted" securities may be resold to qualified institutional
buyers without restriction pursuant to Rule 144A under the Securities Act of
1933. If a sufficient dealer or institutional trading market exists for such
a security, it may not be considered "illiquid." The Trustees have adopted
guidelines and delegated to the Investment Manager the daily function of
determining and monitoring the liquidity of restricted securities and
determining whether a Rule 144A security restricted security should be
considered "illiquid." The Trustees, however, retain oversight and are
ultimately responsible for the determinations. Please see the
non-fundamental investment restrictions for further limitations regarding the
Funds' investments in restricted and illiquid securities.

Since it is not possible to predict with assurance exactly how the market for
restricted securities sold and offered under Rule 144A will develop, the
Trustees will carefully monitor each Fund's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect
of increasing the Funds' level of illiquidity to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.

SHORT SALES

The Funds may sell securities short as part of their overall portfolio
management strategies involving the use of derivative instruments and to
offset potential declines in long positions in similar securities. A short
sale is a transaction in which a Fund sells a security it does not own (or
that it owns but does not wish to deliver) in anticipation that the market
price of that security will decline.

When a Fund makes a short sale, the broker-dealer through which the short
sale is made must borrow the security sold short and deliver it to the party
purchasing the security. The Fund is required to make a margin deposit in
connection with such short sales; the Fund may have to pay a fee to borrow
particular securities and will often be obligated to pay over any dividends
and accrued interest on borrowed securities.

If the price of the security sold short increases between the time of the
short sale and the time the Fund covers its short position, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. The successful use of short selling may
be adversely affected by imperfect correlation between movements in the price
of the security sold short and the securities being hedged.

To the extent a Fund sells securities short, it will provide collateral to
the broker-dealer and (except in the case of short sales "against the box")
will maintain additional asset coverage in the form of cash, U.S. Government
securities or high-grade debt securities in a segregated account. The Funds
do not intend to enter into short sales (other than short sales "against the
box") if immediately after such sales the aggregate of the value of all
collateral plus the amount in such segregated account exceeds one-third of
the value of the Fund's net assets. This percentage may be varied by action
of the Trustees. A short sale is "against the box" to the extent the Fund
contemporaneously owns, or has the right to obtain at no added cost,
securities identical to those sold short.

<PAGE>

LOANS OF PORTFOLIO SECURITIES

Each Fund may seek to increase its income by lending portfolio securities.
Under present regulatory policies, such loans may be made to financial
institutions, such as broker-dealers, and must be collateralized continuously
with cash, cash equivalents, irrevocable letters of credit, or U.S.
Government securities maintained on a current basis at an amount at least
equal to the market value of the securities lent. The rules of the New York
Stock Exchange ("NYSE") give each Fund the right to call a loan and obtain
the securities lent at any time on five days' notice. For the duration of a
loan, the Fund would receive the equivalent of the interest or dividends paid
by the issuer on the securities lent and would also receive compensation from
the investment of the collateral. The Fund would not have the right to vote
any securities having voting rights during the existence of the loan, but the
Fund could call the loan in anticipation of an important vote to be taken
among holders of the securities or of the giving or withholding of their
consent on a material matter affecting the investment. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms considered by
the Investment Manager to be creditworthy, and when, in the judgment of the
Investment Manager, the consideration that can be earned currently from
securities loans of this type justifies the attendant risk. If the
Investment Manager determines to lend a Fund's portfolio securities, it is
intended that the value of the securities loan would not exceed 33 1/3% of
the value of the total assets of the Fund.

A Fund may pay reasonable negotiated fees to the Custodian in connection with
loaned securities as long as such fees are pursuant to a contract approved by
the Trustees.

OTHER INVESTMENT COMPANIES

Each Fund, subject to authorization by the Trustees, may invest all of its
investable assets in the securities of a single open-end investment company
(a "Portfolio"). If authorized by the Trustees, a Fund would seek to achieve
its investment objective by investing in a Portfolio, which Portfolio would
invest in a portfolio of securities that complies with the Fund's investment
objectives, policies and restrictions. The Trustees do not intend to
authorize investing in this manner at this time.

Each Fund may invest up to 10% of its total assets, calculated at the time of
purchase, in the securities of other investment companies (other than those
affiliated with the Investment Manager) but may not invest more than 5% of
its total assets in the securities of any one investment company or acquire
more than 3% of the voting securities of any investment company. Investments
in investment companies will result in duplication of certain expenses, since
the Fund will indirectly bear its proportionate share of any expenses paid by
investment companies in which it invests in addition to the expenses paid by
the Fund.

INVESTMENT RESTRICTIONS

Each Fund has adopted the following fundamental investment restrictions which
may not be changed without approval of a majority of the applicable Fund's
outstanding voting securities. Under the 1940 Act, and as used in the
Prospectus and this Statement of Additional Information, a "majority of the
outstanding voting securities" requires the approval of the lesser of (1) the
holders of 67% or more of the shares of a Fund represented at a meeting of
the holders if more than 50% of the outstanding shares of the Fund are
present in person or by proxy or (2) the holders of more than 50% of the
outstanding shares of the Fund.
<PAGE>

A Fund may not:

1. Issue senior securities, except as permitted by paragraphs 2, 5, and 6
below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale
of options, futures contracts, forward commitments and repurchase
agreements entered into in accordance with the Fund's investment policies
or within the meaning of paragraph 2 below, are not deemed to be senior
securities.

2. Borrow money, except (i) from banks for temporary or short-term purposes
or for the clearance of transactions in amounts not to exceed 33 1/3% of
the value of the Fund's total assets (including the amount borrowed)
taken at market value, (ii) in connection with the redemption of Fund
shares or to finance failed settlements of portfolio trades without
immediately liquid portfolio securities or other assets; (iii) in order
to fulfill commitments or plans to purchase additional securities pending
the anticipated sale of other portfolio securities or assets and (iv) the
Fund may enter into reverse repurchase agreements and forward roll
transactions, but only if after each such borrowing there is asset
coverage of at least 300% as defined in the 1940 Act. For purposes of
this investment restriction, investments in short sales, futures
contracts, options on futures contracts, securities or indices and
forward commitments shall not constitute borrowing.

3. Act as an underwriter with respect to the securities of other issuers,
except to the extent that in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter for purposes of
the 1933 Act; provided, however, that the Fund may invest all or part of
its investable assets in an open-end investment company with
substantially the same investment objective, policies and restrictions as
the Fund.

4. Purchase or sell real estate except that the Fund may (i) acquire or
lease office space for its own use, (ii) invest in securities of issuers
that invest in real estate or interests therein, (iii) invest in
securities that are secured by real estate or interests therein,
(iv) purchase and sell mortgage-related securities and (v) hold and sell
real estate acquired by the Fund as a result of the ownership of
securities.

5. Invest in commodities, except that the Fund may purchase and sell options
on securities, securities indices and currency, futures contracts on
securities, securities indices and currency and options on such futures,
forward foreign currency exchange contracts, forward commitments,
securities index put or call warrants and repurchase agreements entered
into in accordance with the Fund's investment policies.

6. Make loans, except that the Fund may (1) lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the
Fund's total assets taken at market value, (2) enter into repurchase
agreements, and (3) purchase all or a portion of an issue of debt
securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or
not the purchase is made upon the original issuance of the securities.

7. For each Fund other than the Seneca Real Estate Securities Fund, purchase
the securities of issuers conducting their principal activity in a single
industry if, immediately after such purchase, the value of its
investments in such industry would exceed 25% of its total assets taken
at market value at the time of such investment (except investments in
obligations of the U.S. Government or any of its agencies,
instrumentalities or authorities; provided, however, that the Fund may
invest all or part of its investable assets in an open-end investment
company with substantially the same investment objective, policies and
restrictions as the Fund.

<PAGE>

8. For each Fund other than the Seneca Real Estate Securities Fund, as to
75% of its total assets, purchase securities of an issuer (other than the
U.S. Government, its agencies, instrumentalities or authorities or
repurchase agreements collateralized by U.S. Government securities and
other investment companies), if:

(a) such purchase would cause more than 5% of the Fund's total assets
taken at market value to be invested in the securities of such issuer;
or

(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Fund;

provided, however, that a Fund may invest all or part of its investable assets
in an open-end investment company with substantially the same investment
objective, policies and restrictions as the Fund.

For purposes of the above fundamental investment restrictions, the
Investment Manager generally classifies issuers by industry in accordance
with classifications set forth in the Standard & Poor's Stock Guide. In the
absence of such classification or if the Investment Manager determines in
good faith based on its own information that the economic characteristics
affecting a particular issuer make it more appropriate considered to be
engaged in a different industry, the Investment Manager may classify an
issuer according to its own sources.

The following restrictions are designated as non-fundamental and may be
changed by the Trustees without the approval of shareholders.

A Fund may not:

b. Pledge, mortgage or hypothecate its assets, except to secure
permitted borrowings and then only if such pledging, mortgaging or
hypothecating does not exceed 33 1/3% of the Fund's total assets taken
at market value. Collateral arrangements with respect to margin, option
and other risk management and when-issued and forward commitment
transactions are not deemed to be pledges or other encumbrances for
purposes of this restriction.

c. Participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management
of the Investment Manager or any subadviser to save commissions or to
average prices among them is not deemed to result in a joint securities
trading account.

d. Purchase or retain securities of an issuer if one or more of the
Trustees or officers of the Trust or principals or officers of the
Investment Manager, any subadviser or any investment management
subsidiary of the Investment Manager individually owns beneficially more
than 0.5% and together own beneficially more than 5% of the securities of
such issuer.

e. Purchase a security of other investment companies, except when the
purchase is part of a plan of merger, consolidation, reorganization or
acquisition or except where such purchase would not result in other
compensation (i) more than 10% of the Fund's assets being invested in
securities of other investment companies, (ii) more than 3% of the total
outstanding voting securities of any one such investment company being
held by the Fund or (iii) more than 5% of the Fund's assets being
invested in any one such investment company; provided, however, that the
Fund may invest all of its investable

<PAGE>

assets in an open-end investment company with substantially the same
investment objective, policies and restrictions as the Fund.

f. Invest in securities that are illiquid if, as a result, more than 15%
of its total assets would consist of such securities, including
repurchase agreements maturing in more than seven days, securities that
are not readily marketable, and restricted securities not eligible for
resale pursuant to Rule 144A under the 1933 Act; provided, however, that
the Fund may invest all or part of its investable assets in an open-end
investment company with substantially the same investment objectives,
policies and restrictions as the Fund.

g. Purchase securities while outstanding borrowings exceed 5% of the
Fund's total assets.

h. Purchase warrants of any issuer, if, as a result of such purchase,
more than 2% of the value of the Fund's total assets would be invested
in warrants that are not listed on an exchange or more than 5% of the
value of the total assets of the Fund would be invested in warrants
generally, whether or not so listed. For these purposes, warrants are
to be valued at the lesser of cost or market, but warrants acquired by
the Fund in units with or attached to debt securities shall be deemed
to be without value.

i. Purchase interests in oil, gas, or other mineral exploration programs
or mineral leases; however, this policy will not prohibit the acquisition
of securities of companies engaged in the production or transmission of
oil, gas or other minerals.

j. Invest for the purposes of exercising control over or management of
any company; provided that the Fund may do so where it is deemed
advisable to protect or enhance the value of an existing investment;
and provided further, that the Fund may invest all or part of its
investable assets in an open-end investment company with substantially
the same investment objective, policies and restrictions as the Fund.

k. Write puts on securities if the aggregate value of the obligations
underlying the puts exceeds 50% of the Fund's net assets.

l. Buy and sell puts and calls on securities, stock index futures or
options on stock index futures or financial futures or options on
financial futures if (i) the aggregate premiums paid on all such options
which are held at any time exceed 20% of the Fund's aggregate net assets
and (ii) the aggregate margin deposits required on all such futures or
options thereon held at any time exceed 5% of the Fund's total assets.

m. Purchase puts, calls, straddles spreads, or any combination thereof
if by reason thereof, the value of its aggregate investment in such
classes of securities (other than protective puts) will exceed 5% of
its net assets.

Each Fund may, notwithstanding any other fundamental or non-fundamental
investment restriction or policy, invest all of its assets in the securities
of a single open-end investment company with substantially the same fundamental
investment objectives, restrictions and policies as the Fund.

Except as to the 300% asset coverage required by fundamental restriction
number 2, if a percentage restriction on investment or utilization of assets
as set forth above is adhered to at the time an investment is made, a later
change in percentage resulting from changes in the values of a Fund's assets
will not be considered a violation of the restriction.

<PAGE>

In order to permit the sale of shares of the Funds in certain states, the
Trustees may, in their sole discretion, adopt restrictions on investment
policy more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interest of a Fund and its shareholders, the Fund may cease offering shares
in the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such
restrictive policy, the Trustees may, in their sole discretion, revoke such
policy.

CALCULATION OF THE FUNDS' RETURNS

TOTAL RETURN

The average annual total return on Shares of each class of each Fund is
determined for a particular period by calculating the actual dollar amount
of the investment return on a $1,000 investment in Shares of that class of
the Fund made at the net asset value of such shares at the beginning of the
period, and then calculating the annual compounded rate of return that would
produce that amount. Total return for a period of one year is equal to the
actual return of shares of that class of the Fund during that period. The
following formula describes the calculation:

n
ERV = P(1+T)

Where:

P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the indicated period.

This calculation assumes that (i) all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period
and (ii) all recurring fees are included for applicable periods.

Each Fund may illustrate in advertisements and sales literature the average
annual total return and cumulative total return for several time periods
throughout the Fund's life based on an assumed initial investment of $1,000.
Any such cumulative total return for a Fund will assume the reinvestment of
all income dividends and capital gains distributions for the indicate
periods and will include all recurring fees.

YIELD

The 30-day yield quotation as to a class of shares of the Seneca Bond Fund
may be computed by dividing the net investment income for the period as to
shares of that class by the net asset value of each share of that class on
the last day of the period, according to the following formula:

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

Where:

a = dividends and interest earned during the period.
b = net expenses accrued for the period.

<PAGE>

c = the average daily number of shares of the class outstanding
during the period that were entitled to receive dividends.
d = the maximum offering price per share of the class (net asset
value per share) on the last day of the period.

Return for a Fund is not fixed or guaranteed and will fluctuate from time to
time, unlike bank deposits or other investments which pay a fixed yield or
return for a stated period of time, and do not provide a basis for
determining future returns. Return is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses
allocated to each class of each Fund. The return of a class may not be
comparable to other investment alternatives because of differences in the
foregoing variables and differences in the methods used to value portfolio
securities, compute expenses and calculate return.

OTHER QUOTATIONS, COMPARISONS, AND GENERAL INFORMATION

From time to time, in advertisements, in sales literature, or in reports to
shareholders, the past performance of a Fund may be illustrated and/or
compared with that of other mutual funds with similar investment objectives,
and to stock or other relevant indices. For example, total return of a
Fund's classes may be compared to averages or rankings prepared by Lipper
Analytical Services, Inc., a widely recognized independent service that
monitors mutual fund performance; the Lehman Brothers Government/Corporate
Bond Index, an unmanaged index of consisting of a mixture of government and
corporate bonds rated within "investment grade" categories by S&P or
Moody's; the Morgan Stanley Europe, Australia, Far East Index ("EAFE"), an
unmanaged index of international stock markets, the S&P 400, an unmanaged
index of common stocks; the S&P 500, an unmanaged index of common stocks;
the Russell 2000, an unmanaged index of common stocks; the Russell 3000
Index (the "Russell 3000"), an unmanaged index of common stocks; or the Dow
Jones Industrial Average, an unmanaged index of common stocks of 30
industrial companies listed on the NYSE.

The S&P 500 Index is an unmanaged index of 500 common stocks traded on the
NYSE, American Stock Exchange and the Nasdaq National Market. The S&P 500
represents approximately 70% of the total domestic U.S. equity market
capitalization. The S&P Mid-Cap 400 Index is an unmanaged index of common
stocks of 400 companies with mid-size market capitalizations--$300 million
to $5 billion. The S&P 500 and the S&P Mid-Cap 400 Indices are market
value-weighted indices (shares outstanding times stock price) in which each
company's influence on the respective index is directly proportional to its
market value. The companies in the S&P 500 and the S&P Mid-Cap 400 Indices
are selected from four major industry sectors: industrials, utilities,
financials and transportation. The 500 companies chosen for the S&P 500
Index are not the 500 largest companies in terms of market value. Rather,
the companies chosen by S&P for inclusion in the S&P 500 tend to be leaders
in important industries within the U.S. economy. The Russell 2000 is an
unmanaged index of 2000 common stocks of small capitalization companies.
The Russell 2000 is composed of the 2000 smallest companies with respect to
capitalization in the Russell 3000 and represents approximately 70% of the
Russell 3000 total market capitalization. The Russell 3000 is an unmanaged
index of 3000 common stocks of large United States companies with market
capitalizations ranging from approximately $60 million to $80 billion. The
Russell 3000 represents approximately 98% of the United States equity market.

In addition, the performance of the classes of a Fund may be compared to
alternative investment or savings vehicles and/or to indexes or indicators
of economic activity, E.G., inflation or interest rates. Performance
rankings and listings reported in newspapers or national business and
financial publications, such as Barron's, Business Week, Consumer's Digest,
Consumer Reports, Financial World, Forbes, Fortune, Investors Business
Daily, Kiplinger's Personal Finance Magazine, Money Magazine, the New York
Times, Smart Money, USA Today U.S. News and World Report, The Wall Street
Journal and Worth may also be cited (if a Fund is listed in an such
publication) or used for comparison, as well as performance listings and
rankings from various other sources including Bloomberg Financial Systems,
CDA/Wiesenberger Investment Companies Service, Donoghue's

<PAGE>

Mutual Fund Almanac, Investment Company Data, Inc., Johnson's Charts, Kanon
Bloch Carre & Co., Micropal, Inc., Morningstar, Inc., Schabacker Investment
Management and Towers Data Systems.

In addition, from time to time, quotations from articles from financial
publications, such as those listed above, may be used in advertisements, in
sales literature or in reports to shareholders of the Funds.

The Trust may also present, from time to time, historical information
depicting the value of a hypothetical account in one or more classes of a
Fund since the Fund's inception.

In presenting investment results, the Trust may also include references to
certain financial planning concepts, including (a) an investor's need to
evaluate his financial assets and obligations to determine how much to
invest; (b) his need to analyze the objectives of various investments to
determine where and when to invest; and (c) his need to analyze his time
frame for future capital needs to determine how to invest. The investor
controls these three factors, all of which affect the use of investments in
building assets. The Investment Manager's agreement to limit each Fund's
operating expenses will increase investment performance.

ADVISORY AND ADMINISTRATIVE SERVICES

INVESTMENT MANAGER

The Funds' investment management agreement with the Investment Manager (the
"Management Agreement") will be initially approved by the Trustees,
including a majority of the Trustees of the Trust who are not parties to
such agreements or "interested persons" (as such term is defined in the 1940
Act) of any party thereto (the "Independent Trustees"), prior to the first
sales of any Fund's shares to the public and will be approved by the sole
initial shareholder immediately prior to any Fund's commencement of
operations.

Pursuant to the Management Agreement, the Investment Manager supervises and
assists in the management of the assets of each Fund and furnishes each Fund
with research, statistical and advisory services. In managing the assets of
the Funds, the Investment Manager furnishes continuously an investment
program for each Fund consistent with the investment objectives and policies
of that Fund. More specifically, the Investment Manager determines from
time to time what securities shall be purchased for the Fund, what
securities shall be held or sold by the Fund and what portion of the Fund's
assets shall be held uninvested as cash, subject always to the provisions of
the Trust's Agreement and Declaration of Trust, By-Laws and its registration
statement under the 1940 Act and under the 1933 Act covering the Trust's
shares, as filed with the SEC, and to the investment objectives, policies
and restrictions of the Fund, as each of the same shall be from time to time
in effect, and subject, further, to such policies and instructions as the
Board of Trustees of the Trust may from time to time establish. To carry
out such determinations, the Investment Manager places orders for the
investment and reinvestment of each Fund's assets (see "Portfolio
Brokerage").

For its investment advisory services under the Management Agreement, the
Investment Manager receives a fee, payable monthly, from the Seneca Growth
Fund equal to 0.70% per annum of the Fund's average daily net assets, from
the Seneca Mid-Cap Growth Fund, equal to 0.80% PER ANNUM of the Fund's
average daily net assets, from the Seneca Bond Fund equal to 0.50% PER ANNUM
of such Fund's average daily net assets, and from the Seneca Real Estate
Securities Fund equal to 0.85% per annum of such Fund's average daily net
assets.

The Investment Manager has voluntarily agreed temporarily the Seneca Growth
Fund's operating expenses (excluding class-specific expenses, litigation,
indemnification and other extraordinary expenses to waive some or all of its
Management fee and to assume other operating expenses i such amounts as may
be

<PAGE>

necessary to prevent the overall expenses of each class of shares of each
Fund from exceeding the amounts set forth in the "Annual Fund Expenses"
table in the Prospectus for such class. The Investment Manager will
continue such waivers and assumption of expenses until the earlier of
September 30, 1996 or, as to each Fund, the time at which such Fund's net
assets first exceed $50 million. The Investment Manager may discontinue or
modify such limitation in the future at its discretion. Each Fund will
reimburse the Investment Manager for fees foregone or other expenses paid by
the Investment Manager pursuant to this expense limitation in later years in
which operating expenses for the Fund are less than the expense limitations
set forth above for any such year. No interest, carrying or finance charge
will be paid a Fund as to the amounts representing fees foregone or other
expenses paid. In addition, no Fund will pay any unreimbursed amounts to
the Investment Manager upon termination of its Advisory Agreement.

The management fees are accrued daily and will be prorated with respect to
any Fund if the Investment Manager shall not have acted as that Fund's
investment adviser during any entire monthly period. The Management
Agreement provides that if the operating expenses of a Fund in any year,
excluding taxes, brokerage commissions, interest, dividends paid on
securities sold short and extraordinary legal fees and expenses, exceed the
expense limits set by state securities law administrators in states in which
that Fund's shares are sold, the amount payable to the Investment Manager,
will be reduced (but not below zero) by the amount of such excess. The most
restrictive state securities law expense limit presently in effect requires
such reduction if expenses exceed 2.5% of the first $30 million, 2.0% of the
next $70 million and 1.5% of the remainder of the average daily net assets
of a Fund during such year.

Under the Advisory Agreement the Trust, on behalf of each Fund, agrees (i)
not to hold the Manager or any of its officers or employees liable for, and
(ii) to indemnify or insure the Manager and its officers and employees
("Indemnified Parties") against, any costs and liabilities the Indemnified
Parties may incur as a result of any claim against the Indemnified Parties
in the good faith exercise of their powers under the Management Agreement or
arising out of an act or omission of the Trust's custodian of assets, or of
any broker or agent selected by the Manager in a commercially reasonable
manner, excepting matters as to which the Idemnified Parties shall be
finally adjudged to have been guilty of willful misfeasance, bad faith,
gross negligence, reckless disregard of duty or breach of fiduciary duty
(all as used in the 1940 Act).

The Management Agreement may be modified or amended only with the approval
of the holders of a majority of the applicable Fund's outstanding shares and
by a vote of the majority of the Independent Trustees of the Trust. Unless
terminated as provided below, the Management Agreement continues in full
force and effect for two years after its date of execution, and for
successive periods of one year thereafter, but only as long as each such
continuance after the end of the initial two year period is a proved
annually by a majority vote of the Trustees or by a vote of the holders of a
majority of the out standing shares of the applicable Fund, but in either
event it also must be approved by a vote of a majority of the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on such approval. Each Advisory Agreement may be terminated without
penalty, by either party upon 60 days' written notice and automatically till
terminate in the event of its assignment.

Officers and Trustees of the Trust who are also principals in and employees
of GMG/Seneca may receive indirect compensation by reason of investment
advisory fees paid by the Trust to GMG/Seneca, in its capacity as the
Investment Manager.

GMG/Seneca consists of two general partners, Gail P. Seneca and Genesis
Merchant Group, L.P. ("GMGLP") and certain limited partners. GMG/Seneca has
approximately 35 full-time employees and, together with GMGLP, acts as
investment adviser or manager for approximately $3 billion of institutional
and private investment accounts. GMGLP consists of three general partners,
Gail P. Seneca, Philip C. Stapleton, and William K.

<PAGE>
Weinstein, and certain limited partners. The three general partners are the
only persons who control GMGLP and GMG/Seneca.

In the management of the Trust and their other accounts, GMG/Seneca and its
affiliates allocate investment opportunities to all accounts for which they
are appropriate subject to the availability of cash in any particular
account and the final decision of the individual or individuals in charge of
such accounts. Where market supply is inadequate for a distribution to all
such accounts, securities are allocated in proportion to net assets. In
some cases this procedure may have an adverse effect on the price or volume
of the security as far as the Funds are concerned. However, it is the
judgment of the Trustees that the desirability of continuing the Trust's
advisory arrangements with the Investment Manager outweighs any
disadvantages that may result from contemporaneous transactions. See
"Portfolio Brokerage."

In an attempt to avoid any potential conflict with portfolio transactions
for the Funds, the Investment Manager and the Trust, on behalf of each Fund,
have adopted extensive restrictions on personal securities trading by
personnel of the Investment Manager and its affiliates. These restrictions
include: pre-clearance of all personal securities transactions and a
prohibition of purchasing initial public offerings of securities.

In the event neither the Investment Manager nor any of its affiliates acts
as investment adviser to the Trust, the name of the Trust will be changed to
one that does not contain the name "Seneca" or otherwise suggest an
affiliation with the Investment Manager.

ADMINISTRATOR

State Street Bank and Trust Company, in its capacity as Administrator of
each Fund, performs administrative services for each Fund under an
administration agreement (the "Administration Agreement"). More
specifically, these obligations include for each Fund, subject to the
general supervision of the Trustees, (a) overseeing the determination and
publication of the Fund's net asset value, (b) overseeing the maintenance by
the Custodian of certain books and records of the Fund as required by Rule
31a-1(b) under the 1940 Act, (c) preparing the Fund's tax returns,
(d) preparing financial information for the Fund's semiannual and annual
reports, proxy statements, and other communications to shareholders,
(d) preparing the Fund's periodic financial reports on Form N-SAR and financial
information required for the Fund's filings with the SEC, (e) providing
periodic testing of the Fund's portfolio to assist in compliance with the
requirements of the Code for qualification as a registered investment
company and with the 1940 Act and prospectus limitations on investments,
(f) filing annual and semiannual reports with appropriate regulatory agencies,
(g) maintaining organizational documents and minutes, (h) developing and
assisting in the development of guidelines and procedures to improve overall
compliance by the Fund and its agents, (i) prepare and file with the SEC
amendments to the Fund's registration statement, (j) prepare and file with
the SEC proxy statements and consult on proxy solicitation matters,
(k) assist in the preparation for meetings of the Trustees, (l) prepare and
file with the SEC Rule 24f-2 notices, and (m) prepare and file state
registrations of the Fund's securities.

For its services under the Administration Agreement, the Administrator is
entitled to receive a fee, of . These fees may be changed
by the Trustees without shareholder approval.

Each Fund bears all expenses of its own operation (subject to the expense
limitations described above), which expenses include: (i) fees and expenses
of any investment adviser or administrator of the Fund; (ii) organization
expenses of the Trust; (iii) fees and expenses incurred by the Fund in
connection with membership in investment company organizations; (iv) brokers'
commissions; (v) payment for portfolio pricing services to a pricing agent, if
any; (vi) legal, accounting or auditing expenses (including an allocable
portion of the cost of its employees rendering legal services to the Funds);
(vii) interest, insurance premiums, taxes or governmental fees; (viii) the fees
and expenses of the transfer agent of the Funds; (ix) the cost of preparing

<PAGE>
stock certificates or any other expenses, including, without limitation,
clerical expenses of issue, redemption or repurchase of shares of the Fund;
(x) the expenses of and fees for registering or qualifying shares of the Funds
for sale and of maintaining the registration of the Funds; (xi) a portion of
the fees and expenses of Trustees of the Trust who are not affiliated with the
Investment Manager; (xii) the cost of preparing and distributing reports and
notices to existing shareholders, the SEC and other regulatory authorities;
(xiii) the fees or disbursements of custodians of the Funds' assets, including
expenses incurred in the performance of any obligations enumerated by the
Declaration of Trust or By-Laws of the Trust insofar as they govern agreements
with any such custodian; (xiv) costs in connection with annual or special
meetings of shareholders, including proxy material preparation, printing and
mailing; (xv) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Funds' business; and
(xvi) distribution fees and service fees applicable to Investment Manager
Class shares and service fees applicable to Institutional Shares.

The Funds' Management and Administration Agreements each provide that
GMG/Seneca and the Administrator may render similar services to others so
long as the services provided thereunder are not impaired thereby.

PRINCIPAL UNDERWRITER

Genesis Merchant Group Securities, L.P. ("GMG Securities") will serve as the
principal underwriter in connection with the continuous offering of the
shares of the Trust pursuant to a Distribution and Services Agreement, to be
dated as of the effective date of the Trust's registration statement. The
Trustees, including the non-interested Trustees, will approve the
Distribution and Services Agreement before the Funds begin selling shares to
the public. The Distribution and Services Agreement will continue in effect
from year to year, if annually approved by the Trustees, including the
non-interested Trustees. It provides that GMG Securities will bear certain
distribution expenses not borne by the Funds. Seneca Distributors, Inc. has
also entered into the Distribution and Services Agreement with the Trust
and, pursuant to that agreement, upon its registration as a broker-dealer
under the Securities Exchange Act of 1934 and all applicable state
securities laws, and becoming a member of the National Association of
Securities Dealers, Inc., Seneca Distributors will become a principal
underwriter and distributor of the Funds' shares. Until Seneca Distributors
becomes so registered, GMG Securities will be the sole functioning
Distributor. It is expected that thereafter GMG Securities will terminate
its agreement with the Trust and Seneca Distributors will become the sole
Distributor.

The Distributors will bear all expenses they incur in providing services
under the Distribution and Services Agreement. Such expense include
compensation to their employees and representatives and to any financial
intermediaries ("service agents") for distribution related services. The
Distributors also pay certain expenses in connection with the distribution
of the Funds' shares, including the cost of preparing, printing and
distributing advertising or promotional materials, and the cost of printing
and distributing prospectuses and supplements to prospective shareholders.
The Distributors will receive compensation under a Distribution and Services
Plan for providing such services with respect to Administrative Shares.
Each Fund bears the cost of registering its shares under federal, state and
foreign securities law.

Seneca Distributors is a wholly-owned subsidiary of GMG/Seneca. GMG
Securities is a limited partnership of which a corporation of which GMGLP is
the sole limited partner.

<PAGE>

DISTRIBUTION AND SERVICE PLAN

The Trust has adopted a Distribution and Services Plan (the "Plan") pursuant
to Rule 12b-1 with respect to the Administrative Shares of each Fund under
which each Fund will pay the Distributors, an aggregate fee calculated at an
annual rate of 0.25% of the average daily net assets of the Administrative
Shares of such Fund. Services to be performed by the Distributors include
(i) the sale of Administrative Shares, as set forth in the Plan ("Selling
Services"), (ii) ongoing servicing and/or maintenance of the accounts of
holders of Administrative Shares of such Fund, and (iii) subtransfer agency,
subaccounting and other recordkeeping, and administrative services related
to the sale of Administrative Shares of such Fund. Payments under the Plan
are intended, in part, to reimburse the Distributors for (i) their direct
expenses in providing the services described above, including reimbursement
of third parties with whom the Distributors may contract to assist with the
provision of those services, (ii) payments made to consultants and others
for providing any services connected with the Distributors' services,
(iii) costs of developing, producing, and implementing marketing and
promotional materials and activities relating to the sale of Administrative
Shares, including direct mail promotions, mass media advertising, and related
travel and entertainment expenses, (iv) costs of printing and distributing
prospectuses, statements of additional information, and reports to
prospective purchasers of Administrative Shares, and (v) costs involved in
obtaining information, analyses, and reports as to marketing and promotional
activities that the Fund may, from time to time deem appropriate.

Under the terms of the Plan, the Distributor will provide to the Trust for
review by the Trustees a quarterly written report of the amounts expended under
the Plan as to each Fund and the purpose for which such expenditures were made.
In the Trustees' quarterly review of the Plan, they will consider the
continued appropriateness and the level of compensation that the Plan provide
for each Trust.

TRUSTEES AND OFFICERS

The Trustees have responsibility for management of the business of the
Trust. The executive officers of the Trust are responsible for its day to
day operation. Set forth below is certain information concerning the
Trustees and officers.

NAME AND TITLE ADDRESS AGE PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
- -------------- ------- --- ------------------------------------------------
<S> <C> <C> <C>
Philip C. Stapleton, 909 Montgomery Street 48 Managing Partner Genesis Merchant Group, L.P.;
President, Secretary, San Francisco, CA 94133 Chief Administrative Officer, GMG/Seneca;
Treasurer, and Sole Chief Financial Officer, Genesis Merchant Group
Trustee Securities, L.P.

- ----------------
* "Interested Persons" within the meaning of the 1940 Act.
** Each of the non-interested Trustees is a trustee of each of the other
Seneca Funds and a Member of the Trust's Audit Committee and Special
Nominating Committee.
</TABLE>

<PAGE>

COMPENSATION OF TRUSTEES AND OFFICERS

The Funds pay no compensation to Trustees affiliated with the Investment
Manager or its officers. None of the Trustees or officers have engaged in
any financial transactions with any Fund or the Investment Manager.

The following table estimates the amount of compensation to be paid to the
Trust's Trustees for the fiscal year ending December 31, 1996. In addition,
each Trustee is reimbursed for out-of-pocket expenses associated with
attending Trustee meetings.

<TABLE>
<S> <C> <C> <C> <C>
Aggregate Aggregate Aggregate Aggregate Pension or Total
Compensation Compensation Compensation Compensation Retirement Compensation
from Seneca from Seneca from Seneca from Seneca Benefits Accrued from Trust and
Growth Fund* Mid-Cap Growth Bond Fund* Real Estate as Part of Trust's other Funds in
Fund* Securities Fund* Expenses Complex**

- ------------
* Estimated. The Trust is newly organized and has not paid any Trustee's fees.
</TABLE>

CERTAIN SHAREHOLDERS

Immediately before the commencement of a Fund's operations, it is expected
that GMG/Seneca will own 100% of the outstanding shares of that Fund. As of
the date of this Statement of Additional Information, the Trustees and
officers of the Trust as a group beneficially owned (i.e., had voting or
investing power) less than 1% of the outstanding shares of each Fund.

NET ASSET VALUE

(See "Share Price" in the Prospectus)

Under the 1940 Act, the Trustees are responsible for determining in good
faith the fair value of securities of the Funds. The net asset value per
share of each class of each Fund is determined once daily, Monday through
Friday as of the close of regular trading on the NYSE (normally 4:00 P.M.
New York City time) on each Business

<PAGE>

Day (as defined in the Prospectus) in which there is a sufficient degree of
trading in that Fund's portfolio securities that the current net asset value of
that Fund's shares might be materially affected. A Fund may not determine its
net asset value on any day during which its shares were not tendered for
redemption and the Trust did not receive any order to purchase or sell shares
of that Fund. In accordance with procedures approved by the Trustees, the net
asset value per share of each class of each Fund is calculated by determining
the value of the net assets attributable to each class of that Fund and dividing
by the number of outstanding shares of that class. The NYSE is not open for
trading on weekends or on New Year's Day (January 1), Presidents' Day (the
third Monday in February), Good Friday, Memorial Day (the last Monday in May),
Independence Day (July 4), Labor Day (the first Monday in September),
Thanksgiving Day (the fourth Thursday in November) and Christmas Day
(December 25).

The public offering price per share of a class of a Fund is the net asset
value per share of that class of that Fund next determined after receipt of
an order. Orders for Institutional Shares that have been received by the
Trust or the Transfer Agent before the close of regular trading of the NYSE
are confirmed at the offering price effective at the close of regular
trading of the NYSE on that day, while orders received subsequent to the
close of regular trading of the NYSE will be confirmed at the offering price
effective at the close of regular trading of the NYSE on the next day on
which the net asset value is calculated.

Bonds and other fixed-income securities (other than short-term obligations
but including listed issues) in a Fund's portfolio are valued on the basis
of valuations furnished by a pricing service that uses both dealer-supplied
valuations and electronic data processing techniques that take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, when such valuations
are believed to reflect the fair value of such securities.

In determining the net asset value, unlisted securities for which market
quotations are available are valued at the last reported sales price or, if
no sales reported or such pricing is not provided, the mean between the most
recent bid and asked prices. Securities, options on securities, futures
contracts and options thereon that are listed or admitted to trading on a
national exchange, are valued at their last sale on such exchange prior to
the time of determining net asset value; or if no sales are reported on such
exchange on that day, at the mean between the most recent bid and asked
price. Securities listed on more than one exchange shall be valued on the
exchange the security is most extensively traded. Quotations of foreign
securities in foreign currency will be converted to U.S. dollar equivalents
using foreign exchange quotations received from independent dealers.
Short-term investments having a maturity of 60 days or less will be valued
at amortized cost, when the Trustees determines that amortized cost is their
fair market value. Certain debt securities for which daily market
quotations are not available may be valued, pursuant to guidelines
established by the Trustees, with reference to fixed income securities whose
prices are more readily obtainable and whose durations are comparable to the
securities being valued. Subject to the foregoing, other securities for
which market quotations are not readily available will be valued at fair
value as determined in good faith by the Trustees.

For purposes of determining the net asset value of the Funds' shares,
options transactions will be treated as follows: When a Fund sells an
option, an amount equal to the premium received by that Fund will be
included in that Fund's accounts as an asset and a deferred liability will
be created in the amount of the option. The amount of the liability will be
marked to the market to reflect the current market value of the option. If
the option expires or if that Fund enters into a closing purchase
transaction, that Fund will realize a gain (or a loss if the cost of the
closing purchase exceeds the premium received), and the related liability
will be extinguished. If a call option contract sold by a Fund is
exercised, that Fund will realize the gain or loss from the sale of the
underlying security and the sale proceeds will be increased by the premium
originally received.

DIVIDENDS, DISTRIBUTIONS AND TAX STATUS

Each Fund within the Trust is separate for investment and accounting purposes
and is treated as a separate entity for federal income tax purposes.

A regulated investment company qualifying under Subchapter M of the Code is
not subject to federal income tax on distributed amounts to the extent that
it distributes annually its taxable and, if any, tax-exempt net investment
income and net realized capital gains in accordance with the timing
requirements of the Code. Each Fund intends to elect and to qualify to be
treated as a regulated investment company and intends to continue to so
qualify for each taxable year.

Qualification of a Fund for treatment as a regulated investment company under
the Code requires, among other things, that (a) at least 90% of a Fund's
annual gross income, without offset for losses from the sale or other
disposition of stock or securities or other transactions, be derived from
interest, payments with respect to securities loans, dividends and gains from
the sale or other disposition of stock or securities or foreign currencies,
or other income (including but not limited to gains from options, futures, or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (b) the Fund derive less than 30% of its
annual gross income from gains (without deduction for losses) from the sale
or other disposition of any of the following held (for tax purposes) for less
than three months: (i) stock or securities; (ii) options, futures or forward
contracts (not on foreign currencies) or (iii) foreign currencies (or
options, futures or forward contracts on foreign currencies) not directly
related to the Fund's principal business of investing in stock or securities
and related options or futures; (c) the Fund distribute at least annually to
its shareholders as dividends at least 90% of its taxable and tax-exempt net
investment income, the excess of net short-term capital gain over net
long-term capital loss earned in each year and any other net income (except
for the excess, if any, of net long-term capital gain over net short-term
capital loss, which need not be distributed in order for the Fund to be
treated as a regulated investment company but such amount is taxed to the
Fund if it is not distributed); and (d) the Fund diversify its assets so
that, at the close of each quarter of its taxable year, (i) at least 50% of
the fair market value of its total (gross) assets is comprised of cash, cash
items, U.S. Government securities, securities of other regulated investment
companies and other securities limited in respect of any one issuer to no
more than 5% of the fair market value of the Fund's total assets and 10% of
the outstanding voting securities of such issuer and (ii) no more than 25% of
the fair market value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities and securities of other
regulated investment companies) or of two or more issuers controlled by the
Fund and engaged in the same, similar, or related trades or businesses.

Each Fund is subject to a 4% nondeductible federal excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires that a Fund distribute (or be deemed to have distributed) to
shareholders during a calendar year at least 98% of the Fund's ordinary
income (not including tax-exempt interest) for the calendar year, at least
98% of the excess of its capital gains over the capital losses realized
during the one-year period ending October 31 during such year, as well as any
income or gain (as so computed) from the prior calendar year that was not
distributed for such year and on which the Fund paid no federal income tax.
Each Fund has distribution policies that should generally enable it to avoid
liability for this tax.

Net investment income for each Fund is the Fund's investment income less its
expenses. Dividends from taxable net investment income and the excess, if
any, of net short-term capital gain over net long-term capital loss of a Fund
will be treated under the Code as ordinary income, and dividends from net
long-term capital gain in excess of net short-term capital loss ("capital
gain dividends") will be treated under the Code as long-term capital gain,
for federal income tax purposes. These dividends are paid after taking into
account, and reducing the distribution to the extent of, any available
capital loss carryforwards. Distributions from a Fund's current or

<PAGE>

accumulated earnings and profits, as computed for Federal income tax
purposes, will be treated as described above whether taken in shares or in
cash. Certain distributions received in January may be treated as if paid by
a Fund and received by a shareholder on December 31 of the prior year.

Dividends, including capital gain dividends, paid by a Fund shortly after a
shareholder's purchase of shares have the effect of reducing the net asset
value per share of his shares by the amount per share of the dividend
distribution. Although such dividends are, in effect, a partial return of
the shareholder's purchase price to the shareholder, they may be
characterized as ordinary income or capital gain as describe above.

Equity options (including options on stock and options on narrow-based stock
indices) and over-the-counter options on debt securities written or purchased
by a Fund will be subject to tax under Section 1234 of the Code. In general,
no loss is recognized by a Fund upon payment of a premium in connection with
the purchase of a put or call option. The character of any gain or loss
recognized (i.e long-term or short-term) will generally depend, in the case
of a lapse or sale of the option, on the Fund's holding period for the
option, and in the case of an exercise of the option, on the Fund's holding
period for the underlying security. The purchase of a put option may
constitute a short sale for federal income tax purposes, causing an
adjustment in the holding period of the underlying stock or security or a
substantially identical stock or security in the Fund's portfolio. If a Fund
writes a put or call option, no gain is recognized upon its receipt of a
premium. If the option lapses or is closed out, any gain or loss is treated
as a short-term capital gain or loss. If a call option is exercised, whether
the gain or loss is long-term or short-term depends on the holding period of
the underlying stock or security. The exercise of a put option written by a
Fund is not a taxable transaction for the Fund.

All futures contracts entered into by a Fund and all listed nonequity options
written or purchased by a Fund (including options on debt securities, options
on futures contracts, options on securities indices and options on
broad-based stock indices) will be governed by Section 1256 of the Code.
Absent a tax election to the contrary, gain or loss attributable to the
lapse, exercise or closing out of any such position will be treated as 60%
long-term and 40% short-term capital gain or loss, and on the last trading
day of a Fund's taxable year, all outstanding Section 1256 positions will be
marked to market (i.e., treated as if such positions were closed out at their
closing price on such day), and any resulting gain or loss will be recognized
as 60% long-term and 40% short-term capital gain or loss. Under certain
circumstances, entry into a futures contract to sell a security may
constitute a short sale for federal income tax purposes, causing an
adjustment in the holding period of the underlying security or a
substantially identical security in a Fund's portfolio.

Because options and futures activities of a Fund may increase the amount of
gains from the sale of securities or investments held or treated as held for
less than three months, the Funds may have to limit their options and futures
transactions in order to comply with the 30% limitation described above.

Positions of a Fund which consist of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the
Code, the operation of which may cause deferral of losses, adjustments in the
holding periods of stock or securities and conversion of short-term capital
losses into long-term capital losses. An exception to these straddle rules
exists for any "qualified covered call options" on stock written by a Fund.

Positions of a Fund which consist of at least one debt security not governed
by Section 1256 and at least one futures contract or listed nonequity option
governed by Section 1256 which substantially diminishes the Fund's risk of
loss with respect to such debt security will be treated as a "mixed
straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, certain tax elections exist for them which reduce
or eliminate the operation of these rules. Each Fund will monitor its
transactions in options and futures and

<PAGE>

may make certain tax elections in order to mitigate the operation of these
rules and prevent disqualification of the Fund as a regulated investment
company for federal income tax purposes.

These special tax rules applicable to options and futures transactions could
affect the amount, timing and character of a Fund's income or loss and hence
of its distributions to shareholders by causing holding period adjustments,
converting short-term capital losses into long-term capital losses, and
accelerating a Fund's income or deferring its losses.

A Fund's investment in zero coupon securities or other securities having
original issue discount (or market discount, if the Fund elects to include
market discount in income currently) will generally cause it to realize
income prior to the receipt of cash payments with respect to these
securities. The mark to market rules described above may also require a Fund
to recognize gains without a concurrent receipt of cash. In such case, a
Fund will not be able to purchase additional income producing securities with
the cash generated by the sale of such securities but will be required to use
such cash to make such required distributions, and its current portfolio
income may ultimately be reduced accordingly. In order to distribute this
income or gains, maintain its qualification as a regulated investment
company, and avoid federal income or excise taxes, the Fund may be required
to liquidate portfolio securities that it might otherwise have continued to
hold.

The Funds may be subject to foreign withholding or other foreign taxes with
respect to income (possibly including, in some cases, capital gains) derived
from foreign securities. These taxes may be reduced or eliminated under the
terms of applicable tax treaties. However, the Funds will not be eligible to
pass through to shareholders any foreign tax credits or deductions for
foreign taxes paid by the Funds that are not thus reduced or eliminated.
Certain foreign exchange gains and losses realized by the Funds with respect
to such securities or related currency transactions will generally be treated
as ordinary income and losses. Certain uses of foreign currency and
investments by the Funds in certain "passive foreign investment companies"
may be limited in order to avoid adverse tax consequences for the Funds (or
an election, if available, may be made with respect to such investments).

Different tax treatment, including a penalty on certain distributions, excess
contributions or other transactions is accorded to accounts maintained as
IRAs or other retirement plans. Investors should consult their tax advisers
for more information.

Redemptions, including exchanges, of shares may give rise to realized gains
or losses, recognizable for tax purposes except for investors subject to tax
provisions that do not require them to recognize such gains or losses. All
or a portion of a loss realized upon the redemption of shares may be
disallowed under "wash sale" rules to the extent shares are purchased
(including shares acquired by means of reinvested dividends) within a 61-day
period beginning 30 days before and ending 30 days after such redemption.
Any loss realized upon a shareholder's sale, redemption or other disposition
of shares with a tax holding period of six months or less will be treated as
a long-term capital loss to the extent of any distribution of long-term
capital gains with respect to such shares.

The Trust is organized as a Delaware business trust, and neither the Trust
nor the Funds will be subject to any corporate excise or franchise tax in the
State of Delaware, nor will they be liable for Delaware income taxes provided
that each Fund qualifies as a regulated investment company for federal income
tax purposes and satisfies certain income source requirements of Delaware
law. If each Fund so qualifies and distributes all of its income and capital
gains, it will also be exempt from the New York State franchise tax and the
New York City general corporation tax, except for small minimum taxes.

The foregoing discussion of U.S. federal income tax law does not address the
special tax rules applicable to certain classes of investors, such as
insurance companies. Each shareholder who is not a U.S. person should

<PAGE>

consider the U.S. and foreign tax consequences of ownership of shares of the
Funds, including the possibility that such a shareholder may be subject to a
U.S. withholding tax at a rate of 30% (or at a lower rate under an applicable
income tax treaty) on Fund distributions treated as ordinary dividends.

This discussion of the federal income tax treatment of the Funds and their
distributions is based on the federal income tax law in effect as of the date
of this Statement of Additional Information. Shareholders should consult
their tax advisers about the application of the provisions of tax law
described in this statement of additional information and about the possible
application of state, local and foreign taxes in light of their particular
tax situations.

PORTFOLIO BROKERAGE

(See "Portfolio Brokerage" in the Prospectus.)

It is the general policy of the Trust not to employ any broker in the
purchase or sale of securities for a Fund's portfolio unless the Trust
believes that the broker will obtain the best results for the Fund, taking
into consideration such relevant factors as price, the ability of the broker
to effect the transaction and the broker's facilities, reliability and
financial responsibility. Commission rates, being a component of price, are
considered together with such factors. Subject to the foregoing, where
transactions are effected on securities exchanges, the Trust employ GMG
Securities as a broker. The Trust is not obligated to deal with any broker
or group of brokers in the execution of transactions in portfolio securities.

In selecting brokers to effect transactions on securities exchanges, the
Trust considers the factors set forth in the first paragraph under this
heading and any investment products or services provided by such brokers,
subject to the criteria of Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Section 28(e) specifies that a person
with investment discretion shall not be "deemed to have acted unlawfully or
to have breached a fiduciary duty" solely because such person has caused the
account to pay a higher commission than the lowest rate available. To obtain
the benefit of Section 28(e), the person so exercising investment discretion
must make a good faith determination that the commissions paid are
"reasonable in relation to the value of the brokerage and research services
provided viewed in terms of either that particular transaction or his overall
responsibilities with respect to the accounts as to which he exercises
investment discretion." Accordingly, if the Trust determines in good faith
that the amount of commissions charged by a broker is reasonable in relation
to the value of the brokerage and research products and services provided by
such broker, the Trust may pay commissions to such broker in an amount
greater than the amount another firm might charge. Research products and
services provided to the Trust include research reports on particular
industries and companies, economic surveys and analyses, recommendations as
to specific securities and other products or services (e.g., quotation
equipment and computer related costs and expenses) providing lawful and
appropriate assistance to GMG/Seneca and its affiliates in the performance
their decision-making responsibilities.

Each year, the Investment Manager will consider the amount and nature of the
research products and services provided by other brokers as well as the
extent to which such products and services are relied upon, and attempts to
allocate a portion of the brokerage business of their clients, such as the
Trust, on the basis of that consideration. In addition, brokers sometimes
suggest a level of business they would like to receive in return for the
various services the provide. Actual brokerage business received by any
broker may be less than the suggested allocations, but can (and often does)
exceed the suggestions, because total brokerage is allocated on the basis of
all the considerations described above. In no instance is a broker excluded
from receiving business because it has not been identified as providing
research services. As permitted by Section 28(e), the investment information
received from other brokers may be used by GMG/Seneca (and its subsidiaries)
in

<PAGE>

servicing all its accounts and not all such information may be used by
GMG/Seneca, in its capacity as the Investment Manager, in connection with the
Trust. Nonetheless, the Trust believes that such investment information
provides the Trust with benefits by supplementing the research otherwise
available to the Trust.

GMG Securities will act as broker for the Funds on exchange transactions,
subject, however, to the general policy of the Trust set forth above and
certain procedures adopted by the Trustees. Commissions paid to GMG
Securities must be at least as favorable as those believed to be
contemporaneously charged by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange. A transaction will not be placed with GMG Securities if
a Fund would have to pay a commission rate less favorable than GMG Securities
contemporaneous charges for comparable transactions for its other most
favored, but unaffiliated, customers except for any customers of GMG
Securities determined by a majority of the Independent Trustees not to be
comparable to the Funds. With regard to comparable customers, in isolated
situations, subject to the approval of a majority of the Independent
Trustees, exceptions may be made. Since GMG/Seneca has, as investment
adviser to the Funds, the obligation to provide management, which includes
elements of research and related skills, such research and related skills
will not be used by GMG Securities as a basis for negotiating commissions at
a rate higher than that determined in accordance with the above criteria.

The commission rate on all exchange orders is subject to negotiation.
Section 17(e) of the 1940 Act limits to "the usual and customary broker's
commission" the amount that can be paid by the Trust to an affiliated person,
such as GMG Securities, acting as broker in connection with transactions
effected on a securities exchange. The Trustees, including a majority of the
Independent Trustees, have adopted procedures designed to comply with the
requirements of Section 17(e) of the 1940 Act and Rule 17e-1 thereunder to
ensure a broker's commission that is "reasonable and fair compared to the
commission, fee or other remuneration received by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time . . . ."
Rule 17e-1 also requires the Trustees, including a majority of the
Independent Trustees, to adopt procedures reasonably designed to provide that
the commission paid is consistent with the above standard, review those
procedures at least annually to determine that they continue to be
appropriate and determine at least quarterly that transactions have been
effected in compliance with those procedures. The Trustees of the Trust,
including a majority of the Independent Trustees, have adopted procedures
designed to comply with the requirements of Rule 17e-1.

Section 11(a) of the Exchange Act provides that a member firm of a national
securities exchange (such as GMG Securities) may not effect transactions on
such exchange for the account of an investment company (such as the Trust) of
which the member firm or its affiliate (such as the Investment Manager) is
the investment adviser unless certain conditions are met. These conditions
require that the investment company authorize the practice and that the
investment company receive from the member firm at least annually a statement
of all commissions paid in connection with such transactions. GMG Securities
transactions on behalf of the Funds will be effected in compliance with these
conditions.

GMG Securities will furnish to the Trust at least quarterly a statement
setting forth the total amount of all compensation retained by GMG Securities
or any associated person of GMG Securities in connection with effecting
transactions for the account of the Trust, and the Trustees of the Trust
review and approve all the Trust's portfolio transactions and the
compensation received by GMG Securities in connection therewith.

GMG Securities will not knowingly participate in commissions aid by the Trust
to other brokers or dealers and will not seek or knowingly receive any
reciprocal business as the result of the payment of such commissions. In the
event GMG Securities at any time learns that it has knowingly received
reciprocal business, it will so inform the Trustees.

<PAGE>

To the extent that GMG Securities receives brokerage commissions on Trust
portfolio transactions, officers and Trustees of the Trust who are also
principals in GMG Securities may receive indirect compensation from the Trust
through their participation in such brokerage commissions.

The Trust has adopted certain procedures, pursuant to Rule 10f-3 under the
1940 Act, that must be followed any time a Fund purchases or otherwise
acquires, during the existence of an underwriting syndicate, a security of
which GMG Securities is an underwriter or member of the underwriting
syndicate. The Trustees will determine, on at least a quarterly basis, that
any such purchases made during the preceding quarter were effected in
compliance with such procedures.

In certain instances there may be securities that are suitable for a Fund's
portfolio as well as for that of another Fund or one or more of the other
clients of the Investment Manager. Investment decisions for a Fund and for
the Investment Manager's other clients are made with a view to achieving
their respective investment objectives. It may develop that a particular
security is bought or sold for only one client even though it might be held
by, or bought or sold for, other clients. Likewise, a particular security
may be bought for one or more clients when one or more other clients are
selling that same security. Some simultaneous transactions are inevitable
when several clients receive investment advice from the same investment
adviser, particularly when the same security is suitable for the investment
objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable
to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security in a particular
transaction as far as a Fund is concerned. The Trust believes that over time
its ability to participate in volume transactions will produce better
executions for the Funds. When appropriate, orders for the account of the
Funds are combined with orders for other investment companies or other
clients advised by the Investment Manager, including accounts (such as
investment limited partnerships) in which the Investment Manager or
affiliated or associated persons of the Investment Manager are investors or
have a financial interest, in order to obtain a more favorable commission
rate. When the same security is purchased for a Fund and one or more other
funds or other clients on the same day, each party pays the average price and
commissions paid are allocated in direct proportion to the number of shares
purchased.

On occasion, situations may arise in which legal and regulatory
considerations will preclude trading for the Funds' accounts by reason of
activities of GMG Securities or its affiliates. The Trustees believe the
Funds will not be materially disadvantaged by any such preclusion and that
the desirability of continuing its advisory arrangements with the Investment
Manager and the Investment Manager's affiliation with GMG Securities and
other affiliates of GMG Securities outweigh any disadvantages that may result
from such preclusion. The U.S. Government and debt securities in which the
Funds invest are traded primarily in the over-the-counter market.
Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over- the-counter
transactions, the Trust, where possible, deals directly with the dealers who
make a market in the securities involved except in those circumstances where
better prices and execution are available elsewhere. Under the 1940 Act,
persons affiliated with the Trust are prohibited from dealing with the Trust
as a principal in the purchase and sale of securities. Since transactions in
the over-the-counter market usually involve transactions with dealers acting
as principal for their own account, affiliated persons of the Trust,
including GMG Securities, may not serve as the Trust's dealer in connection
with such transactions. However, affiliated persons of the Trust may serve
as its broker in transactions conducted on an exchange or over-the-counter
transactions conducted on an agency basis. On occasion, certain market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.

<PAGE>

PORTFOLIO TURNOVER

See "Investment Practices and Risk Considerations--Portfolio Turnover" in the
Prospectuses.

The annual portfolio turnover rate of a Fund will be calculated by dividing
the lesser of the purchase or sales of a Fund's portfolio securities for the
year by the monthly average of the value of the portfolio securities owned by
that Fund during the year. The monthly average will be calculated by
totalling the values of the portfolio securities as of the beginning and end
of the first month of the year and as of the end of the succeeding 11 months
and dividing the sum by 13. In determining portfolio turnover, securities
(including options) that have maturities at the time of acquisition of one
year or less ("short-term securities"), will be excluded. A turnover rate of
100% would occur if all of a Fund's portfolio securities (other than
short-term securities) were replaced once in a period of one year. It should
be noted that if a Fund were to write a substantial number of options which
are exercised, the portfolio turnover rate of that Fund would increase.
Increased portfolio turnover results in increased brokerage costs that the
Trust must pay and the possibility of more short-term gains that may increase
the difficulty of qualifying as a regulated investment company.

To the extent their portfolios are traded for short-term market
considerations and turnover exceeds 100%, the Funds' annual turnover rate
could be higher than most mutual funds. None of the Funds will engage in
short- term trading to an extent that would disqualify them as regulated
investment companies under Subchapter M of the Code.

ORGANIZATION

(See "Management" and "General Information" in the Prospectuses.)

As a Delaware business trust, the Trust's operations are governed by its
Agreement and Declaration of Trust dated December 13, 1995 (the "Declaration
of Trust"). A copy of the Trust's Certificate of Trust, also dated December
13, 1995, is on file with the Office of the Secretary of State of the State
of Delaware. Upon the initial purchase of shares, the shareholder agrees to
be bound by the Trust's Declaration of Trust, as amended from time to time.
Generally, Delaware business trust shareholders are not personally liable for
obligations of the Delaware business trust under Delaware law. The Delaware
Business Trust Act (the "Delaware Act") provides that a shareholder of a
Delaware business trust shall be entitled to the same limitation of liability
extended to shareholders of private for-profit corporations. The Trust's
Declaration of Trust expressly provides that the Trust has been organized
under the Delaware Act and that the Declaration of Trust is to be governed by
Delaware law. It is nevertheless possible that a Delaware business trust,
such as the Trust, might become a party to an action in another state whose
courts refused to apply Delaware law, in which case the Trust's shareholders
could be subject to personal liability.

To guard against this risk, the Declaration of Trust (i) contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
provides that notice of such disclaimer may be given in each agreement,
obligation and instrument entered into or executed by the Trust or its
Trustees, (ii) provides for the indemnification out of Trust property of any
shareholders held personally liable for any obligations of the Trust or any
series of the Trust and (iii) provides that the Trust shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Trust and satisfy any judgment thereon. Thus, the risk of
a Trust shareholder incurring financial loss beyond his or her investment
because of shareholder liability is limited to circumstances in which all of
the following factors are present: (1) a court refused to apply Delaware
law; (2) the liability arose under tort law or, if not, no contractual
limitation of liability was in effect;

<PAGE>

and (3) the Trust itself would be unable to meet its obligations. In the
light of Delaware law, the nature of the Trust's business and the nature of
its assets, the risk of personal liability to a Fund shareholder is remote.

The Declaration of Trust further provides that the Trust shall indemnify each
of its Trustees and officers against liabilities and expenses reasonably
incurred by them, in connection with, or arising out of, any action, suit or
proceeding, threatened against or otherwise involving such Trustee or
officer, directly or indirectly, by reason of being or having been a Trustee
or officer of the Trust. The Declaration of Trust does not authorize the
Trust to indemnify any Trustee or officer against any liability to which he
or she would otherwise be subject by reason of or for willful misfeasance,
bad faith, gross negligence or reckless disregard of such person's duties.

Under the Declaration of Trust, the Trust is not required to hold annual
meetings to elect Trustees or for other purposes. It is not anticipated that
the Trust will hold shareholders' meetings unless required by law or the
Declaration of Trust. The Trust will be required to hold a meeting to elect
Trustees to fill any existing vacancies on the Board if, at any time, fewer
than a majority of the Trustees have been elected by the shareholders of the
Trust. The Board is required to call a meeting for the purpose of
considering the removal of persons serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Trust.

Shares of the Trust do not entitle their holders to cumulative voting rights,
so that the holders of more than 50% of the outstanding shares of the Trust
may elect all of the Trustees, in which case the holders of the remaining
shares would not be able to elect any Trustees. As determined by the
Trustees, shareholders are entitled to one vote for each dollar of net asset
value (number of shares held times the net asset value of the applicable
class of the applicable Fund).

Pursuant to the Declaration of Trust, the Trustees may create additional
funds by establishing additional series of shares in the Trust. The
establishment of additional series would not affect the interests of current
shareholders in the existing four Funds. As of the date of this Statement of
Additional Information, the Trustees do not have any plan to establish
another series of shares in the Trust.

Pursuant to the Declaration of Trust, the Trustees may establish and issue
multiple classes of shares for each Fund. As of the date of this Statement
of Additional Information, the Trustees have authorized the issuance of two
classes of shares for each series, designated Institutional Shares and
Administrative Shares. See " General Information" in the Prospectuses for a
detailed description of the respective rights of the two classes of shares.
The Trustees do not have any plan to establish additional classes of shares
for any Fund.

Each share of each class of a Fund is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Fund
which are attributable to such class as are declared in the discretion of the
Trustees. In the event of the liquidation or dissolution of the Trust,
shares of each class of each Fund are entitled to receive their proportionate
share of the assets which are attributable to such class of such Fund and
which are available for distribution as the Trustees in their sole discretion
may determine. Shareholders are not entitled to any preemptive, conversion
or subscription rights. All shares, when issued, will be fully paid and
non-assessable by the Trust.

Pursuant to the Declaration of Trust and subject to shareholder approval (if
then required), the Trustees may authorize each Fund to invest all or part of
its investable assets in a single open-end investment company that has
substantially the same investment objectives, policies and restrictions as
the Fund. As of the date of this Statement of Additional Information, the
Trustees do not have any plan to authorize any Fund to so invest its assets.

"Seneca Funds" is the designation of the Trust for the time being under the
Declaration of Trust, and all persons dealing with a Fund must look solely to
the property of that Fund for the enforcement of any claims against that

<PAGE>

Fund as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of a Fund or the
Trust. No Fund is liable for the obligations of any other Fund. Since the
Funds use combined prospectuses, however, it is possible that one Fund might
become liable for a misstatement or omission in its prospectus regarding the
other Fund with which its disclosure is combined. The Trustees have
considered this factor in approving the use of the combined prospectuses.

CUSTODIAN

The Custodian for the Trust is Investors Fiduciary Trust Company at 127 West
10th Street, Kansas City, Missouri, 64105. In this capacity, the Custodian
performs all accounting services, holds the assets of the Trust and is
responsible for calculating the net asset value per share.

TRANSFER AGENT

Investors Fiduciary Trust Company acts as transfer agent for the Trust and,
in such capacity, processes purchases, transfers and redemptions of shares,
acts as dividend disbursing agent, and maintains records and handles
correspondence with respect to shareholder accounts.

INDEPENDENT AUDITORS

Deloitte & Touche LLP, 50 Fremont Street, Suite 3100, San Francisco,
California, 94105, are the independent auditors for the Trust. Professional
services performed by Deloitte & Touche LLP include audits of the financial
statements of the Trust, consultation on financial, accounting and reporting
matters, review and consultation regarding various filings with the SEC and
attendance at the meetings of the Audit Committee and Board of Trustees. The
independent auditors also perform other professional services for the Trust
including preparation of income tax returns of the Funds.

<PAGE>
APPENDIX

Description of Bond Ratings Moody's Investors Service, Inc.

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

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

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

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

Moody's also provides credit ratings for preferred stocks. It should be
borne in mind that preferred stock occupies a junior position to bonds within
a particular capital structure and that these securities are rated within the
universe of preferred stocks.

aaa: An issue that is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.

aa: An issue that is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance that earnings and
asset protection will remain relatively well maintained in the foreseeable
future.

a: An issue that is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classifications, earnings and asset protections are,
nevertheless, expected to be maintained at adequate levels.

baa: An issue that is rated "baa" is considered to be a medium grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.

Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in
recognition of the differences between short-term and long-term credit risk.
Loans bearing the designation MIG 1 are of the best quality, enjoying strong
protection by establishing cash flows of funds for their servicing or by
established and broad-based access to the market for refinancing, or both.
Loans bearing the designation MIG 2 are of high quality, with margins of
protection ample

<PAGE>

although not so large as in the preceding group. A short term issue having a
demand feature (i.e. payment relying on external liquidity and usually
payable on demand rather than fixed maturity dates) is differentiated by
Moody's with the use of the Symbol VMIG, instead of MIG.

Moody's also provides credit ratings for tax-exempt commercial paper.
These are promissory obligations (1) not having an original maturity in
excess of nine months, and (2) backed by commercial banks. Notes bearing the
designation P-1 have a superior capacity for repayment. Notes bearing the
designation P-2 have a strong capacity for repayment.

Standard & Poor's Ratings Group

AAA: Bonds rated AAA have the higher rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

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

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

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

S&P's top ratings for municipal notes issued after July 29, 1984 are
SP-1 and SP-2. The designation SP-1 indicates a very strong capacity to pay
principal and interest. A "+" is added for those issues determined to possess
overwhelming safety characteristics. An "SP-2" designation indicates a
satisfactory capacity to pay principal and interest.

Commercial paper rated A-2 or better by S&P is described as having a
very strong degree of safety regarding timeliness and capacity to repay.
Additionally, as a precondition for receiving an S&P commercial paper rating,
a bank credit line and/or liquid assets must be present to cover the amount
of commercial paper outstanding at all times.

The Moody's Prime-2 rating and above indicates a strong capacity for
repayment of short-term promissory obligations.

GLOSSARY

Commercial Paper: Short-term promissory notes of large corporations with
excellent credit ratings issued to finance their current operations.

Certificates of Deposit: Negotiable certificates representing a commercial
bank's obligations to repay funds deposited with it, earning specified rates
of interest over given periods.

Bankers' Acceptances: Negotiable obligations of a bank to pay a draft which
has been drawn on it by a customer. These obligations are backed by large
banks and usually are backed by goods in international trade.

<PAGE>

Time Deposits: Non-negotiable deposits in a banking institution earning a
specified interest rate over a given period of time.

Corporate Obligations: Bonds and notes issued by corporations and other
business organizations in order to finance their long-term credit needs.

<PAGE>

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits.

(a) Financial Statements:

Part B - Seneca Funds Financial Statements:

Statement of Assets and Liabilities dated January __, 1996.*

(b) Exhibits:

1. (a) Agreement and Declaration of Trust.

1. (b) Certificate of Trust.

2. By-Laws.

3. None.

4. None.

5. (a) Form of Investment Management Agreement between the
Registrant, on behalf of Seneca Growth Fund, Seneca Mid-Cap
Growth Fund, Seneca Bond Fund, and Seneca Real Estate
Securities Fund, on the one hand, and GMG/Seneca Capital
Management, L.P. ("GMG/Seneca") on the other.

5. (b) Form of Administration Agreement between the Registrant, on
behalf of Seneca Growth Fund, Seneca Mid-Cap Growth Fund,
Seneca Bond Fund, and Seneca Real Estate Securities Fund,
on the one hand, and State Street Bank and Trust Company
("State Street") on the other.*

6. Form of Distribution and Services Agreement among the Registrant,
Genesis Merchant Group Securities, L.P. ("GMG Securities"), and
Seneca Distributors, Inc. ("Seneca Distributors").*

7. None.

8. Form of Custodian Agreement between the Registrant and Investors
Fiduciary Trust Company ("IFTC").*

9. Form of Transfer Agency Agreement between the Registrant and
IFTC.*

- ---------------
*To be filed by Pre-Effective Amendment.

<PAGE>

10. Opinion and consent of Howard, Rice, Nemerovski, Canady, Falk &
Rabkin, A Professional Corporation.*

11. (a) Report of Deloitte & Touche LLP, Independent Public
Accountants.*

11. (b) Consent of Deloitte & Touche LLP, Independent Public
Accountants.*

12. None.

13. Share Purchase Agreement between GMG/Seneca and Registrant.*

14. None.

15. Form of 12b-1 Distribution and Administrative Services Plan.*

16. None.

17. None.

18. Form of Multiple Class Plan pursuant to Rule 18f-3.*

Item 25. Persons Controlled By or Under Common Control With Registrant.

As of the date of the Prospectus, GMG/Seneca will be a control person of
the Registrant because it will own all of the shares of the Registrant.

Item 26. Number of Holders of Securities.

Immediately prior to the effective date of the Registration Statement, it
is expected that there will be one record holder of the Registrant's shares
of beneficial interest: GMG/Seneca.

[...continued]
*To be filed by Pre-Effective Amendment.

<PAGE>

<TABLE>
<CAPTION>
Title of Class Number of
Record Holders as
of December 16, 1995
<S> <C>
Seneca Growth Fund
Institutional Class 0
Administrative Class 0

Seneca Mid-Cap Growth Fund
Institutional Class 0
Administrative Class 0

Seneca Bond Fund
Institutional Class 0
Administrative Class 0

Seneca Real Estate Securities Fund
Institutional Class 0
Administrative Class 0
</TABLE>

Item 27. Indemnification

Except for the Agreement and Declaration of Trust dated December 15,
1995, establishing the Registrant as a Trust under Delaware law and the
By-Laws of the Registrant, there is no contract, arrangement or statute under
which any trustee, officer, underwriter or affiliated person of the
Registrant is insured or indemnified. The Agreement and Declaration of Trust
and the By-Laws provide that no trustee or officer will be indemnified
against any liability to which the Registrant would otherwise be subject by
reason of or for willful misfeasance, bad faith, gross negligence or reckless
disregard of such person's duties.

Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Act"), may be available to trustees, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

Item 28. Business and Other Connections of Investment Advisers.

All of the information required by this item is set forth in the Form
ADV, as currently amended, of GMG/Seneca (File No. 801-35374), which is
incorporated herein by reference.

<PAGE>

Item 29. Principal Underwriter.

(a) Neither GMG Securities nor Seneca Distributors serves as principal
underwriter, depositor or investment adviser to any investment company other
than the Registrant.

(b) Directors, Officers and Partners

<TABLE>
<CAPTION>
Positions and Offices with Positions and Offices with
Name* Principal Underwriter Registrant
----- -------------------------- --------------------------
<S> <C> <C>
Seneca Distributors

Philip C. Stapleton President, Secretary, Chief President, Secretary, Treasurer,
Financial Officer, and Sole and Sole Trustee
Director

GMG Securities

Philip C. Stapleton Managing Partner and Chief President, Secretary, Treasurer,
Financial Officer and Sole Trustee

William K. Weinstein Chief Executive Officer and N/A
Chief Operating Officer

GMG Management Inc. General Partner N/A

T.E. James, Inc. General Partner N/A

BSR Corporation General Partner N/A

Genesis Merchant Group, L.P. Limited Partner N/A
</TABLE>

Item 30. Location of Accounts and Records.

All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules thereunder will be maintained (1)
at the offices of the Registrant at 909 Montgomery Street, Suite 600, San
Francisco, California 94133, (2) at the offices of the Registrant's
Administrator, State Street Bank and Trust Company, 1776 Heritage Drive,
North Quincy, Massachusetts, 02171-2197, and (3) at the offices of
Registrant's Custodian and Transfer Agent, Investors Fiduciary Trust Company,
at 127 West 10th Street, Kansas City, Missouri 64105.

- ---------------
*The principal business address of each director, officer and partner of GMG
Securities and each director, officer and partner of Seneca Distributors is
909 Montgomery Street, San Francisco, California 94133.

<PAGE>

Item 31. Management Services.

None.

Item 32. Undertakings.

Registrant undertakes that it will file:

(a) an amendment to the registration statement with certified
financial statements showing the initial capital received before accepting
subscriptions from more than 25 persons if the Registrant proposes to raise
its initial capital pursuant to Section 14(a)(3) of the 1940 Act; and

(b) a post-effective amendment, using financial statements which
need not be certified, within four to six months from the effective date of
the Registrant's registration statement under the Securities Act of 1933, as
amended.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of San Francisco, and the State of California on
the 18th day of December 1995.

SENECA FUNDS

By:/s/PHILIP C. STAPLETON
-------------------------------------
Philip C. Stapleton
President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the date indicated.

Signature Title Date
- --------- ----- ----
/s/PHILIP C. STAPLETON Trustee and President December 18, 1995
- -------------------------- (Chief Executive Officer) Secretary
Philip C. Stapleton and Treasurer (Chief Financial and
Accounting Officer)

<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C> <C>
1. (a) Agreement and Declaration of Trust.

1. (b) Certificate of Trust.

2. By-Laws.

3. None.

4. None.

5. (a) Form of Investment Management Agreement.

5. (b) Form of Administration Agreement.*

6. Form of Distribution and Services Agreement.*

7. None.

8. Form of Custodian Agreement.*

9. Form of Transfer Agency Agreement.*

10. Opinion and consent of Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional Corporation.*

11. (a) Report of Deloitte & Touche LLP, Independent Public Accountants.*

11. (b) Consent of Deloitte & Touche LLP, Independent Public Accountants.*

12. None.

13. Share Purchase Agreement between GMG/Seneca and Registrant.*

14. None.

15. Form of 12b-1 Distribution and Administrative Services Plan.*

16. None.
</TABLE>

- -------------
*To be filed by Pre-Effective Amendment.

<PAGE>

<TABLE>
<S> <C> <C>
17. None.

18. Form of Multiple Class Plan pursuant to Rule 18f-3.*
</TABLE>

<PAGE>

EXHIBIT 1(a)
------------

AGREEMENT AND DECLARATION OF TRUST

SENECA FUNDS

THIS AGREEMENT AND DECLARATION OF TRUST is made and entered into as of
the date set forth below by the Trustee(s) named hereunder for the purpose of
forming a Delaware business trust in accordance with the provisions
hereinafter set forth,

NOW, THEREFORE, the Trustee(s) hereby direct that the Certificate of
Trust be filed with Office of the Secretary of State of the State of Delaware
and do hereby declare that the Trustee(s) will hold in trust all cash,
securities and other assets that the Trust now possesses or may hereafter
acquire from time to time in any manner and manage and dispose of the same
upon the following terms and conditions for the benefit of the holders of
Shares in the Trust.

II.

NAME AND DEFINITIONS

A. . NAME. This Trust shall be known as Seneca Funds and the Trustee(s)
shall conduct the business of the Trust under that name or any other name as
they may from time to time determine.

B. . DEFINITIONS. Whenever used herein, unless otherwise required by the
context or specifically provided:

1. "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time, which By-Laws are expressly herein incorporated by reference as part
of the "governing instrument" within the meaning of the Delaware Act;

2. "Certificate of Trust" means the certificate of trust, as amended or
restated from time to time, filed by the Trustee(s) in the Office of the
Secretary of State of the State of Delaware in accordance with the Delaware
Act;

3. "Class" means a class of Shares of a Series of the Trust established
in accordance with the provisions of Article III hereof;

4. "Commission" and "Principal Underwriter" shall have the meanings
given them in the 1940 Act;

5. "Declaration of Trust" means this Agreement and Declaration of
Trust, as amended or restated from time to time;

6. "Delaware Act" means the Delaware Business Trust Act, 12 DEL. C.
[Section][Section] 3801 ET SEQ., as amended from time to time;

<PAGE>

7. "Interested Person" shall have the meaning given it in Section
2(a)(19) of the 1940 Act;

8. "Manager" means a party furnishing services to the Trust pursuant to
any contract described in Article IV, Section 7(a) hereof;

9. "1940 Act" means the Investment Company Act of 1940 and the Rules
and Regulations thereunder, all as amended from time to time;

10. "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, estates and other
entities, whether or not legal entities, and governments and agencies and
political subdivisions thereof, whether domestic or foreign;

11. "Series" means each Series of Shares established and designated
under or in accordance with the provisions of Article III;

12. "Shareholder" means a record owner of outstanding Shares;

13. "Shares" means the Shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time and
includes fractions of Shares as well as whole Shares;

14. "Trust" means the Delaware business trust established under the
Delaware Act by this Declaration of Trust and the filing of the Certificate
of Trust in the Office of the Secretary of State of the State of Delaware;

15. "Trust Property" means any and all property, real or personal,
tangible or intangible, that is from time to time owned or held by or for the
account of the Trust; and

16. "Trustees" means the person or persons who have signed this
Declaration of Trust and all other Persons who may from time to time be duly
elected or appointed to serve as Trustees in accor- dance with the provisions
hereof, in each case so long as such Person shall continue in office in
accordance with the terms of this Declaration of Trust, and reference herein
to a Trustee or the Trustees shall refer to such Person or Persons in his or
her or their capacity as trustees hereunder.

III.

PURPOSE OF TRUST

The purpose of the Trust is to conduct, operate and carry on the
business of a management investment company registered under the 1940 Act
through one or more Series investing primarily in securities, and to carry on
such other business as the Trustees may from time to time determine pursuant
to their authority under this Declaration of Trust.

IV.

<PAGE>

A. . DIVISION OF BENEFICIAL INTEREST. The beneficial interest in the
Trust may be divided into one or more Series. Each Series may be divided
into one or more Classes. Subject to the further provisions of this Article
III and any applicable requirements of the 1940 Act, the Trustees shall have
full power and authority, in their sole discretion, and without obtaining any
authorization or vote of the Shareholders of any Series or Class thereof, (i)
to divide the beneficial interest in the Trust or in each Series or Class
thereof into Shares, with or without par value as the Trustees shall
determine, (ii) to issue Shares without limitation as to number (including
fractional Shares), to such Persons and for such amount and type of
consideration, including cash or securities, at such time or times and on
such terms as the Trustees may deem appropriate, (iii) to establish and
designate and to change in any manner any Series or Class thereof and to fix
such preferences, voting powers, rights, duties and privileges and business
purpose of each Series or Class thereof as the Trustees may from time to time
determine, which preferences, voting powers, rights, duties and privileges
may be senior or subordinate to (or in the case of business purpose,
different from) any existing Series or Class thereof and may be limited to
specified property or obligations of the Trust or profits and losses
associated with specified property or obligations of the Trust, (iv) to
divide or combine the Shares of any Series or Class thereof into a greater or
lesser number without thereby materially changing the proportionate
beneficial interest of the Shares of such Series or Class in the assets held
with respect to that Series or Class thereof, (v) to classify or reclassify
any issued Shares of any Series or Class thereof into Shares of one or more
Series or Classes thereof and (vi) to take such other action with respect to
the Shares as the Trustees may deem desirable.

Subject to the distinctions permitted among Classes of the same Series
as established by the Trustees consistent with the requirements of the 1940
Act, each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series, and each holder of Shares of a
Series shall be entitled to receive such holder's pro rata Share of
distributions of income and capital gains, if any, made with respect to such
Series. Upon redemption of the Shares of any Series or Class thereof, the
applicable Shareholder shall be paid solely out of the funds and property of
such Series or Class thereof of the Trust.

All references to Shares in this Declaration of Trust shall be deemed to
be Shares of any or all Series or Classes thereof, as the context may
require. All provisions herein relating to the Trust shall apply equally to
each Series of the Trust and each Class thereof, except as the context
otherwise requires.

All Shares issued hereunder, including, without limitation, Shares
issued in connection with a dividend in Shares or a split or reverse split of
Shares, shall be fully paid and non-assessable. Except as otherwise provided
by the Trustees, Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.

B. . OWNERSHIP OF SHARES. The Ownership of Shares shall be recorded on
the books of the Trust or a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Series (or
Class). No certificates certifying the ownership of Shares shall be issued
except as the Trustees may otherwise determine from time to time. The
Trustees may make such rules as they consider appropriate for the issuance of
Share certificates, the transfer of Shares of each Series (or Class) and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent, as the case may be, shall be conclusive as to the
identity of the Shareholders of each Series (or Class) and as to the number
of Shares of each Series (or Class) held from time to time by each
Shareholder.

C. . TRANSFER OF SHARES. Except as otherwise provided by the Trustees,
Shares shall be transferable on the books of the Trust only by the record
holder thereof or by his duly authorized agent upon delivery to the Trustees
or the Trust's transfer agent of a duly executed instrument of transfer,
together with a Share certificate if one is outstanding, and such evidence of
the genuineness of the execution and authorization thereof as may be required
by the Trustees and of such other matters as may be required by the Trustees.
Upon such delivery, and subject to any further requirements specified by the
Trustees or contained in

<PAGE>

the By-Laws, the transfer shall be recorded on the books of the Trust. Until
a transfer is so recorded, the Shareholder of record of Shares shall be
deemed to be the holder of such Shares for all purposes hereunder and neither
the Trustees nor the Trust, nor any transfer agent or registrar or any
officer, employee or agent of the Trust, shall be affected by any notice of a
proposed transfer.

D. . INVESTMENTS IN THE TRUST. Investments may be accepted by the Trust
from such Persons, at such times, on such terms, and for such consideration
as the Trustees from time to time may authorize.

E. . STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY. Shares shall
be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall
be held to have expressly assented and agreed to the terms hereof. The
death, incapacity, dissolution, termination or bankruptcy of a Shareholder
during the existence of the Trust shall not operate to terminate the Trust,
nor entitle the representative of any such Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
entitles such representative only to the rights of such Shareholder under
this Trust. Ownership of Shares shall not entitle the Shareholder to any
title in or to the whole or any part of the Trust Property or right to call
for a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders as partners. Neither the
Trust nor the Trustees, nor any officer, employee or agent of the Trust shall
have any power to bind personally any Shareholders, nor, except as
specifically provided herein, to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder
may at any time personally agree to pay.

F. . ESTABLISHMENT AND DESIGNATION OF SERIES. Without obtaining any
authorization or vote of the Shareholders of any Series or Class thereof
(except as otherwise required by the 1940 Act), the establishment and
designation of any Series (or Class) of Shares shall be effective upon the
adoption by a majority of the then Trustees of a resolution that sets forth
such establishment and designation and the relative rights and preferences of
such Series (or Class), whether directly in such resolution or by reference
to another document including, without limitation, any registration statement
of the Trust, or as otherwise provided in such resolution.

Shares of each Series (or Class) established pursuant to this Article
III, unless otherwise provided in the resolution establishing such Series,
shall have the following relative rights and preferences:

1. ASSETS HELD WITH RESPECT TO A PARTICULAR SERIES (OR CLASS). All
consideration received by the Trust for the issue or sale of Shares of a
particular Series or Class thereof, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof from whatever source derived, including, without limitation,
any proceeds derived from the sale, exchange or liquidation of such assets,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably be held with respect to that
Series (or Class) for all purposes, subject only to the rights of creditors
of such Series (or Class thereof to the extent provided below), and shall be
so recorded upon the books of account of the Trust. Such consideration,
assets, income, earnings, profits and proceeds thereof, from whatever source
derived, including, without limitation, any proceeds derived from the sale
exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds, in whatever form the same may be, are
herein referred to as "assets held with respect to" that Series (or Class
thereof). In the event that there are any assets, income, earnings, profits
and proceeds thereof, funds or payments that are not readily identifiable as
assets held with respect to any particular Series (and the Classes thereof)
(collectively "General Assets"), the Trustees shall allocate such General
Assets to, between or among any one or more of the Series (and the Classes
thereof) in such manner and on such basis as the Trustees, in their sole
discretion, deem fair and equitable, and any General Assets so allocated to a
particular Series (and the Classes thereof) shall be assets held with respect
to that Series and

<PAGE>

such Classes. Each such allocation by the Trustees shall be conclusive and
binding upon the Shareholders of all Series and Classes for all purposes.
Separate and distinct records shall be maintained for each Series (and the
Classes thereof) and the assets held with respect to each Series (and the
Classes thereof) shall be held and accounted for separately from the assets
held with respect to all other Series (and the Classes thereof) and the
General Assets of the Trust not allocated to such Series or Classes.

2. LIABILITIES HELD WITH RESPECT TO A PARTICULAR SERIES. The assets of
the Trust held with respect to each particular Series (or Class thereof)
shall be charged with the liabilities of the Trust held with respect to that
Series or Class and all expenses, costs, charges and reserves attributable to
that Series or Class. Any general liabilities of the Trust that are not
readily identifiable as being held with respect to any particular Series (and
the Classes thereof) shall be allocated and charged by the Trustees to and
among any one or more of the Series (and the Classes thereof) in such manner
and on such basis as the Trustees in their sole discretion deem fair and
equitable. All liabilities, expenses, costs, charges, and reserves so
charged to a Series (and the Classes thereof) are herein referred to as
"liabilities held with respect to" that Series (or Class thereof). Each
allocation of liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the holders of all Series and
Classes for all purposes. All liabilities held with respect to a particular
Series shall be enforceable against the assets held with respect to such
Series only and not against the assets of the Trust generally or against the
assets held with respect to any other Series. Notice of this limitation on
the liability of each Series shall be set forth in the Certificate of Trust
or in an amendment thereto prior to the issuance of any Shares of a Series.
To the extent that the Trustees, pursuant to Section 2 of Article VII hereof,
include an inter-Class limitation on liability in any note, bond, contract,
instrument, certificate or undertaking made with respect to any Class, the
parties to such note, bond, contract, instrument, certificate or undertaking
shall look only to the assets of such Class in satisfaction of the
liabilities arising thereunder and not to the assets of any other Class of
the applicable Series.

3. DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS, AND REPURCHASES.
Notwithstanding any other provisions of this Declaration of Trust, including,
without limitation, Article VI, no dividend or distribution, including,
without limitation, any distribution paid upon termination of the Trust or of
any Series (or Class) thereof with respect to, nor any redemption or
repurchase of, the Shares of any Series (or Class thereof) shall be effected
by the Trust other than from the assets held with respect to such Series (or
Class thereof), nor shall any Shareholder of any particular Series (or Class
thereof) otherwise have any right or claim against the assets held with
respect to any other Series or Class except to the extent that such
Shareholder has such a right or claim hereunder as a Shareholder of such
other Series or Class. The Trustees shall have full discretion, to the
extent not inconsistent with the 1940 Act, to determine which items shall be
treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.

4. EQUALITY. All the Shares of each particular Series (or Class
thereof) shall represent an equal proportionate interest in the assets held
with respect to that Series (or Class thereof), and each Share of any
particular Series shall be equal to each other Share of that Series (subject
to the liabilities held with respect to that Series and such rights and
preferences as may have been established and designated with respect to
Classes of Shares within such Series).

5. FRACTIONS. Any fractional Share of a Series (or Class thereof)
shall carry proportionately all the rights and obligations of a whole Share
of that Series or Class, including rights with respect to voting, receipt of
dividends and distributions, redemption of Shares and termination of the
Trust.

6. EXCHANGE PRIVILEGE. The Trustees shall have the authority to
provide that the holders of Shares of any Series (or Class thereof) shall
have the right to exchange said Shares for Shares of one or more other Series
(or Classes) of Shares in accordance with such requirements and procedures as
may be established by the Trustees.

<PAGE>

7. COMBINATION OF SERIES. The Trustees shall have the authority,
without the approval of the Shareholders of any Series (or Class thereof),
unless otherwise required by applicable law, to combine the assets and
liabilities held with respect to any two or more Series (or Classes) into
assets and liabilities held with respect to a single Series or Class.

8. ELIMINATION OF SERIES. At any time that there are no Shares
outstanding of any particular Series (or Class) previously established and
designated, the Trustees may by resolution of a majority of the Trustees
abolish that Series (or Class) and rescind the establishment and designation
thereof and may thereafter establish a new Series (or Class) with such
designation and otherwise as herein provided.

G. . INDEMNIFICATION OF SHAREHOLDERS. If any Shareholder or former
Shareholder shall be exposed to liability by reason of a claim or demand
relating to such Person being or having been a Shareholder, and not because
of such Person's acts or omissions, the Shareholder or former Shareholder (or
such Person's heirs, executors, administrators, or other legal
representatives or in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled to be held harmless
from and indemnified out of the assets of the Trust against all cost and
expense arising from such claim or demand, but only out of the assets held
with respect to the particular Series (or Class thereof) of Shares of which
such Person is or was a Shareholder and from or in relation to which such
liability arose.

TRUSTEES

A. . NUMBER, ELECTION AND TENURE. The number of Trustees shall initially
be one, who shall be Philip C. Stapleton. Hereafter, the number of Trustees
shall be one or such other number as shall, from time to time, be determined
by the Trustees pursuant to Section 3 of this Article IV. Each Trustee shall
serve during the continued lifetime of the Trust until he or she dies,
resigns, is declared bankrupt or incompetent by a court of appropriate
jurisdiction, or is removed, or, if sooner, until the next meeting of
Shareholders called for the purpose of electing Trustees and until the
election and qualification of his or her successor. In the event that less
than the majority of the Trustees holding office have been elected by the
Shareholders, to the extent required by the 1940 Act, the Trustees then in
office shall call a Shareholders' meeting for the election of Trustees. Any
Trustee may resign at any time by written instrument signed by him and
delivered to any officer of the Trust or to a meeting of the Trustees. Such
resignation shall be effective upon receipt unless specified to be effective
at some other time. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee resigning and no Trustee removed shall
have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal.
The Shareholders may elect Trustees at any meeting of Shareholders called by
the Trustees for that purpose. Any Trustee may be removed at any meeting of
Shareholders by a vote of two-thirds of the outstanding Shares of the Trust.

B. . EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE. The death,
declination to serve, resignation, retirement, removal, or incapacity of one
or more Trustees, or all of them, shall not operate to annul the Trust or to
revoke any existing agency created pursuant to the terms of this Declaration
of Trust. Whenever there shall be fewer than the designated number of
Trustees, until additional Trustees are elected or appointed as provided
herein to bring the total number of Trustees equal to the designated number,
the Trustees in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by this Declaration of Trust. As conclusive evidence of such
vacancy, a written instrument certifying the existence of such vacancy may be
executed by an officer of the Trust or by a majority of the Trustees. In the
event of the death, declination, resignation, retirement, removal, or
incapacity of all the

<PAGE>

then Trustees within a short period of time and without the opportunity for
at least one Trustee being able to appoint additional Trustees to replace
those no longer serving, the Trust's Manager(s) are empowered to appoint new
Trustees subject to the provisions of Section 16(a) of the 1940 Act.

C. . POWERS. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and the Trustees
shall have all powers necessary or convenient to carry out that
responsibility including the power to engage in securities transactions of
all kinds on behalf of the Trust. Without limiting the foregoing, the
Trustees may: adopt By-Laws not inconsistent with this Declaration of Trust
providing for the regulation and management of the affairs of the Trust and
may amend and repeal them to the extent that such By-Laws do not reserve that
right to the Shareholders; enlarge or reduce their number; remove any Trustee
with or without cause at any time by written instrument signed by at least
two-thirds of the number of Trustees prior to such removal, specifying the
date when such removal shall become effective, and fill vacancies caused by
enlargement of their number or by the death, resignation or removal of a
Trustee; elect and remove, with or without cause, such officers and appoint
and terminate such agents as they consider appropriate; appoint from their
own number and establish and terminate one or more committees consisting of
two or more Trustees which may exercise the powers and authority of the Board
of Trustees to the extent that the Trustees determine; employ one or more
custodians of the assets of the Trust and authorize such custodians to employ
subcustodians and to deposit all or any part of such assets in a system or
systems for the central handling of securities or with a Federal Reserve
Bank, retain a transfer agent or a Shareholder servicing agent, or both;
provide for the issuance and distribution of Shares by the Trust directly or
through one or more Principal Underwriters or otherwise; redeem, repurchase
and transfer Shares pursuant to applicable law; set record dates for the
determination of Shareholders with respect to various matters; declare and
pay dividends and distributions to Shareholders of each Series from the
assets of such Series; and in general delegate such authority as they
consider desirable to any officer of the Trust, to any committee of the
Trustees and to any agent or employee of the Trust or to any such custodian,
transfer or Shareholder servicing agent, or Principal Underwriter. Any
determination as to what is in the interests of the Trust made by the
Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration of Trust, the presumption shall be in favor of a grant of
power to the Trustees. Unless otherwise specified herein or in the By-Laws
or required by law, any action by the Trustees shall be deemed effective if
approved or taken by a majority of the Trustees present at a meeting of
Trustees at which a quorum of Trustees is present, within or without the
State of Delaware.

Without limiting the foregoing, the Trustees shall have the power and
authority to cause the Trust (or to act on behalf of the Trust):

1. To invest and reinvest cash, to hold cash uninvested, and to subscribe
for, invest in, reinvest in, purchase or otherwise acquire, own, hold,
pledge, sell, assign, transfer, exchange, distribute, purchase or write
options on, lend, enter into contracts for the future acquisition or delivery
of, or otherwise deal in or dispose of, securities, indices, currencies,
commodities or other property of every nature and kind, including, without
limitation, all types of bonds, debentures, stocks, negotiable or
non-negotiable instruments, obligations, evidences of indebtedness,
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, bankers' acceptances, and other securities of any kind, issued,
created, guaranteed, or sponsored by any and all Persons, including, without
limitation, states, territories, and possessions of the United States and the
District of Columbia and any political subdivision, agency, or
instrumentality thereof, the U.S. Government or any foreign government or any
political subdivision of the U.S. Government or any foreign government, or
any domestic or international instrumentality, or by any bank or savings
institution, or by any corporation or organization organized under the laws
of the United States or of any state, territory, or possession thereof, or by
any corporation or organization organized under any foreign law, or in "when
issued" contracts for any such securities; to change the investments of the
assets of the Trust; and to exercise any and all rights, powers, and
privileges of ownership or interest in respect of any and all such
investments of every kind and description, including, without limitation, the
right to consent and otherwise act with respect thereto,

<PAGE>

with power to designate one or more Persons to exercise any of said rights,
powers, and privileges in respect of any of said instruments;

2. To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options (including options on futures contracts) with respect to or
otherwise deal in any property rights relating to any or all of the assets of
the Trust or any Series or Class thereof;

3. To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such Person or Persons as the Trustees shall
deem proper, granting to such Person or Persons such power and discretion
with relation to securities or property as the Trustees shall deem proper;

4. To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities or other property;

5. To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in its own name
or in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;

6. To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security or
property which is held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer; and to
pay calls or subscriptions with respect to any security or property held in
the Trust;

7. To join with other security or property holders in acting through a
committee, depositary, voting trustee or otherwise, and in that connection to
deposit any security or property with, or transfer any security or property
to, any such committee, depositary or trustee, and to delegate to them such
power and authority with relation to any security or property (whether or not
so deposited or transferred) as the Trustees shall deem proper, and to agree
to pay, and to pay, such portion of the expenses and compensation of such
committee, depositary or trustee as the Trustees shall deem proper;

8. To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including, but not limited
to, claims for taxes;

9. To enter into joint ventures, general or limited partnerships and
any other combinations or associations;

10. To borrow funds or other property in the name of the Trust
exclusively for Trust purposes and in connection therewith issue notes or
other evidences of indebtedness; and to mortgage and pledge the Trust
Property or any part thereof to secure any or all of such indebtedness;

11. To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge
the Trust Property or any part thereof to secure any of or all of such
obligations;

12. To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary or appropriate for the conduct
of the business, including, without limitation, insurance policies insuring
the assets of the Trust or payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, principal
underwriters, or independent contractors of the Trust, individually against
all

<PAGE>

claims and liabilities of every nature arising by reason of holding Shares,
holding, being in or having held any such office or position, or by reason of
any action alleged to have been taken or omitted by any such Person as
Trustee, officer, employee, agent, investment adviser, principal underwriter,
or independent contractor, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such Person against liability;

13. To adopt, establish and carry out pension, profit-sharing, Share
bonus, Share purchase, savings, thrift and other retirement, incentive and
benefit plans and trusts, including the purchasing of life insurance and
annuity contracts as a means of providing such retirement and other benefits,
for any or all of the Trustees, officers, employees and agents of the Trust;

14. To operate as and carry out the business of an investment company,
and exercise all the powers necessary or appropriate to the conduct of such
operations;

15. To enter into contracts of any kind and description;

16. To employ one or more banks, trust companies or companies that are
members of a national securities exchange or such other entities as the
Commission may permit as custodians of any assets of the Trust subject to any
conditions set forth in this Declaration or Trust or in the By-Laws;

17. To interpret the investment policies, practices or limitations of
any Series or Class; and

18. Subject to the 1940 Act, to engage in any other lawful act or
activity in which a business trust organized under the Delaware Act may
engage.

The Trust shall not be limited to investing in obligations maturing
before the possible termination of the Trust or one or more of its Series or
Classes thereof. The Trust shall not in any way be bound or limited by any
present or future law or custom in regard to investment by fiduciaries. The
Trust shall not be required to obtain any court order to deal with any assets
of the Trust or take any other action hereunder.

D. . PAYMENT OF EXPENSES BY THE TRUST. The Trustees are authorized to pay
or cause to be paid out of the principal or income of the Trust, or partly
out of the principal and partly out of income, as they deem fair, all
expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees compensation and such expenses
and charges for the services of the Trust's officers, employees, investment
adviser or manager, Principal Underwriter, auditors, counsel, custodian,
transfer agent, Shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as the Trustees
may deem necessary or proper to incur, which expenses, fees, charges, taxes
and liabilities shall be allocated in accordance with Article III, Section 6
hereof.

E. . PAYMENT OF EXPENSES BY SHAREHOLDERS. The Trustees shall have the
power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, Shareholder
servicing or similar agent, an amount fixed from time to time by the
Trustees, by setting off such charges due from such Shareholder from declared
but unpaid dividends owed such Shareholder and/or by reducing the number of
Shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
<PAGE>

F. . OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the assets of the
Trust shall at all times be considered as vested in the Trust, except that
the Trustees shall have power to cause legal title to any Trust Property to
be held by or in the name of one or more of the Trustees, or in the name of
the Trust, or in the name of any other Person as nominee, on such terms as
the Trustees may determine. The right, title and interest of the Trustees in
the Trust Property shall vest automatically in each Person who may hereafter
become a Trustee. Upon the resignation, removal or death of a Trustee, he or
she shall automatically cease to have any right, title or interest in any of
the Trust Property, and the right, title and interest of such Trustee in the
Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.

G. . SERVICE CONTRACTS.

1. Subject to such requirements and restrictions as may be set forth
under federal and/or state law and in the By-Laws, including, without
limitation, the requirements of Section 15 of the 1940 Act, the Trustees may,
at any time and from time to time, contract for exclusive or nonexclusive
advisory, management and/or administrative services for the Trust or for any
Series (or Class thereof) with any corporation, trust, association or other
organization; and any such contract may contain such other terms as the
Trustees may determine, including, without limitation, authority for the
Manager or administrator to delegate certain or all of its duties under such
contracts to qualified investment advisers and administrators and to
determine from time to time without prior consultation with the Trustees what
investments shall be purchased, held, sold or exchanged and what portion, if
any, of the assets of the Trust shall be held uninvested and to make changes
in the Trust's investments, or such other activities as may specifically be
delegated to such party.

2. The Trustees may also, at any time and from time to time, contract
with any corporation, trust, association or other organization, appointing it
exclusive or nonexclusive distributor or Principal Underwriter for the Shares
of one or more of the Series (or Classes) or other securities to be issued by
the Trust. Every such contract shall comply with such requirements and
restrictions as may be set forth under federal and/or state law and in the
By-Laws, including, without limitation, the requirements of Section 15 of the
1940 Act; and any such contract may contain such other terms as the Trustees
may determine.

3. The Trustees are also empowered, at any time and from time to time,
to contract with any corporations, trusts, associations or other
organizations, appointing it or them the custodian, transfer agent and/or
Shareholder servicing agent for the Trust or one or more of its Series (or
Classes). Every such contract shall comply with such requirements and
restrictions as may be set forth under federal and/or state law and in the
By-Laws or stipulated by resolution of the Trustees.

4. Subject to applicable law, the Trustees are further empowered, at
any time and from time to time, to contract with any entity to provide such
other services to the Trust or one or more of the Series (or Classes
thereof), as the Trustees determine to be in the best interests of the Trust
and the applicable Series (or Class).

5. The fact that:

a. any of the Shareholders, Trustees, or officers of the
Trust is a Shareholder, director, officer, partner, trustee,
employee, Manager, adviser, Principal Underwriter, distributor, or
affiliate or agent of or for any corporation, trust, association,
or other organization, or for any parent or affiliate of any
organization, with which an advisory, management or administration
contract, or principal underwriter's or distributor's

<PAGE>

contract, or transfer, Shareholder servicing or other type of service
contract may have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a Shareholder
or has an interest in the Trust, or that

b. any corporation, trust, association or other organization
with which an advisory, management or administration contract or
principal underwriter's or distributor's contract, or transfer,
Shareholder servicing or other type of service contract may have
been or may hereafter be made also has an advisory, management or
administration contract, or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other
service contract with one or more other corporations, trusts,
associations, or other organizations, or has other business or
interests,

shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing
the same, or create any liability or accountability to the Trust or its
Shareholders, provided approval of each such contract is made pursuant to the
requirements of the 1940 Act.

H. . Trustees and Officers as Shareholders. Any Trustee, officer or agent
of the Trust may acquire, own and dispose of Shares to the same extent as if
he were not a Trustee, officer or agent; and the Trustees may issue and sell
and cause to be issued and sold Shares to, and redeem such Shares from, any
such Person or any firm or company in which such Person is interested,
subject only to the general limitations contained herein or in the By-Laws
relating to the sale and redemption of such Shares.

VI.

SHAREHOLDERS' VOTING POWERS AND MEETINGS

A. . VOTING POWERS, MEETINGS, NOTICE AND RECORD DATES. The Shareholders
shall have power to vote only (i) for the election or removal of Trustees to
the extent and as provided in Article IV, Section 1, and (ii) with respect to
such additional matters relating to the Trust as may be required by
applicable law, this Declaration of Trust, the By-Laws or any registration of
the Trust with the Commission (or any successor agency) or any state, or as
the Trustees may consider necessary or desirable. Each Shareholder shall be
entitled to one vote for each dollar of net asset value (determined as of the
applicable record date) of each Share owned by such Shareholder (number of
Shares owned times net asset value per Share) on any matter on which such
Shareholder is entitled to vote and each fractional dollar amount shall be
entitled to a proportionate fractional vote. Notwithstanding any other
provision of this Declaration of Trust, on any matter submitted to a vote of
the Shareholders, all Shares of the Trust then entitled to vote shall be
voted in aggregate, except (i) when required by the 1940 Act, Shares shall be
voted by individual Series or Class; and (ii) when the matter involves the
termination of a Series or Class or any other action that the Trustees have
determined will affect only the interests of one or more Series or Classes,
then only Shareholders of such Series or Classes shall be entitled to vote
thereon. There shall be no cumulative voting in the election of Trustees.
Shares may be voted in person or by proxy. A proxy may be given in writing.
The By-Laws may provide that proxies may also, or may instead, be given by
any electronic or telecommunications device or in any other manner.
Notwithstanding anything else contained herein or in the By-Laws, in the
event a proposal by anyone other than the officers or Trustees of the Trust
is submitted to a vote of the Shareholders of one or more Series or Classes
thereof or of the Trust, or in the event of any proxy contest or proxy
solicitation or proposal in opposition to any proposal by the officers or
Trustees of the Trust, Shares may be voted only in person or by written proxy
at a meeting. Until

<PAGE>

Shares are issued, the Trustees may exercise all rights of Shareholders and
may take any action required by law, this Declaration of Trust or the By-Laws
to be taken by the Shareholders. Meetings of the Shareholders shall be
called and notice thereof and record dates therefor shall be given and set as
provided in the By-Laws.

B. . QUORUM AND REQUIRED VOTE. Except when a larger quorum is required by
applicable law, by the By-Laws or by this Declaration of Trust, thirty-three
and one-third percent (33-1/3%) of the Shares entitled to vote shall
constitute a quorum at a Shareholders' meeting. When any one or more Series
(or Classes) is to vote as a single class separate from any other Shares,
thirty-three and one-third percent (33-1/3%) of the Shares of each such
Series (or Class) entitled to vote shall constitute a quorum at a
Shareholders' meeting of that Series (or Class). Except when a larger vote is
required by any provision of this Declaration of Trust or the By-Laws or by
applicable law, when a quorum is present at any meeting, a majority of the
Shares voted shall decide any questions and a plurality of the Shares voted
shall elect a Trustee, provided that where any provision of law or of this
Declaration of Trust requires that the holders of any Series shall vote as a
Series (or that holders of a Class shall vote as a Class), then a majority of
the Shares of that Series (or Class) voted on the matter (or a plurality with
respect to the election of a Trustee) shall decide that matter insofar as
that Series (or Class) is concerned.

C. . RECORD DATES. For the purpose of determining the Shareholders of any
Series (or Class) who are entitled to receive payment of any dividend or of
any other distribution, the Trustees may from time to time fix a date, which
shall be before the date for the payment of such dividend or such other
payment, as the record date for determining the Shareholders of such Series
(or Class) having the right to receive such dividend or distribution.
Without fixing a record date, the Trustees may for distribution purposes
close the register or transfer books for one or more Series (or Classes) at
any time prior to the payment of a distribution. Nothing in this section
shall be construed as precluding the Trustees from setting different record
dates for different Series (or Classes).

D. . ADDITIONAL PROVISIONS. The By-Laws may include further provisions
for Shareholders' votes and meetings and related matters.

VII.

NET ASSET VALUE, DISTRIBUTIONS AND REDEMPTIONS

A. . DETERMINATION OF NET ASSET VALUE, NET INCOME, AND DISTRIBUTIONS.
Subject to applicable law and Article III, Section 6 hereof, the Trustees, in
their absolute discretion, may prescribe and shall set forth in the By-Laws
or in a duly adopted vote of the Trustees such bases and time for determining
the net asset value of the Shares of any Series or Class or net income
attributable to the Shares of any Series or Class, or the declara- tion and
payment of dividends and distributions on the Shares of any Series or Class,
as they may deem necessary or desirable.

B. . REDEMPTIONS AND REPURCHASES.

1. The Trust shall purchase such Shares as are offered by any Shareholder
for redemption, upon the presentation of a proper instrument of transfer
together with a request directed to the Trust or a Person designated by the
Trust that the Trust purchase such Shares or in accordance with such other
procedures for redemption as the Trustees may from time to time authorize;
and the Trust will pay therefor the net asset value thereof as determined by
the Trustees (or on their behalf), in accordance with any applicable
provisions of the By-Laws and applicable law. Unless extraordinary
circumstances exist, payment for said Shares shall be made by the Trust to
the Shareholder within seven (7) days after the date on which the request

<PAGE>

is made in proper form. The obligation set forth in this Section 2 is
subject to the provision that in the event that any time the New York Stock
Exchange (the "Exchange") is closed for other than weekends or holidays, or
if permitted by the rules and regulations or an order of the Commission
during periods when trading on the Exchange is restricted or during any
emergency which makes it impracticable for the Trust to dispose of the
investments of the applicable Series or Class or to determine fairly the
value of the net assets held with respect to such Series or Class or during
any other period permitted by order of the Commission for the protection of
investors, such obligations may be suspended or postponed by the Trustees.
In the case of a suspension of the right of redemption as provided herein, a
Shareholder may either withdraw the request for redemption or receive payment
based on the net asset value per Share next determined after the termination
of such suspension.

2. The redemption price may in any case or cases be paid wholly or
partly in kind if the Trustees determine that such payment is advisable in
the interest of the remaining Shareholders of the Series or Class for which
the Shares are being redeemed. Subject to the foregoing, the fair value,
selection and quantity of securities or other property so paid or delivered
as all or part of the redemption price may be determined by or under
authority of the Trustees. In no case shall the Trust be liable for any
delay of any corporation or other Person in transferring securities selected
for delivery as all or part of any payment in kind.

3. If the Trustees shall, at any time and in good faith, determine that
direct or indirect ownership of Shares of any Series or Class has or may
become concentrated in any Person to an extent that would disqualify any
Series as a regulated investment company under the Internal Revenue Code of
1986, as amended (or any successor statute thereto), then the Trustees shall
have the power (but not the obligation) by such means as they deem equitable
(i) to call for the redemption by any such Person of a number, or principal
amount, of Shares sufficient to maintain or bring the direct or indirect
ownership of Shares into conformity with the requirements for such
qualification and (ii) to refuse to transfer or issue Shares to any Person
whose acquisition of the Shares in question would result in such
disqualification. Any such redemption shall be effected at the redemption
price and in the manner provided in this Article VI.

4. The holders of Shares shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of
Shares as the Trustees deem necessary to comply with the provisions of the
Internal Revenue Code of 1986, as amended (or any successor statute thereto),
or to comply with the requirements of any other taxing authority.

5. Subject to the requirements of the 1940 Act, the Board of Trustees
may cause the Trust to redeem, at the price and in the manner provided in
this Article VI, Shares of any Series or Class held by any Person (i) if such
Person is no longer qualified to hold such Shares in accordance with such
qualifications as may be established by the Trustees or (ii) if the net asset
value of such Shares is below the minimum investment amount determined by the
Trustees.

VIII.

COMPENSATION AND LIMITATION OF
LIABILITY OF TRUSTEES

A. . COMPENSATION. The Trustees as such shall be entitled to reasonable
compensation from the Trust, and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or
other services and payment for the same by the Trust.

<PAGE>

B. . INDEMNIFICATION AND LIMITATION OF LIABILITY. A Trustee, when acting
in such capacity, shall not be personally liable to any Person, other than
the Trust or a Shareholder to the extent provided in this Article VII, for
any act, omission or obligation of the Trust, of such Trustee or of any other
Trustee. The Trustees shall not be responsible or liable in any event for
any neglect or wrongdoing of any officer, agent, employee, Manager or
Principal Underwriter of the Trust. The Trust shall indemnify each Person
who is, or has been, a Trustee, officer, employee or agent of the Trust and
any Person who is serving or has served at the Trust's request as a director,
officer, trustee, employee or agent of another organization in which the
Trust has any interest as a Shareholder, creditor or otherwise to the extent
and in the manner provided in the By-Laws.

All persons extending credit to, contracting with or having any claim
against the Trust or the Trustees shall look only to the assets of the
appropriate Series (or Class thereof if the Trustees have included an
inter-Class limitation on liability in the agreement with such person as
provided below), or, if the Trustees have yet to establish Series, of the
Trust for payment under such credit, contract or claim; and neither the
Trustees nor the Shareholders, nor any of the Trust's officers, employees or
agents, whether past, present or future, shall be personally liable therefor.

Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees by any of them in connection with the Trust shall
conclusively be deemed to have been executed or done only in or with respect
to his or their capacity as Trustee or Trustees, and such Trustee or Trustees
shall not be personally liable thereon. At the Trustees' discretion, any
note, bond, contract, instrument, certificate or undertaking made or issued
by the Trustees or by any officer or officers may give notice that the
Certificate of Trust is on file in the Office of the Secretary of State of
the State of Delaware and that a statutory limitation on liability of Series
exists and such note, bond, contract, instrument, certificate or undertaking
may, if the Trustees so determine, recite that the same was executed or made
on behalf of the Trust by a Trustee or Trustees in such capacity and not
individually or by an officer or officers in such capacity and not
individually and that the obligations of such instrument are not binding upon
any of them or the Shareholders individually but are binding only on the
assets and property of the Trust or a Series thereof, and may contain such
further recital as such Person or Persons may deem appropriate including,
without limitation, a requirement, in any note, bond, contract, instrument,
certificate or undertaking made with respect to one or more Classes of any
Series that the parties thereto look only to the assets of such Class or
Classes in satisfaction of the liabilities arising thereunder. The omission
of any such notice or recital shall in no way operate to bind any Trustees,
officers or Shareholders individually.

C. . TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY. The
exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable to the Trust and
to any Shareholder solely for his or her own willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of the office of Trustee, and shall not be liable for errors of judgment or
mistakes of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of
Trust, and shall be under no liability for any act or omission in accordance
with such advice nor for failing to follow such advice. The Trustees shall
not be required to give any bond as such, nor any surety if a bond is
required.

D. . INSURANCE. The Trustees shall be entitled and empowered to the
fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee, officer, employee or agent of the Trust in connection with
any claim, action, suit or proceeding in which he or she becomes involved by
virtue of his or her capacity or former capacity with the Trust.

IX.

<PAGE>

MISCELLANEOUS

A. . LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No Person dealing
with the Trustees shall be bound to make any inquiry concerning the validity
of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.

B. . TERMINATION OF TRUST OR SERIES.

1. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by vote
of a majority of the Shares of each Series entitled to vote, voting
separately by Series, or by the Trustees by written notice to the
Shareholders. Any Series of Shares or Class thereof may be terminated at any
time by vote of a majority of the Shares of such Series or Class entitled to
vote or by the Trustees by written notice to the Shareholders of such Series
or Class.

2. Upon the requisite Shareholder vote or action by the Trustees to
terminate the Trust or any one or more Series of Shares or any Class thereof,
after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated, of the Trust or of the
particular Series or any Class thereof as may be determined by the Trustees,
the Trust shall in accordance with such procedures as the Trustees consider
appropriate reduce the remaining assets of the Trust or of the affected
Series or Class to distributable form in cash or Shares (if any Series
remain) or other securities, or any combination thereof, and distribute the
proceeds to the Shareholders of the Series or Classes involved, ratably
according to the number of Shares of such Series or Class held by the several
Shareholders of such Series or Class on the date of distribution. Thereupon,
the Trust or any affected Series or Class shall terminate and the Trustees
and the Trust shall be discharged of any and all further liabilities and
duties relating thereto or arising therefrom, and the right, title and
interest of all parties with respect to the Trust or such Series or Class
shall be canceled and discharged.

3. Upon termination of the Trust, following completion of winding up of
its business, the Trustees shall cause a certificate of cancellation of the
Trust's Certificate of Trust to be filed in accordance with the Delaware Act,
which certificate of cancellation may be signed by any one Trustee.

C. . REORGANIZATION.

1. Notwithstanding anything else herein, the Trustees may, without any
Shareholder approval or vote unless such approval or vote is required by
applicable law, in order to change the form or jurisdiction of organization
of the Trust or for any other purpose (i) cause the Trust to merge or
consolidate with or into one or more trusts (or series thereof to the extent
permitted by law), partnerships, associations, corporations or other business
entities (including trusts, partnerships, associations, corporations or other
business entities created by the Trustees to accomplish such merger or
consolidation), (ii) cause the Shares to be exchanged under or pursuant to
any state or federal statute to the extent permitted by law or (iii) cause
the Trust to reorganize under the laws of any state or other political
subdivision of the United States, or (y) cause the Trust to merge or
consolidate with or into one or more trusts (or series thereof to the extent
permitted by law), partnerships, associations, corporations or other business
entities (including trusts, partnerships, associations, corporations or other
business entities created by the Trustees to accomplish such merger or
consolidation) if such action is determined by the Trustees to be in the best
interests of the Trust. Any agreement of merger or consolidation or exchange
or certificate of merger may be signed by a majority of the Trustees and
facsimile signatures conveyed by electronic or telecommunication means shall
be valid.

<PAGE>

2. Pursuant to and in accordance with the provisions of Section 3815(f)
of the Delaware Act, and notwithstanding anything to the contrary contained
in this Declaration of Trust, an agreement of merger or consolidation
approved by the Trustees in accordance with this Section 3 may effect any
amendment to the governing instrument of the Trust or effect the adoption of
a new trust instrument of the Trust if the Trust is the surviving or
resulting trust in the merger or consolidation.

3. The Trustees may create one or more business trusts to which all or
any part of the assets, liabilities, profits or losses of the Trust or any
Series or Class thereof may be transferred and may provide for the conversion
of Shares in the Trust or any Series or Class thereof into beneficial
interests in any such newly created trust or trusts or any series or classes
thereof.

D. . AMENDMENTS. Except as specifically provided in this section, the
Trustees may, without Shareholder vote, restate, amend or otherwise
supplement this Declaration of Trust. Shareholders shall have the right to
vote (i) on any amendment that would affect their right to vote granted in
Article V, Section 1 hereof, (ii) on any amendment to this Section 4 of
Article VIII, (iii) on any amendment that may be required by applicable law
or by the Trust's registration statement filed with the Commission and (iv)
on any amendment submitted to them by the Trustees. Any amendment required
or permitted to be submitted to the Shareholders that, as the Trustees
determine, shall affect the Shareholders of one or more Series (or Classes
thereof) shall be authorized by a vote of the Shareholders of each Series or
Class affected and no vote of Shareholders of a Series or Class not affected
shall be required. Notwithstanding anything else herein, no amendment hereof
shall limit the rights to insurance provided by Article VII, Section 4 with
respect to any acts or omissions of Persons covered thereby prior to such
amendment nor shall any such amendment limit the rights to indemnification
referenced in Article VII, Section 2 hereof as provided in the By-Laws with
respect to any actions or omissions of Persons covered thereby prior to such
amendment. The Trustees may, without Shareholder vote, restate, amend, or
otherwise supplement the Certificate of Trust as they deem necessary or
desirable.

E. . FILING OF COPIES, REFERENCES, HEADINGS. The original or a copy of
this instrument and of each restatement and/or amendment hereto shall be kept
at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such restatements and/or amendments have been
made and as to any matters in connection with the Trust hereunder; and, with
the same effect as if it were the original, may rely on a copy certified by
an officer of the Trust to be a copy of this instrument or of any such
restatements and/or amendments. In this instrument and in any such
restatements and/or amendments, references to this instrument, and all
expressions such as "herein", "hereof" and "hereunder", shall be deemed to
refer to this instrument as amended or affected by any such restatements
and/or amendments. Headings are placed herein for convenience of reference
only and shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. Whenever the singular
number is used herein, the same shall include the plural; and the neuter,
masculine and feminine genders shall include each other, as applicable. This
instrument may be executed in any number of counterparts each of which shall
be deemed an original.

F. . APPLICABLE LAW.

1. The Trust is created under, and this Declaration of Trust is to be
governed by, and construed and enforced in accordance with, the laws of the
state of Delaware. The Trust shall be of the type commonly called a business
trust, and without limiting the provisions hereof, the Trust specifically
reserves the right to exercise any of the powers or privileges afforded to
business trusts or actions that may be engaged in by business trusts under
the Delaware Act, and the absence of a specific reference herein to any such
power, privilege or action shall not imply that the Trust may not exercise
such power or privilege or take such actions.

<PAGE>

2. Notwithstanding the first sentence of Section 6(a) of this Article
VIII, there shall not be applicable to the Trust, the Trustees or this
Declaration of Trust (x) the provisions of section 3540 of Title 12 of the
Delaware Code or (y) any provisions of the laws (statutory or common) of the
state of Delaware (other than the Delaware Act) pertaining to trusts that
relate to or regulate: (i) the filing with any court or governmental body or
agency of trustee accounts or schedules of trustee fees and charges, (ii)
affirmative requirements to post bonds for trustees, officers, agents or
employees of a trust, (iii) the necessity for obtaining a court or other
governmental approval concerning the acquisition, holding or disposition of
real or personal property, (iv) fees or other sums applicable to trustees,
officers, agents or employees of a trust, (v) the allocation of receipts and
expenditures to income or principal, (vi) restrictions or limitations on the
permissible nature, amount or concentration of trust investments or
requirements relating to the titling, storage or other manner of holding of
trust assets, or (vii) the establishment of fiduciary or other standards or
responsibilities or limitations on the acts or powers of trustees that are
inconsistent with the limitations or liabilities or authorities and powers of
the Trustees set forth or referenced in this Declaration of Trust.

G. . PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.

1. The provisions of the Declaration of Trust are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code of 1986, as amended (or any successor
statute thereto), and the regulations thereunder, with the Delaware Act or
with other applicable laws and regulations, the conflicting provision shall
be deemed never to have constituted a part of the Declaration of Trust;
provided, however, that such determination shall not affect any of the
remaining provisions of the Declaration of Trust or render invalid or
improper any action taken or omitted prior to such determination.

2. If any provision of the Declaration of Trust shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability
shall attach only to such provision in such jurisdiction and shall not in any
manner affect such provision in any other jurisdiction or any other provision
of the Declaration of Trust in any jurisdiction.

H. . BUSINESS TRUST ONLY. It is the intention of the Trustees to create a
business trust pursuant to the Delaware Act. It is not the intention of the
Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment, or any form of legal relationship other
than a business trust pursuant to the Delaware Act. Nothing in this
Declaration of Trust shall be construed to make the Shareholders, either by
themselves or with the Trustees, partners or members of a joint stock
association.

<PAGE>

IN WITNESS WHEREOF, the Trustee named below does hereby make and enter
into this Declaration of Trust as of the ____ day of December 1995.

__________________________________
Name: Philip C. Stapleton, as
Trustee and not individually

<PAGE>
EXHIBIT 1(b)

CERTIFICATE OF TRUST

This Certificate of Trust of Seneca Funds (the "Trust"), dated December
__, 1995, is being duly executed and filed by Philip C. Stapleton, as trustee
of the Trust, to form a business trust under the Delaware Business Trust Act
(12 DEL. C. [section][section]3801 ET SEQ.).

1. NAME. The name of the business trust formed hereby is Seneca Funds.

2. REGISTERED AGENT. The business address of the registered office of
the Trust in the State of Delaware is 1201 North Market Street in the City of
Wilmington, County of New Castle, 19801. The name of the Trust's registered
agent at such address is Delaware Corporation Organizers, Inc.

3. EFFECTIVE DATE. This Certificate of Trust shall be effective upon
the date and time of filing.

4. SERIES TRUST. Notice is hereby given that pursuant to Section 3804
of the Delaware Business Trust Act, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular series of the Trust shall be enforceable against the assets of
such series only and not against the assets of the Trust generally. The
Trust is, or will become prior to or within 180 days following the first
issuance of beneficial interests therein, a registered investment company
under the Investment Company Act of 1940, as amended.

IN WITNESS WHEREOF, the undersigned, being the sole Trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.

/s/ PHILIP C. STAPLETON
----------------------------------------
Name: Philip C. Stapleton
as Trustee and not individually
<PAGE>

EXHIBIT 2
---------

BY-LAWS

Seneca Funds
A Delaware Business Trust

INTRODUCTION

A. AGREEMENT AND DECLARATION OF TRUST. These By-Laws shall be subject
to the Agreement and Declaration of Trust, as from time to time in effect (the
Declaration of Trust), of Seneca Funds, a Delaware business trust (the
Trust). In the event of any inconsistency between the terms hereof and the
terms of the Declaration of Trust, the terms of the Declaration of Trust
shall control.

B. DEFINITIONS. Capitalized terms used herein and not
herein defined are used as defined in the Declaration of Trust.

ARTICLE I

OFFICES

Section 1. PRINCIPAL OFFICE. The Trustees shall fix and, from time to time,
may change the location of the principal executive office of the Trust at any
place within or outside the State of Delaware.

Section 2. DELAWARE OFFICE. The Trustees shall establish a registered
office in the State of Delaware and shall appoint as the Trust's registered
agent for service of process in the State of Delaware an individual resident
of the State of Delaware or a Delaware corporation or a corporation
authorized to transact business in the State of Delaware; in each case the
business office of such registered agent for service of process shall be
identical with the registered Delaware office of the Trust.

Section 3. OTHER OFFICES. The Trustees may at any time establish branch
or subordinate offices at any place or places where the Trust intends to do
business.

ARTICLE II

MEETINGS OF SHAREHOLDERS

Section 1. PLACE OF MEETINGS. Meetings of Shareholders shall be held at
any place designated by the Trustees. In the absence of any such
designation, Shareholders' meetings shall be held at the principal executive
office of the Trust.

Section 2. CALL OF MEETINGS. Meetings of the Shareholders may be called
at any time by the Trustees or by the President for the purpose of taking
action upon any matter requiring the vote or authority of the Shareholders as
herein provided or provided in the Declaration of Trust or upon any other
matter as to which

<PAGE>

such vote or authority is deemed by the Trustees or the President to be
necessary or desirable. To the extent required by the 1940 Act, meetings of
the Shareholders for the purpose of voting on the removal of any Trustee shall
be called promptly by the Trustees upon the written request of Shareholders
holding at least ten percent (10%) of the outstanding Shares entitled to vote.

Section 3. NOTICE OF MEETINGS OF SHAREHOLDERS. All notices of meetings of
Shareholders shall be sent or otherwise given in accordance with Section 4 of
this Article II not less than ten (10) nor more than ninety (90) days before
the date of the meeting. The notice shall specify (i) the place, date and hour
of the meeting, and (ii) the general nature of the business to be transacted.
The notice of any meeting at which Trustees are to be elected also shall
include the name of any nominee or nominees whom at the time of the notice are
intended to be presented for election.

If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a Trustee has a direct or indirect financial
interest, (ii) an amendment of the Agreement and Declaration of Trust of the
Trust, (iii) a reorganization of the Trust, or (iv) a voluntary dissolution
of the Trust, the notice shall also state the general nature of that proposal.

Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of Shareholders shall be given either personally or by first-class
mail or telegraphic or other written communication, charges prepaid,
addressed to the Shareholder at the address of that Shareholder appearing on
the books of the Trust or its transfer agent or given by the Shareholder to
the Trust for the purpose of notice. If no such address appears on the
Trust's books or is given, notice shall be deemed to have been given if sent
to that Shareholder by first-class mail or telegraphic or other written
communication to the Trust's principal executive office, or if published at
least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time
when delivered personally or deposited in the mail or sent by telegram or
other means of written communication or, where notice is given by
publication, on the date of publication.

If any notice addressed to a Shareholder at the address of that
Shareholder appearing on the books of the Trust is returned to the Trust by
the United States Postal Service marked to indicate that the Postal Service
is unable to deliver the notice to the Shareholder at that address, all
future notices or reports shall be deemed to have been duly given without
further mailing if these shall be available to the Shareholder on written
demand of the Shareholder at the principal executive office of the Trust for
a period of one year from the date of the giving of the notice.

An affidavit of the mailing or other means of giving any notice of any
meeting of Shareholders shall be filed and maintained in the minute book of
the Trust.

Section 5. ADJOURNED MEETING; NOTICE. Any meeting of Shareholders,
whether or not a quorum is present, may be adjourned from time to time by the
vote of the majority of the Shares represented at that meeting, either in
person or by proxy.

When any meeting of Shareholders is adjourned to another time or place,
notice need not be given of the adjourned meeting at which the adjournment is
taken, unless a new record date of the adjourned meeting is fixed or unless
the adjournment is for more than sixty (60) days from the date set for the
original meeting, in which case the Trustees shall set a new record date.
Notice of any such adjourned meeting shall be given to each Shareholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 3 and 4 of this Article II. At any adjourned meeting,
the Trust may transact any business which might have been transacted at the
original meeting.

Section 6. VOTING. The Shareholders entitled to vote at any meeting of
Shareholders shall be determined in accordance with the provisions of the
Declaration of Trust of the Trust, as in effect at such time.

<PAGE>

The Shareholders' vote may be by voice vote or by ballot, provided, however,
that any election for Trustees must be by ballot if demanded by any Shareholder
before the voting has begun. On any matter other than elections of Trustees,
any Shareholder may vote part of the Shares in favor of the proposal and
refrain from voting the remaining Shares or vote them against the proposal,
but if the Shareholder fails to specify the number of Shares which the
Shareholder is voting affirmatively, it will be conclusively presumed that
the Shareholder's approving vote is with respect to the total Shares that the
Shareholder is entitled to vote on such proposal.

Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of the meeting of Shareholders, however called and noticed and
wherever held, shall be as valid as though taken at a meeting duly held after
regular call and notice if a quorum be present either in person or by proxy
and if either before or after the meeting, each person entitled to vote who
was not present in person or by proxy signs a written waiver of notice or a
consent to a holding of the meeting or an approval of the minutes. The waiver
of notice or consent need not specify either the business to be transacted or
the purpose of any meeting of Shareholders.

Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects at the beginning of
the meeting to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the
beginning of the meeting.

Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Except as provided in the Declaration of Trust or the 1940 Act, any action
that may be taken at any meeting of Shareholders may be taken without a
meeting and without prior notice if a consent in writing setting forth the
action so taken is signed by Shareholders having not less than the minimum
number of votes that would be necessary to authorize or take that action at a
meeting at which all Shareholders entitled to vote on that action were
present and voted. All such consents shall be filed with the Secretary of
the Trust and shall be maintained in the Trust's records. Any Shareholder
giving a written consent or a transferee of the Shares or a personal
representative of the Shareholder or their respective proxy holders may
revoke the consent by a writing received by the Secretary of the Trust before
written consents of the number of votes required to authorize the proposed
action have been filed with the Secretary.

If the consents of all Shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
Shareholders shall not have been received, the Secretary shall give prompt
notice of the action approved by the Shareholders without a meeting. This
notice shall be given in the manner specified in Section 4 of this Article II.

Section 9. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING
CONSENTS.
a. For purposes of determining the Shareholders entitled to vote or act
at any meeting or adjournment thereof, the Trustees may fix in advance a record
date which shall not be more than ninety (90) days nor less than ten (10) days
before the date of any such meeting. Without fixing a record date for a
meeting, the Trustees may for voting and notice purposes close the register or
transfer books for one or more Series (or Classes) for all or any part of the
period between the earliest date on which a record date for such meeting could
be set in accordance herewith and the date of such meeting.

If the Trustees do not so fix a record date or close the register or
transfer books of the affected Series (or Classes), the record date for
determining Shareholders entitled to notice of or to vote at a meeting of
Shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.

<PAGE>

b. The record date for determining Shareholders entitled to give
consent to action in writing without a meeting, (a) when no prior action of
the Trustees has been taken, shall be the day on which the first written
consent is given, or (b) when prior action of the Trustees has been taken,
shall be (x) such date as determined for that purpose by the Trustees, which
record date shall not precede the date upon which the resolution fixing it is
adopted by the Trustees and shall not be more than 20 days after the date of
such resolution, or (y) if no record date is fixed by the Trustees the record
date shall be the close of business on the day on which the Trustees adopt
the resolution relating to that action. Nothing in this Section shall be
construed as precluding the Trustees from setting different record dates for
different Series (or Classes). Only Shareholders of record on the record
date as herein determined shall have any right to vote or to act at any
meeting or give consent to any action relating to such record date,
notwithstanding any transfer of Shares on the books of the Trust after such
record date.

Section 10. PROXIES. Subject to the provisions of the Declaration of
Trust, every Person entitled to vote for Trustees or on any other matter
shall have the right to do so either in person or by proxy, provided that
either (i) an instrument authorizing such a proxy to act is executed by the
Shareholder in writing and dated not more than eleven (11) months before the
meeting, unless the instrument specifically provides for a longer period or
(ii) the Trustees adopt an electronic, telephonic, computerized or other
alternative to execution of a written instrument authorizing the proxy to act
which authorization is received not more than eleven (11) months before the
meeting. A proxy shall be deemed executed by a Shareholder if the
Shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the Shareholder or the
Shareholder's attorney-in-fact or other authorized agent. A valid proxy
which does not state that it is irrevocable shall continue in full force and
effect unless (i) revoked by the person executing it before the vote pursuant
to that proxy by a writing delivered to the Trust stating that the proxy is
revoked, by a subsequent proxy executed by or attendance at the meeting and
voting in person by the person executing that proxy or revoked by such person
using any electronic, telephonic, computerized or other alternative means
authorized by the Trustees for authorizing the proxy to act; or (ii) written
notice of the death or incapacity of the maker of that proxy is received by
the Trust before the vote pursuant to that proxy is counted. A proxy with
respect to Shares held in the name of two or more Persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any of them. A
proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger.

Section 11. INSPECTORS OF ELECTION. Before any meeting of Shareholders,
the Trustees may appoint any persons other than nominees for office to act as
inspectors of election at the meeting or its adjournment. If no inspectors
of election are so appointed, the Chairman of the meeting may appoint
inspectors of election at the meeting. The number of inspectors shall be two
(2). If any person appointed as inspector fails to appear or fails or
refuses to act, the Chairman of the meeting may appoint a person to fill the
vacancy.

These inspectors shall:

a. Determine the number of Shares outstanding and the voting
power of each, the Shares represented at the meeting, the existence
of a quorum and the authenticity, validity and effect of proxies;

b. Receive votes, ballots or consents;

c. Hear and determine all challenges and questions in any way
arising in connection with the right to vote;

d. Count and tabulate all votes or consents;

<PAGE>

e. Determine when the polls shall close;

f. Determine the result; and

g. Do any other acts that may be proper to conduct the election
or vote with fairness to all Shareholders.

ARTICLE III

Section 1. POWERS. Subject to the applicable provisions of the 1940
Act, the Declaration of Trust and these By-Laws relating to action required
to be approved by the Shareholders, the business and affairs of the Trust
shall be managed and all powers shall be exercised by or under the direction
of the Trustees.

Section 2. NUMBER OF TRUSTEES. The exact number of Trustees within any
limits specified in the Declaration of Trust shall be fixed from time to time
by a resolution of the Trustees.

Section 3. VACANCIES. Vacancies in the authorized number of Trustees
may be filled as provided in the Declaration of Trust.

Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of
the Trustees may be held at any place that has been designated from time to
time by resolution of the Trustees. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the
Trust. Any meeting, regular or special, may be held by conference telephone
or similar communication equipment, so long as all Trustees participating in
the meeting can hear one another and, except as provided under the 1940 Act,
all such Trustees shall be deemed to be present in person at the meeting.

Section 5. REGULAR MEETINGS. Regular meetings of the Trustees shall be
held without call at such time as shall from time to time be fixed by the
Trustees. Such regular meetings may be held without notice.

Section 6. SPECIAL MEETINGS. Special meetings of the Trustees for any
purpose or purposes may be called at any time by the President or any Vice
President or the Secretary or any two (2) Trustees.

Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Trustee or sent by first-class mail, by
telegram or telecopy (or similar electronic means) or by nationally
recognized overnight courier, charges prepaid, addressed to each Trustee at
that Trustee's address as it is shown on the records of the Trust. In case
the notice is mailed, it shall be deposited in the United States mail at
least seven (7) calendar days before the time of the holding of the meeting.
In case the notice is delivered personally or by telephone or by telegram,
telecopy (or similar electronic means) or overnight courier, it shall be
given at least forty-eight (48) hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the Trustee or to a person at the office of the Trustee who the
person giving the notice has reason to believe will promptly communicate it
to the Trustee. The notice need not specify the purpose of the meeting or
the place if the meeting is to be held at the principal executive office of
the Trust.

Section 7. QUORUM. A third of the authorized number of Trustees shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 9 of this Article III. Every act or decision done or
made by a majority of the Trustees present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Trustees, subject to
the provisions of the Declaration of Trust. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of Trustees if any action taken is approved by a least a majority
of the required quorum for that meeting.

<PAGE>

Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given to
any Trustee who either before or after the meeting signs a written waiver of
notice, a consent to holding the meeting, or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the records of the
Trust or made a part of the minutes of the meeting. Notice of a meeting
shall also be deemed given to any Trustee who attends the meeting without
protesting before or at its commencement the lack of notice to that Trustee.

Section 9. ADJOURNMENT. A majority of the Trustees present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.

Section 10. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given unless the meeting is
adjourned for more than forty-eight (48) hours, in which case notice of the
time and place shall be given before the time of the adjourned meeting in the
manner specified in Section 6 of this Article III to the Trustees who were
present at the time of the adjournment.

Section 11. ACTION WITHOUT A MEETING. Unless the 1940 Act requires that a
particular action be taken only at a meeting at which the Trustees are
present in person, any action to be taken by the Trustees at a meeting may be
taken without such meeting by the written consent of a majority of the
Trustees then in office. Any such written consent may be executed and given
by telecopy or similar electronic means. Such written consents shall be
filed with the minutes of the proceedings of the Trustees. If any action is
so taken by the Trustees by the written consent of less than all of the
Trustees, prompt notice of the taking of such action shall be furnished to
each Trustee who did not execute such written consent, provided that the
effectiveness of such action shall not be impaired by any delay or failure to
furnish such notice.

Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Trustees. This Section 12 shall not be construed to preclude any Trustee
from serving the Trust in any other capacity as an officer, agent, employee,
or otherwise and receiving compensation for those services.

ARTICLE IV

Section 1. COMMITTEES OF TRUSTEES. The Trustees may by resolution
designate one or more committees, each consisting of two (2) or more
Trustees, to serve at the pleasure of the Trustees. The Trustees may
designate one or more Trustees as alternate members of any committee who may
replace any absent member at any meeting of the committee. Any committee to
the extent provided in the resolution of the Trustee, shall have the
authority of the Trustees, except with respect to:

a. the approval of any action which under applicable law requires
approval by a majority of the entire authorized number of Trustees or
certain Trustees;

b. the filling of vacancies of Trustees;

c. the fixing of compensation of the Trustees for services
generally or as a member of any committee;

d. the amendment or termination of the Declaration of Trust or any
Series or Class or amendment of the By-Laws or the adoption of new
By-Laws;

<PAGE>

e. the amendment or repeal of any resolution of the Trustees which
by its express terms is not so amendable or repealable;

f. a distribution to the Shareholders of the Trust, except at a rate
or in a periodic amount or within a designated range determined by
the Trustees; or

g. the appointment of any other committees of the Trustees or the
members of such new committees.

Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by and held and taken in accordance with the
provisions of Article III of these By-Laws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Trustees generally, except that the time of regular meetings of committees
may be determined either by resolution of the Trustees or by resolution of
the committee. Special meetings of committees may also be called by
resolution of the Trustees. Alternate members shall be given notice of
meetings of committees and shall have the right to attend all meetings of
committees. The Trustees may adopt rules for the governance of any committee
not inconsistent with the provisions of these By-Laws.

ARTICLE V

OFFICERS

Section 1. OFFICERS. The officers of the Trust shall be a President, a
Secretary, and a Treasurer. The Trust may also have, at the discretion of
the Trustees, a Chairman of the Board (Chairman), one or more Vice
Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be appointed in accordance with
the provisions of Section 3 of this Article V. Any number of offices may be
held by the same person. The Chairman, if there be one, shall be a Trustee
and may but need not be a Shareholder; and any other officer may but need not
be a Trustee or Shareholder.

Section 2. ELECTION OF OFFICERS. The officers of the Trust, except such
officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article V, shall be chosen by the Trustees, and each
shall serve at the pleasure of the Trustees, subject to the rights, if any,
of an officer under any contract of employment.

Section 3. SUBORDINATE OFFICERS. The Trustees may appoint and may
empower the President to appoint such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these By-Laws or as the
Trustees may from time to time determine.

Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights,
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Trustees at any regular or
special meeting of the Trustees or by the principal executive officer or by
such other officer upon whom such power of removal may be conferred by the
Trustees.

Any officer may resign at any time by giving written notice to the
Trust. Any resignation shall take effect at the date of the receipt of that
notice or at any later time specified in that notice; and unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Trust under any contract to which the officer is a
party.

<PAGE>

Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or other cause shall be filled
in the manner prescribed in these By-Laws for regular appointment to that
office. The President may make temporary appointments to a vacant office
pending action by the Trustees.

Section 6. CHAIRMAN. The Chairman, if such an officer is elected, shall
if present preside at meetings of the Trustees, shall be the chief executive
officer of the Trust and shall, subject to the control of the Trustees, have
general supervision, direction and control of the business and the officers
of the Trust and exercise and perform such other powers and duties as may be
from time to time assigned to him by the Trustees or prescribed by the
Declaration of Trust or these By-Laws.

Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the Trustees to the Chairman, if there be such an officer, the
President shall be the chief operating officer of the Trust and shall,
subject to the control of the Trustees and the Chairman, have general
supervision, direction and control of the business and the officers of the
Trust. He or she shall preside at all meetings of the Shareholders, and in
the absence of the Chairman or if there be none, at all meetings of the
Trustees. He or she shall have the general powers and duties of management
usually vested in the office of President of a corporation and shall have
such other powers and duties as may be prescribed by the Trustees, the
Declaration of Trust or these By-Laws.

Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by
the Trustees or if not ranked, the Executive Vice President (who shall be
considered first ranked) and such other Vice Presidents as shall be
designated by the Trustees, shall perform all the duties of the President and
when so acting shall have all powers of and be subject to all the
restrictions upon the President. The Vice Presidents shall have such other
powers and perform such other duties as from time to time may be prescribed
for them respectively by the Trustees or the President or the Chairman or by
these By-Laws.

Section 9. SECRETARY. The Secretary shall keep or cause to be kept at
the principal executive office of the Trust or such other place as the
Trustees may direct a book of minutes of all meetings and actions of
Trustees, committees of Trustees and Shareholders with the time and place of
holding, whether regular or special, and if special, how authorized, the
notice given, the names of those present at Trustees' meetings or committee
meetings, the number of Shares present or represented at meetings of
Shareholders and the proceedings.

The Secretary shall keep or cause to be kept at the principal
executive office of the Trust or at the office of the Trust's transfer agent
or registrar, a Share register or a duplicate Share register showing the
names of all Shareholders and their addresses, the number and classes of
Shares held by each, the number and date of certificates issued for the same
and the number and date of cancellation of every certificate surrendered for
cancellation.

The Secretary shall give or cause to be given notice of all meetings
of the Shareholders and of the Trustees (or committees thereof) required to
be given by these By-Laws or by applicable law and shall have such other
powers and perform such other duties as may be prescribed by the Trustees or
by these By-Laws.

Section 10. TREASURER. The Treasurer shall be the chief financial officer
and chief accounting officer of the Trust and shall keep and maintain or
cause to be kept and maintained adequate and correct books and records of
accounts of the properties and business transactions of the Trust and each
Series and Class thereof, including accounts of the assets, liabilities,
receipts, disbursements, gains, losses, capital and retained earnings of all
Series and Classes thereof. The books of account shall at all reasonable
times be open to inspection by any Trustee.

<PAGE>

The Treasurer shall deposit all monies and other valuables in the name
and to the credit of the Trust with such depositaries as may be designated by
the Board of Trustees. He or she shall disburse the funds of the Trust as
may be ordered by the Trustees, shall render to the President and Trustees,
whenever they request it, an account of all of his or her transactions as
chief financial officer and of the financial condition of the Trust and shall
have other powers and perform such other duties as may be prescribed by the
Trustees or these By-Laws.

ARTICLE VI

INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS

Section 1. AGENTS, PROCEEDINGS, EXPENSES. For the purpose of this
Article, "agent" means any Person who is or was a Trustee, officer, employee
or other agent of the Trust or is or was serving at the request of the Trust
as a trustee, director, officer, employee or agent of another organization in
which the Trust has any interest as a Shareholder, creditor or otherwise:
"proceeding" means any threatened, pending or completed claim, action, suit
or proceeding, whether civil, criminal, administrative or investigative
(including appeals); and "expenses" includes, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and all
other liabilities whatsoever.

Section 2. INDEMNIFICATION. Subject to the exceptions and limitations
contained in Section 3 below, every agent shall be indemnified by the Trust
to the fullest extent permitted by law against all liabilities and against
all expenses reasonably incurred or paid by him or her in connection with any
proceeding in which he or she becomes involved as a party or otherwise by
virtue of his or her being or having been an agent.

Section 3. LIMITATIONS, SETTLEMENTS. No indemnification shall be
provided hereunder to an agent:

a. who shall have been adjudicated by the court or other body before
which the proceeding was brought to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office
(collectively, "disabling conduct"); or

b. with respect to any proceeding disposed of (whether by
settlement, pursuant to a consent decree or otherwise) without an
adjudication by the court or other body before which the proceeding was
brought that such agent was liable to the Trust or its Shareholders by reason
of disabling conduct, unless there has been a determination that such agent
did not engage in disabling conduct:

(1) by the court or other body before which the proceeding was
brought; (2) by at least a majority of those Trustees who are
neither Interested Persons (within the meaning of the 1940 Act) of the Trust
nor are parties to the proceeding based upon a review of readily available
facts (as opposed to a full trial-type inquiry); or

(3) by written opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full trial-type inquiry);
PROVIDED, HOWEVER, that indemnification shall be provided hereunder to an
agent with respect to any proceeding in the event of (1) a final decision on
the merits by the court or other body before which the proceeding was brought
that the agent was not liable by reason of disabling conduct, or (2) the
dismissal of the

<PAGE>

proceeding by the court or other body before which it was brought for
insufficiency of evidence of any disabling conduct with which such agent has
been charged.

Section 4. INSURANCE, RIGHTS NOT EXCLUSIVE. The rights of
indemnification herein provided may be insured against by policies maintained
by the Trust on behalf of any agent, shall be severable, shall not be
exclusive of or affect any other rights to which any agent may now or
hereafter be entitled and shall inure to the benefit of the heirs, executors
and administrators of any agent.

Section 5. ADVANCE OF EXPENSES. Expenses incurred by an agent in
connection with the preparation and presentation of a defense to any
proceeding may be paid by the Trust from time to time prior to final
disposition thereof upon receipt of an undertaking by or on behalf of such
agent that such amount will be paid over by him or her to the Trust if it is
ultimately determined that he or she is not entitled to indemnification under
this Article VI; provided, however, that (a) such agent shall have provided
appropriate security for such undertaking, (b) the Trust is insured against
losses arising out of any such advance payments or (c) either a majority of
the Trustees who are neither Interested Persons of the Trust nor parties to
the proceeding, or independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as opposed to a
trial-type inquiry or full investigation), that there is reason to believe
that such agent will be found entitled to indemnification under this Article
VI.

Section 6. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any Trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1
of this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a Trustee, investment manager, or other
fiduciary may be entitled by contract or otherwise which shall be enforceable
to the extent permitted by applicable law other than this Article.

ARTICLE VII

RECORDS AND REPORTS

Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTRAR. The Trust
shall maintain at its principal executive office or at the office of its
transfer agent or registrar, if either be appointed and as determined by
resolution of the Trustees, a record of its Shareholders, giving the names
and addresses of all Shareholders and the number and Series (and, as
applicable, Class) of Shares held by each Shareholder. Subject to such
reasonable standards (including standards governing what information and
documents are to be furnished and at whose expense) as may be established by
the Trustees from time to time, the record of the Trust's Shareholders shall
be open to inspection upon the written request of any Shareholder at any
reasonable time during usual business hours for a purpose reasonably related
to the holder's interests as a Shareholder.

Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust shall keep
at its principal executive office the original or a copy of these By-Laws as
amended to date, which shall be open to inspection by the Shareholders at all
reasonable times during office hours.

Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting
books and records and minutes of proceedings of the Shareholders and the
Trustees and any committee or committees of the Trustees shall be kept at
such place or places designated by the Trustees or in the absence of such
designation, at the principal executive office of the Trust. The minutes
shall be kept in written form and the accounting books and records

<PAGE>

shall be kept either in written form or in any other form capable of being
converted into written form. Minutes and accounting books and records shall
be open to inspection upon the written request of any Shareholder at any
reasonable time during usual business hours for a purpose reasonably related
to the holder's interests as a Shareholder. Any such inspection may be made
in person or by an agent or attorney and shall include the right to copy and
make extracts. Notwithstanding the foregoing, the Trustees shall have the
right to keep confidential from Shareholders for such period of time as the
Trustees deem reasonable, any information which the Trustees reasonably
believe to be in the nature of trade secrets or other information the
disclosure of which the Trustees in good faith believe is not in the best
interests of the Trust or could damage the Trust or its business or which the
Trust is required by law or by agreement with a third party to keep
confidential.

Section 4. INSPECTION BY TRUSTEES. Every Trustee shall have the absolute
right at any reasonable time to inspect all books, records, and documents of
every kind and the physical properties of the Trust. This inspection by a
Trustee may be made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of documents.

Section 5. FINANCIAL STATEMENTS. A copy of any financial statements and
any income statement of the Trust for each semi-annual period of each fiscal
year and accompanying balance sheet of the Trust as of the end of each such
period that has been prepared by the Trust shall be kept on file in the
principal executive office of the Trust for at least twelve (12) months and
each such statement shall be exhibited at all reasonable times to any
Shareholder demanding an examination of any such statement or a copy shall be
mailed to any such Shareholder.

The semi-annual income statements and balance sheets referred to in
this section shall be accompanied by the report, if any, of any independent
accountants engaged by the Trust or the certificate of an authorized officer
of the Trust that the financial statements were prepared without audit from
the books and records of the Trust.

ARTICLE VIII

GENERAL MATTERS

Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks, drafts,
or other orders for payment of money, notes or other evidences of
indebtedness issued in the name of or payable to the Trust shall be signed or
endorsed in such manner and by such person or persons as shall be designated
from time to time in accordance with the resolution of the Board of Trustees.

Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Trustees, except
as otherwise provided in these By-Laws, may authorize any officer or
officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the Trust and this authority may
be general or confined to specific instances; and unless so authorized or
ratified by the Trustees or within the agency power of an officer, no
officer, agent, or employee shall have any power or authority to bind the
Trust by any contract or engagement or to pledge its credit or to render it
liable for any purpose or for any amount.

Section 3. CERTIFICATES FOR SHARES. The Trustees may at any time
authorize the issuance of Share certificates for any one or more Series or
Classes. In that event, each Shareholder of an affected Series or Class
shall be entitled upon request to receive a certificate evidencing such
Shareholder's ownership of Shares of the relevant Series or Class (in such
form as shall be prescribed from time to time by the Trustees). All
certificates shall be signed in the name of the Trust by the President or
Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or any Assistant Secretary, certifying the number of Shares and the
Series of Shares owned by the Shareholders. Any or all of the signatures on
the certificate may be facsimile. In case any officer,

<PAGE>

transfer agent, or registrar who has signed or whose facsimile signature has
been placed on a certificate shall have ceased to be that officer, transfer
agent, or registrar before that certificate is issued, it may be issued by
the Trust with the same effect as if that person were an officer, transfer
agent or registrar at the date of issue. Notwithstanding the foregoing, the
Trust may adopt and use a system of issuance, recordation and transfer of its
Shares by electronic or other means.

Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no
new certificates for Shares shall be issued to replace an old certificate
unless the latter is surrendered to the Trust and canceled at the same time.
The Trustees may, in the event any Share certificate or certificate for any
other security is lost, stolen, or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the Trustees may
require, including a provision for indemnification of the Trust secured by a
bond or other adequate security sufficient to protect the Trust against any
claim that may be made against it, including any expense or liability on
account of the alleged loss, theft, or destruction of the certificate or the
issuance of the replacement certificate.

Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD BY TRUST. The
President or any Vice President or any other person authorized by the
Trustees or by any of the foregoing designated officers, is authorized to
vote or represent on behalf of the Trust any and all Shares of any
corporation, partnership, trusts, or other entities, foreign or domestic,
standing in the name of the Trust. The authority granted may be exercised in
person or by a proxy duly executed by such designated person.

Section 6. FISCAL YEAR. The fiscal year of the Trust shall be fixed and
refixed or changed from time to time by the Trustees. The fiscal year of the
Trust shall be the taxable year of each Series and Class of the Trust.

Section 7. SEAL. The seal of the Trust shall consist of a flat-faced dye
with the words "Seneca Funds, Delaware Trust, 1995" cut or engraved thereon.
However, unless otherwise required by the Trustees, the seal shall not be
necessary to be placed on, and its absence shall not impair the validity of,
any document, instrument or other paper executed and delivered by or on
behalf of the Trust.

ARTICLE IX

AMENDMENTS

Section 1. AMENDMENT. Except as otherwise provided by applicable law or
by the Declaration of Trust, these By-Laws may be restated, amended,
supplemented or repealed by the Trustees, provided that no restatement,
amendment, supplement or repeal hereof shall limit the rights to
indemnification or insurance provided in Article VI hereof with respect to
any acts or omissions of agents (as defined in Article VI) of the Trust prior
to such amendment.

Section 2. INCORPORATION BY REFERENCE INTO AGREEMENT AND DECLARATION OF
TRUST BY THE TRUST. These By-Laws and any amendments thereto shall be deemed
incorporated by reference in the Declaration of Trust.

<PAGE>

EXHIBIT 5(a)

INVESTMENT MANAGEMENT AGREEMENT

THIS AGREEMENT, dated and effective as of this ____ day of January,
1996, is made and entered into by and between Seneca Funds, a Delaware
business trust, (hereinafter called the "Trust"), and GMG/Seneca Capital
Management, L.P., a limited partnership (hereinafter called the "Manager").

WHEREAS the Trust is engaged in business as an open-end, diversified
management investment company of the series type and is so registered under
the Investment Trust Act of 1940 (the "1940 Act"); and

WHEREAS the Manager is engaged principally in the business of rendering
investment management services and is so registered under the Investment
Managers Act of 1940; and

WHEREAS the Trust is authorized to issue shares of capital stock in
separate series (the "Series") with each Series representing interests in a
separate portfolio of securities and other assets (a "Fund," collectively the
"Funds"); and

WHEREAS the Trust intends initially to offer shares in four series, the
Seneca Growth Fund, the Seneca Mid-Cap Growth Fund, the Seneca Bond Fund, and
the Seneca Real Estate Investment Fund (collectively, the "Initial Series");
and

WHEREAS the Trust desires to retain the Manager to render investment
management services as described hereunder with respect to the Initial Series
and the Manager is willing so to do.

NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the
parties hereto as follows:

1. (a) INITIAL SERIES. The Trust hereby appoints the Manager to
act as adviser and investment manager to each of the Initial Series for the
period and on the terms herein set forth. The Manager accepts such
appointment and agrees to render the services herein set forth, for the
compensation herein provided.

(b) ADDITIONAL SERIES. In the event that the Trust
establishes one or more series of shares other than the Initial Series as to
which it desires to retain the Manager to render management and investment
advisory services hereunder, it shall so notify the Manager in writing,
indicating the advisory fee which will be payable as to the additional series
of shares. If the Manager is willing to render such services, it shall so
notify the Trust in writing, whereupon such series of shares shall become a
Series hereunder.

The Manager shall, for all purposes herein, be deemed an independent
contractor and not an agent of the Trust.

<PAGE>

2. Investment Management Services.

(a) Subject to the supervision of the Trustees of the Trust
("Trustees"), the Manager agrees to provide supervision of the portfolio of
each Series and to determine what securities or other property shall be
purchased or sold by each Series, giving due consideration to the policies of
each Series as expressed in the Trust's Agreement and Declaration of Trust,
By-laws, Form N-1A Registration Statement ("Registration Statement") under
the 1940 Act and under the Securities Act of 1933, as amended (the "1933
Act"), and prospectus as in use from time to time, as well as to the factors
affecting the status of each Series as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended. In its duties hereunder, the
Manager shall further be bound by any and all determinations by the Trustees
relating to investment policy, which determinations shall in writing be
communicated to the Manager.

(b) Except as to assets placed with another adviser or a
Sub-adviser (as defined below), the Manager shall provide adequate facilities
and qualified personnel for the placement of, and shall place orders for the
purchase, or other acquisition, and sale, or other disposition, of portfolio
securities for each Series. As to such transactions, the Manager, subject to
such direction as may be furnished from time to time by the Trustees, shall
endeavor as the primary objective to obtain the most favorable prices and
executions of orders. Subject to such primary objective, the Manager may
place orders with brokerage firms that have sold shares of any Series.
Subject to such primary objective and also to compliance with such procedures
and requirements as the Trustees may establish pursuant to Rule 17e-1 under
the 1940 Act and other requirements of applicable law, the Manager is
specifically authorized to place orders for portfolio brokerage transactions
with brokerage firms that are "affiliated persons" of the Trust or of any
"affiliated person" of such affiliated person, within the meaning of the 1940
Act. The Manager is also specifically authorized to allocate portfolio
brokerage and portfolio principal transactions business to firms that provide
brokerage and research services or facilities and to cause the Series to pay
a member of a securities exchange, or any other securities broker or dealer,
an amount of commission for effecting a securities transaction in excess of
the amount of commission another member of an exchange, broker or dealer
would have charged for effecting that transaction, if the Manager determines
in good faith that such amount of commission is reasonable in relation to the
commissions paid by other similarly situated investors and the value of the
brokerage and research services (as such services are defined for purposes of
Section 28(e) of the Securities Exchange Act of 1934) provided by such
member, broker or dealer, viewed in terms of either that particular
transaction or the overall responsibilities of the Manager with respect to
the Series and other accounts over which the Manager has investment
discretion. The authority to pay higher brokerage commissions, as provided
in the preceding sentence, shall not apply with respect to portfolio
transactions which are fixed, rather than negotiated. The receipt by the
Manager of any such brokerage and research services shall not be deemed to
give rise to any requirement for abatement of the compensation payable to the
Manager pursuant to Section 3 hereof.

(c) On occasions when the Manager deems the purchase or sale
of a security or other asset to be in the best interests of a Series as well
as other clients of the Manager, including investment limited partnerships or
accounts in which the Manager or one or more associated persons (with the
meaning of the Investment Advisers Act of 1940) or affiliated persons (within
the meaning of the 1940 Act) is a general partner, or has an other financial
interest based on the gains or profits of such limited partnerships or
accounts, the Manager, to the extent permitted by applicable laws and
regulations, may aggregate the securities or other assets to be so sold or
purchased when the Manager believes that to do so will be in the best
interests of the Series. In such event, allocation of the securities or
other assets so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Manager in the manner the Manager considers
to be the most equitable and consistent with its fiduciary obligations to the
Series and to such other clients.

<PAGE>

(d) In compliance with the requirements of Rule 31a-3 under
the 1940 Act, the Manager hereby agrees that all records which it maintains
for the Trust are the property of the Trust, agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act any records which it
maintains for the Trust and which are required to be maintained by Rule 31a-1
under the 1940 Act, and further agrees to surrender promptly to the Trust any
records which it maintains for the Trust upon request by the Trust.

3. Investment Management Fees.

(a) Each Series shall pay to the Manager on or before the
tenth (10th) day of each month, as compensation for the services rendered by
the Manager during the preceding month, an amount to be computed by applying
to the daily total net asset value of such Series the applicable annual rates
set forth on Appendix A hereto.

(b) The fees on Appendix A shall be computed and accrued
daily at one three- hundred-sixty-fifth (1/365th) of the applicable rates set
forth therein. The net asset value of each Series shall be determined in the
manner set forth in the Registration Statement after the close of the New
York Stock Exchange on each day on which said Exchange is open, and in the
case of Saturdays, Sundays, and other days on which said exchange shall not
be open, in the manner further set forth in said Registration Statement. In
the event of termination other than at the end of a calendar month, the
monthly fee shall be prorated for the portion of the month prior to
termination and paid on or before the tenth (10th) day subsequent to
termination.

(c) The Manager agrees to reduce the investment management
fee payable to it under this Agreement, if any, by the amount by which the
expenses of the Trust for any fiscal year of the Trust shall exceed the most
stringent limits prescribed by any state in which the Trust shares are
offered for sale. Notwithstanding the foregoing, during any fiscal year of
the Trust in which no investment management fee is payable to the Manager,
the Manager agrees to pay the Trust the amount by which the expenses of the
Trust for such fiscal year of the Trust shall exceed the most stringent
limits prescribed by any state in which the Trust shares are offered for
sale. The expense limitation commitment of the Manager is subject to the
qualification that if, as a result of so fully reimbursing the Trust for such
excess expenses, less than 90% of the Trust's gross income would be derived
from qualifying sources described in Section 851(b)(2) of the Internal
Revenue Code of 1986 or any successor provisions (which include dividends,
interest, payments with respect to securities loans and gains from the sale
of stock, certain other securities or foreign currencies and certain other
income), treating as income for this purpose any expense reimbursement, then
the Manager will reimburse the Trust only in such an amount as will not
result in less than 90% of the Trust's gross income being received from
qualifying sources and any unreimbursed portion of the excess will be carried
forward for a period of up to three fiscal years. Costs incurred in
connection with the purchase or sale of portfolio securities, including
brokerage fees and commissions, that are capitalized in accordance with
generally accepted accounting principles applicable to investment companies,
shall be accounted for as capital items and not as expenses. Expenses shall
be excluded from the calculation of the applicable expense limitations to the
fullest extent authorized by applicable law. Proper accruals shall be made
by the Trust for any projected reduction of investment management fees (or
cash reimbursement) hereunder and corresponding amounts shall be withheld
from the fees paid by the Trust to the Manager or paid by the Manager,
subject to recovery by the Manager of any amounts withheld or paid in excess
of the actual reduction or reimbursement for any fiscal year. Any additional
reduction (or cash reimbursement) computed at the end of the fiscal year
shall be deducted from the fee for the last month of such fiscal year (or
thereupon promptly paid by the Manager).

(d) The above provision in subsection (c) as to expense
limitation shall be calculated and administered separately as to each Series
and as to each class within each Series, as opposed to the Trust in the
aggregate, if and to the extent so required by state securities authorities.

<PAGE>

4. Expenses.

(a) The Manager assumes and shall pay for the cost of
maintaining the staff and personnel necessary to perform its obligations
under this Agreement. Except as otherwise expressly provided herein, the
Trust assumes and shall pay or cause to be paid all expenses of the Trust,
including, without limitation: (a) all costs and expenses incident to (i) the
registration of the Trust under the 1940 Act or (ii) any public offering of
capital stock ("Shares") of the Series, for cash or otherwise, including
costs and expenses relating to the registration of Shares under the
Securities Act of 1933 (the "1933 Act"), the qualification of Shares under
state securities laws, the printing or other reproduction and distribution of
any registration statement (and all amendments thereto) under the 1933 Act,
the preliminary and final prospectuses included therein, and any other
necessary documents incident to such public offering; (b) the charges and
expenses of any custodian appointed by the Trust for the safekeeping of its
cash, portfolio securities and other property, and the charges and expenses
of auditors and bookkeepers; (c) the investment management fees payable
hereunder to the Manager; (d) the charges and expenses of auditors and
bookkeepers; (e) the charges and expenses of any Share transfer, dividend
agent or registrar appointed by Trust; (f) broker's commissions chargeable to
the Trust in connection with portfolio securities transactions to which a
Series is a party; (g) all taxes, including securities issuance and transfer
taxes, and organizational fees payable by the Trust to Federal, state or
other governmental agencies; (h) the costs and expenses of engraving or
printing of certificates representing Shares of the Series; (i) fees involved
in registering and maintaining registrations of the Trust and of Shares with
the Securities and Exchange Commission and various states and other
jurisdictions; (j) all expenses of meetings of shareholders and the Trustees
of the Trust and of preparing, printing and mailing proxy statements and
quarterly, semiannual, annual and any other reports to shareholders; (k) fees
and travel expenses of Trustees and officers of the Trust; (l) all fees and
expenses incident to any dividend or distribution reinvestment program; (m)
charges and expenses of legal counsel in connection with matters relating to
the Trust, including without limitation, legal services rendered in
connection with the Trust's organization, financial structure and relations
with its shareholders, issuance of Shares, and registrations and
qualifications of Shares under Federal, state and other laws; (n) association
dues; (o) interest payable on Series borrowings; (p) fees and expenses of
obtaining any exemptions from any provisions of any Federal, state or other
securities laws; (q) fees or expenses incurred incident to the obtaining of
any rulings of, or advice from, the U.S. Internal Revenue Service or any
other taxing authority incident to the taxation of a Series or its
shareholders; (r) costs of information obtained from sources other than the
Manager or its affiliated persons (as defined in the 1940 Act) relating to
the pricing and valuation of securities; and (s) postage.

(b) The payment or assumption by the Manager of any expense
of the Trust or any Series that the Manager is not required by this Agreement
to pay or assume shall not obligate the Manager to pay or assume the same or
any similar expense of the Trust or any Series on any subsequent occasion.

(c) The Trust will reimburse the Manager for any expenses of
the Trust paid, but not assumed by, the Manager from time to time upon
presentation to the Trust of an itemized schedule of such expenses.

5. Other Business of the Manager. Nothing contained in this
Agreement shall be construed to prohibit the Manager from performing
investment advisory, management, or distribution services for other
investment companies and other persons or companies, or to prohibit
affiliates of the Manager from engaging in such businesses or in other
related or unrelated businesses.

6. Indemnification. The Trust agrees (i) not to hold the Manager
or any of its officers or employees liable for, and (ii) to indemnify or
insure the Manager and its officers and employees ("Indemnified Parties")
against, any costs and liabilities the Indemnified Parties may incur as a
result of any claim against the Indemnified Parties in the good faith
exercise of their powers hereunder or arising out of an act or omission of

<PAGE>

the Trust's custodian of assets, or of any broker or agent selected by the
Manager in a commercially reasonable manner, excepting matters as to which
the Indemnified Parties shall be finally adjudged to have been guilty of
willful misfeasance, bad faith, gross negligence, reckless disregard of duty,
or breach of fiduciary duty (all as used in the 1940 Act).

7. Term of Agreement.

(a) This Agreement shall become effective with respect to the
Initial Series on the date hereof (the "Effective Date") and, as to any
additional Series, on the date of receipt by the Trust of notice from the
Manager in accordance with Section 1(b) hereof that the Manager is willing to
serve as Manager with respect to such Series. Unless terminated as herein
provided, this Agreement shall remain in full force and effect until December
31, 1996 from the Effective Date with respect to the Initial Series and, as
to each additional Series, until the December 31 following the first
anniversary of the date on which such Series becomes a Series hereunder, and
shall continue in full force and effect for periods of one year thereafter as
to each Series so long as such continuance as to any such Series is approved
at least annually (i) by either the Trustees or by a vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of such Series,
and (ii) in either event by the vote of a majority of the Directors of the
Trust who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval.

Any approval of this Agreement by a majority (as defined in the 1940
Act) of the outstanding voting securities of any Series shall be effective to
continue this Agreement as to any such Series notwithstanding (i) that this
Agreement has not been approved by the holders of a majority (as defined in
the 1940 Act) of the outstanding voting securities of any other Series not
affected thereby, and (ii) that this Agreement has not been approved by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Trust, unless such approval shall be required by any
applicable law or otherwise.

(b) This Agreement may be terminated as to any Series at any
time, without payment of any penalty, by the Trustees or by the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the affected Series, on sixty (60) days written notice to the Manager, or by
the Manager on 180 days written notice to the Trust.

8. Delegation of the Manager's Duties as Investment Manager. As
to one or more of the Series, the Manager may enter into one or more
agreements ("Sub-Advisory Contract") with a sub-adviser (a "Sub-adviser") in
which the Manager delegates to such Sub-adviser the performance of any or all
of the services specified in Sections 2 and 3 of this Agreement, provided
that: (i) each Sub-Advisory Contract imposes on the Sub-adviser bound
thereby all the duties and conditions to which the Manager is subject with
respect to the covered services under Sections 2 and 3 of this Agreement;
(ii) each Sub-Advisory Contract meets all requirements of the 1940 Act and
rules thereunder; and (iii) the Manager shall not enter into a Sub-Advisory
Contract unless it is approved by the Trustees and the shareholders of the
affected Series, if required by the 1940 Act, prior to implementation.

9. Miscellaneous Matters.

(a) This Agreement supersedes any prior agreement relating to
the subject matter thereof between the parties.

<PAGE>

(b) 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.

(c) All notices or communications hereunder shall be in
writing and, if sent to the Manager shall be mailed by certified or
registered mail, or delivered, faxed, or telegraphed and confirmed in writing
to the Manager at 909 Montgomery Street, Suite 600, San Francisco, California
94133, Att'n: Gail P. Seneca and if to the Trust shall be mailed by
certified or registered mail, or delivered, faxed, or telegraphed and
confirmed in writing to the Trust at _____________-
_______________________________________________.

10. Choice of Law. This Agreement shall be construed in
accordance with the laws of the State of California and the 1940 Act. To the
extent that the applicable laws of the State of California conflict with the
applicable provisions of the 1940 Act, the latter shall control.

11. Interpretation. This Agreement has been negotiated at arm's
length and between persons sophisticated and knowledgeable in the matters
dealt with in this Agreement. Accordingly, any rule of law (including
California Civil Code section 1654) or legal decision that would require
interpretation of any ambiguities in this Agreement against the party that
has drafted it is not applicable and is waived. The provisions of this
Agreement shall be interpreted in a reasonable manner to effect the purpose
of the parties and this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate originals by their officers thereunto duly authorized
as of the date first above written.

SENECA FUNDS GMG/SENECA CAPITAL MANAGEMENT, L.P.

By_____________________________________
By__________________________________

Its____________________________________
Its_________________________________

<PAGE>

APPENDIX A

<TABLE>
<CAPTION>
Annual
Management
Fee
<S> <C>
Seneca Growth Fund 0.70%

Seneca Mid-Cap Growth Fund 0.80%

Seneca Bond Fund 0.50%

Seneca Real Estate Securities Fund 0.75%
</TABLE>