SENECA FUNDS, N-1A/A, 1996-02-13

SENECA FUNDS
N-1A/A, 1996-02-13

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<PAGE> 1
File No. 33-65137
File No. 811-7455

As Filed with the Securities and Exchange Commission on February 13, 1996.

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/

Pre-Effective Amendment No. 1 /X/

Post-Effective Amendment No. ____ / /

and/or

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

Amendment No. 1 /X/

(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)

Delaware Corporation Organizers, Inc.
1201 North Market Street
Wilmington, Delaware 19801

(Name and Address of Agent for Service)
<PAGE> 2
Copy to:
Mark D. Whatley, Esq.
Paul B. Hudson, 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> 3
SENECA FUNDS
ADMINISTRATIVE SHARES

Seneca Growth Fund
Seneca Mid-Cap Growth Fund
Seneca Bond Fund

Seneca Real Estate Securities Fund

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

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

-i-
<PAGE> 4
<TABLE>
<S> <C> <C>
6. Capital Stock and Other Securities........ Dividends and
Capital Gains;
General Information

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

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
</TABLE>

-ii-
<PAGE> 5

<TABLE>
<S> <C> <C>
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................ Calculation of the Funds'
Returns

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

-iii-
<PAGE> 6
SENECA FUNDS
INSTITUTIONAL SHARES

Seneca Growth Fund
Seneca Mid-Cap Growth Fund
Seneca Bond Fund
Seneca Real Estate Securities Fund

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

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

-i-
<PAGE> 7
<TABLE>
<S> <C> <C>
6. Capital Stock and Other Securities.... Dividends and
Capital Gains;
General Information

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

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
</TABLE>

-ii-
<PAGE> 8

<TABLE>
<S> <C> <C>
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' Returns

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

-iii-
<PAGE> 9

Subject to Completion, Dated February ____, 1996

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 total return 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. The Fund will
invest primarily in companies with market capitalizations between $500 million
and $5 billion. Production of income will be incidental to this objective. The
Fund will seek a total return 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 government and 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 Risk Considerations."

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 the Distributor at 909
Montgomery Street, San Francisco, California, 94133 or by calling 1-800-XXX-
YYYY. See "Purchase of Shares."

Each Fund has its own levels of expenses and charges. The minimum investment is
$10,000 per Fund, or less in some instances. See "Purchase of Shares."

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.

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

-1-
<PAGE> 10
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.

-2-
<PAGE> 11
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 11

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 SHARES 20

REDEMPTION OF SHARES 23

PORTFOLIO TRANSACTIONS 25

NET ASSET VALUE 27

DIVIDENDS AND CAPITAL GAINS 27

INCOME TAX CONSIDERATIONS 28

INVESTMENT MANAGER AND ADMINISTRATOR 29

GENERAL INFORMATION 31
</TABLE>

-3-
<PAGE> 12
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 of 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 total return 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 total return higher than the Standard & Poor's Mid-Cap 400
Index (the "S&P Mid-Cap 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 United States real estate industry or whose businesses relate
to ownership and operation of real estate in the U.S., 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 generally 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.

-4-
<PAGE> 13

Each Fund is separately managed by GMG/Seneca Capital Management, L.P.
("GMG/Seneca, L.P."). GMG/Seneca, L.P. plans to reorganize into a limited
liability company in mid-1996. The terms "GMG/Seneca" and "Investment Manager"
refer to GMG/Seneca, L.P. until the effectiveness of that reorganization and to
its successor thereafter.

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: Administrative Shares and Institutional
Shares. Administrative Shares are offered primarily to participant-directed
employee benefit plans and to investors purchasing through accounts maintained
with broker-dealers and other financial service companies. With certain
exceptions, the minimum initial 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, other employee benefit
trusts, endowments, foundations, and corporations. The minimum investment for
Institutional Shares is $100,000. See "Purchase of Shares." 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 may have different distribution-related expenses and charges and
other expenses specific to that class. Those expenses will be charged separately
to that class and may affect the class's 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

<TABLE>
<CAPTION>
SENECA REAL
SENECA MID- SENECA ESTATE
SENECA GROWTH CAP GROWTH BOND SECURITIES
- ----------------------------------------------------------------------------------------------------------
<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
- ------------------------------------------------------------------------------------------------------
</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."

-5-
<PAGE> 14

<TABLE>
<CAPTION>
ANNUAL FUND EXPENSES PERCENTAGE OF AVERAGE NET ASSETS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.70% 0.80% 0.50% 0.85%
- ------------------------------------------------------------------------------
12b-1 Fees(2) 0.25% 0.25% 0.25% 0.25%
- ------------------------------------------------------------------------------
Other Expenses (after waivers and 0.55% 0.55% 0.55% 0.60%
expense reimbursements)3
- ------------------------------------------------------------------------------
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 waivers or expense reimbursements by
GMG/Seneca, the Other Expenses for Administrative Shares during the first year
of the Funds' operations are estimated to be ___%, ___%, ___%, and ___%,
respectively, and the Total Expenses are estimated to be ___%, ___%, ___%, 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.

- --------
(2) 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.

(3) Includes estimates of fees to be paid to GMG/Seneca pursuant to an
Administrative Services Agreement, 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, as well as
other expenses not covered by the Management Fees and the 12b-1 Fees. Certain
expenses can differ between classes depending on the particular services
provided to the different classes. Examples 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.

GMG/Seneca will waive some or all of its Administrative Fee and 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
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.

"Other Expenses" may be reduced to the extent certain broker-dealers
executing Funds' portfolio transactions pay all or a portion of the Funds'
transfer agency or custodian fees or expenses or credits arising out of balances
maintained by Funds with the Transfer Agent and Custodian offset such fees or
expenses.

-6-
<PAGE> 15

<TABLE>
<CAPTION>
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 they did not begin operating before February 1996, no past performance
information is available for the Funds. However, the Investment Manager and its
affiliates have been managing investment accounts for a variety of institutional
and individual investment advisory clients for over six years. The Seneca
Growth, Seneca Mid-Cap Growth, and Seneca Bond 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 those accounts is
illustrated in the table and the graphs that follow.

In addition, an affiliate of the Investment Manager, Genesis Realty Capital
Management, L.P. ("Genesis Realty"), has been managing an investment account
since May of 1995 with substantially the same investment objectives and
policies, and using substantially the same investment strategies and techniques,
as the Seneca Real Estate Securities Fund. The portfolio manager responsible for
the management of that account will be the portfolio manager with principal
responsibility for the Seneca Real Estate Securities Fund. The performance of
that account is illustrated in the table and in the graph entitled "Real Estate
Securities Account" that follows.

There can be no assurance that any Fund's performance will be the same as that
of the corresponding 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 accounts and composites match
up to the Funds as follows:

Seneca Growth Fund Core Growth Equity Account
Composite

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<PAGE> 16
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

The following table shows how the individually-managed account composites'
annualized performance compares to recognized industry indices over each of the
last five years or, where shorter, since the relevant composite's inception and
how the individually-managed Real Estate Securities Account's performance from
May through December 1995 compares to a recognized industry index over the same
period.

<TABLE>
<CAPTION>
Calendar Calendar Calendar Calendar Calendar Calendar
Year 1990 Year 1991 Year 1992 Year 1993 Year 1994 Year 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Core Growth Equity Account Composite 8.43% 38.69% 7.74% 10.82% 1.49% _____%

S&P 500 Index -3.20% 30.45% 7.62% 10.05% 1.32% _____%
- --------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Equity Account Composite --(1) -- -- -- 11.00% _____%

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

Lehman Brothers Government/Corporate 8.28% 16.13% 7.58% 11.03% -3.51%
Index _____%
- --------------------------------------------------------------------------------------------------------------------------------
Real Estate Securities Account(2) -- -- -- -- -- _____%

National Association of Real Estate -- -- -- -- -- _____%
Investment Trust ("NAREIT") 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. For each of the
individually-managed accounts and composites, account valuations and cash flows
occurred quarterly.

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

- --------
(1) Periods with "--" are before the Investment Manager began managing the
accounts in this composite.

(2) Inception of management of accounts in this composite was May 1, 1995.
The return shown for the Index is for the period from May 1, through December
31, 1995. The percentage returns are not annualized.

-8-
<PAGE> 17

Manager first began managing those accounts on January 1, 1990, would have grown
to about $______ as of December 31, 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 S&P 500 Index (weighted as in that index) would have
grown to about $______ for a rate of return of _____% 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.

[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 $______ as of December 31, 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 S&P Mid-Cap Index
(weighted as in that index) would have grown to about $______ for a rate of
return of _____% per year. The S&P Mid-Cap Index is a capitalization-weighted,
unmanaged index of common stocks, which has a market capitalization 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 $______ as of December 31, 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 Lehman Brothers Government/Corporate
Index (weighted as in that index) would have grown to about $______ for a rate
of return of ____% 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 Corporation or Fitch Investors Service.

[FIXED-INCOME ACCOUNT COMPOSITE GRAPH APPEARS HERE]

REAL ESTATE SECURITIES ACCOUNT

The following graph shows that $10,000 invested in an individually-managed
account that achieved the performance of the Real Estate Securities Account when
Genesis Realty first began managing that account on May 1, 1995 would have grown
to about $______ as of December 31, 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 GRAPH APPEARS HERE]

-9-
<PAGE> 18
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 ,
those fees were ___% per annum, in each case applied to the value of the
accounts at the end of each quarter. These fees represent the Investment
Manager's (or, as to the Real Estate Securities Account, Genesis Realty'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 unmanaged indices that pay no management fees
and incur no expenses. An individual cannot invest in an index.

Each Fund's 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 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"). GMG/Seneca's
services under its Investment Management Agreement and Administrative Services
Agreement with the Trust are subject to the direction of the Trustees.

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

GMG/Seneca has also entered into an Administrative Services Agreement with the
Trust under which it performs, or arranges for the performance of, the following
services, among others: (1) providing the Funds with administrative and clerical
services; (2) overseeing the maintenance of the Funds' books and records by the
Funds' custodian; (3) preparing the Funds' income tax returns; (4) registering
the Funds' shares with those states and other jurisdictions where shares are
offered or sold and arranging periodic updating of the Funds' prospectus; (5)
initial preparation and filing of proxy materials and reports to Fund
shareholders and the Securities and Exchange Commission ("SEC"); and (6)
providing the Funds with adequate office space and all necessary office
equipment to perform the foregoing services. GMG/Seneca has entered into an
agreement with State Street Bank and Trust Company ("State Street"), 1776
Heritage Drive, North Quincy, Massachusetts 01701 , pursuant to which State
Street will perform substantially all of those services.

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

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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 those 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 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
generally invest at least 65% of its assets 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.

In evaluating companies' potential for market appreciation, the Investment
Manager seeks companies that, among other things, 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 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 "Investment
Practices and Risk Considerations--Options, Futures, and Other Derivatives."

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<PAGE> 20
depositary receipts ("ADRs") or stocks of foreign issuers that are traded
directly on U.S. securities 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. 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.

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 are 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.

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, and 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 "Investment
Practices and Risk Considerations--Mortgage-Backed and Asset-Backed Securities"
and the SAI.

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<PAGE> 21
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 currently expected prepayment rates are more
critical in determining the securities' interest rate exposure.

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 ("Moody's") 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.

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 when
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 the security 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
"General Information--Summary of Bond Ratings" for a description of bond ratings
and "Investment Practices and Risk Considerations--Below- Investment-Grade
Securities" for a discussion of some of the risks involved in investments in
low- rated bonds.

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 "Investment Practices and Risk
Considerations--Foreign Securities."

This Fund ordinarily will invest in common stock only as a result of conversion
of bonds, exercise of warrants, or 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 generally invest at least 65%
of its assets in equity or debt securities of issuers that are principally
engaged in businesses in the United States

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<PAGE> 22
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), other companies whose assets consist substantially of real property and
interests in real property, real estate brokers and developers and companies
that manage real estate. Issuers will not be considered to be participating in
the real estate industry simply because they own significant amounts of real
estate if such ownership is incidental to another business unrelated to 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.

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
or related businesses. 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 "General Information--Summary of Bond Ratings"
for a description of bond ratings and "Investment Practices and Risk
Considerations--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
Investment Company Act of 1940 (the "1940 Act"), which means that it is not
limited by that Act in the proportion of its assets it may invest in the
securities 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

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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 differences in 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%-150% for the Seneca
Growth Fund; 100%-200% for the Seneca Mid-Cap Growth Fund; 40%-100% for the
Seneca Bond Fund; and 40% - 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.

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 SAI.

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 have 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.

REVERSE REPURCHASE AGREEMENTS ; BORROWING. 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. 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

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<PAGE> 24
opportunity for gain and the risk of loss for a given change in market value.
There may also be a risk of delay in the recovery of the underlying securities
if the counterparty experiences financial difficulties.

Each Fund may borrow money from banks and, to secure borrowings, may mortgage or
pledge securities. A Fund's obligations under all borrowings, including reverse
repurchase agreements, will not exceed one-third of the Fund's net assets. A
Fund 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. If a Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off.

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 generally pay 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.

Each Fund may also invest in unrated debt securities. Unrated debt securities,
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 Seneca Bond Fund's 35% limit on below-investment-grade debt
unless the Investment Manager determines those securities to be the equivalent
of investment-grade securities. See "General Information--Summary of Bond
Ratings" and the SAI 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. Investments in businesses related to the real estate
industry may also be affected by changes in the value of real estate generally
or in particular geographical areas in which the businesses operate primarily.
Interest rates can be a significant factor both in real estate values and in
related businesses. Increases in interest rates can cause or contribute to
declines in real estate prices and can cause slowdowns in such related
businesses as real estate sales and construction.

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<PAGE> 25
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 Code and of maintaining exemptions under the 1940 Act.

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.

SHORT SALES. A Fund may sell securities that it owns or has the right to acquire
at no additional cost but does not intend to deliver to the buyer , a practice
known as selling short "against the box." 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 , for example, to postpone recognition of
a gain or loss for federal income tax purposes or satisfy certain tests
applicable to regulated investment companies under the Code. Subject to
restrictions imposed by state law, a Fund may also sell securities that it does
not own or have the right to acquire . When a Fund does so, it will maintain
with its custodian in a segregated account cash or high-quality liquid debt
securities in an amount at least equal to the difference between the current
market value of the securities sold short 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 may be changed at any time.

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 markets for these securities do
not develop further or decline.

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 generally limited to securities traded on U.S. exchanges
or in the Nasdaq Stock Market and 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.

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<PAGE> 26
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 WP 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, SWAPS 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 and forward foreign currency contracts. 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.

Gains and losses on "derivatives" transactions depend on the Investment
Manager's ability to predict correctly the direction of interests rates,
securities prices, currency exchange rates, or other factors. 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 WP to the transaction does not perform as promised;
and e) the possible need to defer closing out certain positions to avoid adverse
tax consequences. In particular, the risk of loss from certain types of

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futures transactions is potentially unlimited. More information on derivatives
is contained in the SAI.

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 securities represent direct or indirect
participations in, or are secured by and payable from, mortgage loans secured by
real property. They include pass-through instruments, representing an undivided
interest in a pool of mortgages, in which the holder receives a share of all
interest and principal payments from the mortgages in the pool. For many of
these securities, the U.S. government, the issuing agency, or a private entity
guarantees payment of interest and principal or provides other forms of credit
enhancement. Some mortgage pass-through securities entitle the holders to all or
a substantial portion of the interest payments on a pool of mortgage assets
("Interest Only" securities, or "IOs") while others entitle the holders to all
or a substantial portion of the principal payments ("Principal Only" securities
or "POs"). Mortgage-backed securities also include collateralized mortgage
obligations ("CMOs"), a term that generally includes debt instruments
collateralized by mortgage loans or mortgage pass-through securities and
multi-class pass-through securities. CMO's are generally issued in classes, each
representing an obligation with a stated maturity or final distribution date and
a specific fixed or floating coupon rate. Payments of principal and interest on
the underlying mortgage assets may be allocated among the classes in various
ways, resulting in differing predictability of cash flows among the classes.
Other asset- backed securities apply techniques similar to those used in
mortgage-backed securities to base obligations on financial assets other than
mortgages, including automobile receivables, credit card receivables, loans to
finance boats, recreational vehicles, and mobile homes, computer, copier,
railcar, and medical equipment leases, and trade, healthcare, and franchise
receivables.

Part of the cash flow of mortgage-backed or other asset-backed securities may be
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 mortgage-related securities, prepayments are 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
likely to decrease during periods of rising interest rates, causing the expected
average life of mortgage-related securities 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. In general, the obligations
supporting other asset-backed securities are of shorter maturities than mortgage
loans and are less likely to experience substantial prepayments. However, the
risks relating to default may be greater.

The Investment Manager expects additional assets will be "securitized" in the
future. A Fund may invest in any such instruments or variations on them to the
extent consistent with the Fund's investment objectives and policies.

STRUCTURED SECURITIES. The Funds may invest in debt securities, preferred stock,
or convertible securities, the principal amount, redemption terms, or conversion
terms of which are related to a specified securities or other index, the market
prices of specified securities, commodities, or other assets, or specified
foreign currency exchange rates. These securities are sometimes referred to as
"structured notes," "structured securities," or "asset-based" securities. A
Fund's investments in these securities will be subject to the limits as to
quality that are applicable to debt securities generally. If a structured
security is backed by a bank letter of credit or other credit enhancement, a
Fund may take the enhancement into account in assessing the quality of the
security. The prices

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<PAGE> 28
of structured securities have historically been subject to high volatility and
their interest or dividend rates may at times be substantially below prevailing
market rates.

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
generally short-term unsecured obligations of private issuers. They are
generally interest-bearing notes on which the interest rate 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.
Investments in other investment companies involve investment management,
distribution, and other fees and expenses paid by such investment companies.
These will be in addition to the fees and expenses the Funds incur directly in
connection with their operations. The Funds may invest cash balances in money
market mutual funds.

Notwithstanding these limitations, the Funds reserve the right to convert to a
"master/feeder" structure at a future date. Under such a structure, one or more
"feeder" funds, such as the Funds, invest all of their assets in a "master"
fund, which, in turn, invests directly in a portfolio of securities. If required
by applicable law, the Funds will seek shareholder approval before converting to
a master/feeder structure. If the requisite regulatory authorities determine
that such approval is not required, shareholders will be deemed, by purchasing
shares, to have consented to such a conversion and no further shareholder
approval will be sought. Such a conversion is expressly permitted under the
investment objective and fundamental policies of each Fund.

DIVERSIFICATION. Diversifying a Fund's investment portfolio can reduce the risks
of investing. With the exception of the Seneca Real Estate Securities Fund, as
to 75% of its assets no Fund will make an investment that would result in more
than 5% of its total assets being invested in any one issuer or in the Fund
owning more than 10% of the outstanding voting securities of any issuer, in each
case excluding certain government securities, cash and certain other assets. In
addition, with the exception of Seneca Real Estate Securities Fund, no Fund will
invest more than 25% of its assets in any one industry. The Seneca Real Estate
Securities Fund will generally invest at least 65% of its assets in securities
of issuers that are principally engaged in businesses in the U.S. real estate
industry or related businesses. See "The Seneca Funds in Detail--Seneca Real
Estate Securities Fund."

PURCHASE OF SHARES

Each Fund offers two classes of shares: "Administrative Shares" and
"Institutional Shares." Administrative Shares are offered primarily to
participant-directed employee benefit plans and to investors purchasing through
accounts maintained with broker-dealers and other financial service

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<PAGE> 29
companies. Institutional Shares are offered directly by the Distributor to
institutional investors such as pensions and profit sharing plans, other
employee benefit trusts, endowments, foundations, and corporations.

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.

Genesis Merchant Group Securities, L.P. ("GMG Securities") is the principal
underwriter for the Funds' Shares. Seneca Distributors, LLC ("Seneca
Distributors") has entered into a Distribution Agreement with the Trust pursuant
to which, upon becoming fully registered as a broker-dealer under applicable
laws, it will also serve as a principal underwriter. It is expected that GMG
Securities will terminate its agreement with the Trust shortly thereafter and
Seneca Distributors will become the sole principal underwriter. In this
prospectus, the term "Distributor" refers to the current principal
underwriter(s) for the Funds. GMG Securities and Seneca Distributors are both
located at 909 Montgomery Street, San Francisco, CA 94133.

MINIMUM INVESTMENT IN THE FUNDS

Except for purchases of Administrative Shares through certain pension or
retirement plans or accounts, the minimum initial investment for Administrative
Shares and Institutional Shares is currently $10,000 and $100,000, respectively.
The minimum initial investment for Administrative Shares through pension or
retirement plans or accounts, including 401(k) plans, 403(b) plans, 457 plans,
governmental plans, tax-sheltered annuity plans and individual retirement
accounts ("Retirement Accounts") is currently $1,000. Certain other exceptions
to these minimum requirements may apply.

OPENING AN ACCOUNT

To open an account, an investor should (i) complete the attached Client
Registration Application and send it, together with payment for the amount to be
invested, to Seneca Funds, c/o Investors Fiduciary Trust Company at 127 West
10th Street, Kansas City, Missouri 64105, or (ii) contact his or her employee
benefit plan administrator or broker or other financial services provider.
Payments may be made by check or money order or by electronic transfer or wiring
of funds to Seneca Funds, c/o Investors Fiduciary Trust Company (the "Transfer
Agent"). See "How to Purchase Shares." Investors may call the Transfer Agent at
1-800-xxx-xxxx with questions concerning opening an account. See "How to
Purchase Shares."

HOW TO PURCHASE SHARES

Investors who are not buying shares through an account with a broker-dealer or
other financial service company may purchase shares in the following ways:

BY MAIL. Fill out a Client Registration Application (for a new account) or
fill out the investment coupon from a previous confirmation statement (for an
existing account), and mail it, together with a check or money order payable to
Investors Fiduciary Trust Company, to Seneca Funds, c/o Investors Fiduciary
Trust Company at 127 West 10th Street, Kansas City, Missouri 64105. Checks
should be bank or certified checks. The Trust, at its option, may accept a check
that is not a bank or certified check. There are restrictions on the redemption
of shares purchased by check for which the funds are being collected. See
"Redemption of Shares."

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<PAGE> 30
BY ELECTRONIC OR WIRE TRANSFER. Investors may also make initial or
subsequent investments by electronic transfer of funds or wire transfer of
Federal funds to Seneca Funds, c/o Investors Fiduciary Trust Company. Before
transferring or wiring funds, an investor must first telephone the Trust at
(800) XXX-YYYY for instructions . On the telephone, the following information
will be requested: name of authorized person; shareholder account number (if you
have one); name of Fund and share class; amount being transferred or wired; and
transferring or wiring bank name.

BY TELEPHONE. If an investor elects the telephone purchasing service on the
Client Registration Application (or subsequently in writing), the investor may
authorize electronic withdrawals from his or her bank account over the
telephone. The Transfer Agent may employ additional reasonable procedures to
confirm that such instructions are genuine, possibly including recording
telephone calls requesting purchases and/or verifying authorization and
requiring some form of personal identification. A Fund and the Transfer Agent
may be liable for losses due to unauthorized or fraudulent instructions only if
reasonable procedures are not followed. Otherwise, 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 purchasing service, they may be giving up a measure of security that
they might have if they were to purchase their shares by means of written
instructions. Furthermore, interruptions in telephone service may mean that a
shareholder will be unable to effect a purchase by telephone when desired.

AUTOMATIC INVESTMENT PLAN. Additional investments may be made automatically
by electing this service on the Client Registration Application and providing
bank account and certain other information. This will authorize the Fund and the
Transfer Agent to make regular, automatic withdrawals from the shareholder's
bank account. Periodic investments must be at least $100 for each Fund in which
the shareholder is automatically investing. A shareholder may change the date or
amount of the monthly investment, or terminate the Automatic Investment Plan, at
any time by notifying the Transfer Agent in writing or by telephone. The
Transfer Agent must receive the request at least 10 business days before the
change is to become effective. A shareholder may also be able to have
investments automatically deducted from his or her: (1) paycheck at work; (2)
savings account; or (3) choice of other sources. Call the Transfer Agent at
1-800-xxx-xxxx for more information.

All purchase orders are effected at the net asset value for the relevant 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 net asset value for the
relevant class by following the procedures described above. See "How to Purchase
Shares." The minimum additional investment for Administrative Shares generally
is $1,000; for participants in Retirement Accounts, the minimum additional
investment is $250. Additional investments for as little as $100

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<PAGE> 31
per month for each Fund may also be made through the Automatic Investment Plan.
See "Automatic Investment Plan."

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).

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.

RETIREMENT ACCOUNTS

Investors may establish an Individual Retirement Account (IRA), Simplified
Employee Plan (SEP), or certain other types of retirement plan with the
Distributor. Contributions to an IRA, SEP or other type of retirement plan may
be deductible from an investor's taxable income, depending on his or her
personal tax situation. An investor receiving a distribution from his or her
pension plan or wishing to transfer his or her IRA or other tax-deferred
retirement account from another financial institution, will continue to get
tax-deferred growth by transferring these accounts to the Distributor. Please
call 1-800-XXXX-XXX for additional information.

REDEMPTION OF SHARES

Each Fund will redeem its shares at the net asset value for the relevant class
next determined following receipt of a redemption 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 protect long-term
shareholders from the expenses involved in frequent purchases and redemptions by
short-term investors. 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.

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<PAGE> 32
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

A shareholder may authorize the Trust to effect redemptions or exchanges between
Funds (see "Other Redemption Information" and "Exchange Privilege") on
telephonic or other electronic instructions. This may be done either through the
Client Registration Application or with a subsequent written authorization, a
form of which may be obtained from the Transfer Agent. Once the shareholder has
given such authorization, he or she may redeem shares 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 must 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.

In electing telephone or other electronic redemption privileges, the investor
authorizes the Transfer Agent to act on instructions from any person
representing himself to be the investor and reasonably believed by the Transfer
Agent to be genuine. The Transfer Agent provides written confirmation of
transactions initiated electronically as a procedure designed to confirm that
such instructions are genuine. The Transfer Agent may employ additional
reasonable procedures to confirm that such instructions are genuine, possibly
including recording telephone calls requesting redemptions and/or verifying
authorization and requiring some form of personal identification. A Fund and the
Transfer Agent may be liable for losses due to unauthorized or fraudulent
instructions only if reasonable procedures are not followed. Otherwise, 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. All
redemptions, whether initiated by letter , by telephone, or by other electronic
means, 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 cost of such wire transfers will be
borne by the shareholder. The Trust may suspend the right of redemption as to
any Fund 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. If the shares being redeemed were purchased by check, payment
may be delayed pending verification that the check used to purchase such shares
has been honored. Any such delay may

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<PAGE> 33
be avoided if shares are purchased by means of certified or bank check or
electronic transfer or wire transfer of Federal funds.

For shareholder protection, a request to change information contained in a
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 unilaterally to redeem shares in any account (other than in
Retirement Accounts) for their then-current value (which will be promptly paid
to the investor) if at any time, due to redemptions 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 such an involuntary redemption and will be given at
least 30 days to bring the value of his or her 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" and "Dividends,
Distributions and Tax Status" in the SAI. 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.

PORTFOLIO TRANSACTIONS

Pursuant to the Investment 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
such purchases and sales , 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

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<PAGE> 34
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. In addition, the Trust may direct the
Investment Manager, subject to obtaining best execution, to execute a portion of
one or more Fund's portfolio transactions through certain broker-dealers in
exchange for the broker-dealers' agreement to satisfy or pay obligations that
the Fund has incurred for, among other things, custodial, accounting, or
transfer agency services. These practices could result in a Fund paying higher
aggregate transaction costs than would otherwise be the case.

Subject to the foregoing considerations of price and execution, the Funds may
use 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. The ownership of GMG Securities
overlaps significantly with the ownership of the Investment Manager and GMG
Securities should be considered an affiliated person of the Investment Manager.

GMG Securities will receive brokerage commissions from the Funds, limited to
"usual and customary broker's commissions," as contemplated by the 1940 Act, and
subject to GMG Securities being 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 1940 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 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.

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<PAGE> 35
NET ASSET VALUE

The net asset value per share of each class of each Fund will be determined as
of the regular 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 determine 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,
or at the direction of, 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 expects to 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:

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<PAGE> 36
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 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 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
prior 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 exchanges if
they fail to furnish their correct

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<PAGE> 37
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.

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

As Investment Manager , GMG/Seneca is responsible for making investment
decisions for the Funds and for selecting brokers and dealers to execute
transactions for each Fund. GMG/Seneca has been an investment adviser since
1989, managing equity and fixed-income securities portfolios primarily for
institutions and individuals. Gail P. Seneca and Genesis Merchant Group, L.P.
are the managing general partners of GMG/Seneca. Gail P. Seneca, William K.
Weinstein and Philip C. Stapleton are the general partners of Genesis Merchant
Group, L.P. GMG/Seneca plans to reorganize from a limited partnership to a
limited liability company, effective in mid-1996, and the Funds will enter into
a new Investment Management Agreement with the resulting limited liability
company at that time. The material terms of the Investment Management Agreement
will remain unchanged. The limited liability company will be owned by Ms.
Seneca, the existing limited partners of GMG/Seneca, the existing partners of
Genesis Merchant Group, L.P., and certain employees of GMG/Seneca. Under the
limited liability company's "operating agreement," Ms. Seneca will be the sole
"manager" of GMG/Seneca after the reorganization.

Investment and trading decisions for each Fund will be made by a team of
managers and analysts headed by two team leaders. The team leaders for each Fund
will be primarily responsible for the day-to-day decisions related to that Fund.
The team leader of any one Fund may be on another Fund team.

GAIL P. SENECA is a team leader for each of the Funds. 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.

RICHARD D. LITTLE is the other team leader for the Seneca Growth Fund and the
Seneca Mid-Cap Growth Fund. Mr. Little has been with GMG/Seneca since December
1989. He is a general partner and director of Equities. Before he joined
GMG/Seneca, Mr. Little held positions as an analyst, board member, and regional
manager with Smith Barney, NatWest Securities, and Montgomery Securities.

CHARLES B. DICKE is the other team leader for the Seneca Bond Fund. He has been
a Fixed-Income Portfolio Manager with GMG/Seneca since _______. Before joining
GMG/Seneca, he was a Vice President with Lehman Brothers, serving as a Product
Manager for Government agency securities and a strategist on fixed-income
portfolios.

-29-
<PAGE> 38
DAVID SHAPIRO is the other leader for the Seneca Real Estate Securities Fund. He
has been a Portfolio Manager with GMG/Seneca since 1996. Before joining
GMG/Seneca, he was ______________ with Genesis Realty since _______________,
1995. Prior to that, he was a director of The ADCO Group from ____ to ____, with
responsibility for overseeing its West Coast Equity Investment division. From
___ to ___, he was a director of Riverbank Financial Group, with responsibility
for a variety of development projects, including Cathedral Hill Tower,
Convention Plaza, and the Plaza Athletic Clubs, and rehabilitation of the San
Francisco Mart and the Santa Barbara Resort Hotel.

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's approach to locating attractive
investments in medium-capitalization companies, evaluating and monitoring them,
and effecting transactions in such securities requires more effort and resources
than traditional management of large-capitalization equity portfolios and bond
portfolios, as does the specialized nature of investing in real estate and real
estate-related securities. Accordingly, the management fees for the Seneca
Mid-Cap Growth Fund and the Seneca Real Estate Securities Fund are higher than
the management fees paid by most other mutual funds that do not pursue these
types of investment programs. The Investment Manager will reduce the Management
Fee each Fund must pay if the fee exceeds any state-imposed expense limitations
, excluding 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 expects 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. Pursuant to an Administrative Services Agreement,
GMG/Seneca is responsible for the day-to-day administrative functions of the
Trust . GMG/Seneca has entered into an agreement with State Street pursuant to
which State Street performs most of those functions. Among other things, State
Street 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 GMG/Seneca a fee based on ______________. 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 a Fund's expenses. The Institutional
class of each Fund pays a lower fee in recognition of the fact that fewer
services are required.

GMG/Seneca 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.

-30-
<PAGE> 39
GENERAL INFORMATION

SENECA FUNDS. Seneca Funds was organized as a Delaware business trust on
December 18, 1995. The Trust is registered with the Securities and Exchange
Commission under the 1940 Act as an open-end management investment company of
the series type. Each Fund constitutes a separate series. The fiscal year-end of
each of the Funds is September 30.

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 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 also 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 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. Investors Fiduciary Trust Company ("IFTC" or the
"Transfer Agent"), 127 West 10th Street, Kansas City, Missouri 64105, serves as
both Custodian and Transfer Agent for the Funds. Under a Custodian Agreement,
IFTC holds all securities and cash assets of the Funds as custodian and provides
certain accounting and recordkeeping services. In its capacity as the custodian,
IFTC is authorized to deposit securities in securities depositories or to use
services of sub-custodians.

Under a Transfer Agency Agreement, IFTC is responsible for, among other things:
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.

-31-
<PAGE> 40
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. The ownership of GMG Securities
overlaps significantly with that of GMG/Seneca and GMG Securities should be
considered an affiliated person of GMG/Seneca. Seneca Distributors is 99% owned
by GMG/Seneca.

DISTRIBUTION AND RELATED SERVICES. Pursuant to a Distribution Plan, the Trust
has entered into a Distribution Agreement with the Distributor under which the
Trust will pay the Distributors a 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.
Amounts paid under the Distribution 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, recordkeeping, and administrative services related to the sale of
Administrative Shares, all as set forth in the Distribution Plan. Payments under
the Distribution 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
Plan annually. For a more complete disclosure of the Plan and its terms, see the
SAI.

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 a Fund's shares by their customers and may
charge their customers transactions or other account fees on the purchase and
redemption of a Fund's 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 and
should be aware that, if they satisfy the minimum purchase requirements, they
could avoid those fees by investing directly through the Distributors.

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.

PERFORMANCE INFORMATION.

-32-
<PAGE> 41
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 may 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 may also separate its cumulative and average annual total returns into
income results and capital gains or losses. Each Fund may 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 may be more or less than their original cost when they are redeemed. For
more information, see the SAI.

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."

<TABLE>
<CAPTION>
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
- --------------------------------------------------------------------------------

-33-

<PAGE> 42
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C>
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 SAI.

-34-
<PAGE> 43

Subject to Completion, Dated February ____, 1996

SENECA FUNDS
INSTITUTIONAL SHARES

Prospectus: February , 1996
- --------------------------------------------------------------------------------

Each Fund has its own levels of expenses and charges. The minimum investment is
$100,000 per Fund, or less in some instances. See "Purchase of Shares."

-1-
<PAGE> 44
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.

-2-
<PAGE> 45
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 11

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 SHARES 20

REDEMPTION OF SHARES 23

PORTFOLIO TRANSACTIONS 25

NET ASSET VALUE 26

DIVIDENDS AND CAPITAL GAINS 27

INCOME TAX CONSIDERATIONS 28

INVESTMENT MANAGER AND ADMINISTRATOR 29

GENERAL INFORMATION 30
</TABLE>

-3-
<PAGE> 46
THE SENECA FUNDS AT A GLANCE

-4-
<PAGE> 47
Each Fund is separately managed by GMG/Seneca Capital Management, L.P.
("GMG/Seneca, L.P."). GMG/Seneca, L.P. plans to reorganize into a limited
liability company in mid-1996. The terms "GMG/Seneca" and "Investment Manager"
refer to GMG/Seneca, L.P. until the effectiveness of that reorganization and to
its successor thereafter.

FUND EXPENSES

Each Fund offers two classes of shares: Institutional Shares and Administrative
Shares. Institutional Shares are offered directly by the Distributor to
institutional investors such as pension and profit sharing plans, other employee
benefit trusts, endowments, foundations, and corporations. The minimum
investment for Institutional Shares is $100,000. Administrative Shares are
offered primarily to participant-directed employee benefit plans and to
investors purchasing through accounts maintained with broker-dealers and other
financial service companies. With certain exceptions, the minimum initial
investment for Administrative Shares is $10,000. See "Purchase of Shares." 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

<TABLE>
<CAPTION>
SENECA REAL
SENECA MID-CAP SENECA ESTATE
SENECA GROWTH GROWTH BOND SECURITIES
- --------------------------------------------------------------------------------------
<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
- --------------------------------------------------------------------------------------
</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."

-5-
<PAGE> 48

<TABLE>
<CAPTION>
ANNUAL FUND EXPENSES PERCENTAGE OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.70% 0.80% 0.50% 0.85%
- --------------------------------------------------------------------------------
12b-1 Fees None None None None
- --------------------------------------------------------------------------------
Other Expenses (after waivers and 0.15% 0.15% 0.15% 0.20%
expense reimbursements)(2)
- --------------------------------------------------------------------------------
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 waivers or expense reimbursements by
GMG/Seneca, the Other Expenses for Institutional Shares during the first year of
the Funds' operation are estimated to be ___%, ___%, ___ %, and ___%,
respectively, and the Total Expenses are estimated to be ___%, ___%, ___ %, and
___%, respectively.

EXAMPLE

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1 Year 3 Years
- --------------------------------------------------------------------------------
<S> <C> <C>
Seneca Growth Fund $9 $27
- --------------------------------------------------------------------------------
</TABLE>

- ---------------
(2)Includes estimates of fees to be paid to GMG/Seneca pursuant to an
Administrative Services Agreement, 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, as well as
other expenses not covered by the Management Fees. Certain expenses can differ
between classes depending on the particular services provided to the different
classes. Examples 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.

GMG/Seneca will waive some or all of its Administrative Fee and 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
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.

-6-
<PAGE> 49

<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C>
Seneca Mid-Cap Growth Fund $10 $30
- --------------------------------------------------------------------------------
Seneca Bond Fund $ 7 $21
- --------------------------------------------------------------------------------
Seneca Real Estate Securities Fund $11 $34
- --------------------------------------------------------------------------------
</TABLE>

INVESTMENT MANAGER'S PERFORMANCE

For comparison purposes, the individually-managed accounts and 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

-7-
<PAGE> 50

<TABLE>
<CAPTION>
Calendar Calendar Calendar Calendar Calendar Calendar
Year 1990 Year 1991 Year 1992 Year 1993 Year 1994 Year 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Core Growth Equity Account Composite 8.43 % 38.69% 7.74% 10.82% 1.49 % %

S&P 500 Index (3.20)% 30.45% 7.62% 10.05% 1.32 % %
- -----------------------------------------------------------------------------------------------------------
Mid-Cap Growth Equity Account Composite --(1) -- -- -- 11.00 % %

S&P Mid-Cap Index -- -- -- -- (3.58)% %
- -----------------------------------------------------------------------------------------------------------
Fixed-Income Account Composite 9.06 % 18.16% 9.07% 15.61% (2.71)% %

Lehman Brothers Government/Corporate 8.28 % 16.13% 7.58% 11.03% (3.51)% %
Index
- -----------------------------------------------------------------------------------------------------------
Real Estate Securities Account(2) -- -- -- -- -- %

National Association of Real Estate -- -- -- -- -- %
Investment Trust ("NAREIT") Equity Index
===========================================================================================================
</TABLE>

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 $______ as of December 31, 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 S&P 500 Index
(weighted as in that index) would have grown to about $______ for a rate of
return of _____% 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.

[CORE GROWTH EQUITY ACCOUNT COMPOSITE GRAPH APPEARS HERE]

- ---------------
(1)Periods with "--" are before the Investment Manager began managing the
accounts in this composite.

(2)Inception of management of accounts in this composite was May 1, 1995. The
return shown for the Index is for the period from May 1, through December 31,
1995. The percentage returns are not annualized.
<PAGE> 51
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

[REAL ESTATE SECURITIES ACCOUNT 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 ,
those fees were ___% per annum, in each case applied to the value of the
accounts at the end of each quarter. These fees represent the Investment
Manager's (or, as to the Real Estate Securities Account, Genesis Realty'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

-9-
<PAGE> 52
graphs for comparison purposes only. They are unmanaged indices that pay no
management fees and incur no expenses. An individual cannot invest in an index.

MANAGEMENT

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

THE SENECA FUNDS IN DETAIL

-10-
<PAGE> 53

SENECA GROWTH FUND AND SENECA MID-CAP GROWTH FUND

These Funds may invest as much as 20% of their assets in foreign securities if
those securities meet the same criteria 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 ("ADRs")
or stocks of foreign issuers that are traded directly on U.S. securities
exchanges or in the Nasdaq Stock Market.

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

-11-
<PAGE> 54

financial ability to take on above-average stock market volatility in pursuit of
long-term capital growth. 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.

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.

"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.

-12-
<PAGE> 55

This Fund ordinarily will invest in common stock only as a result of conversion
of bonds, exercise of warrants, or 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 generally invest at least 65%
of its assets 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), other companies whose assets consist
substantially of real property and interests in real property, real estate
brokers and developers and companies that manage real estate. Issuers will not
be considered to be participating in the real estate industry simply because
they own significant amounts of real estate if such ownership is incidental to
another business unrelated to real estate. Examples of issuers whose products or

-13-
<PAGE> 56
services are related to the real estate industry include manufacturers and
distributors of building supplies and financial institutions that originate or
service mortgage loans.

INVESTMENT PRACTICES AND RISK CONSIDERATIONS

PORTFOLIO TURNOVER. The rate of portfolio turnover generally will 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 differences in 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

-14-
<PAGE> 57
Performance," it is estimated that annual turnover rates will generally be
within the following ranges: 80%- 150% for the Seneca Growth Fund; 100%-200% for
the Seneca Mid-Cap Growth Fund; 40%-100% for the Seneca Bond Fund; and 40% -
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.

-15-
<PAGE> 58

Investing in REITs, particularly equity REITS, may also involve risks similar to
those associated with small-capitalization companies, in that their securities
may trade less frequently and in a lower volume than those of
larger-capitalization companies and may be subject to abrupt and large price
movements. At times, the market price of a REIT's securities may be less than
the value of its investments in real estate. 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 Code and of
maintaining exemptions under the 1940 Act.

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<PAGE> 59
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.

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.

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<PAGE> 60
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."

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<PAGE> 61
other forms of credit enhancement. Some mortgage pass-through securities entitle
the holders to all or a substantial portion of the interest payments on a pool
of mortgage assets ("Interest Only" securities, or "IOs") while others entitle
the holders to all or a substantial portion of the principal payments
("Principal Only" securities or "POs"). Mortgage-backed securities also include
collateralized mortgage obligations ("CMOs"), a term that generally includes
debt instruments collateralized by mortgage loans or mortgage pass-through
securities and multi-class pass-through securities. CMO's are generally issued
in classes, each representing an obligation with a stated maturity or final
distribution date and a specific fixed or floating coupon rate. Payments of
principal and interest on the underlying mortgage assets may be allocated among
the classes in various ways, resulting in differing predictability of cash flows
among the classes. Other asset- backed securities apply techniques similar to
those used in mortgage-backed securities to base obligations on financial assets
other than mortgages, including automobile receivables, credit card receivables,
loans to finance boats, recreational vehicles, and mobile homes, computer,
copier, railcar, and medical equipment leases, and trade, healthcare, and
franchise receivables.

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<PAGE> 62

PURCHASE OF SHARES

Each Fund offers two classes of shares: "Institutional Shares" and
"Administrative Shares." Institutional Shares are offered directly by the
Distributor to institutional investors such as pensions and profit sharing
plans, other employee benefit trusts, endowments, foundations, and corporations.
Administrative Shares are offered primarily to participant-directed employee
benefit plans and to investors purchasing through accounts maintained with
broker-dealers and other financial service companies.

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<PAGE> 63
under applicable laws, it will also serve as a principal underwriter. It is
expected that GMG Securities will terminate its agreement with the Trust shortly
thereafter and Seneca Distributors will become the sole principal underwriter.
In this prospectus, the term "Distributor" refers to the current principal
underwriter(s) for the Funds. GMG Securities and Seneca Distributors are both
located at 909 Montgomery Street, San Francisco, CA 94133.

MINIMUM INVESTMENT IN THE FUNDS

OPENING AN ACCOUNT

HOW TO PURCHASE SHARES

Investors who are not buying shares through an account with a broker-dealer or
other financial service company may purchase shares in the following ways:

BY MAIL. Fill out a Client Registration Application (for a new account)
or fill out the investment coupon from a previous confirmation statement (for an
existing account), and mail it, together with a check or money order payable to
Investors Fiduciary Trust Company, to Seneca Funds, c/o Investors Fiduciary
Trust Company at 127 West 10th Street, Kansas City, Missouri 64105. Checks
should be bank or certified checks. The Trust, at its option, may accept a check
that is not a bank or certified check. There are restrictions on the redemption
of shares purchased by check for which the funds are being collected. See
"Redemption of Shares."

BY ELECTRONIC OR WIRE TRANSFER. Investors may also make initial or
subsequent investments by electronic transfer of funds or wire transfer of
Federal funds to Seneca Funds, c/o Investors Fiduciary Trust Company. Before
transferring or wiring funds, an investor must first telephone the Trust at
(800) XXX-YYYY for instructions . On the telephone, the following information
will be requested: name of authorized person; shareholder account number (if you
have one); name of Fund and share class; amount being transferred or wired; and
transferring or wiring bank name.

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<PAGE> 64

recording telephone calls requesting purchases and/or verifying authorization
and requiring some form of personal identification. A Fund and the Transfer
Agent may be liable for losses due to unauthorized or fraudulent instructions
only if reasonable procedures are not followed. Otherwise, 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 purchasing service, they may be giving up a measure of security that
they might have if they were to purchase their shares by means of written
instructions. Furthermore, interruptions in telephone service may mean that a
shareholder will be unable to effect a purchase by telephone when desired.

AUTOMATIC INVESTMENT PLAN. Additional purchases of Administrative
Shares may be made automatically by electing this service on the Client
Registration Application and providing bank account and certain other
information. This will authorize the Fund and the Transfer Agent to make
regular, automatic withdrawals from the shareholder's bank account. Periodic
investments must be at least $100 for each Fund in which the shareholder is
automatically investing. A shareholder may change the date or amount of the
monthly investment, or terminate the Automatic Investment Plan, at any time by
notifying the Transfer Agent in writing or by telephone. The Transfer Agent must
receive the request at least 10 business days before the change is to become
effective. A shareholder may also be able to have investments automatically
deducted from his or her: (1) paycheck at work; (2) savings account; or (3)
choice of other sources. Call the Transfer Agent at 1-800-xxx-xxxx for more
information.

ADDITIONAL INVESTMENTS

Additional investments may be made at any time at the net asset value for the
relevant class by following the procedures described above. See "How to Purchase
Shares." The minimum additional investment for Institutional Shares generally is
$10,000. The minimum additional investment for Administrative Shares generally
is $1,000; for participants in Retirement Accounts, the minimum additional
investment is $250. See "Minimum Investment In Funds."

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.

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<PAGE> 65
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.

RETIREMENT ACCOUNTS

REDEMPTION OF SHARES

REDEMPTIONS BY MAIL

REDEMPTIONS BY TELEPHONE OR OTHER WIRE COMMUNICATIONS

A shareholder may authorize the Trust to effect redemptions or exchanges between
Funds (see "Other Redemption Information" and "Exchange Privilege") on
telephonic or other electronic

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<PAGE> 66
instructions. This may be done either through the Client Registration
Application or with a subsequent written authorization, a form of which may be
obtained from the Transfer Agent. Once the shareholder has given such
authorization, he or she may redeem shares 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
must 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.

OTHER REDEMPTION INFORMATION

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<PAGE> 67
Due to the relatively high cost of maintaining small accounts, the Trust
reserves the right unilaterally to redeem shares in any account (other than in
Retirement Accounts) for their then-current value (which will be promptly paid
to the investor) if at any time, due to redemptions 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 such an involuntary redemption and will be given at
least 30 days to bring the value of his or her account up to at least $10,000.

EXCHANGE PRIVILEGE

PORTFOLIO TRANSACTIONS

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

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<PAGE> 68

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. In addition, the Trust may direct the Investment
Manager, subject to obtaining best execution, to execute a portion of one or
more Fund's portfolio transactions through certain broker-dealers in exchange
for the broker-dealers' agreement to satisfy or pay obligations that the Fund
has incurred for, among other things, custodial, accounting, or transfer agency
services. These practices could result in a Fund paying higher aggregate
transaction costs than would otherwise be the case.

NET ASSET VALUE

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<PAGE> 69

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 determine
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, or at the direction of, 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 expects to 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:

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.

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<PAGE> 70
INCOME TAX CONSIDERATIONS

For IRAs and pension plans, dividends and capital gains will be 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.

Individuals and certain other types of shareholders may be subject to backup
withholding of federal income tax on distributions, redemptions and exchanges 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.

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<PAGE> 71
INVESTMENT MANAGER AND ADMINISTRATOR

DAVID SHAPIRO is the other leader for the Seneca Real Estate Securities Fund. He
has been a Portfolio Manager with GMG/Seneca since 1996. Before joining
GMG/Seneca, he was ______________ with Genesis Realty since _______________,
1995. Prior to that, he was a director of The ADCO Group from ____ to ____, with
responsibility for overseeing its West Coast Equity Investment division. From
___ to ___, he was a director of Riverbank Financial Group, with responsibility
for a variety of development projects, including Cathedral Hill Tower,
Convention Plaza, and the Plaza Athletic Clubs, and rehabilitation of the San
Francisco Mart and the Santa Barbara Resort Hotel.

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<PAGE> 72

them, and effecting transactions in such securities requires more effort and
resources than traditional management of large-capitalization equity portfolios
and bond portfolios, as does the specialized nature of investing in real estate
and real estate-related securities. Accordingly, the management fees for the
Seneca Mid-Cap Growth Fund and the Seneca Real Estate Securities Fund are higher
than the management fees paid by most other mutual funds that do not pursue
these types of investment programs. The Investment Manager will reduce the
Management Fee each Fund must pay if the fee exceeds any state-imposed expense
limitations , excluding 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 expects 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.

GENERAL INFORMATION

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, Institutional Shares and Administrative. 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.

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<PAGE> 73

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 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 also have different exchange privileges.

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 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. The ownership of GMG Securities
overlaps significantly with that of GMG/Seneca and GMG Securities should be
considered an affiliated person of GMG/Seneca. Seneca Distributors is 99% owned
by GMG/Seneca.

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<PAGE> 74

the foregoing activities and may exceed those expenses. The Trustees will
evaluate the appropriateness of the Distribution Plan annually. For a more
complete disclosure of the Plan and its terms, see the SAI.

OTHER EXPENSES

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

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

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<PAGE> 75
material adverse effect on their ability to perform their obligations to the
Trust or on the Trust itself.

LOWER QUALITY
- --------------------------------------------------------------------------------
Moderately speculative Ba BB
- --------------------------------------------------------------------------------
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 SAI.

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<PAGE> 76
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")

ADMINISTRATIVE SHARES and
INSTITUTIONAL SHARES

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

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.

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<PAGE> 77
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 30

NET ASSET VALUE 31

DIVIDENDS, DISTRIBUTIONS AND TAX STATUS 32

PORTFOLIO BROKERAGE 36

PORTFOLIO TURNOVER 39

ORGANIZATION 39

CUSTODIAN 41

TRANSFER AGENT 41

INDEPENDENT AUDITORS 41

APPENDIX 42

GLOSSARY 43
</TABLE>

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<PAGE> 78
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 Securities
Fund. Each Fund offers two classes of shares: Institutional Shares and
Administrative Shares. Institutional Shares are offered directly by the Funds'
"Distributor" (see "Advisory and Administrative Services--Distribution and
Service Plan") 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
Prospectuses.

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 "The 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 is 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 attempt 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.

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<PAGE> 79

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 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.

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
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

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<PAGE> 80
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 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.

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 include purchases where a delay in
delivery involves only a brief period required by the selling party 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 similar securities 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 purchased on a when-issued or forward commitment basis
and any subsequent fluctuations in their value will be reflected in 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 securities it has
committed to purchase until they are paid for and received.

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

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<PAGE> 81
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 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. 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 ("GNMA") 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 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 Federal Housing Administration insured or
Veterans Administration 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. FNMA and
FHLMC

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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 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 similar to a bond in that
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans or by portfolios of mortgage pass-through
securities guaranteed by entities such as GNMA, FHLMC, or FNMA, and their income
streams.

CMOs are typically structured in 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

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typically receive principal only after the first class has been retired. An
investor may be partially guarded against a sooner than desired return of
principal because of the sequential payments.

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. 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.

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. As described above, 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. CMO residuals may be subject to certain restrictions on
transferability, may be deemed "illiquid," and may be 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

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receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class security is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
a rapid rate of principal payments may have a material adverse effect on a
Fund's yield to maturity from these securities. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, a Fund may
fail to 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.

A Fund may invest in other mortgage-related securities with features similar to
those described above, to the extent consistent with the Fund's investment
objectives and policies.

Other Asset-Backed Securities. Through trusts and other special purpose
entities, various types of securities based on financial assets other than
mortgage loans are increasingly available, in both pass-through structures
similar to mortgage pass-through securities described above and in other
structures more like CMOs. As with mortgage-related securities, these
asset-backed securities are often backed by a pool of financial assets
representing the obligations of a number of different parties. They often
include credit-enhancement features similar to mortgage-related securities.

Financial assets on which these securities are based include automobile
receivables; credit card receivables; loans to finance boats, recreational
vehicles, and mobile homes; computer, copier, railcar, and medical equipment
leases; and trade, healthcare, and franchise receivables. In general, the
obligations supporting these asset-backed securities are of shorter maturities
than mortgage loans and are less likely to experience substantial prepayments.
However, obligations such as credit card receivables are generally unsecured and
the obligors are often entitled to protection under a number of state and
federal consumer credit laws granting, among other things, rights to set off
certain amounts owed on the credit cards, thus reducing the balance due. Other
obligations that are secured, such as automobile receivables, may present
issuers with difficulties in perfecting and executing on the security interests,
particularly where the issuer allows the servicers of the receivables to retain
possession of the underlying obligations, thus increasing the risk that
recoveries on defaulted obligations may not be adequate to support payments on
the securities.

FOREIGN SECURITIES

Each of 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. Seneca Growth Fund and 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 ADRs. Each Fund will limit its investment in
securities denominated in foreign currencies to no more than 20% of the Fund's
total assets.

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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 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.

Each of 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

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") . The Funds also may enter into swap agreements with respect to
foreign currencies, interest rates and securities indices. If other types of
options 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).

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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 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.

A written call option is 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 , U.S.
Government securities or high-grade debt securities rated within one of the top
three ratings categories by Moody's or S&P or, if unrated, deemed by the
Investment Manager to be of comparable quality ("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 secured by
maintaining in a segregated account cash or U.S. Government securities or
High-Grade Debt Securities. While this may help 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. A Fund will realize a profit
(or loss) from a closing purchase transaction if the amount paid to purchase a
put is less (or more) than the amount received from the sale thereof.

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

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by (ii) a fixed "index multiplier." Like an option on a specific security, when
a Fund purchases a put or a call option on 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. 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 New York Stock
Exchange ("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 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.

Each of the Funds may write (sell) call or put options on a securities index.
Such options may be covered by purchasing an offsetting option which, by virtue
of its exercise price or otherwise, reduces the Fund's net exposure on its
written option position or 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. Further, instead of "covering" a written call or put option on a
securities index the Fund may simply maintain cash, U.S. Government Securities
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.

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<PAGE> 88
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.

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 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.

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<PAGE> 89
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.

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. In hedging
transactions, a Fund will seek to invest in futures contracts and options on
futures contracts the prices of which 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

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securities, the Fund must segregate cash , U.S. Government Securities or
High-Grade Debt Securities in an account maintained by the Custodian to cover
such contracts and options. Cash , U.S. Government securities 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. It may also adjust the exercise prices of the
affected options by 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

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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 ct. 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 ct 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 ct or any
guarantor or credit enhancement of the ct'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 closing transaction at a formula price, the amount considered to be
illiquid may be calculated by reference to a formula price.

The loss from investing in futures transactions is potentially unlimited. In
addition, utilization of futures in hedging transactions may fail where there is
an 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

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"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 Securities, to avoid 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 ct. 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 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, 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(sm) ("CEWs(sm)") 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

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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 Deutschemark. 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(sm)") 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 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(sm)") 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

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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 Stock Exchange ("NYSE") or American Stock Exchange.
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.

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.

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 have the right
to acquire (or that it owns but does not wish to deliver) in anticipation that
the market price of that security will decline.

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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 with its custodian in a segregated
account in an amount at least equal to the difference between the current market
value of the securities sold short and any amounts required to be deposited as
collateral with the selling broker (not including the proceeds of the short
sale). 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.

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. 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 allocated , 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. The value of the
securities lent may not exceed one-third 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.

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.

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Under the 1940 Act, and as used in the Prospectuses 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.

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 reverse
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
one-third of the value of the Fund's net 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 objectives, 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 (including,
foreign currency warrants, principal exchange rated linked securities,
and performance indexed paper), 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 one-third 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.

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<PAGE> 97

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 objectives,
policies and restrictions as the Fund.

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 es, policies and restrictions as the Fund. Because it is a
"non-diversified" fund within the meaning of the 1940 Act, Seneca Real
Estate Securities Fund will not be limited in the proportion of its
assets it may invest in the securities of any single issuer.

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 Bond 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:

a. Pledge, mortgage or hypothecate its assets, except to secure permitted
borrowings and then only if such pledging, mortgaging or hypothecating
does not exceed one-third 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.

b. 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.

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c. 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.

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

e. Invest in securities that are illiquid if, as a result, more than 15%
of its net 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.

f. Purchase securities while outstanding borrowings exceed 5% of the
Fund's net assets.

g. 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 the NYSE or American Stock Exchange or
more than 5% of the total assets of the Fund, valued at the lower of
cost or current market value, would be invested in warrants generally,
whether or not so listed. Warrants acquired by the Fund in units with
or attached to debt securities shall be deemed to be without value.

h. Purchase interest 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.

i. Invest for the purpose 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 objectives, policies and restrictions as the Fund.

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

k. 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.

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l. 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. Notwithstanding the foregoing, if a
Fund's investment in illiquid securities exceeds 15% of its net assets, whether
through a change in values, net assets, or otherwise, the Fund will take
appropriate steps to protect liquidity, including the orderly liquidation of
illiquid securities in a manner consistent with the realization of the maximum
value of those assets.

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:

ERV = P(1+T)n

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.

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<PAGE> 100

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 indicated 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:

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

Where:

a = dividends and interest earned during the period.
b = net expenses accrued for the period.
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 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
Mid-Cap Index, an unmanaged index of common stocks; the S&P 500 Index, an
unmanaged index of common stocks; the Russell 2000 Index (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 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 Indices are market value-weighted indices (shares

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<PAGE> 101
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 Index and the S&P Mid-Cap Index 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 such a 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 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 GMG/Seneca Capital Management,
L.P. and a substantially identical agreement to be entered into with GMG/Seneca
Capital Management, LLC when that entity succeeds to the business of GMG/Seneca
Capital Management, L.P. pursuant to a reorganization in mid-1996 (each, a
"Management Agreement") have been approved by the Trustees of the Trust ,
including a majority of the Trustees who are not "interested persons" (as such
term is defined in the 1940 Act) of any party thereto (the "Independent
Trustees"), and

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<PAGE> 102
by the sole initial shareholder immediately prior to any Fund's commencement of
operations. Until the effective time of the reorganization of GMG/Seneca Capital
Management, L.P. as GMG/Seneca Capital Management, LLC, the term "Investment
Manager" refers to GMG/Seneca Capital Management, L.P. Thereafter, as used
herein, that term refers to GMG/Seneca Capital Management, LLC.

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 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 Seneca Growth Fund
equal to 0.70% per annum of the Fund's average daily net assets, from Seneca
Mid-Cap Growth Fund equal to 0.80% per annum of the Fund's average daily net
assets, from Seneca Bond Fund equal to 0.50% per annum of such Fund's average
daily net assets, and from Seneca Real Estate Securities Fund equal to 0.85% per
annum of such Fund's average daily net assets.

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 Investment 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. Each Fund
will reimburse the Investment Manager for fees foregone or other expenses paid
by the Investment Manager in order to comply with any expense limitation imposed
by state laws in later years in which operating expenses for the Fund are less
than such expense limitations for such year. No interest, carrying or finance
charge will be paid by 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 Investment Management Agreement.

The Investment Manager expects voluntarily to reimburse the Funds' 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 temporarily during the Funds' start-up periods
in such amounts as may be 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 Prospectuses for such class. The Investment Manager
expects to continue such waivers and assumption of expenses until the earlier of
September 30, 1996

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<PAGE> 103
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 any
such waivers or reimbursements it may provide in the future at its discretion.

Under the Investment Management Agreement, the Trust, on behalf of each Fund,
agrees (i) not to hold the Investment 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
Investment 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
Investment 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).

The Investment 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 . Unless
terminated as provided below, the Investment 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 approved 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 , cast in person at
a meeting called for the purpose of voting on such approval. The Investment
Management Agreement may be terminated without penalty by either party upon 60
days' written notice and automatically terminates 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 Capital Management, L.P. consists of two managing general partners,
Gail P. Seneca and Genesis Merchant Group, L.P. ("GMGLP"), one other,
nonmanaging general partner (Richard D. Little), and certain limited partners.
After succeeding to the business of GMG/Seneca Capital Management, L.P.,
GMG/Seneca Capital Management, LLC will be owned by the existing partners of
GMG/Seneca Capital Management, L.P., the existing partners of Genesis Merchant
Group, L.P., and certain employees of the Investment Manager. Gail P. Seneca
will be the largest single holder of "membership" interests and will be the sole
"manager." 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. Weinstein,
and certain limited partners. The three general partners are the only persons
who control GMGLP and GMG/Seneca. After the reorganization described above, Ms.
Seneca will be the only person who controls the Investment Manager.

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

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<PAGE> 104
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 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

GMG/Seneca, in its capacity as Administrator of each Fund, is responsible for
providing administrative services for each Fund under an administration
agreement (the "Administration Agreement"). GMG/Seneca has entered into an
agreement with State Street Bank and Trust Company under which State Street
provides most of those services. More specifically, these services 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) preparing and filing with the SEC amendments to the Fund's
registration statement, (j) preparing and filing with the SEC proxy statements
and consulting on proxy solicitation matters, (k) assisting in the preparation
for meetings of the Trustees, (l) preparing and filing with the SEC Rule 24f-2
notices, and (m) preparing and filing state registrations of the Fund's
securities.

For its services under the Administration Agreement, GMG/Seneca 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 ; (vii) interest, insurance premiums, taxes or
governmental fees; (viii) fees and expenses of the transfer agent of the Funds;
(ix) the cost of preparing 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 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) fees or disbursements of custodians of the Funds' assets, including

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<PAGE> 105

expenses incurred in the performance of any obligations enumerated by the
Agreement and 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
Administrative Class shares and service fees applicable to Institutional Shares.

The Funds' Management and Administration Agreements each provide that GMG/Seneca
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, dated as of the
effective date of the Trust's registration statement. The Trustees, including
the Independent 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 Independent Trustees. It provides that
GMG Securities will bear certain distribution expenses not borne by the Funds.
Seneca Distributors, LLC 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 the principal
underwriter and distributor of the Funds' shares. 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 expenses 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 99% owned by GMG/Seneca. GMG Securities is a limited
partnership of which three corporations are general partners and GMGLP is the
sole limited partner. The managing general partner of GMG Securities is owned by
the general partners of GMGLP.

DISTRIBUTION AND SERVICES 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
marketing, promotion, and sale of Administrative Shares, as set forth in the
Plan , (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

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<PAGE> 106
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 (a) 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, (b) payments made to
consultants and others for providing any services connected with the
Distributors' services, (c) 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, (d) costs of printing and
distributing prospectuses, statements of additional information, and reports to
prospective purchasers of Administrative Shares, and (e) 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.

<TABLE>
<CAPTION>
Name and Title Address Age Principal Occupations During Past Five Years
-------------- ------- --- --------------------------------------------
<S> <C> <C> <C>
Philip C. 909 Montgomery Street 48 Managing Partner, Genesis Merchant
Stapleton, San Francisco, CA Group, L.P.; Chief Administrative
President, 94133 Officer, GMG/Seneca Capital
Secretary, Management, L.P.; Chief Financial
Treasurer, and Officer, Genesis Merchant Group
Sole Trustee Securities, L.P.; Chief Executive
Officer, Chief Financial Officer of
Seneca Distributors, LLC.
======================================================================================================================
</TABLE>

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

* "Interested Persons" within the meaning of the 1940 Act.

** Each of the Independent Trustees is a trustee of each of the other
Seneca Funds and a Member of the Trust's Audit Committee and Special
Nominating Committee.

COMPENSATION OF TRUSTEES AND OFFICERS

The Funds pay no compensation to Trustees affiliated with the Investment Manager
or its officers. Each Trustee of the Trust who is not an "interested person" of
the Trust receives a fee of $2,500 for each meeting of the Board of Trustees
attended and is reimbursed for expenses incurred in

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<PAGE> 107
connection with such attendance. 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.

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

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

====================================================================================================================================
</TABLE>

* Estimated. The Trust is newly organized and has not paid any Trustee's fees.

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 with
respect to) less than 1% of the outstanding shares of each Fund.

NET ASSET VALUE

(See "Net Asset Value" in the Prospectuses.)

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 day the Trust is "open for business" (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

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<PAGE> 108
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 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.

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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

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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 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 described 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 put 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. The exercise of a call option purchased by a Fund is not a
taxable transaction for the Fund. 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 and foreign currency 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 , futures and currency 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 limit these 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

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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 or currency 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 these transactions and 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 , futures and currency
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 recognized gains or
losses, except as to those 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.

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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 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 Transactions" in the Prospectuses.)

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 will 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)

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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 attempt to allocate a
portion of the brokerage business of their clients, such as the Trust, on the
basis of such considerations. 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 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

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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 paid 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.

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

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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.

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 18, 1995 (the "Declaration of
Trust"). A copy of the Trust's

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Certificate of Trust, also dated December 18, 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;
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

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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.

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 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.

-40-
<PAGE> 118
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.

-41-

<PAGE> 119

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.
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

-42-
<PAGE> 120
MIG 2 are of high quality, with margins of protection ample 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 CORPORATION

AAA: Bonds rated AAA have the higher rating assigned by Standard & Poor's
Corporation. 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.

-43-
<PAGE> 121
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.

-44-
<PAGE> 122
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 February __, 1996.

(b) Exhibits:

1. (a) Agreement and Declaration of Trust.(1)

1. (b) Certificate of Trust.(1)

2. By-Laws.(1)

3. None.

4. None.

5. Form of Investment Management Agreement (the
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.

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

7. None.

8. Form of Custody and Investment Accounting
Agreement (the "Custody Agreement") between the
Registrant and Investors Fiduciary Trust Company
("IFTC").

9. (a) Form of Transfer Agency and Service
Agreement (the "Transfer Agency
Agreement") between the Registrant and
IFTC.

(b) Form of Administrative Services Agreement
(the "Administrative Services Agreement")
between the

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

(1) Previously filed as an exhibit to Registrant's Registration Statement
on Form N-1A dated December 18, 1995.

-1-
<PAGE> 123
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 on the other.(2)

10. Opinion and consent of Howard, Rice, Nemerovski,
Canady, Falk & Rabkin, A Professional
Corporation.(2)

11. (a) Report of Deloitte & Touche LLP,
Independent Public Accountants.*(2)

11. (b) Consent of Deloitte & Touche LLP,
Independent Public Accountants.*(2)

12. None.

13. Share Purchase Agreement between Registrant and
GMG/Seneca.(2)

14. None.

15. Form of Distribution Plan Pursuant to Rule 12b-1.

16. None.

17. None.

18. Form of Rule 18f-3 Plan.

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

As of the date of the Prospectus, GMG/Seneca, a California
limited partnership, 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.

<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
</TABLE>

- --------------------
(2)To be filed by Pre-effective Amendment.

-2-
<PAGE> 124

<TABLE>
<S> <C>
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

The Agreement and Declaration of Trust dated December 18, 1995
and the By-Laws of the Registrant 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. The Investment Management Agreement
(Section 12), Distribution Agreement (Section 6), Custody Agreement (Section 5)
and Transfer Agency Agreement (Section 6) each will provide that the Trust will
indemnify the other party (or parties, as the case may be) to the agreement for
losses arising from such party's good faith exercise of its duties under the
applicable agreement, provided, however, that the Trust will not indemnify such
other party (or parties) in the case of willful misfeasance, bad faith, gross
negligence or reckless disregard of such person's duties under the applicable
agreement.

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.

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

-3-
<PAGE> 125

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

Philip C. Stapleton Member and Chief Executive President, Secretary,
Officer Treasurer, and Sole Trustee

GMG SECURITIES

Philip C. Stapleton Managing Partner and Chief President, Secretary,
Financial Officer Treasurer, 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, Limited Partner N/A
L.P.
</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 at the offices of (1) the Registrant at 909 Montgomery Street, Suite
600, San Francisco, California 94133, (2) GMG/Seneca at 909 Montgomery Street,
San Francisco, California, 94133, (3) State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, Massachusetts, 02171-2197, and (4) Registrant's
Custodian and Transfer Agent, Investors Fiduciary Trust Company, at 127 West
10th Street, Kansas City, Missouri 64105.

Item 31. Management Services.

None.

Item 32. Undertakings.

Registrant undertakes that it will :

(a) file 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;

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

-4-
<PAGE> 126

(b) file 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;

(c) if requested to do so by the holders of at
least 10% of its outstanding shares, call a meeting of shareholders for the
purpose of voting upon the question of removal of a trustee or trustees; and

(d) assist in communications among shareholders
as required by Section 16(c) of the 1940 Act.

-5-
<PAGE> 127
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 12th day of February 1996.

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.

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/PHILIP C. STAPLETON Trustee and President February 12, 1996
- ---------------------- (Chief Executive Officer)
Philip C. Stapleton Secretary and Treasurer (Chief
Financial and Accounting
Officer)
</TABLE>

-6-
<PAGE> 128
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
6. Form of Distribution Agreement.

8. Form of Custody and Investment Accounting Agreement.

9. (a) Form of Transfer Agency and Service Agreement.

15. Form of Distribution Plan Pursuant to Rule 12b-1.

18. Form of Rule 18f-3 Plan.
</TABLE>

-7-

<PAGE> 1
EXHIBIT 6

FORM OF
DISTRIBUTION AGREEMENT

This DISTRIBUTION AGREEMENT ("Agreement"), dated and effective as of this
____ day of February, 1996, is made and entered into by and between SENECA
FUNDS, a Delaware business trust (the "Trust"), on behalf of the separate
series of the Trust (each a "Fund") identified on Schedule A hereto, GENESIS
MERCHANT GROUP SECURITIES, L.P., an Illinois limited partnership ("GMG
Securities"), and SENECA DISTRIBUTORS, LLC, a California limited liability
company ("Seneca Distributors"; and, together with GMG Securities,
the "Distributors").

RECITALS

A. The Trust is registered as a diversified, open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").

B. The Trust has registered an indefinite number of units of beneficial
interest of the Funds ("Shares") under the Securities Act of 1933, as amended
(the "1933 Act") and offers shares for sale to the public continuously.

C. Pursuant to a Plan adopted in accordance with Rule 18f-3 under the 1940
Act and in compliance with the Trust's Declaration and Agreement of Trust, each
of the Funds has established two classes of shares, "Administrative Shares" and
"Institutional Shares."

D. The Trust, on behalf of the Funds, has adopted a written Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act (the "Distribution Plan") for the
purpose of financing the sale and distribution of the Administrative Shares of
each Fund (the "Administrative Shares").

E. GMG Securities is registered with the Securities and Exchange Commission
(the "SEC") and certain states as a broker/dealer and is a member of the
National Association of Securities Dealers, Inc. ("NASD"), with the authority to
act as a distributor of securities and to engage in the business of selling and
distributing securities, including investment company securities, and has the
ability to create appropriate and effective sales literature, advertising and
other sales promotional aids; and

F. Seneca Distributors has made application to become registered as a
broker/dealer with the SEC and certain states and to become a member of the NASD
and, subject to becoming so registered and becoming such a member, has the
authority to act as a distributor of securities and to engage in the business of
selling and distributing investment company securities. Seneca Distributors has
the ability to create or cause to be created appropriate and effective sales
literature, advertising and other sales promotional aids; and

-1-
<PAGE> 2
G. The Trust wishes to retain GMG Securities to render certain services to
the Funds in the manner and on the terms and conditions set forth in this
Agreement and, as to the Administrative Shares, in the Distribution Plan and, at
such time as Seneca Distributors shall have obtained all permits, licenses,
registrations, and approvals as may be necessary for it to perform such
services, to retain Seneca Distributors, either in addition to or in lieu of GMG
Securities, to render services to the Funds in the manner and on the terms and
conditions set forth in this Agreement and, as to the Administrative Shares, in
the Distribution Plan; and

H. The form of this Agreement has been approved by the vote of a majority
of the Trustees of the Trust (the "Trustees"), including a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust and who have no direct or indirect financial interest in the operation of
the Distribution Plan or this Agreement (the "Independent Trustees"), cast in
person at a meeting called for the purpose of voting on the Distribution Plan
and this Agreement;

NOW, THEREFORE, in consideration of the premises and the mutual and
dependent covenants set forth herein, the Trust, GMG Securities, and Seneca
Distributors agree as follows:

1. APPOINTMENT OF DISTRIBUTORS. The Trust hereby appoints each of
the Distributors as its agent to act as a principal underwriter and distributor
of Shares of the Funds during the term of this Agreement, and each Distributor
accepts such appointment, on the terms set forth in this Agreement and subject
to the terms of the Plan. Notwithstanding the foregoing, Seneca Distributors
shall have no obligations under this Agreement and shall not be authorized to
effect any sales of Shares until such time as it shall have become registered as
a broker-dealer under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the California Corporate Securities Law of 1968, as amended,
and shall have become a member of the NASD with full power and authority to
perform the obligations of a Distributor hereunder.

2. SERVICES.

a. Each Distributor will act as agent for the distribution of
the Administrative Shares and Institutional Shares covered by the Fund's
registration statement on Form N-1A, under the 1933 Act and the 1940 Act (the
registration statement, together with the prospectuses (the "prospectus") and
statement of additional information (the "statement of additional information")
included as part of the registration statement, any amendments to the
registration statement, and any supplements to, or material incorporated by
reference into the prospectus or statement of additional information, being
referred to collectively in this Agreement as the "registration statement").

b. Each Distributor agrees to use appropriate efforts to
solicit orders for the sale of Administrative Shares and Institutional Shares at
such prices and on the terms and conditions set forth in the registration
statement and to undertake such advertising and promotion as it believes is
reasonable in connection with such solicitation.

-2-
<PAGE> 3
c. In performing its services pursuant to this Agreement each
Distributor shall comply with all applicable laws, rules and regulations,
including, without limitation, all rules and regulations made or adopted by the
Securities and Exchange Commission (the "SEC") or by any securities association
registered under the Securities Exchange Act of 1934, as amended, and the
securities laws of those states in which Shares are sold.

d. The Distributors agree to (1) provide one or more persons
during normal business hours to respond to telephone questions concerning the
Funds and their performance, (2) cause to be printed and distributed to
prospective investors in the Funds, at their own expense, prospectuses and
statements of additional information describing the Funds, (3) prepare and
distribute, at their own expense, sales literature, reports and media
advertisements relating to Shares, (4) as to Administrative Shares, perform the
"Services" described in the Distribution Plan, and (5) perform or procure the
performance of such other services as are described in the registration
statement as to be performed by the Distributors. The Distributors shall be
jointly responsible for performing the foregoing services and bearing the
foregoing expenses and shall be jointly and severally liable to the Trust for
any failure by either or both Distributors to fulfill any part of the
obligations set forth in this subsection. Any expenses to be borne by the
Distributors pursuant to this section shall be borne equally or in such other
proportion as they may agree between themselves.

e. Each Distributor acknowledges that, whenever in the
judgment of the Fund's officers such action is warranted for any reason,
including, without limitation, market, economic or political conditions, those
officers may decline to accept any orders for, or make any sales of, Shares of
any Fund until such time as those officers deem it advisable to accept such
orders and to make such sales.

f. Each Distributor shall transmit any orders received by it
for purchase or redemption of Shares to the Trust's transfer and dividend
disbursing agent identified in the registration statement. The Trust shall
promptly advise each Distributor of any determination to cease accepting orders
or selling Administrative Shares or Institutional Shares of any Fund or to
recommence accepting orders or selling any such Shares. The Trust (or its agent)
shall confirm orders for Shares placed through each Distributor upon their
receipt, or in accordance with any exemptive order of the SEC, and will make
appropriate book entries pursuant to the instructions of such Distributor. Each
Distributor agrees to cause payment for Shares and instructions as to book
entries to be delivered promptly to the Trust (or its agent).

g. Each Distributor shall act only on its own behalf as
principal should it choose to enter into selling or service agreements with
selected dealers or others.

h. Each Distributor shall prepare and deliver reports to the
Treasurer of the Trust on a regular, at least quarterly, basis, showing the
distribution expenses incurred pursuant to this Agreement, the Distribution Plan
and the Distribution Plan adopted by the Trust pursuant to Rule 12b-1 and the
purposes therefor, as well as any supplemental reports as the Trustees from time
to time may reasonably request.

-3-
<PAGE> 4
3. PAYMENT FOR SERVICES.

a. Each Distributor agrees to serve without compensation as
distributor for the Institutional Shares pursuant to this Agreement. As
compensation for the additional services provided by each Distributor as to
Administrative Shares, pursuant to the Distribution Plan the Trust shall pay
Distributors a fee in the aggregate amount of .25% per annum of the average
daily net assets of the Administrative Shares of each Fund. Such fee shall be
calculated and accrued daily and paid on the first business day of each quarter
for the previous quarter. The fee shall be apportioned each quarter between the
Distributors in such proportion as they may agree between themselves; provided,
however, that Seneca Distributors shall receive no fee until such time as it has
become registered with the SEC and the California Commissioner of Corporations
as a broker-dealer and has become a member in good standing of the NASD; and
provided further, that if, at any time any payment of fees is due, the
Distributors do not agree as to the allocation of such fees between them, the
Trust shall retain such fee until such time as the Distributors shall have
reached agreement regarding such allocation. Each Distributor agrees to hold the
Trust, its several officers and Trustees, and any person who controls the Trust
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses that may arise out
of any failure or alleged failure of the Distributors to agree between
themselves as to the allocation of any payment of the fees called for in this
Agreement.

b. Amounts paid to a Distributor hereunder may be used by such
Distributor to cover expenses that are primarily attributable to, "Selling
Services", "Shareholder Services", or "Administrative Services" as those terms
are used in the Distribution Plan, including, without limitation, (i) an
allocation of telephone, office, and other overhead expenses of such Distributor
related to providing Services; (ii) payments made to, and reimbursement of
expenses of, persons who provide support services in connection with such
Distributor's provision of Services as to Administrative Shares; (iii) payments
made to compensate selected dealers or other authorized persons for providing
any Services; (iv) costs relating to the formulation and implementation of
marketing and promotional activities for the Administrative Shares, including
direct mail promotions and television, radio, newspaper, magazine and other mass
media advertising, and related travel and entertainment expenses; (v) costs of
printing and distributing prospectuses, statements of additional information and
reports of the Trust to prospective holders of Administrative Shares; and (vi)
costs involved in obtaining whatever information, analyses and reports with
respect to marketing and promotional activities for the Administrative Shares
that the Trust may, from time to time, deem advisable.

4. DUTIES OF THE TRUST

a. The Trust agrees at its own expense to execute any and all
documents, to furnish any and all information and to take any other actions that
may be reasonably necessary in connection with the registration or qualification
of the Administrative Shares and Institutional Shares of each Fund for sale in
those states that either Distributor may designate.

-4-
<PAGE> 5
b. The Trust shall furnish from time to time, for use in
connection with the sale of Shares of each Fund, such informational reports as
to the Trust and the Shares of each Fund as a Distributor may reasonably
request, all of which shall be signed by one or more of the Trust's duly
authorized officers; and the Trust warrants that the statements contained in any
such reports, when so signed by one or more of the Trust's officers, shall be
true and correct. The Trust shall also furnish each Distributor upon request
with: (i) annual audits of the Trust's books and accounts made by independent
public accountants regularly retained by the Trust, (ii) semiannual unaudited
financial statements pertaining to the Trust, (iii) quarterly earnings
statements prepared by the Trust, (iv) a monthly itemized list of the securities
held by the Trust, (v) monthly balance sheets as soon as practicable after the
end of each month and (vi) from time to time such additional information
regarding the Trust's financial condition as such Distributor may reasonably
request.

5. REPRESENTATIONS AND WARRANTIES. The Trust represents to each
Distributor that all registration statements, prospectuses and statements of
additional information filed by the Trust with the SEC under the 1933 Act and
the 1940 Act with respect to each class of Shares of each Fund have been
carefully prepared in conformity with the requirements of the 1933 Act, the 1940
Act and the rules and regulations of the SEC thereunder. The Trust further
represents and warrants to each Distributor that any registration statement on
which any Shares are registered, and each prospectus and statement of additional
information contained therein, when such registration statement becomes
effective, will include all statements required to be contained therein in
conformity with the 1933 Act, the 1940 Act and the rules and regulations of the
SEC; that all statements of fact contained in any such registration statement,
prospectus or statement of additional information will be true and correct when
such registration statement becomes effective; and that neither any such
registration statement nor any prospectus or statement of additional information
when such registration statement becomes effective will include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading to a
purchaser of Shares covered thereby. Each Distributor may, but shall not be
obligated to, propose from time to time such amendment or amendments to any
registration statement and such supplement or supplements to any prospectus or
statement of additional information as, in the light of future developments,
may, in the opinion of such Distributor's counsel, be necessary or advisable. If
the Trust shall not propose such amendment or amendments and/or supplement or
supplements within fifteen (15) days after receipt by the Trust of a written
request from such Distributor to do so, such Distributor may, at its option,
terminate this Agreement. The Trust shall not file any amendment to any
registration statement or supplement to any prospectus or statement of
additional information without giving each Distributor reasonable notice thereof
in advance; provided, however, that nothing contained in this Agreement shall in
any way limit the Trust's right to file at any time such amendments to any
registration statement and/or supplements to any prospectus or statement of
additional information with respect to any Shares of any Fund, of whatever
character, as the Trust may deem advisable, such right being in all respects
absolute and unconditional.

6. INDEMNIFICATION.

-5-
<PAGE> 6
a. The Trust agrees to indemnify, defend and hold each
Distributor, its several officers and directors, and any person who controls
such Distributor within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) that such
Distributor, its officers and directors, or any such controlling person, may
incur under the 1933 Act, the 1940 Act or common law or otherwise, arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact contained in any registration statement, any prospectus or any statement of
additional information with respect to any Shares of any Fund, or arising out of
or based upon any omission or alleged omission to state a material fact required
to be stated in any such registration statement, prospectus or statement of
additional information, or necessary to make the statements in any of them not
misleading; provided, however, that the Trust's agreement to indemnify each
Distributor, its officers or directors, and any such controlling person shall
not be deemed to cover any claims, demands, liabilities or expenses arising out
of or based upon any statements or representations made by such Distributor or
its representatives or agents other than such statements and representations as
are contained in any such registration statement, prospectus or statement of
additional information and in such financial and other statements as are
furnished to such Distributor pursuant to PARAGRAPH 4.B hereof; and further
provided that the Trust's agreement to indemnify such Distributor and the
Trust's representations and warranties hereinbefore set forth in paragraph 5
shall not be deemed to cover any liability to the Trust or its shareholders to
which such Distributor would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of such Distributor' reckless disregard of its obligations and duties
under this Agreement. The Trust's agreement to indemnify such Distributor, its
officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon the Trust's being notified of any action brought
against such Distributor, its officers or directors, or any such controlling
person, such notification to be given by letter or by telegram addressed to the
Trust at its principal office in San Francisco, California and sent to the Trust
by the person against whom such action is brought, within ten (10) days after
the summons or other first legal process shall have been served. The failure to
so notify the Trust of any such action shall not relieve the Trust from any
liability that the Trust may have to the person against whom such action is
brought by reason of any such untrue or alleged untrue statement or omission or
alleged omission otherwise than on account of the Trust's indemnity agreement
contained in this PARAGRAPH 6.A. The Trust's indemnification agreement contained
in this PARAGRAPH 6.A. and the Trust's representations and warranties in this
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of such Distributor, its officers and
directors, or any controlling person, and shall survive the delivery of any of
the Trust's shares. This agreement of indemnity will inure exclusively to each
Distributor' benefit, to the benefit of its several officers and directors, and
their respective estates, and to the benefit of the controlling persons and
their successors. The Trust agrees to notify each Distributor promptly of the
commencement of any litigation or proceedings against the Trust or any of its
officers or directors in connection with the issuance and sale of any of Shares
of any Fund.

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<PAGE> 7
b. Each Distributor agrees to indemnify, defend and hold the
Trust, its several officers and directors, and any person who controls the Trust
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) that the Trust, its officers or
directors or any such controlling person may incur under the 1933 Act, the 1940
Act or common law or otherwise, but only to the extent that such liability or
expense incurred by the Trust, its officers or directors or such controlling
person resulting from such claims or demands shall arise out of or be based upon
(a) any unauthorized sales literature, advertisements, information, statements
or representations or (b) any untrue or alleged untrue statement of a material
fact contained in information furnished in writing by each Distributor to the
Trust specifically for use in the registration statement and used in the answers
to any of the items of the registration statement or in the corresponding
statements made in the prospectus or statement of additional information, or
shall arise out of or be based upon any omission or alleged omission to state a
material fact in connection with such information furnished in writing by such
Distributor to the Trust and required to be stated in such answers or necessary
to make such information not misleading. Each Distributor's agreement to
indemnify the Trust, its officers and directors, and any such controlling
person, as aforesaid, is expressly conditioned upon such Distributor's being
notified of any action brought against the Trust, its officers or directors, or
any such controlling person, such notification to be given by letter or telegram
addressed to such Distributor at its principal office in San Francisco,
California and sent to such Distributor by the person against whom such action
is brought, within ten (10) days after the summons or other first legal process
shall have been served. The failure to so notify such Distributor of any such
action shall not relieve such Distributor from any liability that such
Distributor may have to the Trust, its officers or directors, or to such
controlling person by reason of any such untrue or alleged untrue statement or
omission or alleged omission otherwise than on account of such Distributor'
indemnity agreement contained in this PARAGRAPH 6.B. Each Distributor agrees to
notify the Trust promptly of the commencement of any litigation or proceedings
against such Distributor or any of its officers or directors in connection with
the issuance and sale of any of Shares of any Fund.

c. In case any action shall be brought against any indemnified
party under PARAGRAPH 6.A. OR 6.B., and it shall timely notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish to do so, to assume the
defense thereof with counsel satisfactory to such indemnified party. If the
indemnifying party opts to assume the defense of such action, the indemnifying
party will not be liable to the indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than (i) reasonable costs of investigation or the
furnishing of documents or witnesses and (ii) all reasonable fees and expenses
of separate counsel to such indemnified party if (1) the indemnifying party and
the indemnified party shall have agreed to the retention of such counsel or (2)
the indemnified party shall have concluded reasonably that representation of the
indemnifying party and the indemnified party by the same counsel would be
inappropriate due to actual or potential differing interests between them in the
conduct of the defense of such action.

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<PAGE> 8
7. EFFECTIVENESS OF REGISTRATION. No Shares of either class of
any Fund shall be offered by either Distributor or by the Trust under any of the
provisions of this Agreement and no orders for the purchase or sale of any such
Shares shall be accepted by the Trust if and so long as the effectiveness of the
registration statement shall be suspended under any of the provisions of the
1933 Act or if and so long as the prospectus is not on file with the SEC;
provided, however, that nothing contained in this PARAGRAPH 7 shall in any way
restrict or have an application to or bearing upon the Trust's obligation to
repurchase its shares from any shareholder in accordance with the provisions of
the prospectus or statement of additional information.

8. NOTICE TO EACH DISTRIBUTOR. The Trust agrees to advise each
Distributor immediately in writing:

a. of any request by the SEC for amendments to the
registration statement, prospectus or statement of additional information then
in effect with respect to any Shares of any Fund or for additional information;

b. in the event of the issuance by the SEC of any stop order
suspending the effectiveness of such registration statement, prospectus or
statement of additional information then in effect with respect to any Shares of
any Fund or the initiation of any proceeding for that purpose;

c. of the happening of any event that makes untrue any
statement of a material fact made in the registration statement, prospectus or
statement of additional information then in effect with respect to any Shares of
any Fund or that requires the making of a change in such registration statement,
prospectus or statement of additional information in order to make the
statements therein not misleading; and

d. of all actions of the SEC as to any amendment to any
registration statement, prospectus or statement of additional information which
action may from time to time be filed with the SEC.

9. TERM OF AGREEMENT. This Agreement shall continue as to each
Distributor and as to each class of Shares of each Fund until February _____,
1997, and thereafter shall continue automatically for successive annual
periods ending on February _____ of each year, provided that, as to each
Distributor and each class of each Fund, such continuance is specifically
approved at least annually by (a) a vote of a majority of the Trustees or
(b) a vote of a majority (as defined in the 1940 Act) of each of the
outstanding Shares of such class of such Fund, provided that such continuance
is also approved by a vote of a majority of the Trustees who are not
interested persons (as defined in the 1940 Act) of the Trust and who have no
direct or indirect financial interest in the operation of the Distribution
Plan, in this Agreement or in any agreement related to the Distribution
Plan ("Independent Trustees"), by vote cast in person at a meeting called
for the purpose of voting on such approval. This Agreement is terminable
as to either Distributor and as to any class of Shares of any Fund without
penalty (i) on thirty (30) days' written notice, by a vote of a majority of the
Trust's Independent Trustees or by vote of a majority (as defined in the 1940
Act) of the outstanding Shares of such class of such Fund, or (ii) on thirty
(30) days' written notice by such Distributor; provided that either Distributor
may

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<PAGE> 9
terminate this Agreement as to any class of Shares of any Fund on not less than
five (5) business days' written notice to the Trust if the other Distributor is
(a) a broker-dealer licensed in all jurisdictions in which the terminating
broker-dealer is licensed and (b) has not also given notice of its intention to
terminate this Agreement as to such class Shares of such Fund. If this Agreement
is terminated as to any class of Shares of any Fund as to one Distributor and
the other Distributor remains a party to this Agreement as to such class of
Shares of such Fund, such remaining Distributor shall succeed to all the duties
of the terminating Distributor as to such class of Shares of such Fund and, if
such class of Shares was Administrative Shares of any Fund, to all the rights to
receive payments as to such Shares. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).

10. AMENDMENTS. This Agreement may not be amended to increase
materially the amount of the fee described in paragraph 3.a. above with respect
to the Administrative Shares of any Fund without approval of at least a majority
(as defined in the 1940 Act) of the outstanding Administrative Shares of such
Fund. In addition, all material amendments to this Agreement must be approved by
vote of the Trustees, and by a vote of a majority of the Independent Trustees,
cast in person at a meeting called for the purpose of voting on the approval.

In witness whereof, this Agreement is entered into as of the date first above
written.

SENECA FUNDS GENESIS MERCHANT GROUP SECURITIES,
L.P.

By:
Name:
Title: By:

Name:
Title:

SENECA DISTRIBUTORS, LLC

By:

Name:
Title:

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<PAGE> 1
EXHIBIT 8

FORM OF
CUSTODY AND INVESTMENT ACCOUNTING AGREEMENT

THIS AGREEMENT made the _____ day of _______________, 19 _____, by and
between INVESTORS FIDUCIARY TRUST COMPANY, a trust company chartered under
the laws of the state of Missouri, having its trust office located at l27
West 10th Street, Kansas City, Missouri 64105 ("Custodian"), and SENECA FUNDS,
a business trust organized and existing under the laws of the State of
Delaware, having its principal office and place of business at 909 Montgomery
Street, San Francisco, California 94133 ("Fund").

WITNESSETH:

WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
custodian of the securities and monies of Fund's investment portfolio and as its
agent to perform certain investment accounting and recordkeeping functions; and

WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;

NOW THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:

1. APPOINTMENT OF CUSTODIAN. Fund hereby constitutes and appoints
Custodian as:

A. Custodian of the securities and monies at any time owned by the Fund;
and

B. Agent to perform certain accounting and recordkeeping functions
relating to portfolio transactions required of a duly registered
investment company under Rule 31a of the Investment Company Act of 1940
(the "1940 Act") and to calculate the net asset value of the Fund.

2. REPRESENTATIONS AND WARRANTIES.

A. Fund hereby represents, warrants and acknowledges to Custodian:
<PAGE> 2
1. That it is a business trust duly organized and existing and in
good standing under the laws of its state of organization, and
that it is registered under the 1940 Act; and

2. That it has the requisite power and authority under applicable
law, its Trust Agreement and its Bylaws to enter into this
Agreement; that it has taken all requisite action necessary to
appoint Custodian as custodian and investment accounting and
recordkeeping agent for the Fund; that this Agreement has been
duly executed and delivered by Fund; and that this Agreement
constitutes a legal, valid and binding obligation of Fund,
enforceable in accordance with its terms.

B. Custodian hereby represents, warrants and acknowledges to Fund:

1. That it is a trust company duly organized and existing and in
good standing under the laws of the State of Missouri, and that
it is and will remain throughout the term of this Agreement a
"bank" within the meaning of Section 2 (a)(5) of the 1940 Act,
and otherwise qualified to act as a custodian under the 1940 Act;
and

2. That it has the requisite power and authority under applicable
law, its Charter and its Bylaws to enter into and perform this
Agreement; that this Agreement has been duly executed and
delivered by Custodian; and that this Agreement constitutes a
legal, valid and binding obligation of Custodian, enforceable in
accordance with its terms.

3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.

A. Delivery of Assets

Except as permitted by the 1940 Act, Fund will deliver or cause to be
delivered to Custodian on the effective date of this Agreement, or as
soon thereafter as practicable, and from time to time thereafter, all
portfolio securities acquired by it and monies then owned by it or from
time to time coming into its possession during the time this Agreement
shall continue in effect. Custodian shall have no responsibility or
liability whatsoever for or on account of securities or monies not so
delivered.

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<PAGE> 3
B. Delivery of Accounts and Records

Fund shall turn over or cause to be turned over to Custodian all of the
Fund's relevant accounts and records previously maintained. Custodian
shall be entitled to rely conclusively on the completeness and
correctness of the accounts and records turned over to it, and Fund
shall indemnify and hold Custodian harmless of and from any and all
expenses, damages and losses whatsoever arising out of or in connection
with any error, omission, inaccuracy or other deficiency of such
accounts and records or in the failure of Fund to provide, or to
provide in a timely manner, any accounts, records or information needed
by the Custodian to perform its functions hereunder.

C. Delivery of Assets to Third Parties

Custodian will receive delivery of and keep safely the assets of Fund
delivered to it from time to time segregated in a separate account, and
if Fund is comprised of more than one portfolio of investment
securities (each a "Portfolio") Custodian shall keep the assets of each
Portfolio segregated in a separate account. Custodian will not deliver,
assign, pledge or hypothecate any such assets to any person except as
permitted by the provisions of this Agreement or any agreement executed
by it according to the terms of Section 3.S. of this Agreement. Upon
delivery of any such assets to a subcustodian pursuant to Section 3.S.
of this Agreement, Custodian will create and maintain records
identifying those assets which have been delivered to the subcustodian
as belonging to the Fund, by Portfolio if applicable. The Custodian is
responsible for the safekeeping of the securities and monies of Fund
only until they have been transmitted to and received by other persons
as permitted under the terms of this Agreement, except for securities
and monies transmitted to subcustodians appointed under Section 3.S. of
this Agreement, for which Custodian remains responsible to the extent
provided in Section 3.S. hereof. Custodian may participate directly or
indirectly through a subcustodian in the Depository Trust Company
(DTC), Treasury/Federal

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<PAGE> 4
Reserve Book Entry System (Fed System), Participant Trust Company (PTC)
or other depository approved by the Fund (as such entities are defined
at 17 CFR Section 270.17f-4(b)) (each a "Depository" and collectively,
the "Depositories").

D. Registration of Securities

The Custodian shall at all times hold registered securities of the Fund
in the name of the Custodian, the Fund, or a nominee of either of them,
unless specifically directed by instructions to hold such registered
securities in so-called "street name," provided that, in any event, all
such securities and other assets shall be held in an account of the
Custodian containing only assets of the Fund, or only assets held by
the Custodian as a fiduciary or custodian for customers, and provided
further, that the records of the Custodian at all times shall indicate
the Fund or other customer for which such securities and other assets
are held in such account and the respective interests therein. If,
however, the Fund directs the Custodian to maintain securities in
"street name", notwithstanding anything contained herein to the
contrary, the Custodian shall be obligated only to utilize its best
efforts to timely collect income due the Fund on such securities and to
notify the Fund of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers.
All securities, and the ownership thereof by Fund, which are held by
Custodian hereunder, however, shall at all times be identifiable on the
records of the Custodian. The Fund agrees to hold Custodian and its
nominee harmless for any liability arising solely out of Custodian's or
such nominee's status as a shareholder of record of securities held in
custody.

E. Exchange of Securities

Upon receipt of instructions as defined herein in Section 4.A,
Custodian will exchange, or cause to be exchanged, portfolio securities
held by it for the account of Fund for other securities or cash issued
or paid in connection with any reorganization, recapitalization,
merger, consolidation, split-up of shares, change of par value,
conversion or

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<PAGE> 5
otherwise, and will deposit any such securities in accordance with the
terms of any reorganization or protective plan. Without instructions,
Custodian is authorized to exchange securities held by it in temporary
form for securities in definitive form, to effect an exchange of shares
when the par value of the share is changed, and, upon receiving payment
therefor, to surrender bonds or other securities held by it at maturity
or when advised of earlier call for redemption, except that Custodian
shall receive instructions prior to surrendering any convertible
security.

F. Purchases of Investments of the Fund - Other Than Options and Futures
Fund will, on each business day on which a purchase of securities
(other than options and futures) shall be made by it, deliver to
Custodian instructions which shall specify with respect to each such
purchase:

1. If applicable, the name of the Portfolio making such purchase;

2. The name of the issuer and description of the security;

3. The number of shares and the principal amount purchased, and
accrued interest, if any;

4. The trade date;

5. The settlement date;

6. The purchase price per unit and the brokerage commission, taxes
and other expenses payable in connection with the purchase;

7. The total amount payable upon such purchase;

8. The name of the person from whom or the broker or dealer through
whom the purchase was made; and

9. Whether the security is to be received in certificated form or
via a specified Depository.

In accordance with such instructions, Custodian will pay for out of
monies held for the account of Fund, but only insofar as such monies
are available for such purpose, and receive the portfolio securities so
purchased by or for the account of Fund, except that Custodian may in
its sole discretion advance funds to the Fund which may result in an
overdraft because the monies held by the Custodian on behalf of the
Fund are insufficient to pay the total amount payable upon such
purchase, provided, however, that

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<PAGE> 6
Custodian agrees to notify the Fund of each such advance by no later
than the following business day. Except as otherwise instructed by
Fund, such payment shall be made by the Custodian only upon receipt of
securities: (a) by the Custodian; (b) by a clearing corporation of a
national exchange of which the Custodian is a member; or (c) by a
Depository. Notwithstanding the foregoing, (i) in the case of a
repurchase agreement, the Custodian may release funds to a Depository
prior to the receipt of advice from the Depository that the securities
underlying such repurchase agreement have been transferred by
book-entry into the account maintained with such Depository by the
Custodian, on behalf of its customers, provided that the Custodian's
instructions to the Depository require that the Depository make payment
of such funds only upon transfer by book-entry of the securities
underlying the repurchase agreement in such account; (ii) in the case
of time deposits, call account deposits, currency deposits and other
deposits, foreign exchange transactions, futures contracts or options,
the Custodian may make payment therefor before receipt of an advice or
confirmation evidencing said deposit or entry into such transaction;
and (iii) in the case of the purchase of securities, the settlement of
which occurs outside of the United States of America, the Custodian may
make, or cause a subcustodian appointed pursuant to Section 3.S.2. of
this Agreement to make, payment therefor in accordance with generally
accepted local custom and market practice.

G. Sales and Deliveries of Investments of the Fund - Other than Options
and Futures

Fund will, on each business day on which a sale of investment
securities (other than options and futures) of Fund has been made,
deliver to Custodian instructions specifying with respect to each such
sale:

1. If applicable, the name of the Portfolio making such sale;

2. The name of the issuer and description of the securities;

3. The number of shares and principal amount sold, and accrued
interest, if any;

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<PAGE> 7
4. The date on which the securities sold were purchased or other
information identifying the securities sold and to be delivered;

5. The trade date;

6. The settlement date;

7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;

8. The total amount to be received by Fund upon such sale; and

9. The name and address of the broker or dealer through whom or
person to whom the sale was made.

In accordance with such instructions, Custodian will deliver or cause
to be delivered the securities thus designated as sold for the account
of Fund to the broker or other person specified in the instructions
relating to such sale. Except as otherwise instructed by Fund, such
delivery shall be made upon receipt of payment therefor: (a) in such
form as is satisfactory to the Custodian; (b) credit to the account of
the Custodian with a clearing corporation of a national securities
exchange of which the Custodian is a member; or (c) credit to the
account of the Custodian, on behalf of its customers, with a
Depository. Notwithstanding the foregoing: (i) in the case of
securities held in physical form, such securities shall be delivered in
accordance with "street delivery custom" to a broker or its clearing
agent; or (ii) in the case of the sale of securities, the settlement of
which occurs outside of the United States of America, the Custodian may
make, or cause a subcustodian appointed pursuant to Section 3.S.2. of
this Agreement to make, payment therefor in accordance with generally
accepted local custom and market practice.

H. Purchases or Sales of Options and Futures

Fund will, on each business day on which a purchase or sale of the
following options and/or futures shall be made by it, deliver to
Custodian instructions which shall specify with respect to each such
purchase or sale:

1. If applicable, the name of the Portfolio making such purchase or
sale;

2. Security Options

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<PAGE> 8
a. The underlying security;

b. The price at which purchased or sold;

c. The expiration date;

d. The number of contracts;

e. The exercise price;

f. Whether the transaction is an opening, exercising,
expiring or closing transaction;

g. Whether the transaction involves a put or call;

h. Whether the option is written or purchased;

i. Market on which option traded; and

j. Name and address of the broker or dealer through whom
the sale or purchase was made.

3. Options on Indices

a. The index;

b. The price at which purchased or sold;

c. The exercise price;

d. The premium;

e. The multiple;

f. The expiration date;

g. Whether the transaction is an opening, exercising,
expiring or closing transaction;

h. Whether the transaction involves a put or call;

i. Whether the option is written or purchased; and

j. The name and address of the broker or dealer through
whom the sale or purchase was made, or other applicable
settlement instructions.

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<PAGE> 9
4. Security Index Futures Contracts

a. The last trading date specified in the contract and,
when available, the closing level, thereof;

b. The index level on the date the contract is entered
into;

c. The multiple;

d. Any margin requirements;

e. The need for a segregated margin account (in addition to
instructions, and if not already in the possession of
Custodian, Fund shall deliver a substantially complete
and executed custodial safekeeping account and
procedural agreement which shall be incorporated by
reference into this Custody Agreement); and

f. The name and address of the futures commission merchant
through whom the sale or purchase was made, or other
applicable settlement instructions.

5. Options on Index Future Contracts

a. The underlying index future contract;

b. The premium;

c. The expiration date;

d. The number of options;

e. The exercise price;

f. Whether the transaction involves an opening, exercising,
expiring or closing transaction;

g. Whether the transaction involves a put or call;

h. Whether the option is written or purchased; and

i. The market on which the option is traded.

I. Securities Pledged or Loaned

If specifically allowed for in the prospectus of Fund, and subject to
such additional terms and conditions as Custodian may require:

1. Upon receipt of instructions, Custodian will release or cause to
be released securities held in custody to the pledgee designated
in

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<PAGE> 10
such instructions by way of pledge or hypothecation to secure any
loan incurred by Fund; provided, however, that the securities
shall be released only upon payment to Custodian of the monies
borrowed, except that in cases where additional collateral is
required to secure a borrowing already made, further securities
may be released or caused to be released for that purpose upon
receipt of instructions. Upon receipt of instructions, Custodian
will pay, but only from funds available for such purpose, any
such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes
evidencing such loan.

2. Upon receipt of instructions, Custodian will release securities
held in custody to the borrower designated in such instructions;
provided, however, that the securities will be released only upon
deposit with Custodian of full cash collateral as specified in
such instructions, and that Fund will retain the right to any
dividends, interest or distribution on such loaned securities.
Upon receipt of instructions and the loaned securities, Custodian
will release the cash collateral to the borrower.

J. Routine Matters

Custodian will, in general, attend to all routine and mechanical
matters in connection with the sale, exchange, substitution, purchase,
transfer, or other dealings with securities or other property of Fund
except as may be otherwise provided in this Agreement or directed from
time to time by the Fund in writing.

K. Deposit Accounts

Custodian will open and maintain one or more special purpose deposit
accounts in the name of Custodian ("Accounts"), subject only to draft
or order by Custodian upon receipt of instructions. All monies received
by Custodian from or for the account of Fund shall be deposited in said
Accounts. Barring events not in the control of the Custodian such as
strikes, lockouts or labor disputes, riots, war or equipment or
transmission

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<PAGE> 11
failure or damage, fire, flood, earthquake or other natural disaster,
action or inaction of governmental authority or other causes beyond its
control, at 9:00 a.m., Kansas City time, on the second business day
after deposit of any check into an Account, Custodian agrees to make
Fed Funds available to the Fund in the amount of the check. Deposits
made by Federal Reserve wire will be available to the Fund immediately
and ACH wires will be available to the Fund on the next business day.
Income earned on the portfolio securities will be credited to the Fund
based on the schedule attached as Exhibit A. The Custodian will be
entitled to reverse any credited amounts where credits have been made
and monies are not finally collected. If monies are collected after
such reversal, the Custodian will credit the Fund in that amount.
Custodian may open and maintain Accounts in its own banking department,
or in such other banks or trust companies as may be designated by it or
by Fund in writing, all such Accounts, however, to be in the name of
Custodian and subject only to its draft or order. Funds received and
held for the account of different Portfolios shall be maintained in
separate Accounts established for each Portfolio.

L. Income and other Payments to Fund

Custodian will:

1. Collect, claim and receive and deposit for the account of Fund
all income and other payments which become due and payable on or
after the effective date of this Agreement with respect to the
securities deposited under this Agreement, and credit the account
of Fund in accordance with the schedule attached hereto as
Exhibit A. If, for any reason, the Fund is credited with income
that is not subsequently collected, Custodian may reverse that
credited amount.

2. Execute ownership and other certificates and affidavits for all
federal, state and local tax purposes in connection with the
collection of bond and note coupons; and

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<PAGE> 12
3. Take such other action as may be necessary or proper in
connection with:

a. the collection, receipt and deposit of such income and
other payments, including but not limited to the
presentation for payment of:

1. all coupons and other income items requiring
presentation; and

2. all other securities which may mature or be called,
redeemed, retired or otherwise become payable and
regarding which the Custodian has actual knowledge,
or should reasonably be expected to have knowledge;
and

b. the endorsement for collection, in the name of Fund, of
all checks, drafts or other negotiable instruments.

Custodian, however, will not be required to institute suit or take
other extraordinary action to enforce collection except upon receipt of
instructions and upon being indemnified to its satisfaction against the
costs and expenses of such suit or other actions. Custodian will
receive, claim and collect all share dividends, rights and other
similar items and will deal with the same pursuant to instructions.
Unless prior instructions have been received to the contrary, Custodian
will, without further instructions, sell any rights held for the
account of Fund on the last trade date prior to the date of expiration
of such rights.

M. Payment of Dividends and other Distributions

On the declaration of any dividend or other distribution on the shares
of beneficial interest of Fund ("Fund Shares") by the Trustees of Fund,
Fund shall deliver to Custodian instructions with respect thereto. On
the date specified in such instructions for the payment of such
dividend or other distribution, Custodian will pay out of the monies
held for the account of Fund, insofar as the same shall be available
for such purposes, and credit to the account of the Dividend Disbursing
Agent for Fund, such amount as may be specified in such instructions.

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<PAGE> 13
N. Shares of Fund Purchased by Fund

Whenever any Fund Shares are repurchased or redeemed by Fund, Fund or
its agent shall advise Custodian of the aggregate dollar amount to be
paid for such shares and shall confirm such advice in writing. Upon
receipt of such advice, Custodian shall charge such aggregate dollar
amount to the account of Fund and either deposit the same in the
account maintained for the purpose of paying for the repurchase or
redemption of Fund Shares or deliver the same in accordance with such
advice. Custodian shall not have any duty or responsibility to
determine that Fund Shares have been removed from the proper
shareholder account or accounts or that the proper number of Fund
Shares have been cancelled and removed from the shareholder records.

O. Shares of Fund Purchased from Fund

Whenever Fund Shares are purchased from Fund, Fund will deposit or
cause to be deposited with Custodian the amount received for such
shares. Custodian shall not have any duty or responsibility to
determine that Fund Shares purchased from Fund have been added to the
proper shareholder account or accounts or that the proper number of
such shares have been added to the shareholder records.

P. Proxies and Notices

Custodian will promptly deliver or mail or have delivered or mailed to
Fund all proxies properly signed, all notices of meetings, all proxy
statements and other notices, requests or announcements affecting or
relating to securities held by Custodian for Fund and will, upon
receipt of instructions, execute and deliver or cause its nominee to
execute and deliver or mail or have delivered or mailed such proxies or
other authorizations as may be required. Except as provided by this
Agreement or pursuant to instructions hereafter received by Custodian,
neither it nor its nominee will exercise any power inherent in any such
securities, including any power to vote the same, or execute any proxy,
power of attorney, or other similar instrument voting any of such
securities, or give

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<PAGE> 14
any consent, approval or waiver with respect thereto, or take any other
similar action.

Q. Disbursements

Custodian will pay or cause to be paid, insofar as funds are available
for the purpose, bills, statements and other obligations of Fund
(including but not limited to obligations in connection with the
conversion, exchange or surrender of securities owned by Fund, interest
charges, dividend disbursements, taxes, management fees, custodian
fees, legal fees, auditors' fees, transfer agents' fees, brokerage
commissions, compensation to personnel, and other operating expenses of
Fund) pursuant to instructions of Fund setting forth the name of the
person to whom payment is to be made, the amount of the payment, and
the purpose of the payment.

R. Daily Statement of Accounts

Custodian will, within a reasonable time, render to Fund a detailed
statement of the amounts received or paid and of securities received or
delivered for the account of Fund during each business day. Custodian
will, from time to time, upon request by Fund, render a detailed
statement of the securities and monies held for Fund under this
Agreement, and Custodian will maintain such books and records as are
necessary to enable it to do so. Custodian will permit such persons as
are authorized by Fund, including Fund's independent public
accountants, reasonable access to such records or will provide
reasonable confirmation of the contents of such records, and if
demanded, Custodian will permit federal and state regulatory agencies
to examine the securities, books and records. Upon the written
instructions of Fund or as demanded by federal or state regulatory
agencies, Custodian will instruct any subcustodian to permit such
persons as are authorized by Fund, including Fund's independent public
accountants, reasonable access to such records or to provide reasonable
confirmation of the contents of such records, and to permit such
agencies to examine the books, records and securities held by such
subcustodian which relate to Fund.

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<PAGE> 15
S. Appointment of Subcustodians

1. Notwithstanding any other provisions of this Agreement, all or
any of the monies or securities of Fund may be held in
Custodian's own custody or in the custody of one or more other
banks or trust companies acting as subcustodians as may be
selected by Custodian. Any such subcustodian selected by the
Custodian must have the qualifications required for a custodian
under the 1940 Act, as amended. Custodian shall be responsible to
the Fund for any loss, damage or expense suffered or incurred by
the Fund resulting from the actions or omissions of any
subcustodians selected and appointed by Custodian (except
subcustodians appointed at the request of Fund and as provided in
Subsection 2 below) to the same extent Custodian would be
responsible to the Fund under Section 5. of this Agreement if it
committed the act or omission itself. Upon request of the Fund,
Custodian shall be willing to contract with other subcustodians
reasonably acceptable to the Custodian for purposes of (i)
effecting third-party repurchase transactions with banks,
brokers, dealers, or other entities through the use of a common
custodian or subcustodian, or (ii) providing depository and
clearing agency services with respect to certain variable rate
demand note securities, or (iii) for other reasonable purposes
specified by Fund; provided, however, that the Custodian shall be
responsible to the Fund for any loss, damage or expense suffered
or incurred by the Fund resulting from the actions or omissions
of any such subcustodian only to the same extent such
subcustodian is responsible to the Custodian. The Fund shall be
entitled to review the Custodian's contracts with any such
subcustodians appointed at the request of Fund. Custodian shall
be responsible to the Fund for any loss, damage or expense
suffered or incurred by the Fund resulting from the actions or
omissions of any Depository only to the same extent such
Depository is responsible to Custodian.

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<PAGE> 16
2. Notwithstanding any other provisions of this Agreement, Fund's
foreign securities (as defined in Rule 17f-5(c)(1) under the 1940
Act) and Fund's cash or cash equivalents, in amounts deemed by
the Fund to be reasonably necessary to effect Fund's foreign
securities transactions, may be held in the custody of one or
more banks or trust companies acting as subcustodians, and
thereafter, pursuant to a written contract or contracts as
approved by Fund's Trustees, may be transferred to accounts
maintained by any such subcustodian with eligible foreign
custodians, as defined in Rule 17f-5(c)(2). Custodian shall be
responsible to the Fund for any loss, damage or expense suffered
or incurred by the Fund resulting from the actions or omissions
of any foreign subcustodians only to the same extent the foreign
subcustodian is liable to the domestic subcustodian with which
the Custodian contracts for foreign subcustody purposes.

T. Accounts and Records

Custodian will prepare and maintain, with the direction and as
interpreted by the Fund, Fund's accountants and/or other advisors, in
complete, accurate and current form all accounts and records (i)
required to be maintained by Fund with respect to portfolio
transactions under Rule 31a of the 1940 Act, (ii) required to be
maintained as a basis for calculation of the Fund's net asset value,
and (iii) as otherwise agreed upon between the parties. Custodian will
preserve said records in the manner and for the periods prescribed in
the 1940 Act or for such longer period as is agreed upon by the
parties. Custodian relies upon Fund to furnish, in writing or its
electronic or digital equivalent, accurate and timely information
needed by Custodian to complete Fund's records and perform daily
calculation of the Fund's net asset value. Custodian shall incur no
liability and Fund shall indemnify and hold harmless Custodian from and
against any liability arising from any failure of Fund to furnish such
information in a timely and accurate manner, even if Fund subsequently
provides accurate but untimely information. It shall be the
responsibility of Fund to furnish

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<PAGE> 17
Custodian with the declaration, record and payment dates and amounts of
any dividends or income and any other special actions required
concerning each of its securities when such information is not readily
available from generally accepted securities industry services or
publications.

U. Accounts and Records Property of Fund

Custodian acknowledges that all of the accounts and records maintained
by Custodian pursuant to this Agreement are the property of Fund, and
will be made available to Fund for inspection or reproduction within a
reasonable period of time, upon demand. Custodian will assist Fund's
independent auditors, or upon approval of Fund, or upon demand, any
regulatory body, in any requested review of Fund's accounts and records
but shall be reimbursed by Fund for all expenses and employee time
invested in any such review outside of routine and normal periodic
reviews. Upon receipt from Fund of the necessary information or
instructions, Custodian will supply information from the books and
records it maintains for Fund that Fund needs for tax returns,
questionnaires, periodic reports to shareholders and such other reports
and information requests as Fund and Custodian shall agree upon from
time to time.

V. Adoption of Procedures

Custodian and Fund may from time to time adopt procedures as they agree
upon, and Custodian may conclusively assume that no procedure approved
or directed by Fund or its accountants or other advisors conflicts with
or violates any requirements of its prospectus, Trust Agreement,
Bylaws, any applicable law, rule or regulation, or any order, decree or
agreement by which Fund may be bound. Fund will be responsible to
notify Custodian of any changes in statutes, regulations, rules,
requirements or policies which might necessitate changes in Custodian's
responsibilities or procedures.

W. Calculation of Net Asset Value

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<PAGE> 18
Custodian will calculate Fund's net asset value, in accordance with
Fund's prospectus. Custodian will price the securities and foreign
currency holdings of Fund for which market quotations are available by
the use of outside services designated by Fund which are normally used
and contracted with for this purpose; all other securities and foreign
currency holdings will be priced in accordance with Fund's
instructions. Custodian will have no responsibility for the accuracy of
the prices quoted by these outside services or for the information
supplied by Fund or for acting upon such instructions.

X. Advances

In the event Custodian or any subcustodian shall, in its sole
discretion, advance cash or securities for any purpose (including but
not limited to securities settlements, purchase or sale of foreign
exchange or foreign exchange contracts and assumed settlement) for the
benefit of any Portfolio, the advance shall be payable by the Fund on
demand. Any such cash advance shall be subject to an overdraft charge
at the rate set forth in the then-current fee schedule from the date
advanced until the date repaid. As security for each such advance, Fund
hereby grants Custodian and such subcustodian a lien on and security
interest in all property at any time held for the account of the
applicable Portfolio, including without limitation all assets acquired
with the amount advanced. Should the Fund fail to promptly repay the
advance, the Custodian and such subcustodian shall be entitled to
utilize available cash and to dispose of such Portfolio's assets
pursuant to applicable law to the extent necessary to obtain
reimbursement of the amount advanced and any related overdraft charges.

Y. Exercise of Rights; Tender Offers

Upon receipt of instructions, the Custodian shall: (a) deliver
warrants, puts, calls, rights or similar securities to the issuer or
trustee thereof, or to the agent of such issuer or trustee, for the
purpose of exercise or sale, provided that the new securities, cash or
other assets, if any, are to be delivered to the Custodian; and (b)
deposit securities upon invitations for tenders thereof, provided that
the consideration for such securities is to be

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<PAGE> 19
paid or delivered to the Custodian or the tendered securities are to be
returned to the Custodian.

Z. Custodian shall, upon receipt of instructions, establish and maintain a
segregated account or accounts for and on behalf of the Fund into which
may be transferred cash and/or securities, including securities
maintained in an account by Custodian pursuant to Section 3.C. hereof,
(i) in accordance with any agreement among the Fund, the Custodian, and
a broker-dealer that is registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered contract market,
or of any similar organization, regarding escrow or other arrangements
in connection with transactions by the Fund, (ii) for purposes of
segregating cash or government securities in connection with options
purchased, sold or written by the Fund or commodity futures contracts
or options thereon purchased or sold by the Fund, (iii) for the
purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies,
and (iv) for other proper corporate purposes.

4. INSTRUCTIONS.

A. The term "instructions", as used herein, means written (including
telecopied or telexed) or oral instructions which Custodian reasonably
believes were given by a designated representative of Fund. Fund shall
deliver to Custodian, prior to delivery of any assets to Custodian and
thereafter from time to time as changes therein are necessary, written
instructions naming one or more designated representatives to give

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<PAGE> 20
instructions in the name and on behalf of Fund, which instructions may
be received and accepted by Custodian as conclusive evidence of the
authority of any designated representative to act for Fund and may be
considered to be in full force and effect (and Custodian will be fully
protected in acting in reliance thereon) until receipt by Custodian of
notice to the contrary. Unless such written instructions delegating
authority to any person to give instructions specifically limit such
authority to specific matters or require that the approval of anyone
else will first have been obtained, Custodian will be under no
obligation to inquire into the right of such person, acting alone, to
give any instructions whatsoever which Custodian may receive from such
person. If Fund fails to provide Custodian any such instructions naming
designated representatives, any instructions received by Custodian from
a person reasonably believed to be an appropriate representative of
Fund shall constitute valid and proper instructions hereunder.

B. No later than the next business day immediately following each oral
instruction, Fund will send Custodian written confirmation of such oral
instruction. At Custodian's sole discretion, Custodian may record on
tape, or otherwise, any oral instruction whether given in person or via
telephone, each such recording identifying the parties, the date and
the time of the beginning and ending of such oral instruction.

C. If Custodian shall provide Fund direct access to any computerized
recordkeeping and reporting system used hereunder or if Custodian and
Fund shall agree to utilize any electronic system of communication,
Fund shall be fully responsible for any and all consequences of the use
or misuse of the terminal device, passwords, access instructions and
other means of access to such system(s) which are utilized by, assigned
to or otherwise made available to the Fund. Fund agrees to implement
and enforce appropriate security policies and procedures to prevent
unauthorized or improper access to or use of such system(s). Custodian
shall be fully protected in acting hereunder upon any instructions,
communications, data or other information received by Custodian by such
means as fully

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<PAGE> 21
and to the same effect as if delivered to Custodian by written
instrument signed by the requisite authorized representative(s) of
Fund. Fund shall indemnify and hold Custodian harmless from and against
any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability which may be suffered or incurred by Custodian
as a result of the use or misuse, whether authorized or unauthorized,
of any such system(s) by Fund or by any person who acquires access to
such system(s) through the terminal device, passwords, access
instructions or other means of access to such system(s) which are
utilized by, assigned to or otherwise made available to the Fund,
except to the extent attributable to any negligence or willful
misconduct by Custodian.

5. LIMITATION OF LIABILITY OF CUSTODIAN.

A. Custodian shall at all times use reasonable care and due diligence and
act in good faith in performing its duties under this Agreement.
Custodian shall not be responsible for, and the Fund shall indemnify
and hold Custodian harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability
which may be asserted against Custodian, incurred by Custodian or for
which Custodian may be held to be liable, arising out of or
attributable to:

1. All actions taken by Custodian pursuant to this Agreement or any
instructions provided to it hereunder, provided that Custodian
has acted in good faith and with due diligence and reasonable
care; and

2. The Fund's refusal or failure to comply with the terms of this
Agreement (including without limitation the Fund's failure to pay
or reimburse Custodian under this indemnification provision), the
Fund's negligence or willful misconduct, or the failure of any
representation or warranty of the Fund hereunder to be and remain
true and correct in all respects at all times.

B. The Fund shall not be responsible for, and Custodian shall hold
harmless and indemnify Fund from and against any and all losses,
damages, costs, charges, counsel fees, payments, expenses, and
liabilities that may be

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<PAGE> 22
asserted against the Fund, incurred by the Fund, or for which the Fund
may be held to be liable, arising out of or attributable to Custodian's
refusal or failure to comply with the terms of this Agreement
(including without limitation Custodian's failure to pay or reimburse
the Fund under this indemnification provision), Custodian's negligence
or willful misconduct, or the failure of any representation or warranty
of Custodian to be and remain true and correct in all respects at all
times.

C. Custodian may request and obtain at the expense of Fund the advice and
opinion of counsel for Fund or of its own counsel with respect to
questions or matters of law, and it shall be without liability to Fund
for any action taken or omitted by it in good faith, in conformity with
such advice or opinion. If Custodian reasonably believes that it could
not prudently act according to the instructions of the Fund or the
Fund's accountants or counsel, it may in its discretion, with notice to
the Fund, not act according to such instructions.

D. Custodian may rely upon the advice and statements of Fund, Fund's
accountants and officers or other authorized individuals, and other
persons believed by it in good faith to be expert in matters upon which
they are consulted, and Custodian shall not be liable for any actions
taken, in good faith, upon such advice and statements.

E. If Fund requests Custodian in any capacity to take any action which
involves the payment of money by Custodian, or which might make it or
its nominee liable for payment of monies or in any other way, Custodian
shall be indemnified and held harmless by Fund against any liability on
account of such action (except to the extent arising out of Custodian's
negligence, willful misconduct or breach of this Agreement); provided,
however, that nothing herein shall obligate Custodian to take any such
action except in its sole discretion.

F. Custodian shall be protected in acting as custodian hereunder upon any
instructions, advice, notice, request, consent, certificate or other
instrument or paper appearing to it to be genuine and to have been

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<PAGE> 23
properly executed. Custodian shall be entitled to receive upon request
as conclusive proof of any fact or matter required to be ascertained
from Fund hereunder a certificate signed by an officer or designated
representative of Fund. Fund shall also provide Custodian instructions
with respect to any matter concerning this Agreement requested by
Custodian.

G. Custodian shall be under no duty or obligation to inquire into, and
shall not be liable for:

1. The validity of the issue of any securities purchased by or for
Fund, the legality of the purchase of any securities or foreign
currency positions or evidence of ownership required by Fund to
be received by Custodian, or the propriety of the decision to
purchase or amount paid therefor;

2. The legality of the sale of any securities or foreign currency
positions by or for Fund, or the propriety of the amount for
which the same are sold;

3. The legality of the issue or sale of any Fund Shares, or the
sufficiency of the amount to be received therefor;

4. The legality of the repurchase or redemption of any Fund Shares,
or the propriety of the amount to be paid therefor; or

5. The legality of the declaration of any dividend by Fund, or the
legality of the issue of any Fund Shares in payment of any stock
dividend.

H. Custodian shall not be liable for, or considered to be Custodian of,
any money represented by any check, draft, wire transfer, clearinghouse
funds, uncollected funds, or instrument for the payment of money to be
received by it on behalf of Fund until Custodian actually receives such
money; provided, however, that it shall advise Fund promptly if it
fails to receive any such money in the ordinary course of business and
shall cooperate with Fund toward the end that such money shall be
received.

I. Except as provided in Section 3.S., Custodian shall not be responsible
for loss occasioned by the acts, neglects, defaults or insolvency of
any broker, bank, trust company, or any other person with whom
Custodian may deal.

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<PAGE> 24
J. Neither party shall be responsible or liable for the failure or delay
in performance of its obligations under this Agreement, or those of any
entity for which it is responsible hereunder, arising out of or caused,
directly or indirectly, by circumstances beyond the affected entity's
reasonable control, including, without limitation: any interruption,
loss or malfunction of any utility, transportation, computer (hardware
or software) or communication service; inability to obtain labor,
material, equipment or transportation, or a delay in mails;
governmental or exchange action, statute, ordinance, rulings,
regulations or direction; war, strike, riot, emergency, civil
disturbance, terrorism, vandalism, explosions, labor disputes, freezes,
floods, fires, tornados, acts of God or public enemy, revolutions, or
insurrection; provided, however, that such party shall make reasonable
efforts to remove such circumstances as soon as practicable to the
extent reasonably possible for such party to do so.

K. EXCEPT FOR VIOLATIONS OF SECTION 9, IN NO EVENT AND UNDER NO
CIRCUMSTANCES SHALL EITHER PARTY TO THIS AGREEMENT BE LIABLE TO ANYONE,
INCLUDING, WITHOUT LIMITATION TO THE OTHER PARTY, FOR CONSEQUENTIAL,
SPECIAL OR PUNITIVE DAMAGES FOR ANY ACT OR FAILURE TO ACT UNDER ANY
PROVISION OF THIS AGREEMENT EVEN IF ADVISED OF THIS POSSIBILITY
THEREOF.

6. COMPENSATION. In consideration for its services hereunder as Custodian and
investment accounting and recordkeeping agent, Fund will pay to Custodian
such compensation as shall be set forth in a separate fee schedule to be
agreed to by Fund and Custodian from time to time. A copy of the initial
fee schedule is attached hereto and incorporated herein by reference.
Custodian shall also be entitled to receive, and Fund agrees to pay to
Custodian, on demand, reimbursement for Custodian's cash disbursements and
reasonable out-of-pocket costs and expenses, including attorney's fees,
incurred by Custodian in connection with the performance of services
hereunder. Custodian may charge such compensation against monies held by it
for the account of Fund. Custodian will also be entitled to charge against
any monies held by it for the account of

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<PAGE> 25
Fund the amount of any loss, damage, liability, advance, overdraft or
expense for which it shall be entitled to reimbursement from Fund,
including but not limited to fees and expenses due to Custodian for other
services provided to the Fund by Custodian. Custodian will be entitled to
reimbursement by the Fund for the losses, damages, liabilities, advances,
overdrafts and expenses of subcustodians only to the extent that (i)
Custodian would have been entitled to reimbursement hereunder if it had
incurred the same itself directly, and (ii) Custodian is obligated to
reimburse the subcustodian therefor.

7. TERM AND TERMINATION. The initial term of this Agreement shall be for a
period of one (1) year. Thereafter, either party to this Agreement may
terminate the same by notice in writing, delivered or mailed, postage
prepaid, to the other party hereto and received not less than ninety (90)
days prior to the date upon which such termination will take effect. Upon
termination of this Agreement, Fund will pay Custodian its fees and
compensation due hereunder and its reimbursable disbursements, costs and
expenses paid or incurred to such date and Fund shall designate a successor
custodian by notice in writing to Custodian by the termination date. In the
event no written order designating a successor custodian has been delivered
to Custodian on or before the date when such termination becomes effective,
then Custodian may, at its option, deliver the securities, funds and
properties of Fund to a bank or trust company at the selection of
Custodian, and meeting the qualifications for custodian set forth in the
1940 Act and having not less that Two Million Dollars ($2,000,000)
aggregate capital, surplus and undivided profits, as shown by its last
published report, or apply to a court of competent jurisdiction for the
appointment of a successor custodian or other proper relief, or take any
other lawful action under the circumstances; provided, however, that Fund
shall reimburse Custodian for its costs and expenses, including reasonable
attorney's fees, incurred in connection therewith. Custodian will, upon
termination of this Agreement and payment of all sums due to Custodian from
Fund hereunder or otherwise, deliver to the successor custodian so
specified or appointed, or as specified by the court, at Custodian's
office, all securities then held by Custodian hereunder, duly endorsed and
in form for transfer, and all funds and other properties of Fund deposited

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<PAGE> 26
with or held by Custodian hereunder, and Custodian will co-operate in
effecting changes in book-entries at all Depositories. Upon delivery to a
successor custodian or as specified by the court, Custodian will have no
further obligations or liabilities under this Agreement. Thereafter such
successor will be the successor custodian under this Agreement and will be
entitled to reasonable compensation for its services. In the event that
securities, funds and other properties remain in the possession of the
Custodian after the date of termination hereof owing to failure of the Fund
to appoint a successor custodian, the Custodian shall be entitled to
compensation as provided in the then-current fee schedule hereunder for its
services during such period as the Custodian retains possession of such
securities, funds and other properties, and the provisions of this
Agreement relating to the duties and obligations of the Custodian shall
remain in full force and effect.

8. NOTICES. Notices, requests, instructions and other writings addressed to
Fund at 909 Montgomery Street, San Francisco, California 94133, or at such
other address as Fund may have designated to Custodian in writing, will be
deemed to have been properly given to Fund hereunder; and notices,
requests, instructions and other writings addressed to Custodian at its
offices at 127 West 10th Street, Kansas City, Missouri 64105, Attention:
Custody Department, or to such other address as it may have designated to
Fund in writing, will be deemed to have been properly given to Custodian
hereunder.

9. CONFIDENTIALITY.

A. Fund shall preserve the confidentiality of the computerized investment
portfolio recordkeeping and accounting system used by Custodian (the
"Portfolio Accounting System") and the tapes, books, reference manuals,
instructions, records, programs, documentation and information of, and
other materials relevant to, the Portfolio Accounting System and the
business of Custodian ("Confidential Information"). Fund shall not
voluntarily disclose any such Confidential Information to any other
person other than its own employees who reasonably have a need to know
such information pursuant to this Agreement, except as required by law
or

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<PAGE> 27
regulation. Fund shall return all such Confidential Information to
Custodian upon termination or expiration of this Agreement.

B. Fund has been informed that the Portfolio Accounting System is licensed
for use by Custodian from DST Systems, Inc. ("Licensor"), and Fund
acknowledges that Custodian and Licensor have proprietary rights in and
to the Portfolio Accounting System and all other Custodian or Licensor
programs, code, techniques, know-how, data bases, supporting
documentation, data formats, and procedures, including without
limitation any changes or modifications made at the request or expense
or both of Fund (collectively, the "Protected Information"). Fund
acknowledges that the Protected Information constitutes confidential
material and trade secrets of Custodian and Licensor. Fund shall
preserve the confidentiality of the Protected Information, and Fund
hereby acknowledges that any unauthorized use, misuse, disclosure or
taking of Protected Information, residing or existing internal or
external to a computer, computer system, or computer network, or the
knowing and unauthorized accessing or causing to be accessed of any
computer, computer system, or computer network, may be subject to civil
liabilities and criminal penalties under applicable law. Fund shall so
inform employees and agents who have access to the Protected
Information or to any computer equipment capable of accessing the same.
Licensor is intended to be and shall be a third party beneficiary of
the Fund's obligations and undertakings contained in this paragraph.

10. MULTIPLE PORTFOLIOS. If Fund is comprised of more than one Portfolio:

A. Each Portfolio shall be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered by this
Agreement, every reference herein to the Fund shall be deemed to relate
solely to the particular Portfolio to which such transaction relates.
Under no circumstances shall the rights, obligations or remedies with
respect to a particular Portfolio constitute a right, obligation or
remedy applicable to any other Portfolio. The use of this single
document to memorialize the

-27-
<PAGE> 28
separate agreement of each Portfolio is understood to be for clerical
convenience only and shall not constitute any basis for joining the
Portfolios for any reason.

B. Additional Portfolios may be added to this Agreement, provided that
Custodian consents to such addition. Rates or charges for each
additional Portfolio shall be as agreed upon by Custodian and Fund in
writing.

11. LIMITATION OF LIABILITY. Notice is hereby given that a copy of Fund's
Certificate of Trust and all amendments thereto is on file with the
Secretary of State of the state of its organization; that this Agreement
has been executed on behalf of Fund by the undersigned duly authorized
representative of Fund in his/her capacity as such and not individually;
and that the obligations of this Agreement shall only be binding upon the
assets and property of Fund and shall not be binding upon any trustee,
officer or shareholder of Fund individually.

12. MISCELLANEOUS.

A. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of the
State of Missouri, without reference to the choice of laws principles
thereof.

B. All terms and provisions of this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.

C. The representations and warranties, the indemnifications extended
hereunder, and the provisions of Section 9. hereof are intended to and
shall continue after and survive the expiration, termination or
cancellation of this Agreement.

D. No provisions of the Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by each
party hereto.

E. The failure of either party to insist upon the performance of any terms
or conditions of this Agreement or to enforce any rights resulting from
any breach of any of the terms or conditions of this Agreement,
including the payment of damages, shall not be construed as a
continuing or permanent waiver of any such terms, conditions, rights or
privileges, but the same

-28-
<PAGE> 29
shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred. No waiver, release or discharge of
any party's rights hereunder shall be effective unless contained in a
written instrument signed by the party sought to be charged.

F. The captions in the Agreement are included for convenience of reference
only, and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.

G. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.

H. If any provision of this Agreement shall be determined to be invalid or
unenforceable, the remaining provisions of this Agreement shall not be
affected thereby, and every provision of this Agreement shall remain in
full force and effect and shall remain enforceable to the fullest
extent permitted by applicable law.

I. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.

J. Neither the execution nor performance of this Agreement shall be deemed
to create a partnership or joint venture by and between Custodian and
Fund.

K. The parties hereto acknowledge that Custodian or its affiliates may
enter into one or more other agreements with the Fund pursuant to which
it or them provide services, and undertake obligations, not described
herein. Except as specifically provided herein, neither the execution
or delivery of, nor the performance or failure to perform under, nor
any provision of, this Agreement shall in any manner affect the rights,
obligations, or liabilities of either party hereto in any capacity
other than the capacity(ies) specifically contemplated by this
Agreement, including under any such other agreements.

-29-
<PAGE> 30
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers.

INVESTORS FIDUCIARY TRUST COMPANY

By:
------------------------------
Title:
---------------------------

SENECA FUNDS

By:
------------------------------
Title:
---------------------------

-30-
<PAGE> 31
EXHIBIT A

INVESTORS FIDUCIARY TRUST COMPANY
AVAILABILITY SCHEDULE BY TRANSACTION TYPE

<TABLE>
<CAPTION>
=====================================================================================================
TRANSACTION DTC PHYSICAL FED

- -----------------------------------------------------------------------------------------------------
TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE
=====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Calls Puts As Received C or F* As Received C or F*
- -----------------------------------------------------------------------------------------------------
Maturities As Received C or F* Mat. Date C or F* Mat. Date F
- -----------------------------------------------------------------------------------------------------
Tender Reorgs. As Received C As Received C N/A

- -----------------------------------------------------------------------------------------------------
Dividends Paydate C Paydate C N/A

- -----------------------------------------------------------------------------------------------------
Floating Rate Int. Paydate C Paydate C N/A

- -----------------------------------------------------------------------------------------------------
Floating Rate Int. N/A As Rate Received C N/A
(No Rate)

- -----------------------------------------------------------------------------------------------------
Mtg. Backed P&I Paydate C Paydate + 1 Bus. C Paydate F
Day
- -----------------------------------------------------------------------------------------------------
Fixed Rate Int. Paydate C Paydate C Paydate F
- -----------------------------------------------------------------------------------------------------
Euroclear N/A C Paydate C

=====================================================================================================
</TABLE>

Legend

C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based on how received.

<PAGE> 1
EXHIBIT 9(a)

FORM OF

TRANSFER AGENCY AND SERVICE AGREEMENT

THIS AGREEMENT is made as of the ______ day of ___________, 19___, by and
between SENECA FUNDS, a Delaware business trust, having its principal office and
place of business at 909 Montgomery Street, San Francisco, California 94133
("Fund"), and INVESTORS FIDUCIARY TRUST COMPANY, a Missouri trust company having
its principal office and place of business at 127 West 10th Street, Kansas City,
Missouri, 64105 ("IFTC").

WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Article 10, being herein referred to as a "Portfolio", and collectively as the
"Portfolios"); and

WHEREAS, the Fund on behalf of the Portfolios desires to appoint IFTC as its
transfer agent, dividend disbursing agent, and agent in connection with certain
other activities, and IFTC desires to accept such appointment;

NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:

1. Terms of Appointment; Duties of IFTC

1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund, on behalf of the Portfolios, hereby employs and appoints IFTC
to act as, and IFTC agrees to act as, transfer agent for the Fund's
authorized and issued shares of beneficial interest ("Shares"),
dividend disbursing agent, and agent in connection with any
accumulation, open-account or similar plans provided to the
shareholders of any of the respective Portfolios of the Fund
("Shareholders") and set out in the currently effective prospectus
and statement of additional information ("prospectus") of the Fund on
behalf of the applicable Portfolio, including without limitation any
periodic investment plan or periodic withdrawal program.

1.2 IFTC agrees that it will perform the following services:

(a) In accordance with procedures established from time to time
by agreement between the Fund on behalf of each of the
Portfolios, as applicable, and IFTC, IFTC shall:

(i) Receive for acceptance orders for the purchase of
Shares, and promptly deliver payment and
appropriate documentation thereof

-1-
<PAGE> 2
to the Custodian of the Fund authorized pursuant to
the Declaration of Trust of the Fund (the
"Custodian");

(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;

(iii) Receive for acceptance redemption requests and
redemption directions, and deliver the appropriate
documentation thereof to the Custodian;

(iv) In respect to the transactions in items (i), (ii)
and (iii) above, IFTC shall execute transactions
directly with broker-dealers authorized by the Fund
who shall thereby be deemed to be acting on behalf
of the Fund;

(v) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over
in the appropriate manner such monies as instructed
by the redeeming Shareholders;

(vi) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;

(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the
applicable Portfolio;

(viii) Issue replacement certificates for those
certificates alleged to have been lost, stolen or
destroyed upon receipt by IFTC of indemnification
satisfactory to IFTC and protecting IFTC and the
Fund, and IFTC at its option may issue replacement
certificates in place of mutilated stock
certificates upon presentation thereof and without
such indemnity;

(ix) Maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and

(x) Record the issuance of Shares and maintain pursuant
to SEC Rule 17Ad-10(e) a record of the total number
of Shares which are authorized, based upon data
provided to it by the Fund, and issued and
outstanding. IFTC shall also provide the Fund on a
regular basis with the total number of Shares which
are authorized and issued and outstanding and,
except to the extent expressly provided elsewhere
in this Agreement, shall have no obligation, when
recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of
any laws relating to the issue or sale of such
Shares, which functions shall be the

-2-
<PAGE> 3
sole responsibility of the Fund or its agents other
than IFTC acting pursuant to this Agreement.

(b) In addition to and neither in lieu nor in contravention of
the services set forth in the above paragraph (a), IFTC
shall: (i) perform the customary services of a transfer
agent, dividend disbursing agent, and, as relevant, agent in
connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan
or periodic withdrawal program), including but not limited
to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing proxies, mailing
Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and
non-resident alien accounts, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms
required with respect to dividends and distributions by
federal and state taxing authorities for all Shareholders,
preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of
Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account
information,(ii) provide a system which will enable the Fund
to monitor the total number of Shares sold in each state and
which will prevent the execution of orders to purchase
shares in certain states specified by the Fund, its
Administrator or other agent, subject to override upon the
express authorization of the Fund, its Administrator, or
other agent, and (iii) open and maintain one or more
non-interest bearing deposit accounts as agent for the Fund,
with such financial institution(s) as may be designated by
it or by the Fund in writing (such accounts, however, to be
in the name of IFTC and subject only to its draft or order),
into which accounts the moneys received for the account of
the Fund and moneys for payment of dividends, distributions,
redemptions or other disbursements provided for hereunder
will be deposited, and against which checks, drafts and
payment orders will be drawn.

(c) In addition, the Fund or its Administrator or other agent
shall (i) identify to IFTC in writing those transactions and
assets to be treated as exempt from blue sky reporting for
each state, (ii) as to each Portfolio, identify to IFTC
those states in which shares of that Portfolio have not been
registered or qualified for sale or in which a limited
number of such shares have been so registered or qualified,
stating the number of such shares, (iii) promptly advise
IFTC as to the suspension, termination, or withdrawal of any
such registration or qualification in any state or any
change in the number of any such shares so registered or
qualified in any state, (iv) verify the establishment of
transactions for each state on the system prior to
activation and thereafter monitor the daily activity for
each state. The responsibility of IFTC for the Fund's blue
sky state registration status is solely limited to the
initial establishment of transactions subject to blue sky
compliance by the Fund, the reporting of such transactions
to the Fund as provided above, and the establishment

-3-
<PAGE> 4
of instructions sufficient to prevent the execution of
orders to purchase shares in certain states specified by the
Fund or its Administrator or other agent, subject to
override upon the express authorization of the Fund, its
Administrator, or other agent, as described in Section 2(b)
above.

(d) Procedures as to who shall provide certain of these services
in Section 1 may be established from time to time by
agreement between the Fund on behalf of each Portfolio and
IFTC per the attached service responsibility schedule. IFTC
may at times perform only a portion of these services, and
the Fund or its agent shall perform the remainder of these
services on the Fund's behalf.

(e) IFTC shall provide the Fund with certain Fund-related and
third-party data via computer hookup on terms agreed upon in
writing between the parties.

(f) IFTC shall deliver funds and file related reports pursuant
to state unclaimed property statutes in accordance with
procedures to be agreed upon in writing by the parties from
time to time.

(g) IFTC shall provide additional services on behalf of the Fund
which may be agreed upon in writing between the Fund and
IFTC.

2. Fees and Expenses

2.1 For the performance of services by IFTC pursuant to this Agreement,
the Fund agrees on behalf of each of the Portfolios to pay IFTC an
annual maintenance fee for each Shareholder account as set out in the
initial fee schedule attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 2.2 below may be
changed from time to time subject to mutual written agreement between
the Fund and IFTC.

2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees
on behalf of each of the Portfolios to reimburse IFTC for
out-of-pocket expenses reasonably incurred in performing its duties
hereunder, including but not limited to confirmation production,
postage, forms, telephone, microfilm, microfiche, tabulating proxies,
records storage, or advances incurred by IFTC for the items set out
in the fee schedule attached hereto. In addition, any other expenses
incurred by IFTC at the request or with the consent of the Fund, will
be reimbursed by the Fund on behalf of the applicable Portfolio.

2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees
and reimbursable expenses within five days following the receipt of
the respective billing notice. Postage for mailing of dividends,
proxies, Fund reports and other mailings to all shareholder accounts
shall be advanced to IFTC by the Fund at least seven (7) days prior
to the mailing date of such materials.

-4-
<PAGE> 5
3. Representations and Warranties of IFTC

IFTC represents and warrants to the Fund that:

3.1 It is a trust company duly organized and existing and in good
standing under the laws of the State of Missouri; provided, however,
that the Fund acknowledges that IFTC intends to merge with a
newly-chartered trust company which shall be the surviving entity
following such merger.

3.2 It is duly qualified to carry on its business in the State of
Missouri.

3.3 It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement.

3.4 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.

3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.

3.6 It is duly registered as a transfer agent under Section 17A(c)(1) of
the Securities Exchange Act of 1934, as amended ("Section
17A(c)(1)"), and shall perform its obligations under this Agreement
in compliance with applicable law.

4. Representations and Warranties of the Fund

The Fund represents and warrants to IFTC that:

4.1 It is a business trust duly organized and existing and in good
standing under the laws of the state of its organization.

4.2 It is empowered under applicable laws and by its Agreement and
Declaration of Trust and By-Laws to enter into and perform this
Agreement.

4.3 All proceedings required by said Declaration of Trust and By-Laws
have been taken to authorize it to enter into and perform this
Agreement.

4.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.

4.5 A registration statement under the Securities Act of 1933, as
amended, on behalf of each of the Portfolios is currently effective
and will remain effective, and appropriate state securities law
filings have been made and will continue to be made, with respect to
all Shares of the Fund being offered for sale.

-5-
<PAGE> 6
5. Data Access and Proprietary Information

5.1 The Fund acknowledges that certain data bases, computer programs,
screen formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by IFTC as part of the
Fund's ability to access certain Fund-related data ("Customer Data")
maintained by IFTC on data bases under the control and ownership of
IFTC or other third parties ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information
(collectively, "Proprietary Information") of substantial value to
IFTC and such third parties. In no event shall Proprietary
Information be deemed Customer Data. The Fund agrees to treat all
Proprietary Information as proprietary to IFTC and further agrees
that it shall not divulge any Proprietary Information to any person
or organization except as may be provided hereunder. Without limiting
the foregoing, the Fund agrees for itself and its employees and
agents:

(a) to access Customer Data solely from locations as may be
agreed to in writing by IFTC and the Fund and solely in
accordance with IFTC's applicable user documentation;

(b) to refrain from copying or duplicating in any way the
Proprietary Information;

(c) to refrain from obtaining unauthorized access to any portion
of the Proprietary Information, and if such access is
inadvertently obtained, to inform IFTC in a timely manner of
such fact and dispose of such information in accordance with
IFTC's instructions;

(d) to refrain from causing or allowing third-party data
acquired hereunder from being retransmitted to any other
computer facility or other location, except with the prior
written consent of IFTC;

(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;

(f) to honor all reasonable written requests made by IFTC to
protect at IFTC's expense the rights of IFTC in Proprietary
Information at common law, under federal copyright law and
under other federal or state law.

Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any termination of this Agreement.

5.2 If the Fund notifies IFTC that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, IFTC shall endeavor in a timely
manner to correct such failure. Organizations from which IFTC may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make
no claim against IFTC arising out of the contents of such third-

-6-
<PAGE> 7
party data, including, but not limited to, the accuracy thereof. DATA
ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS
USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE
BASIS. IFTC EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY
STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

5.3 If the transactions available to the Fund include the ability to
originate electronic instructions to IFTC in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information, then in such event IFTC shall be
entitled to rely on the validity and authenticity of such
instructions without undertaking any further inquiry as long as such
instructions are undertaken in conformity with security procedures
agreed to by the parties hereto from time to time.

6. Indemnification

6.1 IFTC shall not be responsible for, and the Fund shall on behalf of
the applicable Portfolio indemnify and hold IFTC and its agents and
subcontractors harmless from and against, any and all losses,
damages, costs, charges (including reasonable counsel fees),
payments, expenses and liabilities arising out of or attributable to:

(a) All actions of IFTC or its agents or subcontractors taken
pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful
misconduct.

(b) The breach of any representation or warranty of the Fund
hereunder.

(c) The reliance on or use by IFTC or its agents or
subcontractors of information, records, documents or
services which (i) are received by IFTC or its agents or
subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf
of the Fund including but not limited to any previous
transfer agent or registrar.

(d) The reliance on, or the carrying out by IFTC or its agents
or subcontractors of any instructions or requests of the
Fund on behalf of the applicable Portfolio.

(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares
be registered in such state or in violation of any stop
order or other determination or ruling by any federal agency
or any state with respect to the offer or sale of such
Shares in such state, except to the extent IFTC has breached
any of its obligations hereunder in connection with such
sale.

-7-
<PAGE> 8
6.2 At any time IFTC may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by
IFTC under this Agreement, and IFTC and its agents and subcontractors
shall not be liable and shall be indemnified by the Fund on behalf of
the applicable Portfolio for any action taken or omitted in reliance
upon such instructions or in good faith, reasonable reliance on the
opinion of such counsel. IFTC, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document
furnished by or on behalf of the Fund, reasonably believed to be
genuine and to have been signed by the proper person or persons, or
in good faith, reasonable reliance on the instruction, information,
data, records or documents provided to IFTC or its agents or
subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to
have notice of any change of authority of any person until receipt of
written notice thereof from the Fund. IFTC, its agents and
subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Fund, and the
proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.

6.3 The Fund shall not be responsible for, and IFTC shall indemnify and
hold the Fund and the applicable Portfolio harmless from and against,
any and all losses, damages, costs, charges (including reasonable
counsel fees), payments, expenses and liabilities arising out of or
attributable to:

(a) The bad faith, negligence or willful misconduct of IFTC or
its agents or subcontractors in taking any action pursuant
to this Agreement.

(b) The breach of any representation or warranty of IFTC
hereunder.

6.4 In order that the indemnification provisions contained in this
Section 6 shall apply, upon the assertion of a claim for which an
indemnifying party may be required to indemnify an indemnified party,
the indemnified party shall promptly notify the indemnifying party of
such assertion, and shall keep the indemnifying party advised with
respect to all developments concerning such claim. The indemnifying
party shall have the option to participate with the indemnified party
in the defense of such claim or to defend against said claim in its
own name or in the name of the indemnified party through counsel
reasonably acceptable to the indemnified party. The indemnified party
shall in no case confess any claim or make any compromise in any case
in which the indemnifying party may be required to indemnify the
indemnified party except with the indemnifying party's prior written
consent.

7. Standard of Care

IFTC shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or

-8-
<PAGE> 9
damage due to errors unless said errors are caused by its negligence,
bad faith, or willful misconduct or that of its employees, or breach
of this Agreement.

8. Covenants of the Fund and IFTC

8.1 The Fund shall on behalf of each of the Portfolios promptly furnish
to IFTC the following:

(a) A certified copy of the resolution of the Board of Trustees
of the Fund authorizing the appointment of IFTC and the
execution and delivery of this Agreement.

(b) A copy of the Declaration of Trust and By-Laws of the Fund
and all amendments thereto.

8.2 IFTC hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices,
if any; and for the preparation or use, and for keeping account of,
such certificates, forms and devices.

8.3 IFTC shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the Rules thereunder, IFTC agrees that all such
records prepared or maintained by IFTC relating to the services to be
performed by IFTC hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such
Section and Rules, and will be surrendered promptly to the Fund on
and in accordance with its request.

8.4 IFTC and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.

8.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, IFTC will endeavor to notify the
Fund and to secure instructions from an authorized officer of the
Fund as to such inspection. IFTC reserves the right, however, to
exhibit the Shareholder records to any person whenever it is advised
by its counsel that it may be held liable for the failure to exhibit
the Shareholder records to such person.

9. Term and Termination

9.1 The initial term of this Agreement shall be for a period of one year.
Thereafter, this Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other; provided,
however, that, in addition to any other rights and remedies it may
have, the Fund shall have the right to

-9-
<PAGE> 10
terminate this Agreement as soon as practicable after the occurrence
at any time of any of the following events:

a. any interruption or cessation of operations by IFTC
or its assigns that materially interferes with the
business operation of the Fund;

b. the bankruptcy of IFTC or its assigns or the
appointment of a receiver for IFTC or its assigns;

c. any merger, consolidation, or sale of substantially
all of the assets of IFTC or its assigns (other
than the planned merger described in Section 3.1);

d. failure by IFTC or its assigns to perform its
duties in accordance with this Agreement, which
failure may, in the judgment of the Fund's Board of
Trustees, materially adversely affect the business
operations of the Fund and which failure continues
for thirty (30) days after written notice by the
Fund; or

e. revocation, suspension, or termination of the
registration of IFTC or its assigns as a transfer
agent under Section 17A(c)(1).

9.2 Should the Fund exercise its right to terminate this Agreement, all
out-of-pocket expenses associated with the movement of records and
material will be borne by the Fund on behalf of the applicable
Portfolio(s). Additionally, IFTC reserves the right to charge for any
other reasonable expenses associated with such termination and/or a
charge equivalent to the average of three (3) months' fees.

10. Additional Portfolios

In the event that the Fund establishes one or more series of Shares
in addition to those in existence on the date of execution hereof
with respect to which it desires to have IFTC render services as
transfer agent under the terms hereof, it shall so notify IFTC in
writing, and if IFTC agrees in writing to provide such services, such
series of Shares shall become a Portfolio hereunder.

11. Assignment

11.1 Except as provided in Section 11.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party
without the written consent of the other party; provided, that the
planned merger described in Section 3.1 shall not be subject to this
requirement.

11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and permitted assigns.

11.3 IFTC may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts

-10-
<PAGE> 11
corporation ("BFDS"), or National Financial Data Services, Inc. a
Massachusetts corporation ("NFDS"), which are each duly registered as
a transfer agent pursuant to Section 17A(c)(1); or (ii) any other
IFTC affiliate which is duly registered as a transfer agent pursuant
to Section 17A(c)(1); provided, however, that IFTC shall be as fully
responsible to the Fund for the acts and omissions of any
subcontractor as it is for its own acts and omissions.

12. Amendment

This Agreement may be amended or modified only by a written agreement
executed by both parties and authorized or approved by a resolution
of the Board of Trustees of the Fund.

13. Missouri Law to Apply

This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of
Missouri, without reference to the choice of laws principles thereof.

14. Force Majeure

In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its
control, or other causes reasonably beyond its control, such party
shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such causes;
provided, however, that such party shall make reasonable efforts to
remove such causes as soon as practicable to the extent reasonably
possible for such party to do so.

15. Consequential Damages

Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to
act hereunder.

16. Merger of Agreement

This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.

17. Limitations of Liability of the Trustees and Shareholders

A copy of the Certificate of Trust of the Fund is on file with the
Secretary of State of the state of its organization, and notice is
hereby given that this instrument is executed on behalf of the
Trustees of the Fund as Trustees and not individually and that the
obligations of this instrument are not binding upon any

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<PAGE> 12
of the Trustees or Shareholders individually but are binding only
upon the assets and property of the Fund.

18. Survival of Terms.

The provisions of Sections 5.1, 6 and 9.2 shall survive the
termination of this Agreement.

19. Counterparts

This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.

20. Notices.

Notices, requests, instructions and other writing addressed to a
party at the address set forth above, or at such other address as
such party may have designated to the other in writing, shall be
deemed to have been properly given to such party hereunder.

21. Waiver.

The failure of either party to insist upon the performance of any
terms or conditions of this Agreement or to enforce any rights
resulting from any breach of any of the terms or conditions of this
Agreement, including the payment of damages, shall not be construed
as a continuing or permanent waiver of any such terms, conditions,
rights or privileges, but the same shall continue and remain in full
force and effect as if no such forbearance or waiver had occurred. No
waiver, release or discharge of any party's rights hereunder shall be
effective unless contained in a written instrument signed by the
party sought to be charged.

22. Invalidity.

If any provision of this Agreement shall be determined to be invalid
or unenforceable, the remaining provisions of this Agreement shall
remain in full force and effect and this Agreement shall remain
enforceable to the fullest extent permitted by applicable law.

23. Other Agreements.

The parties hereto acknowledge that IFTC or its affiliates may enter
into one or more other agreements with the Fund pursuant to which it
or them provide services, and undertake obligations, not described
herein. Except as specifically provided herein, neither the execution
or delivery of, nor the performance or failure to perform under, nor
any provision of, this Agreement shall in any manner affect the
rights, obligations, or liabilities of either party hereto in any

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<PAGE> 13
capacity other than the capacity(ies) specifically contemplated by
this Agreement, including under any such other agreements.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.

SENECA FUNDS

By:
------------------------------

INVESTORS FIDUCIARY TRUST COMPANY

By:
------------------------------

INVESTORS FIDUCIARY TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*

Service Performed Responsibility
- ----------------- --------------
IFTC Fund
---- ----

1. Receives orders for the purchase of Shares. X

2. Issue Shares and hold Shares in Shareholders
accounts. X

3. Receive redemption requests. X

4. Effect transactions 1-3 above directly with
broker-dealers. X

5. Pay over monies to redeeming Shareholders. X

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<PAGE> 14
6. Effect transfers of Shares. X

7. Prepare and transmit dividends and distributions. X

8. Issue Replacement Certificates. X

9. Reporting of abandoned property. X

10. Maintain records of account. X

11. Maintain and keep a current and accurate control
book for each issue of securities. X

12. Mail proxies. X

13. Mail Shareholder reports. X

14. Mail prospectuses to current Shareholders. X

15. Withhold taxes on U.S. resident and non-resident
alien accounts. X

16. Prepare and file U.S. Treasury Department forms. X

17. Prepare and mail account and confirmation
statements for Shareholders. X

Service Performed Responsibility
- ----------------- --------------
IFTC Fund
---- ----

18. Provide Shareholder account information. X

19. Blue sky reporting. X

* Such services are more fully described in Section 1.2 (a), (b) and (c) of
the Agreement.

SENECA FUNDS

By:
--------------------------------

INVESTORS FIDUCIARY TRUST COMPANY

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<PAGE> 15
By:
--------------------------------

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<PAGE> 1
EXHIBIT 15

SENECA FUNDS

ADMINISTRATIVE SHARES

FORM OF
DISTRIBUTION PLAN PURSUANT TO
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940

February , 1996

RECITALS

A. Seneca Funds, a Delaware business trust (the "Trust"), is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company.

B. The Trust is comprised of the separate series identified on
Schedule A hereto, each of which is a separate pool of assets with its own
investment policies (each, a "Fund") and shares of which are currently divided
into two separate classes, Administrative Shares and Institutional Shares. The
Trust may create additional Funds in the future.

C. On behalf of each Fund, the Trust wishes to adopt a Plan pursuant
to Rule 12b-1 under the 1940 Act (the "Plan") under which the Trust may provide
direct or indirect financing for activities that may be deemed to be intended to
result in the sale of Administrative Shares of such Fund.

D. The Trustees of the Trust have requested and evaluated such
information as they deemed necessary to make an informed determination of
whether the Plan should be implemented as to each Fund, have considered such
factors as they deemed necessary to form the basis for a decision to use assets
of such Fund for the purposes described in this Plan, and have determined that
there is a reasonable likelihood that the adoption and implementation of this
Plan will benefit each Fund and the holders of the Administrative Shares of each
Fund.

NOW, THEREFORE, the Trust hereby adopts this Plan as to the
Administrative Shares of each Fund in accordance with Rule 12b-1 under the 1940
Act.

1. DISTRIBUTION AGREEMENT; SERVICES. Any officer of the Trust is authorized
to execute and deliver, in the name and on behalf of the Trust, one or more
written agreements with Genesis Merchant Group Securities, L.P. ("GMG
Securities") and/or Seneca Distributors, LLC ("Seneca Distributors"; together
with GMG Securities, the "Distributors") in substantially the form attached
hereto or in any form duly approved by the Trustees and consistent with the
terms of this Plan (each, a "Distribution Agreement"). Pursuant to any such
Distribution Agreement, as to each Fund to which such Distribution Agreement
applies, a Distributor shall be engaged and authorized to

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<PAGE> 2
perform or procure from third parties the performance of all or some of the
following "Services":

a. ongoing servicing and/or maintenance of the accounts of
beneficial owners of Administrative Shares ("Shareholder Services"), including
responding to inquiries from prospective investors in Administrative Shares
regarding the Funds and services to holders of Administrative Shares, not
otherwise required to be provided by the Trust's custodian, transfer agent, or
administrator;

b. services primarily intended to result in, or primarily
attributable to, the sale of Administrative Shares ("Distribution Services"),
including (i) printing and distributing to prospective investors in
Administrative Shares prospectuses and statements of additional information
describing the Funds and the Administrative Shares, (ii) preparing (including
printing) and distributing sales literature, reports and media advertisements
relating to Administrative Shares, (iii) distributing Administrative Shares,
(iv) incurring expenses relating to the formulation and implementation of
marketing and promotional activities, including direct mail promotions and
television, radio, newspaper, magazine, and other mass media advertising, as
well as related travel and entertainment expenses, and (v) incurring expenses
involved in obtaining information, analyses and reports as to marketing and
promotional activities that the Funds may, from time to time, deem advisable.

c. other services related to Administrative Shares, including
establishing and maintaining accounts and records on behalf of holders of
Administrative Shares, processing purchase, redemption, and exchange
transactions in Administrative Shares, and other, similar services not otherwise
required to be provided by the Trust's transfer agent, custodian, or
administrator ("Administrative Services").

2. PAYMENTS FOR SERVICES.

a. Pursuant to the Distribution Agreements, the Trust may pay the
Distributors, in the aggregate, a fee at an annual rate of up to 0.25% of the
value of the average daily net assets of the Administrative Shares; in no event
shall the aggregate payments to all Distributors for Services under this Plan
exceed such annual rate. Fees to be paid under the Distribution Agreements shall
be calculated monthly and paid quarterly as to each Fund.

b. Payments under this Plan are not tied exclusively to the expenses
actually incurred by a Distributor in performing or procuring the Services and
the payments may exceed such actual expenses. Further, any portion of any fee
paid to a Distributor or to any of its affiliates by the Trust, or any of their
past profits or other revenue, may be used in such Distributor's or affiliate's
sole discretion to provide Services to holders of any Administrative Shares of
Fund or to foster the distribution of Administrative Shares of any Fund.

c. The fee provided above will be paid by the Trust to each
Distributor as to Administrative Shares of each Fund unless and until either
this Plan or the Distribution Agreement between the Trust and such Distributor
as to such Fund is terminated or not

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<PAGE> 3
renewed. If either this Plan or a Distribution Agreement is terminated or not
renewed as to any Fund, any expenses incurred by the Distributor involved and
otherwise intended to be compensated pursuant to this Plan shall remain the sole
responsibility and liability of such Distributor and shall not be obligations of
the Trust.

3. APPROVAL OF PLAN. Neither this Plan nor any related Distribution
Agreement shall take effect as to any Fund until approved by vote of a majority
of (i) the outstanding Administrative Shares of such Fund (which may be the
initial sole shareholder of such Fund), (ii) the Trustees, and (iii) those
Trustees who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of this Plan or in any agreements
related to it (the "Independent Trustees"), cast in person at a meeting called
for the purpose of voting on this Plan and the related agreements.

4. CONTINUANCE OF PLAN. This Plan shall continue in full force and effect
as to the Administrative Shares of each Fund for so long as such continuance is
specifically approved at least annually by a vote of a majority of (i) the
Trustees and (ii) the Independent Trustees cast in person at a meeting called
for the purpose of voting on this Plan. The Trustees will evaluate the
appropriateness of continuing this Plan and its payment terms on a continuing
basis and in doing so will consider all relevant factors, including the types
and extent of Services provided by the Distributors and the amounts paid to
Distributors under this Plan.

5. TERMINATION. This Plan may be terminated at any time as to any Fund
without penalty by vote of a majority of the Independent Directors or by vote of
a majority of the outstanding Administrative Shares of such Fund.

6. AMENDMENTS. This Plan may not be amended to increase materially the
amount of fees provided for in SECTION hereof as to any Fund unless such
amendment is approved by a vote of a majority of the outstanding Administrative
Shares of such Fund, and may not be amended in any other material respect unless
approved in the manner provided for approval and annual renewal in SECTION
above.

7. INDEPENDENT TRUSTEES. While this Plan is in effect, the selection and
nomination of the Independent Trustees shall be committed to the discretion of
Trustees then in office who are Independent Trustees.

8. REPORTS. In each year in which this Plan remains in effect as to a Fund,
each Distributor and each other person who may be authorized to direct the
disposition of monies paid or payable under this Plan or any Distribution
Agreement shall provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended by such Distributor as to
the Administrative Shares of such Fund under this Plan and the relevant
Distribution Agreement and the purposes for which such expenditures were made.
In making such report, each Distributor is expressly authorized to include as
expenditures (i) an allocation of telephone, office and other overhead expenses
related to providing the Services hereunder, and (ii) payments to, or
reimbursements of expenses of, persons who provide support services in
connection with the provision of the Services.

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<PAGE> 4
9. DEFINITIONS. As used in this Plan, the terms "majority of the
Administrative Shares" shall have the same meaning as to the Administrative
Shares of each Fund as the term "majority of the outstanding voting securities"
has in the 1940 Act. The term "interested person" shall have the meaning given
in the 1940 Act.

10. RECORDS. The Trust shall preserve copies of this Plan (including any
amendments thereto) and any related agreements and all reports made pursuant
hereto for a period of not less than six (6) years from the date of this Plan,
the related agreement or the report, the first two years in an easily accessible
place.

11. SEVERABILITY. If any provision of this Plan shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Plan shall not be affected thereby.

12. EFFECTIVENESS. This Plan will become effective as to each Fund as of the
date such Fund first commences its investment operations.

IN WITNESS WHEREOF, the Trust has executed this Plan on the day
and year first set forth above.

SENECA FUNDS

By:
--------------------------------
Its:
-------------------------------

Attest:
---------------------

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<PAGE> 1
EXHIBIT 18

FORM OF SENECA FUNDS
RULE 18F-3 PLAN

RECITALS

A. Rule 18f-3 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act"), requires that the board of directors or trustees of
an investment company wishing to offer multiple classes pursuant to the Rule
adopt a plan setting forth the separate arrangement and expense allocation of
each class, and any related conversion features or exchange privileges.

B. Seneca Funds (the "Trust"), a Delaware business trust, is an
open-end, management investment company of the series type and is so registered
under the 1940 Act and intends initially to offer shares in the four series,
identified on Schedule A hereto (each a "Fund" and collectively, the "Funds").

C. The Trust proposes to establish two classes of shares of each of
the Initial Funds, to be known as the "Administrative Shares" and the
"Institutional Shares" of each Fund. The principal differences in distribution
arrangements, other services, and expenses between Administrative Shares and
Institutional Shares, and the exchange features of each class, are set forth
below in this Plan, which is subject to change, to the extent permitted by law
and by the governing documents of the Trust and each series of the Trust, by
action of the Trustees of the Trust (the "Trustees"), acting as a body (the
"Board").

D. The Trustees, including a majority of the Trustees who are not
"interested persons" of the Trust (as defined in the 1940 Act), have determined
as to each Fund that the following plan is in the best interests of each class
of shares of such Fund individually and such Fund as a whole.

PLAN

1. Differences in Distribution Arrangements.

a. Institutional Shares will be sold directly by the Funds'
Distributor to institutional investors such as pension and profit sharing plans,
other employee benefit trusts, endowments, foundations, and corporations. Sales
will generally be subject to specified minimum initial purchase amounts at a
significantly higher level than are Administrative Shares.

b. Administrative Shares may be offered through broker-dealers
and financial institutions who hold Administrative Shares for the benefit of
their customers to participant-directed employee benefit plans, to individual
retirement accounts, and directly to individual investors by the Funds'
Distributor. To compensate the Funds' Distributor(s) for distributing
Administrative Shares to such investors, including making payments to
broker-dealers, retirement plan administrators, and financial services

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<PAGE> 2
companies, and for incurring other expenses in connection with such distribution
and providing shareholder and administrative services described below, the Funds
will pay a distribution fee of 0.25% per annum of the average daily net asset
value of Administrative Shares to the Funds' Distributor(s) in accordance with a
Distribution Plan adopted pursuant to Rule 12b-1 under the 1940 Act.

2. Differences in Services. Beneficial owners of Administrative
Shares will generally have smaller accounts than holders of Institutional
Shares, will engage in more shareholder transactions in relation to the size of
their holdings, and will require more information-, communication-, and
transaction-related services, including automatic investment programs, in
relation to such holdings. These services will be provided by broker-dealers,
financial institutions and/or retirement plan administrators who hold
Administrative Shares for the benefit of their customers, as well as by the
Transfer Agent and the Distributor(s).

3. Expense Allocation. For each Fund, the following expenses shall
be allocated, to the extent practicable, on a class-by-class basis: (a) fees
under the Distribution Plan, which shall be allocated entirely to the
Administrative Shares; (b) printing and postage expenses related to preparing
and distributing materials, such as shareholder reports, prospectuses and
proxies, to current shareholders of a specific class of Shares; (c) Securities
and Exchange Commission and Blue Sky registration fees for sales of shares of a
specific class of Shares; (d) the expense of administrative personnel and
services required to effect such registrations and related activities; (e) the
expense of administrative personnel and services required to support the
shareholders of a specific class of Shares; (f) auditors' fees, litigation or
other legal expenses relating solely to a specific class of Shares; (g) transfer
agent fees identified by the Fund's transfer agent as being attributable to a
specific class of Shares; (h) expenses incurred in connection with shareholders'
meetings as a result of issues relating to a specific class of Shares; and (i)
accounting expenses relating solely to a specific class of Shares. The
allocation of expenses between classes of Shares described above may be amended
to the extent, if any, necessary to prevent such an allocation from causing a
Fund to fail to satisfy any requirements necessary to obtain and rely on a
private letter ruling from the Internal Revenue Service relating to the issuance
of multiple classes of shares.

4. Conversion Features. No class of Shares shall be subject to any
automatic conversion into another class of Shares.

5. Exchange Privileges. Shares of a class shall be exchangeable only
for (a) shares of the same class of other Funds or other investment companies
advised by GMG/Seneca Capital Management, L.P., or any successor to its
business, and (b) shares of certain other investment companies specified from
time to time in a Fund's prospectus for such class.

6. Additional Information. This Plan is qualified by and subject to
the terms of the current prospectus for each of the respective classes;
provided, however, that none of the terms set forth in any such prospectus shall
be inconsistent with the terms of the classes contained in this Plan. The
prospectus for each class contains additional information about that class and
the applicable Fund's multiple class structure.

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<PAGE> 3
7. Approval by Board of Trustees. This Plan shall not take effect
until it has been approved as to each Fund by the vote of a majority (or
whatever greater percentage may, from time to time, be required under Rule 18f-3
under the 1940 Act) of (a) all of the Trustees of the Trust and (b) the Trustees
who are not "interested persons" of the Trust.

8. Amendments. No material amendment to this Plan shall be effective
unless it is approved by the Board of Trustees in the same manner provided in
Paragraph 7. The Board may determine in the future that other distribution
arrangements, allocations of sales charges (if any), expenses (whether ordinary
or extraordinary), or services to be provided to a class of Shares are
appropriate and amend this Plan accordingly without the approval of shareholders
of any class.

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