<PAGE> 1
[SENECA FUNDS LOGO]
ANNUAL
REPORT
--------------------------------------------
SEPTEMBER 30, 1997
<PAGE> 2
Mission Statement
Teamwork and dedication are the cornerstones of our success
The pursuit of excellence is our motivation
Honesty, professionalism and ethical values guide our actions
Commitment and hard work are the means of achievement
Quality and action supercede quantity and intentions
Good judgment is the result of experience
Our goal is the continual attainment of higher levels of service
Our clients are our partners in success
<PAGE> 3
CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders 2
Investment Objective and Performance Highlights 3
Fund Financials 11
Auditor's Opinion 45
</TABLE>
1
<PAGE> 4
LETTER TO SHAREHOLDERS
Dear Shareholders:
It's been another exciting year in the capital markets and for the Seneca
Funds. As of September 30, 1997, Fund net assets have grown to $74 million with
over 1,200 shareholders. All of our funds have strong competitive performance in
their respective styles. Our two equity funds have both produced double digit
returns, with our large cap growth fund leading in performance. Our smaller cap
"EDGE" (sm) fund continues to present compelling opportunity, as smaller stocks
have fared less well than their large cap brethren in this year's market. Our
income oriented funds have also produced double digit returns. Both our bond
fund and our real estate investment trust fund have proven to be defensive and
resilient amidst market turmoil. They also provide high and consistent current
cash flow.
Despite the recent global downdraft in stocks, our view of the U.S. equity
and fixed income markets remains quite optimistic. Asian market concerns and low
domestic inflation will keep the Federal Reserve on hold until 1998, at the
earliest. A friendly Fed is always positive for U.S. stocks and bonds. Corporate
profits may slow in 1998, but will remain in positive territory. Continued
profit growth and low interest rates provide an excellent fundamental background
for 1998's financial markets. We expect solid returns in our funds in the coming
year.
Due to our recent partnership with Phoenix Duff & Phelps, we are looking
forward to greater distribution and visibility for our funds, as well as other
positive changes. Please expect information in a proxy statement to be delivered
to you before year end.
On behalf of all of us here at the Seneca Funds, we are grateful for your
continued confidence in us and welcome any comments you might have. Please feel
free to call us for additional information on the Seneca Funds at (800)
990-9331.
Sincerely,
Gail P. Seneca
President
November 24, 1997
2
<PAGE> 5
The Seneca Growth Fund
INVESTMENT OBJECTIVE
The Seneca Growth Fund seeks capital appreciation by investing in stocks across
all capitalizations, in a conservative, disciplined style. Large capitalization
"Proven Appreciation" issues are combined with smaller capitalization, rapidly
growing "Forecast Appreciation" issues in order to reduce portfolio volatility.
We seek portfolio companies that are characterized by earnings growth,
experienced management teams who can sustain that growth, and reasonable
valuation. The Fund attempts to outperform the S&P 500.
INVESTMENT DISCUSSION
The Seneca Growth Fund has gained 41.6% on an annualized basis since inception
at 3/8/96, outperforming the S&P 500 by a wide margin.* The last twelve months,
however, have proven challenging for the Fund and for more active investors
generally. The Fund underperformed the S&P 500 for the period, and continues to
lag a bit (26.5% v. the S&P 500 at 29.6%) calendar year to date through
September 30, 1997. While the Fund's performance is very strong absolutely and
relative to its peers, the S&P 500 index has led the competitive pack over the
last year. The very large multinational companies which dominate the S&P 500
index weighting have led the market higher, outperforming smaller stocks and
less well known stocks. The Seneca Growth portfolio consistently scours the
entire investment universe and chooses many stocks beyond the largest, most
well-known names in our search for optimal investment opportunity. In the
fullness of time, this research intensive, value conscious style has rewarded
investors, as the Fund's longer-term record indicates.
* Institutional shares of the Seneca Growth Fund gained 42.9% annualized in this
same period.
3
<PAGE> 6
PERFORMANCE HIGHLIGHTS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INSTITUTIONAL SHARES ADMINISTRATIVE SHARES
- --------------------------- -------------------- ---------------------
<S> <C> <C>
One Year 27.27% 26.51%
Inception to date 42.85% 41.58%
</TABLE>
$10,000 INVESTED IN THE SENECA GROWTH FUND (3/8/96-9/30/97)*
[SENECA FUND GROWTH CHART]
The Standard & Poor's Composite Stock Price Index ("S&P 500") consists of 500
widely held, publicly traded common stocks. The S&P 500 Index does not reflect
any commissions, fees or other expenses that would be incurred by an investor
purchasing the securities it represents. It assumes reinvestment of all
dividends paid on stocks in the index.
* Hypothetical illustration of $10,000 invested at inception (March 8, 1996),
assuming reinvestment of dividends at net asset value through September 30,
1997.
NOTE: All performance information cited here represents past performance and is
not indicative of future results. If the Investment Manager had not waived
certain fees and reimbursed certain expenses, the total return of the Fund would
have been lower. Read the prospectus carefully before investing.
4
<PAGE> 7
The Seneca
Mid-Cap "EDGE"(SM) Fund
INVESTMENT OBJECTIVE
The Seneca Mid-Cap "EDGE"(SM) (Earnings Driven Growth Equity) Fund invests in
rapidly growing companies the Managers believe have the potential for
accelerating revenues and increasing profits. The Fund seeks to outperform the
S&P 400 Mid-Cap Index by investing at least 65% of its assets in growth
companies with market capitalizations between $500 million and $5 billion.
INVESTMENT DISCUSSION
The Seneca Mid-Cap "EDGE"(SM) Fund has outperformed the mid-cap market since
inception. It gained 38.2% annualized since inception through 9/30/97 leading
the S&P 400 Mid-Cap Index by over 8%*. Over the last twelve months and calendar
year to date, the fund has underperformed the mid-cap index. The source of the
differential in performance has been the marked disadvantage this year of
"growth" styles. Despite an uptrending market, professional investors have been
quite cautious, even skeptical that the long-term expansion in corporate profits
will continue uninterrupted. As a result, high growth companies have seen their
valuations slashed, and minor short falls in earnings have been severely
punished. Cycles such as these, in which "fear" over-whelms fundamentals, are
not uncommon in market history. Investors who have a long-term time horizon and
an appetite for faster growing companies are rewarded by maintaining their
investment program during such periods.
Absolute returns have been excellent for the Fund calendar year to date, up
nearly 19%, through September. Investment in compelling emerging companies,
particularly in technology, health care and oil services have produced these
returns, and should continue to produce upside for investors.
* Institutional shares of the Seneca EDGE(SM) Fund gained 38.6% annualized in
this same period.
5
<PAGE> 8
PERFORMANCE HIGHLIGHTS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INSTITUTIONAL SHARES ADMINISTRATIVE SHARES
- --------------------------- -------------------- ---------------------
<S> <C> <C>
One Year 11.39% 11.25%
Inception to date 38.58% 38.23%
</TABLE>
$10,000 INVESTED IN THE SENECA MID-CAP "EDGE"(SM) FUND (3/8/96-9/30/97)*
[SENECA MID-CAP EDGE FUND GRAPHIC]
The Standard & Poor's Midcap 400 Index is a capitalization-weighted index that
measures the performance of the mid range sector of the U.S. stock market where
the median market capitalization is approximately $700 million. The S&P Midcap
400 Index does not reflect any commissions, fees or other expenses that would be
incurred by an investor purchasing the securities it represents. It assumes
reinvestment of all dividends paid on stocks in the index.
* Hypothetical illustration of $10,000 invested at inception (March 8, 1996),
assuming reinvestment of dividends at net asset value through September 30,
1997.
NOTE: All performance information cited here represents past performance and is
not indicative of future results. If the Investment Manager had not waived
certain fees and reimbursed certain expenses, the aggregate total return of the
Fund would have been lower. Read the prospectus carefully before investing.
6
<PAGE> 9
The Seneca Bond Fund
INVESTMENT OBJECTIVE
The Seneca Bond Fund seeks to outperform the overall bond market as represented
by the Lehman Government/Corporate Index, and to provide a secure stream of
portfolio income. The Fund invests in a broad range of fixed income securities
including corporates, governments, and mortgaged backed securities. It invests
at least 65% of its securities in investment grade bonds.
INVESTMENT DISCUSSION
The Seneca Bond Fund rose 9.8% on an annualized basis from inception at 3/7/96
through 9/30/97 while the Lehman Brothers Government/Corporate Index rose only
7.17% annualized, over that period. The Fund benefited from an active sector
selection approach, which in the last twelve months has emphasized corporate
bonds. The Fund has also benefited from issue selection, and numerous positive
corporate events in individual companies.
For the last twelve months and calendar year to date, the fund has also
outperformed the broad market by a wide margin. We anticipate a continuation of
the positive interest rate environment as well as our ability to add incremental
value.
7
<PAGE> 10
PERFORMANCE HIGHLIGHTS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INSTITUTIONAL SHARES
- --------------------------- --------------------
<S> <C>
One Year 11.26%
Inception to date 9.83%
</TABLE>
$10,000 INVESTED IN THE SENECA BOND FUND (3/7/96-9/30/97)*
[SENECA BOND FUND GRAPH]
The Lehman Brothers Government/Corporate Bond Index is a broad-based unmanaged
index of all government and corporate bonds that are investment grade with at
least one year to maturity. The Lehman Brothers Government/Corporate Bond Index
does not reflect any commissions, fees or other expenses that would be incurred
by an investor purchasing the securities it represents. It assumes reinvestment
of all interest paid on bonds in the index.
* Hypothetical illustration of $10,000 invested at inception (March 7, 1996),
assuming reinvestment of dividends at net asset value through September 30,
1997.
NOTE: All performance information cited here represents past performance and is
not indicative of future results. If the Investment Manager had not waived
certain fees and reimbursed certain expenses, the aggregate total return of the
Fund would have been lower. Read the prospectus carefully before investing.
8
<PAGE> 11
The Seneca
Real Estate Securities Fund
INVESTMENT OBJECTIVE
The Seneca Real Estate Securities Fund seeks to provide current income and the
potential for long term capital appreciation by investing in Real Estate
Investment Trusts (REITs) and other real estate related companies.
INVESTMENT DISCUSSION
The Seneca Real Estate Securities Fund has produced an annualized return of
30.1% since inception through September 30, 1997, and a return of 18.1% calendar
year through September 30, 1997.* The Fund benefited from significant weightings
in hotels, apartment, finance and mortgage related securities. REITs have proven
relatively stable during recent market volatility and quite resilient during
general market downturns.
Fundamental factors such as rising occupancy, increasing rental rates, and
minimal new building continue to drive REIT prices higher. In addition, the
trend towards consolidation among real estate operators has supported prices. We
continue to seek attractive real estate issues with strong balance sheets,
attractive valuations, and increasing cash flows for purchase in the Fund.
* Institutional shares of the Seneca Real Estate Securities Fund produced an
annualized return of 31.2% since inception through September 30, 1997, and a
return of 18.8% calendar year through September 30, 1997.
9
<PAGE> 12
PERFORMANCE HIGHLIGHTS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN INSTITUTIONAL SHARES ADMINISTRATIVE SHARES
- --------------------------- -------------------- ---------------------
<S> <C> <C>
One Year 35.44% 34.54%
Inception to date 31.16% 30.15%
</TABLE>
$10,000 INVESTED IN THE SENECA REAL ESTATE SECURITIES FUND (3/12/96-9/30/97)*
[SENECA FUNDS REAL ESTATE INVESTMENT GRAPHIC]
The Wilshire Real Estate Securities Index is a market capitalization-weighted
index compromised of publicly traded real estate investment trusts (REITs) and
real estate operating companies. No special purpose or health care REITs are
included. The index is rebalanced monthly and reconstituted quarterly. The
Wilshire Real Estate Securities Index does not reflect any commissions, fees or
other expenses that would be incurred by an investor purchasing the securities
it represents. It assumes reinvestment of all dividends paid on stocks in the
index.
* Hypothetical illustration of $10,000 invested at inception (March 12, 1996),
assuming reinvestment of dividends at net asset value through September 30,
1997.
NOTE: All performance information cited here represents past performance and is
not indicative of future results. If the Investment Manager had not waived
certain fees and reimbursed certain expenses, the aggregate total return of the
Fund would have been lower. Read the prospectus carefully before investing.
10
<PAGE> 13
SENECA FUNDS
SENECA GROWTH FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
- ------------------------------------------------- ------ -----------
<S> <C> <C> <C>
COMMON STOCKS -- 98.2%
AEROSPACE -- (1.3%)
United Technologies Corporation.............. 6,590 $ 533,790
----------
AIRLINES -- (1.6%)
UAL Corporation (1).......................... 7,470 632,149
----------
CHEMICALS -- (2.9%)
Air Products & Chemicals, Incorporated....... 13,980 1,159,466
----------
COMPUTERS -- (4.7%)
Compaq Computer Corporation (1).............. 14,490 1,083,127
International Business Machines
Corporation................................ 7,500 794,531
----------
1,877,658
----------
COMPUTER SOFTWARE & SERVICES -- (6.4%)
HBO & Company................................ 21,240 801,810
J.D. Edwards & Company....................... 2,500 83,750
Microsoft Corporation (1).................... 5,550 734,334
Oracle Corporation (1)....................... 25,725 937,355
----------
2,557,249
----------
CONSUMER DURABLE -- MOTOR VEHICLE
PARTS -- (2.4%)
Eaton Corporation............................ 10,250 946,844
----------
CONSUMER NON-DURABLE -- (1.9%)
Colgate-Palmolive Company.................... 10,860 756,806
----------
DRUGS & HEALTH CARE -- (7.8%)
Eli Lilly & Company.......................... 10,360 1,250,323
McKesson Corporation......................... 9,330 951,077
Warner Lambert Company....................... 6,990 943,213
----------
3,144,613
----------
ELECTRICAL EQUIPMENT -- (5.1%)
General Electric Company..................... 18,260 1,242,821
Westinghouse Electric Corporation............ 30,310 820,264
----------
2,063,085
----------
</TABLE>
See notes to financial statements.
11
<PAGE> 14
SENECA FUNDS
SENECA GROWTH FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(CONTINUED)
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
- ------------------------------------------------- ------ -----------
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRONICS -- (6.8%)
ASM Lithography Holding NV (1)............... 3,570 $ 352,537
KLA-Tencor Corporation (1)................... 13,390 904,662
Maxim Integrated Products, Incorporated
(1)........................................ 10,080 720,090
Texas Instruments, Incorporated.............. 5,580 753,998
----------
2,731,287
----------
FINANCIAL SERVICES -- (14.6%)
American Express Company..................... 14,170 1,160,169
BankAmerica Corporation...................... 16,290 1,194,261
Federal National Mortgage Association........ 12,500 587,500
First Union Corporation...................... 17,000 851,063
H.F. Ahmanson & Company...................... 6,940 394,279
Household International, Incorporated........ 10,770 1,219,029
Merrill Lynch & Company...................... 5,710 423,611
----------
5,829,912
----------
FOOD & BEVERAGES -- (4.7%)
Hershey Foods Corporation.................... 19,330 1,092,145
PepsiCo, Incorporated........................ 19,730 800,298
----------
1,892,443
----------
INSURANCE -- (2.9%)
Travelers Group, Incorporated................ 17,280 1,179,360
----------
LEISURE -- (2.5%)
The Walt Disney Company...................... 12,530 1,010,231
----------
MANUFACTURING -- (1.5%)
Illinois Tool Works, Incorporated............ 11,790 588,763
----------
NEWSPAPER -- (1.4%)
New York Times Company Class A............... 10,820 568,050
----------
OIL -- (6.7%)
Mobil Corporation............................ 16,960 1,255,040
Royal Dutch Petroleum Company................ 18,700 1,037,850
Tosco Corporation............................ 11,810 411,136
----------
2,704,026
----------
</TABLE>
See notes to financial statements.
12
<PAGE> 15
SENECA FUNDS
SENECA GROWTH FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(CONCLUDED)
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
- ------------------------------------------------- ------ -----------
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
PAPER -- (2.1%)
Union Camp Corporation....................... 13,290 $ 819,827
----------
PETROLEUM SERVICES -- (6.9%)
Helmerich & Payne, Incorporated.............. 11,510 920,800
Nabors Industries, Incorporated (1).......... 4,050 157,697
Santa Fe International Corporation (1)....... 11,920 554,280
Schlumberger Limited......................... 13,520 1,138,215
----------
2,770,992
----------
RETAIL TRADE -- (7.9%)
Dayton Hudson Corporation.................... 16,950 1,015,941
Dillard Department Stores.................... 23,160 1,014,697
TJX Companies, Incorporated.................. 37,220 1,137,536
----------
3,168,174
----------
TELECOMMUNICATIONS -- (6.1%)
AT&T Corporation............................. 26,800 1,187,575
Bell Atlantic Corporation.................... 7,860 632,239
BellSouth Corporation........................ 13,040 603,100
----------
2,422,914
----------
TOTAL COMMON STOCKS (COST $33,732,177)........... 39,357,639
----------
SHORT TERM INVESTMENT -- 2.0%
REPURCHASE AGREEMENT (Cost $820,482)
State Street Bank and Trust Company, 4.250%,
to be repurchased at $820,579 on 10/01/97
(collateralized by $830,000 par value U.S.
Treasury Note 6.25% due 08/31/02, with a
value of $841,413)......................... 820,482
----------
TOTAL INVESTMENTS -- (COST $34,552,659*)......... 100.2% 40,178,121
OTHER ASSETS LESS LIABILITIES.................... (0.2)% (71,806)
---- ----------
NET ASSETS....................................... 100.0% $40,106,315
==== ==========
</TABLE>
(1) Non-income producing security.
* At September 30, 1997, the aggregate cost of investment in securities and
short term investments for income tax purposes was $34,575,275. Net
unrealized appreciation aggregated $5,602,846 of which $5,633,373 related to
appreciated investment securities and $30,527 related to depreciated
investment securities.
See notes to financial statements.
13
<PAGE> 16
SENECA FUNDS
SENECA MID-CAP "EDGE"(SM) FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
- -------------------------------------------------- ------ -----------
<S> <C> <C> <C>
COMMON STOCKS -- 97.4%
ADVERTISING SERVICES -- (2.9%)
Outdoor Systems, Incorporated (1)............. 13,240 $ 347,550
----------
AIRLINES -- (2.0%)
US Airways Group, Incorporated (1)............ 5,600 231,700
----------
AEROSPACE & DEFENSE -- (4.0%)
Armor Holdings, Incorporated (1).............. 9,190 117,173
Precision Castparts Corporation............... 5,390 350,350
----------
467,523
----------
APPAREL MANUFACTURER -- (8.3%)
Jones Apparel Group, Incorporated (1)......... 4,100 221,400
Kellwood Company.............................. 6,540 231,761
The Men's Wearhouse, Incorporated (1)......... 6,660 248,085
Wolverine World Wide, Incorporated............ 11,000 277,750
----------
978,996
----------
BROADCASTING -- (1.3%)
Jacor Communications, Incorporated (1)........ 3,380 149,354
----------
BUSINESS SERVICES -- (1.3%)
Inacom Corporation (1)........................ 3,970 147,634
----------
COMPUTER SOFTWARE & SERVICES -- (21.1%)
Computer Horizon Corporation (1).............. 6,560 237,800
Compuware Corporation......................... 4,430 268,015
Electronics for Imaging, Incorporated (1)..... 6,030 307,530
HBO & Company................................. 7,600 286,900
HNC Software, Incorporated (1)................ 6,050 240,487
Oracle Corporation (1)........................ 7,410 270,002
PeopleSoft, Incorporated (1).................. 4,780 285,605
Saville Systems Ireland plc ADR (1)........... 4,130 290,132
Wind River Systems (1)........................ 7,250 299,062
----------
2,485,533
----------
CONSUMER NON-DURABLE -- (2.1%)
Fort James Corporation........................ 5,440 249,220
----------
</TABLE>
See notes to financial statements.
14
<PAGE> 17
SENECA FUNDS
SENECA MID-CAP "EDGE"(SM) FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(CONTINUED)
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
- -------------------------------------------------- ------ -----------
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
DRUGS & HEALTHCARE -- (3.2%)
McKesson Corporation.......................... 3,700 $ 377,169
----------
ELECTRICAL EQUIPMENT -- (2.0%)
Westinghouse Electric Corporation............. 8,520 230,573
----------
ELECTRONICS -- (11.6%)
Applied Materials, Incorporated (1)........... 3,550 338,138
ASM Lithography Holding NV (1)................ 1,210 119,487
KLA-Tencor Corporation (1).................... 4,670 315,517
Lattice Semiconductor Corporation (1)......... 1,660 108,108
Micrel, Incorporated (1)...................... 5,680 240,335
Maxim Integrated Products, Incorporated (1)... 3,440 245,745
----------
1,367,330
----------
FINANCIAL SERVICES -- (11.7%)
CMAC Investment Corporation................... 6,190 331,939
Comerica, Incorporated........................ 3,650 288,122
E*Trade Group, Incorporated (1)............... 4,980 234,060
Household International, Incorporated......... 2,430 275,046
Morgan Stanley Dean Witter Discover &
Company..................................... 4,760 257,337
----------
1,386,504
----------
FOOD & BEVERAGES -- (2.5%)
Interstate Bakeries Corporation............... 4,340 297,561
----------
HOUSEHOLD PRODUCTS -- (1.0%)
Windmere Durable Holdings, Incorporated....... 5,020 119,539
----------
INSURANCE -- (3.9%)
SunAmerica, Incorporated...................... 4,155 162,824
Travelers Property Casualty Corporation Class
A........................................... 7,320 296,460
----------
459,284
----------
MEDICAL PRODUCTS -- (0.9%)
Nitinol Medical Technologies, Incorporated
(1)......................................... 7,850 111,862
----------
OFFICE FURNISHINGS -- (1.8%)
Knoll, Incorporated (1)....................... 6,480 217,080
----------
</TABLE>
See notes to financial statements.
15
<PAGE> 18
SENECA FUNDS
SENECA MID-CAP "EDGE"(SM) FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(CONCLUDED)
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
- -------------------------------------------------- ------ -----------
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
OIL & GAS -- (0.9%)
Tosco Corporation............................. 3,200 $ 111,400
----------
OIL EQUIPMENT & SERVICES -- (9.4%)
Camco International, Incorporated............. 3,210 223,897
Diamond Offshore Drilling, Incorporated....... 4,320 238,410
EVI, Incorporated (1)......................... 5,130 328,320
Patterson Energy, Incorporated (1)............ 6,040 316,345
----------
1,106,972
----------
RETAIL TRADE -- (4.5%)
Proffitt's, Incorporated (1).................. 3,880 229,890
TJX Companies, Incorporated................... 10,030 306,542
----------
536,432
----------
TELECOMMUNICATIONS -- (1.0%)
RSL Communications, Ltd. Class A (1).......... 5,360 117,920
----------
TOTAL COMMON STOCKS (COST $10,109,745)............ 11,497,136
----------
SHORT TERM INVESTMENT -- 5.2%
REPURCHASE AGREEMENT (Cost $617,321)
State Street Bank and Trust Company, 4.25%,
to be repurchased at $617,394 on 10/01/97
(collateralized by $625,000 par value U.S.
Treasury Note 6.25% due 08/31/02, with a
value of $633,594).......................... 617,321
----------
TOTAL INVESTMENTS (COST $10,727,066*)............. 102.6% 12,114,457
OTHER ASSETS LESS LIABILITIES..................... (2.6)% (304,758)
---- ----------
NET ASSETS........................................ 100.0% $11,809,699
==== ==========
</TABLE>
(1) Non-income producing security.
* At September 30, 1997, the aggregate cost of investment in securities and
short term investments for income tax purposes was $10,731,140. Net
unrealized appreciation aggregated $1,383,317, of which $1,393,988, related
to appreciated investment securities and $10,671, related to depreciated
investment securities.
See notes to financial statements.
16
<PAGE> 19
SENECA FUNDS
SENECA BOND FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
- ------------------------------ -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS -- 85.7%
AIRLINES -- (5.1%)
Alaska Airlines,
Incorporated (2)........ 9.500% 04/12/2010 $121,979 $ 133,986
Delta Air Lines,
Incorporated............ 10.060% 01/02/2016 65,000 79,834
United Airlines,
Incorporated (2)........ 10.110% 02/19/2006 23,107 26,148
United Airlines,
Incorporated (2)........ 9.760% 05/27/2006 93,012 104,750
United Airlines,
Incorporated (2)........ 9.020% 04/19/2012 94,462 107,083
--------
451,801
--------
APPAREL -- (1.7%)
Ann Taylor,
Incorporated............ 8.750% 06/15/2000 150,000 149,625
--------
ASSET BACKED -- (2.5%)
General Electric Capital
Mortgage Services,
Incorporated, Series
1994-21, Class B1 (2)... 6.500% 08/25/2009 34,225 33,287
General Motors Acceptance
Corporation Series
1994-A, Class A......... 6.300% 06/15/1999 30,547 30,598
Olympic Automobile
Receivable Trust Series
1996-B.................. 6.900% 02/15/2004 120,000 121,939
Standard Credit Card
Master Trust I, Series
1993-2, Class A......... 5.950% 10/07/2004 40,000 39,050
--------
224,874
--------
BROADCASTING -- (6.2%)
Chancellor Broadcasting
Corporation............. 9.375% 10/01/2004 75,000 78,563
Chancellor Broadcasting
Corporation............. 8.750% 06/15/2007 100,000 102,750
</TABLE>
See notes to financial statements.
17
<PAGE> 20
SENECA FUNDS
SENECA BOND FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(CONTINUED)
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
- ------------------------------ -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
BROADCASTING (CONTINUED)
Commodore Media,
Incorporated............ 7.500% 05/01/2003 $150,000 $ 165,375
Jacor, Incorporated....... 10.125% 06/15/2006 100,000 109,500
SFX Broadcasting,
Incorporated............ 10.750% 05/15/2006 85,000 93,606
--------
549,794
--------
COMMUNICATION SERVICES -- (2.3%)
PanAmStat Corporation..... 9.750% 08/01/2000 200,000 209,000
--------
DRUGS & HEALTH CARE -- (2.0%)
Abbey Healthcare Group.... 9.500% 11/01/2002 175,000 182,437
--------
DEFENSE -- (1.1%)
Tracor, Incorporated...... 8.500% 03/01/2007 100,000 103,000
--------
ENERGY -- (7.3%)
El Paso Tenneco........... 9.140% 12/31/2001 300,000 300,000
SFP Pipeline Holdings..... 11.160% 08/15/2010 275,000 353,493
--------
653,493
--------
FINANCE & BANKING -- (17.6%)
BankAmerica............... 8.070% 12/31/2026 400,000 416,079
Countrywide Capital,
Incorporated............ 8.000% 12/15/2026 200,000 205,950
Countrywide Funding....... 5.900% 04/22/1999 30,000 29,948
Dollar Financial Group.... 10.875% 11/15/2006 150,000 162,000
Donaldson Lufkin &
Jenrette................ 6.875% 11/01/2005 50,000 50,101
First Republic Bancorp.... 7.750% 09/15/2012 100,000 99,383
Lehman ABS Corporation
(2)..................... 8.145% 11/02/2007 83,040 82,209
Lehman Brothers
Holdings................ 8.800% 03/01/2015 80,000 92,756
Socgen Real Estate........ 7.640% 12/29/2049 150,000 152,510
Wells Fargo Capital A..... 8.125% 12/01/2026 100,000 103,155
Wells Fargo Capital B..... 7.950% 12/01/2026 125,000 125,451
Williams Scotsman,
Incorporated............ 9.875% 06/01/2007 50,000 51,250
--------
1,570,792
--------
</TABLE>
See notes to financial statements.
18
<PAGE> 21
SENECA FUNDS
SENECA BOND FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(CONTINUED)
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
- ------------------------------ -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
GROCERY STORES -- (1.3%)
Smith's Food & Drug
Centers, Incorporated... 8.640% 07/02/2012 $100,000 $ 108,500
Vons Company,
Incorporated............ 8.375% 10/01/1999 10,000 10,062
--------
118,562
--------
HOTELS -- (11.5%)
Bally Park Place
Funding................. 9.250% 03/15/2004 100,000 107,000
Caesars World............. 8.875% 08/15/2002 350,000 363,125
Casino America............ 11.500% 11/15/2001 75,000 78,341
HMH Properties............ 8.875% 07/15/2007 150,000 154,686
John Q. Hammons Hotels.... 8.875% 02/15/2004 130,000 131,950
John Q. Hammons Hotels.... 9.750% 10/01/2005 100,000 104,875
Wyndham Hotel
Corporation............. 10.500% 05/15/2006 75,000 85,500
--------
1,025,477
--------
INDUSTRIAL -- (0.3%)
MVE, Incorporated......... 12.500% 02/15/2002 30,000 31,500
--------
INSURANCE -- (2.8%)
Terra Nova Holdings....... 7.200% 08/15/2007 250,000 252,427
--------
MANAGEMENT SERVICES -- (1.8%)
Blount, Incorporated...... 9.000% 06/15/2003 150,000 157,500
--------
MANUFACTURING -- (0.2%)
Hawk Corporation.......... 10.250% 12/01/2003 15,000 16,012
--------
MULTIMEDIA -- (3.6%)
Cablevision Industries
Corporation............. 9.250% 04/01/2008 90,000 97,396
News Corporation
Limited................. 0.000% 06/15/1999 200,000 180,000
Time Warner,
Incorporated............ 9.125% 01/15/2013 35,000 40,166
--------
317,562
--------
NEWSPAPER -- (0.9%)
Garden State Newspapers... 8.750% 10/01/2009 75,000 75,938
--------
OFFICE SUPPLIES -- (0.9%)
Corporate Express,
Incorporated............ 9.125% 03/15/2004 75,000 76,875
--------
</TABLE>
See notes to financial statements.
19
<PAGE> 22
SENECA FUNDS
SENECA BOND FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(CONTINUED)
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
- ------------------------------ -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
OIL -- (5.7%)
Falcon Holding Group
L.P..................... 11.000% 09/15/2003 $200,000 $ 208,500
Noble Drilling
Corporation............. 9.125% 07/01/2006 90,000 97,650
Trico Marine Services..... 8.500% 08/01/2005 200,000 203,250
--------
509,400
--------
REAL ESTATE -- (7.1%)
ERP Operating Limited
Partnership............. 7.570% 08/15/2026 150,000 157,375
Property Trust America.... 6.875% 02/15/2008 5,000 4,939
Security Capital Pacific
Trust................... 7.900% 02/15/2016 200,000 201,239
Washington REIT........... 7.125% 08/13/2003 110,000 112,127
Weingarten Realty......... 6.880% 06/25/2027 150,000 154,928
--------
630,608
--------
THEATERS -- (3.8%)
AMC Entertainment
Incorporated............ 9.500% 03/15/2009 100,000 102,250
Plitt Theaters,
Incorporated............ 10.875% 06/15/2004 75,000 79,688
United Artists Theatre
Circuit, Incorporated
Sr. Secured Notes,
Series B................ 11.500% 05/01/2002 150,000 158,250
--------
340,188
--------
TOTAL CORPORATE BONDS (COST $7,430,664)............. 7,646,865
--------
U.S. GOVERNMENT AGENCIES -- 7.5%
COLLATERALIZED MORTGAGE OBLIGATIONS -- (6.2%)
Federal Home Loan Mortgage
Corporation, REMIC,
Series 151, Class E
(2)..................... 9.000% 09/15/2020 24,124 24,470
Federal Home Loan Mortgage
Corporation, REMIC,
Series 1032, Class E
(2)..................... 8.750% 12/15/2020 31,973 33,093
Federal Home Loan Mortgage
Corporation, REMIC,
Series 1142, Class H.... 7.950% 12/15/2020 300,000 308,092
</TABLE>
See notes to financial statements.
20
<PAGE> 23
SENECA FUNDS
SENECA BOND FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(CONTINUED)
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
- ------------------------------ -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCIES -- (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage
Association, REMIC, Series
1989-80, Class E (2)...... 9.000% 09/25/2018 $ 71,067 $ 72,996
Federal National Mortgage
Association, REMIC, Series
1990-4, Class G (2)....... 8.750% 05/25/2017 76,415 78,759
Federal National Mortgage
Association, REMIC, Series
1993-179,
Class S, I.O.............. 3.031% 10/25/2023 655,169 32,349
--------
549,759
--------
MORTGAGE-BACKED PASS-THROUGH SECURITY -- (0.3%)
Government National Mortgage
Association, Pool #408215
(2)....................... 7.000% 02/15/2026 23,501 23,523
--------
U.S. TREASURY STRIPS -- (1.0%)
U.S. Treasury Strips........ 0.000% 08/15/2020 400,000 90,384
--------
TOTAL U.S. GOVERNMENT AGENCIES (COST $661,679)............... 663,666
--------
FOREIGN BONDS -- 0.3% (COST $22,147)
Republic of Brazil........ 6.500% 01/01/2001 23,550 23,397
--------
<CAPTION>
SHARES
---------
<S> <C> <C> <C> <C> <C>
PREFERRED STOCK -- 3.9% (COST $331,250)
Microsoft Corporation,
Pfd Series A.................................. 4,000 350,750
--------
WARRANTS -- 0.0% (COST $0)
MVE, Incorporated............................... 30 0
--------
TOTAL INVESTMENTS IN SECURITIES (COST $8,445,740).............. 8,684,678
--------
</TABLE>
See notes to financial statements.
21
<PAGE> 24
SENECA FUNDS
SENECA BOND FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(CONCLUDED)
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
- ------------------------------ -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
SHORT TERM INVESTMENTS -- 1.1%
U.S. GOVERNMENT AGENCIES (Cost $100,000)
Federal Home Loan Bank,
Discount Note........... 5.920% 10/01/1997 $100,000 $ 100,000
----------
TOTAL INVESTMENTS -- (COST $8,545,740*)............. 98.5% 8,784,678
OTHER ASSETS LESS LIABILITIES....................... 1.5% 137,483
----- ----------
NET ASSETS.......................................... 100.0% $8,922,161
===== =========
</TABLE>
(2) Subject to principal paydowns as a result of prepayments or refinancings of
the underlying mortgage instruments. As a result, the average life may be
substantially less than the original maturity.
* At September 30, 1997, the aggregate cost of investment in securities and
short term investments for income tax purposes was $8,555,857. Net
unrealized appreciation aggregated $228,821, of which $245,550 related to
appreciated investment securities and $16,729 related to depreciated
investment securities.
See notes to financial statements.
22
<PAGE> 25
SENECA FUNDS
SENECA REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
- ------------------------------------------------ ------ -----------
<S> <C> <C> <C>
COMMON STOCKS -- 93.0%
BUILDING -- MANUFACTURED HOUSING -- (1.2%)
Oakwood Homes Corporation................... 13,000 $ 368,875
-----------
HOTELS AND RESTAURANTS -- (4.3%)
Circus Circus Entertainment (1)............. 27,400 690,138
Host Marriott Corporation (1)............... 29,000 659,750
-----------
1,349,888
-----------
REAL ESTATE DEVELOPMENT -- (3.1%)
Catellus Development Corporation (1)........ 46,400 962,800
-----------
REAL ESTATE INVESTMENT TRUSTS -- (84.4%)
Ambassador Apartments, Incorporated......... 6,100 145,256
American General Hospitality Corporation.... 23,000 669,875
Apartment Investment and Management Company
Class A................................... 17,470 631,104
Arden Realty Group, Incorporated............ 10,000 313,750
Avalon Properties, Incorporated............. 16,500 490,875
Bedford Property Investors, Incorporated.... 37,100 816,200
Berkshire Realty Company, Incorporated...... 28,500 349,125
Boston Properties, Incorporated (1)......... 28,000 918,750
Burnham Pacific Properties.................. 12,000 177,750
Cali Realty Corporation..................... 25,300 1,053,113
Centerpoint Properties...................... 13,700 497,481
Cornerstone Properties, Incorporated........ 26,100 499,162
Developers Diversified Realty Corporation... 12,200 488,000
Equity Office Properties Trust.............. 15,000 509,062
Equity Residential Properties Trust......... 31,200 1,702,350
Essex Property Trust, Incorporated.......... 4,000 139,250
Evans Withycombe Residential,
Incorporated.............................. 20,000 540,000
Felcor Suite Hotels, Incorporated........... 20,275 832,542
First Industrial Realty Trust,
Incorporated.............................. 27,500 935,000
General Growth Properties................... 12,400 458,800
Glenborough Realty Trust, Incorporated...... 2,500 69,219
Irvine Apartment Communities,
Incorporated.............................. 13,436 448,426
Liberty Property Trust...................... 30,550 822,941
Manufactured Home Communities............... 27,700 720,200
</TABLE>
See notes to financial statements.
23
<PAGE> 26
SENECA FUNDS
SENECA REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(CONTINUED)
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
- ------------------------------------------------ ------ -----------
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
Merry Land & Investment Trust Company,
Incorporated.............................. 2,300 $ 50,744
Pacific Gulf Properties, Incorporated....... 37,050 879,937
Patriot American Hospitality,
Incorporated.............................. 38,859 1,238,631
Prentiss Properties Trust................... 33,400 964,425
Redwood Trust, Incorporated................. 32,300 981,112
SL Green Realty Trust (1)................... 15,000 388,125
Security Capital Atlantic, Incorporated..... 33,525 750,122
Security Capital Pacific Trust.............. 26,971 633,818
Simon Debartolo Group, Incorporated......... 24,615 812,295
Sovran Self Storage, Incorporated........... 9,000 283,500
Speiker Properties, Incorporated............ 27,000 1,095,188
Sunstone Hotel Investors, Incorporated...... 46,900 826,613
The Macerich Company........................ 27,500 794,062
Thornburg Mortgage Asset Association........ 29,700 623,700
TriNet Corporate Realty Trust,
Incorporated.............................. 25,500 895,688
Urban Shopping Centers, Incorporated........ 32,500 1,040,000
----------
26,486,191
----------
TOTAL COMMON STOCKS (Cost $25,279,736).......... 29,167,754
----------
WARRANTS -- 0.1% (Cost $30,639)
Security Capital Group, Expire 9/98......... 3,804 29,244
----------
TOTAL INVESTMENTS IN SECURITIES (COST
$25,310,375).................................. 29,196,998
----------
SHORT TERM INVESTMENT -- 5.6%
REPURCHASE AGREEMENT (Cost $1,760,547)
State Street Bank and Trust Company, 4.25%,
to be repurchased at $1,760,755 on
10/01/97 (collateralized by $1,775,000 par
value U.S. Treasury Note 6.25% due
08/31/02, with a value of $1,799,406)..... 1,760,547
----------
</TABLE>
See notes to financial statements.
24
<PAGE> 27
SENECA FUNDS
SENECA REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(CONCLUDED)
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE VALUE
- ------------------------------------------------ -----------
<S> <C> <C> <C>
TOTAL INVESTMENTS -- (COST $27,070,922*)........ 98.7% $30,957,545
OTHER ASSETS LESS LIABILITIES................... 1.3% 410,902
--- -----------
NET ASSETS...................................... 100.0% $31,368,447
=== ===========
</TABLE>
(1) Non-income producing security.
* At September 30, 1997, the aggregate cost of investment in securities and
short term investments for income tax purposes was $27,095,742. Net
unrealized appreciation aggregated $3,861,803, of which $4,495,936 related
to appreciated investment securities and $634,133 related to depreciated
investment securities.
See notes to financial statements.
25
<PAGE> 28
SENECA FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
MID-CAP REAL ESTATE
GROWTH "EDGE"(SM) BOND SECURITIES
FUND FUND FUND FUND
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value (Note
2)..................................... $39,357,639 $11,497,136 $8,684,678 $29,196,998
Short Term Investments................... 820,482 617,321 100,000 1,760,547
Cash..................................... -- 37,578 2,367 --
Dividends and interest receivable........ 46,943 4,302 149,805 162,628
Receivable for securities sold........... 613,516 1,101,816 -- 471,960
Receivable for Fund shares sold.......... 8,094 -- 70,500 178,000
Deferred organization costs (Note 5)..... 33,859 33,994 33,859 33,859
Other assets............................. 445 224 113 43,026
Due from Investment Manager (Note 3)..... 10,285 -- -- 67
----------- ----------- ---------- -----------
TOTAL ASSETS........................... 40,891,263 13,292,371 9,041,322 31,847,085
----------- ----------- ---------- -----------
LIABILITIES
Due to Investment Manager (Note 3)....... -- 12,023 12,157 --
Payable for securities purchased......... 710,160 1,426,486 74,561 314,755
Payable for Fund shares redeemed......... 1,071 -- -- 91,632
Trustees fees payable (Note 3)........... 3,753 3,753 3,753 3,753
Distribution fees payable (Note 3)....... 3,643 1,405 -- 1,807
Dividends payable........................ -- -- 1,110 2,097
Other accrued expenses................... 66,321 39,005 27,580 64,594
----------- ----------- ---------- -----------
TOTAL LIABILITIES...................... 784,948 1,482,672 119,161 478,638
----------- ----------- ---------- -----------
NET ASSETS............................. $40,106,315 $11,809,699 $8,922,161 $31,368,447
=========== =========== ========== ===========
NET ASSETS
Capital paid-in.......................... $32,095,920 $ 9,193,888 $8,569,263 $26,235,633
Undistributed net investment income...... 28,234 -- 4,453 23,407
Accumulated net realized gain on
investments............................ 2,356,699 1,228,420 109,507 1,222,784
Net unrealized appreciation of
investments............................ 5,625,462 1,387,391 238,938 3,886,623
----------- ----------- ---------- -----------
NET ASSETS............................. $40,106,315 $11,809,699 $8,922,161 $31,368,447
=========== =========== ========== ===========
INVESTMENTS IN SECURITIES, AT COST....... $34,552,659 $10,727,066 $8,545,740 $27,070,922
INSTITUTIONAL SHARES:
Net assets............................. $34,092,888 $ 9,390,224 $8,922,161 $28,192,515
Total shares outstanding............... 2,074,597 570,101 852,565 1,915,934
Net asset value, offering and redemption
price per Institutional share.......... $ 16.43 $ 16.47 $ 10.47 $ 14.71
=========== =========== ========== ===========
ADMINISTRATIVE SHARES:
Net assets............................. $ 6,013,427 $ 2,419,475 $ -- $ 3,175,932
Total shares outstanding............... 369,418 146,739 -- 216,409
Net asset value, offering and redemption
price per Administrative share......... $ 16.28 $ 16.49 $ -- $ 14.68
=========== =========== ========== ===========
</TABLE>
See notes to financial statements.
26
<PAGE> 29
SENECA FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
MID-CAP REAL ESTATE
GROWTH "EDGE"(SM) BOND SECURITIES
FUND FUND FUND FUND
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (a)................. $ 405,505 $ 35,305 $ 4,307 $ 742,196
Interest...................... 119,808 50,505 530,318 99,995
---------- ---------- --------- ----------
TOTAL INCOME................ 525,313 85,810 534,625 842,191
---------- ---------- --------- ----------
EXPENSES
Management fee (Note 3)....... 200,056 89,157 34,294 164,147
Administrative fee (Note 3)... 57,514 56,326 55,433 57,899
Transfer agent fees........... 53,404 52,094 21,342 43,373
Custodian fees................ 47,040 40,605 33,210 42,888
Distribution fees (Note 3).... 8,465 5,652 154 4,688
Registration and filing
fees........................ 24,233 17,969 14,397 24,384
Audit fees.................... 12,874 12,839 11,374 11,374
Legal fees.................... 18,389 18,366 18,384 18,384
Trustees fees................. 8,131 8,131 8,131 8,131
Amortization of organization
expenses (Note 5)........... 30,545 30,545 30,545 30,545
Other......................... 12,104 12,230 4,374 12,556
---------- ---------- --------- ----------
Expenses before waiver and
reimbursement............... 472,755 343,914 231,638 418,369
Fees waived and expenses
reimbursed by Investment
Manager (Note 3)............ (5,174) (135,798) (126,387) (16,628)
---------- ---------- --------- ----------
TOTAL EXPENSES.............. 467,581 208,116 105,251 401,741
---------- ---------- --------- ----------
NET INVESTMENT INCOME
(LOSS).................... 57,732 (122,306) 429,374 440,450
---------- ---------- --------- ----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on
investments................. 2,408,148 1,355,512 111,291 1,229,877
Change in net unrealized
appreciation of
investments................. 5,006,042 369,616 189,346 3,822,456
---------- ---------- --------- ----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS....... 7,414,190 1,725,128 300,637 5,052,333
---------- ---------- --------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..... $7,471,922 $1,602,822 $ 730,011 $5,492,783
========== ========== ========= ==========
(a) Net of foreign withholding
taxes of: .................. $ 1,524 $ -- $ -- $ --
========== ========== ========= ==========
</TABLE>
See notes to financial statements.
27
<PAGE> 30
SENECA FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MID-CAP
GROWTH FUND "EDGE"(SM) FUND
----------------------------- -----------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996* 1997 1996*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
From operations:
Net investment income
(loss).................... $ 57,732 $ 32,326 $ (122,306) $ 4,615
Net realized gain on
investments............... 2,408,148 965,464 1,355,512 77,414
Change in net unrealized
appreciation of
investments............... 5,006,042 619,419 369,616 1,017,775
----------- ----------- ----------- ----------
Net increase in net assets
resulting from
operations................ 7,471,922 1,617,209 1,602,822 1,099,804
Dividends and Distributions
to shareholder from Net
investment income:
Administrative Shares..... (3) -- (7) --
Institutional Shares...... (99,739) -- (22,426) --
Net realized gains:
Administrative Shares..... (19,063) -- (12,053) --
Institutional Shares...... (997,531) -- (89,792) --
----------- ----------- ----------- ----------
Total Dividends and
Distributions............... (1,116,336) -- (124,278) --
Net increase from Fund share
transactions (Note 6)....... 20,364,803 11,743,717 1,548,006 7,658,345
----------- ----------- ----------- ----------
TOTAL INCREASE............ 26,720,389 13,360,926 3,026,550 8,758,149
Net Assets
Beginning of period......... 13,385,926 25,000 8,783,149 25,000
----------- ----------- ----------- ----------
End of period (a)........... $40,106,315 $13,385,926 $11,809,699 $ 8,783,149
=========== =========== =========== ==========
(a) Including undistributed
net investment income..... $ 28,234 $ 50,611 $ -- $ 22,765
</TABLE>
* The Growth, Mid-Cap "EDGE"(SM), Bond, and Real Estate Securities Funds
commenced investment operations on March 8, 1996, March 8, 1996, March 7,
1996, and March 12, 1996, respectively.
See notes to financial statements.
28
<PAGE> 31
SENECA FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
REAL ESTATE
BOND FUND SECURITIES FUND
---------------------------- ----------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996* 1997 1996*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
From operations:
Net investment income.... $ 429,374 $ 93,149 $ 440,450 $ 8,501
Net realized gain (loss)
on investments......... 111,291 13,694 1,229,877 (2,568)
Change in net unrealized
appreciation of
investments............ 189,346 49,605 3,822,456 64,166
---------- ---------- ----------- ----------
Net increase in net
assets resulting from
operations............. 730,011 156,448 5,492,783 70,099
Dividends and Distributions
to shareholder from Net
investment income:
Administrative
Shares............... (2,145) (1,994) (29,699) (1,227)
Institutional Shares... (462,401) (90,013) (425,038) (7,178)
Net realized gains:
Administrative
Shares............... (672) -- (194) --
Institutional Shares... (13,922) -- (4,331) --
---------- ---------- ----------- ----------
Total Dividends and
Distributions............ (479,140) (92,007) (459,262) (8,405)
Net increase from Fund
share transactions (Note
6)....................... 4,548,696 4,033,153 25,039,363 1,208,869
---------- ---------- ----------- ----------
TOTAL INCREASE......... 4,799,567 4,097,594 30,072,884 1,270,563
Net Assets
Beginning of period...... 4,122,594 25,000 1,295,563 25,000
---------- ---------- ----------- ----------
End of period (a)........ $ 8,922,161 $ 4,122,594 $31,368,447 $ 1,295,563
========== ========== =========== ==========
(a) Including undistributed
net investment
income................. $ 4,453 $ 19,427 $ 23,407 $ 18,381
</TABLE>
* The Growth, Mid-Cap "EDGE"(SM), Bond, and Real Estate Securities Funds
commenced investment operations on March 8, 1996, March 8, 1996, March 7,
1996, and March 12, 1996, respectively.
See notes to financial statements.
29
<PAGE> 32
SENECA FUNDS -- INSTITUTIONAL SHARES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MID-CAP
GROWTH FUND "EDGE"(SM) FUND
---------------------------- ----------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996* 1997 1996*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD.......................... $ 13.74 $ 10.00 $ 14.97 $ 10.00
---------- ----------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income (Loss)
(1)........................... 0.03 0.03 (0.17) 0.01
Net Realized and Unrealized Gain
on Investments................ 3.50 3.71 1.84 4.96
---------- ----------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS.................... 3.53 3.74 1.67 4.97
---------- ----------- ---------- ----------
Distributions to Shareholders
from
Net Investment Income........... (0.07) -- (0.07) --
Net Realized Gains.............. (0.77) -- (0.10) --
---------- ----------- ---------- ----------
Total Distribution.............. (0.84) -- (0.17) --
---------- ----------- ---------- ----------
NET ASSET VALUE AT END OF
PERIOD.......................... $ 16.43 $ 13.74 $ 16.47 $ 14.97
========== =========== ========== ==========
TOTAL RETURN (2)................. 27.27% 37.40% 11.39% 49.70%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period..... $34,092,888 $12,919,525 $ 9,390,224 $ 7,427,656
Ratio of Operating Expenses to
Average Net Assets............ 1.52% 0.81%(3) 1.74% 0.90%(3)
Ratio of Operating Expenses to
Average Net Assets (4)........ 1.52% 3.49%(3) 2.77% 5.73%(3)
Ratio of Net Investment Income
(Loss) to Average Net
Assets........................ 0.31% 0.76%(3) (0.97)% 0.27%(3)
Portfolio Turnover Rate......... 145.69% 87.66% 283.60% 72.34%
Average Commission Rate (5)..... $ 0.0595 $ 0.0598 $ 0.0580 $ 0.0595
</TABLE>
* The Growth, Mid-Cap "EDGE"(SM), Bond, and Real Estate Securities Funds
commenced investment operations on March 8, 1996, March 8, 1996, March 7,
1996, and March 12, 1996, respectively.
(1) Net investment income/loss is after waiver of certain fees and reimbursement
of certain expenses by the Investment Manager (see Note 3 to the financial
statements). If the Investment Manager had not waived fees and reimbursed
expenses, net investment income (loss) per share would have been as follows
for the year ended September 30, 1997 and the period ended September 30,
1996, respectively: $0.03 and $(0.09) for the Growth Fund; $(0.33) and
$(0.19) for the Mid-Cap "Edge"(SM) Fund.
(2) Total return represents total return for the period indicated. The total
return would have been lower if certain fees and expenses had not been
waived or reimbursed by the Investment Manager.
(3) Annualized.
(4) If the Investment Manager had not waived fees and reimbursed expenses, the
ratio of operating expenses to average net assets would have been as
indicated.
(5) The average commission paid is applicable for the Funds that invest greater
than 10% of average net assets in equity securities transactions on which
commissions are charged.
See notes to financial statements.
30
<PAGE> 33
SENECA FUNDS -- INSTITUTIONAL SHARES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
REAL ESTATE
BOND FUND SECURITIES FUND
------------------------------ ------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996* 1997 1996*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD... $ 10.09 $ 10.00 $ 11.10 $ 10.00
--------- --------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (1)............... 0.62 0.31 0.13 0.13
Net Realized and Unrealized Gain on
Investments........................... 0.47 0.08 3.77 1.10
--------- --------- ---------- ---------
TOTAL FROM INVESTMENT OPERATIONS........ 1.09 0.39 3.90 1.23
--------- --------- ---------- ---------
Distributions to Shareholders from
Net Investment Income................... (0.69) (0.30) (0.28) (0.13)
Net Realized Gains...................... (0.02) -- (0.01) --
--------- --------- ---------- ---------
Total Distribution...................... (0.71) (0.30) (0.29) (0.13)
--------- --------- ---------- ---------
NET ASSET VALUE AT END OF PERIOD......... $ 10.47 $ 10.09 $ 14.71 $ 11.10
========= ========= ========== =========
TOTAL RETURN (2)......................... 11.26% 4.02% 35.44% 12.39%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period............. $ 8,922,161 $ 3,926,664 $28,192,515 $ 1,073,080
Ratio of Operating Expenses to Average
Net Assets............................ 1.53% 0.56%(3) 1.99% 1.00%(3)
Ratio of Operating Expenses to Average
Net Assets (4)........................ 3.41% 9.31%(3) 1.99% 53.04%(3)
Ratio of Net Investment Income to
Average Net Assets.................... 6.31% 7.54%(3) 2.38% 4.39%(3)
Portfolio Turnover Rate................. 99.68% 52.82% 75.68% 30.70%
Average Commission Rate (5)............. N/A N/A $ 0.0559 $ 0.0564
</TABLE>
* The Growth, Mid-Cap "EDGE"(SM), Bond, and Real Estate Securities Funds
commenced investment operations on March 8, 1996, March 8, 1996, March 7,
1996, and March 12, 1996, respectively.
(1) Net investment income is after waiver of certain fees and reimbursement of
certain expenses by the Investment Manager (see Note 3 to the financial
statements). If the Investment Manager had not waived fees and reimbursed
expenses, net investment income (loss) per share would have been as follows
for the year ended September 30, 1997 and the period ended September 30,
1996, respectively: $0.47 and $(0.05) for the Bond Fund; $0.13 and $(1.45)
for the Real Estate Securities Fund.
(2) Total return represents total return for the period indicated. The total
return would have been lower if certain fees and expenses had not been
waived or reimbursed by the Investment Manager.
(3) Annualized.
(4) If the Investment Manager had not waived fees and reimbursed expenses, the
ratio of operating expenses to average net assets would have been as
indicated.
(5) The average commission paid is applicable for the Funds that invest greater
than 10% of average net assets in equity securities transactions on which
commissions are charged.
See notes to financial statements.
31
<PAGE> 34
SENECA FUNDS -- ADMINISTRATIVE SHARES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MID-CAP
GROWTH FUND "EDGE"(SM) FUND
---------------------------- ----------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996* 1997 1996*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD........................... $ 13.63 $ 10.00 $ 14.94 $ 10.00
---------- -------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment (Loss) (1)........ (0.08) -- (0.25) (0.01)
Net Realized and Unrealized Gain
on Investments................. 3.50 3.63 1.90 4.95
---------- -------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS..................... 3.42 3.63 1.65 4.94
---------- -------- ---------- ----------
Distributions to Shareholders from
Net Investment Income............ -- -- -- --
Net Realized Gains............... (0.77) -- (0.10) --
---------- -------- ---------- ----------
Total Distribution............... (0.77) -- (0.10) --
---------- -------- ---------- ----------
NET ASSET VALUE AT END OF
PERIOD........................... $ 16.28 $ 13.63 $ 16.49 $ 14.94
========== ======== ========== ==========
TOTAL RETURN (2).................. 26.51% 36.30% 11.25% 49.30%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period...... $ 6,013,427 $ 466,401 $ 2,419,475 $ 1,355,493
Ratio of Operating Expenses to
Average Net Assets............. 2.48% 1.46%(3) 2.37% 1.55%(3)
Ratio of Operating Expenses to
Average Net Assets (4)......... 2.63% 14.01%(3) 4.32% 9.73%(3)
Ratio of Net Investment Income
(Loss) to Average Net Assets... (0.62)% 0.16%(3) (1.60)% (0.46)%(3)
Portfolio Turnover Rate.......... 145.69% 87.66% 283.60% 72.34%
Average Commission Rate (5)...... $ 0.0595 $ 0.0598 $ 0.0580 $ 0.0595
</TABLE>
* The Growth, Mid-Cap "EDGE"(SM), Bond, and Real Estate Securities Funds
commenced investment operations on March 8, 1996, March 8, 1996, March 7,
1996, and March 12, 1996, respectively.
(1) Net investment loss is after waiver of certain fees and reimbursement of
certain expenses by the Investment Manager (see Note 3 to the financial
statements). If the Investment Manager had not waived fees and reimbursed
expenses, net investment income/loss per share would have been as follows
for the year ended September, 1997 and the period ended September 30, 1996,
respectively: $(0.09) and $(0.34) for the Growth Fund; $(0.55) and $(0.20)
for Mid-Cap "EDGE"(SM) Fund.
(2) Total return represents total return for the period indicated. The total
return would have been lower if certain fees and expenses had not been
waived or reimbursed by the Investment Manager.
(3) Annualized.
(4) If the Investment Manager had not waived fees and reimbursed expenses, the
ratio of operating expenses to average net assets would have been as
indicated.
(5) The average commission paid is applicable for the Funds that invest greater
than 10% of average net assets in equity securities transactions on which
commissions are charged.
See notes to financial statements.
32
<PAGE> 35
SENECA FUNDS -- ADMINISTRATIVE SHARES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
REAL ESTATE
BOND FUND SECURITIES FUND
------------- -----------------------------
PERIOD YEAR PERIOD
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996* 1997 1996*
------------- ------------- -------------
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD....... $ 10.00 $ 11.08 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (1)................... 0.29 0.03 0.13
Net Realized and Unrealized Gain on
Investments............................... 0.09 3.78 1.08
-------- ---------- --------
TOTAL FROM INVESTMENT OPERATIONS............ 0.38 3.81 1.21
-------- ---------- --------
Distributions to Shareholders from
Net investment income....................... (0.29) (0.20) (0.13)
Net realized gains.......................... -- (0.01) --
-------- ---------- --------
Total distribution.......................... (0.29) (0.21) (0.13)
-------- ---------- --------
NET ASSET VALUE AT END OF PERIOD............. $ 10.09 $ 14.68 $ 11.08
======== ========== ========
TOTAL RETURN (2)............................. 3.86% 34.54% 12.22%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period................. $ 195,930 $ 3,175,932 $ 222,483
Ratio of Operating Expenses to Average Net
Assets (3)................................ 1.21%(3) 2.91% 1.65%(3)
Ratio of Operating Expenses to Average Net
Assets (3)(4)............................. 39.23% 3.79% 73.01%
Ratio of Net Investment Income to Average
Net Assets (3)............................ 6.46% 1.37% 4.61%
Portfolio Turnover Rate..................... 52.82% 75.68% 30.70%
Average Commission Rate (5)................. N/A $ 0.0559 $ 0.0564
</TABLE>
* The Growth, Mid-Cap "EDGE"(SM), Bond, and Real Estate Securities Funds
commenced investment operations on March 8, 1996, March 8, 1996, March 7,
1996, and March 12, 1996, respectively.
** As of December 26, 1996, the Bond Administrative Shares merged with Bond
Institutional Shares.
(1) Net investment income is after waiver of certain fees and reimbursement of
certain expenses by the Investment Manager (see Note 3 to the financial
statements). If the Investment Manager had not waived fees and reimbursed
expenses, net investment income/loss per share would have been as follows
for the year ended September 30, 1997 and the period ended September 30,
1996, respectively: $(0.04) and $(1.96) for the Real Estate Securities Fund
and $(1.41) for the Bond Fund for the period ended September 30, 1996.
(2) Total return represents total return for the period indicated. The total
return would have been lower if certain fees and expenses had not been
waived or reimbursed by the Investment Manager.
(3) Annualized.
(4) If the Investment Manager had not waived fees and reimbursed expenses, the
ratio of operating expenses to average net assets would have been as
indicated.
(5) The average commission paid is applicable for the Funds that invest greater
than 10% of average net assets in equity securities transactions on which
commissions are charged.
See notes to financial statements.
33
<PAGE> 36
SENECA FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 -- ORGANIZATION
Seneca Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The Trust was
organized as a Delaware business trust on December 18, 1995 and was declared
effective as of March 1, 1996. The Trust consists of four series: Seneca Growth
Fund, Seneca Mid-Cap "EDGE"(SM) Fund, Seneca Bond Fund and Seneca Real Estate
Securities Fund (individually, the "Fund," and collectively, the "Funds.") The
Board of Trustees has authorized each Fund to issue two classes of common
shares: Administrative Shares and Institutional Shares. As of December 26, 1996,
the Bond Administrative Shares merged with the Bond Institutional Shares in a
tax free transaction.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS: Equity securities traded on a national securities
exchange are valued at their last sales price on the exchange on which they are
traded most extensively; or if no sales are reported, at the mean between the
most recent high bid and the most recent low asked quotations (the "Calculated
Mean") on such exchange. Securities traded on the National Association of
Securities Dealers Automated Quotation ("Nasdaq") system will be valued at the
most recent sales price reported on such system on the valuation date or, if
there are no sales reported, the Calculated Mean based on quotations reported on
Nasdaq. Securities not quoted on Nasdaq but traded in an over-the-counter market
will be valued at the most recent sale price if the sales price for any sales of
the security on the valuation date are reported on such market or, if there are
no such sales, the Calculated Mean based on quotations reported on such market.
In each case, if there is no Calculated Mean, the value shall be the most recent
bid quotation on the relevant market. Fixed income securities, other than those
having a maturity of 60 days or less, are valued on the basis of quotes obtained
from brokers or pricing services. Short-term investments having a maturity of 60
days or less will be valued at amortized cost. If, in the Investment Manager's
opinion, the fair market value of an investment cannot be determined pursuant to
the foregoing procedures,
34
<PAGE> 37
SENECA FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(CONTINUED)
the value will be an amount that, in the opinion of the Trustees, represents the
fair market value determined based on all available information.
REPURCHASE AGREEMENTS: Each Fund may enter into repurchase agreements. In a
repurchase agreement, a Fund buys a security and the seller simultaneously
agrees to repurchase the security on a specified future date at an agreed upon
price. Because the security constitutes collateral for the repurchase
obligation, a repurchase agreement can be considered a collateralized loan.
Securities pledged as collateral for the repurchase agreement are held by the
Fund's Custodian until maturity date of the repurchase agreement. The Fund's
risk is the ability of the seller to pay the agreed-upon price on delivery date.
The Trustees have established criteria to evaluate the creditworthiness of
parties with whom the Funds may enter into repurchase agreements. The Funds
limit the repurchase agreements to securities issued by the United States
Government, its agencies, and its instrumentalities. The market value of the
underlying security throughout the term of the agreement will always equal or
exceed the agreed-upon repurchase price.
SECURITY TRANSACTIONS, INVESTMENT INCOME and EXPENSES: Investment security
transactions are recorded as of trade date. Realized gains and losses on
investment security sales are determined on the basis of identified cost.
Dividend income is recorded on the ex-dividend date. Interest income and
expenses are recorded daily on an accrual basis. Fund expenses not directly
attributable to a specific fund are allocated evenly among all funds. Fund
expenses that are not related to the distribution of shares of a particular
class or to services provided specifically to a particular class are allocated
between the classes on the basis of relative average daily net assets of each
class. Expenses that relate to the distribution or services provided to a
particular class are allocated to that class. Investment income and realized and
unrealized gains/losses are allocated between the classes on the basis of net
assets of each class.
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income on shares of
the Seneca Bond Fund are determined at the
35
<PAGE> 38
SENECA FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(CONTINUED)
class level and are declared and paid monthly. Dividends from net investment
income on shares of the Seneca Real Estate Securities Fund are determined at the
class level and are declared and paid quarterly. Dividends from net investment
income on shares of the Seneca Growth Fund and Seneca Mid-Cap "EDGE"(SM) Fund
are determined at the class level and are declared and paid annually. Each Fund
distributes net realized capital gains, if any, at least annually.
For the year ended September 30, 1997, the Funds identified permanent
differences in each fund's organization costs resulting from differing book and
tax accounting methods. Adjusting for this difference resulted in a $19,314
decrease in each fund's paid-in capital and a corresponding increase in the
fund's undistributed net investment income.
FEDERAL INCOME TAXES: Each Fund intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended, by
distributing to shareholders substantially all of its taxable income. Therefore,
no Federal income or excise tax provision is required. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for market discount, losses deferred due
to wash sales and excise tax regulations.
Income and capital gain distribution requirements are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatment for organizational
expenses. Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to capital paid-in. Undistributed
net investment income and accumulated net realized gain (loss) may include
temporary book and tax basis differences which will reverse in a subsequent
period.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the
36
<PAGE> 39
SENECA FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(CONTINUED)
reported amounts of income and expenses during the reporting period. Actual
results could differ from these estimates.
NOTE 3 -- AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
The Trust has an Investment Management Agreement with GMG/Seneca Capital
Management LP ("GMG/Seneca"), under which GMG/Seneca manages the investments of
each Fund. For its services, GMG/Seneca receives a fee from each Fund at an
annual percentage of the average daily net assets of each Fund. Such investment
management fees are 0.70%, 0.80%, 0.50%, and 0.85% for the Growth Fund, Mid-Cap
"EDGE"(SM) Fund, Bond Fund, and Real Estate Securities Fund, respectively.
On July 17, 1997, GMG/Seneca Capital Management LLC transferred its rights and
obligations as investment manager of the Funds to GMG/Seneca, which was at that
time owned by the same persons as then owned Seneca Capital Management LLC.
The Trust has a Distribution and Services Agreement (the "Agreement") with
Genesis Merchant Group Securities LLC ("GMG Securities"),and Seneca Distributors
LLC ("Seneca Distributors"), affiliates of GMG/Seneca, under which GMG
Securities and Seneca Distributors serve as the distributors and principal
underwriters of each Fund's shares. Pursuant to the Agreement, GMG Securities
and Seneca Distributors receive an aggregate fee from each Fund at an annual
rate of 0.25% of the average daily net assets attributable to the Administrative
Shares of each Fund.
The Trust has an Administrative Services Agreement with GMG/Seneca pursuant to
which GMG/Seneca is responsible for the day-to-day administrative functions of
the Trust. For these services, GMG/Seneca receives a fee from each Fund at an
annual rate of 0.08% of the first $125 million, 0.06% of the next $125 million,
and 0.04% thereafter, subject to certain minimums which GMG/Seneca has agreed to
waive through September 30, 1997. GMG/Seneca has entered
37
<PAGE> 40
SENECA FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(CONTINUED)
into an agreement with State Street Bank & Trust Company ("State Street") to
provide most of the administrative functions for the Trust.
GMG/Seneca had agreed to voluntarily waive its Management and Administrative
fees and reimburse other operating expenses of each Fund (other than certain
extraordinary or non-recurring expenses) until the earlier of September 30, 1997
or such time as the Trust's aggregate assets exceeded $60 million, to the extent
necessary to prevent the expenses for each Fund and class from exceeding the
following percentages of average daily net assets:
<TABLE>
<CAPTION>
ADMINISTRATIVE INSTITUTIONAL
FUND CLASS CLASS
- ------------------------------------------- -------------- -------------
<S> <C> <C>
Seneca Growth Fund......................... 1.50% 0.85%
Seneca Mid-Cap "EDGE"(SM) Fund............. 1.60% 0.95%
Seneca Bond Fund........................... 1.30% 0.65%
Seneca Real Estate Fund.................... 1.70% 1.05%
</TABLE>
These percentages were in effect from October 1, 1996 through January 31, 1997
at which time the aggregate assets of the Trust exceeded $60 million. From
February 1, 1997 to September 30, 1997, GMG/Seneca had agreed to voluntarily
waive its Management and Administrative fees and reimburse other operating
expenses of each Fund to the extent necessary to prevent the expenses for each
Fund and class from exceeding the following percentages of average daily net
assets:
<TABLE>
<CAPTION>
ADMINISTRATIVE INSTITUTIONAL
FUND CLASS CLASS
- ------------------------------------------- -------------- -------------
<S> <C> <C>
Seneca Growth Fund......................... 2.55% 1.95%
Seneca Mid-Cap "EDGE"(SM) Fund............. 2.70% 2.10%
Seneca Bond Fund........................... -- 1.85%
Seneca Real Estate Fund.................... 3.05% 2.35%
</TABLE>
38
<PAGE> 41
SENECA FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(CONTINUED)
For the year ended September 30, 1997, GMG/Seneca waived and reimbursed expenses
as follows:
<TABLE>
<CAPTION>
MANAGEMENT
FEES ADMINISTRATIVE EXPENSES
FUND WAIVED FEES WAIVED REIMBURSED TOTAL
- ---------------------- ---------- -------------- ---------- --------
<S> <C> <C> <C> <C>
Seneca Growth......... $ -- $ -- $ 5,174 $ 5,174
Seneca Mid-Cap
"EDGE"(SM).......... -- -- 135,798 135,798
Seneca Bond........... -- -- 126,387 126,387
Seneca Real Estate.... -- -- 16,628 16,628
</TABLE>
Each Trustee of the Trust who is not an interested person receives a fee of
$2,500 for each regular, quarterly meeting attended and is reimbursed for
expenses incurred in connection with such attendance. Effective July 1, 1997
each Trustee of the Trust who is not an interested person receives a quarterly
retainer of $2,500.
NOTE 4 -- INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investments, excluding short
term securities, for the Trust, for the year ended September 30, 1997 were as
follows:
<TABLE>
<CAPTION>
NON- NON-
GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT
FUND PURCHASES PURCHASES SALES SALES
- --------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Seneca Growth........ $57,312,920 $ -- $37,141,324 $ --
Seneca Mid-Cap
"EDGE"(SM)......... 30,288,698 -- 28,370,414 --
Seneca Bond.......... 10,268,362 991,816 5,962,571 499,998
Seneca Real Estate
Securities......... 35,097,333 921,957 11,746,897 1,091,535
</TABLE>
NOTE 5 -- ORGANIZATION COSTS
The Trust bears all costs in connection with its organization. The organization
costs are amortized on a straight-line basis over a period of sixty months from
the commencement of investment operations. The costs associated with state
registration of shares will be amortized on a straight-line basis over a period
of twelve months. If any of the initial shares are redeemed before the end of
the amortization period, the
39
<PAGE> 42
SENECA FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(CONTINUED)
proceeds of the redemption will be reduced by the pro rata share of unamortized
organization and state registration costs.
NOTE 6 -- CAPITAL STOCK TRANSACTIONS
Capital stock transactions for the period from commencement of investment
operations through September 30, 1997 are as follows:
GROWTH FUND (1)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
----------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------- -----------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares sold............ 1,193,698 $16,740,404 944,161 $11,381,266
Shares issued upon
reinvestment of
dividends............ 83,095 1,095,100 -- --
Shares redeemed........ (142,301) (2,144,300) (5,306) (70,645)
--------- ----------- ------- -----------
Net increase........... 1,134,492 $15,691,204 938,855 $11,310,621
========= =========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
---------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------- ----------- ------- ---------
<S> <C> <C> <C> <C>
ADMINISTRATIVE SHARES
Shares sold........... 410,550 $ 5,770,465 55,186 $ 721,427
Shares issued upon
reinvestment of
dividends........... 1,364 17,844 -- --
Shares redeemed....... (76,718) (1,114,710) (22,214) (288,331)
------- ----------- ------- --------
Net increase.......... 335,196 $ 4,673,599 32,972 $ 433,096
======= =========== ======= ========
</TABLE>
(1) Fund commenced investment operations on March 8, 1996.
40
<PAGE> 43
SENECA FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(CONTINUED)
NOTE 6 -- CAPITAL STOCK TRANSACTIONS (CONTINUED)
MID-CAP "EDGE"(SM) FUND (1)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
---------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ------- ----------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares sold............. 403,926 $ 5,517,592 509,221 $6,613,122
Shares issued upon
reinvestment of
dividends............. 7,844 109,284 -- --
Shares redeemed......... (337,764) (4,917,052) (14,376) (188,718)
-------- ---------- ------- ----------
Net increase............ 74,006 $ 709,824 494,845 $6,424,404
======== ========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
---------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ------- ----------
<S> <C> <C> <C> <C>
ADMINISTRATIVE SHARES
Shares sold............. 291,421 $ 4,064,517 104,231 $1,422,572
Shares issued upon
reinvestment of
dividends............. 851 11,875 -- --
Shares redeemed......... (236,289) (3,238,210) (14,725) (188,631)
--------- ----------- ------- -----------
Net increase............ 55,983 $ 838,182 89,506 $1,233,941
========= =========== ======= ===========
</TABLE>
41
<PAGE> 44
SENECA FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(CONTINUED)
NOTE 6 -- CAPITAL STOCK TRANSACTIONS (CONTINUED)
BOND FUND (2)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
---------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ------- ----------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares sold............. 496,127 $ 5,079,683 385,776 $3,831,086
Shares merged (3)....... 23,704 250,425 -- --
Shares issued upon
reinvestment of
dividends............. 45,088 460,532 8,635 85,975
Shares redeemed......... (101,560) (1,048,447) (6,454) (64,905)
--------- ----------- ------- -----------
Net increase............ 463,359 $ 4,742,193 387,957 $3,852,156
========= =========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
-------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------ --------
<S> <C> <C> <C> <C>
ADMINISTRATIVE SHARES
Shares sold............ 7,990 $ 82,034 18,065 $179,966
Shares issued upon
reinvestment of
dividends............ 140 1,437 104 1,031
Shares merged (3)...... (24,954) (250,425) -- --
Shares redeemed........ (2,595) (26,543) -- --
-------- ----------- ------- ----------
Net increase/
(decrease)............ (19,419) $(193,497) 18,169 $180,997
========= =========== ======= ===========
</TABLE>
(1) Fund commenced investment operations on March 8, 1996.
(2) Fund commenced investment operations on March 7, 1996.
(3) As of December 26, 1996, the Bond Administrative Shares merged with Bond
Institutional Shares in a tax free transaction.
42
<PAGE> 45
SENECA FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(CONTINUED)
NOTE 6 -- CAPITAL STOCK TRANSACTIONS (CONTINUED)
REAL ESTATE SECURITIES FUND (4)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
----------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ------ ----------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares sold............ 2,618,177 $ 32,751,944 94,875 $1,001,801
Shares issued upon
reinvestment of
dividends............ 31,702 424,162 583 6,370
Shares redeemed........ (830,654) (10,635,920) -- --
--------- ----------- ------- -----------
Net increase........... 1,819,225 $ 22,540,186 95,458 $1,008,171
========= =========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
--------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------ --------
<S> <C> <C> <C> <C>
ADMINISTRATIVE SHARES
Shares sold............ 262,586 $3,366,423 18,779 $200,099
Shares issued upon
reinvestment of
dividends............ 2,082 27,973 56 599
Shares redeemed........ (68,344) (895,219) -- --
------- ---------- ------ --------
Net increase........... 196,324 $2,499,177 18,835 $200,698
======= ========== ====== ========
</TABLE>
(4) Fund commenced investment operations on March 12, 1996.
NOTE 7 -- SHARES OF BENEFICIAL INTEREST
At September 30, 1997, certain shareholders were record owners of more than 10%
of total outstanding shares of the following Funds:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF
NAME OF PORTFOLIO SHAREHOLDERS SHARES OWNED
- ---------------------------------------- ------------ ------------
<S> <C> <C>
Growth Fund............................. 2 24%
Bond Fund............................... 1 10%
Real Estate Securities Fund............. 2 26%
</TABLE>
43
<PAGE> 46
SENECA FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(CONTINUED)
NOTE 8 -- SUBSEQUENT EVENTS
On June 18, 1997, GMG/Seneca entered into an agreement with Phoenix Duff &
Phelps Corporation ("Phoenix") for the sale of a majority of the partnership
interest in GMG/Seneca to Phoenix. Closing of the purchase is conditioned upon
approval of the shareholders of the Seneca Funds of the "change in control" that
would result. Management expects that a proxy statement will be prepared and
distributed to the shareholders by mid-December, 1997, and that the meeting to
consider approval would be held in late January, 1998. The close of the sale
would follow shortly after approval of the change in control. At that time the
name of the Funds would change to "Phoenix-Seneca Funds".
On October 15, 1997, the Trustees approved the appointment of Phoenix Equity
Planning Corporation as transfer agent of the Seneca Funds.
NOTE 9 -- TAX INFORMATION (UNAUDITED)
For the fiscal year ended September 30, 1997, 19.32% and 2.97% of all dividends
paid to Shareholders of the Seneca Growth and Mid-Cap "EDGE"(SM) Funds
respectively, qualified for the Dividends Received Deduction for eligible
corporate investors. Shareholders should refer to Form 1099 when preparing their
tax returns to determine the appropriate tax treatment for the distributions
they received from the respective Fund(s) in the fiscal year 1997.
For the fiscal year ended September 30, 1997, ordinary income distributions to
the Institutional Shares of the Seneca Mid-Cap "EDGE"(SM) Fund of $24,431 were
redesignated as realized gain distributions.
44
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and the Shareholders of Seneca Funds:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Seneca Growth Fund, Seneca Mid-Cap
"EDGE"(SM) Fund, Seneca Bond Fund, and Seneca Real Estate Securities Funds
(collectively the "Funds"), comprising the Seneca Funds as of September 30,
1997, and the related statements of operations for the year then ended, and the
statements of changes in net assets, and the financial highlights for the year
ended September 30, 1997 and for the periods ended September 30, 1996. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
September 30, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Funds as of
September 30, 1997, the results of their operations, the changes in their net
assets, and their financial highlights for the respective stated periods then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
November 5, 1997
45
<PAGE> 48
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<PAGE> 49
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<PAGE> 50
(This Page Intentionally Left Blank)
<PAGE> 51
DIRECTORY OF FUNDS' SERVICE PROVIDERS
ADMINISTRATOR:
State Street Bank & Trust Company
P.O. 9110
Boston, MA 02209-9110
CUSTODIAN & TRANSFER AGENT:*
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, MO 64105-2005
AUDITOR:
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
COUNSEL:
Howard Rice, Nemerovski, Canady, Falk & Rabkin
Three Embarcadero Center, 6th Floor
San Francisco, CA 94111-4065
DISTRIBUTOR:
Seneca Distributors LLC
Genesis Merchant Group Securities LLC
909 Montgomery Street, Suite 600
San Francisco, CA 94133-4625
INVESTMENT ADVISOR:
GMG/Seneca Capital Management LP
909 Montgomery Street, Suite 500
San Francisco, CA 94133-4625
*EFFECTIVE 10/18/97
TRANSFER AGENT WAS CHANGED TO:
Phoenix Equity Planning Corporation
c/o State Street Bank & Trust Company
P.O. Box 8301
Boston, MA 02266-8301
<PAGE> 52
[SENECA FUNDS LOGO]
Seneca Funds
c/o State Street Bank & Trust Company
P.O. Box 8301
Boston, MA 02266-8301
Telephone: 1-800-990-9331
Facsimile: 1-617-774-3245
http://www.senecafunds.com
