-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EYVea0zh7XFIxfReimqD3mzIB4/x/uV6ldBm5p4j0WACRkC271ldoXaOKoRT7YSK tgqNZQNzJpRormlL/ITzww== 0000950149-97-002188.txt : 19971211 0000950149-97-002188.hdr.sgml : 19971211 ACCESSION NUMBER: 0000950149-97-002188 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971210 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SENECA FUNDS CENTRAL INDEX KEY: 0001005020 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07455 FILM NUMBER: 97735666 BUSINESS ADDRESS: STREET 1: 909 MONTGOMERY STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94133 BUSINESS PHONE: 4156771570 MAIL ADDRESS: STREET 1: 909 MONTGOMERY STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94133 N-30D 1 SENECA ANNUAL REPORT FOR PERIOD ENDING 9/30/97 1 [SENECA FUNDS LOGO] ANNUAL REPORT -------------------------------------------- SEPTEMBER 30, 1997 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 3 CONTENTS Letter to Shareholders 2 Investment Objective and Performance Highlights 3 Fund Financials 11 Auditor's Opinion 45
1 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 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 6 PERFORMANCE HIGHLIGHTS
AVERAGE ANNUAL TOTAL RETURN INSTITUTIONAL SHARES ADMINISTRATIVE SHARES - --------------------------- -------------------- --------------------- One Year 27.27% 26.51% Inception to date 42.85% 41.58%
$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 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 8 PERFORMANCE HIGHLIGHTS
AVERAGE ANNUAL TOTAL RETURN INSTITUTIONAL SHARES ADMINISTRATIVE SHARES - --------------------------- -------------------- --------------------- One Year 11.39% 11.25% Inception to date 38.58% 38.23%
$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 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 10 PERFORMANCE HIGHLIGHTS
AVERAGE ANNUAL TOTAL RETURN INSTITUTIONAL SHARES - --------------------------- -------------------- One Year 11.26% Inception to date 9.83%
$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 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 12 PERFORMANCE HIGHLIGHTS
AVERAGE ANNUAL TOTAL RETURN INSTITUTIONAL SHARES ADMINISTRATIVE SHARES - --------------------------- -------------------- --------------------- One Year 35.44% 34.54% Inception to date 31.16% 30.15%
$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 13 SENECA FUNDS SENECA GROWTH FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE - ------------------------------------------------- ------ ----------- 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 ----------
See notes to financial statements. 11 14 SENECA FUNDS SENECA GROWTH FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997 (CONTINUED)
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE - ------------------------------------------------- ------ ----------- 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 ----------
See notes to financial statements. 12 15 SENECA FUNDS SENECA GROWTH FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997 (CONCLUDED)
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE - ------------------------------------------------- ------ ----------- 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 ==== ==========
(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 16 SENECA FUNDS SENECA MID-CAP "EDGE"(SM) FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE - -------------------------------------------------- ------ ----------- 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 ----------
See notes to financial statements. 14 17 SENECA FUNDS SENECA MID-CAP "EDGE"(SM) FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997 (CONTINUED)
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE - -------------------------------------------------- ------ ----------- 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 ----------
See notes to financial statements. 15 18 SENECA FUNDS SENECA MID-CAP "EDGE"(SM) FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997 (CONCLUDED)
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE - -------------------------------------------------- ------ ----------- 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 ==== ==========
(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 19 SENECA FUNDS SENECA BOND FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997
NAME OF ISSUER INTEREST MATURITY PRINCIPAL AND TITLE OF ISSUE RATE DATE AMOUNT VALUE - ------------------------------ -------- ---------- --------- ---------- 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
See notes to financial statements. 17 20 SENECA FUNDS SENECA BOND FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997 (CONTINUED)
NAME OF ISSUER INTEREST MATURITY PRINCIPAL AND TITLE OF ISSUE RATE DATE AMOUNT VALUE - ------------------------------ -------- ---------- --------- ---------- 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 --------
See notes to financial statements. 18 21 SENECA FUNDS SENECA BOND FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997 (CONTINUED)
NAME OF ISSUER INTEREST MATURITY PRINCIPAL AND TITLE OF ISSUE RATE DATE AMOUNT VALUE - ------------------------------ -------- ---------- --------- ---------- 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 --------
See notes to financial statements. 19 22 SENECA FUNDS SENECA BOND FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997 (CONTINUED)
NAME OF ISSUER INTEREST MATURITY PRINCIPAL AND TITLE OF ISSUE RATE DATE AMOUNT VALUE - ------------------------------ -------- ---------- --------- ---------- 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
See notes to financial statements. 20 23 SENECA FUNDS SENECA BOND FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997 (CONTINUED)
NAME OF ISSUER INTEREST MATURITY PRINCIPAL AND TITLE OF ISSUE RATE DATE AMOUNT VALUE - ------------------------------ -------- ---------- --------- ---------- 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 -------- SHARES --------- 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 --------
See notes to financial statements. 21 24 SENECA FUNDS SENECA BOND FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997 (CONCLUDED)
NAME OF ISSUER INTEREST MATURITY PRINCIPAL AND TITLE OF ISSUE RATE DATE AMOUNT VALUE - ------------------------------ -------- ---------- --------- ---------- 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 ===== =========
(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 25 SENECA FUNDS SENECA REAL ESTATE SECURITIES FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE - ------------------------------------------------ ------ ----------- 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
See notes to financial statements. 23 26 SENECA FUNDS SENECA REAL ESTATE SECURITIES FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997 (CONTINUED)
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE - ------------------------------------------------ ------ ----------- 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 ----------
See notes to financial statements. 24 27 SENECA FUNDS SENECA REAL ESTATE SECURITIES FUND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1997 (CONCLUDED)
NAME OF ISSUER AND TITLE OF ISSUE VALUE - ------------------------------------------------ ----------- 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 === ===========
(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 28 SENECA FUNDS STATEMENTS OF ASSETS AND LIABILITIES SEPTEMBER 30, 1997
MID-CAP REAL ESTATE GROWTH "EDGE"(SM) BOND SECURITIES FUND FUND FUND FUND ----------- ----------- ---------- ----------- 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 =========== =========== ========== ===========
See notes to financial statements. 26 29 SENECA FUNDS STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1997
MID-CAP REAL ESTATE GROWTH "EDGE"(SM) BOND SECURITIES FUND FUND FUND FUND ---------- ---------- --------- ----------- 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 $ -- $ -- $ -- ========== ========== ========= ==========
See notes to financial statements. 27 30 SENECA FUNDS STATEMENTS OF CHANGES IN NET ASSETS
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* ------------- ------------- ------------- ------------- 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
* 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 31 SENECA FUNDS STATEMENTS OF CHANGES IN NET ASSETS
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* ------------- ------------- ------------- ------------- 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
* 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 32 SENECA FUNDS -- INSTITUTIONAL SHARES FINANCIAL HIGHLIGHTS
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* ------------- ------------- ------------- ------------- 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
* 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 33 SENECA FUNDS -- INSTITUTIONAL SHARES FINANCIAL HIGHLIGHTS
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* ------------- ------------- ------------- ------------- 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
* 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 34 SENECA FUNDS -- ADMINISTRATIVE SHARES FINANCIAL HIGHLIGHTS
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* ------------- ------------- ------------- ------------- 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
* 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 35 SENECA FUNDS -- ADMINISTRATIVE SHARES FINANCIAL HIGHLIGHTS
REAL ESTATE BOND FUND SECURITIES FUND ------------- ----------------------------- PERIOD YEAR PERIOD ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1996* 1997 1996* ------------- ------------- ------------- 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
* 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 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 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 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 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 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:
ADMINISTRATIVE INSTITUTIONAL FUND CLASS CLASS - ------------------------------------------- -------------- ------------- 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%
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:
ADMINISTRATIVE INSTITUTIONAL FUND CLASS CLASS - ------------------------------------------- -------------- ------------- 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%
38 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:
MANAGEMENT FEES ADMINISTRATIVE EXPENSES FUND WAIVED FEES WAIVED REIMBURSED TOTAL - ---------------------- ---------- -------------- ---------- -------- 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
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:
NON- NON- GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT FUND PURCHASES PURCHASES SALES SALES - --------------------- ----------- ---------- ----------- ---------- 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
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 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)
YEAR ENDED PERIOD ENDED SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 ----------------------- --------------------- SHARES AMOUNT SHARES AMOUNT --------- ----------- ------- ----------- 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 ========= =========== ======= ===========
YEAR ENDED PERIOD ENDED SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 ---------------------- -------------------- SHARES AMOUNT SHARES AMOUNT ------- ----------- ------- --------- 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 ======= =========== ======= ========
(1) Fund commenced investment operations on March 8, 1996. 40 43 SENECA FUNDS NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (CONTINUED) NOTE 6 -- CAPITAL STOCK TRANSACTIONS (CONTINUED) MID-CAP "EDGE"(SM) FUND (1)
YEAR ENDED PERIOD ENDED SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 ---------------------- -------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- ------- ---------- 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 ======== ========== ======= ==========
YEAR ENDED PERIOD ENDED SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 ---------------------- -------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- ------- ---------- 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 ========= =========== ======= ===========
41 44 SENECA FUNDS NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (CONTINUED) NOTE 6 -- CAPITAL STOCK TRANSACTIONS (CONTINUED) BOND FUND (2)
YEAR ENDED PERIOD ENDED SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 ---------------------- -------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- ------- ---------- 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 ========= =========== ======= ===========
YEAR ENDED PERIOD ENDED SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 -------------------- ------------------- SHARES AMOUNT SHARES AMOUNT ------- --------- ------ -------- 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 ========= =========== ======= ===========
(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 45 SENECA FUNDS NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (CONTINUED) NOTE 6 -- CAPITAL STOCK TRANSACTIONS (CONTINUED) REAL ESTATE SECURITIES FUND (4)
YEAR ENDED PERIOD ENDED SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 ----------------------- -------------------- SHARES AMOUNT SHARES AMOUNT --------- ------------ ------ ---------- 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 ========= =========== ======= ===========
YEAR ENDED PERIOD ENDED SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 --------------------- -------------------- SHARES AMOUNT SHARES AMOUNT ------- ---------- ------ -------- 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 ======= ========== ====== ========
(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:
PERCENTAGE NUMBER OF OF NAME OF PORTFOLIO SHAREHOLDERS SHARES OWNED - ---------------------------------------- ------------ ------------ Growth Fund............................. 2 24% Bond Fund............................... 1 10% Real Estate Securities Fund............. 2 26%
43 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 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 48 (This Page Intentionally Left Blank) 49 (This Page Intentionally Left Blank) 50 (This Page Intentionally Left Blank) 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 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 -----END PRIVACY-ENHANCED MESSAGE-----