<PAGE>
Filed Pursuant to Rule 485(b)
As filed with the Securities and Exchange Commission on July 28, 1995
Registration No. 33-19229; 811-5430
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( X )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 31 ( X )
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X )
Amendment No. 33 ( X )
(Check appropriate box or boxes)
THE SEVEN SEAS SERIES FUND
(Exact Name of Registrant as Specified in Charter)
909 A Street
Tacoma, Washington 98402
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (206) 627-7001
NAME AND ADDRESS OF COPIES TO:
AGENT FOR SERVICE:
Karl J. Ege Philip H. Newman, Esq.
Secretary and General Counsel Goodwin, Procter & Hoar
Frank Russell Investment Management Company Exchange Place
909 A Street Boston, Massachusetts 02109
Tacoma, Washington 98402
Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective under Rule 485:
( X ) immediately upon filing pursuant to paragraph (b)
( ) on (date) pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)
( ) on (date) pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following:
( X ) This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
DECLARATION PURSUANT TO RULE 24f-2
Registrant has declared its intention to register under the Securities Act
of 1933 an indefinite number of shares of beneficial interest, par value of
$.001, of The Seven Seas Series Fund pursuant to Rule 24f-2(a)(1) under the
Investment Company Act of 1940, as amended. The Registrant filed its Rule 24f-2
notice for the fiscal year ended August 31, 1994 on October 26, 1994.
<PAGE>
THE SEVEN SEAS SERIES FUND
Form N-1A Cross Reference Sheet
PART A ITEM NO.
AND CAPTION PROSPECTUS CAPTION
1. Cover Page Cover Page
2. Synopsis Table of Contents; and
Fund Operating Expenses
3. Condensed Financial Information Fund Operating Expenses
4. General Description of Registrant
(a)(i) Summary (Classes B and C only);
The Seven Seas Series Fund;
Additional Information -
Organization, Capitalization and
Voting
(a)(ii), (b) Summary (Classes B and C only);
Investment Objectives and Policies;
Investment Restrictions and
Policies; and Portfolio Maturity
(c) Investment Restrictions and Policies
5. Management of the Fund Summary (Classes B and C only);
General Management; Fund
Operating Expenses; and Portfolio
Maturity
6. Capital Stock and Other Securities
(a) Additional Information -
Organization, Capitalization and
Voting
(b) General Management
(c) Not Applicable
(d) Summary (Classes B and C only);
Additional Information - Organization,
Capitalization and Voting
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<PAGE>
(e) Additional information - Reports
to Shareholders and Shareholder
Inquiries
(f) Dividends and Distributions
(g) Taxes
7. Purchase of Securities Being Offered
(a) Summary (Classes B and C only);
General Management - Distribution
Services and Shareholder Servicing
Arrangements
(b) Valuation of Fund Shares;
Purchase of Fund Shares
(c) Not Applicable
(d) Manner of Offering; Purchase
of Fund Shares
(e), (f) General Management - Distribution
Services and Shareholder Servicing
Arrangements
8. Redemption or Repurchase
(a) Summary (Classes B and C only);
Redemption of Fund Shares
(b) Not Applicable
(c) Manner of Offering;
Redemption of Fund Shares
(d) Redemption of Fund Shares
9. Pending Legal Proceedings Not Applicable
PART B ITEM NO. STATEMENT OF ADDITIONAL
AND CAPTION INFORMATION CAPTION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
-3-
<PAGE>
13. Investment Objectives and Policies
(a), (b), (c) Investments
(d) (Prospectus) - Portfolio
Maturity
14. Management of the Fund
(a), (b) Structure and Governance -
Trustees and Officers
(c) Not Applicable
15. Control Persons and Principal Holders
of Securities
(a), (b) Structure and Governance -
Controlling Shareholders;
Additional Information -
Organization, Capitalization and
Voting (Prospectus)
(c) Structure and Governance -
Controlling Shareholders
16. Investment Advisory and Other Services
(a), (b) Operation of Investment Company -
Adviser; General Management -
Advisory Agreement (Prospectus)
(c) Not Applicable
(d) Operation of Investment Company -
Administrator
(e) Not Applicable
(f) Operation of Investment Company -
Distribution Plan
(g) Not Applicable
(h), (i) Operation of Investment Company -
Custodian and Transfer Agent;
Additional Information - Custodian,
Transfer Agent and Accountants
(Prospectus)
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<PAGE>
17. Brokerage Allocation
and Other Practices
(a), (b), (c) Operation of Investment Company -
Brokerage Practices
(d), (e) Not Applicable
18. Capital Stock and Other Securities
(a) Structure and Governance -
Organization and Business History
(b) Not Applicable
19. Purchase, Redemption and Pricing of
Securities Being Offered
(a), (b), (c) Operation of Investment Company -
Valuation of Fund Shares;
(Prospectus) - Valuation of Fund
Shares; Redemption of Shares;
Purchase of Fund Shares
20. Tax Status Taxes
21. Underwriters
(a) Operation of Investment Company -
Distribution Plan
(b), (c) Not Applicable
22. Calculation of Performance Data
Operation of Investment Company -
Yield and Total Return Quotations
23. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
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<PAGE>
THE SEVEN SEAS SERIES FUND
Contents of Registration Statement
This Registration Statement consists of the following papers and documents:
Cover Sheet
Form N-1A Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
-6-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
THE SEVEN SEAS SERIES FUND
Two International Place, 35th Floor
Boston, Massachusetts 02110
(617) 654-6089
ACTIVE INTERNATIONAL FUND
The Seven Seas Series Fund is a series mutual fund. This Prospectus
describes and offers shares of beneficial interest in one portfolio, The Seven
Seas Series Active International Fund (referred to in this prospectus as the
"Active International Fund" or the "Fund"). The Active International Fund seeks
to provide long-term capital growth by investing primarily in securities of
foreign issuers. The Fund's shares are offered without sales commissions.
However, the Fund pays certain distribution expenses under its Rule 12b-1 plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, STATE STREET BANK AND TRUST COMPANY, AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain
this document for future reference. Additional information about the Fund has
been filed with the Securities and Exchange Commission in a Statement of
Additional Information dated July 28, 1995. The Statement of Additional
Information is incorporated herein by reference and is available without charge
from Distributor at its address noted below or by calling (617) 654-6089.
<TABLE>
<CAPTION>
<C> <C> <C>
Investment Adviser, Custodian
Transfer Agent: Distributor: Administrator:
State Street Bank and Trust Russell Fund Distributors, Inc. Frank Russell Investment
Company Two International Place Management Company
225 Franklin Street 35th Floor 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
(617) 654-4721 (617) 654-6089 (206) 627-7001
<FN>
PROSPECTUS DATED JULY 28, 1995
</TABLE>
<PAGE>
TABLE OF CONTENTS
PAGE
Fund Operating Expenses. . . . . . . . . . . . . . . . . . . . . 3
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . 4
The Seven Seas Series Fund . . . . . . . . . . . . . . . . . . . 5
Manner of Offering . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Objective, Policies and Restrictions. . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . 12
Dividends and Distributions. . . . . . . . . . . . . . . . . . . 12
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Valuation of Fund Shares . . . . . . . . . . . . . . . . . . . . 14
Purchase of Fund Shares. . . . . . . . . . . . . . . . . . . . . 15
Redemption of Fund Shares. . . . . . . . . . . . . . . . . . . . 17
General Management . . . . . . . . . . . . . . . . . . . . . . . 18
Fund Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Performance Calculations . . . . . . . . . . . . . . . . . . . . 21
Additional Information . . . . . . . . . . . . . . . . . . . . . 21
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<PAGE>
FUND OPERATING EXPENSES
THE SEVEN SEAS SERIES ACTIVE INTERNATIONAL FUND
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Active International Fund
will incur directly or indirectly. THE EXAMPLES PROVIDED IN THE TABLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. For additional information, see
Prospectus Section -- "General Management."
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily net assets)
Advisory Fees .75%
12b-1 Fees(1), (2) .05
Other Expenses: (2)
Administrative Fees .06%
Custodian Fees .44
Other Fees and Expenses .44
----
Total Other Expenses .94
----
Total Operating Expenses Before Fee Waivers 1.74
Fees Waived(3) (.74)
-----
Total Operating Expenses After Fee Waivers(4) 1.00%
-----
-----
EXAMPLES: 1 year 3 years
----- -------
You would pay the following
expenses on a $1,000
investment, assuming (i) 5%
annual return and (ii) redemption
at the end of each time period: $10 $32
--- ---
--- ---
- -------------------------
(1) Rule 12b-1 fees may include expenses paid for shareholder servicing
activities.
(2) The ratios for "12b-1 fees" and "other expenses" are based on estimated
amounts for the current fiscal year with expected annual average net assets of
$20 million.
(3) The Adviser voluntarily agrees to waive up to the full amount of its
Advisory fee of .75% to the extent that total expenses exceed 1.00% on an annual
basis. This agreement will remain in effect until further notice.
Additionally, the Administrator and Custodian have agreed to waive a portion of
their fees for the first three months after the Fund becomes operational.
(4) Investors purchasing Fund shares through a financial intermediary, such as
a bank or an investment adviser, may also be required to pay additional fees for
services provided by the intermediary. Such investors should contact the
intermediary for information concerning what additional fees, if any, will be
charged.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers, Inc.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
THE SEVEN SEAS SERIES ACTIVE INTERNATIONAL FUND
The following table includes selected data for a share outstanding throughout
the period of March 7, 1995 (commencement of operations) to June 30, 1995
(unaudited), and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
<S> <C>
1995++
------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net realized and unrealized gain on investments .05
------
Total From Investment Operations .05
------
NET ASSET VALUE, END OF PERIOD $10.05
======
TOTAL RETURN (%)(a) .50
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily
net assets(b) 2.28
Operating expenses, gross, to average daily
net assets(b) 2.80
Net investment income to average daily
net asssets(b) 3.00
Portfolio turnover(b) .11
Net Assets, end of period ($000 omitted) 17,088
Per Share amount of fees waived ($ omitted) .0082
<FN>
++ For the period March 7, 1995 (commencement of operations) to June 30, 1995 (unaudited).
(a) Periods less than one year are not annualized.
(b) Annualized.
</TABLE>
-4-
<PAGE>
THE SEVEN SEAS SERIES FUND
The Seven Seas Series Fund ("Investment Company") is an open-end management
investment company that is organized and operates as a Massachusetts business
trust under a First Amended and Restated Master Trust Agreement dated October
13, 1993, as amended. In addition, each series of the Investment Company is
diversified as defined in the Investment Company Act of 1940, as amended ("1940
Act"). As a series mutual fund, Investment Company is authorized to issue an
unlimited number of shares evidencing beneficial interests in different
investment portfolios. Through this Prospectus, Investment Company offers
shares in one such portfolio, The Seven Seas Series Active International Fund.
MANNER OF OFFERING
DISTRIBUTION AND ELIGIBLE INVESTORS. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc., Investment
Company's distributor, to US or foreign institutional and retail investors that
invest for their own account or in a fiduciary or agency capacity. The Fund
will incur distribution expenses under its 12b-1 plan. See "General Management
- -- Distribution Services."
MINIMUM AND SUBSEQUENT INVESTMENT. The Fund requires a minimum initial
investment of $1,000. The shareholder's investment in the Fund may be subject
to redemption at the Fund's discretion if the account balance is less than $500
as a result of shareholder redemptions. The Fund reserves the right to reject
any purchase order.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE
The Active International Fund's nonfundamental investment objective is to
provide long-term capital growth by investing primarily in securities of foreign
issuers. This objective may be changed with the approval of a majority of the
Fund's Board of Trustees. Shareholders would, however receive at least 60 days'
prior notice of any change to the Fund's investment objective. To meet certain
state requirements, it may be determined that the objective will only be changed
with the approval of a majority of the Fund's shareholders, as defined by the
1940 Act. There can be no assurance that the Fund will meet its stated
investment objective.
The Fund will attempt to meet its objective through the active selection of
countries, currencies and securities. The selection of investments will be made
through a proprietary, quantitative process developed by the Adviser.
Investments will be made in, but not limited to, countries included in the
Morgan Stanley Capital International Europe, Australia, Far East ("MSCI EAFE")
Index. For additional investment policies, see "Investment Policies."
The MSCI EAFE Index is an arithmetic, market value-weighted average of the
performance of over 1,000 securities listed on the stock exchanges of the
following countries: Australia, Austria, Belgium, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
-5-
<PAGE>
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland and the
United Kingdom. These are the countries listed in the MSCI EAFE Index as of the
date of this prospectus. Countries may be added to or deleted from the list.
The Fund will invest at least 65% of its total assets in equity securities
of foreign issuers. In addition to investment in equities, the Fund may hold
fixed-income instruments (including convertibles), forward contracts, cash, and
cash equivalents as well as derivatives. However, the Fund may invest in other
equity securities and may temporarily for defensive purposes, without
limitation, invest in certain short-term fixed income securities. Such
securities may be used to invest uncommitted cash balances or to maintain
liquidity to meet shareholder redemptions. See "Investment Policies -- Cash
Reserves."
Of the fixed-income instruments used by the Fund, less than 5% will be
considered lower than investment-grade. Such securities are regarded as
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. These lower rated
debt securities may include obligations that are in default or that face the
risk of default with respect to principal or interest. Therefore, such
securities are sometimes referred to as "junk bonds." Please see the Statement
of Additional Information for a description of the securities ratings.
To the extent permitted under the 1940 Act and exemptive rules and orders
thereunder, the Fund may seek to achieve its investment objective by investing
solely in the shares of another investment company that has substantially
similar investment objectives and policies.
INVESTMENT POLICIES
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. To the extent consistent with
the Fund's nonfundamental investment objective and fundamental and
nonfundamental investment restrictions, and unless otherwise indicated, the Fund
may invest in the following instruments and may use the following investment
techniques:
US AND INTERNATIONAL EQUITY SECURITIES. The Fund may invest in common and
preferred equity securities publicly traded in the United States or in foreign
countries. The Fund's equity securities may be denominated in foreign
currencies and may be held outside the United States. The risks associated with
investment in securities issued by foreign governments and companies are
described under "Risk Factors -- Foreign Securities."
FOREIGN CURRENCY. The Fund has authority to deal in forward foreign
currency exchange contracts (including those involving the US dollar) as a hedge
against possible variations in the exchange rate between various currencies.
This is accomplished through individually negotiated contractual agreements to
purchase or to sell a specified currency at a specified future date and price
set at the time of the contract. The Fund's dealings in forward foreign
currency exchange contracts may be with respect to a specific purchase or sale
of a security, or with respect to its portfolio positions generally. The Fund
is not obligated to hedge its portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by Adviser. Forward
commitments generally provide a cost-effective way of defending against losses
due to foreign currency depreciation in which the securities are denominated.
-6-
<PAGE>
In addition to the forward exchange contracts, the Fund may also purchase
or sell listed or over-the-counter foreign currency options and foreign currency
futures and related options as a short or long hedge against possible variations
in foreign currency exchange rates. The cost to the Fund of engaging in foreign
currency transactions varies with such factors as the currencies involved, the
length of the contract period and the market conditions then prevailing.
Transactions involving forward exchange contracts and futures contracts and
options thereon are subject to certain risks. Put and call options on currency
may also be used to hedge against fluctuation in currency notes when forward
contracts and/or futures are deemed to be not cost effective. Options will not
be used to provide leverage in any way. See "Risk Factors -- Futures Contracts
and Options on Futures" for further discussion of the risks associated with such
investment techniques.
Certain differences exist among these hedging instruments. For example,
foreign currency options provide the holder thereof the rights to buy or sell a
currency at a fixed price on a future date. A futures contract on a foreign
currency is an agreement between two parties to buy and sell a specified amount
of a currency for a set price on a future date. Futures contracts and options
on futures contracts are traded on boards of trade of futures exchanges. The
Fund will not speculate in foreign security or currency options or futures or
related options.
The Fund may not hedge its positions with respect to the currency of a
particular country to an extent greater than the aggregate market value (at the
time of making such sale) of the securities held in its portfolio denominated or
quoted in that particular foreign currency. The Fund may enter into forward
exchange contracts for hedging purposes to the extent the Fund holds foreign
currencies. The Fund will not enter into a forward contract with a term of more
than one year.
EMERGING MARKETS. The Fund may invest in equity securities issued by
companies domiciled, or doing a substantial portion of their business, in
countries determined by the Fund's Adviser to have a developing or emerging
economy or securities market. The Fund will diversify investments across many
countries (typically at least 10) in order to reduce the volatility associated
with specific markets. The countries in which the Fund invests will be expanded
over time as the stock markets in other countries evolve and in countries for
which subcustodian arrangements are approved by the Fund's Board of Trustees.
In determining securities in which to invest, the Adviser will evaluate the
countries' economic and political climates and take into account traditional
securities valuation methods, including (but not limited to) an analysis of
price in relation to assets, earnings, cash flows, projected earnings growth,
inflation, and interest rates. Liquidity and transaction costs will also be
considered.
LENDING PORTFOLIO SECURITIES. The Fund may lend portfolio securities with
a value of up to 33-1/3% of its total assets. Such loans may be terminated at
any time. The Fund will continuously maintain as collateral cash or obligations
issued by the US Government, its agencies or instrumentalities in an amount
equal to not less than 100% of the current market value (on a daily
marked-to-market basis) of the loaned securities plus accrued interest.
The Fund will retain most rights of beneficial ownership, including the
right to receive dividends, interest or other distributions on the loaned
securities. However, the borrower has the right to vote the loaned securities.
The Fund will call loans to vote proxies if a material issue affecting the
investment is to be voted upon. Should the borrower of the securities fail
financially, the Fund may experience delay in recovering the securities or loss
of rights in the collateral. Loans are made only to borrowers that are deemed
by Adviser to be of good financial standing.
-7-
<PAGE>
DEPOSITORY RECEIPTS. The Fund may invest in securities of foreign issuers
in the form of American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") and similar instruments, or other securities convertible into
securities of eligible issuers. These securities may not necessarily be
denominated in the same currency as the securities for which they may be
exchanged. Generally, ADRs, in registered form, are designed for use in the US
securities markets, and EDRs are issued for trading primarily in European
securities markets. ADRs are receipts typically issued by a US bank or trust
company evidencing ownership of the underlying securities. ADRs represent the
right to receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate the risk inherent in investing in the
securities of foreign issuers. In general, there is a large liquid market in
the US for many ADRs. The information available for ADRs is subject to the
accounting, auditing and financial reporting standards of the domestic market or
exchange on which they are traded, which standards are more uniform and more
exacting than those to which many foreign issuers are subject. For purposes of
the Fund's investment policies, the Fund's investments in ADRs, EDRs and similar
instruments will be deemed to be investments in the equity securities
representing securities of foreign issuers into which they may be converted.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
banks and other financial institutions, such as broker-dealers. Under these
agreements, the Fund purchases securities from financial institutions that agree
to repurchase the securities at the Fund's cost plus interest within a specified
time (normally one day). The Fund will invest no more than 10% of its net
assets (taken at current market value) in repurchase agreements maturing in more
than seven days. The Fund will enter into repurchase agreements only with
financial institutions that Adviser determines are creditworthy. Should the
parties to these transactions fail financially, the Fund may experience delays
in realizing on the collateral securing the borrowers' obligations or loss of
rights in such collateral. Further, any amounts realized upon the sale of
collateral may be less than that necessary to fully compensate the Fund.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions."
Under reverse repurchase agreements, the Fund transfers possession of portfolio
securities to banks in return for cash in an amount equal to a percentage of the
portfolio securities' market value and agrees to repurchase the securities at a
future date by repaying the cash with interest. The Fund retains the right to
receive interest and principal payments from the securities while they are in
the possession of the financial institutions. Cash or liquid high quality debt
obligations from a Fund's portfolio equal in value to the repurchase price
including any accrued interest will be segregated by Custodian on the Fund's
records while a reverse repurchase agreement is in effect. Reverse repurchase
agreements involve the risk of default by the counterparty, which may adversely
affect the Fund's ability to reacquire the underlying security.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities of
foreign or domestic issues. A convertible security is a fixed-income security
(a bond or preferred stock) which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible securities are senior to common stocks in a
corporation's capital structure but are usually subordinated to similar
nonconvertible securities. Convertible securities provide, through their
conversion feature, an opportunity to participate in capital appreciation
resulting from a market price advance in a convertible security's underlying
common stock. The price of a convertible security is influenced by the market
value of the underlying
-8-
<PAGE>
common stock and tends to increase as the market value of the underlying stock
rises, whereas it tends to decrease as the market value of the underlying stock
declines. Of the convertible securities used by the Fund, less than 5% will be
considered lower than investment-grade. Such securities are regarded as
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. These lower rated
debt securities may include obligations that are in default or that face the
risk of default with respect to principal or interest. Therefore, such
securities are sometimes referred to as "junk bonds." Please see the Statement
of Additional Information for a description of the securities ratings.
CASH RESERVES. For the purpose of investing uncommitted cash balances or
to maintain liquidity to meet shareholder redemptions, the Fund may invest
temporarily and without limitation in certain high quality short-term fixed
income securities. These securities include obligations issued or guaranteed as
to principal and interest by the US Government, its agencies and
instrumentalities and repurchase agreements collateralized by these obligations,
commercial paper, bank certificates of deposit, bankers' acceptances and time
deposits.
SECURITIES WARRANTS. The Fund may invest up to 5% of its net assets in
warrants of foreign or domestic issuers. Included in such amount, but not to
exceed 2% of the value of the Fund's assets, may be warrants that are not listed
on a securities exchange. A warrant typically is a long term option issued by a
corporation which generally gives the holder the privilege of buying a specified
number of shares of the underlying common stock of the issuer at a specified
exercise price at any time on or before an expiration date. Stock index
warrants entitle the holder to receive, upon exercise, an amount in cash
determined by reference to fluctuations in the level of a specified stock index.
If the Fund does not exercise or dispose of a warrant prior to its expiration,
it will expire worthless.
FOREIGN GOVERNMENT SECURITIES. Foreign government securities which the
Fund may invest in generally consist of obligations issued or backed by the
national, state or provincial government or similar political subdivisions or
central banks in foreign countries. Foreign government securities also include
debt obligations of supranational entities, which include international
organizations designated or backed by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. These securities also include debt securities of
quasi-government agencies and debt securities denominated in multinational
currency units of an issuer.
FORWARD COMMITMENTS. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time, provided that the
forward commitment is consistent with the Fund's ability to manage its
investment portfolio, maintain a stable net asset value and honor redemption
requests. When effecting such transactions, cash or liquid high quality debt
obligations held by the Fund of a dollar amount sufficient to make payment for
the portfolio securities to be purchased will be segregated on the Fund's
records at the trade date and maintained until the transaction is settled. The
failure of the other party to the transaction to complete the transaction may
cause the Fund to miss an advantageous price or yield. The Fund bears the risk
of price fluctuations during the period between the trade and settlement dates.
For additional discussion of the risks associated with the use of foreign
currency transactions, see "Risk Factors -- Foreign Currency."
OPTIONS ON SECURITIES AND SECURITIES INDICES. The Fund may write and
purchase covered put and call options on securities in which it may directly
invest. Option transactions of the Fund will be
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conducted so that the total amount paid on premiums for all put and call options
outstanding will not exceed 5% of the value of the Fund's total assets.
Further, the Fund will not write a put or call option or combination thereof if,
as a result, the aggregate value of all securities or collateral used to cover
its outstanding options would exceed 25% of the value of the Fund's total
assets.
The Fund may purchase or sell options on securities indices that are
comprised of securities in which it may directly invest, subject to the
limitations set forth above and provided such options are traded on a national
securities exchange or in the over-the-counter market. Options on securities
indices are similar to options on securities except there is no transfer of a
security and settlement is in cash. A call option on a securities index grants
the purchaser of the call, for a premium paid to the seller, the right to
receive in cash an amount equal to the difference between the closing value of
the index and the exercise price of the option times a multiplier established by
the exchange upon which the option is traded.
FUTURES CONTRACTS AND OPTIONS ON FUTURES. For hedging purposes, including
protecting the price or interest rate of a security the Fund intends to buy, the
Fund may enter into futures contracts that relate to securities in which it may
directly invest and indices comprised of such securities and may purchase and
write call and put options on such contracts.
A financial futures contract is a contract to buy or sell a specified
quantity of financial instruments such as US Treasury bills, notes and bonds,
commercial paper and bank certificates of deposit or the cash value of a
financial instrument index at a specified future date at a price agreed upon
when the contract is made. A stock index futures contract is a contract to buy
or sell specified units of a stock index at a specified date at a price agreed
upon when the contract is made. The value of a unit is based on the current
value of the stock index. Under such contracts, no delivery of the actual
securities making up the index takes place. Rather, upon expiration of the
contract, settlement is made by exchanging cash in an amount equal to the
difference between the contract price and the closing price of the index at
expiration, net of variation margin previously paid.
Substantially all futures contracts are closed out before settlement date
or called for cash settlement. A futures contract is closed out by buying or
selling an identical offsetting futures contract. Upon entering into a futures
contract, the Fund is required to deposit an initial margin with Custodian for
the benefit of the futures broker. The initial margin serves as a "good faith"
deposit that the Fund will honor its futures commitment. Subsequent payments
(called "variation margin") to and from the broker are made on a daily basis as
the price of the underlying investment fluctuates.
Options on futures contracts give the purchaser the right to assume a
position at a specified price in a futures contract at any time before
expiration of the option contract.
When trading futures contracts, the Fund will not commit more than 5% of
the market value of its total assets to initial margin deposits on futures and
premiums paid for options on futures.
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INVESTMENT RESTRICTIONS
The Fund has fundamental investment restrictions, which may be changed only
with the approval of a majority of the Fund's shareholders as defined in the
1940 Act. A more detailed discussion of the Fund's investment restrictions and
investment policies appears in the Statement of Additional Information.
The Fund's fundamental investment restrictions described below, unless
otherwise noted, apply at the time an investment is made. All other investment
restrictions described in this Prospectus, unless otherwise noted, are not
fundamental and may be changed by the Board of Trustees of Investment Company
without shareholder approval. The Fund may not:
1. Invest 25% or more of the value of its total assets in securities of
companies primarily engaged in any one industry (other than the US
Government, its agencies and instrumentalities). Concentration may
occur as a result of changes in the market value of portfolio
securities, but may not result from investment.
2. Borrow money (including reverse repurchase agreements), except as a
temporary measure for extraordinary or emergency purposes or to
facilitate redemptions (not for leveraging or investment), provided
that borrowings do not exceed an amount equal to 33-1/3% of the
current value of the Fund's assets taken at market value, less
liabilities other than borrowings. If at any time a Fund's borrowings
exceed this limitation due to a decline in net assets, such borrowings
will within three days be reduced to the extent necessary to comply
with this limitation. A Fund will not purchase investments once
borrowed funds (including reverse repurchase agreements) exceed 5% of
its total assets.
3. Pledge, mortgage, or hypothecate its assets. However, a Fund may
pledge securities having a market value at the time of the pledge not
exceeding 33-1/3% of the value of the Fund's total assets to secure
borrowings permitted by paragraph (2) above.
RISK FACTORS
FOREIGN SECURITIES. Investors should consider carefully the substantial
risks involved in securities of companies and governments of foreign nations.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published regarding US companies. Foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to US companies. Many foreign markets have
substantially less volume than either the established domestic securities
exchanges or the over-the-counter markets. Securities of some foreign companies
are less liquid and more volatile than securities of comparable US companies.
Commission rates in foreign countries, which may be fixed rather than subject to
negotiation as in the US, are likely to be higher. In many foreign countries
there is less government supervision and regulation of securities exchanges,
brokers and listed companies than in the US, and capital requirements for
brokerage firms are generally lower. Settlement of transactions in foreign
securities may, in some instances, be subject to delays and related
administrative uncertainties.
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FOREIGN CURRENCY. The Fund may be affected either favorably or unfavorably
by fluctuations in the relative rates of exchange between the currencies of
different nations, exchange control regulations and indigenous economic and
political developments. The Fund endeavors to buy and sell foreign currencies
on favorable terms. Such price spread on currency exchange (to cover service
charges) may be incurred, particularly when the Fund changes investments from
one country to another or when proceeds from the sale of shares in US dollars
are used for the purchase of securities in foreign countries. Also, some
countries may adopt policies which would prevent the Fund from repatriating
invested capital and dividends, withhold portions of interest and dividends at
the source, or impose other taxes, with respect to the Fund's investments in
securities of issuers of that country. There also is the possibility of
expropriation, nationalization, confiscatory or other taxation, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), default in foreign government securities, political or social
instability, or diplomatic developments that could adversely affect investments
in securities of issuers in those nations.
FUTURES CONTRACTS AND OPTIONS ON FUTURES. There are certain investment
risks in using futures contracts and options as a hedging technique. Such risks
may include: (1) the inability to close out a futures contract or option caused
by the nonexistence of a liquid secondary market; and (2) an imperfect
correlation between price movements of the futures contracts or option with
price movements of the portfolio securities or securities index subject to the
hedge. Finally, the successful use of options and futures also depends on the
Adviser's ability to correctly predict price movements in the market involved in
a particular option or futures transaction.
PORTFOLIO TURNOVER
The portfolio turnover rate cannot be predicted, but it is anticipated that
the Fund's annual turnover rate generally will not exceed 80%. A high turnover
rate (over 100%) will: (1) increase transaction expenses which will adversely
affect a Fund's performance; and (2) result in increased brokerage commissions
and other transaction costs, and the possibility of realized capital gains. The
Adviser's sell discipline for the Fund's investment in securities of foreign
issuers is based on the premise of a long-term investment horizon, however,
sudden changes in valuation levels arising from, for example, new macroeconomic
policies, political developments, and industry conditions could change the
assumed time horizon. Some countries impose restrictions on repatriation of
capital and/or dividends which would lengthen the Adviser's assumed time horizon
in those countries. Liquidity, volatility, and overall risk of a position are
other factors considered by the Adviser in determining the appropriate
investment horizon. Therefore, the Fund may dispose of securities without
regard to the time they have been held when such action, for defensive or other
purposes, appears advisable.
The Fund may effect portfolio transactions with or through State Street
Brokerage Services, Inc. an affiliate of the Adviser, when the Adviser
determines that the Fund will receive competitive execution, price and
commissions.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare and pay on Fund shares dividends
annually from net investment income. The Board of Trustees intends to declare
distributions annually from net capital
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gains, if any, generally in mid-October. An additional distribution may be
declared and paid in December, if required, for the Fund to avoid imposition of
a 4% federal excise tax on undistributed capital gains.
Dividends declared in October, November or December and payable to
shareholders of record in such months will be deemed to have been paid by the
Fund and received by shareholders on December 31 of that year if the dividend is
paid prior to February 1 of the following year.
Income dividends and capital gains distributions will be paid in additional
shares at their net asset value on the record date unless the shareholder has
elected to receive them in cash. Such election may be made by giving 10 days'
written notice to Transfer Agent.
Any dividend or capital gain distribution paid by the Fund shortly after a
purchase of shares will reduce the per share net asset value of the Fund by the
amount of the dividend or distribution. In effect, the payment will represent a
return of capital to the shareholder. However, the shareholder will be subject
to taxes with respect to such dividend or distribution.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a RIC,
the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and capital gain net income (capital gains
in excess of capital losses) to its shareholders. The Board intends to
distribute each year substantially all of the Fund's net investment income and
capital gain net income.
Dividends from net investment income and distributions of net short-term
capital gains are taxable to shareholders as ordinary income under federal
income tax laws whether paid in cash or in additional shares. Distributions
from net long-term capital gains are taxable as long-term capital gains
regardless of the length of time a shareholder has held such shares.
Dividends and distributions may also be subject to state or local taxes.
Depending on the state tax rules pertaining to a shareholder, a portion of the
dividends paid by the Fund attributable to direct obligations of the US Treasury
and certain agencies may be exempt from state and local taxes.
The sale of Fund shares by a shareholder is a taxable event and may result
in capital gain or loss. A capital gain or loss may be realized from an
ordinary redemption of shares or an exchange of shares between two mutual funds
(or two series of portfolios of a mutual fund). Any loss incurred on the sale
or exchange of Fund shares held for one year or more will be treated as a
long-term capital loss to the extent of capital gain dividends received with
respect to such shares.
Shareholders will be notified after each calendar year of the amounts of
income dividends and net capital gains distributions and the percentage of the
Fund's income attributable to US Treasury and agency obligations. The Fund is
required to withhold 31% of all taxable dividends, distributions, and redemption
proceeds payable to any noncorporate shareholder that does not provide the Fund
with the shareholder's correct taxpayer identification number or certification
that the shareholder is not subject to backup withholding.
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<PAGE>
FOREIGN INCOME TAXES. Investment income received by the Fund from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which would entitle the Fund to a reduced rate of such taxes or
exemption from taxes on such income. It is impossible to determine the
effective rate of foreign tax for the Fund in advance since the amount of the
assets to be invested within various countries is not known.
If the Fund invests in an entity that is classified as a "passive foreign
investment company" ("PFIC") for federal income tax purposes, the application of
certain provisions of the Code applying to PFICs could result in the imposition
of certain federal income taxes on the Fund. It is anticipated that any taxes
on the Fund with respect to investments in PFICs would be insignificant. Under
US Treasury regulations for PFICs, the Fund can elect to mark-to-market its PFIC
holdings in lieu of paying taxes on gains or distributions therefrom. It is
anticipated that any taxes on a Fund with respect to investments in PFICs would
be insignificant.
Foreign shareholders should consult with their tax advisers as to if and
how the federal income tax and its withholding requirements applies to them.
If more than 50% in value of a Fund's total assets at the close of any
taxable year consists of securities of foreign corporations, the Fund may file
an election with the Internal Revenue Service (the "Foreign Election") that
would permit shareholders to take a credit (or a deduction) for foreign income
taxes paid by the Fund. If the Foreign Election is made, shareholders would
include in their gross income both dividends received from the Fund and foreign
income taxes paid by the Fund. Shareholders of the Fund would be entitled to
treat the foreign income taxes withheld as a credit against their United States
federal income taxes, subject to the limitations set forth in the Internal
Revenue Code with respect to the foreign tax credit generally. Alternatively,
shareholders could treat the foreign income taxes withheld as a deduction from
gross income in computing taxable income rather than as a tax credit. It is
anticipated that the Fund will qualify to make the Foreign Election; however,
the Fund cannot be certain that it will be eligible to make such an election or
that any particular shareholder will be eligible for the foreign tax credit.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax adviser.
VALUATION OF FUND SHARES
NET ASSET VALUE PER SHARE. The Fund determines net asset value once each
business day as of the close of the regular trading session of the New York
Stock Exchange (currently 4 p.m. Eastern time). A business day is one on which
the New York Stock Exchange is open for business. Net asset value per share is
computed by dividing the current value of the Fund's assets, less its
liabilities, by the number of shares of the Fund outstanding and rounding to the
nearest cent.
VALUATION OF FUND SECURITIES. With the exceptions noted below, the Fund
values portfolio securities at fair market value. This generally means that
equity and fixed income securities listed and traded principally on any national
securities exchange are valued on the basis of the last sale price or,
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lacking any sales, at the closing bid price, on the primary exchange on which
the security is traded. United States equity and fixed income securities traded
principally over-the-counter and options are valued on the basis of the last
reported bid price. Futures contracts are valued on the basis of the last
reported sale price.
Because many fixed income securities do not trade each day, last sale or
bid prices are frequently not available. Fixed income securities therefore may
be valued using prices provided by a pricing service when such prices are
determined by Custodian to reflect the fair market value of such securities.
International securities traded on a national securities exchange are
valued on the basis of the last sale price. International securities traded
over-the-counter are valued on the basis of best bid or official bid, as
determined by the relevant securities exchange. In the absence of a last sale
or best or official bid price, such securities may be valued on the basis of
prices provided by a pricing service if those prices are believed to reflect the
fair value of such securities.
Fixed income securities maturing within 60 days of the valuation date are
valued at amortized cost unless the Board determines that amortized cost does
not represent fair value. The amortized cost valuation procedure initially
prices an instrument at its cost and thereafter assumes a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price a Fund would
receive if it sold the instrument.
The Fund values securities for which market quotations are not readily
available at fair value, as determined in good faith pursuant to procedures
established by the Board of Trustees.
PURCHASE OF FUND SHARES
MINIMUM INITIAL INVESTMENT AND ACCOUNT BALANCE. The Fund requires a
minimum initial investment of $1,000. The minimum account balance is $500. The
Fund reserves the right to reject any purchase order.
OFFERING DATES AND TIMES. Fund shares may be purchased on any business day
without a sales commission. All purchases must be made in US dollars. Purchase
orders in good form and payments for Fund shares must be received by Transfer
Agent prior to 4:00 p.m. Eastern time to be effective on the date received. The
accompanying payment must be in federal funds or converted into federal funds by
Transfer Agent before the purchase order can be accepted. Purchase orders in
good form are described below.
ORDER AND PAYMENT PROCEDURES. There are several ways to invest in the
Fund. The Fund requires a purchase order in good form which consists of a
completed and signed Account Registration and Investment Instruction Form (the
"Application") for each new account regardless of the investment method. For
additional information, copies of Applications or questions, call Transfer Agent
at (800) 647-7327, or write to Transfer Agent at: State Street Bank and Trust
Company, P.O. Box 8317, Boston, MA 02107, Attention: The Seven Seas Series
Active International Fund.
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FEDERAL FUNDS WIRE. An investor may purchase shares by wiring federal
funds to State Street Bank and Trust Company as Transfer Agent by:
1. Telephoning State Street Bank and Trust Company at (800) 647-7327 and
stating: (1) the investor's account registration, address and social
security or tax identification number; (2) the amount being wired; (3)
the name of the wiring bank; (4) the name and telephone number of the
person at the wiring bank to be contacted in connection with the
order; and (5) that the funds should be invested in The Seven Seas
Series Active International Fund.
2. Instructing the wiring bank to wire federal funds to: State Street
Bank and Trust Company, Boston, MA (ABA #0110-00028), Attention: The
Seven Seas Series Active International Fund, Mutual Funds Service
Division (DDA #9904-631-0). The wire instructions should also include
the name in which the account is registered, the account number, and
the name of the Fund in which to be invested.
3. Completing the Application and forwarding it to Transfer Agent at the
above address.
MAIL. To purchase shares by mail, send a check or other negotiable bank
draft payable to: State Street Bank and Trust Company, P.O. Box 8317, Boston,
MA 02107, Attention: The Seven Seas Series Active International Fund.
Certified checks are not necessary, but checks are accepted subject to
collection at full face value in United States funds and must be drawn in United
States dollars on a United States bank. Normally, checks and drafts are
converted to federal funds within two business days following receipt of the
check or draft. Initial investments should be accompanied by a completed
Application, and subsequent investments are to be accompanied by the investor's
account number.
THIRD PARTY TRANSACTIONS. Investors purchasing Fund shares through a
program of services offered by a financial intermediary, such as a bank,
broker-dealer, investment adviser or others, may be required to pay additional
fees by such intermediary. Investors should contact such intermediary for
information concerning what additional fees, if any, may be charged.
IN-KIND EXCHANGE OF SECURITIES. The Transfer Agent may, at its discretion,
permit investors to purchase shares through the exchange of securities they
hold. Any securities exchanged must meet the investment objective, policies and
limitations of the Fund, must have a readily ascertainable market value, must be
liquid and must not be subject to restrictions on resale. The market value of
any securities exchanged, plus any cash, must be at least $1 million. Shares
purchased in exchange for securities generally may not be redeemed or exchanged
until the transfer has settled -- usually within 15 days following the purchase
by exchange.
The basis of the exchange will depend upon the relative net asset value of
the shares purchased and securities exchanged. Securities accepted by the Fund
will be valued in the same manner as the Fund values its assets. Any interest
earned on the securities following their delivery to the Transfer Agent and
prior to the exchange will be considered in valuing the securities. All
interest, dividends, subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
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EXCHANGE PRIVILEGE. Subject to the Fund's minimum investment requirement,
investors may exchange their Fund shares without charge for shares of any other
investment portfolio offered by Investment Company. Shares are exchanged on the
basis of relative net asset value per share. Exchanges may be made: (1) by
telephone if the registrations of the two accounts are identical; or (2) in
writing addressed to State Street Bank and Trust Company, P.O. Box 8317, Boston,
MA 02107, Attention: The Seven Seas Series Active International Fund. If shares
of a Fund were purchased by check, the shares must have been present in an
account for 10 days before an exchange is made. The exchange privilege will
only be available in states where the exchange may legally be made, and may be
modified or terminated by the Funds upon 60 days' notice to shareholders.
REDEMPTION OF FUND SHARES
Fund shares may be redeemed on any business day at the net asset value next
determined after the receipt of a redemption request in proper form as described
below. Payment will ordinarily be made in seven days and will be mailed to the
shareholder's address of record. Upon request, redemption proceeds will be wire
transferred to the shareholder's account at a domestic commercial bank that is a
member of the Federal Reserve System. Although Investment Company does not
currently charge a fee for this service, Investment Company reserves the right
to charge a fee for the cost of wire-transferred redemptions of less than
$1,000. Payment for redemption of shares purchased by check may be withheld for
up to 10 days after the date of purchase to assure that such checks are honored.
EXPEDITED REDEMPTION. Shareholders may normally redeem Fund shares by
telephoning State Street Bank and Trust Company between 9:00 a.m. and 4:00 p.m.
Eastern time at (800) 647-7327, Attention: The Seven Seas Series Active
International Fund. Shareholders using the expedited redemption method must
complete the appropriate section on the Application. The Fund and the Transfer
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are properly authorized. The Fund and the Transfer
Agent will not be liable for executing telephone instructions that are deemed to
be authorized after following reasonable procedures. These procedures include
record telephonic instructions, mailing to the shareholder a written
confirmation of the transaction, performing a personal identity test with
private information not likely to be known by other individuals, and restricting
mailing of redemptions to the shareholder's address of record. During periods
of drastic economic or market changes, shareholders using this method may
encounter delays. In such event, shareholders should consider using the mail
redemption procedure described below.
MAIL. Redemption requests may be made in writing directly to State Street
Bank and Trust Company, P.O. Box 8317, Boston, MA 02107, Attention: The Seven
Seas Series Active International Fund. The redemption price will be the net
asset value next determined after receipt by State Street of all required
documents in good order. Good order means that the request must include the
following:
1. A letter of instruction or a stock assignment stating the Fund or
Funds out of which the shares are to be redeemed and designating
specifically the dollar amount to be redeemed signed by all owners of
the shares in the exact names in which they appear on the account,
together with a guarantee of the signature of each owner by a bank,
trust company or member of a recognized stock exchange; and
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2. Such other supporting legal documents, if required by applicable law
or Transfer Agent, in the case of estates, trusts, guardianships,
custodianships, corporations and pension and profit-sharing plans.
The Fund reserves the right to redeem the shares in any account with a
balance of less than $500 as a result of shareholder redemptions. Before shares
are redeemed to close an account, the shareholder will be notified in writing
and allowed 60 days to purchase additional shares to meet the minimum account
balance.
The Fund may pay any portion of the redemption amount in excess of $250,000
by a distribution in kind of readily marketable securities from the portfolio of
the Fund in lieu of cash. Investors will incur brokerage charges on the sale of
these portfolio securities. The Fund reserves the right to suspend the right of
redemption or postpone the date of payment if emergency conditions, as specified
in the 1940 Act or determined by the Securities and Exchange Commission, should
exist.
GENERAL MANAGEMENT
The Board of Trustees supervises the management, activities and affairs of
the Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
ADVISORY AGREEMENT. The Investment Company employs State Street Bank and
Trust Company ("State Street" or "Adviser") to furnish investment services to
the Fund. State Street is one of the largest providers of securities processing
and recordkeeping services for US mutual funds and pension funds. State Street
is a wholly owned subsidiary of State Street Boston Corporation, a publicly held
bank holding company. State Street, with over $144 billion (US) under
management as of September 30, 1994, provides complete global investment
management services from offices in the United States, London, Sydney, Hong
Kong, Tokyo, Toronto, Luxembourg, Melbourne, Montreal, Paris, Dubai, Munich and
Brussels.
Adviser, subject to Board supervision, directs the investment of the Fund
in accordance with the Fund's investment objective, policies and restrictions.
Investment decisions regarding the Fund are made by committee, and no person is
primarily responsible for making recommendations to that committee. For these
services, the Fund pays Adviser a fee, calculated daily and paid monthly, that
on an annual basis is equal to .75% of the Fund's average daily net assets.
This fee is higher than the investment advisory fees paid by most investment
companies. However, the fee is comparable to that of other funds with similar
investment objectives.
The Glass-Steagall Act prohibits a depository state chartered bank such as
Adviser from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Adviser in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Adviser
has been advised by its counsel that its activities in connection with the Fund
are consistent with its statutory and regulatory obligations. THE SHARES
OFFERED BY THIS PROSPECTUS ARE NOT ENDORSED OR GUARANTEED BY STATE STREET OR ITS
AFFILIATES,
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<PAGE>
ARE NOT DEPOSITS OR OBLIGATIONS OF STATE STREET OR ITS AFFILIATES, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
Changes in federal or state statutes and regulations relating to the
permissible activities of banks and their affiliates, as well as judicial or
administrative decisions or interpretations of such or future statutes and
regulations, could prevent Adviser from continuing to perform all or a part of
the above services for its customers and/or the Funds. If Adviser were
prohibited from serving the Funds in any of its present capacities, the Board of
Trustees would seek an alternative provider(s) of such services. In such event,
changes in the operation of the Fund may occur. It is not expected by Adviser
that existing shareholders would suffer any adverse financial consequences (if
another adviser with equivalent abilities is found) as a result of any of these
occurrences.
State Street may from time to time have discretionary authority over
accounts which invest in Investment Company shares. These accounts include
accounts maintained for securities lending clients and accounts which permit the
use of Investment Company portfolios as short-term cash sweep investments.
Shares purchased for all discretionary accounts are held of record by State
Street, who retains voting control of them. As of July 26, 1995, State
Street held of record 32% of the issued and outstanding shares of
Investment Company in connection with its discretionary accounts. Consequently,
State Street may be deemed to be a controlling person of Investment Company for
purposes of the 1940 Act.
ADMINISTRATION AGREEMENT. Frank Russell Investment Management Company
("Administrator") serves as administrator to the Fund. Administrator currently
serves as investment manager and administrator to 22 mutual funds with assets of
$6.1 billion as of January 31, 1995, and acts as administrator to 18 mutual
funds, including the Fund, with assets of $6.0 billion as of January 31, 1995.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Funds' operations; (2)
provide the Funds with administrative and clerical services, including the
maintenance of certain of the Funds' books and records; (3) arrange the periodic
updating of the Funds' prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Funds with adequate office space and all
necessary office equipment and services, including telephone service, heat,
utilities, stationery supplies and similar items. For these services, the
Active International Fund pays Administrator a fee that on an annual basis is
equal to the following percentages of each Fund's average daily net assets: $0
up to $500 million -- .07%; over $500 million to $1 billion -- .06%; over $1
billion to and including $1.5 billion -- .04%; and over $1.5 billion -- .03%.
The percentage of the fee paid by a particular Fund is equal to the percentage
of average aggregate daily net assets that are attributable to that Fund.
Administrator will also receive reimbursement of expenses it incurs in
connection with establishing new investment portfolios. Further, the
administration fee paid by Investment Company will be reduced by the sum of
certain distribution related expenses (up to a maximum of 15% of the asset-based
administration fee listed above).
Administrator also provides administrative services in connection with the
registration of shares of Investment Company with those states in which its
shares are offered or sold. Compensation for such services is on a time spent
basis. Investment Company will pay all registration, exemptive application,
renewal and related fees and reasonable out-of-pocket expenses.
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DISTRIBUTION SERVICES AND SHAREHOLDER SERVICING ARRANGEMENTS. Pursuant to
the Distribution Agreement with Investment Company, Russell Fund Distributors,
Inc. ("Distributor"), a wholly owned subsidiary of Administrator, serves as
distributor for all Fund shares.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the
"Plan") under the 1940 Act. The purpose of the Plan is to provide for the
payment of certain Investment Company distribution and shareholder servicing
expenses. Under the Plan, Distributor will be reimbursed in an amount up to
.25% of the Fund's average annual net assets for distribution-related and
shareholder servicing expenses. Payments under the Plan will be made to
Distributor to finance activity which is intended to result in the sale and
retention of Fund shares including: (1) the costs of prospectuses, reports to
shareholders and sales literature; (2) advertising; and (3) expenses incurred in
connection with the promotion and sale of Fund shares, including Distributor's
overhead expenses for rent, office supplies, equipment, travel, communication,
compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Adviser ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Under the Service
Agreements, the Service Organizations may provide various services for such
customers including: answering inquiries regarding the Fund; assisting customers
in changing dividend options, account designations and addresses; performing
subaccounting for such customers; establishing and maintaining customer accounts
and records; processing purchase and redemption transactions; providing periodic
statements showing customers' account balances and integrating such statements
with those of other transactions and balances in the customers' other accounts
serviced by the Service Organizations; arranging for bank wires transferring
customers' funds; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the Fund, for shareholder
servicing, monthly fees at a rate that shall not exceed .20% per annum of the
average daily net asset value of the Fund's shares owned by or for shareholders
with whom the Service Organization has a servicing relationship. Banks and
other financial service firms may be subject to various state laws, and may be
required to register as dealers pursuant to state law.
Investment Company has entered into Service Agreements with Adviser and
with Adviser's State Street Solutions area to obtain the services described
above with respect to Fund shares held by or for customers. In return for these
services, Investment Company pays Adviser a fee in an amount that per annum is
equal to .025% of the average daily value of all Fund shares held by or for
customers, and .175% of the average daily value of all Fund shares held by or
for customers of Adviser's State Street Solutions area.
Payments to the Distributor, as well as payments to Service Organizations
from the Fund are not permitted by the Plan to exceed .25% of the Fund's average
net asset value per year. Any payments that are required to be made by the
Distribution Agreement and any Service Agreement but could not be made because
of the .25% limitation may be carried forward and paid in subsequent years so
long as the Plan is in effect. A Fund's liability for any such expenses carried
forward shall terminate at the end of two years following the year in which the
expenditure was incurred. Service Organizations will be responsible for prompt
transmission of purchase and redemption orders and may charge fees for their
services.
-20-
<PAGE>
FUND EXPENSES
The Fund will pay all of their expenses other than those expressly assumed
by Adviser and Administrator. The principal expenses of the Fund are the annual
advisory fee payable to Adviser and distribution and shareholder servicing
expenses. Other expenses include: (1) amortization of deferred organizational
costs; (2) taxes, if any; (3) expenses for legal, auditing and financial
accounting services; (4) expense of preparing (including typesetting, printing
and mailing) reports, prospectuses and notices to existing shareholders; (5)
administrative fees; (6) expense of issuing and redeeming Fund shares; (7) the
cost of registering Fund shares under federal and state laws; (8) shareholder
meetings and related proxy solicitation expenses; (9) the fees, travel expenses
and other out-of-pocket expenses of Trustees who are not affiliated with Adviser
or any of its affiliates; (10) insurance, interest, brokerage and litigation
costs; (11) extraordinary expenses as may arise, including expenses incurred in
connection with litigation proceedings and claims and the legal obligations of
Investment Company to indemnify its Trustees, officers, employees, shareholders,
distributors and agents; and (12) other expenses properly payable by the Fund.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its total return. The total
return of a Fund refers to the average annual compounded rates of return from a
hypothetical investment in the Fund over one-, five- and ten-year periods or for
the life of the Fund (as stated in the advertisement), assuming the reinvestment
of all dividend and capital gains distributions.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., Wall Street Journal Score Card, MSCI EAFE Index, or other
industry publications, business periodicals, rating services and market indices.
The Fund may also advertise nonstandardized performance information which is for
periods in addition to those required to be presented.
Total return and other performance figures are based on historical earnings
and are not indications of future performance.
ADDITIONAL INFORMATION
CUSTODIAN, ACCOUNTANTS AND REPORTS. State Street holds all portfolio
securities and cash assets of the Fund, provides portfolio recordkeeping
services and serves as the Fund's transfer agent ("Transfer Agent") and
custodian ("Custodian"). State Street is authorized to deposit securities in
securities depositories or to use the services of subcustodians. State Street
has no responsibility for the supervision and management of the Fund except as
investment adviser. Coopers & Lybrand L.L.P., Boston, Massachusetts, is
Investment Company's independent accountants.
REPORTS TO SHAREHOLDERS AND SHAREHOLDER INQUIRIES. Shareholders will
receive an unaudited semiannual financial statement and an annual financial
statement audited by Investment Company's independent accountants. Shareholder
inquiries regarding the Prospectus and financial statements
-21-
<PAGE>
may be made by calling Distributor at (617) 654-6089. Inquiries regarding
shareholder balances may be made by calling the Transfer Agent at (800)
647-7327.
ORGANIZATION, CAPITALIZATION AND VOTING. Investment Company was organized
as a Massachusetts business trust on October 3, 1987.
Investment Company issues shares divisible into an unlimited number of
series (or funds), each of which is a separate trust under Massachusetts law.
The Active International Fund is one such series.
Fund shares represent an equal proportionate interest in the Fund, have a
par value of $.001 per share and are entitled to such relative rights and
preferences and dividends and distributions earned on the assets belonging to
the Fund as may be declared by the Board of Trustees. Fund shares are fully
paid and nonassessable by Investment Company and have no preemptive rights.
Each Fund share has one vote. There are no cumulative voting rights.
There is no annual meeting of shareholders, but special meetings may be held.
On any matter that affects only a particular investment portfolio, only
shareholders of that fund vote unless otherwise required by the 1940 Act or the
Master Trust Agreement. The Trustees hold office for the life of the Trust. A
Trustee may resign or retire, and a Trustee may be removed at any time by a vote
of two-thirds of the Investment Company shares. The Trustees shall promptly
call and give notice of a meeting of shareholders for the purpose of voting upon
removal of any Trustee when requested to do so in writing by holders of not less
than 10% of the shares then outstanding. A vacancy on the Board of Trustees may
be filled by the vote of a majority of the remaining Trustees, provided that
immediately thereafter at least two-thirds of the Trustees have been elected by
shareholders.
Investment Company does not issue share certificates for the Fund.
Transfer Agent sends Fund shareholders statements concurrent with any
transaction activity, confirming all investments in or redemptions from their
accounts. Each statement also sets forth the balance of shares held in the
account.
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<PAGE>
THE SEVEN SEAS SERIES FUND
Two International Place, 35th Floor
Boston, Massachusetts 02110
INVESTMENT ADVISER, CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
DISTRIBUTOR
Russell Fund Distributors, Inc.
Two International Place, 35th Floor
Boston, Massachusetts 02110
ADMINISTRATOR
Frank Russell Investment Management Company
909 A Street
Tacoma, Washington 98402
LEGAL COUNSEL
Goodwin, Procter & Hoar
Exchange Place
Boston, Massachusetts 02109
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
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<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
THE SEVEN SEAS SERIES FUND
Two International Place, 35th Floor
Boston, Massachusetts 02110
(617) 654-6089
STATEMENT OF ADDITIONAL INFORMATION
THE SEVEN SEAS SERIES ACTIVE INTERNATIONAL FUND
JULY 28, 1995
The Seven Seas Series Fund ("Investment Company") is a registered open-end
investment company organized as a Massachusetts business trust offering shares
of beneficial interest in separate investment portfolios. In addition, each
series of the Investment Company is diversified as defined in the Investment
Company Act of 1940, as amended ("1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and The Seven Seas Series Active
International Fund (the "Active International Fund" or the "Fund") as contained
in the Fund's Prospectus dated July 28, 1995. This Statement is not a
Prospectus and should be read in conjunction with the Fund's Prospectus, which
may be obtained by telephoning or writing Investment Company at the number or
address shown above.
<PAGE>
TABLE OF CONTENTS
Page
----
STRUCTURE AND GOVERNANCE . . . . . . . . . . . . . . . . . . . . 3
Organization and Business History. . . . . . . . . . . 3
Shareholder Meetings . . . . . . . . . . . . . . . . . 4
Controlling Shareholders . . . . . . . . . . . . . . . 4
Principal Shareholders . . . . . . . . . . . . . . . . 5
Trustees and Officers. . . . . . . . . . . . . . . . . 5
OPERATION OF INVESTMENT COMPANY. . . . . . . . . . . . . . . . . 7
Service Providers. . . . . . . . . . . . . . . . . . . 7
Adviser. . . . . . . . . . . . . . . . . . . . . . . . 7
Administrator. . . . . . . . . . . . . . . . . . . . . 8
Distributor. . . . . . . . . . . . . . . . . . . . . . 8
Custodian and Transfer Agent . . . . . . . . . . . . . 8
Distribution Plan. . . . . . . . . . . . . . . . . . . 8
Federal Law Affecting State Street . . . . . . . . . . 9
Valuation of Fund Shares . . . . . . . . . . . . . . . 9
Brokerage Practices. . . . . . . . . . . . . . . . . . 10
Portfolio Turnover Policy. . . . . . . . . . . . . . . 11
Total Return Quotations. . . . . . . . . . . . . . . . 11
INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Investment Restrictions. . . . . . . . . . . . . . . . 12
Investment Policies. . . . . . . . . . . . . . . . . . 15
Hedging Strategies and Related Investment Techniques . 18
RISK CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . 24
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 28
APPENDIX: DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . 29
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<PAGE>
STRUCTURE AND GOVERNANCE
ORGANIZATION AND BUSINESS HISTORY. Investment Company is a Massachusetts
business trust organized under a First Amended and Restated Master Trust
Agreement, dated October 13, 1993, as amended. Investment Company is authorized
to issue shares of beneficial interest, par value $.001 per share, which may be
divided into one or more series, each of which evidences pro rata ownership
interest in a different investment portfolio, or "Fund." The Active
International Fund is one such investment portfolio. The Trustees may create
additional Funds at any time without shareholder approval.
Further, the Investment Company is authorized to divide shares of any
series into two or more classes of shares. The shares of each Fund may have
such rights and preferences as the Trustees may establish from time to time,
including the right of redemption (including the price, manner and terms of
redemption), special and relative rights as to dividends and distributions,
liquidation rights, sinking or purchase fund provisions and conditions under
which any Fund may have separate voting rights or no voting rights. Each class
of shares of a Fund is entitled to the same rights and privileges as all other
classes of that Fund, except that each class bears the expenses associated with
the distribution and shareholder servicing arrangements of that class, as well
as other expenses attributable to the class and unrelated to the management of
the Fund's portfolio securities.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
The Seven Seas Series Money Market Fund May 2, 1988
The Seven Seas Series US Government Money Market Fund March 1, 1991
The Seven Seas Series US Treasury Money Market Fund December 1, 1993
The Seven Seas Series US Treasury Obligations Fund *
The Seven Seas Series Prime Money Market Fund February 22, 1994
The Seven Seas Series Yield Plus Fund November 9, 1992
The Seven Seas Series Tax Free Money Market Fund December 1, 1994
The Seven Seas Series Short Term Government Securities Fund April 15, 1992
The Seven Seas Series Intermediate Fund September 1, 1993
The Seven Seas Series Bond Market Fund *
The Seven Seas Series Growth and Income Fund September 1, 1993
The Seven Seas Series S&P 500 Index Fund December 30, 1992
The Seven Seas Series Small Cap Fund July 1, 1992
The Seven Seas Series Matrix Equity Fund May 4, 1992
The Seven Seas Series Active International Fund March 7, 1995
The Seven Seas Series International Pacific Index Fund *
The Seven Seas Series Emerging Markets Fund March 1, 1994
The Seven Seas Series Real Estate Equity Fund *
__________
*As of the date of this Statement of Additional Information, these portfolios
have not commenced operations.
-3-
<PAGE>
Prospectuses for these Investment Portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (617)
654-6089.
Shares of the Money Market, US Government Money Market and Tax Free Money
Market Funds are divided into Classes A, B and C.
Any amendment to the Master Trust Agreement that would materially and
adversely affect shareholders of Investment Company as a whole, or shareholders
of a particular Fund, must be approved by the holders of a majority of the
shares of Investment Company or the Fund, respectively. All other amendments
may be effected by Investment Company's Board of Trustees.
Under certain unlikely circumstances, and as is the case with any
Massachusetts business trust, a shareholder of a Fund may be held personally
liable for the obligations of a Fund. The Master Trust Agreement provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of a Fund and that every written agreement, obligation, or other
undertaking of the Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Fund and satisfy
any judgment thereon. Thus, the risk to shareholders of incurring financial
loss beyond their investments is limited to circumstances in which the Fund
itself would be unable to meet its obligations.
SHAREHOLDER MEETINGS. Investment Company will not have an annual meeting
of shareholders. Special meetings may be convened: (1) by the Board of
Trustees; (2) upon written request to the Board by the holders of at least 10%
of the outstanding shares; or (3) upon the Board's failure to honor the
shareholders' request described above, by holders of at least 10% of the
outstanding shares giving notice of the special meeting to the shareholders.
CONTROLLING SHAREHOLDERS. The Trustees have the authority and
responsibility to manage the business of Investment Company. Trustees hold
office until they resign or are removed by, in substance, a vote of two-thirds
of Investment Company shares outstanding.
State Street Bank and Trust Company ("State Street") may from time to time
have discretionary authority over accounts which invest in Investment Company
shares. These accounts include accounts maintained for securities lending
program and investment accounts which permit the use of Investment Company
portfolios as short-term cash sweep investments. Shares purchased for all
discretionary accounts are held of record by State Street, who retains voting
control of them. As of July 26, 1995, State Street held of record
32% of the issued and outstanding shares of Investment Company in
connection with its discretionary accounts. Consequently, State Street may be
deemed to be a controlling person of Investment Company for purposes of
-4-
<PAGE>
the 1940 Act. State Street also acts as Investment Company's investment
adviser, transfer agent and custodian. The address of State Street Bank and
Trust Company is 225 Franklin Street, Boston, MA 02110.
Frank Russell Investment Management Company, Investment Company's
administrator ("Administrator"), will be the initial sole shareholder of the
Fund until such time as the Fund has public shareholders and therefore
Administrator may be deemed to be a controlling person for the purposes of the
1940 Act.
PRINCIPAL SHAREHOLDERS. As of July 26, 1995, the following
shareholders owned of record 5% or more of the issued and outstanding shares
of the Fund: Wellesley College Retirement Fund, 146 Green Hill, Wellesley, MA
02181-9%; and CM01 State Street Retirement, P.O. Box 351, Boston, MA
02101-54%.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
TRUSTEES AND OFFICERS. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The officers, all of whom are employed by,
and are officers of, Administrator or its affiliates, are responsible for the
day-to-day management and administration of the Fund's operations.
Trustees who are not officers or employees of State Street or its
affiliates are paid an annual fee and are reimbursed for travel and other
expenses they incur in attending Board meetings. Investment Company's officers
and employees are paid by Administrator or its affiliates.
The following lists Investment Company's Trustees and officers, their
positions with Investment Company, their present and principal occupations
during the past five years and the mailing addresses of Trustees who are not
affiliated with Investment Company. The mailing address for all Trustees and
officers affiliated with Investment Company is The Seven Seas Series Fund, 909 A
Street, Tacoma, WA 98402.
An asterisk (*) indicates that a Trustee is an "interested person" of the
Investment Company, as defined in the 1940 Act.
*LYNN L. ANDERSON, Trustee, Chairman of the Board and President. Director,
Frank Russell Company; Director, President and Chief Executive Officer of Frank
Russell Investment Management Company and Frank Russell Trust Company; Trustee,
President and Chief Executive Officer, Frank Russell Investment Company;
Director and President, Russell Fund Distributors, Inc.
WILLIAM L. MARSHALL, Trustee. 33 West Court Street, Doylestown, PA 18901.
Chief Executive Officer and President, Wm. L. Marshall Associates, Inc. (a
registered investment adviser and provider of financial and related consulting
services); Certified Financial Planner; Member, Registry of Financial Planning
Practitioners; and Advisory Committee, International Association for Financial
Planning Broker-Dealer Program.
-5-
<PAGE>
Member, Institute of Certified Financial Planners. Registered for Securities
with FSC Securities Corp., Marietta, Georgia.
*STEVEN J. MASTROVICH, Trustee. 1 Financial Center, Boston, MA 02111.
Partner, Brown, Rudnick, Freed & Gesmer (law firm). 1990 to 1994, Partner,
Warner & Stackpole (law firm). Prior to that, Partner, Fine & Ambrogne (law
firm); Attorney, Rackemann, Sawyer & Brewster (law firm).
PATRICK J. RILEY, Trustee. 21 Custom House Street, Boston, MA 02110.
Partner, Riley, Burke & Donahue (law firm).
RICHARD D. SHIRK, Trustee. 3350 Peachtree Road, N.E., Atlanta, GA 30326.
President and Chief Executive Officer, Blue Cross/Blue Shield of Georgia. 1990
to 1992, President, Champions Group Resources--Business Management and Employee
Benefits Consulting; 1990, Senior Vice President, Employee Benefits Division,
Cigna Corporation (providing and insuring group life, health and disability
employee benefit products and services); from 1986 to 1990, Senior Vice
President, EQUICOR-Equitable HCA Corporation (providing and insuring group life,
health and disability employee benefit products and services).
BRUCE D. TABER, Trustee. 26 Round Top Road, Boxford, MA 01921.
President, A.B. Reed, Inc. - Engineers, Architects, Planners. Prior to that,
Vice President, Instrumentation and Controls, A.B. Reed., Inc.
HENRY W. TODD, Trustee. 111 Commerce Drive, Montgomeryville, PA 18936.
President and Director, Zink & Triest Co., Inc. (dealer in vanilla flavor
materials); Director, A.M. Todd Co., and Flavorite Laboratories.
MARGARET L. BARCLAY, Senior Vice President, Fund Treasurer and Director of
Operations. Director--Finance and Operations, Frank Russell Investment
Management Company and Frank Russell Trust Company; Treasurer and Chief
Accounting Officer, Frank Russell Investment Company; Director, Russell Fund
Distributors, Inc.
J. DAVID GRISWOLD, Vice President and Secretary. Assistant Secretary,
Associate General Counsel, Compliance Officer, Frank Russell Investment
Management Company and Russell Fund Distributors, Inc.; Associate General
Counsel and Assistant Secretary, Frank Russell Company; Assistant Secretary,
Russell Fiduciary Services Company; Secretary, Associate General Counsel and
Compliance Officer, Frank Russell Securities, Inc.; prior to that Attorney,
Foster Pepper & Shefelman (law firm).
-6-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
TRUSTEE COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------
Aggregate Pension or Estimated Annual Total
Compensation Retirement Benefits Upon Compensation
from Benefits Accrued Retirement From Investment
Trustee Investment as Part of Company Paid to
Company Investment Trustees
Company
Expenses
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lynn L. Anderson $0 $0 $0 $0
- ----------------------------------------------------------------------------------------------------------
William L. Marshall $43,000 $0 $0 $43,000
- ----------------------------------------------------------------------------------------------------------
Steven J. Mastrovich $43,000 $0 $0 $43,000
- ----------------------------------------------------------------------------------------------------------
Patrick J. Riley $43,000 $0 $0 $43,000
- ----------------------------------------------------------------------------------------------------------
Richard D. Shirk $43,000 $0 $0 $43,000
- ----------------------------------------------------------------------------------------------------------
Bruce D. Taber $43,000 $0 $0 $43,000
- ----------------------------------------------------------------------------------------------------------
Henry W. Todd $43,000 $0 $0 $43,000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
OPERATION OF INVESTMENT COMPANY
SERVICE PROVIDERS. Most of the Fund's necessary day-to-day operations are
performed by separate business organizations under contract to Investment
Company. The principal service providers are:
Investment Adviser,
Custodian and
Transfer Agent: State Street Bank and Trust Company
Administrator: Frank Russell Investment Management Company
Distributor: Russell Fund Distributors, Inc.
ADVISER. State Street serves as the Fund's investment adviser ("Adviser")
pursuant to an Advisory Agreement dated April 12, 1988. State Street Bank and
Trust Company, 225 Franklin Street, Boston, MA 02110, is a wholly owned
subsidiary of State Street Boston Corporation, a publicly held bank holding
company.
Under the Advisory Agreement, Adviser directs the Fund's investments in
accordance with its investment objective, policies and limitations. For these
services, the Fund pays a fee to Adviser at the rate stated in the Prospectus.
The Advisory Agreement will continue from year to year provided that a majority
of the Trustees who are not interested persons of any Investment Portfolio and
either a majority of all Trustees or a majority of the shareholders of each
Investment Portfolio approve its continuance. The Agreement may be terminated
by Adviser or a Fund without penalty upon 60 days' notice and will terminate
automatically upon its assignment. State Street Bank and Trust Company's
mailing address is 225 Franklin Street, Boston, MA 02110.
-7-
<PAGE>
ADMINISTRATOR. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988. A description of the services
provided under the Administration Agreement and the basis for computing fees for
such services is provided in the Fund's Prospectus. The Administration
Agreement will continue from year to year provided that a majority of the
Trustees and a majority of the Trustees who are not interested persons of any
Investment Portfolio and who have no direct or indirect financial interest in
the operation of the Distribution Plan described below or the Administration
Agreement approve its continuance. The Agreement may be terminated by
Administrator or a Fund without penalty upon 60 days' notice and will terminate
automatically upon its assignment.
Administrator is a wholly owned subsidiary of Frank Russell Company. Frank
Russell Company was founded in 1936 and has provided comprehensive asset
management consulting services since 1969 for institutional pools of investment
assets, principally those of large corporate employee benefit plans. Frank
Russell Company and its affiliates have offices in Tacoma, Seattle, New York
City, Toronto, London, Tokyo, Sydney, Paris and Zurich, and have approximately
1,000 officers and employees. Administrator's and Frank Russell Company's
mailing address is 909 A Street, Tacoma, WA 98402.
DISTRIBUTOR. Russell Fund Distributors, Inc. ("Distributor") serves as the
distributor of Fund shares pursuant to a Distribution Agreement dated April 12,
1988. Distributor is a wholly owned subsidiary of Administrator. Distributor's
mailing address is Two International Place, 35th Floor, Boston, MA 02110.
CUSTODIAN AND TRANSFER AGENT. State Street serves as the custodian
("Custodian") and transfer agent ("Transfer Agent") for Investment Company.
State Street also provides the basic portfolio recordkeeping required by
Investment Company for regulatory and financial reporting purposes. For these
services, State Street is paid an annual fee in accordance with the following:
custody services--a fee payable monthly on a pro rata basis, based on the
following percentages of average daily net assets of each Fund: $0 up to $100
million-0.05%, over $100 million to $200 million-0.03%; and over $200
million-0.02%; securities transaction charges from $25.00 to $150.00 per
transaction; Eurodollar transaction fees ranging from $110.00 to $125.00 per
transaction; monthly pricing fees of $375.00 per Investment Fund and from $6.00
to $11.00 per security, depending on the type of instrument and the pricing
service used; transfer agent services of $5.00 per shareholder transaction and a
multiple class fee of $18,000 per year for each additional class of shares; and
yield calculation fees of $350.00 per non-money market portfolio per month. As
of the date of this SAI, a yield calculation will not be calculated for the Fund
and therefore the $350.00 fee will not be charged. State Street is reimbursed
by the Fund for supplying certain out-of-pocket expenses including postage,
transfer fees, stamp duties, taxes, wire fees, telexes, and freight.
-8-
<PAGE>
DISTRIBUTION PLAN. Under the 1940 Act, the Securities and Exchange
Commission has adopted Rule 12b-1, which regulates the circumstances under which
the Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted an active distribution plan (the "Plan"), which is described in
the Fund's Prospectus.
The Plan provides that the Fund may spend annually, directly or indirectly,
up to 0.25% of 1% of the average daily value of the net assets for distribution
and shareholder servicing services. The Plan does not provide for the Fund to
be charged for interest, carrying or any other financing charges on any
distribution expenses carried forward to subsequent years. A quarterly report
of the amounts expended under the Plan, and the purposes for which such
expenditures were incurred, must be made to the Trustees for their review. The
Plan may not be amended without shareholder approval to increase materially the
distribution or shareholder servicing costs that the Fund may pay. The Plan and
material amendments to it must be approved annually by all of the Trustees and
by the Trustees who are neither "interested persons" (as defined in the 1940
Act) of the Fund nor have any direct or indirect financial interest in the
operation of the Plan or any related agreements.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Adviser ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements
are more fully described in the Fund's prospectus under "Distribution Services
and Shareholder Servicing."
FEDERAL LAW AFFECTING STATE STREET. The Glass-Steagall Act of 1933
prohibits state chartered banks such as State Street from engaging in the
business of underwriting, selling or distributing certain securities, and
prohibits a member bank of the Federal Reserve System from having certain
affiliations with an entity engaged principally in that business. The
activities of State Street in informing its customers of the Fund, performing
investment and redemption services, providing custodian, transfer, shareholder
servicing, dividend disbursing, agent servicing and investment advisory
services, may raise issues under these provisions. State Street has been
advised by its counsel that its activities in connection with the Fund
contemplated under this arrangement are consistent with its statutory and
regulatory obligations.
VALUATION OF FUND SHARES. The Fund determines net asset value per share
once each "business day," as of the close of the regular trading session of the
New York Stock Exchange (currently, 4:00 p.m. Eastern time). A business day is
one on which the New York Stock Exchange is open for business. Currently, the
New York Stock Exchange is open for trading every weekday except New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
The Fund's portfolio securities actively trade on foreign exchanges which
may trade on Saturdays and on days that the Fund does not offer or redeem
shares. The trading of
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<PAGE>
portfolio securities on foreign exchanges on such days may significantly
increase or decrease the net asset value of Fund shares when the shareholder is
not able to purchase or redeem Fund shares. Further, because foreign securities
markets may close prior to the time the Fund determines net asset value, events
affecting the value of the portfolio securities occurring between the time
prices are determined and the time the Fund calculates net asset value may not
be reflected in the calculation of net asset value unless Adviser determines
that a particular event would materially affect the net asset value.
BROKERAGE PRACTICES. All portfolio transactions are placed on behalf of
the Fund by Adviser. Adviser ordinarily pays commissions when it executes
transactions on a securities exchange. In contrast, there is generally no
stated commission in the purchase or sale of securities traded in the
over-the-counter markets, including most debt securities and money market
instruments. Rather, the price of such securities includes an undisclosed
"commission" in the form of a mark-up or mark-down. The cost of securities
purchased from underwriters includes an underwriting commission or concession.
The Fund contemplates purchasing most equity securities directly in the
securities markets located in emerging or developing countries or in the
over-the-counter markets. ADRs and EDRs may be listed on stock exchanges, or
traded in the over-the-counter markets in the US or Europe, as the case may be.
ADRs, like other securities traded in the US, will be subject to negotiated
commission rates.
Subject to the arrangements and provisions described below, the selection
of a broker or dealer to execute portfolio transactions is usually made by
Adviser. The Advisory Agreement provides, in substance and subject to specific
directions from officers of Investment Company, that in executing portfolio
transactions and selecting brokers or dealers, the principal objective is to
seek the best overall terms available to the Fund. Ordinarily, securities will
be purchased from primary markets, and Adviser shall consider all factors it
deems relevant in assessing the best overall terms available for any
transaction, including the breadth of the market in the security, the price of
the security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, for the specific
transaction and other transactions on a continuing basis.
The Advisory Agreement authorizes Adviser to select brokers or dealers to
execute a particular transaction, including principal transactions, and in
evaluating the best overall terms available, to consider the "brokerage and
research services" (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Fund and/or Adviser (or its
affiliates). Adviser is authorized to cause the Fund to pay a commission to a
broker or dealer who provides such brokerage and research services for executing
a portfolio transaction which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction. The Fund or
Adviser, as appropriate, must determine in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided--viewed in terms of
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that particular transaction or in terms of all the accounts over which Adviser
exercises investment discretion.
The Trustees periodically review Adviser's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Adviser
attributable to a particular Fund transaction may benefit one or more other
accounts for which Adviser exercises investment discretion or an Investment
Portfolio other than such Fund. Adviser's fees are not reduced by Adviser's
receipt of such brokerage and research services.
PORTFOLIO TURNOVER POLICY. Generally, securities are purchased for the
Fund for investment income and/or capital appreciation and not for short-term
trading profits. The Adviser's sell discipline for the Fund's investment in
securities of foreign issuers is based on the premise of a long-term investment
horizon, however, sudden changes in valuation levels arising from, for example,
new macroeconomic policies, political developments, and industry conditions
could change the assumed time horizon. Some countries impose restrictions on
repatriation of capital and/or dividends which would lengthen the Adviser's
assumed time horizon in those countries. Liquidity, volatility, and overall
risk of a position are other factors considered by the Adviser in determining
the appropriate investment horizon. Therefore, the Fund may dispose of
securities without regard to the time they have been held when such action, for
defensive or other purposes, appears advisable. The Fund will limit investments
in illiquid securities to 15% of net assets.
The portfolio turnover rate for the Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the particular year, by
the monthly average value of the portfolio securities owned by the Fund during
the year. For purposes of determining the rate, all short-term securities,
including options, futures, forward contracts, and repurchase agreements, are
excluded.
TOTAL RETURN QUOTATIONS. The Fund computes average annual total return by
using a standardized method of calculation required by the Securities and
Exchange Commission. Average annual total return is computed by finding the
average annual compounded rates of return on a hypothetical initial investment
of $1,000 over the one-, five- and ten-year periods (or life of the funds as
appropriate), that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
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P(1+T)(n) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a $1,000 payment made at
the beginning of the 1-, 5- and 10-year periods at the
end of the year or period
The calculation assumes that all dividends and distributions of the Fund
are reinvested at the price stated in the Prospectus on the dividend dates
during the period, and includes all recurring and nonrecurring fees that are
charged to all shareholder accounts.
INVESTMENTS
The nonfundamental investment objective of the Fund is set forth in the
Prospectus. The investment objective may be changed with the approval of a
majority of the Fund's Board of Trustees, with at least 60 days' prior notice to
shareholders. However, to meet certain state requirements, it may be determined
that the objective will only be changed with the approval of a majority of the
Fund's shareholders, as defined by the 1940 Act.
In addition to that investment objective, the Fund also has certain
fundamental investment restrictions, which may be changed only with the approval
of a majority of the shareholders of the Fund, and certain nonfundamental
investment restrictions and policies, which may be changed by the Fund without
shareholder approval.
INVESTMENT RESTRICTIONS
The Fund is subject to the following investment restrictions. Restrictions
1 through 11 are fundamental, and restrictions 12 through 18 are nonfundamental.
These restrictions apply at the time an investment is made. The Fund will not:
(1) Invest 33-1/3% or more of the value of its total assets in securities
of companies primarily engaged in any one industry (other than the US
Government, its agencies and instrumentalities). Concentration may occur as a
result of changes in the market value of portfolio securities, but may not
result from investment.
(2) Borrow money, except as a temporary measure for extraordinary or
emergency purposes or to facilitate redemptions (not for leveraging or
investment), provided that borrowings do not exceed an amount equal to 33-1/3%
of the current value of the Fund's assets taken at market value, less
liabilities other than borrowings. If at any time a Fund's borrowings exceed
this limitation due to a decline in net assets, such borrowings will within
three days be reduced to the extent necessary to comply with this limitation. A
Fund will not purchase investments once borrowed funds exceed 5% of its total
assets.
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(3) Pledge, mortgage, or hypothecate its assets. However, the Fund may
pledge securities having a market value (on a daily marked-to-market basis) at
the time of the pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure borrowings permitted by paragraph (2) above.
(4) With respect to 75% of its total assets, invest in securities of any
one issuer (other than securities issued by the US Government, its agencies and
instrumentalities), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(5) Make loans to any person or firm; provided, however, that the making of
a loan shall not include (i) the acquisition for investment of bonds,
debentures, notes or other evidences of indebtedness of any corporation or
government which are publicly distributed or of a type customarily purchased by
institutional investors, or (ii) the entry into "repurchase agreements" or
"reverse repurchase agreements." A Fund may lend its portfolio securities to
broker-dealers or other institutional investors if the aggregate value of all
securities loaned does not exceed 33-1/3% of the value of the Fund's total
assets. Portfolio securities may be loaned if collateral values are
continuously maintained at no less than 100% by "marking to market" daily.
(6) Purchase or sell commodities or commodity futures contracts or options
on a futures contract except that the Fund may enter into futures contracts and
options thereon to the extent provided in its Prospectus, and if, as a result
thereof, more than 10% of the Fund's total assets (taken at market value at the
time of entering into the contract) would be committed to initial deposits and
premiums on open futures contracts and options on such contracts.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein (including real estate investment trusts), and may purchase or
sell currencies (including forward currency exchange contracts), futures
contracts and related options generally as described in the Prospectus and
Statement of Additional Information.
(8) Except as required in connection with permissible financial options
activities and futures contracts, purchase securities on margin or underwrite
securities issued by others, except that a Fund will not be deemed to be an
underwriter or to be underwriting on account of the purchase of securities
subject to legal or contractual restrictions on disposition. This restriction
does not preclude the Fund from obtaining such short-term credit as may be
necessary for the clearance of purchases and sales of its portfolio securities.
(9) Issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the 1940 Act.
This restriction shall not be
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deemed to prohibit the Fund from (i) making any permitted borrowings, mortgages
or pledges, or (ii) entering into repurchase transactions.
(10) Purchase or sell puts, calls or invest in straddles, spreads or any
combination thereof, except as described herein and in the Fund's Prospectus,
and subject to the following conditions: (i) such options are written by other
persons and (ii) the aggregate premiums paid on all such options which are held
at any time do not exceed 5% of the Fund's total assets.
(11) Make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions. The Fund may make initial margin deposits and variation margin
payments in connection with transactions in futures contracts and related
options.
(12) Purchase from or sell portfolio securities to its officers or
directors or other "interested persons" (as defined in the 1940 Act) of the
Fund, including their investment advisers and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(13) Invest in securities of any issuer which, together with its
predecessor, has been in operation for less than three years if, as a result,
more than 5% of the Fund's total assets would be invested in such securities,
except that the Fund may invest in securities of a particular issuer to the
extent their respective underlying indices invest in that issuer.
(14) Invest more than 15% of its net assets in the aggregate in illiquid
securities or securities that are not readily marketable, including repurchase
agreements and time deposits of more than seven days' duration.
(15) Purchase interests in oil, gas or other mineral exploration or
development programs.
(16) Make investments for the purpose of gaining control of an issuer's
management.
(17) Purchase the securities of any issuer if the Investment Company's
officers, Directors, Adviser or any of their affiliates beneficially own more
than one-half of 1% of the securities of such issuer or together own
beneficially more than 5% of the securities of such issuer.
(18) Invest in warrants, valued at the lower of cost or market, in excess
of 5% of the value of the Fund's net assets. Included in such amount, but not to
exceed 2% of the value of the Fund's net assets, may be warrants which are not
listed on the New York Stock Exchange or American Stock Exchange. Warrants
acquired by the Fund in units or attached to securities may be deemed to be
without value.
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To the extent these restrictions reflect matters of operating policy which
may be changed without shareholder vote, these restrictions may be amended upon
approval by the Board of Trustees and notice to shareholders. The Fund
currently does not intend to invest in the securities of any issuer that would
qualify as a real estate investment trust under federal tax law.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
INVESTMENT POLICIES
To the extent permitted under the 1940 Act and exemptive rules and orders
thereunder, the Fund may seek to achieve its investment objective by investing
solely in the shares of another investment company that has substantially
similar investment objectives and policies. To the extent consistent with its
nonfundamental investment objective and fundamental and nonfundamental
investment restrictions, the Fund may invest in the following instruments and
utilize the following investment techniques:
EQUITY SECURITIES. The Fund may invest in common and preferred equity
securities publicly traded in the United States or in foreign countries on
developed or emerging markets. The Fund's equity securities may be denominated
in foreign currencies and may be held outside the United States. Certain
emerging markets are closed in whole or part to the direct purchase of equity
securities by foreigners. In these markets, the Fund may be able to invest in
equity securities solely or primarily through foreign government authorized
pooled investment vehicles.
US GOVERNMENT OBLIGATIONS. The types of US Government obligations in which
the Fund may at times invest include: (1) a variety of US Treasury obligations,
which differ only in their interest rates, maturities and times of issuance; and
(2) obligations issued or guaranteed by US Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the US Treasury, (b) the right of the issuer to borrow an
amount limited to a specific line of credit from the US Treasury, (c)
discretionary authority of the US Government agency or instrumentality or (d)
the credit of the instrumentality (examples of agencies and instrumentalities
are: Federal Land Banks, Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
General Services Administration, Maritime Administration, Tennessee Development
Bank, Asian-American Development Bank, Student Loan Marketing Association,
International Bank for Reconstruction and Development and Federal National
Mortgage Association). No assurance can be given that in the future the US
Government will provide financial support to such US Government agencies or
instrumentalities described in (2)(b), (2)(c) and (2)(d), other than as set
forth above, since it is not obligated to do so by law. The Fund may purchase
US Government obligations on a forward commitment basis.
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DEBT SECURITIES. The Fund may also invest in debt securities, including
instruments issued by emerging market companies, governments and their agencies.
Other debt will typically represent less than 5% of the Fund's assets. The Fund
is likely to purchase debt securities which are not investment grade debt, since
much of the emerging market debt falls in this category. These securities are
subject to market and credit risk. These lower rated debt securities may
include obligations that are in default or that face the risk of default with
respect to principal or interest. Such securities are sometimes referred to as
"junk bonds." Please see the Appendix for a description of securities ratings.
ASSET-BACKED SECURITIES. Asset-backed securities represent undivided
fractional interests in pools of instruments, such as consumer loans, and are
similar in structure to mortgage-related pass-through securities described
below. Payments of principal and interest are passed through to holders of the
securities and are typically supported by some form of credit enhancement, such
as a letter of credit, surety bond, limited guarantee by another entity or by
priority to certain of the borrower's other securities. The degree of
credit-enhancement varies, generally applying only until exhausted and covering
only a fraction of the security's par value.
The value of asset-backed securities is affected by changes in the market's
perception of the asset backing the security, changes in the creditworthiness of
the servicing agent for the instrument pool, the originator of the instruments
or the financial institution providing any credit enhancement and the
expenditure of any portion of any credit enhancement. The risks of investing in
asset-backed securities are ultimately dependent upon payment of the underlying
instruments by the obligors, and a Fund would generally have no recourse against
the obligee of the instruments in the event of default by an obligor. The
underlying instruments are subject to prepayments which shorten the weighted
average life of asset-backed securities and may lower their return, in the same
manner as described below for prepayments of pools of mortgage loans underlying
mortgage-backed securities. Use of asset-backed securities will represent less
than 5% of the Fund's total assets.
SECTION 4(2) COMMERCIAL PAPER. The Fund may invest in commercial paper
issued in reliance on the so-called "private placement" exemption from
registration afforded by Section 4(2) of the Securities Act of 1933 ("Section
4(2) paper"). Section 4(2) paper is restricted as to disposition under the
federal securities laws, and generally is sold to investors who agree that they
are purchasing the paper for an investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper is normally resold to other investors through or with the
assistance of the issuer or investment dealers who make a market in Section 4(2)
paper, thus providing liquidity. Pursuant to guidelines established by the
Board of Trustees, Adviser may determine that Section 4(2) paper is liquid for
the purposes of complying with the Fund's investment restriction relating to
investments in illiquid securities.
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EURODOLLAR CERTIFICATES OF DEPOSIT (ECDS), EURODOLLAR TIME DEPOSITS (ETDS)
AND YANKEE CERTIFICATES OF DEPOSIT (YCDS). ECDs are US dollar denominated
certificates of deposit issued by foreign branches of domestic banks. ETDs are
US dollar denominated deposits in foreign banks or foreign branches of US banks.
YCDs are US dollar denominated certificates of deposit issued by US branches of
foreign banks.
Different risks than those associated with the obligations of domestic
banks may exist for ECDs, ETDs and YCDs because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily subject
to the same regulatory requirements that apply to domestic banks, such as loan
limitations, examinations and reserve, accounting, auditing, recordkeeping and
public reporting requirements.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
banks. Under repurchase agreements, these parties sell securities to the Fund
and agree to repurchase the securities at the Fund's cost plus interest within a
specified time (normally one day). The securities purchased by the Fund have a
total value in excess of the purchase price paid by the Fund and are held by
Custodian until repurchased. Repurchase agreements assist the Fund in being
invested fully while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. The Fund will limit repurchase transactions to those
member banks of the Federal Reserve System and broker-dealers whose
creditworthiness is continually monitored and found satisfactory by Adviser.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions.".
Under reverse repurchase agreements, a Fund transfers possession of portfolio
securities to banks in return for cash in an amount equal to a percentage of the
portfolio securities' market value and agrees to repurchase the securities at a
future date by repaying the cash with interest. The Fund retains the right to
receive interest and principal payments from the securities while they are in
the possession of the financial institutions. Cash or liquid high quality debt
obligations from a Fund's portfolio equal in value to the repurchase price
including any accrued interest will be segregated by Custodian on the Fund's
records while a reverse repurchase agreement is in effect. Reverse repurchase
agreements involve the risk that the market value of securities sold by a Fund
may decline below the price at which it is obligated to repurchase the
securities.
WHEN-ISSUED TRANSACTIONS. New issues of securities are often offered on a
when-issued basis. This means that delivery and payment for the securities
normally will take place approximately 7 to 15 days after the date the buyer
commits to purchase them. The payment obligation and the interest rate that
will be received on securities purchased on a when-issued basis are each fixed
at the time the buyer enters into the commitment.
The Fund will make commitments to purchase when-issued securities only with
the intention of actually acquiring the securities, but the Fund may sell these
securities or dispose of the commitment before the settlement date if it is
deemed advisable as a matter of investment strategy. Cash or marketable high
quality debt securities equal to
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the amount of the above commitments will be segregated on the Fund's records.
For the purpose of determining the adequacy of these securities the segregated
securities will be valued at market. If the market value of such securities
declines, additional cash or securities will be segregated on the Fund's records
on a daily basis so that the market value of the account will equal the amount
of such commitments by the Fund. The Fund will invest no more than 5% of its
net assets in when-issued securities.
Securities purchased on a when-issued basis and the securities held by the
Fund are subject to changes in market value based upon the public's perception
of changes in the level of interest rates. Generally, the value of such
securities will fluctuate inversely to changes in interest rates -- i.e., they
will appreciate in value when interest rates decline and decrease in value when
interest rates rise. Therefore, if in order to achieve higher interest income
the Fund remains substantially fully invested at the same time that it has
purchased securities on a "when-issued" basis, there will be a greater
possibility of fluctuation in the Fund's net asset value.
When payment for when-issued securities is due, the Fund will meet its
obligations from then-available cash flow, the sale of segregated securities,
the sale of other securities or, and although it would not normally expect to do
so, from the sale of the when-issued securities themselves (which may have a
market value greater or less than the Fund's payment obligation). The sale of
securities to meet such obligations carries with it a greater potential for the
realization of capital gains, which are subject to federal income taxes.
SPECIAL SITUATIONS AND ILLIQUID SECURITIES. The Fund and the Adviser
believe that carefully selected investments in joint ventures, cooperatives,
partnerships, private placements, unlisted securities, and other similar
vehicles (collectively, "special situations") could enhance the Fund's capital
appreciation potential. These investments are generally illiquid. The Fund
currently does not intend to invest more than 5% of its net assets in all types
of illiquid securities or securities that are not readily marketable, including
special situations. In no case will the Fund invest more than 15% of its net
assets in illiquid securities. Due to foreign ownership restrictions, the Fund
may invest periodically in illiquid securities which are or become illiquid due
to restrictions on foreign ownership imposed by foreign governments. Said
securities may be more difficult to price and trade. The absence of a regular
trading market for illiquid securities imposes additional risks on investment in
these securities. Illiquid securities may be difficult to value and may often
be disposed of only after considerable expense and delay.
FORWARD COMMITMENTS. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. The Fund may dispose of a commitment
prior to settlement if it is appropriate to do so and realize short-term profits
or losses upon such sale. When effecting such transactions, cash or liquid high
quality debt obligations held by the Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be
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segregated on the Fund's records at the trade date and maintained until the
transaction is settled. Forward commitments involve a risk of loss if the value
of the security to be purchased declines prior to the settlement date, or if the
other party fails to complete the transaction.
HEDGING STRATEGIES AND RELATED INVESTMENT TECHNIQUES
The Fund may seek to hedge its portfolios against movements in the equity
markets, interest rates and currency exchange rates through the use of options,
futures transactions, options on futures and forward foreign currency exchange
transactions. The Fund has authority to write (sell) covered call and put
options on its portfolio securities, purchase put and call options on securities
and engage in transactions in stock index options, stock index futures and
financial futures and related options on such futures. The Fund may enter into
such options and futures transactions either on exchanges or in the
over-the-counter ("OTC") markets. Although certain risks are involved in
options and futures transactions (as discussed in the Prospectus and below),
Adviser believes that, because the Fund will only engage in these transactions
for hedging purposes, the options and futures portfolio strategies of the Fund
will not subject the Fund to the risks frequently associated with the
speculative use of options and futures transactions. Although the use of
hedging strategies by the Fund is intended to reduce the volatility of the net
asset value of the Fund's shares, the Fund's net asset value will nevertheless
fluctuate. There can be no assurance that the Fund's hedging transactions will
be effective.
WRITING COVERED CALL OPTIONS. The Fund is authorized to write (sell)
covered call options on the securities in which it may invest and to enter into
closing purchase transactions with respect to such options. Writing a call
option obligates the Fund to sell or deliver the option's underlying security,
in return for the strike price, upon exercise of the option. By writing a call
option, the Fund receives an option premium from the purchaser of the call
option. Writing covered call options is generally a profitable strategy if
prices remain the same or fall. Through receipt of the option premium, the Fund
would seek to mitigate the effects of a price decline. By writing covered call
options, however, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying security above the
option exercise price. In addition, the Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction.
WRITING COVERED PUT OPTIONS. The Fund is authorized to write (sell)
covered put options on its portfolio securities and to enter into closing
transactions with respect to such options.
When the Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
the Fund assumes the obligation to pay the strike price for the option's
underlying instrument if the other party to the option chooses to exercise it.
The Fund may seek to terminate its position in a put option it writes before
exercise by closing out the option in the secondary market at its
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current price. If the secondary market is not liquid for an option the Fund has
written, however, the Fund must continue to be prepared to pay the strike price
while the option is outstanding, regardless of price changes, and must continue
to set aside assets to cover its position.
The Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund would expect to profit from a
written put option, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Fund would expect to
suffer a loss. This loss should be less than the loss the Fund would have
experienced from purchasing the underlying instrument directly, however, because
the premium received for writing the option should mitigate the effects of the
decline.
PURCHASING PUT OPTIONS. The Fund is authorized to purchase put options to
hedge against a decline in the market value of its portfolio securities. By
buying a put option the Fund has the right (but not the obligation) to sell the
underlying security at the exercise price, thus limiting the Fund's risk of loss
through a decline in the market value of the security until the put option
expires. The amount of any appreciation in the value of the underlying security
will be partially offset by the amount of the premium paid by the Fund for the
put option and any related transaction costs. Prior to its expiration, a put
option may be sold in a closing sale transaction and profit or loss from the
sale will depend on whether the amount received is more or less than the premium
paid for the put option plus the related transaction costs. A closing sale
transaction cancels out the Fund's position as the purchaser of an option by
means of an offsetting sale of an identical option prior to the expiration of
the option it has purchased. The Fund will not purchase put options on
securities (including stock index options discussed below) if as a result of
such purchase, the aggregate cost of all outstanding options on securities held
by the Fund would exceed 5% of the market value of the Fund's total assets.
PURCHASING CALL OPTIONS. The Fund is also authorized to purchase call
options. The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price (call options on futures contracts are settled by purchasing the
underlying futures contract). The Fund will purchase call options only in
connection with "closing purchase transactions."
STOCK INDEX OPTIONS AND FINANCIAL FUTURES. The Fund is authorized to
engage in transactions in stock index options and financial futures, and related
options. The Fund may purchase or write put and call options on stock indices
to hedge against the risks of market-wide stock price movements in the
securities in which the Fund invests. Options on indices are similar to options
on securities except that on exercise or assignment, the parties to the contract
pay or receive an amount of cash equal to the difference between the closing
value of the index and the exercise price of the option times a specified
multiple. The Fund may invest in stock index options based on a broad market
index, such as the S&P 500 Index, or on a narrow index representing an industry
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or market segment, such as the AMEX Oil & Gas Index. The Fund's investments in
foreign stock index futures contracts and foreign interest rate futures
contracts, and related options, are limited to only those contracts and related
options that have been approved by the Commodity Futures Trading Commission
("CFTC") for investment by United States investors. Additionally, with respect
to the Fund's investments in foreign options, unless such options are
specifically authorized for investment by order of the CFTC, the Fund will not
make such investments.
The Fund may also purchase and sell stock index futures contracts and other
financial futures contracts ("futures contracts") as a hedge against adverse
changes in the market value of its portfolio securities as described below. A
futures contract is an agreement between two parties which obligates the
purchaser of the futures contract to buy and the seller of a futures contract to
sell a security for a set price on a future date. Unlike most other futures
contracts, a stock index futures contract does not require actual delivery of
securities, but results in cash settlement based upon the difference in value of
the index between the time the contract was entered into and the time of its
settlement. The Fund may effect transactions in stock index futures contracts
in connection with debt securities in which it invests and in financial futures
contracts in connection with equity securities in which it invests, if any.
Transactions by the Fund in stock index futures and financial futures are
subject to limitations as described below under "Restrictions on the Use of
Futures Transactions."
The Fund may sell futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When a Fund is not fully
invested in the securities markets and anticipates a significant market advance,
the Fund may purchase futures in order to gain rapid market exposure that may
partially or entirely offset increases in the cost of securities that the Fund
intends to purchase. As such purchases are made, an equivalent amount of
futures contracts will be terminated by offsetting sales. It is anticipated
that, in a substantial majority of these transactions, the Fund will purchase
such securities upon termination of the long futures position, whether the long
position results from the purchase of a futures contract or the purchase of a
call option, but under unusual circumstances (e.g., the Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
The Fund also is authorized to purchase and write call and put options on
futures contracts and stock indices in connection with its hedging activities.
Generally, these strategies would be utilized under the same market and market
sector conditions (i.e., conditions relating to specific types of investments)
during which the Fund enters into futures transactions. The Fund may purchase
put options or write call options on futures contracts and stock indices rather
than selling the underlying futures contract in anticipation of a decrease in
the market value of securities. Similarly, the Fund can purchase call options,
or write put options on futures contracts and stock indices, as a substitute for
the purchase of such futures to hedge against the increased cost resulting from
an increase in the market value of securities which the Fund intends to
purchase.
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The Fund is also authorized to engage in options and futures transactions
on US and foreign exchanges and in options in the OTC markets ("OTC options").
In general, exchange traded contracts are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an exchange or clearing
corporation) with standardized strike prices and expiration dates. OTC options
transactions are two-party contracts with price and terms negotiated by the
buyer and seller. See "Restrictions on OTC Options" below for information as to
restrictions on the use of OTC options.
The Fund is authorized to purchase or sell listed or OTC foreign security
or currency options, foreign security or currency futures and related options as
a short or long hedge against possible variations in foreign exchange rates and
market movements. Such transactions could be effected with respect to hedges on
non-US dollar denominated securities owned by a Fund, sold by a Fund but not yet
delivered, or committed or anticipated to be purchased by a Fund. As an
illustration, a Fund may use such techniques to hedge the stated value in US
dollars of an investment in a yen-denominated security. In such circumstances,
for example, the Fund can purchase a foreign currency put option enabling it to
sell a specified amount of yen for US dollars at a specified price by a future
date. To the extent the hedge is successful, a loss in the value of the yen
relative to the US dollar will tend to be offset by an increase in the value of
the put option.
RESTRICTIONS ON THE USE OF FUTURES TRANSACTIONS. The purchase or sale of a
futures contract differs from the purchase or sale of a security in that no
price or premium is paid or received. Instead, an amount of cash or securities
acceptable to the broker and the relevant contract market, which varies, but is
generally about 5% of the contract amount, must be deposited with the broker.
This amount is known as "initial margin" and represents a "good faith" deposit
assuring the performance of both the purchaser and seller under the futures
contract. Subsequent payments to and from the broker, called "variation
margin," are required to be made on a daily basis as the price of the futures
contract fluctuates making the long and short positions in the futures contracts
more or less valuable, a process known as "marking to market." At any time
prior to the settlement date of the future contract, the position may be closed
out by taking an opposite position which will operate to terminate the position
in the futures contract. A final determination of variation margin is then
made, additional cash is required to be paid to or released by the broker and
the purchaser realizes a loss or gain. In addition, a nominal commission is
paid on each completed sale transaction.
Regulations of the CFTC applicable to the Fund requires that all of the
Fund's futures and options on futures transactions constitute bona fide hedging
transactions and that a Fund not enter into such transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
RESTRICTIONS ON OTC OPTIONS. The Fund will engage in OTC options,
including OTC stock index options, OTC foreign security and currency options and
options on foreign security and currency futures, only with member banks of the
Federal Reserve
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System and primary dealers in US Government securities or with affiliates of
such banks or dealers which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
The Fund will acquire only those OTC options for which Adviser believes the Fund
can receive on each business day at least two independent bids or offers (one of
which will be from an entity other than a party to the option).
The Staff of the SEC has taken the position that purchased OTC options and
the assets used as cover for written OTC options are illiquid securities.
Therefore, the Fund has adopted an operating policy pursuant to which it will
not purchase or sell OTC options (including OTC options on futures contracts)
if, as a result of such transaction, the sum of: (1) the market value of
outstanding OTC options held by the Fund; (2) the market value of the underlying
securities covered by outstanding OTC call options sold by the Fund; (3) margin
deposits on the Fund's existing OTC options on futures contracts; and (4) the
market value of all other assets of the Fund that are illiquid or are not
otherwise readily marketable, would exceed 10% of the net assets of the Fund,
taken at market value. However, if an OTC option is sold by the Fund to a
primary US Government securities dealer recognized by the Federal Reserve Bank
of New York and the Fund has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Fund will
treat as illiquid such amount of the underlying securities as is equal to the
repurchase price less the amount by which the option is "in-the-money" (current
market value of the underlying security minus the option's strike price). The
repurchase price with primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option plus the
amount by which the option is "in-the-money."
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Fund will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. The Fund will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. The Fund will not enter into an option or futures position
that exposes the Fund to an obligation to another party unless it owns either:
(1) an offsetting position in securities or other options or futures contracts;
or (2) cash, receivables and short-term debt securities with a value sufficient
to cover its potential obligations. The Fund will comply with guidelines
established by the SEC with respect to coverage of options and futures
strategies by mutual funds, and if the guidelines so require will set aside cash
and high grade liquid debt securities in a segregated account with its custodian
bank in the amount prescribed. The Fund's custodian shall maintain the value of
such segregated account equal to the prescribed amount by adding or removing
additional cash or liquid securities to account for fluctuations in the value of
securities held in such account. Securities held in a segregated account cannot
be sold while the futures or option strategy is outstanding, unless they are
replaced with similar securities. As a result, there is a possibility that
segregation of a large percentage of a Fund's assets could impede portfolio
management or the Fund's ability to meeting redemption requests or other current
obligations.
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RISK FACTORS IN OPTIONS, FUTURES, FORWARD AND CURRENCY TRANSACTIONS.
Utilization of options and futures transactions to hedge the Fund's portfolios
involves the risk of imperfect correlation in movements in the price of options
and futures and movements in the price of securities or currencies which are the
subject of the hedge. If the price of the options or futures moves more or less
than the price of hedged securities or currencies, the Fund will experience a
gain or loss which will not be completely offset by movements in the price of
the subject of the hedge. The successful use of options and futures also
depends on Adviser's ability to correctly predict price movements in the market
involved in a particular options or futures transaction. To compensate for
imperfect correlations, the Fund may purchase or sell stock index options or
futures contracts in a greater dollar amount than the hedged securities if the
volatility of the hedged securities is historically greater than the volatility
of the stock index options or futures contracts. Conversely, the Fund may
purchase or sell fewer stock index options or futures contracts, if the
historical price volatility of the hedged securities is less than that of the
stock index options or futures contracts. The risk of imperfect correlation
generally tends to diminish as the maturity date of the stock index option or
futures contract approaches. Options are also subject to the risks of an
illiquid secondary market, particularly in strategies involving writing options,
which the Fund cannot terminate by exercise. In general, options whose strike
prices are close to their underlying instruments' current value will have the
highest trading volume, while options whose strike prices are further away may
be less liquid.
The Fund intends to enter into options and futures transactions, on an
exchange or in the OTC market, only if there appears to be a liquid secondary
market for such options or futures or, in the case of OTC transactions, the
Adviser believes the Fund can receive on each business day at least two
independent bids or offers. However, there can be no assurance that a liquid
secondary market will exist at any specific time. Thus, it may not be possible
to close an options or futures position. The inability to close options and
futures positions also could have an adverse impact on a Fund's ability to
effectively hedge its portfolio. There is also the risk of loss by a Fund of
margin deposits or collateral in the event of bankruptcy of a broker with whom
the Fund has an open position in an option, a futures contract or related
option.
The exchanges on which options on portfolio securities and currency options
are traded have generally established limitations governing the maximum number
of call or put options on the same underlying security or currency (whether or
not covered) which may be written by a single investor, whether acting alone or
in concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written in one or more accounts or
through one or more brokers). "Trading limits" are imposed on the maximum
number of contracts which any person may trade on a particular trading day.
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RISK CONSIDERATIONS
Investors should consider carefully the substantial risks involved in
securities of companies and governments of foreign nations, which are in
addition to the usual risks inherent in domestic investments. There may be less
publicly available information about foreign companies comparable to the reports
and ratings published regarding US companies. Foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, and auditing practices and requirements may not be comparable to
those applicable to US companies. Many foreign markets have substantially less
volume than either the established domestic securities exchanges or the OTC
markets. Securities of some foreign companies are less liquid and more volatile
than securities of comparable US companies. Commission rates in foreign
countries, which may be fixed rather than subject to negotiation as in the US,
are likely to be higher. In many foreign countries there is less government
supervision and regulation of securities exchanges, brokers and listed companies
than in the US, and capital requirements for brokerage firms are generally
lower. Settlement of transactions in foreign securities may, in some instances,
be subject to delays and related administrative uncertainties.
Investments in companies domiciled in emerging market countries may be
subject to additional risks than investment in the US and in other developed
countries. These risks include: (1) Volatile social, political and economic
conditions can cause investments in emerging or developing markets exposure to
economic structures that are generally less diverse and mature. Emerging market
countries can have political systems which can be expected to have less
stability than those of more developed countries. The possibility may exist
that recent favorable economic developments in certain emerging market countries
may be suddenly slowed or reversed by unanticipated political or social events
in such countries. Moreover, the economies of individual emerging market
countries may differ favorably or unfavorably from the US economy in such
respects as the rate of growth in gross domestic product, the rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. (2) The small current size of the markets for such securities and the
currently low or nonexistent volume of trading can result in a lack of liquidity
and in greater price volatility. Until recently, there has been an absence of a
capital market structure or market-oriented economy in certain emerging market
countries. Because the Fund's securities will generally be denominated in
foreign currencies, the value of such securities to the Fund will be affected by
changes in currency exchange rates and in exchange control regulations. A
change in the value of a foreign currency against the US dollar will result in a
corresponding change in the US dollar value of the Fund's securities. In
addition, some emerging market countries may have fixed or managed currencies
which are not free-floating against the US dollar. Further, certain emerging
market currencies may not be internationally traded. Certain of these
currencies have experienced a steady devaluation relative to the US dollar.
Many emerging markets countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had, and may continue to have, negative
effects on the economies and securities markets of certain emerging market
countries. (3) The existence of national policies may restrict the Fund's
investment opportunities and may include restrictions on investment in issuers
or industries deemed sensitive to national interests. (4) Some
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emerging markets countries may not have developed structures governing private
or foreign investment and may not allow for judicial redress for injury to
private property.
The Fund endeavors to buy and sell foreign currencies on favorable terms.
Such price spread on currency exchange (to cover service charges) may be
incurred, particularly when the Fund changes investments from one country to
another or when proceeds from the sale of shares in US dollars are used for the
purchase of securities in foreign countries. Also, some countries may adopt
policies which would prevent the Fund from repatriating invested capital and
dividends, withhold portions of interest and dividends at the source, or impose
other taxes, with respect to the Fund's investments in securities of issuers of
that country. There also is the possibility of expropriation, nationalization,
confiscatory or other taxation, foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country), default in
foreign government securities, political or social instability, or diplomatic
developments that could adversely affect investments in securities of issuers in
those nations.
The Fund may be affected either favorably or unfavorably by fluctuations in
the relative rates of exchange between the currencies of differentiations,
exchange control regulations and indigenous economic and political developments.
TAXES
The Fund intends to qualify for treatment as a regulated investment company
("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended
("the Code"). As a RIC, the Fund will not be liable for federal income taxes on
taxable net investment income and capital gain net income (capital gains in
excess of capital losses) that it distributes to its shareholders, provided that
the Fund distributes annually to its shareholders at least 90% of its net
investment income and net short-term capital gain for the taxable year
("Distribution Requirement"). For a Fund to qualify as a RIC it must abide by
all of the following requirements: (1) at least 90% of the Fund's gross income
each taxable year must be derived from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock
or securities or foreign currencies, or other income (including gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies ("Income Requirement"); (2)
less than 30% of the Fund's gross income each taxable year must be derived from
the sale or other disposition of securities and certain options, futures
contracts, forward contracts and foreign currencies held for less than three
months ("Short-Short Limitation"); (3) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, US government securities, securities of
other RICs, and other securities, with such other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the total assets of
the Fund and that does not represent more than 10% of the outstanding voting
securities of such issuer; and (4) at the close of each quarter of the Fund's
taxable year, not more than 25% of the value of its assets may be invested in
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securities (other than US government securities or the securities of other RICs)
of any one issuer.
The Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year an amount at least equal to
the sum of: (1) 98% of its ordinary income for that year; (2) 98% of its
capital gain net income for the one-year period ending on October 31 of that
year; and (3) certain undistributed amounts from the preceding calendar year.
For this and other purposes, dividends declared in October, November or December
of any calendar year and made payable to shareholders of record in such month
will be deemed to have been received on December 31 of such year if the
dividends are paid by the Fund subsequent to December 31 but prior to February 1
of the following year.
If a shareholder receives a distribution taxable as long-term capital gain
with respect to shares of a Fund and redeems or exchanges the shares without
having held the shares for more than one year, then any loss on the redemption
or exchange will be treated as long-term capital loss to the extent of the
capital gain distribution.
ISSUES RELATED TO HEDGING AND OPTION INVESTMENTS. The Fund's ability to
make certain investments may be limited by provisions of the Code that require
inclusion of certain unrealized gains or losses in the Fund's income for
purposes of the Income Requirement, the Short-Short Limitation and the
Distribution Requirement, and by provisions of the Code that characterize
certain income or loss as ordinary income or loss rather than capital gain or
loss. Such recognition, characterization and timing rules will affect
investments in certain futures contracts, options, foreign currency contracts
and debt securities denominated in foreign currencies.
STATE AND LOCAL TAXES. Depending upon the extent of the Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund may be subject to the tax laws of such states or localities.
FOREIGN INCOME TAXES. Investment income received by the Fund from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which would entitle the Fund to a reduced rate of such taxes or
exemption from taxes on such income. It is impossible to determine the
effective rate of foreign tax for the Fund in advance since the amount of the
assets to be invested within various countries is not known.
If the Fund invests in an entity that is classified as a "passive foreign
investment company" ("PFIC") for federal income tax purposes, the application of
certain provisions of the Code applying to PFICs could result in the imposition
of certain federal income taxes on the Fund. It is anticipated that any taxes
on the Fund with respect to investments in PFICs would be insignificant. Under
US Treasury regulations issued in 1992 for PFICs, the Fund can elect to
mark-to-market its PFIC holdings in lieu of paying
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taxes on gains or distributions therefrom. It is anticipated that any taxes on
a Fund with respect to investments in PFICs would be insignificant.
Foreign shareholders should consult with their tax advisers as to if and
how the federal income tax and its withholding requirements applies to them.
FINANCIAL STATEMENTS
Immediately following are unaudited financial statements for the Fund,
including notes to the financial statements and financial highlights, for the
period March 7, 1995 (commencement of operations) to June 30, 1995. Audited
financial statements for the Fund will be available within 60 days following
the end of the Fund's then current fiscal year and, when available, can be
obtained without charge by calling the Distributor at (617) 654-6089.
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APPENDIX
DESCRIPTION OF SECURITIES RATINGS
RATINGS OF DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S"). Aaa -- Debt which is rated
Aaa is judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt-edge." Interest payments
are protected by a large or exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa -- Debt which is rated Aa is judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa Securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Debt rated A possesses many favorable investment attributes and is
considered as "upper medium grade obligations."
Baa -- Moody's rates bonds which are considered medium grade obligations as
Baa. Bonds possessing this rating are neither highly protected nor poorly
secured. Interest payments and principal security is judged adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
and interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
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C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification in its corporate bond rating system. The modifier 1 indicates
that the security ranks in the higher end of its generic category; the modifier
2 indicates a mid-range ranking; and modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
Debt in the Aa and A group which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa 1 and A 1.
STANDARD & POOR'S CORPORATION ("S&P"). AAA -- This is the highest rating
assigned by S&P to a debt obligation and indicates an extremely strong capacity
to pay principal and interest.
AA -- Debt rated AA also qualifies as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Debt rated A has a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Debt instruments receiving this rating are regarded as having an
adequate capacity to pay interest and repay principal. Such bonds typically
exhibit adequate protection parameters, but adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB -- Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual implied BBB- rating.
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B -- Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual implied BB
or BB- rating.
CCC -- Bonds rated CCC have a currently identifiable vulnerability to
default, and are dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned an
actual implied B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating. The C rating has been
used to cover a situation where a bankruptcy petition has been filed but debt
service payments are continued.
C1 -- The rating C1 is reserved for income bonds on which no interest is
being paid.
D -- Bonds rated D are in payment default. The D rating is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. The D rating also will be used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
appropriate category.
RATINGS OF COMMERCIAL PAPER
MOODY'S. Commercial paper rated Prime by Moody's is based upon its
evaluation of many factors, including: (l) management of the issuer; (2) the
issuer's industry or industries and the speculative-type risks which may be
inherent in certain areas; (3) the issuer's products in relation to competition
and customer acceptance; (4) liquidity; (5) amount and quality of long-term
debt; (6) trend of earnings over a period of ten years; (7) financial strength
of a parent company and the relationships which exist with the issue; and (8)
recognition by the management of obligations which may be present or may arise
as a result of public interest questions and preparations to meet such
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obligations. Relative differences in these factors determine whether the
issuer's commercial paper is rated Prime-l, Prime-2, or Prime-3.
Prime-1 indicates a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be evidenced
by the following characteristics: (1) leading market positions in well
established industries; (2) high rates of return on funds employed; (3)
conservative capitalization structures with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established access to a
range of financial markets and assured sources of alternative liquidity.
Prime-2 indicates a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.
S&P. Commercial paper rated by S&P has the following characteristics:
liquidity ratios are adequate to meet cash requirements. Long-term senior debt
is rated A or better. The issuer has access to at least two additional channels
of borrowing. Basic earnings and cash flow have an upward trend with allowance
made for unusual circumstances. Typically, the issuer's industry is well
established and the issuer has a strong position within the industry. The
reliability and quality of management are unquestioned. Relative strength or
weakness of the above factors determine whether the issuer's commercial paper is
rated A-l, A-2, or A-3.
A-1 -- This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
FITCH'S INVESTORS SERVICE, INC. ("FITCH"). Commercial paper rated by Fitch
reflects Fitch's current appraisal of the degree of assurance of timely payment
of such debt. An appraisal results in the rating of an issuer's paper as F-1,
F-2, F-3, or F-4.
F-1 -- This designation indicates that the commercial paper is regarded as
having the strongest degree of assurance for timely payment.
F-2 -- Commercial paper issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than those issues rated F-1.
DUFF AND PHELPS, INC. Duff & Phelps' short-term ratings are consistent
with the rating criteria utilized by money market participants. The ratings
apply to all obligations with maturities of under one year, including commercial
paper, the uninsured portion of
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certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
The distinguishing feature of Duff & Phelps' short-term ratings is the
refinement of the traditional '1' category. The majority of short-term debt
issuers carry the highest rating, yet quality differences exist within that
tier. As a consequence, Duff & Phelps has incorporated gradations of '1+' (one
plus) and '1-' (one minus) to assist investors in recognizing those differences.
Duff 1+--Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
Duff 1--Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are minor.
Duff 1- -- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small.
GOOD GRADE. Duff 2--Good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
SATISFACTORY GRADE. Duff 3--Satisfactory liquidity and other protection
factors qualify issue as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
NON-INVESTMENT GRADE. Duff 4--Speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
DEFAULT. Duff 5--Issuer failed to meet scheduled principal and/or interest
payments.
IBCA, INC. In addition to conducting a careful review of an institution's
reports and published figures, IBCA's analysts regularly visit the companies for
discussions with senior management. These meetings are fundamental to the
preparation of individual reports and ratings. To keep abreast of any changes
that may affect assessments, analysts maintain contact throughout the year with
the management of the companies they cover.
-33-
<PAGE>
IBCA's analysts speak the languages of the countries they cover, which is
essential to maximize the value of their meetings with management and to
properly analyze a company's written materials. They also have a thorough
knowledge of the laws and accounting practices that govern the operations and
reporting of companies within the various countries.
Often, in order to ensure a full understanding of their position, companies
entrust IBCA with confidential data. While these data cannot be disclosed in
reports, they are taken into account when assigning our ratings. Before
dispatch to subscribers, a draft of the report is submitted to each company to
permit correction of any factual errors and to enable clarification of issues
raised.
IBCA's Rating Committees meet at regular intervals to review all ratings
and to ensure that individual ratings are assigned consistently for institutions
in all the countries covered. Following the Committee meetings, ratings are
issued directly to subscribers. At the same time, the company is informed of
the ratings as a matter of courtesy, but not for discussion.
A1+--Obligations supported by the highest capacity for timely repayment.
A1--Obligations supported by a very strong capacity for timely repayment.
A2--Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
B1--Obligations supported by an adequate capacity for timely repayment.
Such capacity is more susceptible to adverse changes in business, economic, or
financial conditions than for obligations in higher categories.
B2--Obligations for which the capacity for timely repayment is susceptible
to adverse changes in business, economic or financial conditions.
C1--Obligations for which there is an inadequate capacity to ensure timely
repayment.
D1--Obligations which have a high risk of default or which are currently in
default.
-34-
<PAGE>
THE SEVEN SEAS SERIES
ACTIVE INTERNATIONAL FUND
STATEMENT OF NET ASSETS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
COMMON STOCKS - 90.2%
BRAZIL - 1.0%
Brazil Fund, Inc. 3,800 $ 95
Sider Nacional Cia NPV 1,152,000 26
Telecomunicacoes Brasileiros
NPV 1,680,000 48
---------
169
---------
FRANCE - 8.8%
Alcatel Alsthom 350 31
Banque Nationale Paris 800 39
CGIP 650 152
Christian Dior 1,700 150
Cie de St. Gobain 340 41
Credit National 1,800 145
Enterprise Jean Lefebvre SA 2,050 145
Gascogne 1,500 173
Groupe Andre SA (a) 1,250 109
Guyenne et Gascogne 100 29
Peugeot SA 1,300 180
Rhone Poulenc SA Class A - ADR 1,650 37
Sanofi 2,100 116
Societe Nationale Elf d'Aquitaine 2,200 162
---------
1,509
---------
GERMANY - 11.0%
Allianz AG Holding 1996 Warrants (a) 50 45
AMB - Aachener & Muenchener
Beteiligung (Regd) 200 138
Bankgesell Berlin 350 93
BASF AG 950 203
Bayer Hypotheken & Wechsell Bank 250 68
Berliner Handels & Frankfurter Bank 250 66
Daimler-Benz AG 100 46
DBV Holding AG (Regd) 550 214
Degussa AG (a) 50 15
Holsten Brauere AG 1,000 255
IKB DT Industriebk (a) 800 150
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
Kolbenschmidt AG (a) 1,400 $ 197
Siemens AG 400 199
Thyssen AG (a) 900 168
Veba AG 50 20
---------
1,877
---------
HONG KONG - 5.3%
Great Eagle Holdings 69,000 147
Hong Kong Electric 25,500 87
Hong Kong Telecommunications 67,200 133
Jardine International Motor 148,000 145
Tai Cheung Holdings (a) 162,000 142
Wing Lung Bank (a) 18,200 103
Yuc Yuen Industrial 586,000 143
---------
900
---------
ITALY - 2.5%
Assicurazioni Generali SPA 2,000 47
Banco Ambrosiano Veneto
di Risp NC 13,300 18
Danieli & C di Risp NC 14,000 43
Fiat SPA di Risp NC 29,000 62
I.M.I. 7,000 43
Montefibre di Risp (a) 44,300 25
R.A.S. NV di Risp 9,000 57
Recordati (a) 14,000 44
Stet di Risp NC 19,000 42
Telecom Italia di Risp 20,000 42
---------
423
---------
JAPAN - 38.4%
Aichi Machine Industries (a) 23,000 122
Amada Co., Ltd. 13,000 111
Amada Sonoike Co. 37,000 214
Bunka Shutter Co. (a) 54,000 266
</TABLE>
Special Provisional Financial Report 9
<PAGE>
THE SEVEN SEAS SERIES
ACTIVE INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
Citizen Watch Co., Ltd. 28,000 $ 173
Dai-Ichi Katei Denki (a) 35,000 157
Daidoh, Ltd. (a) 14,000 107
Daikyo, Inc. 39,000 276
Daishinku Corp. 17,000 176
Gun-Ei Chemical Industry Co. (a) 52,000 242
Hitachi, Ltd. 34,000 339
Hokkaido Takushoku Bank, Ltd. 96,000 263
Ines Corp. (a) 23,000 228
Keiyo Bank, Ltd. 6,000 36
Marudai Food Co. 34,000 227
Matsushita Electric Industrial Co.,
Ltd. 18,000 280
Nichiei Construction (a) 29,000 239
Nichimo Co. (a) 12,000 52
Nippon Trust Bank (a) 61,000 207
Nippon Valqua Industries (a) 34,000 132
Nisshinbo Industries, Inc. 7,000 55
Nissho Corp. 15,000 145
Okabe Co. 21,000 172
Orient Corp. (a) 19,000 95
Ryosan Co. (a) 9,000 212
Sanyo Special Steel Co. 71,000 273
Settsu Corp. (a) 88,000 270
Sogo Co. (a) 29,000 93
Sumisho Computer Systems Corp. (a) 10,000 114
Sumitomo Realty & Development 42,000 251
Suntelephone Co. 36,000 234
Suzutan Co. (a) 19,000 128
SXL Corp. 12,000 129
Tokyo Electric Co., Ltd. (a) 64,000 253
Toyota Motor Corp. 2,000 40
Yamato Kogyo Co. (a) 33,000 259
---------
6,570
---------
NETHERLANDS - 4.6%
DSM NV (BR) 1,359 117
Hoogovens & Staalf CVA 3,112 124
International Nederlanden CVA 1,168 65
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
KLM (a) 1,143 $ 37
Kon Ptt Nederland 1,878 68
Nutricia Verenigde Bedrijven CVA 1,057 73
Royal Dutch Petroleum Co. (BR) 2,189 267
Stad Roterdam 453 12
Unilever NV CVA 170 22
---------
785
---------
NORWAY - 3.5%
Aker AS Series B 4,400 55
Bergesen DY AS Series B 1,400 32
DNL Series B 1,300 56
Hafslund Nycomed Series B Free 2,889 67
Kvaerner Industries Series B Free 900 39
Leif Hoegh & Co. 1,200 16
Norsk Hydro AS 5,600 235
Norske Skogindustrier Class A 1,100 39
Saga Petroleum AS 3,700 53
---------
592
---------
PORTUGAL - 0.1%
Portucel Industrial SA (a) 2,300 16
---------
16
---------
SINGAPORE - 3.4%
Development Bank (Alien Market) 12,000 137
Far East Levingston 7,000 33
Keppel Bank 17,000 48
Keppel Corp 2,000 16
Metro Holdings, Ltd. 20,000 84
Neptune Orient Lines, Ltd. 67,000 78
Singapore Airlines, Ltd. (Alien
Market) 8,000 74
Singapore Land 3,000 20
United Industrial Corp., Ltd. (a) 89,000 86
---------
576
---------
</TABLE>
Special Provisional Financial Report 10
<PAGE>
THE SEVEN SEAS SERIES
ACTIVE INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
SOUTH KOREA - 2.0%
Korea International Trust - IDR (a) 7* $ 343
---------
343
---------
SPAIN - 0.6%
Banco Central Hispan (Regd) 950 20
Dragados Y Construcciones SA 1,300 19
Repsol SA 400 12
Telefonica de Espana 1,100 14
Union Electrica Fenosa 6,750 32
---------
97
---------
SWITZERLAND - 3.9%
Baloise Holdings (Regd) 10 23
Bobst AG 20 30
Ciba Geigy AG (BR) 75 55
Gotthard Bank 55 29
Hero (BR) 55 30
Magazine Globus (PTG) 50 35
Nestle SA (Regd) 65 68
Pargesa Holdings SA (BR) 25 32
Roche Holdings Genusscheine AG NPV 20 129
Sandoz AG (Regd) 140 97
Schweiz Bankgesellsch (BR) 45 47
Schweiz Bankverein (Regd) 380 67
Winterthur (Regd) 45 27
---------
669
---------
UNITED KINGDOM - 5.1%
Amstrad PLC 12,600 50
ASDA-MFI Group PLC 30,800 46
Associated British Foods Group PLC 3,800 40
Barclays Bank PLC 1,700 18
British Steel PLC 14,800 40
British Telecommunications PLC 2,400 15
Burton Group PLC 46,400 61
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
Cable & Wireless PLC 12,100 $ 83
Fisons PLC 6,600 20
General Accident PLC 3,500 32
Greenalls Group PLC 5,400 42
Hammerson Property PLC 7,600 42
Kleinwort Benson Group PLC (a) 3,800 43
Lonrho PLC 15,100 35
Northumbrian Water PLC 2,500 37
Royal Bank of Scotland Group PLC 5,800 39
Royal Insurance Co., Ltd. PLC 8,100 40
Sevren Trent Water PLC 4,600 40
Smith & Nephew PLC 14,500 41
Taylor Woodrow PLC 20,600 38
Yorkshire Water PLC 8,700 80
---------
882
---------
TOTAL COMMON STOCKS
(cost $15,884) 15,408
---------
PREFERRED STOCKS - 3.8%
BRAZIL - 0.9%
Banco Nacional SA NPV 871,000 17
Electrobras (centr) Series B NPV 224,000 60
Petrol Brasileiros NPV 255,000 21
Sider Riograndense NPV (a) 765,000 22
Vale Rio Doce (Cia) NPV 193,000 29
---------
149
---------
GERMANY - 2.9%
Dyckerhoff Zement AG NV 200 64
RWE AG NV (a) 850 234
Volkswagen AG NV 900 198
---------
496
---------
TOTAL PREFERRED STOCKS
(cost $671) 645
---------
</TABLE>
Special Provisional Financial Report 11
<PAGE>
THE SEVEN SEAS SERIES
ACTIVE INTERNATIONAL FUND
STATEMENT OF NET ASSETS, CONTINUED
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
----------- ---------
SHORT-TERM INVESTMENTS - 4.7%
<S> <C> <C>
UNITED STATES - 4.7%
Federal Home Loan Mortgage
Discount Note (b)
6.100% due 07/03/95 $ 804 804
---------
TOTAL SHORT-TERM INVESTMENTS
(cost $804) 804
---------
TOTAL INVESTMENTS
(Identified cost $17,359) (c) -
98.7% 16,857
OTHER ASSETS AND
LIABILITIES, NET - 1.3% 231
---------
NET ASSETS - 100.0% $ 17,088
---------
---------
<FN>
(a)Nonincome-producing security.
(b)Rate noted is yield-to-maturity.
(c)At June 30, 1995, the cost for federal income tax
purposes was the same as shown above and net
unrealized depreciation for all securities was $502.
This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market
value over tax cost of $355 and aggregate gross
unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $857.
* Reflected in units. 1 IDR Unit = 1,000 shares.
</TABLE>
<TABLE>
<CAPTION>
% OF MARKET
NET VALUE
INDUSTRY DIVERSIFICATION ASSETS (000)
- -------------------------------------- ----------- ---------
<S> <C> <C>
Basic Industries 12.9% $ 2,200
Capital Goods 7.5 1,274
Consumer Basics 16.1 2,750
Consumer Durable Goods 5.3 906
Consumer Non-Durables 6.9 1,182
Consumer Services 1.0 167
Energy 4.4 751
Finance 15.0 2,566
General Business 1.7 287
Miscellaneous 9.6 1,644
Shelter 3.0 504
Technology 4.2 717
Transportation 0.7 126
Utilities 5.7 979
Short-Term Investments 4.7 804
----------- ---------
Total Investments 98.7 16,857
Other Assets and Liabilities, Net 1.3 231
----------- ---------
NET ASSETS 100.0% $ 17,088
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Special Provisional Financial Report 12
<PAGE>
THE SEVEN SEAS SERIES
ACTIVE INTERNATIONAL FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at market (identified cost $17,358,925)(Note 2)......................... $16,857,243
Cash................................................................................ 1,107
Foreign currency holdings (identified cost $215,512)................................ 217,381
Forward foreign currency exchange contracts (cost $6,970,673)(Notes 2 and 5)........ 6,970,673
Foreign currency exchange spot contracts (cost $49,264)(Notes 2 and 5).............. 49,214
Receivables:
Dividends and interest.......................................................... 38,373
Fund shares sold................................................................ 25,000
Foreign taxes recoverable....................................................... 15,312
Deferred organization expense (Note 2).............................................. 41,240
-----------
24,215,543
LIABILITIES
Payables (Note 4):
Investments purchased............................................... $ 88,618
Accrued advisory fees............................................... 7,559
Accrued shareholder service fees.................................... 323
Accrued administrative fees......................................... 684
Accrued custodian fees.............................................. 9,407
Organization fees................................................... 43,193
Other accrued expenses.............................................. 3,512
Forward foreign currency exchange contracts
(cost $6,970,673)(Notes 2 and 5).................................. 6,924,971
Foreign currency exchange spot contracts
(cost $49,264)(Notes 2 and 5)..................................... 49,264 7,127,531
---------- -----------
NET ASSETS.............................................................................. $17,088,012
-----------
-----------
NET ASSETS CONSIST OF:
Undistributed net investment income................................................. $ 80,828
Accumulatd net realized gain (loss) from investments and foreign currency-related
transactions....................................................................... (40,758)
Unrealized appreciation (depreciation) on investments and foreign currency-related
transactions....................................................................... (453,410)
Shares of beneficial interest....................................................... 1,700
Additional paid-in capital.......................................................... 17,499,652
-----------
NET ASSETS.............................................................................. $17,088,012
-----------
-----------
Net asset value, offering and redemption price per share
($17,088,012 divided by 1,699,969 shares of $.001 par value
shares of beneficial interest outstanding)............................................ $10.05
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 Special Provisional Financial Report
<PAGE>
THE SEVEN SEAS SERIES
ACTIVE INTERNATIONAL FUND
STATEMENT OF OPERATIONS
For the Period March 7, 1995 (Commencement of Operations)
to June 30, 1995 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $17,609).................................. $ 111,125
Interest.............................................................................. 31,253
---------
142,378
Expenses (Notes 2 and 4):
Advisory fees............................................................. $ 20,203
Administrative fees....................................................... 1,603
Custodian fees............................................................ 15,607
Distribution fees......................................................... 676
Professional fees......................................................... 16,275
Registration fees......................................................... 17,589
Shareholder service fees.................................................. 673
Amortization of deferred organization expenses............................ 2,760
Miscellaneous............................................................. 154
---------
Expenses before waivers................................................... 75,540
Expenses waived........................................................... (13,990) 61,550
--------- -----------
Net investment income................................................................... 80,828
-----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) from:
Investment transactions (Notes 2 and 3)............................................. (827)
Foreign currency-related transactions (Notes 2 and 3)............................... (39,931)
Net change in unrealized appreciation or depreciation of:
Investment transactions (Notes 2 and 3)............................................. (501,682)
Foreign currency-related transactions (Notes 2 and 3)............................... 48,272
-----------
Net gain (loss) on investments.......................................................... (494,168)
-----------
Net increase (decrease) in net assets resulting from operations......................... $ (413,340)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Special Provisional Financial Report 15
<PAGE>
THE SEVEN SEAS SERIES
ACTIVE INTERNATIONAL FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period March 7, 1995 (Commencement of Operations)
to June 30, 1995 (Unaudited)
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income............................................................... $ 80,828
Net realized gain (loss) from:
Investment transactions......................................................... (827)
Foreign currency-related transactions........................................... (39,931)
Net change in unrealized appreciation or depreciation of:
Investment transactions......................................................... (501,682)
Foreign currency-related transactions........................................... 48,272
-----------
Net increase (decrease) in net assets resulting from operations......................... (413,340)
Increase (decrease) in net assets from Fund share transactions.......................... 17,501,352
-----------
INCREASE (DECREASE) IN NET ASSETS....................................................... 17,088,012
Net assets at beginning of period....................................................... --
-----------
NET ASSETS AT END OF PERIOD
(including undistributed net investment income of $80,828)............................ $17,088,012
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
FUND SHARE TRANSACTIONS
SHARES AMOUNT
--------- -----------
<S> <C> <C>
Fund shares sold............................................................. 1,704,869 $17,552,908
Fund shares redeemed......................................................... (4,900) (51,556)
--------- -----------
Net increase (decrease)...................................................... 1,699,969 $17,501,352
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 Special Provisional Financial Report
<PAGE>
THE SEVEN SEAS SERIES
ACTIVE INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for
a share outstanding throughout the period and other performance
information derived from the financial statements.
<TABLE>
<CAPTION>
1995++
---------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................................................ $ 10.00
---------
INCOME FROM INVESTMENT OPERATIONS:
Net realized and unrealized gain on investments................................................................. .05
---------
Total from Investment Operations................................................................................ .05
---------
NET ASSET VALUE, END OF PERIOD...................................................................................... $ 10.05
---------
---------
TOTAL RETURN (%)(a)................................................................................................. .50
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily net assets (b)(c)..................................................... 2.28
Operating expenses, gross, to average daily net assets (b)(c)................................................... 2.80
Net investment income to average daily net assets (b)........................................................... 3.00
Portfolio turnover (b).......................................................................................... .11
Net assets, end of period ($000 omitted)........................................................................ 17,088
Per share amount of fees waived ($ omitted)..................................................................... .0082
<FN>
++ For the period March 7, 1995 (commencement of operations) to June 30, 1995
(Unaudited).
(a) Periods less than one year are not annualized.
(b) Annualized.
(c) See Note 4.
</TABLE>
Special Provisional Financial Report 17
<PAGE>
THE SEVEN SEAS SERIES
ACTIVE INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 (Unaudited)
1. ORGANIZATION
The Seven Seas Series Fund (the "Investment Company")
is a series mutual fund, currently comprising 14 investment portfolios
which have commenced operations as of June 30, 1995. These financial
statements report on one portfolio, The Seven Seas Series Active
International Fund (the "Fund"), which commenced operations on March 7,
1995. The Investment Company is registered under the Investment Company
Act of 1940, as amended, as a diversified open-end management investment
company which was organized as a Massachusetts business trust on October
3, 1987 and now operates under a First Amended and Restated Master Trust
Agreement dated October 13, 1993. The Investment Company's master trust
agreement permits the Board of Trustees to issue an unlimited number of
full and fractional shares of beneficial interest at a $.001 par value.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of
these financial statements.
SECURITY VALUATION: International equity and fixed-income securities
traded on a national securities exchange are valued on the basis of the
last sale price. International securities traded over-the-counter are
valued on the basis of the mean of bid prices. In the absence of a last
sale or mean bid price, respectively, such securities may be valued on
the basis of prices provided by a pricing service if those prices are
believed to reflect the fair market value of such securities.
The Fund may value certain securities for which market quotations are not
readily available at "fair value," as determined in good faith pursuant
to procedures established by the Board of Trustees.
SECURITIES TRANSACTIONS: Securities transactions are recorded on the
trade date basis. Realized gains and losses from the securities
transactions are recorded on the basis of identified cost.
INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date
and interest income is recorded on the accrual basis.
FEDERAL INCOME TAXES: As the Investment Company is a Massachusetts
business trust, each sub-trust is a separate corporate taxpayer and
determines its net investment income and capital gains (or losses) and
the amounts to be distributed to each fund's shareholders without regard
to the income and capital gains (or losses) of the other funds.
It is each fund's intention to qualify as a regulated investment company
and distribute all of its taxable income. The Fund, accordingly, paid no
federal income taxes and no federal income tax provision was required.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Income dividends and capital
gain distributions, if any, are recorded on the ex-dividend date. The
Fund declares and pays dividends annually. Capital gain distributions, if
any, are generally declared and paid annually. An additional distribution
may be paid by the Fund to avoid imposition of federal income tax on any
remaining undistributed net investment income and capital gains.
Special Provisional Financial Report 13
<PAGE>
THE SEVEN SEAS SERIES
ACTIVE INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
June 30, 1995 (Unaudited)
The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations
which may differ from generally accepted accounting principles ("GAAP").
As a result, net investment income and net realized gain (or loss) on
investment and foreign currency-related transactions for a reporting
period may differ significantly from distributions during such period.
The differences between tax regulations and GAAP primarily relate to
investments in options, futures, forward contracts, passive foreign
investment companies, foreign-denominated investments, and certain
securities sold at a loss. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting
its net asset value.
EXPENSES: Expenses such as advisory fees, custodian fees, transfer agent
fees, administrative fees and registration fees are charged directly to
the Fund, while indirect expenses, such as printing, professional fees,
and insurance are allocated among all funds, principally based on their
relative net assets.
DEFERRED ORGANIZATION EXPENSES: The Fund has incurred expenses in
connection with its organization and initial registration. These costs
have been deferred and are being amortized over 60 months on a
straight-line basis.
FOREIGN CURRENCY TRANSLATIONS: The books and records of the Fund are
maintained in US dollars. Foreign currency amounts and transactions of
the Fund are translated into US dollars on the following basis:
(a) Market value of investment securities, other assets and liabilities
at the closing rate of exchange on the valuation date.
(b) Purchases and sales of investment securities and income at the
closing rate of exchange prevailing on the respective trade dates of such
transactions.
Reported net realized gains or losses from foreign currency-related
transactions arise from sales and maturities of short-term securities;
sales of foreign currencies; currency gains or losses realized between
the trade and settlement dates on securities transactions; the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books, and the US dollar equivalent of the amounts
actually received or paid. Net unrealized gains or losses from foreign
currency-related transactions arise from changes in the value of assets
and liabilities, other than investments in securities, at fiscal year-
end, resulting from changes in the exchange rates.
It is not practical to isolate that portion of the results of operations
of the Fund that arises as a result of changes in exchange rates from
that portion that arises from changes in market prices of investments
during the year. Such fluctuations are included with the net realized and
unrealized gain or loss from investments. However, for federal income tax
purposes the Fund does isolate the effects of changes in foreign exchange
rates from the fluctuations arising from changes in market prices for
realized gain (or loss) on debt obligations.
14 Special Provisional Financial Report
<PAGE>
THE SEVEN SEAS SERIES
ACTIVE INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
June 30, 1995 (Unaudited)
REPURCHASE AGREEMENTS: The Fund may engage in repurchase and tri-party
repurchase agreements with several financial institutions whereby the
Fund, through its custodian or third-party custodian, receives delivery
of the underlying securities. The market value of these securities
(including accrued interest) on acquisition date is required to be an
amount equal to at least 102% of the repurchase price. The Fund's Adviser
will monitor repurchase agreements daily to determine that the market
value (including accrued interest) at Fedwire closing time of the
underlying securities remains at least equal to 100% of the repurchase
price. The Adviser or third-party custodian will notify the seller to
immediately increase the collateral on the repurchase agreement to 102%
of the repurchase price if collateral falls below 100%.
INVESTMENT IN INTERNATIONAL MARKETS: Investing in international markets
may involve special risks and considerations not typically associated
with investing in the United States. These risks include revaluation of
currencies, future adverse political and economic developments and
liquidity concerns resulting from thinner markets. Moreover, securities
issued in these markets may be less liquid and their prices more volatile
than those of comparable securities in the United States.
3. SECURITIES TRANSACTIONS
SECURITIES: For the period March 7, 1995 (commencement of operations) to
June 30, 1995, purchases and sales of investment securities, excluding
short-term investments, aggregated to $16,558,766 and $3,001,
respectively.
SECURITIES LENDING: The Fund may loan securities with a value up to
33-1/3% of its total assets to certain brokers. The Fund receives cash
(US currency) and securities issued or guaranteed by the US Government or
its agencies as collateral against the loaned securities. To the extent
that a loan is secured by cash collateral, such collateral shall be
invested in short-term debt securities. To the extent that a loan is
secured by non-cash collateral, brokers pay the Fund negotiated lenders'
fees, which are divided between the Fund and its lending agent, and are
included as interest income to the Fund. Income generated from the
investment of cash collateral is also divided between the Fund and its
lending agent, and is included as interest income to the Fund. All
collateral received will equal at least 100% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 100% of the market value of the loaned
securities during the period of the loan. Should the borrower of the
securities fail financially, there is a risk of delay in recovery of the
securities or loss of rights in the collateral. Consequently, loans are
made only to borrowers which are deemed to be of good financial standing.
As of June 30, 1995, there were no securities out on loan.
4. RELATED PARTIES
The Investment Company has an investment advisory agreement with State
Street Bank and Trust Company (the "Adviser") under which the Adviser
directs the investments of the Fund in accordance with its investment
objective, policies, and limitations. For these services, the Fund pays a
fee to the Adviser, calculated daily and paid monthly, at the annual rate
of .75% of its average daily net assets. The Investment Company also has
contracts with the Adviser to provide custody, transfer agent and
shareholder servicing services to the Fund.
Special Provisional Financial Report 15
<PAGE>
THE SEVEN SEAS SERIES
ACTIVE INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
June 30, 1995 (Unaudited)
For the period March 7, 1995 (commencement of operations) to June 30,
1995, the Adviser voluntarily agreed to waive up to the full amount of
its advisory fee of .75%, to the extent that total Fund expenses exceed
1.00% on an annual basis. For this period, advisory fee waivers amounted
to $12,645.
The Investment Company has a shareholder servicing agreement with State
Street Bank and Trust Company ("the Agent") under which the Agent
provides administrative functions for Investment Company shareholders,
including services related to the purchase and redemption of Investment
Company shares. For these services, the Fund pays a fee to the Agent, in
the amount of .025% on an annual basis of the average daily value of net
assets of the Fund. This fee, in conjunction with other distribution-related
expenses, may not exceed .25% of the average daily value of net assets on an
annual basis.
The Investment Company has contracts with the Adviser to provide custody
and transfer agent services to the Fund. For the period March 7, 1995
(commencement of operations) to June 30, 1995, the Adviser voluntarily
waived a portion of its custodial services fee to the Fund, which
amounted to $843.
Frank Russell Investment Management Company (the "Administrator") serves
as administrator of the Investment Company. The Administrator is also
required, pursuant to the Administration Agreement, to arrange and pay
certain promotional and sales costs of Investment Company shares. Russell
Fund Distributors, Inc. (the "Distributor"), a subsidiary of the
Administrator, is the distributor for Investment Company shares. Under
the Distribution Plan, each fund may spend, and the Distributor be
reimbursed, annually, directly or indirectly, up to .25% of the average
daily value of the net assets on an annual basis for distribution-related
and shareholder servicing services. If, in any calendar month, the
distribution expenses incurred by the Distributor exceed the maximum
amount of allowable reimbursement, the excess amounts may be carried
forward for subsequent reimbursement from the Investment Company.
In no event may excess amounts be carried forward more than two fiscal
years from the year when such expenses were incurred.
Pursuant to the Administration Agreement with the Investment Company, the
Administrator supervises all non-portfolio investment aspects of the
Investment Company's operations and provides adequate office space and
all necessary office equipment and services, including telephone service,
utilities, stationery supplies, and similar items. The Investment Company
pays the Administrator the following fees for the services supplied by
the Administrator pursuant to the Administration Agreement: (i) an
annual fee, payable monthly on a pro rata basis, based on the following
percentages of the average daily net assets of the Fund: $0 up to $500
million -- .07%; over $500 million to and including $1 billion -- .06%;
over $1 billion up to $1.5 billion -- .04%; over $1.5 billion -- .03%;
(ii) less an amount equal to the sum of certain distribution-related
expenses incurred by the Investment Company's Distributor on behalf of
the Fund (up to a maximum of 15% of the asset-based fee determined in (i));
(iii) out-of-pocket expenses; and (iv) start-up costs for new funds. For
the period March 7, 1995 (commencement of operations) to June 30, 1995,
the Administrator voluntarily waived a portion of its fee to the Fund,
which amounted to $502.
The Investment Company pays each of its Trustees not affiliated with the
Investment Company $38,000 annually; $1,000 for each of the board
meetings attended; an additional $1,000 for attending the annual audit
committee meeting; and reimbursement for out-of-pocket expenses.
16 Special Provisional Financial Report
<PAGE>
THE SEVEN SEAS SERIES
ACTIVE INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
June 30, 1995 (Unaudited)
5. COMMITMENTS
As of June 30, 1995, the Active International Fund has entered into
various forward foreign currency exchange and foreign currency exchange
spot contracts which contractually obligate the Funds to deliver or
receive currencies at specified future dates. Open contracts were as
follows:
ACTIVE INTERNATIONAL FUND
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
- -------------------- ------------------- --------------- -------------
<S> <C> <C> <C>
CHF 360,000 USD 320,899 08/04/95 $ 7,304
DEM 1,000,000 USD 733,084 08/04/95 8,836
DEM 670,000 USD 484,034 08/04/95 (1,212)
JPY 365,000,000 USD 4,372,410 09/08/95 25,561
JPY 10,590,000 USD 126,842 09/08/95 723
JPY 78,000,000 USD 933,405 09/08/95 4,489
------------
$ 45,701
------------
------------
</TABLE>
ACTIVE INTERNATIONAL FUND
FORWARD FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
- -------------------- ------------------- --------------- -------------
<S> <C> <C> <C>
USD 16,421 PTE 2,400,000 07/05/95 $ (17)
USD 16,421 PTE 2,400,000 07/03/95 (17)
USD 16,421 PTE 2,400,000 07/05/95 (17)
-------------
$ (51)
-------------
-------------
</TABLE>
The related net unrealized appreciation (depreciation) is reflected in
the Active International Fund's financial statements.
Performance is historical and assumes reinvestments of all dividends and
capital gains. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
when purchased. Past performance is not indicative of future results.
Special Provisional Financial Report 17
<PAGE>
THE SEVEN SEAS SERIES FUND
Two International Place, 35th Floor
Boston, Massachusetts 02110
(617) 654-6089
- -------------------------------------------------------------------------------
TRUSTEES
Lynn L. Anderson, Chairman
William L. Marshall
Steven J. Mastrovich
Patrick J. Riley
Richard D. Shirk
Bruce D. Taber
Henry W. Todd
OFFICERS
Lynn L. Anderson, President
Margaret L. Barclay, Senior Vice President,
Treasurer and Director of Operations
J. David Griswold, Vice President
and Secretary
INVESTMENT ADVISER
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
CUSTODIAN, TRANSFER AGENT AND
OFFICE OF SHAREHOLDERS INQUIRIES
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
(800) 64-7SEAS (77327)
DISTRIBUTOR
Russell Fund Distributors, Inc.
Two International Place, 35th Floor
Boston, Massachusetts 02110
(617) 654-6089
ADMINISTRATOR
Frank Russell Investment Management Company
909 A Street
Tacoma, Washington 98402
LEGAL COUNSEL
Goodwin, Procter & Hoar
Exchange Place
Boston, Massachusetts 02109
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
22 Special Provisional Financial Report
<PAGE>
PART C: OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Part A -- None.
Part B -- Unaudited financial statements, including notes to the
financial statements and financial highlights for The Seven Seas
Series Active International Fund for the period March 7, 1995
(commencement of operations) to June 30, 1995.
(b) EXHIBITS
INCORPORATED BY REFERENCE
NAME OF EXHIBIT OR EXHIBIT NUMBER
1. First Amended and Restated Post-Effective Amendment #18
Master Trust Agreement
(a) Amendment No. 1 Post-Effective Amendment #19
(b) Amendment No. 2 Post-Effective Amendment #22
(c) Amendment No. 3 Post-Effective Amendment #22
(d) Amendment No. 4 Post-Effective Amendment #23
(e) Amendment No. 5 Post-Effective Amendment #27
(f) Amendment No. 6 Post-Effective Amendment #28
2. Bylaws Pre-Effective Amendment #1
3. Voting Trust Agreement None
4. Specimen Security None
5. (a) Investment Advisory Agreement Post-Effective Amendment #10
(b) Letter agreement incorporating Post-Effective Amendment #11
the Yield Plus and Bond Market Funds
within the Investment Advisory
Agreement
(c) Letter agreement incorporating the Post-Effective Amendment #15
US Treasury Money Market and US
Treasury Obligations Funds
within the Investment Advisory
Agreement
(d) Letter agreement incorporating Post-Effective Amendment #16
the Growth and Income and
Intermediate Funds within the
Investment Advisory Agreement
-7-
<PAGE>
(e) Letter agreement incorporating Post-Effective Amendment #20
the Emerging Markets Fund and
the Prime Money Market
Portfolio within the Investment
Advisory Agreement
(f) Letter agreement incorporating Post-Effective Amendment #25
the Tax Free Money Market
Fund within the Investment
Advisory Agreement
(g) Letter agreement incorporating Post-Effective Amendment #28
the Small Cap, Active International
and Real Estate Equity Funds
within the Investment
Advisory Agreement
6. Distribution Agreements
(a) Distribution Agreement Post-Effective Amendment #10
(Class A Shares)
(a)(i)Letter agreement incorporating Post-Effective Amendment #11
the Yield Plus and Bond Market
Funds within the Distribution Agreement
(a)(ii)Letter agreement incorporating the Post-Effective Amendment #15
US Treasury Money Market and US
Treasury Obligations Funds within
the Distribution Agreement
(a)(iii)Letter agreement incorporating Post-Effective Amendment #16
the Growth and Income and
Intermediate Funds within the
Distribution Agreement
(a)(iv)Letter agreement incorporating Post-Effective Amendment #20
the Emerging Markets
Fund and the Prime Money Market
Portfolio within the Distribution
Agreement
(a)(v)Letter agreement incorporating Post-Effective Amendment #25
Class A shares of the Tax Free
Money Market Fund within
the Distribution Agreement
(a)(vi)Letter agreement incorporating Post-Effective Amendment #28
the Small Cap, Active International
and Real Estate Equity Funds
-8-
<PAGE>
within the Distribution Agreement
(b) Distribution Agreement Post-Effective Amendment #23
(regarding Class B Shares
of the Money Market and
US Government Money
Market Funds)
(b)(i) Letter agreement incorporating To be filed by amendment
the Class B Shares of the Tax
Free Money Market Fund within
the Distribution Agreement
(c) Distribution Agreement Post-Effective Amendment #23
(regarding Class C Shares
of the Money Market and
US Government Money Market Funds)
(c)(i) Letter agreement incorporating the To be filed by amendment
Class C Shares of the Tax Free
Money Market Fund within the
Distribution Agreement
7. Bonus, profit sharing, or None
pension plans
8. (a) Custodian Contract Post-Effective Amendment #10
(b) Letter agreement incorporating Post-Effective Amendment #11
the Yield Plus and Bond Market
Funds within the Custodian Contract
(c) Letter agreement incorporating the US Post-Effective Amendment #15
Treasury Money Market and US
Treasury Obligations Funds within
the Custodian Contract
(d) Letter agreement incorporating Post-Effective Amendment #16
the Growth and Income and
Intermediate Funds within the
Custodian Contract
(e) Letter agreement incorporating Post-Effective Amendment #20
the Emerging Markets
Fund and the Prime Money Market
Portfolio within the Custodian Contract
(f) Fee Schedule, dated February 17, Post-Effective Amendment #22
1994, to Custodian Agreement
-9-
<PAGE>
(g) Letter agreement incorporating the Post-Effective Amendment #25
Tax Free Money Market Fund
within the Custodian Contract
(h) Letter agreement incorporating Post-Effective Amendment #28
the Small Cap, Active International
and Real Estate Equity Funds
within the Custodian Contract
9. (a)(i)Transfer Agency and Post-Effective Amendment #10
Service Agreement
(a)(ii)Letter agreement incorporating Post-Effective Amendment #11
the Yield Plus and Bond Market
Funds within the Transfer Agency
and Service Agreement
(a)(iii)Letter agreement incorporating the Post-Effective Amendment #15
US Treasury Money Market and US
Treasury Obligations Funds within
the Transfer Agency and Service
Agreement
(a)(iv)Letter agreement incorporating Post-Effective Amendment #16
the Growth and Income and
Intermediate Funds
within the Transfer Agency and
Service Agreement
(a)(v)Letter agreement incorporating Post-Effective Amendment #20
the Emerging Markets Fund
and the Prime Money Market Portfolio
within the Transfer Agency and
Service Agreement
(a)(vi)Letter agreement incorporating the Post-Effective Amendment #25
Tax Free Money Market Fund
within the Transfer Agency and
Service Agreement
(a)(vii)Letter agreement incorporating Post-Effective Amendment #28
the Small Cap, Active International
and Real Estate Equity Funds
within the Transfer Agency and
Service Agreement
(b)(i) Administration Agreement Post-Effective Amendment #10
-10-
<PAGE>
(b)(ii)Letter agreement incorporating Post-Effective Amendment #11
the Yield Plus and Bond Market
Funds within the Administration
Agreement
(b)(iii)Letter agreement incorporating the Post-Effective Amendment #15
US Treasury Money Market and US
Treasury Obligations Funds within
the Administration Agreement
(b)(iv) Letter agreement incorporating Post-Effective Amendment #16
the Growth and Income and
Intermediate Funds within the
Administration Agreement
(b)(v) Letter agreement incorporating Post-Effective Amendment #20
the Emerging Markets
Fund and the Prime Money Market
Portfolio within the Administration
Agreement
(b)(vi) Letter agreement incorporating the Post-Effective Amendment #25
Tax Free Money Market Fund
within the Administration Agreement
(b)(vii) Letter agreement incorporating Post-Effective Amendment #28
the Small Cap, Active International
and Real Estate Equity Funds
within the Administration Agreement
10. Opinion of Counsel
(a) Relating to The Seven Seas Series Pre-Effective Amendment #1
Money Market Fund
(b) Relating to The Seven Seas Series Post-Effective Amendment #5
US Government Money Market Fund
(c) Relating to The Seven Seas Series Post-Effective Amendment #8
S&P 500 Index, S&P Midcap Index,
Matrix Equity, International
European Index, International Pacific
Index and Short Term Government
Securities Funds
(d) Relating to The Seven Seas Series Post-Effective Amendment #11
Yield Plus and Bond Market Funds
-11-
<PAGE>
(e) Relating to The Seven Seas Series Post-Effective Amendment #13
US Treasury Money Market and
Treasury Obligations Funds
(f) Relating to The Seven Seas Series Post-Effective Amendment #16
Growth and Income and Intermediate
Funds
(g) Relating to The Seven Seas Series Post-Effective Amendment #19
Emerging Markets Fund and
the Prime Money Market Portfolio
(h) Relating to Class A, Class B and Post-Effective Amendment #22
Class C Shares The Seven Seas
Series Money Market and US
Government Money Market Funds
(i) Relating to Class A, Class B and Post-Effective Amendment #23
Class C Shares of The Seven Seas
Series Tax Free Money Market Fund
(j) Relating to The Seven Seas Series Post-Effective Amendment #28
Active International Fund
(k) Relating to The Seven Seas Series Post-Effective Amendment #29
Real Estate Equity Fund
11. Other Opinions: Consent of None
Independent Accountants
12. Financial Statements Omitted None
from Item 23
13. Letter of Investment Intent
(a) The Seven Seas Series Money Pre-Effective Amendment #1
Market Fund
(b) The Seven Seas Series US Post-Effective Amendment #5
Government Money Market
Fund
(c) The Seven Seas Series Post-Effective Amendment #10
Government Securities,
Index, Midcap Index, Matrix,
European Index and Pacific
Index Funds
(d) The Seven Seas Series Yield Post-Effective Amendment #11
Plus and Bond Market Funds
-12-
<PAGE>
(e) The Seven Seas Series US Treasury Post-Effective Amendment #15
Money Market and US Treasury
Obligations Funds
(f) The Seven Seas Series Growth and Post-Effective Amendment #16
Income and Intermediate Funds
(g) The Seven Seas Series Emerging Post-Effective Amendment #20
Markets Fund and the Prime
Money Market Portfolio
(h) Class B and C Shares of The Seven Post-Effective Amendment #25
Seas Series Money Market and
US Government Money Market
Funds
(i) The Seven Seas Series Tax Free Post-Effective Amendment #25
Money Market Fund (Class A,
B and C Shares)
(j) The Seven Seas Series Active Post-Effective Amendment #28
International Fund
14. Prototype Retirement Plan None
15. Distribution Plans pursuant to
Rule 12b-1
(a) Plan of Distribution for the Post-Effective Amendment #10
Government Securities, Index,
Midcap Index, Matrix, European
Index and Pacific Index Funds
as approved by the Board of
Trustees
(a)(i)Addendum to the Plan of Distribution Post-Effective Amendment #11
incorporating the Yield Plus and
Bond Market Funds into the Plan
(a)(ii) Addendum to the Plan of Distribution Post-Effective Amendment #11
incorporating the Money Market and
US Government Money Market Funds
into the Plan (Class A Shares)
(a)(iii) Addendum to the Plan of Distribution Post-Effective Amendment #15
incorporating the US Treasury Money
Market and US Treasury Obligations
Funds
-13-
<PAGE>
(a)(iv) Addendum to the Plan of Distribution Post-Effective Amendment #16
incorporating the Growth and Income
and Intermediate Funds
(a)(v) Addendum to the Plan of Distribution Post-Effective Amendment #20
incorporating the Emerging Markets
Fund and the Prime Money
Market Portfolio
(a)(vi) Addendum to the Plan of Distribution Post-Effective Amendment #25
incorporating the Class A Shares of
the Tax Free Money Market Fund
(a)(vii) Addendum to the Plan of Distribution Post-Effective Amendment #28
incorporating the Small Cap, Active
International and Real Estate Equity
Funds
(b) Plan of Distribution for the Money Post-Effective Amendment #23
Market and US Government Money
Market Funds (Class B Shares)
as approved by the Board of Trustees
(b)(i) Addendum to the Plan of Distribution To be filed by amendment
incorporating the Class B Shares of
the Tax Free Money Market Fund
(c) Plan of Distribution for the Money Post-Effective Amendment #23
Market and US Government Money
Market Funds (Class C Shares) as
approved by the Board of Trustees
(c)(i) Addendum to the Plan of Distribution To be filed by amendment
incorporating the Class C Shares of
the Tax Free Money Market Fund
(d) Shareholder Servicing Agreement, Post-Effective Amendment #12
by and between The Seven Seas
Series Fund and State Street
Bank and Trust Company
(e) Form of Agreement Pursuant Post-Effective Amendment #22
to Rule 12b-1 Plan (relating to
Class B Shares) as approved by
the Board of Trustees
-14-
<PAGE>
(f) Form of Agreement Pursuant to Post-Effective Amendment #22
Rule 12b-1 Plan (relating to Class C
Shares) as approved by the Board
of Trustees
16. Computation of Performance Post-Effective Amendment #26
Quotation
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
Item 26. NUMBER OF HOLDERS OF SECURITIES
TITLE OF CLASS NUMBER OF RECORD HOLDERS AS OF JULY 26, 1995
Shares of beneficial interest
Par Value $0.001
THE SEVEN SEAS SERIES
Money Market Fund
Class A Shares 3613
Class B Shares 1
Class C Shares 1
US Government Money Market Fund
Class A Shares 236
Class B Shares 1
Class C Shares 1
Short Term Government Securities Fund 0
Matrix Equity Fund 2,653
Small Cap Fund 217
S&P 500 Index Fund 1,421
Active International Fund 352
International Pacific Index 1
Yield Plus Fund 1,118
Bond Market Fund 1
Growth and Income Fund 2,026
Intermediate Fund 1,725
US Treasury Money Market Fund 47
-15-
<PAGE>
US Treasury Obligations Fund 1
Prime Money Market Fund 54
Emerging Markets Fund 829
Tax Free Money Market Fund
Class A Shares 31
Class B Shares 1
Class C Shares 1
Item 27. INDEMNIFICATION
Indemnification is provided to officers and Trustees of the Registrant
pursuant to Section 6.4 of Article VI of Registrant s First Amended and Restated
Master Trust Agreement, which reads as follows:
"Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC. The Trust shall
indemnify (from the assets of the Sub-Trust or Sub-Trusts in question) each of
its Trustees and officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise [hereinafter referred to as
"Covered Person"]) against all liabilities, including but not limited to amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise with which such person may be or may
have been threatened, while in office or thereafter, or by reason of being or
having been such a Trustee or officer, director or trustee, except with respect
to any matter as to which it has been determined that such Covered Person had
acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office
(such conduct referred to hereafter as "Disabling Conduct"). A determination
that the Covered Person is entitled to indemnification may be made by (i) a
final decision on the merits by a court or other body before whom the proceeding
was brought that the person to be indemnified was not liable by reason of
Disabling Conduct, (ii) dismissal of a court action or an administrative
proceeding against a Covered Person for insufficiency of evidence of Disabling
Conduct, or (iii) a reasonable determination, based upon a review of the facts,
that the indemnitee was not liable by reason of Disabling Conduct by (a) a vote
of a majority of a quorum of Trustees who are neither "interested persons" of
the Trust as defined in section 2(a)(19) of the 1940 Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion. Expenses,
including accountants' and counsel fees so incurred by any such Covered Person
(but excluding amounts paid in satisfaction of judgments, in compromise or as
fines or penalties), may be paid from time to time by the Sub-Trust in question
in advance of the final disposition of any such action, suit or proceeding,
provided that the Covered Person shall have undertaken to repay the amounts so
paid to the Sub-Trust in question if it is ultimately determined that
indemnification of such expenses is not authorized under this Article VI and (i)
the Covered Person shall have provided security for such undertaking, (ii) the
Trust shall be insured against losses arising by reason of any lawful advances,
or (iii) a majority of a quorum of the disinterested Trustees who are not a
party to the proceeding, or an independent legal counsel in a written opinion,
shall have determined, based on a review of
-16-
<PAGE>
readily available facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the Covered Person ultimately will be found entitled to
indemnification."
The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties under the Investment Advisory Agreement or on the part of the Adviser, or
for a loss resulting from a breach of fiduciary duty with respect to the receipt
of compensation for services, the Adviser shall not be subject to liability to
the Registrant or to any shareholder of the Registrant for any error of
judgment, mistake of law or any other act or omission in the course of, or
connected with, rendering services under the Investment Advisory Agreement or
for any losses that may be sustained in the purchase, holding or sale of any
security.
The Distribution Agreements relating to Class A, Class B and Class C Shares
provide that in the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties under the Distribution Agreement,
the Distributor, its officers, directors and any controlling person (within the
meaning of Section 15 of the 1933 Act) ("Distributor") shall be indemnified by
the Registrant from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which
Distributor may incur under the 1933 Act or under common law or otherwise
arising out of or based upon any alleged untrue statement of a material fact
contained in the Registration Statement, Prospectus or Statement of Additional
Information or arising out of or based upon any alleged omission to state a
material fact required to be stated in said documents or necessary to make the
statements not misleading.
Registrant provides the following undertaking:
"Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a Trustee, officer, or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue."
-17-
<PAGE>
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The Investment Management Division of State Street Bank and Trust Company
("State Street") serves as adviser to the Registrant. State Street, a
Massachusetts bank, currently manages large institutional accounts and
collective investment funds. The business, profession, vocation or employment
of a substantial nature which each director or officer of the investment adviser
is or has been, at any time during the past two fiscal years, engaged for his
own account or in the capacity of director, officer, employee, partner or
trustee, is as follows:
CAPACITY
NAME WITH ADVISER BUSINESS NAME AND ADDRESS*
Tenley E. Albright, MD Director Chairman, Vital Sciences, Inc.
Joseph A. Baute Director Former Chairman and CEO,
Markem Corporation
I. MacAlister Booth Director Chairman, President and CEO
Polaroid Corporation
Marshall N. Carter Chairman and CEO State Street Bank and Trust Company
James I. Cash, Jr. Director The James E. Robison Professor
of Business Administration
Harvard Business School
Truman S. Casner Director Partner, Ropes & Gray
Nader F. Darehshori Director Chairman, President and CEO
Houghton Mifflin Company
Lois D. Jubiler Director Chief Technological Officer
Colgate-Palmolive Company
Charles F. Kaye Director President, Transportation
Investments, Inc.
George H. Kidder Director Senior Partner
Hemenway & Barnes
John M. Kucharski Director Chairman, President and CEO
EG&G, Inc.
David B. Perini Director Chairman and President
Perini Corporation
Dennis J. Picard Director Chairman and CEO
Raytheon Company
Bernard W. Reznicek Director Chairman, President and CEO
-18-
<PAGE>
Boston Edison Company
David A. Spina Vice Chairman State Street Bank and Trust Company
Robert E. Weissman Director President and COO
The Dun & Bradstreet Corp.
*Address of all individuals: State Street Boston Corporation, 225 Franklin
Street, Boston, Massachusetts 02110
Item 29. PRINCIPAL UNDERWRITERS
(a) Russell Fund Distributors, Inc., also acts as principal
underwriter for Frank Russell Investment Company.
(b) The directors and officers of Russell Fund Distributors, Inc.,
their principal business address, and positions and offices with the Registrant
and Russell Fund Distributors, Inc. are set forth below:
NAME AND PRINCIPAL POSITION AND OFFICES WITH
BUSINESS ADDRESS* UNDERWRITER POSITION WITH REGISTRANT
Lynn L. Anderson Director and President Trustee, Chairman of the
Board, and President
Margaret L. Barclay Director Senior Vice President,
Fund Treasurer, and
Director of Operations
Karl J. Ege Secretary and General Counsel None
J. David Griswold Associate General Counsel
and Assistant Secretary Secretary
Mary E. Hughs Assistant Secretary None
Nancy M. Jacoby Assistant Secretary None
John C. James Assistant Secretary None
Randall P. Lert Director None
James K. Palmer Treasurer None
*Address of all individuals: 909 A Street, Tacoma, Washington 98402
-19-
<PAGE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS
The Registrant's Administrator, Frank Russell Investment Management Company,
909 A Street, Tacoma, Washington 98402, will maintain the physical possession
of the books and records required by subsection (b)(4) of Rule 31a-1 under the
Investment Company Act of 1940. All other accounts, books and documents
required by Rule 31a-1 are maintained in the physical possession of Registrant s
investment adviser, transfer agent, and custodian, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts, 02110 and 1776 Heritage
Drive, North Quincy, Massachusetts 02171.
Item 31. MANAGEMENT SERVICES
Not applicable.
Item 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant hereby undertakes to furnish to each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders upon request and without charge.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, The Registrant, the Seven Seas Series Fund, certifies that
it meets all of the requirements for effectiveness of this Post-Effective
Amendment No. 31 to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Boston, and Commonwealth of Massachusetts, on the 27th day of July, 1995.
By: /s/ Lynn L. Anderson
-----------------------------
Lynn L. Anderson, President
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities as
indicated on July 27, 1995.
SIGNATURE TITLE
/s/ Lynn L. Anderson Trustee, President and
------------------------- Chairman of the Board
Lynn L. Anderson
Trustee
-------------------------
Steven J. Mastrovich
/s/ William L. Marshall Trustee
-------------------------
William L. Marshall
/s/ Patrick J. Riley Trustee
-------------------------
Patrick J. Riley
Trustee
-------------------------
Richard D. Shirk
/s/ Bruce D. Taber Trustee
-------------------------
Bruce D. Taber
/s/ Henry W. Todd Trustee
-------------------------
Henry W. Todd
/s/ Margaret L. Barclay Treasurer and Principal
------------------------- Financial and Accounting
Margaret L. Barclay Officer
-21-
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION SEQUENTIALLY
NUMBERED PAGE
-22-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> THE SEVEN SEAS SERIES ACTIVE INTERNATIONAL FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> MAR-07-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 17,359
<INVESTMENTS-AT-VALUE> 16,857
<RECEIVABLES> 7,099
<ASSETS-OTHER> 260
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24,216
<PAYABLE-FOR-SECURITIES> 89
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,039
<TOTAL-LIABILITIES> 7,128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,501
<SHARES-COMMON-STOCK> 1,700
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 81
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (41)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (453)
<NET-ASSETS> 17,088
<DIVIDEND-INCOME> 111
<INTEREST-INCOME> 31
<OTHER-INCOME> 0
<EXPENSES-NET> 61
<NET-INVESTMENT-INCOME> 81
<REALIZED-GAINS-CURRENT> (41)
<APPREC-INCREASE-CURRENT> (453)
<NET-CHANGE-FROM-OPS> (413)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,705
<NUMBER-OF-SHARES-REDEEMED> 5
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 17,088
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 20
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 76
<AVERAGE-NET-ASSETS> 8,476
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .00
<PER-SHARE-GAIN-APPREC> .05
<PER-SHARE-DIVIDEND> .00
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 10.05
<EXPENSE-RATIO> 2.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
