<PAGE>
FUND OPERATING EXPENSES
THE SEVEN SEAS SERIES EMERGING MARKETS FUND
Note 2 below and the following table have been restated to reflect current
fees and the Adviser's decision to change its reimbursement agreement.
Effective November 1, 1995, the Adviser will reimburse the Fund for all
expenses in excess of 1.25% of average daily net assets on an annual basis,
rather than 1.50% of average daily net assets on an annual basis.
The purpose of the table is to assist the investor in understanding the various
costs and expenses that an investor in the Emerging Markets 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) .25
Other Expenses:
Administrative Fees .06%
Custodian Fees .60
Other Fees and Expenses .24
---
Total Other Expenses .90
---
Total Operating Expenses Before Reimbursement 1.90
Expense Reimbursement From Adviser(2) (.65)
-----
Total Operating Expenses After Reimbursement(3) 1.25%
-----
-----
<TABLE>
<CAPTION>
EXAMPLES: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
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: $13 $40 $69 $151
--- --- --- ----
--- --- --- ----
- ----------------------
</TABLE>
(1) Rule 12b-1 fees may include expenses paid for shareholder servicing
activities.
(2) Effective through October 31, 1995, Adviser has voluntarily agreed to
reimburse the Fund for all expenses in excess of 1.50% of average daily net
assets on an annual basis. Effective November 1, 1995, the Adviser has
voluntarily agreed to reimburse the Fund for all expenses in excess of
1.25% of average daily net assets on an annual basis. This agreement will
remain in effect until further notice but is anticipated to be in effect
for the current fiscal year.
(3) 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.
<PAGE>
Filed pursuant to Rule 497(c)
File Nos. 33-19229; 811-5430
THE SEVEN SEAS SERIES FUND
Two International Place, 35th Floor
Boston, Massachusetts 02110
(617) 654-6089
EMERGING MARKETS FUND
The Seven Seas Series Fund is a series mutual fund. This Prospectus
describes and offers shares of beneficial interest in one such portfolio, The
Seven Seas Series Emerging Markets Fund (referred to in this Prospectus as the
"Emerging Markets Fund" or the "Fund"). The Emerging Markets Fund seeks to
provide maximum total return by investing primarily in securities of foreign
issuers.
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 FUND 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 November 25, 1994. The Statement of Additional
Information is incorporated herein by reference and is available without charge
from the Distributor at its address noted below or by calling (617) 654-6089.
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Adviser, Custodian
and Transfer Agent: Distributor: Administrator:
State Street Bank and Trust Russell Fund Distributors, Inc. Frank Russell Investment
Company Two International Place, 35th Fl. Management Company
225 Franklin Street Boston, Massachusetts 02110 909 A Street
Boston, Massachusetts 02110 (617) 654-6089 Tacoma, Washington 98402
(617) 654-4721 (206) 627-7001
</TABLE>
PROSPECTUS DATED NOVEMBER 25, 1994
-1-
<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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Dividends and Distributions. . . . . . . . . . . . . . . . . . . . . . . . 12
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Valuation of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . . 15
Purchase of Fund Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Redemption of Fund Shares. . . . . . . . . . . . . . . . . . . . . . . . . 18
General Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Fund Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . . 22
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-2-
<PAGE>
FUND OPERATING EXPENSES
THE SEVEN SEAS SERIES EMERGING MARKETS FUND
The purpose of the table is to assist the investor in understanding the various
costs and expenses that an investor in the Emerging Markets 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."
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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) .25
Other Expenses:(2)
Administrative Fees .06%
Custodian Fees .41
Other Fees and Expenses .14
---
Total Other Expenses .61
---
Total Operating Expenses Before Reimbursement 1.61
Expense Reimbursement From Adviser(3) (.11)
------
Total Operating Expenses After Reimbursement4 1.50%
-----
-----
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: $15 $47
--- ---
--- ---
- --------------------
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 $50 million.
3 Adviser has voluntarily agreed to reimburse the Fund for all expenses in
excess of 1.50% of average daily net assets on an annual basis. This
agreement will remain in effect until further notice.
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.
</TABLE>
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 EMERGING MARKETS FUND
The following table includes selected data for a share outstanding throughout
the fiscal period ended August 31, and other performance information derived
from the financial statements.
More detailed information concerning the Fund's performance, a complete
portfolio listing and audited financial statements are available in the Fund's
Annual Report dated August 31, 1994 which may be obtained without charge by
writing or calling the Distributor.
<TABLE>
<CAPTION>
1994++
------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.00
-----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .05
Net realized and unrealized gain
on investments 1.40
-----------
Total From Investment Operations 1.45
-----------
NET ASSET VALUE, END OF PERIOD $ 11.45
-----------
-----------
TOTAL RETURN (%)(a) 14.50
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average
daily net assets(b)(c)(d) 1.50
Net investment income to average
daily net assets(c) 1.31
Portfolio turnover --
Net assets, end of period
($000 omitted) 27,479
- --------------------
++ For the period March 1, 1994 (commencement of operations) to August 31,
1994.
(a) Periods less than one year are not annualized.
(b) For the period March 1, 1994 (commencement of operations) to August 31,
1994, the Administrator and Custodian waived a portion of their fees
amounting to $.0004 and $.0126 per share, respectively. Additionally, the
Adviser reimbursed expenses amounting to $.0204 per share.
(c) Annualized.
(d) Operating expense ratio before any waivers and reimbursements amounted to
2.45% on an annualized basis.
</TABLE>
-4-
<PAGE>
THE SEVEN SEAS SERIES FUND
The Seven Seas Series Fund (the "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 (the "1940 Act"). As a "series mutual fund," the Investment Company is
authorized to issue an unlimited number of shares evidencing beneficial
interests in different investment portfolios. Through this Prospectus, the
Investment Company offers shares in one such portfolio, The Seven Seas Series
Emerging Markets Fund.
MANNER OF OFFERING
DISTRIBUTION AND ELIGIBLE INVESTORS. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc., the Investment
Company's distributor, to US or foreign institutional and retail investors which
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. A 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
The Emerging Market Fund's investment objective is to provide maximum total
return, primarily through capital appreciation by investing primarily in
securities of foreign issuers.
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 a similar objective.
This investment strategy will not be pursued without the approval of the Fund's
shareholders, if such approval is required under applicable law.
INVESTMENT POLICIES
The investment policies described below reflect the Fund's current
practices and are not fundamental. Investment policies may be changed by the
Board of Trustees of Investment Company without shareholder approval. To the
extent consistent with the Fund's fundamental investment objective and
restrictions the Fund may invest in the following instruments and may use the
following investment techniques:
-5-
<PAGE>
EMERGING MARKETS. Under normal circumstances, the Fund will invest
primarily 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. Nearly all of the Fund's assets will
be invested in these countries (i.e., typically over 95%). Currently, the
definition of an emerging market is that gross domestic product per capita is
less than $8,000 per year. However, due to the status of a country's stock
market, the country may still qualify as an emerging market even if it exceeds
this amount. 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.
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. Risks associated with investment in foreign
companies are noted under "Risk Factors -- Emerging Markets." The risks
associated with investment in securities issued by foreign governments and
companies are described below under "Foreign Government Securities."
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 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.
SECURITIES WARRANTS. The Fund may invest up to 5% of its net assets in
warrants of foreign or domestic issuers, including 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
-6-
<PAGE>
specified stock index. If the Fund does not exercise or dispose of a warrant
prior to its expiration, it will expire worthless.
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
will invest no more than 15% of its net assets in all types of illiquid
securities or securities that are not readily marketable, including special
situations. The Fund is not likely to hold illiquid securities initially.
However, 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.
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 available in emerging markets, 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.
DEBT SECURITIES. The Fund may also invest in debt securities, including
instruments issued by emerging market companies, governments and their agencies.
The Fund will primarily invest in equity securities as defined under the
Securities Exchange Act of 1934 (including convertible debt securities). Other
debt will typically represent less than 10% 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 Statement of Additional Information for a
description of securities ratings.
-7-
<PAGE>
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. The Fund will not invest a material percentage of its
assets in sovereign debt.
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.
In addition to the forward exchange contracts, the Fund may also purchase
or sell listed or OTC 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 will not enter into a
position hedging commitment if, as a result
-8-
<PAGE>
thereof, the Fund would have more than 10% of the value of its assets committed
to such contracts. The Fund will not enter into a forward contract with a term
of more than one year.
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 that the market value of securities sold by a Fund
may decline below the price at which it is obligated to repurchase the
securities.
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.
-9-
<PAGE>
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.
INVESTMENT RESTRICTIONS
The Fund's fundamental investment restrictions described below may be
amended only with approval of the Fund's shareholders and, unless otherwise
noted, apply at the time an investment is made. See the Statement of Additional
Information for other investment restrictions. 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,
emerging market governments, their 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.
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.
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
-10-
<PAGE>
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.
EMERGING MARKETS. 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 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.
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,
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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.
PORTFOLIO TURNOVER
The portfolio turnover rate cannot be predicted, but it is anticipated that
the Fund's annual turnover rate generally will not exceed 50%. 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 emerging market companies
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.
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DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare and pay dividends annually from
net investment income. The Board of Trustees intends to declare distributions
annually from net capital 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 the 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 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.
The Fund may purchase bonds at market discount (i.e., bonds with a purchase
price less than original issue price or adjusted issue price). If such bonds
are subsequently sold at a gain then a portion of that gain equal to the amount
of market discount, which should have been accrued through the sale date, will
be taxable to shareholders as ordinary income.
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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 amount of
income dividends and net capital gains distributed 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.
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.
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 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
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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.
VALUATION OF FUND SHARES
NET ASSET VALUE PER SHARE. The net asset value per share is calculated on
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, 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 the 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.
Debt maturing within 60 days of the valuation date is valued at amortized
cost. 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
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value, as determined by amortized cost, is higher or lower than the price the
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 the
Transfer Agent prior to 4 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 the 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. The
Fund will not permit redemptions until the completed form is on file. For
additional information, copies of forms or questions, call the Transfer Agent at
(800) 647-7327, or write to the Transfer Agent at: State Street Bank and Trust
Company, P.O. Box 8317, Boston, MA 02107, Attention: The Seven Seas Series
Emerging Markets Fund.
FEDERAL FUNDS WIRE. An investor may purchase shares by wiring federal
funds to State Street Bank and Trust Company as the 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 Emerging Markets 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 Emerging Markets 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.
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3. Completing the Application and forwarding it to the 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 Emerging Markets Fund. Certified
checks are not necessary; however, all 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 by such intermediary to
pay additional fees. 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.
EXCHANGE PRIVILEGE. Subject to each Fund's minimum investment requirement,
investors may exchange their Fund shares without charge for shares of any other
investment portfolio offered by the 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 Emerging Markets Fund. If shares of
the 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 Fund upon 60 days' notice to shareholders.
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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 the Investment Company does not
currently charge a fee for this service, the 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 Emerging
Markets Fund. Shareholders using the expedited redemption method must complete
the appropriate section on the Application. 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 Emerging Markets 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 that the shares
are to be redeemed out of The Seven Seas Series Emerging Markets
Fund 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
2. Such other supporting legal documents, if required by applicable law
or the 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
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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 the "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 and Paris.
The 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 the Adviser a fee, calculated
daily and paid monthly, equal to .75% annually of the Fund's average daily net
assets.
The Glass-Steagall Act prohibits a depository state chartered bank such as
the Adviser from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of the 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. The
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, 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 the Adviser from continuing to perform all or a part
of the above services for its customers and/or the Fund. If the Adviser were
prohibited from serving the Fund in any of its present capacities, the Board of
Trustees would seek an alternative provider(s) of such services. In such event,
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changes in the operation of the Fund may occur. It is not expected by the
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 November 9, 1994, State
Street held of record 38% 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 (the
"Administrator") serves as administrator to the Fund. the Administrator
currently serves as investment manager and administrator to 22 mutual funds with
assets of $6.2 billion as of October 31, 1994, and acts as administrator to 17
mutual funds, including the Emerging Markets Fund, with assets of $6.1 billion
as of October 31, 1994.
Pursuant to the Administration Agreement with the Investment Company, the
Administrator will: (1) supervise all aspects of the Fund's operations;
(2) provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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
Emerging Markets Fund pays the Administrator a fee that on an annual basis is
equal to the following percentages of average aggregate 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 the Emerging Markets Fund is equal to the
percentage of average aggregate daily net assets that are attributable to the
Fund. The Administrator will also receive reimbursement of expenses it incurs
in connection with establishing new investment portfolios. The fee paid to the
Administrator will be less than an amount equal to the sum of certain
distribution expenses incurred by the Fund's Distributor on behalf of the Fund,
up to a maximum of 15% of the amount as determined in the fee calculation above.
The Administrator also provides administrative services in connection with
the registration of shares of the Investment Company with those states in which
its shares are offered or sold. Compensation for such services is on a "time
spent" basis. The Investment Company will pay all registration, exemptive
application, renewal and related fees and reasonable out-of-pocket expenses.
DISTRIBUTION SERVICES AND SHAREHOLDER SERVICING ARRANGEMENTS. Pursuant to
the Distribution Agreement with the Investment Company, Russell Fund
Distributors, Inc.
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(the "Distributor"), a wholly owned subsidiary of the 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, the 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 the
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 the
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 (the "Service
Agreements") with financial institutions, which may include the Adviser (the
"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. The 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 Fund 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.
The Investment Company has entered into Service Agreements with the 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, the Investment Company pays the 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 of the Adviser 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 the Service
Organizations, 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
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and paid in subsequent years so long as the Plan is in effect. The 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. The Service
Organizations will be responsible for prompt transmission of purchase and
redemption orders and may charge fees for their services.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly assumed by
the Adviser and the Administrator. The principal expenses of the Fund are the
annual advisory fee payable to the 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 the 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 Investment Company's legal obligations 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 the Fund is the average annual compounded rate 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 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.
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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 (the "Transfer Agent") and
custodian (the "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 the Investment Company's independent accountants.
REPORTS TO SHAREHOLDERS AND SHAREHOLDER INQUIRIES. Shareholders will
receive unaudited semiannual financial statements and annual financial
statements audited by the Investment Company's independent accountants.
Shareholder inquiries regarding the Prospectus and financial statements may be
made by calling the 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. The Investment Company was
organized as a Massachusetts business trust on October 3, 1987.
The Investment Company issues a single class of shares divisible into an
unlimited number of series (or funds), each of which is a separate trust under
Massachusetts law. The Emerging Markets Fund is one such series.
Each Fund share represents an equal proportionate interest in the Fund, has
a par value of $.001 per share and is entitled to such relative rights and
preferences and dividends and distributions earned on Fund assets as may be
declared by the Board of Trustees. Shares of the Fund are fully paid and
nonassessable by the 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 which affects only a particular investment portfolio, only
shareholders of that fund may 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 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 the 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.
The Investment Company does not issue share certificates for the Fund. The
Transfer Agent sends 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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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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