<PAGE>
- ----------------------------------------------
NEWPORT GREATER CHINA FUND SEMIANNUAL REPORT
- ----------------------------------------------
February 28, 1998
NOT FDIC MAY LOSE VALUE
INSURED NO BANK GUARANTEE
<PAGE>
NEWPORT GREATER CHINA FUND HIGHLIGHTS
SEPTEMBER 1, 1997 - FEBRUARY 28, 1998
INVESTMENT OBJECTIVE: Newport Greater China Fund seeks long-term growth of
capital by investing primarily in equity securities of companies located in, or
which derive a substantial portion of their revenue from business activity with
or in, the Greater China Region (i.e., Hong Kong, the People's Republic of China
and Taiwan).
THE FUND IS DESIGNED TO OFFER:
|X| Some of the world's most dynamic economies
|X| Participation in the long-term growth potential in Greater China
|X| Experienced investment management
PORTFOLIO MANAGER COMMENTARY: "China is going through a period of challenging
economic reform. However, we believe that these reforms are building blocks
towards sustainable, long-term economic growth. We consider current valuations
in this market to represent attractive buying opportunities for long-term
investors."
-- Tim Tuttle, Chris Legallet and Tony Zhang, Co-Managers
NEWPORT GREATER CHINA FUND PERFORMANCE
Six-month total
returns, assuming Net asset value per
Inception dates no sales charge(1) share at 2/28/98
CLASS A 5/16/97 (21.93)% $13.91
CLASS B 5/16/97 (21.91)% $13.89
CLASS C 5/16/97 (21.84)% $13.90
CLASS Z 5/16/97 (21.65)% $13.96
LOAD MODIFIED 7/25/97 (23.32)% $13.91
CLASS A
(1) The load-modified Class A total return is shown without a front-end sales
charge but with a 2% contingent deferred sales charge (CDSC). Class B, C and
Z shares were not available during the subscription rights offering period.
Past performance cannot predict future results. Returns and value of an
investment will fluctuate, resulting in a gain or loss on sale. The Fund
commenced investment operations on 5/12/97. The activity shown is from the
effective date of registration with the Securities and Exchange Commission
(5/16/97). The Fund's initial public subscription offering closed on 7/25/97, at
which time an additional $120 million was invested in the Fund's Class A shares.
TOP SECTORS(2) & (3) TOP FIVE HOLDINGS(2)
(as of 2/28/98) (as of 2/28/98)
..................................... .......................................
1. Consumer Cyclicals ..........29.0% 1. Citic Pacific Ltd. ............ 7.8%
2. Financials ..................15.8% 2. New World Infrastructure Ltd. . 7.5%
3. Utilities ...................10.5% 3. Zhejiang SE Elec. Pwr. Co. .... 7.1%
4. Services .....................7.5% 4. Cheung Kong Holdings .......... 6.2%
5. Consumer Staples .............7.5% 5. Shanghai Industrial Hldgs. Ltd. 4.9%
(2) Sectors and holdings are calculated as a percent of total net assets.
Because the Fund is actively managed, there can be no guarantee the Fund
will continue to hold these securities or invest in these countries in the
future.
(3) Industry sectors in the following financial statements are based upon the
standard industrial classifications (SIC) as published by the U.S. Office of
Management and Budget. The sector classifications used on this page are
based upon Newport's defined criteria.
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[Photo of Harold W. Cogger]
The economies of the Pacific Rim dominated headlines during the period. A Thai
currency collapse in July quickly resulted in currency devaluations throughout
the region. In turn, declining currencies exposed credit problems and a
widespread need for financial restructuring, in several cases with the
assistance of the International Monetary Fund (IMF). Economic conditions were
variable during the last six months and all the Asian markets experienced
significant volatility. Market declines in Thailand, Korea, Malaysia, Indonesia
and the Philippines were driven by rapid growth funded by borrowed money,
deteriorating investment fundamentals, weakening currencies and a loss of export
competitiveness. Unfortunately, the market declines were not limited to these
nations as the "fear" of declining markets spilled over into the fundamentally
stronger markets of Hong Kong, Taiwan and China. Shaken investor confidence
resulted in institutional selling, particularly in Hong Kong where large
investments could be liquidated quickly. Increased interest rates in Hong Kong
caused by currency pressures and China's loss of some export manufacturing to
cheaper factories among its southeast Asian neighbors also contributed to a
slowdown in economic growth for the Greater China markets.
In addition, the implementation of significant political, economic and social
reforms in China brings with it short-term costs of increased unemployment and
declining consumption as non-competitive businesses are restructured or closed.
However, we believe that the long-term benefits of reform outweigh the
short-term costs and that the economies of Greater China possess many strong
investment characteristics, including world class financial and technology
centers. As a result of these events, many high quality companies with strong
fundamentals are currently trading at attractive prices, presenting the Fund
with long-term growth potential.
Although risky in a single region, the long-term benefits of investing in an
international fund include an opportunity to diversify your core portfolio. As
China rises to the challenge of reform, the evolving synergy between the Greater
China markets of Hong Kong, mainland China and Taiwan point to opportunities for
improving long-term market conditions as global investors recognize the region's
strength relative to other Asian nations. Thank you for giving us the
opportunity to serve your investment needs.
Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger
President
April 9, 1998
Because market conditions change frequently, there can be no assurance that the
trends described here will continue.
<PAGE>
PORTFOLIO MANAGEMENT REPORT
[Photo of Tim Tuttle]
TIM TUTTLE is managing director of Newport Fund Management, Inc., and lead
portfolio manager of Newport Greater China Fund. He has more than 20 years of
experience investing in Asian markets and is a Chartered Financial Analyst.
[Photo of Chris Legallet]
CHRIS LEGALLET is a senior vice president of Newport Fund Management, Inc., and
a co-manager of Newport Greater China Fund. He is a former managing director for
Asian Investment for Jupiter Tyndall (Asia) Ltd. in Hong Kong and prior to that,
was a vice president of Salomon Inc., in New York.
[Photo of Xiaodong (Tony) Zhang]
XIAODONG (TONY) ZHANG is a senior investment officer -- Greater China, of
Newport Fund Management, Inc., and a co-manager of Newport Greater China Fund.
He is a former project manager of overseas investments for Hongmei Electronic
Corporation in China.
FINANCIAL TURMOIL IN ASIA HAS SPILLOVER EFFECT ON GREATER CHINA STOCK MARKETS
Deteriorating currencies and economies in many Pacific Rim markets dominated
headlines during the period. In particular, the economies of Thailand, Malaysia,
Indonesia and the Philippines suffered from heavy borrowing and speculative real
estate investments. Unfortunately, stock markets in Hong Kong, Taiwan and
mainland China experienced a negative spillover effect caused in large part by
international institutional investors looking to quickly reduce their exposure
to the region. Increased interest rates in Hong Kong held the economy and the
stock market hostage as property prices fell. China continued to implement
numerous economic reforms which are forcing unprofitable state-owned businesses
to restructure or close. While the long-term economic impact of these reforms
should be positive, during the short-term they have resulted in increased
unemployment and curtailed consumption.
INVESTING IN COMPANIES WITH SUPERIOR MANAGEMENT
The Fund generated a negative six-month total return of 21.93% for Class A
shares, based on net asset value. Despite this loss, the Fund's managers believe
in the philosophy of investing in companies with superior management in the most
attractive growth businesses. This led to a larger proportion of assets invested
in infrastructure, a sector that has benefited from China's increase in domestic
investment. In addition, the Fund was less heavily weighted in real estate which
was sensitive to rising interest rates in Hong Kong.
ECONOMIC REFORM IN CHINA HAS LONG-TERM POTENTIAL BENEFITS
China has implemented programs to improve its banking system and privatize many
of its state-owned businesses. These moves include a decision to inject over $30
billion of new capital into its four main commercial banks to boost their
capitalization levels, lower lending rates and improve profitability. Moves to
privatize in order to increase productivity and profitability have resulted in
the restructuring or closure of many formerly state-owned businesses. Over the
short-term, this contributed to an economic slowdown during 1997.
However, China has plans to replace export and domestic consumption losses with
an enormous domestic investment, much of which will be in public works and
housing. These infrastructure investments include new toll roads, ports, water
treatment plants and electric power generating facilities. This ambitious plan
shows that Chinese leaders are well aware of China's needs and we believe that
these moves signal the beginning of a fundamentally new way of thinking that
should have significant long-term benefits.
FUND'S INVESTMENTS SHOULD BENEFIT FROM THE "NEW" CHINESE ECONOMY
A significant part of the Fund's assets are invested in companies that we expect
to benefit from infrastructure programs. For example, China Telecom, which
comprises 0.9% of the portfolio, is a major telecommunications provider that
controls all land line and cellular phone communication in China. China Telecom
enjoys virtually no competition with dominant market share in a high growth
business as an increasing number of Chinese subscribe for cellular phones.
Another example is Zhejiang Expressway Co., Ltd. that comprises 3.3% of the
portfolio and is an infrastructure company for one of the fastest growing
provinces in China. Zhejiang is involved in constructing the region's strategic
north-south and east-west highways.
We also have an investment in Guangdong Kelon, which comprises 3.1% of the
portfolio. This well-managed, well-capitalized company manufactures
refrigerators. The experienced management team at Guangdong Kelon is likely to
use any market weakness to increase market share and the potential for long-term
gains. Guangdong Kelon's efficient distribution provides competitive advantage
over its competition.
POSITIVE OUTLOOK FOR GREATER CHINA'S LONG-TERM ECONOMIC VITALITY
The political, economic and social changes that are occurring in China are
unprecedented. China is committed to dismantling state-run industry and moving
towards free market enterprise. While these changes do not come without costs,
there are numerous signs that investors believe that the long-term benefits of
reform far outweigh the short-term expense. For example, multinational
investment in China has been increasing, a sign of good long-term growth
prospects facilitated by the Government's new investment philosophy. In
February, Royal Dutch/Shell received the go-ahead for a $4.5 billion chemical
complex, the largest foreign investment in China's history. Politically, the
country is more stable than ever, with a relatively young, balanced operating
government made up of both conservatives and liberals with a solid understanding
of economics. Relationships between mainland China and Taiwan have been
improving and China retains its strong relationship with Hong Kong and its
financial and technology centers. Furthermore, strong reserves and high savings
rates provide China with a strong foundation for future growth. The stock
markets appear to reflect expectations for a weak Chinese economy in 1998 and we
believe that the market's recovery will be based on the recognition of an
improving economic environment for both China and the region as reforms take
hold. In the meantime, we are confident that the markets of Greater China will
once again provide global investors with attractive long-term growth
opportunities.
NEWPORT GREATER CHINA FUND'S INVESTMENT PERFORMANCE
VS. HANG SENG INDEX AND MSCI PACIFIC REGION (EX-JAPAN) INDEX
Change in Value of $10,000 from 5/31/97 to 2/28/98
CLASS A SHARES BASED ON NAV AND POP
- -------------------------------------------------------------------------------
- ---------------------------------------------------
CUMULATIVE TOTAL RETURNS AS OF 2/28/98
INCEPTION 5/16/97 NAV POP
- ---------------------------------------------------
LIFE OF FUND 4.79% (1.24)%
- ---------------------------------------------------
MSCI
PACIFIC
HANG REGION
SENG (EX-JAPAN)
NAV POP INDEX INDEX
- -------------------------------------------------------------------------------
May 31, 97 $10,000 $ 9,425 $10,000 $10,000
Jun 30, 97 10,741 10,123 10,305 10,218
Jul 31, 97 11,256 10,608 11,098 10,191
Aug 31, 97 9,999 9,424 9,624 8,777
Sep 30, 97 10,211 9,624 10,264 9,076
Oct 31, 97 7,563 7,128 7,260 7,150
Nov 30, 97 7,178 6,765 7,253 6,924
Dec 31, 97 7,369 6,945 7,398 6,942
Jan 31, 98 5,797 5,464 6,384 6,513
Feb 28, 98 7,806 7,357 7,927 7,515
CLASS B SHARES BASED ON NAV AND W/CDSC
- -------------------------------------------------------------------------------
- ---------------------------------------------------
CUMULATIVE TOTAL RETURNS AS OF 2/28/98
Inception 5/16/97 NAV W/CDSC
- ---------------------------------------------------
LIFE OF FUND 4.63% (0.37)%
- ---------------------------------------------------
MSCI
PACIFIC
HANG REGION
SENG (EX-JAPAN)
NAV W/ CDSC INDEX INDEX
- -------------------------------------------------------------------------------
May 31, 97 $10,000 $10,000 $10,000 $10,000
Jun 30, 97 10,734 10,734 10,305 10,218
Jul 31, 97 11,232 11,232 11,098 10,191
Aug 31, 97 9,980 9,980 9,624 8,777
Sep 30, 97 10,181 10,181 10,264 9,076
Oct 31, 97 7,533 7,533 7,260 7,150
Nov 30, 97 7,147 7,147 7,253 6,924
Dec 31, 97 7,334 7,334 7,398 6,942
Jan 31, 98 5,768 5,768 6,384 6,513
Feb 28, 98 7,794 7,406 7,927 7,515
NEWPORT GREATER CHINA FUND'S INVESTMENT PERFORMANCE
VS. HANG SENG INDEX AND MSCI PACIFIC REGION (EX-JAPAN) INDEX (CONTINUED ...)
Change in Value of $10,000 from 5/31/97 to 2/28/98
CLASS C SHARES BASED ON NAV AND W/CDSC
- -------------------------------------------------------------------------------
- ---------------------------------------------------
CUMULATIVE TOTAL RETURNS AS OF 2/28/98
Inception 5/16/97 NAV W/CDSC
- ---------------------------------------------------
LIFE OF FUND 4.72% 3.72%
- ---------------------------------------------------
MSCI
PACIFIC
HANG REGION
SENG (EX-JAPAN)
NAV W/ CDSC INDEX INDEX
- -------------------------------------------------------------------------------
May 31, 97 $10,000 $10,000 $10,000 $10,000
Jun 30, 97 10,734 10,734 10,305 10,218
Jul 31, 97 11,232 11,232 11,098 10,191
Aug 31, 97 9,980 9,980 9,624 8,777
Sep 30, 97 10,176 10,176 10,264 9,076
Oct 31, 97 7,533 7,533 7,260 7,150
Nov 30, 97 7,153 7,153 7,253 6,924
Dec 31, 97 7,340 7,340 7,398 6,942
Jan 31, 98 5,769 5,769 6,384 6,513
Feb 28, 98 7,800 7,723 7,927 7,515
A $10,000 investment in Class Z shares made on 5/31/97 at net asset value (NAV)
would have grown to $7,835 on 2/28/98. The Hang Seng Index is a
capitalization-weighted index of 33 companies that represent approximately 70%
of the total market capitalization of the Stock Exchange of Hong Kong.
MSCI Pacific Region (Ex-Japan) Index is a broad-based, unmanaged index that
tracks the performance of stocks in the Pacific Rim in countries other than
Japan. Unlike mutual funds, indices are not investments, do not incur fees or
expenses and it is not possible to invest in an index.
Past performance cannot predict future results. Returns and value of an
investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. NAV returns do not include sales charges
or CDSC. Public offering price (POP) returns include the maximum initial sales
charge of 5.75% for Class A shares. The CDSC returns reflect the applicable
charges of: 5% since inception for Class B shares and 1% since inception for
Class C shares.
<PAGE>
INVESTMENT PORTFOLIO
FEBRUARY 28, 1998 (UNAUDITED, IN THOUSANDS)
COMMON STOCKS - 94.8% COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
CONSTRUCTION - 3.3%
SPECIAL TRADE CONTRACTORS
Zhejiang Expressway Co. Ltd. (a) HK 11,200 $ 2,720
-------
................................................................................
FINANCE, INSURANCE & REAL ESTATE - 42.0%
DEPOSITORY INSTITUTIONS - 6.6%
Dah Sing Financial HK 681 1,865
Hang Seng Bank HK 270 2,554
Wing Hang Bank Ltd. HK 356 966
-------
5,385
-------
HOLDING COMPANIES - 20.8%
Cheung Kong Holdings Ltd. HK 725 5,080
Citic Pacific Ltd. HK 1,657 6,420
Guangdong Investments HK 4,098 2,064
Hutchinson Whampoa Ltd. HK 498 3,522
-------
17,086
-------
REAL ESTATE - 14.6%
China Overseas Land & Investment HK 168 51
China Resources Enterprises Ltd. HK 1,538 3,357
Henderson Land Development Co., Ltd. HK 206 1,075
New World Development Co., Ltd. HK 815 3,005
Sun Hung Kai Properties Ltd. HK 326 2,442
Swire Pacific Ltd., Series A HK 336 2,022
-------
11,952
-------
................................................................................
MANUFACTURING - 10.9%
FABRICATED METAL - 2.4%
Shenzen Fangda Co., Ltd., Class B Ch 702 813
Sinocan Holdings Ltd. HK 6,510 1,194
-------
2,007
-------
FOOD & KINDRED PRODUCTS - 0.0%
Guangdong Brewery Holdings Ltd. (a) HK 13 2
-------
HOUSEHOLD APPLIANCES - 3.1%
Guangdong Kelon Electric Holdings, Class H HK 2,302 2,572
-------
LEATHER - 0.2%
Guangdong Tannery Ltd. HK 1,822 153
-------
MISCELLANEOUS MANUFACTURING - 5.2%
Shanghai Industrial Holdings Ltd. HK 934 4,053
VTech Holding HK 53 $ 185
-------
4,238
-------
................................................................................
RETAIL TRADE- 2.3%
APPAREL & ACCESSORY STORES
Glorious Sun Enterprises HK 6,248 1,876
-------
................................................................................
SERVICES - 2.2%
COMPUTER SOFTWARE
Flounder Hong Kong Ltd. HK 2,296 1,764
-------
................................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 28.0%
AIR TRANSPORTATION - 1.2%
China Southern Airlines Co. Ltd. (a) HK 3,930 990
-------
COMMUNICATIONS - 4.6%
China Telecom Ltd. (a) HK 400 726
Smartone Telecommunications Holdings Ltd. HK 1,169 3,026
-------
3,752
-------
ELECTRIC SERVICES - 10.6%
Huaneng Power International, Inc. ADR (a) HK 113 2,788
Zhejiang Southeast Electric Power Co.,
Class B (a) Ch 16,000 5,856
-------
8,644
-------
LOCAL & SUBURBAN TRANSIT - 3.0%
Shanghai Dazhong Taxi Co., Class B (a) Ch 1,353 1,099
GZI Transportation Ltd. HK 276 89
Road King Infrastructure Ltd. HK 1,546 1,298
-------
2,486
-------
RAILROAD - 1.1%
Guangshen Railway Co., Ltd. HK 3,400 911
-------
TRANSPORTATION SERVICES - 7.5%
New World Infrastructure Ltd. (a) HK 2,323 6,151
-------
................................................................................
WHOLESALE TRADE - 6.1%
DURABLE GOODS
Li & Fung Ltd. HK 1,498 2,263
Tianjin Development (a) HK 2,850 2,761
-------
5,024
-------
TOTAL COMMON STOCKS(cost of $108,030)(b) 77,713
-------
SHORT-TERM OBLIGATIONS - 1.1% PAR VALUE
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc.,
5.610% (c) 03/02/98 $ 891 $ 891
-------
OTHER ASSETS & LIABILITIES, NET - 4.1% 3,381
- --------------------------------------------------------------------------------
NET ASSETS - 100% $81,985
-------
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Non-income producing.
(b) Cost for federal income tax purposes is the same.
(c) Rate represents yield at date of purchase.
Summary of Securities
by Country Country Value % of Total
- --------------------------------------------------------------------------------
Hong Kong HK $ 69,945 90.0
China Ch 7,768 10.0
-------- -----
$ 77,713 100.0
======== =====
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
Acronym Name
-------------- ---------------------------
ADR American Depositary Receipt
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
FEBRUARY 28, 1998 (UNAUDITED)
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $108,030) $ 77,713
Short-term obligations 891
--------
78,604
Cash including foreign currencies (cost $2,663) $ 2,701
Receivable for:
Investment sold 1,974
Fund shares sold 66
Dividends 65
Expense reimbursement due from
Adviser/Administrator 60
Deferred organization expenses 10
Other 133 5,009
------- --------
Total Assets 83,613
LIABILITIES
Payable for:
Investments purchased 1,284
Fund shares repurchased 237
Accrued:
Management fee 73
Administration fee 16
Transfer agent fee 15
Bookkeeping fee 3
-------
Total Liabilities 1,628
--------
NET ASSETS $ 81,985
========
Net asset value & redemption price per share -
Class A ($77,181/5,549) $13.91
======
Maximum offering price per share - Class A
($13.91/0.9425) $14.76 (a)
======
Net asset value & offering price per share -
Class B ($3,630/261) $13.89 (b)
======
Net asset value & offering price per share -
Class C ($1,069/77) $13.90 (b)
======
Net asset value, offering & redemption price per share -
Class Z ($105/8) $13.96
======
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998
(UNAUDITED)
(in thousands)
INVESTMENT INCOME
Dividends:
Bank of East Asia $ 58
Citic Pacific Ltd. 107
Henderson Land Development Co., Ltd. 117
New World Development Co., Ltd. 92
Smartone Telecommunications Holdings Ltd. 50
Other 477
Interest 47
--------
Total Investment Income 948
EXPENSES
Management fee $ 481
Administration fee 108
Service fee - Class A, Class B, Class C 107
Distribution fee - Class B 6
Distribution fee - Class C 2
Transfer agent fee 108
Bookkeeping fee 20
Trustees fee 3
Custodian fee 18
Audit fee 10
Legal fee 3
Registration fee 28
Reports to shareholders 4
Amortization of deferred
organization expenses 1
Other 18 917
------- --------
Net Investment Income 31
--------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized loss on:
Investments (8,156)
Foreign currency transactions (8)
-------
Net Realized Loss (8,164)
Net unrealized appreciation (depreciation)
during the period on:
Investments (17,082)
Foreign currency transactions 39
-------
Net Unrealized Depreciation (17,043)
--------
Net Loss (25,207)
--------
Decrease in Net Assets from Operations $(25,176)
========
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
Six months Period
ended ended
(in thousands) February 28 August 31
----------- ----------
INCREASE (DECREASE) IN NET ASSETS 1998 1997 (A)
Operations:
Net investment income $ 31 $ 111
Net realized gain (loss) (8,164) 578
Net unrealized depreciation (17,043) (13,236)
--------- ---------
Net Decrease from Operations (25,176) (12,547)
--------- ---------
Distributions:
From net investment income - Class A (161) -
In excess of net investment income - Class A (195) -
From net investment income - Class B (4) -
In excess of net investment income - Class B (5) -
From net investment income - Class C (1) -
In excess of net investment income - Class C (1) -
From net investment income - Class Z (b) -
In excess of net investment income - Class Z (b) -
--------- ---------
(25,543) -
--------- ---------
Fund Share Transactions:
Receipts for shares sold - Class A 6,778 134,419
Value of distributions reinvested Class A 231 -
Cost of shares repurchased - Class A (19,730) (7,769)
--------- ---------
(12,721) 126,650
--------- ---------
Receipts for shares sold - Class B 3,904 -
Value of distributions reinvested Class B 5 -
Cost of shares repurchased - Class B (621) -
--------- ---------
3,288 -
--------- ---------
Receipts for shares sold - Class C 1,260 -
Value of distributions reinvested Class C 1 -
Cost of shares repurchased - Class C (403) -
--------- ---------
858 -
--------- ---------
Receipts for shares sold - Class Z (b) -
--------- ---------
Net Increase (Decrease) from Fund Share
Transactions (8,575) 126,650
--------- ---------
Total Increase (Decrease) (34,118) 114,103
NET ASSETS
Beginning of period 116,103 2,000
--------- ---------
End of period (net of overdistributed and including
undistributed net investment of $209 and $134,
respectively) $ 81,985 $ 116,103
======== =========
(a) The Fund commenced investment operations on May 12, 1997. The activity shown
is from the effective date of registration (May 16, 1997) with the
Securities and Exchange Commission.
(b) Rounds to less than one.
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS - CONT.
(Unaudited)
Six months Period
ended ended
February 28 August 31
----------- ----------
1998 1997 (A)
NUMBER OF FUND SHARES
Sold - Class A 546 6,708
Issued for distributions reinvested - Class A 18 -
Repurchased - Class A (1,479) (372)
--------- ---------
(915) 6,336
--------- ---------
Sold - Class B 305 -
Issued for distributions reinvested - Class B (b) -
Repurchased - Class B (52) -
--------- ---------
253 -
--------- ---------
Sold - Class C 99 -
Issued for distributions reinvested - Class C (b) -
Repurchased - Class C (30) -
--------- ---------
69 -
--------- ---------
Issued for distributions reinvested - Class Z (b) -
--------- ---------
(a) The Fund commenced investment operations on May 12, 1997. The activity shown
is from the effective date of registration (May 16, 1997) with the
Securities and Exchange Commission.
(b) Rounds to less than one.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998 (UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS
................................................................................
In the opinion of management of Newport Greater China Fund (the Fund), a series
of Colonial Trust II, the acompanying financial statements contain all normal
and recurring adjustments necessary for the fair presentation of the financial
position of the Fund at February 28, 1998, and the result of its operations, the
changes in its net assets and the financial highlights for the six months then
ended.
NOTE 2. ACCOUNTING POLICIES
................................................................................
ORGANIZATION: The Fund is a diversified portfolio of a Massachusetts business
trust, registered under the Investment Company Act of 1940, as amended, as an
open-end, management investment company. The Fund's investment objective is to
seek long-term growth of capital by investing primarily in equity securities of
companies located in, or which derive a substantial portion of their revenue
from business activity with or in, the Greater China Region (Hong Kong, the
People's Republic of China and Taiwan). The Fund may issue an unlimited number
of shares. The Fund offers four classes of shares: Class A, Class B, Class C,
and Class Z. Class A shares are sold with a front-end sales charge and Class B
shares are subject to an annual distribution fee and a contingent deferred sales
charge. Class B shares will convert to Class A shares when they have been
outstanding approximately eight years. Class C shares are subject to a
contingent deferred sales charge on redemptions made within one year after
purchase and an annual distribution fee. Class Z shares are offered continuously
at net asset value. There are certain restrictions on the purchase of Class Z
shares, please refer to the prospectus.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies that are consistently followed by the Fund in
the preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS: Equity securities generally are valued at
the last sale price or, in the case of unlisted or listed securities for which
there were no sales during the day, at current quoted bid prices. In certain
countries, the Fund may hold foreign designated shares. If the foreign share
prices are not readily available as a result of limited share activity, the
securities are valued at the last sale price of the local shares in the
principal market in which such securities are normally traded. In addition, if
the values of foreign securities have been materially affected by the events
occuring after the closing of a foreign market, the foreign securities may be
valued at their value.
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates. In certain countries,
the Fund may hold portfolio positions for which market quotations are not
readily available. Such securities are valued at fair value under procedures
approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class A, Class B and Class C service fees and Class B
and Class C distribution fees), and realized and unrealized gains (losses) are
allocated to each class proportionately on a daily basis for purposes of
determining the net asset value of each class.
The per share data was calculated using average shares outstanding during the
period. In addition, Class A, Class B and Class C net investment income per
share data reflects the service fee per share applicable to Class A, Class B and
Class C shares and the distribution fee applicable to Class B and Class C shares
only.
Class A, Class B and Class C ratios are calculated by adjusting the expense and
net investment income ratios for the Fund for the entire period by the service
fee applicable to Class A, Class B and Class C shares and the distribution fee
applicable to Class B and Class C shares only.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable income, no
federal income tax has been accrued.
DEFERRED ORGANIZATION EXPENSES: The Fund incurred $11,352 of expenses in
connection with its organization. These expenses were deferred and are being
amortized on a straight-line basis over five years.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are
recorded on the ex-date.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: Net realized and unrealized gains (losses) on
foreign currency transactions includes the fluctuations in exchange rates on
gains (losses) between trade and settlement dates on securities transactions,
gains (losses) arising from the disposition of foreign currency and currency
gains (losses) between the accrual and payment dates on dividends and interest
income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) from investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The
contracts are used to minimize the exposure to foreign exchange rate
fluctuations during the period between trade and settlement date of the
contracts. The Fund may also enter into forward currency contracts to hedge
certain other foreign currency denominated assets. All contracts are
marked-to-market daily, resulting in unrealized gains (losses) which become
realized at the time the forward currency contracts are closed or mature.
Realized and unrealized gains (losses) arising from such transactions are
included in net realized and unrealized gains (losses) on foreign currency
transactions. Forward currency contracts do not eliminate fluctuations in the
prices of the Fund's portfolio securities. While the maximum potential loss from
such contracts is the aggregate face value in U.S. dollars at the time the
contract is opened, exposure is typically limited to the change in value of the
contract (in U.S. dollars) over the period it remains open. Risks may also arise
if counterparties fail to perform their obligations under the contracts.
OTHER: Corporate actions are recorded on the ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES
................................................................................
MANAGEMENT FEE: Newport Fund Management, Inc. (the Adviser) is the investment
Adviser of the Fund and receives a monthly fee equal to 1.15% annually of the
Fund's average net assets.
ADMINISTRATION FEE: Colonial Management Associates, Inc. (the
Administrator), an affiliate of the Adviser, provides accounting and other
services for a monthly fee equal to 0.25% annually of the Fund's average net
assets.
BOOKKEEPING FEE: The Administrator provides bookkeeping and pricing services for
$27,000 per year plus 0.035% of the Fund's average net assets over $50 million.
Average Net Assets Annual Fee Rate
- ----------------------------- -------------------------
First $50 million No charge
Next $950 million 0.035%
TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer
Agent), an affiliate of the Administrator, provides shareholder services
for a monthly fee equal to 0.25% annually of the Fund's average net
assets and receives reimbursement for certain out of pocket expenses.
Effective October 1, 1997 and continuing through September 30, 1998, the
Transfer Agent fee will be reduced by 0.0012% in cumulative monthly increments,
resulting in a decrease in the fee from 0.25% to 0.236% annually.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Financial
Investments, Inc. (the Distributor), a subsidiary of the Administrator, is the
Fund's principal underwriter. For the six months ended February 28, 1998, the
Fund has been advised that the Distributor retained no net underwriting
discounts on sales of the Fund's Class A shares and received contingent deferred
sales charges (CDSC) of $121,932, none and none on Class A, Class B and Class C
share redemptions, respectively. Please refer to Note 7 for further information
regarding Class A front-end sales charges.
The Fund has adopted a 12b-1 plan which requires it to pay the Distributor a
service fee equal to 0.25% annually on Class A, Class B and Class C net assets
as of the 20th of each month. The plan also requires the payment of a
distribution fee to the Distributor equal to 0.75% annually of the average net
assets attributable to Class B and Class C shares only.
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
EXPENSE LIMITS: The Adviser/Administrator have agreed, until further notice, to
waive fees and bear certain Fund expenses to the extent that total expenses
(exclusive of service and distribution fees, brokerage commissions, interest,
taxes and extraordinary expenses, if any) exceed 1.90% annually of the Fund's
average net assets.
For the six months ended February 28, 1998, the Fund's operating expenses did
not exceed the 1.90% expense limit.
OTHER: The Fund pays no compensation to its officers, all of whom are
employees of the Adviser or Administrator.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
the Fund's assets.
NOTE 4. PORTFOLIO INFORMATION
................................................................................
INVESTMENT ACTIVITY: During the six months ended February 28, 1998, purchases
and sales of investments, other than short-term obligations, were $25,675,161
and $23,615,308, respectively.
Unrealized appreciation (depreciation) at February 28, 1998, based on cost of
investments for both financial statement and federal income tax purposes was:
Gross unrealized appreciation $ 3,506,152
Gross unrealized depreciation (33,823,577)
-----------
Net unrealized depreciation $(30,317,425)
============
OTHER: There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities. These
risks may involve foreign currency exchange rate fluctuations, adverse political
and economic developments and the possible prevention of currency exchange or
other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 5. STOCK SPLIT
................................................................................
On July 25, 1997, the Trustees declared and effected a 1.50 for 1 stock split on
shares of beneficial interest outstanding.
NOTE 6. OTHER OPERATIONAL AND CAPITAL ACTIVITY
................................................................................
For the period May 12, 1997 through May 16, 1997, the Fund had net investment
income of $1,182 and net realized and unrealized losses of $535. The following
is a summary of capital activity from May 12, 1997 through May 16, 1997,
adjusted to reflect the stock split described in Note 4.
Shares
Receipts for shares sold - Class A $1,700,000 127,500
Receipts for shares sold - Class B $ 100,000 7,500
Receipts for shares sold - Class C $ 100,000 7,500
Receipts for shares sold - Class Z $ 100,000 7,500
NOTE 7. SUBSCRIPTION OFFERING
................................................................................
From June 16, 1997 (the record date) through July 25, 1997, the Fund offered
the common shareholders of each of the Participating Funds (Colonial
Investment Grade Municipal Trust, Colonial Municipal Income Fund,
Colonial High Income Municipal Trust, Colonial Intermediate High Income
Fund, Colonial Intermarket Income Trust I, Colonial Newport Tiger Fund,
Colonial Newport Tiger Cub Fund, Colonial Newport Japan Fund, Liberty
All-Star Equity Fund and Liberty All-Star Growth Fund, Inc.) the right to
subscribe for Class A shares of the Fund, without paying an up-front sales
charge, at the rate of one Load-Waived Class A share of the Fund for each
common share of a Participating Fund held on the record date. The
Load-Waived Class A shares issued are subject to a contingent deferred
sales charge (CDSC) of 2.00% if such shares are redeemed prior to July 31,
1999.
NOTE 8. OTHER RELATED PARTY TRANSACTIONS
................................................................................
From May 12, 1997 to July 25, 1997 Colonial Management Associates, Inc., an
affiliate of the Fund, was the sole shareholder. During that period the Fund's
operations produced net realized and unrealized gains of $980,279 and net
investment income of $657. A subscription offering of the shares provided
additional capital of $119,548,718 to the Fund on July 25, 1997.
NOTE 9. COMPOSITION OF NET ASSETS
................................................................................
Capital paid in $ 120,628
Overdistributed net investment income (209)
Accumulated net realized loss (8,155)
Net unrealized appreciation (depreciation) on:
Investments (30,317)
Foreign currency transactions 38
--------
$ 81,985
========
NOTE 10. FINANCIAL HIGHLIGHTS INFORMATION
................................................................................
The amount shown for a share outstanding does not correspond with the aggregate
net loss on investments for the period due to the timing of sales and
repurchases of Fund shares in relation to fluctuating market values of the
investments of the Fund.
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
(Unaudited)
Six months ended February 28
-----------------------------------------
1998
Class A Class B Class C Class Z
------- ------- ------- -------
Net asset value -
Beginning of period $17.900 $17.860 $17.860 $17.910
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (loss) (a)(b)(c) 0.007 (0.039) (0.041) 0.024
Net realized and unrealized loss (3.936) (3.877) (3.864) (3.907)
------- ------- ------- -------
Total from Investment Operations (3.929) (3.916) (3.905) (3.883)
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.028) (0.024) (0.025) (0.030)
In excess of net investment income (0.033) (0.030) (0.030) (0.037)
------- ------- ------- -------
Total Distributions
Declared to Shareholders (0.061) (0.054) (0.055) (0.067)
------- ------- ------- -------
Net asset value - End of period $13.910 $13.890 $13.900 $13.960
======= ======= ======= =======
Total return (d)(e)(f) (21.93)% (21.91)% (21.84)% (21.65)%
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses (g)(h) 2.10% 2.85% 2.85% 1.85%
Net investment income (loss) (g)(h) 0.08% (0.67)% (0.67)% 0.33%
Fees and expenses waived or borne
by the Adviser/Administrator (g)(h) - - - -
Portfolio turnover (f) 28% 28% 28% 28%
Average commission rate $0.0054 $0.0054 $0.0054 $0.0054
Net assets at end of period (000) $77,181 $ 3,630 $ 1,069 $ 105
(a) Net of fees and expenses waived or borne by the Adviser/Administrator
which amounted to: - - - -
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Includes distributions from Bank of East Asia, Citic Pacific Ltd., Henderson
Land Development Co., Ltd., New World Development Co., Ltd. and Smartone
Telecommunications Holdings Ltd. which amounted to $0.069 per share.
(d) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(e) Had the Adviser/Administrator not waived or reimbursed a portion of
expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(h) Annualized.
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Period ended August 31
-----------------------------------------
1997 (d)
Class A Class B Class C Class Z
-------- ------- ------- -------
Net asset value -
Beginning of period $ 13.340 $13.330 $13.330 $13.340
-------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (a)(b)(c) 0.052 (0.004) (0.004) 0.065
Net realized and unrealized gain (e) 4.508 4.534 4.534 4.505
-------- ------- ------- -------
Total from Investment Operations 4.560 4.530 4.530 4.570
-------- ------- ------- -------
Net asset value - End of period 17.900 17.860 17.860 17.910
======== ======= ======= =======
Total return (f)(g)(h) 34.22% 33.98% 33.98% 34.29%
======== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses (i)(j) 2.15% 2.90% 2.90% 1.90%
Net investment income (i)(j) 0.89% 0.14% 0.14% 1.14%
Fees and expenses
waived or borne by the
Adviser/Administrator (i)(j) 0.59% 0.59% 0.59% 0.59%
Portfolio turnover (h) 4% 4% 4% 4%
Average commission rate $ 0.0094 $0.0094 $0.0094 $0.0094
Net assets at end of period (000) $115,699 $ 135 $ 134 $ 135
(a) Net of fees and expenses waived or borne by the Adviser/Administrator
which amounted to: $ 0.034 $ 0.034 $ 0.034 $ 0.034
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Includes distributions from China Light & Power Co. Ltd., Dah Sing
Financial, Glorious Sun Enterprises and Hang Seng Bank Ltd., which amounted
to $0.078 per share.
(d) The Fund commenced investment operations on May 12, 1997. The activity shown
is from the effective date of registration (May 16, 1997) with the
Securities and Exchange Commission. The per share information reflects the
1.5 for 1 stock split effective July 25, 1997.
(e) Please see Note 10 in Notes to the Financial Statements.
(f) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(g) Had the Adviser/Administrator not waived or reimbursed a portion of
expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(j) Annualized.
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Newport Greater China Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Newport Greater China Fund mails one shareholder report to each shareholder
address. If you would like more than one report, please call 1-800-426-3750 to
order additional reports.
This report has been prepared for shareholders of Newport Greater China Fund. It
may also be used as sales literature when preceded or accompanied by the current
prospectus which provides sales charges, investment objectives and operating
policies of the Fund and the most recent copy of Liberty Financial Investment's
Performance update.
<PAGE>
TRUSTEES
ROBERT J. BIRNBAUM
Retired (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Retired (formerly Chairman of the Board, Bank of New England-Worcester)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
WILLIAM E. MAYER
Partner, Development Capital, L.L.C. (formerly Dean, College of Business and
Management, University of Maryland; Dean, Simon Graduate School of Business,
University of Rochester; Chairman and Chief Executive Officer, CS First Boston
Merchant Bank; and President and Chief Executive Officer, The First Boston
Corporation)
JAMES L. MOODY, JR.
Retired (formerly Chairman of the Board and Chief Executive Officer, Hannaford
Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
GEORGE L. SHINN
Financial Consultant (formerly Chairman, Chief Executive Officer and Consultant,
The First Boston Corporation)
ROBERT L. SULLIVAN
Retired Partner, Peat Marwick Main & Co. (formerly Management Consultant,
Saatchi and Saatchi Consulting Ltd. and Principal and International Practice
Director, Management Consulting, Peat Marwick Main & Co.)
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed & Barton Corporation
[LOGO] LIBERTY FINANCIAL INVESTMENT, INC. (C)1998
Distributor for Colonial Funds, Stein Roe Advisor Funds and Newport Funds
One Financial Center, Boston, MA 02111-2621
Visit us at www.libertyfunds.com
GC-03/932E-0298 M (4/98) 98/369
