Diversify your portfolio with a fund that seeks long-term growth in expanding
European markets.
- --------------------------------------------------------------------------------
NEWPORT EUROPE FUND Semiannual Report
- --------------------------------------------------------------------------------
February 29, 2000
[COVER GRAPHIC]
<PAGE>
Trustees & Transfer Agent
- --------------------------------------------------------------------------------
Tom Bleasdale
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
John V. Carberry
Senior Vice President of Liberty Financial Companies, Inc. (formerly Managing
Director, Salomon Brothers)
Lora S. Collins
Attorney (formerly Attorney, Kramer, Levin, Naftalis & Frankel)
James E. Grinnell
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
Richard W. Lowry
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
Salvatore Macera
Private Investor (formerly Executive Vice President of Itek Corp. and President
of Itek Optical & Electronic Industries, Inc.)
William E. Mayer
Partner, Development Capital, LLC (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, Chief Executive Officer and Director,
Hannaford Bros. Co.)
John J. Neuhauser
Academic Vice President and Dean of Faculties, Boston College (formerly Dean,
Boston College School of Management)
Thomas E. Stitzel
Professor of Finance, College of Business, Boise State University; Business
Consultant and Author
Robert L. Sullivan
Retired Partner, KPMG LLP (formerly Management Consultant, Saatchi and Saatchi
Consulting Ltd. and Principal and International Practice Director, Management
Consulting, Peat Marwick Main & Co.)
Anne-Lee Verville
Consultant (formerly General Manager, Global Education Industry, and President,
Applications Solutions Division, IBM Corporation)
- --------------------------------------------------------------------------------
Important Information About This Report
The Transfer Agent for Newport Europe Fund is:
Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
The Fund mails one shareholder report to each shareholder address. If you would
like more than one report, please call 1-800-426-3750 and additional reports
will be sent to you.
This report has been prepared for shareholders of Newport Europe Fund. This
report may also be used as sales literature when preceded or accompanied by the
current prospectus which provides details of sales charges, investment
objectives and operating policies of the Fund and with the most recent copy of
the Liberty Funds Distributor, Inc. Performance Update.
Semiannual Report:
Newport Europe Fund
<PAGE>
President's Message
Dear Shareholder:
We are pleased to present the first semiannual report for Newport Europe Fund.
This report covers the period from the Fund's inception in November 1999 through
February 29, 2000.
The stock markets of Europe offer some of the most attractive investment
opportunities in the world today. One third of the world's investments can be
found within Europe's borders, including well-known companies such as Nokia,
SmithKline and Nestle. European companies have embraced the notion that
restructuring can effect profitable change. More companies are streamlining
their operations to increase efficiency and reduce costs. What's more, European
stocks offer compelling valuations compared to U.S. or Japanese stock markets.
These are just some of the opportunities that Europe offers to today's
investors. As a shareholder in Newport Europe Fund, you have an additional
advantage -- an investment team with more than 20 years of combined experience
investing in European securities. The following report provides more specifics
about the Fund's management and the strategies that contributed to its strong
performance. As always, thank you for the opportunity to serve your investment
needs.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
April 12, 2000
Because economic and market conditions change frequently, there can be no
assurance that the trends described above on the following pages will continue.
- ------------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
- ------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Highlights
- --------------------------------------------------------------------------------
o A positive economic environment.
Most European nations experienced positive growth with relatively low
inflation.
o Technology and communications companies thrived.
Across country lines, technology and communications stocks benefited from
a strong, global growth trend.
o Stock selection pushed performance past index.
An emphasis on large companies with strong management in segments such as
technology and telecommunications helped the Fund outperform the Morgan
Stanley Capital International (MSCI) Europe Index for the four month
period ended February 29, 2000.
Newport Europe Fund Performance vs. MSCIEurope Index:
11/8/99-2/29/00
Newport Europe Fund MSCI Europe Index
------------------- -----------------
35.81% 10.64%
Source: Liberty Funds Group.
Past performance cannot predict future investment results. Returns and value of
an investment will vary, resulting in a gain or loss on sale.
The performance of the Fund's Class A shares is compared to the performance of
the MSCI Europe Index, a broad-based, unmanaged index that tracks the
performance of European stocks. The return for the MSCI Europe Index is from
10/31/99. Unlike mutual funds, indexes are not investments and do not incur fees
or expenses. It is not possible to invest directly in an index. Returns do not
include sales charges, but do include reinvestment of all distributions.
Performance for other share classes will vary.
Net asset value per share
on 2/29/00
Class A $14.07
- ---------------------------------------
Class B $14.02
- ---------------------------------------
Class C $14.04
- ---------------------------------------
Class Z $14.08
- ---------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Managers' Report
- --------------------------------------------------------------------------------
Top Five Sector Breakdowns as
of 2/29/00
Technology 35.8%
Utility 14.8%
Financial 10.5%
Consumer Cyclical 10.3%
Healthcare 7.5%
Sector breakdowns are calculated as a percentage of net assets. Because the Fund
is actively managed, there can be no guarantee the Fund will maintain this
breakdown in the future.
BOUGHT
- --------------------------------------------------------------------------------
Skandia Forsakrings AB
(0.9% of net assets)
A Swedish financial services company, Skandia is positioned to benefit from a
shift toward the privatization of pension management that is beginning to gain
support across Europe.
SOLD
- --------------------------------------------------------------------------------
British Telecom
Our optimism that the company could make a successful transition to a broader
menu of products and services was dashed when British Telecom began to lose
ground with its profitable corporate customers. As a result, we sold our
position.
The Fund delivered strong gains for the period
Newport Europe Fund returned 35.81% for the period, since its inception on
November 8, 1999 through February 29, 2000, based on Class A shares without a
sales charge. That was significantly better than the Morgan Stanley Capital
International Europe Index, a broad-based measure of European stock markets,
which gained 10.64% over the four month period ending February 29, 2000.
Strong earnings growth in telecommunications stocks
Strong gains from the Fund's investment in telecommunications stocks, which have
benefited from the growth in cellular communications and the increase in data
communications, were the key drivers of the Fund's outstanding performance. Five
of the Fund's 10 largest holdings are telecommunications stocks. The Fund owned
both Mannesmann and Vodaphone Airtouch, (3.7% and 1.9% of net assets,
respectively) which has just acquired Mannesmann. The two major
telecommunications companies will join forces to become the world's largest
cellular company with more than 40 million subscribers. The companies hope that
business synergies exist, for example, in dealing with suppliers, that might
translate into lower costs and better service.
The Fund also owns positions in Nokia and Ericsson, (3.5% and 4.2% of net
assets, respectively) both leaders in the mobile phone equipment market.
Ericsson has lagged Nokia recently. However, it appears to have overcome
short-term management difficulties and we expect them to improve both top and
bottom line growth in the period ahead, thanks to restructuring.
Diversification helped spread market risk
Although the Fund is currently heavily invested in information technology and
telecommunications, there are seven sectors that we have targeted for emphasis
in the portfolio: business services, consumer growth, financial services, health
care and utilities. We believe these sectors represent opportunities to
capitalize on major trends and common themes that cut across national
boundaries. In financial services, for example, we have recently invested in
Skandia, (0.9% net assets) a Swedish company that is positioned to capitalize on
a trend toward privatization of pension management in several European
countries. As national governments change their laws to encourage people to save
for retirement and begin to shift the responsibility for pension management from
the state to individuals, forward-thinking companies believe that the potential
market could be enormous. Sweden is one of the leaders in this movement, and
Skandia is one of the companies leading the way.
2
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Managers' Report (continued)
- --------------------------------------------------------------------------------
Our goal is to limit exposure to any one sector to approximately 25% and to any
one stock to 5%, thereby imposing an element of risk management through
diversification. At the end of the period, technology-related infotech and
telecommunications stocks accounted for half of the portfolio. Consumer and
health care exposures were each around 10%. The Fund had no investment in
utilities, which was a plus for performance during the period. Large-cap
companies account for 99% of the portfolio. No investments were made in
companies smaller than $1 billion in market capitalization.
Looking ahead
We continue to believe that information technology and telecommunications have
potential for further growth in Europe. However, we have re-balanced the
portfolio, taking some of our technology gains and re-deploying them to invest
in attractive consumer growth, financial services and health care stocks. We
believe there are currently many fine companies in these segments, selling at
attractive prices. If investors begin to take notice of the opportunities
outside of technology, we believe the Fund will be well-positioned to benefit.
The Fund could also benefit from its continued emphasis on technology, if that
sector remains strong.
Mr. Charles Roberts and Mr. Michael Ellis are both senior vice presidents of the
Advisor. Mr. Roberts is the lead manager of the Fund. Mr. Ellis is the
co-manager of the Fund.
International investing offers significant long-term growth potential, but also
involves certain risks. Some of the countries that the Fund may invest in are
considered emerging markets, which are subject to a greater degree of political,
business and economic risk.
Cumulative Total Returns as of 2/29/00
<TABLE>
<CAPTION>
Share Class A B C Z
Inception Date(1) 11/8/99 11/8/99 11/8/99 11/8/99
- -----------------------------------------------------------------------------------------------------
w/o sales with sales w/o sales with sales w/o sales with sales w/o sales
charge charge charge charge charge charge charge
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund 35.81% 28.00% 35.33% 30.33% 35.52% 34.52% 35.91%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Cumulative Total Returns as of 12/31/00
<TABLE>
<CAPTION>
Share Class A B C Z
- -----------------------------------------------------------------------------------------------------
w/o sales with sales w/o sales with sales w/o sales with sales w/o sales
charge charge charge charge charge charge charge
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund 24.90% 17.72% 24.61% 19.61% 24.71% 23.71% 24.90%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1)Effective date of SEC registration.
Top 10 Holdings as of 2/29/00
1. LM Ericsson 4.2%
- ---------------------------------------
2. Mannesmann AG 3.7%
- ---------------------------------------
3. Nokia 3.5%
- ---------------------------------------
4. CMG 3.2%
- ---------------------------------------
5. Sonera Group 3.2%
- ---------------------------------------
6. Epcos AG 3.1%
- ---------------------------------------
7. Banca Fideuram SA 2.9%
- ---------------------------------------
8. Telefonica de
Espana 2.4%
- ---------------------------------------
9. Telecom Italia
Mobile SPA 2.1%
- ---------------------------------------
10. Securitas AB 2.0%
- ---------------------------------------
Holdings are calculated as a percentage of net assets. Because the Fund is
actively managed, there can be no guarantee the Fund will continue to hold these
securities in the future.
Past performance cannot predict future investment results. Returns and value of
an investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. The "with sales charge" returns include
the maximum 5.75% charge for Class A shares and the maximum contingent deferred
sales charge of 5% for life of Fund for Class B shares and 1% for life of Fund
for Class C shares.
Performance results reflect any voluntary waivers or reimbursements of Fund
expenses by the Advisor or its affiliates. Absent these waivers or reimbursement
arrangements, performance results would have been lower. Performance for
different share classes will vary based on differences in sales charges and fees
associated with each class.
3
<PAGE>
- --------------------------------------------------------------------------------
Investment Portfolio
- --------------------------------------------------------------------------------
February 29, 2000 (Unaudited)
(In thousands)
COMMON STOCKS - 91.4% Country Shares Value
- --------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 11.9%
Depository Institutions - 5.5%
Alpha Credit Bank SA Gr 1 $ 54
Banca Fideuram SA It 16 259
Deutsche Bank AG G 1 68
Lloyds TSB Group PLC UK 12 109
------
490
------
Financial Services - 1.2%
Hays PLC UK 16 109
------
Holding & Other
Investment Offices - 0.8%
Zurich Allied AG Sz (a) 71
Insurance Carriers - 4.4%
Aegon NV Ne 2 136
Allianz AG G (a) 172
Skandia Forsakrings AB Sw 2 82
------
390
------
- --------------------------------------------------------------------------------
MANUFACTURING - 31.8%
Chemicals & Allied Products - 9.0%
Altana AG G 1 84
AstraZenca Group PLC UK 4 115
Christian Dior SA Fr 1 125
L'Oreal SA Fr (a) 100
Roche Holding AG Sz (a) 151
SmithKline Beecham PLC ADR UK 2 133
UCB SA Be 3 86
------
794
------
Communications Equipment - 4.2%
LM Ericsson, Class B Sw 4 372
------
Electronic & Electrical
Equipment - 3.4%
Arm Holdings PLC (b) UK 2 129
STMicroelectronics NV Ne 1 173
------
302
------
Electronic Components - 4.4%
Electrocomponents PLC UK 10 118
Epcos AG (b) G 2 272
------
390
------
Food & Kindred Products - 2.2%
Carrefour SA Fr 1 131
Nestle AG Sz (a) 64
------
195
------
Machinery & Computer Equipment - 3.7%
Mannesmann AG UK 1 332
------
Measuring & Analyzing
Instruments - 1.5%
Marconi PLC UK 10 129
------
Paper Products - 2.4%
Royal Koninklijke NV Ne 1 142
TNT Post Group NV Ne 3 73
------
215
Printing & Publishing - 1.0%
Wolters Kluwer Ne 2 89
------
- --------------------------------------------------------------------------------
PUBLIC ADMINISTRATION - 1.7%
Human Resource Programs
Adecco SA Sz (a) 147
------
- --------------------------------------------------------------------------------
RETAIL TRADE - 3.9%
Apparel & Accessory Stores - 1.1%
Hennes & Mauritz AB, Class B (b) Sw 3 99
------
Food Stores - 0.8%
Numico NV Ne 2 67
------
Home Furnishings & Equipment - 2.0%
Securitas AB, Class B Sw 7 180
------
- --------------------------------------------------------------------------------
SERVICES - 19.5%
Business Services - 5.0%
Baltimore Technologies Inc. (b) UK (a) 21
CMG PLC UK 3 287
Equant NV ADR (b) Ne 1 112
Freeserve PLC (b) UK 2 19
------
439
------
Computer Related Services - 6.9%
Atos SA (b) Fr (a) 73
Cap Gemini SA Fr 1 175
Dixons Group PLC UK (a) 1
Framtidsfabriken AB (b) Sw (a) 21
Reuters Holdings PLC ADR UK 1 155
Terra Networks SA ADR (b) Sp (a) 39
Tietoenator Fi 2 147
------
611
------
Computer Software - 5.9%
Check Point Software
Technologies Ltd. ADR (b) Is 1 163
Logica PLC UK 3 138
Misys PLC UK 5 80
SAP AG G (a) 142
------
523
------
Health Services - 0.8%
Sanofi-Synthelabo SA (b) Fr 2 70
------
Other Services - 0.9%
Randstad Holding NV Ne 2 84
------
4
<PAGE>
- --------------------------------------------------------------------------------
Investment Portfolio (continued)
- --------------------------------------------------------------------------------
February 29, 2000 (Unaudited)
(In thousands)
Country Shares Value
- --------------------------------------------------------------------------------
TRANSPORTATION,
COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES - 22.6%
Communications - 4.0%
Adva Optical Networking (b) G (a) $ 35
Cable & Wireless PLC (b) UK 6 118
Intershop Communications AG (b) G (a) 33
Vodafone AirTouch PLC UK 32 170
------
356
------
Telecommunications - 18.6%
Altran Technologies SA Fr (a) 115
COLT Telecom Group PLC (b) UK 1 77
Energis PLC (b) UK 3 158
France Telecom SA Fr 1 151
Nokia Fi 2 306
Seat Pagine Gialle SPA It 26 160
Sonera Group Fi 4 279
Telecom Italia Mobile SPA It 14 188
Telefonica de Espana Sp 2 216
------
1,650
------
Total Common Stocks (cost of $5,962) (c) 8,104
------
SHORT TERM OBLIGATIONS - 4.6% Par
- --------------------------------------------------------------------------------
Repurchase Agreement with SBC
Warburg Ltd., dated 02/29/00,
due 03/01/00 at 5.770%
collateralized by U.S. Treasury bonds
and/or notes with various maturities
to 2021, market value $370
(repurchase proceeds $411) $411 411
------
OTHER ASSETS & LIABILITIES, NET - 4.0% 355
- --------------------------------------------------------------------------------
NET ASSETS - 100.0% $8,870
------
Notes to Investment Portfolio:
(a) Rounds to less than one.
(b) Non-income producing.
(c) Cost for federal income tax purposes is the same.
Summary of Securities
by Country Country Value % of Total
- --------------------------------------------------------------------------------
United Kingdom UK $2,398 29.6
France Fr 940 11.6
Netherlands Ne 876 10.8
Germany G 806 10.0
Sweden Sw 754 9.3
Finland Fi 732 9.0
Italy It 607 7.5
Switzerland Sz 433 5.3
Spain Sp 255 3.1
Israel Is 163 2.0
Belgium Be 86 1.1
Greece Gr 54 0.7
------ -----
$8,104 100.0
------ -----
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
Acronym Name
------- ---------------------------
ADR American Depositary Receipt
See notes to financial statements.
5
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
February 29, 2000 (Unaudited)
(In thousands except for per share amounts and footnotes)
Assets
Investments at value (cost $5,962) $ 8,104
Short-term obligations 411
-------
8,515
Cash including foreign currencies
(cost $64) $ 63
Receivable for:
Fund shares sold 220
Expense reimbursement due
from Advisor/Administrator 6
Dividends 5
Other 75 369
------- -------
Total Assets 8,884
Liabilities
Payable for:
Fund shares repurchased 5
Accrued:
Management fee 4
Administration fee 2
Transfer agent fee 1
Bookkeeping fee 2
-------
Total Liabilities 14
-------
Net Assets $ 8,870
=======
Net asset value & redemption price
per share - Class A ($724/51) $ 14.07(a)
=======
Maximum offering price
per share - Class A ($14.07/0.9425) $ 14.93(b)
=======
Net asset value & offering price
per share - Class B ($1,288/92) $ 14.02(a)
=======
Net asset value & offering price
per share - Class C ($222/16) $ 14.04(a)
=======
Net asset value, offering & redemption
price per share - Class Z ($6,636/471) $ 14.08
=======
Composition of Net Assets
Capital paid in $ 6,727
Accumulated net investment loss (15)
Accumulated net realized gain 17
Net unrealized appreciation
(depreciation) on:
Investments 2,142
Foreign currency transactions (1)
=======
$ 8,870
=======
(a) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
For the Period Ended February 29, 2000 (Unaudited) (a)
(In thousands)
Investment Income
Dividends $ 8
Interest 7
-------
Total Investment Income
(net of nonreclaimable foreign 15
taxes withheld at source which
amounted $1)
Expenses
Management fee $ 14
Administration fee 5
Service fee - Class A, Class B, Class C 1
Distribution fee - Class B 1
Distribution fee - Class C (b)
Transfer agent fee 5
Bookkeeping fee 8
Trustees fee 1
Custodian fee 1
Audit fee 3
Registration fee 32
Reports to shareholders 1
Other 3
-------
75
Fees and expenses waived or borne
by the Advisor/Administrator (46) 29
------- -------
Net Investment Loss (14)
-------
Net Realized & Unrealized Gain (loss)
on Portfolio Positions
Net realized gain on:
Investments 13
Foreign currency transactions 4
-------
Net Realized Gain 16
Net change in unrealized appreciation/
depreciation on:
Investments 2,142
Foreign currency transactions (1)
-------
Net Change in Unrealized
Appreciation/Depreciation 2,141
-------
Net Gain 2,157
-------
Increase in Net Assets from Operations $ 2,143
-------
(a) The Fund commenced investment operations on November 1, 1999. The activity
shown is from the effective date of registration (November 8, 1999) with
Securities and Exchange Commission.
(b) Rounds to less than one.
See notes to financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
(In thousands)
(Unaudited)
Period Ended
February 29
------------
Increase (Decrease) in Net Assets 2000 (a)
- --------------------------------------------------------------------------------
Operations:
Net investment loss $ (14)
Net realized gain 16
Net change in unrealized
appreciation/depreciation 2,141
-------
Net Increase in Operations 2,143
-------
Fund Share Transactions:
Receipts for shares sold -- Class A 576
Cost of shares repurchased -- Class A (29)
-------
547
-------
Receipts for shares sold -- Class B 1,351
Cost of shares repurchased -- Class B (269)
-------
1,082
-------
Receipts for shares sold -- Class C 79
-------
Receipts for shares sold -- Class Z 19
-------
Net Increase from
Fund Share Transactions 1,727
-------
Total Increase 3,870
Net Assets
Beginning of period 5,000
-------
End of period (including accumulated
net investment loss of $15) $ 8,870
-------
Number of Fund Shares
Sold - Class A 43
Repurchased - Class A (2)
-------
41
-------
Sold - Class B 103
Repurchased - Class B (21)
-------
82
-------
Sold - Class C 6
-------
Sold - Class Z 1
-------
(a) The Fund commenced investment operations on November 1, 1999. The activity
shown is from the effective date of registration (November 8, 1999) with
Securities and Exchange Commission.
See notes to financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
February 29, 2000 (Unaudited)
Note 1. Interim Financial Statements
In the opinion of management of Newport Europe Fund (the Fund), a series of
Liberty Funds Trust VII, the accompanying financial statements contain all
normal and recurring adjustments necessary for the fair presentation of the
financial position of the Fund at February 29, 2000, and the results of its
operations, the changes in its net assets and the financial highlights for the
period 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
capital appreciation by investing primarily in equity securities of companies
located in Europe. 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. A 1.00% contingent deferred sales
charge is assessed on redemptions made within eighteen months on an original
purchase of $1 million to $5 million. Class B shares are subject to an annual
distribution fee and a contingent deferred sales charge. Effective February 1,
2000, Class B shares will convert to Class A shares as follows:
Converts to
Original Purchase Class A Shares
-------------------- --------------
Less than $250,000 8 years
$250,000 to less than $500,000 4 years
$500,000 to less than $1,000,000 3 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, as described in the Fund's
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 period. Actual results
could differ from those estimates. The activity reflected in these financial
statements is from the effective date of registration (November 8, 1999) with
the Securities and Exchange Commission through the period ended February 29,
2000. 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 events occurring after the closing of the market, the
foreign securities may be valued at their fair value under procedures approved
by the Trustees.
Forward currency contracts are valued based on the weighted value of the
contracts with similar maturities.
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.
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), 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.
8
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
February 29, 2000 (Unaudited)
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 gains (losses) arising from the fluctuation in exchange rates
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 Fund may also enter into forward currency
contracts to hedge certain other foreign currency denominated assets. The
contracts are used to minimize the exposure to foreign exchange rate
fluctuations during the period between trade and settlement date of the
contracts. 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, the actual 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 nonreclaimable 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 (the Advisor), is the investment Advisor of the Fund and
receives a monthly fee equal to 0.70% annually of the Fund's average net assets.
Administration fee
Colonial Management Associates, Inc. (the Administrator), an affiliate of the
Advisor, 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 annually
plus 0.035% annually of the Fund's average net assets over $50 million.
Transfer agent fee
Liberty Funds Services, Inc. (the Transfer Agent), an affiliate of the
Administrator, provides shareholder services for a monthly fee equal to 0.236%
annually of the Fund's average net assets and receives reimbursement for certain
out of pocket expenses.
Effective January 1, 2000, the Transfer Agent fee was changed to a fee comprised
of 0.07% annually of average net assets plus charges based on the number of
sharholder accounts and transactions.
Underwriting discounts, service and distribution fees
Liberty Funds Distributor, Inc. (the Distibutor), a subsisdiary of the
Administator, is the Fund's principal underwriter. For the period ended February
29, 2000, the Fund has been advised that the Distibutor retained net
underwriting discounts of $1,480 on sales of the Fund's Class A shares and
received contingent deferred sales charges (CDSC) of none, $214 and none on
Class A, Class B and Class C share redemptions, respectively.
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% of the average net assets
attributable to Class B and Class C shares.
9
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
February 29, 2000 (Unaudited)
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 Administrator has agreed, until further notice, to waive fees and bear
certain Fund expenses to the extent that total expenses (exclusive of service
fees, distribution fees, brokerage commissions, interest, taxes and
extraordinary expenses, if any) exceed 1.50% annually of the Fund's average net
assets.
Other
The Fund pays no compensation to its officers, all of whom are employees of the
Advisor 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
Fund's assets.
Note 4. Portfolio Information
Investment activity
During the period ended February 29, 2000, purchases and sales of investments,
other than short-term obligations, were $6,495,220 and $544,079, respectively.
Unrealized appreciation (depreciation) at February 29, 2000, based on cost of
investments for both financial statement and federal income tax purposes was
approximately:
Gross unrealized appreciation $ 2,455,000
Gross unrealized depreciation (314,000)
-----------
Net unrealized appreciation $ 2,141,000
===========
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. Other Operational and Capital Activity
For the period November 1, 1999 through November 8, 1999, the Fund had net
investment income of $2,205 and net realized and unrealized losses of $984. The
following is a summary of capital activity from November 1, 1999 through
November 8, 1999.
Shares
--------
Receipts for shares sold - Class A $ 100,000 10,000
Receipts for shares sold - Class B $ 100,000 10,000
Receipts for shares sold - Class C $ 100,000 10,000
Receipts for shares sold - Class Z $4,700,000 470,000
Note 6. Other Related Party Transactions
At February 29, 2000, the Fund had one shareholder, Liberty Financial Companies,
Inc., who owned greater than 5% of the Fund's shares outstanding.
10
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
(Unaudited)
Period ended February 29, 2000(c)
-------------------------------------------
Class A Class B Class C Class Z
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value -- Beginning of period $10.360 $10.360 $10.360 $10.360
------- ------- ------- -------
Income From Investment Operations:
Net investment loss (a)(b) (0.039) (0.068) (0.067) (0.029)
Net realized and unrealized gain 3.749 3.728 3.747 3.749
------- ------- ------- -------
Total from Investment Operations 3.710 3.660 3.680 3.720
------- ------- ------- -------
Net asset value, End of period $14.070 $14.020 $14.040 $14.080
======= ======= ======= =======
Total return (d)(e)(f) 35.81% 35.33% 35.52% 35.91%
======= ======= ======= =======
Ratios to Average Net Assets
Expenses (g)(h) 1.75% 2.50% 2.50% 1.50%
Net investment loss (g)(h) (1.01)% (1.76)% (1.76)% (0.76)%
Fees and expenses waived or borne by the Advisor/Administrator (g)(h) 2.30% 2.30% 2.30% 2.30%
Portfolio turnover (f) 9% 9% 9% 9%
Net assets at end of period (000) $ 724 $ 1,288 $ 222 $ 6,636
(a) Net of fees and expenses waived or borne by the
Advisor/Administrator which amounted to: $ 0.087 $ 0.087 $ 0.087 $ 0.087
</TABLE>
(b) Per share data was calculated using average shares outstanding during the
period.
(c) The Fund commenced operations on Novermber 1, 1999. The activity shown is
from the effective date of registration (November 8, 1999) with the
Securities and Exchange Commission.
(d) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(e) Had the Advisor/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.
11
<PAGE>
(This page intentionally left blank)
<PAGE>
Liberty offers the independent thinking and collective strength of six financial
specialists. Our distinguished product line helps financial advisors and their
clients build diversified investment portfolios for long-term financial goals.
LIBERTY
- --------
FUNDS
ALL-STAR Institutional money management approach for individual investors.
COLONIAL Fixed income and value style equity investing.
CRABBE A contrarian approach to fixed income and equity investing.
HUSON
NEWPORT A leader in international investing.(SM)
STEIN ROE Solutions for growth and income investing.
ADVISOR
KEYPORT A leading provider of innovative annuity products.
Liberty's mutual funds are offered by prospectus through Liberty Funds
Distributor, Inc.
Before you invest, consult your financial advisor.
Your financial advisor can help you develop a long-term plan for reaching your
financial goals.
- --------------------------------------------------------------------------------
NEWPORT EUROPE FUND Semiannual Report
- --------------------------------------------------------------------------------
[LOGO] LIBERTY -------------
-------- BULK RATE
FUNDS U.S. POSTAGE
PAID
ALL-STAR * COLONIAL * CRABBE HUSON * NEWPORT * STEIN ROE ADVISOR HOLLISTON, MA
PERMIT NO. 20
Liberty Funds Distributor, Inc. (C) 2000 -------------
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
738-03/72A-0300 (4/00) 00/539
