Diversify your portfolio with a fund
that seeks long-term growth
in expanding European markets.
--------------------------------------------------------------------------------
LIBERTY NEWPORT EUROPE FUND Annual Report
--------------------------------------------------------------------------------
August 31, 2000
[PHOTO: EIFFEL TOWER]
<PAGE>
President's Message
Dear Shareholder:
You may have noticed that your Fund has a new name. As of July 14, the names of
our funds were changed to include Liberty. Rest assured, the investment
objectives and strategies employed by the Fund's managers are not affected by
this name change. We believe the new name better reflects the Fund's affiliation
with the Liberty Funds, a diverse family of funds representing a wide selection
of investment styles and specialized money management. The goal of all Liberty
funds is to help you reach for financial freedom -- however you define it.
Europe was the setting for some interesting developments during the period.
Technology and telecommunications stocks surged during the latter part of 1999,
which contributed significantly to the performance of the Fund. In addition,
consolidation of companies across Europe continued; Germany announced sweeping
tax law changes; the value of the euro eroded further; and oil prices remained
high. Through all of this the Fund performed well compared to its benchmark, the
Morgan Stanley Capital International (MSCI) Europe Index.
The following report provides more specifics about the Fund's management and the
strategies that contributed to its performance. As always, thank you for
choosing the Liberty Newport Europe Fund and for giving us the opportunity to
serve your investment needs.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
October 9, 2000
---------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
---------------------------
Because economic and market conditions change frequently, there can be no
assurance that the trends described above and on the following pages will
continue.
<PAGE>
--------------------------------------------------------------------------------
Highlights
--------------------------------------------------------------------------------
Technology and telecommunications stocks were cooled by inflation fears
o Technology and telecommunications stocks surged in the beginning of the
reporting period, but retreated toward the end of the first quarter of
2000 as economic growth across the region fueled inflation worries. The
European Central Bank raised interest rates a full 0.5% in June 2000.
Germany introduced changes to its tax laws
o Regulators passed legislation that would significantly relieve tax burdens
of most German companies by lowering the corporate tax rate from 40% to
25% and phasing out the capital gains tax by 2002. Additional European
countries are expected to follow with similar legislation, resulting in
possible increases to bottom-line net earnings across Europe.
Next-generation cellular licenses were auctioned in Europe
o European countries began auctioning rights for third generation (3G)
cellular systems that are designed to carry high-speed data. Sale prices
easily outpaced expectations and have the potential to increase.
Net asset value per share
as of 8/31/00
Class A $12.26
-------------------------
Class B $12.17
-------------------------
Class C $12.19
-------------------------
Class Z $11.83
-------------------------
[Description of bar chart in the printed material.]
Fund Performance vs. Benchmark
Total Return 11/8/99-8/31/00*
Liberty Newport Europe Fund MSCI Europe Index
18.68% 6.71%
Cumulative since 11/8/99
* The return for the MSCI Europe Index is from 10/31/99.
Past performance cannot guarantee future results. Returns and value of an
investment will vary, resulting in a gain or loss on sale. Performance results
assume reinvestment of distributions.
The performance of the Fund's Class A shares is compared to the performance of
the Morgan Stanley Capital International (MSCI) Europe Index, a broad-based,
unmanaged index that tracks the performance of European stocks. 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.
1
<PAGE>
--------------------------------------------------------------------------------
Portfolio Managers' Report
--------------------------------------------------------------------------------
Top Five Sector Breakdown
as of 8/31/00
[Tabular description of bar chart in the printed material.]
Fund as of 8/31/00 Fund as of 2/29/00
Chemicals &
Allied Products 16.9% 9.0%
Depository
Institutions 8.0% 5.5%
Insurance Carriers 8.0% 4.4%
Telecommunications 7.2% 18.6%
Communications
Equipment 6.7% 4.0%
Sector breakdowns are calculated as a percentage of net assets. Because the Fund
is actively managed, there can be no guarantee that the Fund will continue to
maintain this breakdown in the future.
BOUGHT
--------------------------------------------------------------------------------
Alcatel
(1.2% of net assets)
We added Alcatel to our portfolio because the company has recently restructured
and has, we believe, the potential to enjoy top-line growth.
The Fund outperformed its benchmark during the period
Like most other stock mutual funds, information technology and
telecommunications stocks bolstered the performance of the Fund during November
and December 1999, when these two sectors comprised approximately 40-50% of the
portfolio. Subsequently, Class A shares of the Fund had a total return of 18.68%
for the period since inception through August 31, 2000 without a sales charge,
compared to 6.71% for the Morgan Stanley Capital International (MSCI) Europe
Index from October 31, 1999 through August 31, 2000. The MSCI Europe Index is a
broad-based, unmanaged index that tracks the performance of European stocks.
Technology and telecommunications experience both highs and lows
Following their run-up in late 1999, technology and telecommunications stocks
slumped throughout March, April and May 2000. We had anticipated this scenario
and sold a small portion of the Fund's technology and telecommunications
holdings to secure some early gains. Specifically, we trimmed our holdings of
Nokia (2.9% of net assets) early in the period to protect against the
possibility that the cellular handset market had matured, and that Nokia would
soon see a rush of new competitors. The stock was hurt recently when the company
announced a warning on profit margins for the third quarter, although Nokia
management believes a return to normal profit margins will occur in the fourth
quarter. We added Alcatel (1.2% of net assets) to our portfolio during the
period based on the company's role as a worldwide leader in the provision of
Digital Subscriber Lines (DSL) and expanding expertise in the field of
fiberoptics. Although the company has a history of mismanagement, new management
and restructuring has enabled it to become a relatively inexpensive, top-line
growth company. Two other stocks that performed well during the period were
Sanofi-Synthelabo (1.9% of net assets) and Banca Fideuram SpA (3.0% of net
assets). The former is the result of a 1999 merger that formed a healthcare
company specializing in heart drugs. This merger produced synergies and cost
cutting opportunities which subsequently boosted the company's net earnings.
Banca Fideuram SpA, which is already one of the Fund's largest holdings, is a
thinly owned money management firm, which we believe is positioned to benefit
from the privatization of Europe's pension assets.
In January, the Fund sold its position in British Telecom. We believe the
company was a victim of its own archaic management culture, and simply could not
compete with major British rivals such as Vodafone AirTouch PLC (2.9% of net
assets) and Energis PLC (1.0% of net assets). Finally, the Fund's underweighting
in energy stocks detracted from performance as oil prices remained high and the
sector prospered.
2
<PAGE>
--------------------------------------------------------------------------------
Portfolio Managers' Report (continued)
--------------------------------------------------------------------------------
Companies decide to pool resources
Merger and acquisition activity remained brisk throughout the period. We
reported on the combination of Mannesmann AG and Vodafone AirTouch PLC in the
semiannual report dated February 29, 2000. In addition, Deutsche Telekom is
acquiring VoiceStream Wireless (subject to U.S. regulators approval), and Glaxo
Wellcome PLC and SmithKline Beecham PLC (2.6% of net assets) are planning a
merger that would create the largest pharmaceutical company in the world. This
activity is an indication that European cross-country barriers are fading and
that there is a rush to consolidate, survive and compete in the global economy.
Outlook
Probably no other event during the period is more significant to the Fund than
the change in the German tax laws in late July. The German government has
decided to lower the corporate tax rate over the next several years (to 25% from
40%) and eventually abolish the capital gains tax by 2002. As a result, we
believe that companies should see an increase to bottom-line earnings and that
other European Union (EU) countries could announce similar tax incentives.
German companies such as Allianz (2.4% of net assets) now have an opportunity to
divest cross holdings without severe tax implications.
We are also concerned about the escalating prices of 3G cellular system
licenses. Although licenses in the United Kingdom alone were expected to sell
for $12 billion, they eventually sold for $32 billion. A similar auction in
Germany was even more expensive. We believe these high prices may slow the
deployment of 3G networks and erode telephone companies' balance sheets.
Consistent with the Fund's investment strategy, we expect to continue to invest
the Fund's assets in stocks we believe exhibit the highest potential for growth
within the technology, telecommunications, financial, health care, business
services and consumer products sectors.
/s/ Charles R. Roberts /s/ Michael Ellis /s/ Deborah F. Snee
Charles R. Roberts and Michael Ellis are both senior vice presidents of the
Advisor, and Deborah F. Snee is a vice president of the Advisor. Mr. Roberts is
the lead manager of the Fund, and Mr. Ellis and Ms. Snee are co-managers of the
Fund.
International investing offers significant long-term growth potential, but also
involves certain risks. Some of the countries in which the Fund may invest are
considered emerging markets, which are subject to a greater degree of political,
business and economic risk.
Top Ten Holdings
as of 8/31/00
Ericsson (LM) 3.8%
------------------------------
Banca Fideuram SpA 3.0%
------------------------------
Aegon NV 3.0%
------------------------------
Vodafone AirTouch 2.9%
------------------------------
Nokia 2.9%
------------------------------
Altana AG 2.7%
------------------------------
SmithKline Beecham 2.6%
------------------------------
Allianz AG-REG 2.4%
------------------------------
AstraZenca Group 2.3%
------------------------------
Nestle AG (REG) 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.
SOLD
--------------------------------------------------------------------------------
British Telecom
We sold our position early in the period because we believe the company's
management has impeded its ability to compete with major British telecom rivals
Vodafone AirTouch PLC and Energis PLC.
3
<PAGE>
--------------------------------------------------------------------------------
Performance Information
--------------------------------------------------------------------------------
Performance of a
$10,000 investment
in all share classes
11/8/99-8/31/00
Without With
Sales Sales
Charge Charge
-----------------------------
Class A $11,868 $11,186
-----------------------------
Class B $11,781 $11,281
-----------------------------
Class C $11,801 $11,701
-----------------------------
Class Z $11,452 N/A
-----------------------------
Value of an initial $10,000 investment
[The following information was represented by a line chart in the
printed material.]
11/08/99 8/31/00
------------------
Without Sales Charge $10,000 $11,868
With Sales Charge $10,000 $11,186
MSCI Europe Index $10,000 $10,671
The MSCI Europe Index is an 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.
Cumulative Total Returns as of 8/31/00
Share Class A B C Z
Inception Date 11/08/99 11/08/99 11/08/99 11/08/99
--------------------------------------------------------------------------------
Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge
--------------------------------------------------------------------------------
Life 18.68% 11.86% 17.81% 12.81% 18.01% 17.01% 14.52%
--------------------------------------------------------------------------------
Cumulative Total Returns as of 6/30/00
Share Class A B C Z
--------------------------------------------------------------------------------
Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge
--------------------------------------------------------------------------------
Life 17.72% 10.95% 17.13% 12.13% 17.13% 16.13% 13.55%
--------------------------------------------------------------------------------
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% sales charge for Class A shares, the appropriate Class B
shares contingent deferred sales charge for the holding period after purchase as
follows: first year - 5%, second year - 4%, third year - 3%, fourth year - 3%,
fifth year - 2%, sixth year - 1%, and thereafter - 0% and the Class C shares
contingent deferred sales charge of 1% for the first year only. Performance
results reflect any voluntary waivers or reimbursement 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.
4
<PAGE>
--------------------------------------------------------------------------------
Investment Portfolio
--------------------------------------------------------------------------------
August 31, 2000
(In thousands)
COMMON STOCKS - 90.7% Country Shares Value
--------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 19.1%
Depository Institutions - 8.0%
Alpha Credit Bank SA Gr 4 $ 118
Banca Fideuram SpA It 26 400
Deutsche Bank AG G 1 102
HSBC Holdings PLC UK 15 211
Lloyds TSB Group PLC UK 25 238
------
1,069
------
Holding & Other Investment Offices - 2.0%
Zurich Allied AG Sz 1 265
------
Holding Companies - 1.1%
CGU PLC UK 10 150
------
Insurance Carriers - 8.0%
AXA Fr 1 143
Aegon NV Ne 10 397
Allianz AG G 1 325
Skandia Forsakrings Sw 10 211
------
1,076
------
--------------------------------------------------------------------------------
MANUFACTURING - 37.5%
Chemicals & Allied Products - 16.9%
Altana AG G 4 355
AstraZenca Group PLC UK 7 310
Christian Dior SA Fr 4 229
L'Oreal SA Fr 3 210
Roche Holding AG Sz (a) 260
Serono SA, Class B Sz (a) 155
Schering AG G 3 144
SmithKline Beecham PLC ADR UK 5 343
UCB SA Be 7 260
------
2,266
------
Communications Equipment - 6.7%
Nokia (b) Fi 9 384
LM Ericsson, Class B (b) Sw 25 508
------
892
------
Electronic & Electrical Equipment - 3.4%
Arm Holdings PLC (b) UK 15 200
STMicroelectronics NV Ne 4 252
------
452
------
Electronic Components - 4.3%
Alcatel (b) Fr 2 157
Electrocomponents PLC UK 19 225
Epocos AG (b) G 2 198
------
580
------
Food & Kindred Products - 4.0%
Carrefour SA Fr 4 263
Nestle AG Sz (a) 271
------
534
------
Measuring & Analyzing Instruments - 1.7%
Marconi PLC UK 13 229
------
Printing & Publishing - 0.5%
Wolters Kluwer Ne 3 61
------
--------------------------------------------------------------------------------
PUBLIC ADMINISTRATION - 1.8%
Human Resource Programs
Adecco SA Sz (a) $ 249
------
--------------------------------------------------------------------------------
RETAIL TRADE - 3.7%
Food Stores - 2.0%
Numico NV Ne 5 270
------
Home Furnishings & Equipment - 1.7%
Securitas AB, Class B Sw 10 226
------
--------------------------------------------------------------------------------
SERVICES - 16.3%
Auto Repair, Rental & Parking - 2.6%
ISS Group (b) De 2 154
Nordic Baltic Holding AB (b) Sw 28 197
------
351
------
Business Services - 3.5%
Baltimore Technologies PLC (b) UK 2 23
CMG PLC UK 14 269
Capita Group PLC (b) UK 23 172
------
464
------
Computer Related Services - 1.3%
Cap Gemini SA Fr 1 145
Framtidsfabriken AB (b) Sw (a) 13
Pixelpark AG (b) G (a) 15
------
173
------
Computer Software - 6.1%
Check Point Software
Technologies Ltd. ADR (b) Is 2 249
Heineken NV Ne 4 196
Logica PLC UK 6 195
SAP AG G 1 171
------
811
------
Health Services - 1.9%
Sanofi-Synthelabo SA Fr 5 259
------
Other Services - 0.9%
Randstad Holding NV Ne 5 124
------
--------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES - 12.3%
Communications - 5.1%
Adva Optical Networking (b) G (a) 40
Cable & Wireless PLC UK 12 226
Intershop Communications AG (b) G (a) 34
Vodafone AirTouch PLC UK 97 384
------
684
------
Telecommunications - 7.2%
Altran Technologies SA Fr 1 176
Energis PLC (b) UK 15 136
France Telecom SA Fr 1 97
Sonera Group Fi 4 128
Telecom Italia Mobile SPA It 23 197
Telefonica de Espana Sp 4 224
------
958
------
Total Common Stocks
(cost of $11,475) (c) 12,143
------
See notes to investment portfolio.
5
<PAGE>
--------------------------------------------------------------------------------
Investment Portfolio (continued)
--------------------------------------------------------------------------------
August 31, 2000
(In thousands)
SHORT-TERM OBLIGATIONS - 9.3% Par Value
--------------------------------------------------------------------------------
Repurchase Agreement with SBC
Warburg Ltd., dated 08/31/00 due
09/01/00 at 6.60% collateralized by
U.S. Treasury notes with various
maturities to 2022, market value
$1,270 (repurchase proceeds $1,247) $ 1,247 $ 1,247
--------
Other Assets & Liabilities, Net - (0.0)% (4)
--------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 13,386
--------
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 3,310 27.3
France Fr 1,679 13.8
Germany G 1,385 11.4
Netherlands Ne 1,300 10.7
Switzerland Sz 1,200 9.9
Sweden Sw 1,155 9.5
Italy It 597 4.9
Finland Fi 512 4.2
Belgium Be 260 2.1
Israel Is 249 2.1
Spain Sp 224 1.8
Denmark De 154 1.3
Greece Gr 118 1.0
-------- -----
$ 12,143 100.0
-------- -----
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.
6
<PAGE>
--------------------------------------------------------------------------------
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
August 31, 2000
(In thousands except for per share amounts and footnotes)
Assets
Investments at value (cost $11,475) $ 12,143
Short-term obligations 1,247
--------
13,390
Cash including foreign currencies
(cost $74) $ 71
Receivable for:
Fund shares sold 75
Expense reimbursement due from
Advisor/Administrator 24
Dividends 22
Other 33 225
-------- --------
Total Assets 13,615
Liabilities
Cash including foreign currencies
(cost $12) 12
Payable for:
Investments purchased 144
Fund shares repurchased 28
Accrued:
Management fee 9
Administration fee 3
Transfer agent fee 2
Bookkeeping fee 2
Other 29
--------
Total Liabilities 229
--------
Net Assets $ 13,386
========
Net asset value & redemption price per share -
Class A ($9,874/806) $ 12.26 (a)
========
Maximum offering price per share -
Class A ($12.26/0.9425) $ 13.01 (b)
========
Net asset value & offering price per share -
Class B ($2,989/246) $ 12.17 (a)
========
Net asset value & offering price per share -
Class C ($488/40) $ 12.19 (a)
========
Net asset value, offering & redemption price
per share - Class Z ($35/3) $ 11.83
========
Composition of Net Assets
Capital paid in $ 12,981
Accumulated net investment loss (69)
Accumulated net realized loss (189)
Net unrealized appreciation (depreciation) on:
Investments 668
Foreign currency transactions (5)
--------
$ 13,386
--------
(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 August 31, 2000 (a)
(In thousands)
Investment Income
Dividends $ 80
Interest 44
--------
Total Investment Income (net of nonreclaimable
foreign taxes withheld at source which
amounted to $12) 124
Expenses
Management fee $ 55
Administration fee 21
Service fee - Class A, Class B, Class C 16
Distribution fee - Class A 5
Distribution fee - Class B 10
Distribution fee - Class C 2
Transfer agent fee 20
Bookkeeping fee 23
Trustees fee 4
Custodian fee 17
Audit fee 7
Legal fee 5
Registration fee 81
Reports to shareholders 8
Other 4
--------
278
--------
Fees and expenses waived or borne
by the Advisor/Administrator (121)
Fees waived by the
Distributor - Class A (5) 152
-------- --------
Net Investment Loss (28)
Net Realized and Unrealized Gain (Loss)
on Portfolio Positions
Net realized loss on:
Investments (189)
Foreign currency transactions (60)
--------
Net Realized Loss (249)
Net change in unrealized
appreciation/depreciation on:
Investments 504
Foreign currency transactions (5)
--------
Net Change in Unrealized
Appreciation/Depreciation 499
--------
Net Gain 250
--------
Increase in Net Assets from Operations $ 222
========
(a) The Fund commenced investment operations on November 1, 1999. The activity
shown is from the effective date of registration (November 8, 1999) with the
Securities and Exchange Commission.
See notes to financial statements.
7
<PAGE>
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
(In thousands)
Period
Ended
August 31
---------
Increase (Decrease) in Net Assets 2000 (a)
--------------------------------------------------------------------------------
Operations
Net investment loss $ (28)
Net realized loss (249)
Net change in unrealized appreciation/
depreciation 499
--------
Net Increase from Operations 222
--------
Fund Share Transactions
Receipts for shares sold - Class A 11,467
Cost of shares repurchased - Class A (206)
--------
11,261
--------
Receipts for shares sold - Class B 3,699
Cost of shares repurchased - Class B (586)
--------
3,113
--------
Receipts for shares sold - Class C 1,314
Cost of shares repurchased - Class C (940)
--------
374
--------
Receipts for shares sold - Class Z 27
Cost of shares repurchased - Class Z (6,778)
--------
(6,751)
--------
Net Increase from Fund Share Transactions 7,997
--------
Total Increase 8,219
Net Assets
Beginning of period 5,167
--------
End of period (including accumulated net
investment loss of $69) $ 13,386
========
Number of Fund Shares
Sold - Class A 812
Repurchased - Class A (16)
--------
796
--------
Sold - Class B 282
Repurchased - Class B (46)
--------
236
--------
Sold - Class C 107
Repurchased - Class C (77)
--------
30
--------
Sold - Class Z 2
Repurchased - Class Z (469)
--------
(467)
--------
(a) The Fund commenced investment operations on November 1, 1999. The activity
shown is from the effective date of registration (November 8, 1999) with the
Securities and Exchange Commission.
See notes to financial statements.
8
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
August 31, 2000
Note 1. Accounting Policies
Organization
Liberty Newport Europe Fund (formerly Newport Europe Fund) (the Fund), a series
of Liberty Funds Trust VII, 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 to Class A shares purchased without an initial
sales charge on redemptions made within eighteen months on an original purchase
of $1 million to $25 million. 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 in three, four or eight years after purchase,
depending on the program under which shares were purchased. 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 August 31, 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
exchange traded 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 is
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), 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.
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
9
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
August 31, 2000
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 2. 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 a monthly fee
equal to $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 comprised of
0.07% annually of the Fund's average net assets plus charges based on the number
of shareholder accounts and transactions and receives reimbursement for certain
out of pocket expenses.
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 August
31, 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 monthly
distribution fee to the Distributor equal to 0.10%, 0.75%, and 0.75% annually of
the Fund's average net assets attributable to Class A, Class B, and Class C
shares, respectively. The Distributor has voluntarily agreed to waive the Class
A share distribution fee in its entirety.
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 Advisor/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 3. Portfolio Information
Investment activity
During the period ended August 31, 2000, purchases and sales of investments,
other than short-term obligations, were $13,758,053 and $2,094,754,
respectively.
Unrealized appreciation (depreciation) at August 31, 2000, based on cost of
investments for both financial statement and federal income tax purposes was:
Gross unrealized appreciation $ 1,743,677)
Gross unrealized depreciation (1,075,653)
-----------
Net unrealized appreciation $ 668,024)
===========
10
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
August 31, 2000
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 4. Other Operational and Capital Activitiy
For the period November 1, 1999 through November 7, 1999, the Fund had net
investment income of $2,205 and net realized and unrealized gains of $164,934.
The following is a summary of capital activity from November 1, 1999 through
November 7, 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 5. Line of Credit
The Fund may borrow up to 33 1/3% of its net assets under a line of credit for
temporary or emergency purposes. Any borrowings bear interest at one of the
following options determined at the inception of the loan: (1) federal funds
rate plus 1/2 of 1%, (2) the lending bank's base rate or (3) IBOR offshore loan
rate plus 1/2 of 1%. There were no borrowings under the line of credit for the
period ended August 31, 2000.
11
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Period ended August 31, 2000 (c)
------------------------------------------------
Class A Class B Class C Class Z
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $10.330 $10.330 $10.330 $10.330
------- ------- ------- -------
Income from Investment Operations:
Net investment loss (a) (b) (0.027)(d) (0.104) (0.102) (0.001)
Net realized and unrealized gain 1.957 1.944 1.962 1.501
------- ------- ------- -------
Total from Investment Operations 1.930 1.840 1.860 1.500
------- ------- ------- -------
Net Asset Value - End of Period $12.260 $12.170 $12.190 $11.830
======= ======= ======= =======
Total return (e) (f) (g) 18.68% 17.81% 18.01% 14.52%
======= ======= ======= =======
Ratios to Average Net Assets
Expenses (h) (i) 1.75%(d) 2.50% 2.50% 1.50%
Net investment loss (h) (i) (0.25)%(d) (1.00)% (1.00)% 0.00%
Fees and expenses waived or borne by the
Advisor/Administrator (h) (i) 1.45% 1.45% 1.45% 1.45%
Portfolio turnover (g) 24% 24% 24% 24%
Net assets at end of period (000) $ 9,874 $ 2,989 $ 488 $ 35
<FN>
(a) Net of fees and expenses waived or borne
by the Advisor/Administrator which amounted to: $ 0.148 $ 0.148 $ 0.148 $ 0.148
(b) Per share data was calculated using average shares outstanding during the
period.
(c) The Fund commenced investment 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) Net of fees waived by the Distributor which amounted to $0.006 per share and
0.65% (annualized).
(e) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(f) Had the Advisor/Administrator/Distributor (Class A) not waived or reimbursed
a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(i) Annualized.
</FN>
</TABLE>
12
<PAGE>
--------------------------------------------------------------------------------
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of Liberty Funds Trust VII:
Liberty Newport Europe Fund
We have audited the accompanying statement of assets and liabilities of Liberty
Newport Europe Fund (a series of Liberty Funds Trust VII, the "Trust"),
including the Investment Portfolio, as of August 31, 2000 and the related
statement of operations, the statement of changes in net assets and the
financial highlights for the period from November 8, 1999 (effective date of
registration) to August 31, 2000. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of August 31, 2000, by correspondence with
the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Liberty Newport Europe Fund, a series of Liberty Funds Trust VII, at August 31,
2000, the results of its operations, the changes in its net assets, and its
financial highlights for the period from November 8, 1999 (effective date of
registration), to August 31, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
October 10, 2000
13
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Trustees & Transfer Agent
--------------------------------------------------------------------------------
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 & 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, Park Avenue Equity Partners (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)
Joseph R. Palombo
Chief Operations Officer, Mutual Funds, Liberty Financial Companies, Inc.,
Executive Vice President and Director of Colonial Management Associates, Inc.
and Executive Vice President and Chief Administrative Officer of Liberty Funds
Group LLC (formerly Vice President of Liberty Funds Group - Boston and Chief
Operating Officer, Putnam Mutual Funds)
Thomas E. Stitzel
Business Consultant and Chartered Financial Analyst (formerly Professor of
Finance, College of Business, Boise State University)
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 Liberty 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 Liberty 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 Performance Update.
Annual Report:
Liberty Newport Europe Fund
<PAGE>
--------------------------------------------------------------------------------
Choose Liberty
--------------------------------------------------------------------------------
Because no single investment manager can be all things to all investors.(SM)
-------------------------------------------------
L I B E R T Y
---------------------------------------------
F U N D S
-------------------------------------------------
--------------------------------------------------------------------------------
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 Innovative solutions for growth and income investing.
ADVISOR
--------------------------------------------------------------------------------
[KEYPORT LOGO] 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.
--------------------------------------------------------------------------------
LIBERTY NEWPORT EUROPE FUND Annual Report
--------------------------------------------------------------------------------
[LOGO] L I B E R T Y
----------------------
F U N D S
ALL-STAR o COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)2000
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
-----------------
BULK RATE
U.S. POSTAGE
PAID
Holliston, MA
PERMIT NO. 20
-----------------
738-02/755C-0800 (10/00) 00/1703
<PAGE>
--------------------------------------------------------------------------------
Choose Liberty
--------------------------------------------------------------------------------
Because no single investment manager can be all things to all investors.(SM)
-------------------------------------------------
L I B E R T Y
---------------------------------------------
F U N D S
-------------------------------------------------
--------------------------------------------------------------------------------
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 Innovative solutions for growth and income investing.
ADVISOR
--------------------------------------------------------------------------------
[KEYPORT LOGO] 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.
--------------------------------------------------------------------------------
LIBERTY NEWPORT EUROPE FUND Annual Report
--------------------------------------------------------------------------------
[LOGO] L I B E R T Y
----------------------
F U N D S
ALL-STAR o COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
738-02/755C-0800 (10/00) 00/1703
<PAGE>
--------------------------------------------------------------------------------
Choose Liberty
--------------------------------------------------------------------------------
Because no single investment manager can be all things to all investors.(SM)
-------------------------------------------------
L I B E R T Y
---------------------------------------------
F U N D S
-------------------------------------------------
--------------------------------------------------------------------------------
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 Innovative solutions for growth and income investing.
ADVISOR
--------------------------------------------------------------------------------
[KEYPORT LOGO] 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.
--------------------------------------------------------------------------------
LIBERTY NEWPORT EUROPE FUND Annual Report
--------------------------------------------------------------------------------
[LOGO] L I B E R T Y
----------------------
F U N D S
ALL-STAR o COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)2000
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
738-02/755C-0800 (10/00) 00/1703
