[Back Cover]
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LIBERTY ALL*STAR GROWTH FUND, INC.
New York Stock Exchange Trading Symbol: ASG
Fund Manager
Liberty Asset Management Company
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210-2214
1-617-722-6036
Internet: http://www.lamco.com
Independent Auditors
KPMG Peat Marwick LLP
99 High Street
Boston, Massachusetts 02110
Custodian
Boston Safe Deposit & Trust Company
One Cabot Road
Medford, Massachusetts 02155
Investor Assistance,
Transfer and Dividend
Disbursing Agent and Registrar
State Street Bank and Trust Company
P.O. Box 8200, Boston, Massachusetts 02266-8200
1-800-LIB-FUND (1-800-542-3863)
Legal Counsel
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
Directors
Robert J. Birnbaum*
Harold W. Cogger
James E. Grinnell*
Richard W. Lowry*
Officers
Harold W. Cogger, Chairman of the Board of Directors
Richard R. Christensen, President & Chief Executive Officer
William R. Parmentier, Jr., Vice President & Chief Investment Officer
Peter L. Lydecker, Treasurer and Controller
John L. Davenport, Secretary
*Member of the audit committee.
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[Liberty All*Star Logo]
Printed with Soybean Inks
[Recycle Logo] Printed on Recycled Paper D/75m/7-96
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[Liberty All*Star Logo] LIBERTY
ALL*STAR
GROWTH FUND, Inc.
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2
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Semi-Annual Report
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1996
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Liberty ALL*STAR Growth Fund, Inc.
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Semi-Annual Report
Chairman's Letter
To Our Fellow Shareholders: July 1996
The net asset value (NAV) of a common share of the Fund rose from $11.09
on March 31, 1996 to $11.31 on June 30, 1996. The market price of a share
of the Fund traded in a range from $9.25 to $9.75 before closing the
quarter at $9.625. The ending price represented a discount to NAV of 14.9
percent compared with a discount to NAV of 15.5 percent on March 31, 1996.
Key investment results and comparisons are noted in the box.
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Fund Performance for the second quarter and latest six months ended June 30,
1996. Figures shown for the Fund and the Lipper Growth Mutual Fund Average
are total returns, which include income, less fees and other operating
expenses. Figures shown for the unmanaged S&P 500 and Dow Jones indices are
total returns including income.
Second Latest
Quarter Six Months
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Liberty ALL-STAR Growth Fund, Inc.:
Shares Valued at Net Asset Value 2.0% 7.2%
Shares Valued at Market Price
Reinvested 2.7% 2.7%
Lipper Growth Mutual Fund Average 4.4% 10.0%
S&P 500 Stock Index 4.5% 10.1%
Dow Jones Industrial Average 1.8% 11.7%
Nasdaq Composite Index 7.6% 12.6%
Fund's Closing Price Range $9.75 to $9.75 to
$9.25 $9.125
Fund's Discount Range 18.9% to 18.9% to
14.4% 8.0%
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The stock market continued its advance for the sixth quarter in a row. As the
box at the left shows, ALL-STAR Growth Fund's net asset value was up 2.0
percent, which compares with 4.4 percent for the Lipper Growth Mutual Fund
Average (ALL-STAR Growth Fund's primary benchmark comparison). For the first
half of 1996 the Fund's net asset value was up 7.2 percent compared with 10.0
percent for the Lipper Average.
Although the market rose strongly in the first half of 1996, the second
quarter ended on a relatively weak note. The S&P 500 was flat during the
month of June and the technology laden Nasdaq Index was down significantly,
reversing its trend earlier in the first half. This downward move in the
growth sector continued in the first half of July and extended into the broad
market with the S&P 500 declining 6.0 percent. In fact, the market's nearly
six year advance of approximately 130 percent from its 1990 low has been the
longest such advance in the market's history without an intervening
correction of at least 10 percent. Therefore, the recent declines, while
unpleasant, are not surprising and should be taken in stride by long-term
investors.
The equity markets have been volatile during the year as investors changed
their expectations on companies' earnings prospects, the direction of the
economy and the probability of future gains in the market. In many cases,
companies that reported disappointing earnings experienced one day declines
of 20 percent to 30 percent in their stock. Changing expectations on the
direction of the economy resulted in wide swings in performance between the
growth and value style of investment management. Investor uncertainty on the
direction of the market also resulted in large intraday market moves. For
example, on July 16 the Dow Jones Industrial Average fell 167 points and
rallied to a 53 point gain before closing up nine points. ALL-STAR's
multi-management approach should provide diversification and reduced
volatility in this type of market environment.
Richard Christensen's President's Letter, which follows, provides additional
perspective and discusses the dividend to be paid at year-end.
Sincerely,
/s/ Harold W. Cogger
Harold W. Cogger
Chairman of the Board of Directors
Liberty ALL-STAR Growth Fund, Inc.
1
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Liberty ALL*STAR Growth Fund, Inc.
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Semi-Annual Report
President's Letter
To Our Fellow Shareholders: July 1996
Investors' shifting perceptions of the direction of the U.S. economy
caused a fairly dramatic rotation among the economic sectors of the
market. During the first quarter, value managers benefited as investors
sought companies that would perform well in a moderate growth environment.
During the second quarter, investors shifted their focus to companies whose
earnings could grow even during a slowing economic environment. As a result,
the technology and consumer non-durable sectors of the market performed
strongly up until the last month of the quarter. Additionally, the returns of
cyclical stocks (e.g., auto manufacturing, machinery and transportation),
which are dependent on stronger economic growth, lagged the overall market.
Within the growth stock segment in the second quarter, companies with the
highest relative price to earnings (P/E) multiples were the strongest
performers. A company's P/E multiple (stock price divided by earnings per
share) measures how much investors are willing to pay for a dollar of
earnings. The higher the P/E ratio, the more investors are willing to pay for
a stock that exhibits greater earnings growth potential. However, these high
P/E stocks carry greater risk if earnings come in below expectations and
investors revalue future growth prospects. This took place in June and early
July as investors sold high priced growth stocks and caused a substantial
retreat in the technology related sector of the market. Aggressively
positioned growth mutual funds, which typically have P/E ratios of thirty or
more, experienced losses of 20 percent to 25 percent from the June 5 peak of
the Nasdaq Index.
LAMCO diversifies the Fund among three different investment management styles
in an attempt to achieve above average returns with lower than average
volatility compared with other growth funds. As a result, the Fund has a P/E
ratio more in line with the broad market as defined by the S&P 500 (see
Portfolio Characteristics on page 4). The volatility experienced by the more
aggressively positioned growth mutual funds was avoided in ALL-STAR Growth
due to this multi-management approach.
With the change of investment objective to long-term capital appreciation
last November, as approved by shareholders earlier in 1995, it is expected
that the dividend this year will consist entirely, or nearly so, of net
realized capital gains. Therefore, a single annual dividend will be paid near
year-end in 1996 and, likely, in subsequent years as well.
Liberty Asset Management Company plans to recommend to the Board of
Directors, at their meeting in October, that the Fund declare the dividend
payable in newly issued shares of the Fund valued at the lower of market
price or net asset value. Shareholders who are not participating in the
Fund's Automatic Dividend Reinvestment Plan may elect to receive this
dividend in cash. (As described in the 1995 Annual Report, the Dividend
Reinvestment Plan was amended effective June 30, 1996 to permit the payment
of distributions in newly issued shares valued at market price at times when
the Fund's shares are trading at a discount from their net asset value).
Thus, all shareholders (not just those shareholders who are participating in
the Dividend Reinvestment Plan) would be able to acquire additional
2
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Liberty ALL*STAR Growth Fund, Inc.
shares without brokerage commissions, thus compounding their investment,
which is consistent with the Fund's long-term capital appreciation investment
objective. Additional information will be contained in the third quarter
report.
Oppenheimer Capital is the subject of the manager interview beginning on page
seven. John Lindenthal discusses the firm's investment philosophy and
decision making process for both buying and selling as well as recent changes
in the portfolio.
Sincerely,
/s/ Richard R. Christensen
Richard R. Christensen
President and Chief Executive Officer
Liberty ALL-STAR Growth Fund, Inc. and
Liberty Asset Management Company
3
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Commentary
Managers' Differing Investment Styles
Are Reflected in Portfolio Characteristics
The Portfolio Characteristics table on this page is a regular feature of
ALL-STAR Growth's shareholder reports. It serves as a useful tool for
understanding the value of a multi-managed portfolio. The characteristics are
different for each of ALL-STAR Growth's three Portfolio Managers. These
differences are a reflection of the fact that each pursues an individual
Investment Style. The shaded column highlights the characteristics of
ALL-STAR Growth as a whole, while the final column shows portfolio
characteristics for the entire S&P 500 Stock Index.
The Investment Styles practiced by ALL-STAR Growth's three Portfolio Managers
are:
Mississippi Valley Advisors Inc. (MVA)
Small capitalization growth companies that sell at a reasonable current price
relative to future earnings.
Oppenheimer Capital
Contrarian holdings being overlooked and undervalued by investors.
Provident Investment Counsel, Inc.
Large capitalization companies with fast growing earnings and bright
prospects.
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Portfolio Characteristics
As of
June 30, 1996
Market Capitalization Spectrum
---------------------------------------
\
Small --------------------------- Large
/
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<TABLE>
<CAPTION>
ALL-STAR S&P
MVA Oppenheimer Provident Growth 500 Index
- ---------------------------------===---===========---=========---========---=========
<S> <C> <C> <C> <C> <C>
Number of Holdings 66 33 49 146 500
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Weighted Average Market
Capitalization (billions) $1.1 $16.5 $21.3 $13.2 $35.0
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Percent of Holdings
in S&P 500 8.1% 73.3% 68.7% 50.8% --
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Dividend Yield 0.9% 1.6% 0.6% 1.0% 2.2%
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Average Price/
Earnings Ratio 17.1x 13.6x 29.5x 18.2X 18.7x
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Average Price/
Book Value Ratio 2.2x 2.5x 5.8x 3.0X 3.1x
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Average Five-Year
Earnings Per Share Growth 24.1% 31.4% 28.5% 28.5% 21.4%
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</TABLE>
4
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LIBERTY ALL*STAR GROWTH FUND, INC.
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MAJOR STOCK CHANGES IN
SECOND QUARTER
The following are the major ($500,000 or more) stock changes--both additions
and reductions--that were made in the ALL-STAR Growth Fund's portfolio during
the second quarter of 1996.
Shares
================================
Held
Security Name Additions Reductions 6/30/96
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Ace, Ltd. 15,000 30,000
Adaptec, Inc. 13,000 13,000
Cytec Industries, Inc. 7,500 7,500
Electronic Data Systems Corp. 12,000 12,000
Millipore Corp. 13,500 13,500
Signet Banking Corp. 24,000 24,000
WorldCom, Inc. 12,000 12,000
Cabletron Systems, Inc. (10,000) 0
Coltec Industries, Inc. (75,000) 0
Consolidated Freightways, Inc. (25,000) 0
Glenayre Technologies, Inc. (25,000) 0
Heilig Meyers Co. (30,000) 0
Magellan Health Services, Inc. (28,000) 0
St. Jude Medical, Inc. (35,250) 0
Union Texas Petroleum Holdings, Inc. (40,000) 36,000
Walt Disney Co. (11,147) 0
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Dividend Reinvestment Plan
Through its Automatic Dividend Reinvestment and Cash Purchase Plan (the
Plan), ALL-STAR Growth offers shareholders the opportunity to have their
dividends and distributions automatically reinvested in additional shares of
the Fund. Each registered shareholder is considered a participant in the
Plan, unless the shareholder elects otherwise.
Participating shareholders are kept apprised of the status of their account
through quarterly statements.
For more information or for a copy of the Plan brochure please call Investor
Assistance toll-free at 1-800-LIB-FUND (1-800-542-3863) weekdays between 9 AM
and 5 PM Eastern time.
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LIBERTY ALL*STAR GROWTH FUND, INC.
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Top 50
Holdings
As of
June 30, 1996
Rank
as of Value Percent of
Rank 3/31/96 Security Name $000) Net Assets
---- ------- ------------- ----- ----------
1 1 Microsoft Corp. 2,403 1.9%
2 3 Federal National Mortgage Assoc. 2,010 1.6
3 2 Federal Home Loan Mortgage Corp. 1,967 1.5
4 5 First Data Corp. 1,846 1.4
5 4 Pfizer, Inc. 1,784 1.4
6 6 Citicorp 1,653 1.3
7 9 Oracle Corp. 1,503 1.2
8 10 Monsanto Co. 1,463 1.1
9 13 Transamerica Corp. 1,458 1.1
10 11 McDonnell Douglas Corp. 1,455 1.1
11 18 Varity Corp. 1,444 1.1
12 8 Computer Associates International, Inc. 1,425 1.1
13 26 Cisco Systems, Inc. 1,416 1.1
14 90 ACE, Ltd. 1,410 1.1
15 36 EXEL Limited 1,410 1.1
16 40 HFS, Inc. 1,400 1.1
17 15 Travelers Group, Inc. 1,369 1.1
18 37 U.S. Robotics Corp. 1,368 1.1
19 14 AMR Corp. 1,365 1.1
20 22 Countrywide Credit Industries, Inc. 1,361 1.1
21 19 Morgan Stanley Group, Inc. 1,326 1.0
22 20 Intel Corp. 1,322 1.0
23 67 Dole Foods, Inc. 1,290 1.0
24 33 Lockheed Martin Corp. 1,260 1.0
25 27 Sprint Corp. 1,260 1.0
26 34 Motorola, Inc. 1,258 1.0
27 23 Mellon Bank Corp. 1,254 1.0
28 12 Hercules, Inc. 1,216 0.9
29 16 Arrow Electronics, Inc. 1,208 0.9
30 21 MBNA Corp. 1,197 0.9
31 53 Wells Fargo & Co. 1,194 0.9
32 29 Merck & Co., Inc. 1,163 0.9
33 32 Unilever NV ADR 1,161 0.9
34 25 AFLAC, Inc. 1,120 0.9
35 24 Medtronic, Inc. 1,120 0.9
36 Freeport McMoRan Copper & Gold, Inc.
43 Class A 1,116 0.9
37 48 Sungard Data Systems, Inc. 1,083 0.8
38 28 Champion International Corp. 1,044 0.8
39 47 General Electric Co. 1,038 0.8
40 31 PMI Group, Inc. 1,020 0.8
41 38 Caterpillar, Inc. 1,016 0.8
42 46 American International Group, Inc. 986 0.8
43 49 Allergan, Inc. 981 0.8
44 30 Triton Energy Corp. 973 0.8
45 65 Gillette Co. 936 0.7
46 44 Automatic Data Processing, Inc. 927 0.7
47 56 Nokia Corp. ADR 925 0.7
48 52 Progressive Corp. 925 0.7
49 39 Tenneco, Inc. 920 0.7
50 84 Amgen, Inc. 918 0.7
6
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LIBERTY ALL*STAR GROWTH FUND, INC.
[PHOTO OF
JOHN G. LINDENTHAL]
John G. Lindenthal
Oppenheimer Capital
Manager Interview
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Oppenheimer Plans
to Continue Doing
What It Does Best:
Finding Stocks
Offering Profitable
Growth
Oppenheimer Capital is one of ALL-STAR Growth Fund's three investment
managers. Oppenheimer emphasizes contrarian holdings being overlooked and
undervalued by investors. Research focuses on cash flow analysis. Purchase
candidates exhibit a high return on equity, large undedicated cash flow, and
reasonable prices in relation to book value. We recently had the opportunity
to talk with John G. Lindenthal, Oppenheimer's Managing Director. The Fund
Manager, Liberty Asset Management Company (LAMCO), serves as the moderator
for the interview.
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The views expressed in this interview represent the manager's views at the
time of the discussion and are subject to change.
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LAMCO: Please review Oppenheimer's investment philosophy and style. Comment
on how your style "anticipates growth" given the portfolio's earnings growth
history. What factors in your stocks will lead to an acceleration in earnings
growth?
Lindenthal: We believe that the intrinsic value of a business is related to
its future cash flows. When we analyze a business as a possible purchase
candidate, we focus on its cash flow characteristics. Discretionary cash flow
results from deducting the expenditures necessary to maintain the business
from cash flow. How management allocates discretionary cash flow is crucial
to the success of an equity investment and we believe it is important to
maintain a dialogue with management to understand their capital allocation
process. If high return on capital opportunities are present in the existing
business, then capital should be reinvested in the business. Earnings growth
may also be enhanced by share repurchase, acquisitions or paying down debt.
It is usually some combination of the above factors that cause acceleration
in earnings growth. Our stock selection process emphasizes companies that
generate returns on capital above the cost of capital, thus creating growth
for the shareholder. If the excess cash flow is sustainable and management
allocates correctly, then earnings growth will follow.
LAMCO: Please discuss the first half of 1996 in relation to your investment
style.
Lindenthal: Our investment style has led us to invest in a number of
financial stocks. During the first six months of 1996 they generally
outperformed the market, although there has been some recent weakness because
of the rise in interest rates. We believe current financial positions such as
Citicorp, Travelers, Transamerica, Federal Home Loan Corp., EXEL, and AFLAC
offer some growth prospects at very reasonable prices.
A number of our companies that are restructuring around their core businesses
also performed very well.
Continued on page 8
..............................................................................
"When we analyze a business as a possible purchase candidate, we focus on its
cash flow characteristics."
--John Lindenthal
..............................................................................
7
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LIBERTY ALL*STAR GROWTH FUND, INC.
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"Our investment style has led us to invest in a number of financial stocks.
During the first six months of 1996 they generally outperformed the market..."
..............................................................................
Continued from page 7
Monsanto, Freeport McMoRan, May Department Stores, Dole Foods, Lockheed
Martin and AMR Corp. all outperformed during the first six months. Our best
performing technology stock was Intel. The stock rose about 30% for the six
months based on very strong earnings in a difficult industry environment.
LAMCO: Discuss two or three recent acquisitions to your portfolio and the
reasons why you bought them.
Lindenthal: Varity Corp., through its Kelsey Hayes division, is a worldwide
leader in anti-lock brake systems. Varity also owns Perkins Group,
headquartered in the U.K., which produces diesel engines primarily for power
generation. Both businesses are growing rapidly because of increased
penetration in their respective end markets. Varity recently announced a
merger agreement with Lucas Industries, a U.K.-based aerospace company. We
believe there are a number of synergies between the two companies that will
produce an acceleration in earnings growth. Varity's management has been
exceptionally shareholder oriented as evidenced by aggressive share
repurchases with its excess cash flow. We believe the current price of $47 a
share reflects only the value of Varity's brake business, and the investor is
basically getting the Perkins Group, the crown jewel, for free.
R.R. Donnelley is the world's largest and most profitable commercial printer.
The company prints and binds a major share of national publications
(including Time, Newsweek and TV Guide) as well as telephone directories,
books and catalogs. The primary driver of Donnelley's earnings growth will be
its rising market share because of the extensive capital employed over the
past few years to fully convert its plants to digital publishing. Donnelley
is far ahead of any competition in the move to digital, and in addition, it
is rapidly simplifying the entire print distribution process. We believe
economic earnings will be close to $3 a share for 1996. With the stock
currently in the low 30's, an investor is paying only 11 times these
anticipated earnings for an exciting growth story.
ACE Ltd. is one of the leading providers of excess liability insurance in the
world. It has also diversified into aviation, excess property and financial
lines. It is headquartered in Bermuda, and as a result does not pay corporate
taxes. The company also has an enormous cost advantage in terms of its
expense ratio. ACE recently announced two acquisitions that will successfully
redeploy a portion of its excess capital. Tempest Re, a leading supplier of
property/ casualty re-insurance, and Methuen Group, a holding company for
Lloyd's of London managing agency, both fit well into ACE's high return, low
cost strategy. We are very impressed with ACE's ability to use the cost and
regulatory advantages of Bermuda to build a portfolio of unique, high return
businesses.
LAMCO: As the bull market progresses, is it getting more difficult to find
stocks that meet your buy criteria?
Lindenthal: Although the equity market has now gone over five years without a
correction of 10 percent or more, we are still finding plenty of new ideas.
The main reason is the fairly dramatic group rotation within the market.
Sectors and groups rotate depending on investors' perception of the economy
and interest rates,
8
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LIBERTY ALL*STAR GROWTH FUND, INC.
and this presents opportunity for bottom-up investors like ourselves.
The other significant factor creating opportunity for the long-term investor
is that more companies are simply better managed. There is more emphasis on
generating high returns on capital, improving productivity, cutting costs and
generating free cash flow, all of which enhance shareholder value.
LAMCO: Please discuss your sell discipline giving some specific examples.
Lindenthal: At the time of purchase, a target price is established based on
our analysis of the true economic value of the company. We continually
monitor a company's performance relative to our original investment thesis.
As the price of the stock approaches 85 percent of this target price, it
becomes a candidate for sale and is thoroughly reexamined. If the worth of
the company has increased beyond our original expectations, we may revise the
target price upward. If the price has reached full value, the stock is sold.
In addition, stocks that decline after initial purchase are scrutinized
intensely. If the investment thesis has been compromised by unforeseeable
events, such as inappropriate use of cash flow, we sell the stock. If the
investment thesis remains intact, we see this as an opportunity to buy
additional stock at a more attractive price.
Examples of recent sales are Coltec and Union Texas Petroleum. In both cases
we concluded that our original investment thesis of rising return on
investment capital was going to be postponed. The profit growth from both
companies' past investments is disappointing, and therefore we sold the
stocks.
..............................................................................
"As compared with past periods of market excess, today's high valuations have
been driven in large part by economic fundamentals . . ."
..............................................................................
LAMCO: Please discuss your outlook for 1996. What factors will drive the
market?
Lindenthal: Behind the wild gyrations of the bond market the past several
years is an economy in which fundamentals have not really changed that much,
certainly not as much as perceptions. The economy is exhibiting signs of
strength, especially in terms of employment growth and manufacturing sales.
This bears watching since unemployment is low at 5.3 percent and various
measures of wages exhibit some modest acceleration. If economic growth
continues at current levels, the labor market will continue to tighten
causing further upward pressures. Thus far, it is not a problem. Unit labor
costs for the first quarter rose only 2.5 percent year-over-year and strong
productivity growth should limit the increase in the second quarter as well.
There are some offsets to potential wage escalation. The Journal of Commerce
index of industrial prices is declining and grain and energy prices are
abating from the run-up earlier this year. Industrial capacity is now growing
at a four percent rate, which should be sufficient to absorb production
growth without igniting pricing pressures. Moreover, economic growth may well
slow later this year. We are now in the sixth year of an economic recovery.
Much pent-up consumer demand has been satisfied and capital spending is
moderating after a two-year surge in expenditures.
As compared with past periods of market excess, today's high valuations have
been driven in large part by economic fundamentals, including
Continued on page 10
9
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LIBERTY ALL*STAR GROWTH FUND, INC.
Continued from page 9
..............................................................................
"On balance, we believe the market is highly valued. But . . . even
overvalued markets sometimes have a way of extending their gains . . ."
..............................................................................
a benign environment of economic growth with low inflation and exceptional
profitability. Nonetheless, we see reasons for concern at this junction, as
we see signs that suggest market excess. The market's price-to-sales ratio is
now 20 percent over 1987's pre-crash levels. Price-to-cash flow is close to
record levels and more than 10 percent above 1987's peak value. As confidence
in equities grows so, too, do signs of speculation. Long bull markets have
this effect. However, there is a chance that the speculative fervor will
correct itself, like the price excesses in biotech and technology, without
harming the underpinnings of the overall market.
Signs of speculation include record flows into equity mutual funds. The total
for the first five months of this year is not that much less than that for
all of 1995. However, this may reflect in part the desire of the aging "baby
boom" generation to increase its net worth as it starts to contemplate
retirement. Another sign is the large number and dollar volume of initial
public offerings. These tend to pick up when there is a greater willingness
by investors to take risks. They are currently running at levels seen only a
few times before.
On balance, we believe the market is highly valued. But, whether it will take
a tumble is another matter altogether. Even overvalued markets sometimes have
a way of extending their gains well beyond reason or, more often, staying
overvalued for prolonged periods. And, so the beat goes on--sustained
economic expansion with low inflation fueling investor confidence resulting
in an even greater commitment to stocks. We find comfort in the fact that the
speculative excesses of the market have not reached the type of stocks we
own. This offers opportunities for sustained investment returns even if it is
not quite as much fun. Thus, we will continue to do what we do best, which is
to find stocks offering value and solid prospects for profitable growth.*
10
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LIBERTY ALL*STAR GROWTH FUND, INC.
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Schedule of
Investments
As of
June 30, 1996
(Unaudited)
Common Stocks (95.4%) Shares Market Value
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Aerospace (2.1%)
Lockheed Martin Corp. 15,000 $1,260,000
McDonnell Douglas Corp. 30,000 1,455,000
------------
2,715,000
------------
Auto Parts (1.1%)
Varity Corp. (a) 30,000 1,443,750
------------
Banks (5.8%)
Charter One Financial, Inc. 22,000 767,250
Citicorp 20,000 1,652,500
Crestar Financial Corp. 12,000 640,500
First Financial Corp. 5,000 112,500
Mellon Bank Corp. 22,000 1,254,000
Signet Banking Corp. 24,000 558,000
Standard Federal BanCorporation 13,800 531,300
Union Planters Corp. 22,500 683,438
Wells Fargo & Co. 5,000 1,194,375
------------
7,393,863
------------
Broadcasting & Cable (0.8%)
British Sky Broadcasting Group ADR 19,000 771,875
Paxson Communications Corp. (a) 24,000 255,000
------------
1,026,875
------------
Business Services (2.7%)
AccuStaff, Inc. (a) 18,000 490,500
Electronic Data Systems Corp. 12,000 645,000
First Data Corp. 23,185 1,846,106
Interim Services, Inc. (a) 11,000 473,000
------------
3,454,606
------------
Chemicals (3.2%)
Cytec Industries, Inc. (a) 7,500 641,250
Hanna (M.A.) Co. 36,000 751,500
Hercules, Inc. 22,000 1,215,500
Monsanto Co. 45,000 1,462,500
------------
4,070,750
------------
See Notes to Schedule of Investments.
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LIBERTY ALL*STAR GROWTH FUND, INC.
Common Stocks (continued) Shares Market Value
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Computer & Business Equipment (13.3%)
Active Voice Corp. (a) 20,000 $ 240,000
Adaptec, Inc. (a) 13,000 615,875
Automatic Data Processing, Inc. 24,000 927,000
Ceridian Corp. (a) 9,000 454,500
Cisco Systems, Inc. (a) 25,000 1,415,625
Computer Associates International, Inc. 20,000 1,425,000
Computer Sciences Corp. (a) 10,000 747,500
Danka Business Systems ADR 10,000 292,500
Hewlett-Packard Co. 9,000 896,625
Intel Corp. 18,000 1,321,875
Komag, Inc. (a) 15,000 395,625
Microsoft Corp. (a) 20,000 2,402,500
Norand (a) 22,400 448,000
Nu-Kote Holdings, Inc. (a) 42,000 698,250
Oracle Corp. (a) 38,100 1,502,569
Quantum Corp. (a) 36,000 526,500
Sungard Data Systems, Inc. (a) 27,000 1,083,375
The Peak Technologies Group (a) 15,000 350,625
3Com Corp. (a) 18,000 823,500
Zebra Technologies Corp., Class A (a) 28,200 500,550
------------
17,067,994
------------
Construction (0.4%)
J. Ray McDermott, S.A. (a) 20,000 500,000
------------
Consumer Products (2.1%)
Department 56, Inc. (a) 22,000 497,750
Gucci Group NV ADR (a) 8,000 516,000
Tommy Hilfiger Corp. (a) 10,000 536,250
Unilever NV ADR 8,000 1,161,000
------------
2,711,000
------------
Cosmetics & Toiletries (0.7%)
Gillette Co. 15,000 935,625
------------
Diversified (2.6%)
Ball Corp. 13,000 373,750
General Electric Co. 12,000 1,038,000
See Notes to Schedule of Investments.
12
<PAGE>
----------------------------------
LIBERTY ALL*STAR GROWTH FUND, INC.
Common Stocks (continued) Shares Market Value
- ------------------------------------------------------------------------
Diversified (continued)
Lydall, Inc. (a) 23,000 $ 506,000
Modine Manufacturing Co. 30,000 795,000
Sonoco Products Co. 22,000 624,250
------------
3,337,000
------------
Drugs & Health Care (13.1%)
Allergan, Inc. 25,000 981,250
Amgen, Inc. (a) 17,000 918,000
Bard (C.R.) Inc. 18,000 612,000
Beverly Enterprises, Inc. (a) 50,000 600,000
Boston Scientific Corp. (a) 10,000 450,000
Cardinal Health, Inc. 9,000 649,125
Columbia/HCA Healthcare Corp. 10,000 533,750
Dentsply International, Inc. 13,000 552,500
Elan Corp. ADR (a) 8,000 457,000
Emeritus Corp. (a) 13,000 229,125
Fisher Scientific International 23,500 881,250
HEALTHSOUTH Corp. (a) 24,000 864,000
Horizon Healthcare (a) 40,000 515,000
Living Centers of America, Inc. (a) 18,500 635,938
Medtronic, Inc. 20,000 1,120,000
Merck & Co., Inc. 18,000 1,163,250
Millipore Corp. 13,500 565,313
Oxford Health Plans, Inc. (a) 18,000 740,250
Pfizer, Inc. 25,000 1,784,375
R.P. Scherer Corp. (a) 19,000 862,125
Sterling House Corp. (a) 12,000 228,000
Sun Healthcare Group, Inc. (a) 57,600 820,800
United Healthcare Corp. 13,000 656,500
------------
16,819,551
------------
Electronics & Electrical Equipment (2.3%)
Analog Devices, Inc. (a) 15,000 382,500
Arrow Electronics, Inc. (a) 28,000 1,207,500
Hubbell, Inc., Class B 12,000 795,000
Tyco International Ltd. 15,000 611,250
------------
2,996,250
------------
See Notes to Schedule of Investments.
13
<PAGE>
----------------------------------
LIBERTY ALL*STAR GROWTH FUND, INC.
Common Stocks (continued) Shares Market Value
- -------------------------------------------------------------------------
Financial Services (11.3%)
Advanta Corp., Class B 19,000 $ 859,750
Capital One Financial Corp. 25,000 712,500
CMAC Investment Corp. 7,500 431,250
Countrywide Credit Industries, Inc. 55,000 1,361,250
CUC International, Inc. (a) 14,000 497,000
Federal Home Loan Mortgage Corp. 23,000 1,966,500
Federal National Mortgage Assoc. 60,000 2,010,000
Finova Group, Inc. 12,000 585,000
First USA, Inc. 14,000 770,000
MBNA Corp. 42,000 1,197,000
Morgan Stanley Group, Inc. 27,000 1,326,375
Paychex, Inc. 7,500 360,937
Southern Pacific Funding Corp. (a) 17,000 297,500
Travelers Group, Inc. 30,000 1,368,750
United Companies Financial Corp. 23,500 799,000
-------------
14,542,812
-------------
Food & Beverage (4.1%)
Canandaigua Wine Co., Class A (a) 20,000 600,000
Dole Foods, Inc. 30,000 1,290,000
Flowers Industries, Inc. 55,000 886,875
Hormel Foods Corp. 29,000 775,750
IBP, Inc. 30,000 828,750
Performance Food Group Co. (a) 17,000 442,000
Robert Mondavi Corp. (a) 14,500 456,750
-------------
5,280,125
-------------
Hotels & Leisure (1.1%)
HFS, Inc. (a) 20,000 1,400,000
-------------
Industrial Equipment (0.8%)
Caterpillar, Inc. 15,000 1,016,250
-------------
Insurance (8.0%)
ACE, Ltd. 30,000 1,410,000
AFLAC, Inc. 37,500 1,120,313
American International Group, Inc. 10,000 986,250
See Notes to Schedule of Investments.
14
<PAGE>
----------------------------------
LIBERTY ALL*STAR GROWTH FUND, INC.
Common Stocks (continued) Shares Market Value
- ------------------------------------------------------------------------
Insurance (continued)
American Re Corp. 18,000 $ 807,750
EXEL Limited 20,000 1,410,000
MGIC Investment Corp. 13,000 729,625
NAC Re Corp. 11,000 368,500
PMI Group, Inc. 24,000 1,020,000
Progressive Corp. 20,000 925,000
Transamerica Corp. 18,000 1,458,000
------------
10,235,438
------------
Metals & Mining (0.9%)
Freeport-McMoRan Copper & Gold, Inc., Class A 35,000 1,115,625
------------
Oil & Gas (3.4%)
Barrett Resources Corp. (a) 10,200 303,450
Enron Corp. 11,000 449,625
Murphy Oil Corp. 17,000 771,375
Tenneco, Inc. 18,000 920,250
Tosco Corp. 5,000 251,250
Triton Energy Corp. (a) 20,000 972,500
Union Texas Petroleum Holdings, Inc. 36,000 702,000
------------
4,370,450
------------
Paper (1.2%)
Alco Standard Corp. 12,000 543,000
Champion International Corp. 25,000 1,043,750
------------
1,586,750
------------
Pollution Control (0.6%)
Republic Industries, Inc. (a) 25,000 728,125
------------
Publishing (0.7%)
R.R. Donnelley & Sons Co. 25,000 871,875
------------
Retail Trade (3.1%)
AutoZone, Inc. (a) 16,000 556,000
Discount Auto Parts, Inc. (a) 24,000 609,000
May Department Stores Co. 20,000 875,000
See Notes to Schedule of Investments.
15
<PAGE>
----------------------------------
LIBERTY ALL*STAR GROWTH FUND, INC.
Common Stocks (continued) Shares Market Value
- -------------------------------------------------------------------------
Retail Trade (continued)
Michaels Stores, Inc. (a) 42,000 $ 714,000
Micro Warehouse, Inc. (a) 20,600 412,000
Staples, Inc. (a) 25,000 487,500
Tuesday Morning Corp. (a) 23,000 307,625
-------------
3,961,125
-------------
Services (0.8%)
Service Corp. International 9,000 517,500
Unitog Co. 17,000 480,250
-------------
997,750
-------------
Telecommunication (7.3%)
Arch Communications Group, Inc. (a) 33,000 614,625
Asia Satellite Telecommunications
Holdings Ltd. ADR (a) 12,000 357,000
Colonial Data Technologies Corp. (a) 30,000 446,250
Mobile Telecommunication
Technologies Corp. (a) 60,000 877,500
Motorola, Inc. 20,000 1,257,500
Nokia Corp. ADR 25,000 925,000
Palmer Wireless, Inc. (a) 18,000 360,000
Sprint Corp. 30,000 1,260,000
Telefonakteibolaget LM Ericsson, Class B, ADR 40,000 860,000
U.S. Order, Inc. (a) 24,500 373,624
U.S. Robotics Corp. (a) 16,000 1,368,000
WorldCom, Inc. (a) 12,000 664,500
-------------
9,363,999
-------------
Transportation (1.9%)
American Freightways Corp. (a) 37,825 420,802
AMR Corp. (a) 15,000 1,365,000
U.S. Freightways Corp. 35,000 682,500
-------------
2,468,302
-------------
Total Common Stocks (Cost $110,072,781) $122,410,890
-------------
16
<PAGE>
----------------------------------
LIBERTY ALL*STAR GROWTH FUND, INC.
SHORT-TERM INVESTMENT (4.9%) MARKET VALUE
- -------------------------------------------------------------------------------
Repurchase Agreement
Chase Securities Corp. dated 06/28/96, 5.40%, to be repurchased at
$6,267,819 on 07/01/96, collateralized by U.S. Treasury notes with
various maturities to 1998, with a current market value of
$6,404,890 $ 6,265,000
------------
Total Investments (100.3%) (Cost $116,337,781)(b) 128,675,890
------------
Other Assets and Liabilities, Net (-0.3%) (395,230)
------------
Net Assets (100.0%) $128,280,660
============
Net Asset Value Per Share (11,339,096 shares outstanding) $11.31
============
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The cost of investments for Federal income tax purposes is
$116,506,853. Gross unrealized appreciation and depreciation of
investments at June 30, 1996 is as follows:
Gross unrealized appreciation $ 16,855,225
Gross unrealized depreciation (4,686,188)
------------
Net unrealized appreciation $ 12,169,037
============
Acronym Name
- ------- ---------------------------
ADR American Depository Receipt
See Notes to Financial Statements.
17
<PAGE>
----------------------------------
LIBERTY ALL*STAR GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Statement
of Assets and
Liabilities
June 30, 1996
(Unaudited)
Assets:
Investments at market value
(Identified cost $116,337,781) $128,675,890
Cash 1,382
Dividends and interest receivable 65,741
Other assets 32,109
------------
Total assets 128,775,122
------------
Liabilities:
Payable for investments purchased 100,884
Management fee payable 241,090
Administrative fee payable 79,755
Accrued expenses 72,733
------------
Total liabilities 494,462
------------
Net assets $128,280,660
============
Net assets represented by:
Paid-in capital (authorized 20,000,000 shares at
$0.10 Par; 11,339,096 shares outstanding) $106,077,949
Undistributed net investment income 140,732
Accumulated net realized gains on investments less
distributions 9,723,870
Net unrealized appreciation of investments 12,338,109
------------
Total net assets applicable to outstanding shares
of beneficial interest ($11.31 per share) $128,280,660
============
See Notes to Financial Statements.
18
<PAGE>
----------------------------------
LIBERTY ALL*STAR GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Statement of
Operations
Six months ended
June 30, 1996
(Unaudited)
Investment income:
Dividends $ 582,873
Interest 426,244
----------
Total investment income (net of nonrebatable
foreign taxes withheld at source which amounted
to $7,758) 1,009,117
Expenses:
Management fees $ 472,058
Administrative fee 156,744
Custodian and transfer agent fees 60,333
Proxy and shareholder communication expense 25,458
Printing expense 22,633
Legal and audit fees 37,454
Insurance expense 19,438
Directors' fees and expense 30,525
Miscellaneous expense 43,743
-----------
Total expense 868,386
----------
Net investment income 140,731
Realized and unrealized gains on investments:
Net realized gains on investment transactions:
Proceeds from sales 91,047,571
Cost of investments sold 86,012,815
-----------
Net realized gains on investment transactions 5,034,756
Net unrealized appreciation of investments:
Beginning of period 8,807,760
End of period 12,338,109
-----------
Change in unrealized appreciation-net 3,530,349
----------
Net increase in net assets resulting from
operations $8,705,836
==========
See Notes to Financial Statements.
19
<PAGE>
----------------------------------
LIBERTY ALL*STAR GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Statement of
Changes in
Net Assets
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1996 December 31,
(Unaudited) 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income $ 140,731 $ 3,464,873
Net realized gains on investment transactions 5,034,756 9,735,033
Change in unrealized appreciation-net 3,530,349 2,131,624
------------ ------------
Net increase in net assets resulting
from operations 8,705,836 15,331,530
------------ ------------
Distributions declared from:
Net investment income - (3,491,283)
Net realized gains on investments - (5,098,057)
------------ ------------
Total distributions - (8,589,340)
------------ ------------
Total increase in net assets 8,705,836 6,742,190
Net Assets:
Beginning of period 119,574,824 112,832,634
------------ ------------
End of period (including undistributed net
investment income of $140,732 and $21,687,
respectively) $128,280,660 $119,574,824
============ ============
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
----------------------------------
LIBERTY ALL*STAR GROWTH FUND, INC.
Financial
Highlights
<TABLE>
<CAPTION>
Six months
ended Year ended December 31,
June 30, 1996 -----------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 10.55 $ 9.95 $ 10.54 $ 10.28 $ 10.40 $ 9.90
-------- ------ ------- ------- ------- -------
Income from investment operations:
Net investment income 0.01 0.31 0.23 0.18 0.29 0.44
Net realized and unrealized gains
(losses) on securities 0.75 1.05 (0.24) 0.56 0.03 0.71
-------- ------ ------- ------- ------- -------
Total from investment operations 0.76 1.36 (0.01) 0.74 0.32 1.15
-------- ------ ------- ------- ------- -------
Less distributions:
Dividends from net investment income - (0.31) (0.23) (0.18) (0.30) (0.44)
Distributions from realized capital gains - (0.45) (0.35) (0.30) (0.14) (0.21)
-------- ------ ------- ------- ------- -------
Total distributions - (0.76) (0.58) (0.48) (0.44) (0.65)
-------- ------ ------- ------- ------- -------
Net asset value at end of period $ 11.31 $10.55 $ 9.95 $ 10.54 $ 10.28 $ 10.40
======== ====== ======= ======= ======= =======
Per share market value at end of period $ 9.625 $9.375 $ 8.500 $10.250 $10.000 $10.000
======== ====== ======= ======= ======= =======
Total Investment Return for Shareholders: (a)
Based on net asset value 7.2%(b) 13.8% (1.1%) 7.2% 3.1% 11.8%
Based on market price 2.7%(b) 19.3% (11.6%) 7.2% 4.4% 3.9%
Ratios and Supplemental Data:
Net assets at end of period (millions) $128 $120 $113 $125 $123 $125
Ratio of expenses to average net assets 1.38%(c) 1.42% 1.51% 1.35% 1.33% 1.31%
Ratio of net investment income to
average net assets 0.22%(c) 2.87% 2.12% 1.71% 2.80% 4.17%
Portfolio turnover rate 32%(b) 82% 50% 47% 19% 25%
</TABLE>
(a) Calculated assuming all distributions reinvested.
(b) Not annualized.
(c) Annualized.
See Notes to Financial Statements.
21
<PAGE>
----------------------------------
LIBERTY ALL*STAR GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Notes to
Financial
Statements
June 30, 1996
Note 1. Organization and
Accounting Policies
Liberty ALL-STAR Growth Fund, Inc. (ALL-STAR Growth or the Fund), is
registered under the Investment Company Act of 1940, as amended, as a
closed-end, diversified management investment company and commenced
operations on March 14, 1986. ALL-STAR Growth's investment objective is to
seek long term capital appreciation. ALL-STAR Growth is managed by Liberty
Asset Management Company (the "Manager"), an indirect majority-owned
subsidiary of Liberty Mutual Insurance Company.
The following is a summary of significant accounting policies followed by
ALL-STAR Growth in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results, if different, are expected to be immaterial to the net assets
of the Fund.
Valuation of Investments-Portfolio securities listed on an exchange and
over-the-counter securities quoted on the NASDAQ system are valued on the
basis of the last sale on the date as of which the valuation is made, or,
lacking any sales, at the mean of the closing bid and asked quotations on
that date. Over-the-counter securities not quoted on the NASDAQ system are
valued at the most recent bid prices on that date. Securities for which
reliable quotations are not readily available are valued at fair value, as
determined in good faith and pursuant to procedures established by the Board
of Directors. Short-term instruments maturing in more than 60 days for which
market quotations are readily available are valued at current market value.
Short-term instruments with remaining maturities of 60 days or less are
valued at amortized cost, unless the Board of Directors determines that this
does not represent fair value.
Provision for Federal Income Tax-ALL-STAR Growth qualifies as a "regulated
investment company." As a result, a Federal income tax provision is not
required for amounts distributed to shareholders.
Other-Security transactions are accounted for on the trade date. Interest
income and expenses are recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. Discounts on debt securities are amortized
in accordance with Internal Revenue Code requirements.
Note 2. Management and
Administrative Fees
Under ALL-STAR Growth's Fund Management and Portfolio Management Agreements,
ALL-STAR Growth pays the Manager a management fee for its investment
management services at an annual rate of 0.75% of ALL-STAR Growth's average
weekly net asset value. The Manager pays each Portfolio Manager a portfolio
management fee at an annual rate of 0.40% of the average weekly net asset
value of the portion of the investment portfolio managed by it. ALL-STAR
Growth also pays the Manager a fee for its administrative services at an
annual rate of 0.25% of ALL-STAR Growth's average weekly net asset value. The
annual fund management and administrative fees are reduced to 0.5625% and
0.1875%, respectively, on average weekly net assets in excess of $125,000,000
up to $250,000,000 and to 0.375% and 0.125%, respectively, on average weekly
net assets in excess of
22
<PAGE>
----------------------------------
LIBERTY ALL*STAR GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Notes to
Financial
Statements
(continued)
$250,000,000. The aggregate annual fees payable by the Manager to the
Portfolio Managers are reduced to 0.30% of ALL-STAR Growth's average weekly
net assets in excess of $125,000,000 up to $250,000,000 and to 0.20% on
average weekly net assets in excess of $250,000,000.
Note 3. Securities Transactions
Realized gains and losses are recorded on the identified cost basis for both
financial reporting and Federal income tax purposes. The cost of investments
purchased and the proceeds from investments sold (excluding short-term debt
obligations) for the six months ended June 30, 1996 were $82,546,698 and
$91,047,571 (of which $56,642,078 were U.S. government securities),
respectively.
ALL-STAR Growth may enter into repurchase agreements and requires the seller
of the instrument to maintain on deposit with ALL-STAR Growth's custodian
bank or in the Federal Reserve Book-Entry System securities in the amount at
all times equal to or in excess of the value of the repurchase agreement plus
accrued interest. ALL-STAR Growth may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
Note 4. Distributions to Shareholders
Distributions to shareholders are recorded on the ex-dividend date. Income
and capital gain distributions are determined in accordance with Federal
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 carryovers) under income tax regulations.
- --------------------------------------------------------------------------------
1996 Annual
Meeting of
Shareholders
Liberty ALL-STAR Growth Fund, Inc.'s 1996 Annual Meeting of Shareholders was
held on April 17, 1996. At the Meeting, Mr. Harold W. Cogger and Mr. Robert
J. Birnbaum were elected as Directors of the class whose term expires with
the 1999 Annual Meeting. Messrs. James E. Grinnell and Richard W. Lowry
continue in office as Directors.
In addition, shareholders approved ALL-STAR's new Portfolio Management
Agreement with Mississippi Valley Advisors Inc. and ratified the Board of
Directors' selection of KPMG Peat Marwick LLP as ALL-STAR Growth's
independent auditors for the year ending December 31, 1996. The number of
votes cast for and against and the number of abstentions on these matters
were as follows:
1. Approval of Portfolio Management Agreement with Mississippi Valley
Advisors Inc.
For: 9,011,967
Against: 294,258
Abstain: 209,722
2. Ratification of Selection of KMPG Peat Marwick LLP as Independent Auditors
for 1996
For: 9,303,716
Against: 87,589
Abstain: 209,722
23
