LIBERTY
ALL*STAR
GROWTH FUND,INC.
ANNUAL REPORT
1995
<PAGE>
LIBERTY ALL*STAR GROWTH FUND, INC.
*****************************************************************************
INVESTMENT SUMMARY
====================================================
For the Year Ended December 31,
----------------------------------------------------
1995 1994 1993 1992 1991
------ ------- ------- ------- ---------
Net Assets (000) $119,575 $112,833 $125,017 $122,851 $125,330
Shares Outstanding
(000) 11,339 11,339 11,861 11,956 12,053
Net Asset Value Per
Share (NAV) $ 10.55 $ 9.95 $ 10.54 $ 10.28 $ 10.40
Dividends Paid $ 0.758 $ 0.578 $ 0.480 $ 0.439 $ 0.656
Market Price Per
Share $ 9.38 $ 8.50 $ 10.25 $ 10.00 $ 10.00
Premium/(Discount)
From NAV -11.1% -14.6% -2.8% -2.7% -3.9%
Shareholders of
Record 4,631 5,291 5,706 6,231 6,585
Market Price Range
(NYSE, Symbol ASG)
High 10 10-1/2 10-3/4 10-1/8 10-5/8
Low 8-3/8 8-1/4 9-5/8 9-1/2 9-5/8
In 1995 Liberty ALL-STAR Growth Fund, Inc. (ALL-STAR Growth or the Fund) paid
out $8,589,340 in dividends to shareholders. Details of the distributions can
be found on page 28.
Net Asset Value per share as of December 31, 1995 was calculated after
payment of $.76 per share in dividends. While the Fund counts 4,631
shareholders of record on December 31, 1995, total Fund shareholders number
approximately 15,000. Numerous Fund shares are held in "Street Name" by
brokerage firms, banks and trust companies for their client accounts.
*****************************************************************************
Dividend Reinvestment:
Through its Automatic Dividend Reinvestment and Cash Purchase Plan (the
Plan), ALL-STAR Growth offers shareholders the opportunity to reinvest
distributions in additional shares of the Fund. Each registered shareholder
is considered a participant in the Plan, unless the shareholder elects
otherwise. The Plan provides a way to acquire additional shares of the Fund.
See the Notice of Amendment to the Plan and terms and conditions of the Plan
as to be amended effective June 30, 1996 appearing at the end of this report.
All distributions payable to participants in the Plan are automatically
reinvested in shares of the Fund by State Street Bank (SSB), the dividend
paying agent, unless the shareholder elects to receive the dividend in cash.
If a shareholder wishes to receive distributions in cash, the shareholder
must notify SSB (for shareholders of record), or notify the institution
(bank, broker or other nominee) in whose name the shares are held.
Shareholders are kept apprised of the status of their account through
quarterly statements.
For complete Information please call Investor Assistance toll-free at
1-800-LIB-FUND (1-800-542-3863) weekdays between 9 AM and 5 PM Eastern time.
<PAGE>
Liberty ALL*STAR Growth FUND, Inc.
1995 Annual Report
Chairman's Letter
To Our Fellow Shareholders: February 1996
We are pleased to submit to you this 1995 Annual Report for the Fund. As you
know, on November 6, 1995, as approved by shareholders at the 1995 Annual
Meeting:
(bullet) The name of the Fund was changed from The Charles Allmon Trust, Inc.
to Liberty ALL-STAR Growth Fund, Inc. The New York Stock Exchange
ticker symbol is now ASG.
(bullet) Liberty Asset Management Company ("LAMCO"), which had since June 1,
1994 been the manager of approximately 20% of the Fund's assets,
became the manager of 100% of the Fund's assets. In accordance with
LAMCO's multi-management methodology, the approximately 80% of the
Fund's assets previously managed by Growth Stock Outlook, Inc. were
split essentially equally among the three Portfolio Managers under
LAMCO supervison: Provident Investment Counsel, Inc., Oppenheimer
Capital and Cooke & Bieler, Inc.
(bullet) The investment objective became long-term capital appreciation.
(bullet) The Board of Directors was reconstituted.
*****************************************************************************
Fund Performance for the
fourth quarter and the
full year. Figures shown
for the Fund, the LAMCO
managed portion of 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 Fourth Full
income. Quarter Year
- -------------------------- ----------------- ------------------
Liberty ALL-STAR Growth
Fund, Inc.
Shares Valued at Net
Asset Value 0.9% 13.8%
Shares Valued at Market
Price Reinvested 7.8% 19.3%
LAMCO Managed Portion of
the Fund
Shares Valued at Net
Asset Value 1.1% 31.3%
Lipper Growth Mutual Fund
Average 2.4% 30.5%
S&P 500 Stock Index 6.0% 37.5%
Dow Jones Industrial
Average 7.5% 36.8%
Fund's Closing Price Range $10 - 9-1/8 $10 - 8-3/8
Fund's Discount Range 10.6% to 16.6% 10.0% to 18.0%
*****************************************************************************
The net asset value (NAV) of a common share of the Fund declined from $11.06
on September 30, 1995 to $10.55 on December 31, 1995 after deducting the cash
distribution of 60 cents paid to shareholders during the quarter. The market
price of a share of the Fund traded in a range from $10 to $9-1/8 before
closing the quarter at $9-3/8. The ending price represented a discount to NAV
of 11.1 percent compared with a discount to NAV of 16.4 percent on September
30, 1995. Key investment results and comparisons are noted in the box.
It is particularly gratifying to note that the LAMCO managed portion of the
Fund outperformed its primary benchmark, the Lipper Growth Mutual Fund
Average, with an exceptional 31.3% total return for the full year 1995.
The Board of Directors at their December meeting approved the appointment of
Mississippi Valley Advisors Inc. ("MVA") as one of the three Portfolio
Managers of the Fund, replacing Cooke & Bieler, Inc., effective January 2,
1996. LAMCO had determined that the Fund's new investment objective would be
better served by replacing Cooke & Bieler's value style with a Portfolio
Manager having a growth style emphasizing smaller capitalization stocks. We
greatly appreciate the contribution of Cooke & Bieler for the period June 1,
1994 to December 31, 1995.
continued on page 2
1
<PAGE>
Chairman's Letter
Continued from
Page 1
MVA will be managing their portion of the Fund in accordance with their small
capitalization growth stock style. In the Manager Roundtable, beginning on
page 8, each of the three Portfolio Managers discusses the investment style
and process their organization brings to the Fund and their outlook for 1996.
At the end of the year, approximately 55 percent of the Fund's assets were
invested in equity securities which is consistent with the plan stated in the
third quarter report "...that, under normal market conditions, the Fund's
Portfolio Managers within three to six months will invest at least 65% of the
Fund's assets in equity securities in accordance with their respective
investment styles." The percent invested in equity securities has continued
to increase in 1996 and stood at about 79% at the end of January.
I am pleased to announce that Harold W. Cogger, Executive Vice President of
Liberty Financial Companies, Inc., the parent company of LAMCO, has been
nominated by the Board for election as a Director at the Fund's upcoming
annual meeting of shareholders. He is an experienced investment professional
who is also President and Chief Executive Officer of Colonial Management
Associates, Inc., a large mutual fund management company, also one of the
Liberty Financial Companies. This matter is discussed in the Proxy Statement
which accompanies this Report.
Following this letter are three pages of material describing the rationale
and operation of LAMCO's multi-management methodology as it applies to the
Fund. I think you will find it interesting.
Thank you again for your support and confidence in Liberty ALL-STAR Growth
Fund, Inc.
Sincerely,
/s/ Richard R. Christensen
Richard R. Christensen
Chairman
2
<PAGE>
Why Multi-Management?
Even the Best Managers
Have Inconsistent Returns
Funds managed by one portfolio management organization, even a top one, tend
to produce inconsistent returns from one period to another. The graph
illustrates this inconsistency by showing the four best performing growth
funds in 1990 and tracking their relative performance rankings over the next
five years. The lack of consistency is clear. The problem is...
Growth Fund: 265 Funds
1990 1991 1992 1993 1994 1995
Fund 1 1 45 128 157 182 142
2 2 86 194 139 44 22
3 3 258 153 258 136 256
4 4 14 97 80 92 23
A Single Style
Produces Inconsistency
...a professional portfolio manager practices the same specific investment
style through all types of market environments. For example, a small
capitalization growth stock manager continues to hold small capitalization
growth stocks even when the stock market favors other types of stocks.
Therefore, as the stock market changes, a manager's returns fluctuate
relative to the stock market, as exhibited in this simplified graph.
In order to reduce these fluctuations...
Solid Wave Line
Manager's Style in Favor Manager's Style in Favor
Stock Market Returns
Time Manager's Style out of Favor
Combining Styles
Through Multi-Management
Improves Consistency
...more than one portfolio manager, each employing a different style, must
manage a fund. This approach is called "Multi-Management" and is practiced in
some form by most large pension funds. This graph shows a simplified example
of Multi-Management using two diametrically different styles of management.
Notice the combined results produce what neither manager can give alone:
Consistency.
Of course, the investment performance from styles is not as predictable as
shown, so...
1 Solid and 1 Broken Wave Line
Manager A's Style in Favor Manager B's Style in Favor
Manager A's Style in Favor
Multi-Manager Returns (Manager A plus Manager B)
Stock Market Returns
Manager B's Style out of Favor Manager A's Style out of Favor
Manager B's Style out of Favor Time
3
<PAGE>
Multi-Management: ALL-STAR Growth
and Liberty Asset Management Company
...LAMCO has identified three different styles as the best combination to
achieve ALL-STAR Growth's investment objective.
There are two broad styles to investing, Growth and Value. The Growth style
focuses on the selection of companies whose growth prospects are better than
the average company. The other style is Value, which focuses on the selection
of companies whose ratios of stock price to estimated value are better than
those of similar companies. Since the Fund has a growth focus, two-thirds of
the assets are divided among two growth managers who practice a specific
style to investing within this broad style. The other style, representing
one-third of the assets, is contrarian in nature; that is, it has
characteristics of both Growth and Value. The style of each manager is shown
in the pie chart below.
In addition to producing greater performance consistency, ALL-STAR Growth's
other objective is to produce above average return; and to fulfill that
objective...
ALL-STAR Growth's Multi-Manager Team
...LAMCO searches for successful, independent investment management
organizations to hire as Portfolio Managers for ALL-STAR Growth. In
researching and selecting them, LAMCO focuses on managers who have:
[bullet] A demonstrated record of success.
[bullet] A constant focus on the desired Style.
[bullet] An organization that is well-managed.
[bullet] Highly qualified people who have built the record.
[bullet] A disciplined investment decision-making process.
There are several hundred equity management organizations which are both
substantial in size and well-qualified to manage large investment portfolios.
By applying a variety of analyses and disciplines, LAMCO today employs the
following three Portfolio Managers as ALL-STAR Growth's team, which it
considers to be optimal for achieving ALL-STAR Growth's investment
objectives.
*********************************[PIE CHART]*********************************
Provident Investment Counsel, Inc. 1/3
Large capitalization companies with fast
growing earnings and bright prospects.
Mississippi Valley Advisors Inc. 1/3
Small Capitalziation growth companies
that sell at a reasonable current price
relative to future earnings.
Oppenheimer Capital 1/3
Contrarian holdings being overlooked and
undervalued by investors.
*****************************************************************************
As with anything in investments, circumstances change, so...
4
<PAGE>
LAMCO's Multi-Management Process
...LAMCO conducts continuing evaluation of the Portfolio Managers. The
purpose is to be sure that each is still the best choice for ALL-STAR Growth.
Through frequent meetings with the Portfolio Managers, and through
qualitative and quantitative analyses, each is continually evaluated to
assure that:
[bullet] It is consistently practicing its Investment Style.
[bullet] Its transactions and holdings reflect the Style.
[bullet] Its organization and investment process continue to support its
Style.
[bullet] Its investment performance is good when compared with other managers
using a similar Style.
Also, LAMCO is alert to assuring the proficiency of the Portfolio Manager
team. The objective is to be certain that the team remains an optimal
combination, giving ALL-STAR Growth the full benefits of Multi-Management.
The procedures include:
[bullet] Assuring that ALL-STAR Growth's total portfolio has the proper
investment characteristics.
[bullet] Researching new investment managers as possible future Portfolio
Managers.
[bullet] Making Portfolio Manager changes when necessary.
Further, LAMCO shifts assets among the Portfolio Managers at selected times.
As the previous pie chart indicates, ALL-STAR Growth's assets are allocated
equally among the three Portfolio Managers in order to provide the desired
style diversification. However, stock market action unbalances that
equilibrium, causing the allocation to become unequal. Accordingly, from time
to time, LAMCO reallocates assets back to equality in order to preserve the
benefits of ALL-STAR Growth's Multi-Management methodology.
5
<PAGE>
Major Stock Changes in the
Fourth Quarter
The following are the major ($750,000 or more)
stock changes--both additions and reductions --
that were made in ALL-STAR Growth's portfolio
during the fourth quarter of 1995.
Shares
-------------------------------
Held
Name Additions Reductions 12/31/95
----------------------------- ------- ------- ---------
AFLAC, Inc. 20,000 25,000
Champion International Corp. 20,000 20,000
Computer Associates
International, Inc. 14,975 20,000
Countrywide Credit
Industries, Inc. 40,000 40,000
Federal National Mortgage
Association 7,400 10,000
First Data Corp. 15,586 20,185
Hercules, Inc. 14,000 20,000
Hewlett-Packard Co. 11,000 15,000
Intel Corp. 29,200 40,000
Merck & Co., Inc. 13,000 17,000
Microsoft Corp. 10,000 15,000
Nokia Corp. ADR 32,800 37,000
Oracle Systems Corp. 20,000 30,000
United Healthcare Corp. 14,700 17,200
Barrick Gold Corp. (38,000) 0
Franco-Nevada Mining Corp.
Ltd. (20,500) 0
International Speedway Corp. (9,800) 0
Placer Dome, Inc. (30,000) 0
*****************************************************************************
Investment Objective and Policies
Effective November 6, 1995, Liberty ALL-STAR Growth Fund Inc.'s investment
objective was changed to long-term capital appreciation.
The Fund will attempt to achieve its investment objective under normal market
conditions by investing at least 65% of the value of its total assets in a
diversified portfolio of equity securities. Up to 35% of the value of its
total assets may be invested in obligations of the U.S. government, its
agencies or instrumentalities ("U.S. Government Securities"), repurchase
agreements with respect to U.S. Government Securities, and, to an extent not
greater than 10% of the market value of the Fund's total assets, money market
mutual funds that invest primarily in U.S. Government Securities. The Fund
may temporarily invest without limit in U.S. Government Securities,
repurchase agreements with respect to U.S. Government Securities and in money
market mutual funds that invest primarily in U.S. Government Securities for
defensive purposes when Liberty Asset Management Company or the Fund's
Portfolio Managers deem that market conditions are such that a more
conservative approach to investment is desirable.
*****************************************************************************
6
<PAGE>
Top 25
Holdings
As of
December 31, 1995
Rank Percent of
as of Value Market
Rank 9/30/95 Security Name ($000) Value (a)
- ----- ------ ----------------------------------- ----- ----------
1 11 Intel Corp. $2,270 3.5%
2 2 St. Jude Medical, Inc. 1,516 2.3
3 56 Nokia Corp. ADR 1,438 2.2
4 59 First Data Corp. 1,350 2.1
5 21 Microsoft Corp. 1,316 2.0
6 31 Oracle Systems Corp. 1,271 1.9
7 18 Travelers Group, Inc. 1,258 1.9
8 48 Hewlett-Packard Co. 1,256 1.9
9 16 Federal Home Loan Mortgage Corp. 1,253 1.9
10 63 Federal National Mortgage Corp. 1,241 1.9
11 Computer Associates
79 International, Inc. 1,138 1.7
12 44 Hercules, Inc. 1,128 1.7
13 109 United Healthcare Corp. 1,127 1.7
14 77 Merck & Co., Inc. 1,118 1.7
15 34 Medtronic, Inc. 1,118 1.7
16 81 AFLAC, Inc. 1,084 1.6
17 NEW Pfizer, Inc. 1,008 1.5
18 American International Group,
66 Inc. 925 1.4
19 12 McDonnell-Douglas Corp. 920 1.4
20 19 EXEL Limited 915 1.4
21 7 Bristol-Myers Squibb Co. 902 1.4
22 84 Automatic Data Processing, Inc. 891 1.4
23 Countrywide Credit Industries,
NEW Inc. 870 1.3
24 24 Arrow Electronics, Inc. 863 1.3
25 10 Royal Dutch Petroleum Co. ADR 861 1.3
(a) Percentages have been determined using ALL-STAR Growth's total equity
market value rather than net assets since the Fund was only 55% invested
at year end.
7
<PAGE>
ALL*STAR GROWTH
Manager Roundtable
The Managers Introduce Themselves
and Look Ahead to 1996
Typically, Liberty ALL-STAR Growth Fund, Inc.'s
shareholder reports will contain a section
presenting an individual Portfolio Manager interview
or a roundtable discussion among
all the Portfolio Managers.
In this, our first Manager Roundtable,
our Portfolio Managers have been asked to
present an overview of their investment style
and philosophy as well as to highlight some
of their stock picks for 1996.
The Fund Advisor, Liberty Asset Management Company,
serves as the moderator for the Roundtable. The
participating Portfolio Managers and their Investment
Styles are:
********************************************
The views expressed in this Manager
Roundtable represent the views of the
individual portfolio managers at the time of
the roundtable discussion and are subject to
change.
********************************************
Mississippi Valley Advisors Inc.
Portfolio Manager: Robert J. Anthony
Small Cap Portfolio Manager
Investment Style: Growth--Mississippi Valley Advisors' (MVA) investment
discipline seeks to achieve a high total return by investing in a portfolio
of small capitalization stocks chosen based on a bottom-up "relative value"
approach in which MVA ranks candidates for investment on relative
price/earnings ratio, earnings growth and total return. The firm looks for
strong management and managers with an equity stake in the company; product
and market leadership and strong financial condition as well as companies
that are under-researched by Wall Street analysts.
Oppenheimer Capital
Portfolio Manager: John G. Lindenthal,
Managing Director
Investment Style: Contrarian--Oppenheimer invests in the stocks of quality
companies with sound business prospects that are considered undervalued
because they are currently disliked or are being overlooked 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.
Provident Investment Counsel, Inc.
Portfolio Manager: Jeffrey J. Miller,
Managing Director
Investment Style: Growth--Provident invests in the stocks of companies that
are expected to provide fast growth in earnings. Provident believes that
companies with superior financial characteristics and accelerating sales and
profit growth will provide superior stock returns. Stocks held typically have
high profit margins and return on equity and price/ earnings ratios less than
their predicted growth rates.
LAMCO: Let's start with a discussion of philosophy and investment style with
an emphasis on a detailed description of style. Bob Anthony, please describe
Mississippi Valley Advisors' investment process.
Anthony (Mississippi Valley Advisors Inc.--Growth): Mississippi Valley
Advisors' small capitalization equity style is designed to take advantage of
the opportunity in small capitalization companies. We are long-term
investors with the objective of buying growth at a reasonable price within
emerging growth industries as well as specialized segments of more mature
industries. We consider for purchase stocks selling at low relative
price/earnings ratios, at P/E discounts to their growth rates and at P/Es
below their peer groups. Also
8
<PAGE>
considered are small companies with unique features including asset values,
high cash flows, or other factors which offer the potential for above average
capital appreciation. Since we believe our strength is in stock selection and
not in market timing, the objective is to stay fully invested and broadly
diversified among economic sectors. For purposes of risk control, our
portfolios are closely monitored to assure broad diversification among
economic sectors.
Stocks are selected by our internal staff of nine equity analysts who are
each responsible for a sector(s) of the economy (broken down by energy,
technology, medical, etc.). Using a bottom-up stock selection process,
analysts screen stocks seeking the highest possible total return based upon
projected earnings and historic relative price/earnings ratios. The stocks
are ranked in deciles with the portfolio being selected from the top four
deciles. The stocks become sale candidates when they fall below the sixth
decile.
LAMCO: Thanks, Bob. John Lindenthal, please describe the investment process
for Oppenheimer.
..............................................
"We are long-term investors with the
objective of buying growth at a reasonable
price within emerging growth industries as
well as specialized segments of more mature
industries"
Bob Anthony
Mississippi Valley Advisors
..............................................
Lindenthal (Oppenheimer--Contrarian): We believe that the single most
important determinant of whether a stock will increase in value is the rate
of return on capital in the company itself above its cost of capital. The key
is that companies create more capital than they need to reinvest in the
business and use this free cash flow to enhance shareholder value.
In addition to successful cash flow generation and deployment, we typically
look for companies that combine the following characteristics:
(bullet) A proven management team whose financial interests are aligned with
those of the shareholder.
(bullet) A strong competitive position with significant barriers to entry.
(bullet) A promising outlook for profitability as indicated by potential new
markets, the ability to cut costs and/or raise prices and strategies
to eliminate or effect a turnaround in underearning assets.
(bullet) Stability of sales, income and cash flow through varying industry
and economic cycles.
Once we have determined that a company meets our investment criteria, we look
for market undervaluation great enough to provide significant upside reward
with modest downside risk. Adherence to this valuation discipline has
resulted in sustained superior performance with less risk than the market.
..............................................
"We believe that the single most important
determinant of whether a stock will increase
in value is the rate of return on capital in
the company itself above its cost of
capital."
John Lindenthal
Oppenheimer
..............................................
Discrepancies between popular perception and reality, accounting conventions
that fail to capture underlying economic developments, complex capital
structures that tend to result in valuation errors--these are the kinds of
investment situations that we continually seek to exploit on behalf of our
clients.
We pursue the realities behind the numbers. Rather than accepting statistical
data at face value or following one standard valuation process, we work to
determine the definitive way to value each company. Through study of business
segments within a company, for example, we may identify corporate
restructuring candidates where several well-positioned, high return
businesses are being masked by one weak division. Our analysis would focus on
understanding management's incentives to maximize overall profitability
through a reallocation of capital.
LAMCO: Thanks, John. Jeff Miller, tell us about Provident Investment
Counsel's philosophy and investment style, please.
Miller (Provident--Growth): Our growth equity investment philosophy is to
seek out companies with strong financial characteristics which are in a
period of high, sustainable earnings growth. Our rigorous and disciplined
selling criteria complements our focused, controlled fundamental research
used to identify portfolio candidates.
A "bottom-up" security selection process is used with our in-house analysts
emphasizing superior financial characteristics and earnings growth. In
assessing a company for investment, we seek exceptional profitability, market
share, return on equity, reinvestment rates, and
continued on page 10
9
<PAGE>
Manager Roundtable
continued from page 9
sales and dividend growth. Those companies having a proprietary product,
industry leadership, significant management ownership and well thought-out
management goals, plans and controls are especially attractive. Finally, the
valuation of each company is assessed relative to its industry, earnings
growth and the market in general.
Our investment decision making process begins in the Investment Policy
Committee. This meeting is attended by all portfolio managers and research
analysts. This group meets on a weekly basis to evaluate a number of key
economic and market criteria and to assess the current environment for equity
investment. Based on this evaluation, the committee determines an appropriate
equity/cash mix to be applied in our portfolios.
Our equity research is based on both internal and external sources. Ideas may
be generated by direct company contacts, prospectuses, and relative strength
computer screens for specific companies or sectors and analyst contacts. In
addition, an abundance of fundamental and technical research is received from
large Wall Street firms, regional houses and smaller boutiques. New ideas are
discussed daily on an informal basis or may be presented at the weekly
investment policy committee meeting, when stocks are formally added to or
deleted from the buy list. Our portfolio managers actively participate in
security analysis, thus keeping the two functions tightly integrated and
encouraging the flow of ideas within Provident Investment Counsel.
LAMCO: Thanks, Jeff. Now, with that background, perhaps we can turn to your
outlook for growth stocks in 1996. And, perhaps you could highlight two or
three stocks that you particularly like.
............................................
"Our growth equity investment philosophy is
to seek out companies with strong financial
characteristics which are in a period of
high, sustainable earnings growth."
Jeff Miller
Provident
............................................
Miller (Provident--Growth): Looking ahead, we remain optimistic on the
prospects for growth stocks. A slowing economic environment should result in
growth stocks achieving superior growth in earnings relative to their
cyclical counterparts. The companies in our portfolio are involved in a wide
range of industries but they all have one common ingredient. They all have
excellent growth prospects that in aggregate should show about 25 percent
earnings growth in both 1996 and 1997.
We also believe that both communication and technology are secular growth
areas which will become larger percentages of the GDP. We have retained
certain investments in these areas because of the strong prospects that
abound in the networking, client server, and the database arenas. Core
holdings include Cisco, Hewlett-Packard, Computer Associates, Oracle and
Informix. In addition to the information technology sector, the portfolio is
invested in a wide range of industries that are a result of bottom-up
stock-picking. These industries range from healthcare to specialty finance to
business services.
We have always remained focused on the earnings and revenue growth of the
entire portfolio and it continues to look extremely bright. We expect 25
percent plus portfolio earnings growth on average versus a much lower
expectation of only 5-10 percent earnings growth for the S&P 500 in 1996.
Valuation levels are still very attractive, despite the excellent price
performance this year. On average our portfolio is selling at a discount to
its growth rate when compared to the S&P 500, providing excellent
opportunities for 1996. As we have seen at many other similar times in the
past, investors are rewarded for staying with these high quality stocks as
the market rotates toward companies with consistently growing earnings and
revenues.
Recent buys include Paychex, which provides computerized payroll accounting
services, salary deposit services, automatic payroll tax payment and human
resource products and services to more than 186,000 small to medium size
businesses nationwide. The long-term appeal of Paychex is the fact that most
national job growth has, historically, been generated by smaller employers.
This is Paychex' target market and this is where it has its greatest market
share. The company has
..........................................
"...we remain optimistic on the prospects
for growth stocks...The companies in our
portfolio are involved in a wide range of
industries but they all have one common
ingredient...growth prospects that in
aggregate should show about 25 percent
earnings growth in both 1996 and 1997."
Jeff Miller
Provident
..........................................
10
<PAGE>
very consistent top-line growth, which also appears to be accelerating.
Another driver for its revenue stream is new product development. TaxPay, the
company's automatic tax filing and payment service, has now penetrated 50
percent of the company's existing client base and 70 percent of all new
customers. Its new human resource division, providing a variety of different
products, is generating 50 percent revenue growth and breaking into
profitability with lots of upside leverage. As the company continues to roll
out new products its expense leverage is very high due to the high
profitability of add-on services. This should result in improving margins and
rapidly growing earnings.
Another new purchase includes Pfizer. Pfizer, as you know, is a major
producer of pharmaceuticals, hospital products, consumer products and other
specialty health and chemical products. The company is one of the fastest
growing major drug companies with 10 percent plus volume growth driven by new
products and also with minimal generic exposure. The company has a very
strong pipeline with six drugs in phase three clinical trials and eight more
expected to reach phase three in the next six to 12 months. This has been
brought about by an aggressive R&D program for the company. The company also
has over 75 percent of its sales under patent through the year 2000, with no
patents expiring over the next three years.
This company, along with other of the major drug companies, has increased its
margins and improved its profitability through an aggressive cost cutting
program. Other broader trends include the reduction in the amount of time it
takes to develop a new drug, another benefit of Pfizer's R&D program, as well
as the announced commitment by the FDA for faster regulatory reviews of new
drugs.
.............................................
"Recent buys include Paychex, which provides
computerized payroll accounting
services...to more than 186,000 small to
medium size businesses nationwide. The
long-term appeal of Paychex is the fact that
most national job growth has, historically,
been generated by smaller employers."
Jeff Miller
Provident
.............................................
Finally, another area we are excited about is networking. One of our holdings
in this area is Cisco Systems. Cisco is a leading supplier of multi-protocol
and multi-media communications services, routers and network management
products. The company is recognized as one of the leading Internet companies.
We think this is an exciting way to play the Internet without paying the
multiples. This stock, along with others in its group, has been beaten down
in the fourth quarter, in spite of only positive fundamental news. The
industry is growing at 35-50 percent and Cisco has publicly stated that it
expects to grow at above industry rates. Its balance sheet is outstanding
with no debt and a significant amount of cash flow. The company also
generates significant free cash. The proprietary nature of Cisco's products
and services are evidenced by pretax margins and return on equity, both of
which have been over 40 percent for the past several years. We believe this
is another outstanding company and anticipate this being an exciting area
over the next several years.
LAMCO: Thank you once again, Jeff. John Lindenthal, what does Oppenheimer see
ahead for 1996?
Lindenthal (Oppenheimer--Contrarian): We think the probabilities favor modest
market gains in 1996. While the outlook for inflation remains positive,
earnings disappointments will become more prevalent after five years of
growth and expanding margins. We expect S&P 500 earnings to be flat compared
to an increase of about 15% in 1995, making stock selection even more
important. With stocks at much higher levels and earnings growth more
subdued, increased volatility is probably in store.
..............................................
"We expect S&P 500 earnings to be flat
compared to an increase of about 15% in
1995, making stock selection even more
important. With stocks at much higher levels
and earnings growth more subdued, increased
volatility is probably in store."
John Lindenthal
Oppenheimer
..............................................
However, we do not foresee the ingredients for a major bear market,
especially if inflation and short-term rates move lower as now appears
likely. Further, the environment for capital is favorable. Individuals have
responded to lower interest rates by shifting a larger portion of their total
assets to financial instruments. However, we believe the big increment to
demand for stock will come from corporations. Mergers and acquisitions soared
to $450 billion last year and we look
continued on page 12
11
<PAGE>
.............................................
"Intel has a dominant market share of the
"x86" microprocessor market for personal
computers. The near-term failure of Intel's
competitors' strategies has further improved
Intel's position."
John Lindenthal
Oppenheimer
.............................................
Manager Roundtable
continued from page 11
for a continuation of this activity into 1996. Also, many corporations
continue to buy back their own stock.
As usual, a challenging year lies ahead and the key to success will be
superior stock selection.
AFLAC is the world's largest underwriter of supplemental health insurance,
primarily in the United States and Japan. The Japanese supplemental cancer
insurance business, which bridges the gap between the health insurance
provided by the government and what would be out-of-pocket expenses for
those with cancer, enjoys 90% market share. This competitive position is
fortified by the fact that most Japanese companies offer AFLAC's products to
their employees. Twenty percent of the Japanese market is covered by cancer
insurance and the market is even less penetrated for other supplemental
health insurance products, leaving significant untapped potential in a market
with relatively high barriers to entry. The company has excellent financial
characteristics, generates high returns (22% ROE), is growing at a 12-15%
rate and is selling at a reasonable valuation.
Intel has a dominant market share of the "x86" microprocessor market for
personal computers. The near-term failure of Intel's competitors' strategies
has further improved Intel's position. Given its size, Intel has tremendous
manufacturing scale and research and development advantages. The market's
recent indiscriminate souring on all technology stocks has left this high
return growth business selling at reasonable valuation.
Arrow Electronics is the world's largest and most profitable distributor of
electronic components and computer products to industrial and commercial
customers. Arrow has capitalized on the faster growing international markets
where it has expanded its presence. Management focus has enabled Arrow to
both grow the business and generate high returns on invested capital. The
recent sell-off in the stock has allowed us to purchase more shares at a very
compelling price.
LAMCO: Thank you very much, John. Bob Anthony, may we ask you to wrap up the
conversation with MVA's thoughts about 1996?
Anthony (Mississippi Valley Advisors--Growth): Nineteen ninety-five was truly
a spectacular year for investors as low inflation, lower interest rates and
strong corporate profits sent stock and bond prices soaring...
not a bad year considering most market forecasters were extremely cautious
coming out of a disappointing 1994.
As we look ahead into 1996, there are, as usual, cross currents weighing on
the minds of investors. The economy is slowing as higher consumer debt is
having an impact on big-ticket items such as autos and appliances as well as
general retail spending. We expect to see weaker industrial production,
housing starts and durable goods orders. Consequently, corporate profits in
1996 will increase less than in 1995. On the positive side, lower inflation
may allow the Federal Reserve to cut rates to help a slowing economy. In
addition, various foreign countries may join the U.S. in cutting rates to
stimulate growth. This should help U.S. exports.
.............................................
"On the positive side, lower inflation may
allow the Federal Reserve to cut rates to
help a slowing economy. In addition, various
foreign countries may join the U.S. in
cutting rates to stimulate growth. This
should help U.S. exports."
Bob Anthony
Mississippi Valley Advisors
.............................................
In 1995, particularly in the second half of the year, the market was very
much dominated by momentum-led gains in technology, financial services and
healthcare stocks. With a few cracks in the armor starting to appear in these
industries, such as credit quality concerns in the financial services sector
as well as slower personal computer growth in technology, stock selection
across a wider range of industries will be crucial in 1996. On balance, the
stock market looks fairly priced to us, with a price/ earnings ratio on
projected 1996 earnings of roughly 16 times.
However, within the stock market is a market of stocks consisting of two
groups; one is momentum-led high growth, high price/earnings securities and,
two, out of favor stocks selling at very reasonable historic valuations. We
are optimistic that our research staff of senior analysts (each of whom is a
12
<PAGE>
sector specialist) will find the most attractive stocks within the various
industries. With the economy in a slowdown, our bias is towards stocks of
companies with highly predictable earnings growth prospects in a broadly
diversified portfolio.
Among the stocks we like is Advanta Corporation, a financial services company
whose businesses include credit card lending (75 percent of earnings) and
mortgage-related products. With $12 billion in managed credit card
receivables, the company is a small player in the growing credit card market
place. As credit cards continue to replace cash and checks as a payment
vehicle, and as usage continues to increase, credit card companies should
continue to benefit from growing revolving balances and higher volume.
Margins should improve going forward as balances reprice upward from teaser
rates, and higher revenues should more than offset the expected deterioration
in delinquencies and charge-offs, which have been unsustainably low for the
past year. Advanta's focus should enable it to continue to gain share at the
expense of banks and department stores, and earnings are expected to grow in
excess of 15% for the next few years. We believe a target multiple of 12-13
times 1996 earnings is reasonable, which would result in a share price of
$48-$52. (MVA purchased Advanta at $36-3/8.)
Arch Communications is a leading paging service provider. Arch has more than
quadrupled operating cash flow the past five years through strategic
acquisitions, and through internal compound annual growth of over 70 percent.
Every acquisition has been additive to cash flow. The company is upgrading
its network to provide two-way paging. Arch's two most recent acquisitions,
both strategic geographic expansions, launched the company into the ranks of
nationwide carriers. Acquisitions should continue, but major strategic moves
are not expected over the next year or two. Internal growth will continue to
be driven by attractive pricing, an extensive distribution network and
enhanced services through technological improvements. Arch is projected to
grow in excess of 35 percent over the next several years. Investors' concern
over a recent deceleration of cellular subscriber growth, which has no
apparent fundamental link to paging growth, has resulted in a very attractive
valuation for Arch. With the stock trading at a sharp discount to its growth
rate and peer group, it offers long term attraction.
.............................................
"Arch Communications is a leading paging
service provider. Arch has more than
quadrupled operating cash flow the past five
years through strategic acquisitions, and
through internal compound annual growth of
over 70 percent."
Bob Anthony
Mississippi Valley Advisors
.............................................
R. P. Scherer is a leading provider of value-added drug delivery systems for
resale to drug and nutritional manufacturers. Drug delivery systems offer
improved drug effectiveness and safety by controlling the rate, time and
place of drug release in the body. The company's current source of revenue
and earnings comes largely from its near 70 percent worldwide leading market
share softgel business. Softgel is a gelatin capsule which contains water
soluble liquids, oil soluble liquids, pastes, solids in suspension or
solutions. Through its softgel business, the company has developed
relationships throughout the world with the major pharmaceutical and
nutritional companies. Being able to leverage these relationships with its
developing base of proprietary drug delivery technologies is expected to
sustain significant growth going forward. Selling at a price/earnings well
below its historic growth rate, the stock is attractive longer term.
13
<PAGE>
Schedule of
Investments
As of
December 31, 1995
Common Stocks (55.0%) Shares Market Value
----------
Aerospace (1.1%)
The Boeing Co. 4,000 $ 313,500
McDonnell-Douglas Corp. 10,000 920,000
----------
1,233,500
----------
Auto Parts (0.4%)
Eaton Corp. 3,000 160,875
Genuine Parts Co. 8,000 328,000
----------
488,875
----------
Banks (1.5%)
Citicorp 12,000 807,000
Mellon Bank Corp. 8,500 456,875
State Street Boston Corp. 9,000 405,000
Wachovia Corp. 3,700 169,275
----------
1,838,150
----------
Broadcasting & Cable (1.0%)
Cabletron Systems, Inc. (a) 10,000 810,000
Capital Cities/ABC, Inc. 3,000 370,125
----------
1,180,125
----------
Business Services (1.5%)
The Dun & Bradstreet Corp. 6,200 401,450
First Data Corp. 20,185 1,349,872
----------
1,751,322
----------
Chemicals (1.8%)
Hercules, Inc. 20,000 1,127,500
The Lubrizol Corp. 7,000 195,125
Monsanto Co. 4,000 490,000
Sherwin-Williams Co. 9,000 366,750
----------
2,179,375
----------
Computers & Business Equipment (9.8%)
Applied Materials, Inc. (a) 15,000 590,625
Automatic Data Processing, Inc. 12,000 891,000
Ceridian Corp. (a) 5,000 206,250
Cisco Systems, Inc. (a) 10,000 746,250
Computer Associates International, Inc. 20,000 1,137,500
Computer Sciences Corp. (a) 10,000 702,500
Hewlett-Packard Co. 15,000 1,256,250
Informix Corp. (a) 3,100 93,000
Intel Corp. 40,000 2,270,000
LSI Logic Corp. (a) 10,000 327,500
Microsoft Corp. (a) 15,000 1,316,250
Oracle Systems Corp. (a) 30,000 1,271,250
Pitney Bowes, Inc. 4,000 188,000
3Com Corp. (a) 15,000 699,375
-----------
11,695,750
-----------
See Notes to Schedule of Investments
14
<PAGE>
Common Stocks (continued) Shares Market Value
-----------
Consumer Products (0.6%)
Unilever N.V. ADR 5,000 $ 703,750
-----------
Cosmetics & Toiletries (0.9%)
Avon Products, Inc. 3,900 293,963
The Gillette Co. 15,000 781,875
-----------
1,075,838
-----------
Diversified (2.0%)
American Standard Companies, Inc. (a) 10,000 280,000
Coltec Industries, Inc. (a) 50,000 581,250
Cooper Industries, Inc. 6,400 235,200
Corning, Inc. 10,800 345,600
General Electric Co. 10,000 720,000
Whitman Corp. 11,000 255,750
-----------
2,417,800
-----------
Drugs & Health Care (7.2%)
Amgen, Inc. (a) 9,000 534,375
Bristol-Myers Squibb Co. 10,500 901,688
Cardinal Health, Inc. 2,000 109,500
Healthsouth Corp. (a) 14,000 407,750
Medtronic, Inc. 20,000 1,117,750
Merck & Co., Inc. 17,000 1,117,500
Pfizer, Inc. 16,000 1,008,000
Schering Plough Corp. 14,000 766,500
St. Jude Medical, Inc. (a) 35,250 1,515,750
United Healthcare Corp. 17,200 1,126,600
----------
8,605,413
----------
Electronics & Electrical Equipment (3.5%)
Analog Devices, Inc. (a) 5,000 176,875
Arrow Electronics, Inc. (a) 20,000 862,500
Glenayre Technologies, Inc. (a) 4,000 249,000
Motorola, Inc. 15,000 855,000
Nokia Corp. ADR 37,000 1,438,375
Raytheon Co. 8,000 378,000
Tyco International Ltd. 3,000 106,875
W.W. Grainger, Inc. 2,000 132,500
----------
4,199,125
----------
Financial Services (6.1%)
Countrywide Credit Industries, Inc. 40,000 870,000
CUC International, Inc. (a) 12,000 409,500
Federal Home Loan Mortgage Corp. 15,000 1,252,500
Federal National Mortgage Association 10,000 1,241,250
First USA, Inc. 10,000 443,750
MBNA Corp. 20,000 737,500
Morgan Stanley Group, Inc. 10,000 806,250
Paychex, Inc. 5,000 249,375
Travelers Group, Inc. 20,000 1,257,500
----------
7,267,625
----------
See Notes to Schedule of Investments
15
<PAGE>
Common Stocks (continued) Shares Market Value
----------
Food & Beverage (1.1%)
Dole Food, Inc. 10,000 $ 350,000
Hershey Foods Corp. 8,000 520,000
McCormick & Co., Inc. 7,500 180,938
Nabisco Holding Corp. 8,500 277,313
----------
1,328,251
----------
Hotels & Leisure (0.9%)
Hasbro, Inc. 7,000 217,000
HFS, Inc. (a) 10,000 817,500
---------
1,034,500
---------
Household Products (0.7%)
The Clorox Company 7,500 537,188
Premark International, Inc. 6,000 303,750
---------
840,938
---------
Industrial Equipment (0.3%)
Dover Corp. 10,400 383,500
---------
Insurance (4.1%)
AFLAC, Inc. 25,000 1,084,375
American International Group, Inc. 10,000 925,000
EXEL Limited 15,000 915,000
Marsh & McLennan Companies, Inc. 4,700 417,125
MBIA, Inc. 3,400 255,000
MGIC Investment Corp. 10,000 542,500
PMI Group 1,000 45,250
Progressive Corp. 14,000 684,250
---------
4,868,500
---------
Metals & Mining (0.6%)
Freeport-McMoRan Copper & Gold, Inc. Class A 20,000 562,500
Freeport-McMoRan, Inc. 5,000 185,000
---------
747,500
---------
Oil & Gas (3.2%)
Burlington Resources, Inc. 6,000 235,500
Enron Corp. 18,500 705,313
Exxon Corp. 5,200 416,650
Royal Dutch Petroleum Co. ADR 6,100 860,863
Tenneco, Inc. 10,000 496,250
Triton Energy Corp. (a) 10,000 573,750
Union Texas Petroleum Holdings, Inc. 30,000 581,250
---------
3,869,576
---------
Paper (1.6%)
Alco Standard Corp. 10,000 456,250
Avery Dennison Corp. 5,000 250,625
Champion International Corp. 20,000 840,000
Union Camp Corp. 7,200 342,900
---------
1,889,775
---------
See Notes to Schedule of Investments.
16
<PAGE>
Common Stocks (continued) Shares Market Value
-----------
Publishing (1.4%)
American Greetings Corp. 11,000 $ 303,875
McGraw Hill, Inc. 2,000 174,250
R.R. Donnelly & Sons Co. 20,000 787,500
Readers Digest Association, Inc. Class A 7,500 384,375
-----------
1,650,000
-----------
Real Estate (0.0%)
Castle & Cooke 3,333 55,829
-----------
Retail Trade (0.8%)
AutoZone, Inc. (a) 20,000 577,500
May Department Stores Co. 8,000 338,000
-----------
915,500
-----------
Rubber & Plastics (0.1%)
Cooper Tire and Rubber Co. 5,000 123,125
-----------
Services (0.3%)
Service Corp. International 8,000 352,000
-----------
Telecommunications (1.9%)
Andrew Corp. (a) 2,500 95,625
Ericsson (L.M.) Telephone Co. Class B ADR 40,000 780,000
SBC Communications, Inc. 5,400 310,500
Sprint Corp. 10,000 398,750
U.S. Robotics Corp. (a) 8,000 702,000
-----------
2,286,875
-----------
Transportation (0.6%)
AMR Corp. (a) 10,000 742,500
-----------
Total Common Stocks (Cost $57,321,602) 65,725,017
-----------
Warrants (0.0%)
- ------------------------------------------------------------------------------
Retail Trade
Sound Advice, Inc. (Cost $234) 141
-------
Interest Maturity Par
Short-term Investments (49.4%) Rate Date Value
- -----------------------------------------------------------------
U.S. Governmment
Securities (47.2%)
U.S. Treasury Bill 5.360% 01/11/96 $4,000,000 3,994,044
U.S. Treasury Bill 5.180 01/18/96 3,500,000 3,491,439
U.S. Treasury Bill 5.400 01/25/96 17,500,000 17,427,471
U.S. Treasury Note 7.500 01/31/96 400,000 400,768
U.S. Treasury Bill 5.429 02/22/96 6,000,000 5,953,855
U.S. Treasury Bill 5.300 03/07/96 3,962,680 3,962,680
U.S. Treasury Bill 5.210 03/21/96 7,414,950 7,414,950
See Notes to Schedule of Investments.
17
<PAGE>
Short-term Investments (continued) Market Value
- -------------------------------------------------------------------------------
U.S. Governmment Interest Maturity Par
Securities (cont.) Rate Date Value
- ------------------------------------------------------------------
U.S. Treasury Bill 5.370 04/04/96 $5,426,960 $5,426,960
U.S. Treasury Bill 5.310 04/11/96 3,943,040 3,943,040
U.S. Treasury Bill 5.340 04/18/96 4,429,530 4,429,530
----------
Total U.S. Government Securities 56,444,737
----------
Repurchase Agreements (2.2%)
State Street Bank & Trust Co. dated 12/29/95, 5.00%, to be
repurchased at $2,691,494 on 01/02/96, collateralized by
$1,890,000 U.S. Treasury Bonds at 9.875%, due 11/15/15,
with a current market value of $2,751,708 2,690,000
------------
Total Short-term Investments (Cost $58,730,299) 59,134,737
------------
Total Investments (104.4%) (Cost $116,052,135)(b) 124,859,895
------------
Other Assets and Liabilities, Net (-4.4%) (5,285,071)
------------
Net Assets (100.0%) $119,574,824
============
Net Asset Value Per Share (11,339,096 shares outstanding) $10.55
============
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The cost of investments for Federal
income tax purposes is $116,058,861.
Gross unrealized appreciation and
depreciation of investments at
December 31, 1995 is as follows:
Gross unrealized appreciation $ 10,106,779
Gross unrealized depreciation (1,305,745)
--------------
Net unrealized appreciation $ 8,801,034
==============
Acronym Name
- ------- -----------------------------
ADR American Depository Receipt
See Notes to Financial Statements.
18
<PAGE>
Statement
of Assets and
Liabilities
December 31, 1995
- --------------------------------------------------------------------------------
Assets:
Investment at market value
(Identified cost $116,052,135) $124,859,895
Cash 1,604
Receivable for investments sold 1,778,672
Dividends and interest receivable 65,514
Other assets 20,994
------------
Total assets 126,726,679
------------
Liabilities:
Distributions payable 6,803,458
Management fees payable 161,770
Administrative fee payable 77,994
Accrued expenses 108,633
------------
Total liabilities 7,151,855
------------
Net assets $119,574,824
============
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 21,687
Accumulated net realized gains on investments
less distributions 4,667,428
Net unrealized appreciation of investments 8,807,760
------------
Total net assets applicable to outstanding shares
of beneficial interest ($10.55 per share) $119,574,824
============
See Notes to Financial Statements.
19
<PAGE>
Statement of
Operations
For the year ended
December 31, 1995
Investment income:
Dividends $ 4,500,798
Interest 676,223
------------
Total investment income 5,177,021
Expenses:
Management fees $ 903,208
Administrative fee 301,070
Custodian fees 117,647
Transfer agent fees 52,312
Proxy and shareholder communication expense 72,682
Printing expense 42,001
Legal and audit fees 81,632
Insurance expense 43,833
Directors' fees and expense 65,247
Miscellaneous expense 32,516
-----------
Total expense 1,712,148
------------
Net investment income 3,464,873
Realized and unrealized gains on investments:
Net realized gains on investments transactions:
Proceeds from sales 35,351,840
Cost of investments sold 25,616,807
-----------
Net realized gains on
investment transactions 9,735,033
Net unrealized appreciation of investments:
Beginning of year 6,676,136
End of year 8,807,760
-----------
Change in unrealized appreciation-net 2,131,624
------------
Net increase in net assets
resulting from operations $15,331,530
============
See Notes to Financial Statements.
20
<PAGE>
Statement of
Changes in
Net Assets
Year ended December 31,
-----------------------------
1995 1994
- ------------------------------------------------------------------------------
Operations:
Net investment income $ 3,464,873 $ 2,583,199
Net realized gains on
investment transactions 9,735,033 3,981,260
Change in unrealized appreciation-net 2,131,624 (7,199,247)
------------- -------------
Net increase (decrease)
in net assets resulting
from operations 15,331,530 (634,788)
------------- -------------
Distributions declared from:
Net investment income (3,491,283) (2,575,989)
Net realized gains on
investments (5,098,057) (3,989,019)
------------- -------------
Total distributions (8,589,340) (6,565,008)
------------- -------------
Capital transactions:
Cost of repurchase of shares -- (4,984,843)
------------- -------------
Total increase (decrease)
in net assets 6,742,190 (12,184,639)
Net Assets:
Beginning of year 112,832,634 125,017,273
------------- -------------
End of Year (including
undistributed net investment
income of $21,687 and
$48,097, respectively) $ 119,574,824 $ 112,832,634
============= =============
See Notes to Financial Statements.
21
<PAGE>
Financial
Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year $ 9.95 $ 10.54 $ 10.28 $ 10.40 $ 9.90
Income from Investment Operations:
Net investment income 0.31 0.23 0.18 0.29 0.44
Net realized and unrealized
gains (losses) on securities 1.05 (0.24) 0.56 0.03 0.71
------- ------ ------- ------- -------
Total from Investment Operations 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 year $ 10.55 $ 9.95 $ 10.54 $ 10.28 $ 10.40
======= ====== ======= ======== ========
Per share market value at end of year $ 9.375 $ 8.500 $10.250 $10.000 $10.000
======= ====== ======= ======== ========
Total Investment Return for Shareholders: (a)
Based on net asset value 13.8% (1.1%) 7.2% 3.1% 11.8%
Based on market price 19.3% (11.6%) 7.2% 4.4% 3.9%
Ratios and Supplemental Data
Net assets at end of year (millions) $120 $113 $125 $123 $125
Ratio of expenses to average net assets 1.42% 1.51% 1.35% 1.33% 1.31%
Ratio of net investment income to
average net assets 2.87% 2.12% 1.71% 2.80% 4.17%
Portfolio turnover rate 82% 50% 47% 19% 25%
</TABLE>
(a) Calculated assuming all distributions reinvested.
See Notes to Financial Statements.
22
<PAGE>
LIBERTY ALL*STAR GROWTH FUND, INC.
Notes to
Financial
Statements
December 31, 1995
Note 1. Organization and
Accounting Policies
Liberty ALL-STAR Growth Fund, Inc. (ALL-STAR Growth or the Fund), 00-rm-erly The
Charles Allmon Trust, Inc.) 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. ALLSTAR 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 wholly-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. Shortterm
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 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
On May 27,1994, ALL-STAR Growth entered into a new Investment Advisory Agreement
with Growth Stock Outlook, Inc. (GSO), a Fund Management Agreement with the
Manager and separate Portfolio Management Agreements with the Manager and each
of the three independent Portfolio Managers. Under these agreements, from June
1, 1994 to November 6, 1995, the Manager provided administrative services to
ALL-STAR Growth and multi-management services for approximately 20% of the
assets, and GSO continued to provide investment advisory services for the
remaining 80% of the assets. The combined fee rates paid under the May 27, 1 994
agreements with the Manager and GSO were equal to the fee rates paid currently.
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. 1 875%, 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
$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 year ended December 31, 1995 were $48,226,892 and
$35,351,840, of which none and $2,589,789, 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.
23
<PAGE>
LIBERTY ALL[star]STAR GROWTH FUND, INC.
Independent
Auditors'
Report
[KPMG logo] KPMG Peat Marwick LLP
The Board of Trustees and Shareholders
Liberty ALL-STAR Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Liberty
ALL-STAR Growth Fund, Inc. (formerly the Charles Allmon Trust, Inc.) (the Fund)
including the schedule of investments, as of December 31, 1995, and the related
statement of operations for the year then ended, statements of changes in net
assets for each of the years in the two-year period then ended, and financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights share the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers. 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 audits provide 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
Liberty ALL-STAR Growth Fund, Inc. as of December 31, 1995, and the results of
its operations for the year then ended, changes in its net assets for each of
the years in the two-year period then ended, and financial highlights for each
of the years in the five-year period then ended, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
February 16, 1996
24
<PAGE>
Notice of Amendment
to Automatic Dividend
Reinvestment and
Cash Purchase Plan
All Liberty ALL-STAR Growth Fund, Inc. shareholders participating in the
Fund's Automatic Dividend Reinvestment and Cash Purchase Plan (the "Plan")
receive their income dividends and capital gain distributions in additional
shares of the Fund rather than in cash. Under the current terms of the Plan,
if the market price of the Fund's shares is less than their net asset value,
the Fund pays the dividend or distribution in cash, and the Plan agent uses
the cash to purchase shares in the open market for the account of the
participants in the Plan. Dividends and distributions may be paid in newly
issued shares only if the market price of the Fund's shares equals or exceeds
their net asset value.
The Board of Directors of the Fund intends to consider declaring future
distributions of net realized capital gains payable in newly issued shares
valued at the lower of market price or net asset value (but not at a discount
of more than 5% from market price), regardless of whether the shares are
trading at a discount from net asset value. If the Fund's shares continue to
trade at a discount from net asset value, the payment of capital gains
distributions in newly issued shares valued at their market price would
result in some dilution in net asset value to non-participants in the Plan
who receive the distribution in cash. However, to the extent the distribution
is paid in shares, the necessity for the Fund's Portfolio Managers to
liquidate portfolio holdings at possibly inopportune times to raise cash for
capital gain distributions will be reduced, and a decrease in the Fund's
total assets, with the attendant loss of economies of scale and increase in
the Fund's expense ratio, will be avoided. In declaring any capital gain
distribution payable in newly issued shares, the Board would take into
consideration the extent to which these and any additional benefits to the
Fund and its shareholders may offset the dilution that would be experienced
by shareholders who receive the distribution in cash.
The Board of Directors of the Fund has amended the Plan effective June 30,
1996 so as to permit the payment of distributions in newly issued shares at
times when the Fund's shares are trading at a discount from their net asset
value, in the event that the Board determines to do so as described above.
The Board has also amended the Plan to eliminate the requirement that
nonparticipants in the Plan receive their distributions in cash in order to
permit nonparticipants who do not specifically elect to receive such
distributions in cash to receive capital gain distributions in newly issued
shares. A copy of the terms and conditions of the Plan as so amended is
attached.
The Board of Directors currently intends to declare all dividends of net
investment income payable in cash when the shares of the Fund are trading at
a discount from their net asset value. Participants in the Plan will
continue, as at present, to have such cash dividends reinvested for them in
open market purchases by the Plan agent. Net investment income dividends
would be declared payable in newly issued shares valued at market price only
if the shares of the Fund were trading at a price equal to or above their net
asset value.
If you have questions about the foregoing, please call Investor Assistance at
1-800-LIB-FUND (1-800-542-3863).
February, 1996
25
<PAGE>
Terms and Conditions of
Automatic Dividend Reinvestment
and Cash Purchase Plan
(as amended effective June 30, 1996)
1. Each common shareholder of record holding shares of common stock, par
value $.10 per share ("Shares"), in Liberty ALL-STAR Growth Fund, Inc. (the
"Fund") will automatically be a participant in the Automatic Dividend
Reinvestment and Cash Purchase Plan (the "Plan") unless the shareholder
specifically elects otherwise. All dividends and other distributions of the
Fund will be automatically reinvested by State Street Bank and Trust Company
("State Street") as Plan agent, in whole and/or fractional Shares, as the
case may be, for the accounts of Plan participants, as hereinafter provided.
2. Whenever the Fund declares a distribution or an income dividend payable in
Shares or cash at the option of the shareholders, each participant in the
Plan hereby elects to take such distribution or dividend entirely in Shares,
and State Street shall automatically receive such shares, including
fractions, for his or her account. The number of additional Shares to be
credited to the account of each participant in the Plan shall be determined
by dividing the dollar amount of the distribution or income dividend payable
on his or her Shares by the lower of (i) the market price per Share on the
valuation date, or (ii) the net asset value per Share on the valuation date.
Shares issued by the Fund will not be issued at a discount of more than 5%
from the then current market value of the Shares. The valuation date will be
the payable date for such distribution or such prior date as may be
determined by the Board of Directors of the Fund.
3. In the event that the Fund declares a distribution or an income dividend
payable only in cash, State Street shall apply the amount of such
distribution or dividend payable on the Shares of each participant in the
Plan (less his or her pro rata share of brokerage commissions incurred with
respect to State Street's open-market purchases in connection with the
reinvestment of such dividend or distribution) to the purchase on the open
market of Shares for his or her account. Such purchases will be made on or
shortly after the payment date for such distribution or dividend, and in no
event more than 30 days after such date except where temporary curtailment or
suspension of purchases is necessary to comply with applicable provisions of
federal securities law.
In the event that, prior to State Street's completion of all such purchases
necessary in connection with such distribution or dividend, the market price
of a Share equals or exceeds its net asset value, then State Street may cease
purchasing Shares and the Fund will issue the remaining Shares necessary for
the payment of such distribution or dividend at their net asset value per
share, but not at a discount of more than 5% from the then current market
value of the Shares.
In a case where, in accordance with the preceding paragraph, State Street has
terminated open-market purchases and the Fund has issued the remaining
Shares, the number of Shares received by the participants in respect of such
distribution or dividend will be based on the weighted average of prices paid
for Shares purchased in the open market and the price at which the Fund
issued the remaining Shares.
4. For purposes of the Plan (a) the market price of Shares on a particular
date shall be the last sale price on the New York Stock Exchange (the
"Exchange") at the close of the trading day on that date or, if there is no
sale on the Exchange on that date, then the mean between the closing bid and
asked quotations for Shares on the Exchange on such date, and (b) the net
asset value per Share on a particular date shall be as determined by or on
behalf of the Fund in the manner described in the Fund's Registration
Statement on Form N-2.
5. The open-market purchases provided for above may be made on any securities
exchange where the Shares are traded, in the over-the-counter market or in
negotiated transactions, and may be on such terms as to price, delivery and
otherwise as State Street shall determine.
6. The entire amount of a participant's dividend or other distribution will
be reinvested by State Street in Shares as provided above. For any balance
that is insufficient to purchase a whole Share, State Street will credit a
participant's account with a fractional Share interest computed to three
decimal places. The fractional Share interest is included in all subsequent
distributions, and a participant has voting rights on full and fractional
Shares acquired under the Plan. However, if a participant's Shares are held
by a broker, bank or nominee, any amount not sufficient to purchase a whole
share may be credited to a participant's account in lieu of the fractional
Share interest.
7. State Street will maintain all shareholder accounts in the Plan and
furnish written confirmations of all transactions in the accounts, including
information needed by shareholders for personal and tax records. Shares in
the account of each Plan participant will be held by State Street in
noncertificated form in the name of the participant and each shareholder's
proxy will include those Shares purchased pursuant to the Plan.
8. In the case of shareholders such as banks, brokers or nominees that hold
Shares for others who are beneficial owners, State Street will administer the
Plan on the basis of the number of Shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are to participate in
the Plan.
9. A participant will be issued a stock certificate for transactions in the
Plan only upon written request
26
<PAGE>
by the participant for each transaction. Certificates will be issued only for
whole Shares.
10. Participants in the Plan have the option of making additional cash
payments on a monthly basis for investment in Shares. These payments can be
made in any amount from $100 to $3,000. State Street will use all funds
received to purchase Shares in the open market on or about the 15th day of
each calendar month, and in no event no more than 45 days after such date
except where temporary curtailment or suspension of purchases is necessary to
comply with applicable provisions of Federal securities laws.
11. Registered shareholders should send voluntary cash payments to State
Street in a manner than ensures that State Street will receive these payments
approximately 10 days before the next investment date. For shareholders whose
Share are held by an institution, the shareholder must send the voluntary
cash payment to the institution (bank, broker or nominee), which (as the
registered shareholder) will forward the payment to State Street. A
participant may withdraw a voluntary cash payment by written notice if the
notice is received by State Street at least 48 hours before the payment is to
be invested.
12. State Street's fee for handling the reinvestment of dividends and
distributions will be paid by the Fund. State Street will charge a $1.25
service fee for each voluntary cash investment. There will be no brokerage
charge to shareholders for Shares issued directly by the Fund as a result of
dividends or distributions payable either in stock or cash. Each participant,
however, will pay a pro rata share of brokerage commissions incurred with
respect to State Street's open-market purchases in connection with the
reinvestment of dividends or distributions as well as from voluntary cash
payments.
13. A shareholder may terminate her or his account under the Plan by
notifying State Street in writing. Such termination will be effective
immediately if notice is received by State Street not less than 10 days prior
to any dividend or distribution record date; otherwise such termination will
be effective, with respect to any subsequent dividend or distributions, on
the first trading day after the dividend paid for such record date has been
credited to the shareholder's account. The Plan may be terminated by State
Street or the Fund upon notice in writing mailed to the shareholder at least
90 days prior to any record date for the payment of any dividend or
distribution by the Fund. Upon any termination State Street will cause a
certificate for the number of full Shares held in the shareholder's Plan
account and a check in payment for any fractional Share interest to be
delivered to her or him. The payment for the fractional share interest will
be valued at the closing price of Shares on the date the discontinuance is
effective.
If a shareholder elects by notice to State Street in writing in advance of a
termination of the shareholder's account under the Plan to have State Street
sell her or his noncertificated Shares credited to the shareholder's account
and remit the proceeds to her or him, State Street is authorized to deduct
from the proceeds $2.50 per transaction plus the brokerage commissions
incurred in connection with such sale.
Terminations in which the shareholder has requested that State Street sell
her or his noncertificated Shares will occur on the first trading day of the
week immediately following receipt of written notification by State Street. A
shareholder may withdraw her or his request to so terminate her or his
account by written notice if the notice is received by State Street at least
48 hours before the account is to be terminated.
14. These terms and conditions may be amended or supplemented by State Street
or the Fund at any time or times but, except when necessary or appropriate to
comply with applicable law or the rules or policies of the Securities and
Exchange Commission or any other regulatory authority, only by mailing to the
shareholder appropriate written notice at least 90 days prior to the
effective date thereof. The amendment or supplement shall be deemed to be
accepted by the shareholder unless, prior to the effective date thereof,
State Street receives written notice of the termination of the shareholder
account under the Plan. Subject to approval of the Fund's Board of Directors,
any such amendment may include an appointment of a successor agent under
these terms and conditions, with full power and authority to perform all or
any of the acts to be performed by State Street under these terms and
conditions.
27
<PAGE>
LIBERTY ALL*STAR GROWTH FUND, INC.
Tax
Information
(unaudited)
All 1995 distributions whether received in cash or shares of ALL-STAR Growth
consist of the following: (1) ordinary dividend income and (2) long-term capital
gains distributions.
Below is a table which details the portion of each 1995 distribution for Federal
income tax purposes.
For Corporate Shareholders
16% of the income dividends qualify for the 70% dividend received deduction
available for corporations for the year ended December 31, 1 995.
TAX STATUS OF 1995 DISTRIBUTIONS
ORDINARY INCOME
Net Short-term Long-term
Date Amount Investment Capital Capital
Paid Per Share Income Gains Gains
06/23/95 $0.1575 97.08% -- 2.92%
01/05/96 0.60 25.83 2.12% 72.05
28
<PAGE>
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<PAGE>
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
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*
Richard R. Christensen
James E. Grinnell*
Richard W. Lowry*
Officers
Richard R. Christensen, Chairman and Chief
Executive Officer
William R. Parmentier, Jr., President
Peter L. Lydecker, Treasurer and Controller
John L. Davenport, Secretary
*Member of the audit committee.
[Liberty 'Statue of Liberty' logo]
Printed with Soybean Inks
[Recycle symbol] Pritned on Recycled Paper D/75m/2-11
