GROWTH
LARGE CAP SMALL CAP
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[LOGO] LIBERTY
ALL*STAR
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GROWTH FUND
ANNUAL REPORT 1996
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[LOGO] LIBERTY
ALL*STAR
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GROWTH FUND
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First Anniversary 1995-1996
ONE OF THE MOST THOROUGH, SOPHISTICATED, DELIBERATE FORMS OF INVESTMENT
MANAGEMENT IS THAT PROVIDED ON BEHALF OF MAJOR INSTITUTIONS, INCLUDING LARGE
CORPORATE PENSION PLANS, MAJOR FOUNDATIONS AND UNIVERSITY ENDOWMENT FUNDS.
ALTOGETHER, THEIR ASSETS EXCEED $5 TRILLION IN THE UNITED STATES ALONE.
BUT, WHY SHOULD THE BENEFITS OF INSTITUTIONAL-LIKE INVESTING BE RESERVED FOR
INSTITUTIONS?
IN LATE 1995, LIBERTY ASSET MANAGEMENT COMPANY ("LAMCO") ASSUMED FULL MANAGEMENT
RESPONSIBILITY FOR LIBERTY ALL-STAR GROWTH FUND, INC. (THE "FUND"), FORMERLY THE
CHARLES ALLMON TRUST, INC., AND RESTRUCTURED IT TO BRING THE BENEFITS OF
INSTITUTIONAL-LIKE INVESTING TO YOU, THE INDIVIDUAL INVESTOR.
GENERALLY SPEAKING, THE INSTITUTIONAL INVESTING PROCESS IS CHARACTERIZED BY THE
STRATEGIC ALLOCATION OF ASSETS TO MULTIPLE MANAGERS WHO PRACTICE DIFFERENT
INVESTING STYLES. CAREFULLY SELECTED TO MEET SPECIFIC INVESTMENT OBJECTIVES, THE
MANAGERS ARE RIGOROUSLY MONITORED. SHOULD THEY FAIL TO MEET THE PERFORMANCE
OBJECTIVES SET OUT FOR THEM, THEY ARE REPLACED BY THOSE WHO CAN.
LIBERTY ASSET MANAGEMENT COMPANY HAS ADAPTED THIS PROCESS TO DEVELOP A SPECIFIC
INVESTMENT PROGRAM FOR THE FUND. A MORE DETAILED DESCRIPTION OF THIS PROGRAM IS
CONTAINED ON PAGES 4 THROUGH 7.
IF THERE'S ONE THING THIS TYPE OF INVESTING CAN BE COUNTED ON TO DELIVER, IT'S
CONSISTENT RESULTS. AND OUR GOALS FOR THE FUND ARE BETTER-THAN-AVERAGE LONG-TERM
RETURNS AND BETTER-THAN-AVERAGE CONSISTENCY, COMPARED WITH OTHER MAJOR GROWTH
FUNDS.
ON THIS FIRST ANNIVERSARY OF THE FUND UNDER OUR MANAGEMENT, WE RENEW OUR
COMMITMENT TO BRING TO THE FUND THE BEST APPLICABLE INSTITUTIONAL INVESTMENT
MANAGEMENT PRACTICES AS THEY CONTINUE TO EVOLVE.
LIBERTY ASSET MANAGEMENT COMPANY
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LIBERTY ALL*STAR GROWTH FUND
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1996 Annual Report Chairman's Letter
To Our Fellow Shareholders: February 1997
The net asset value (NAV) of a common share of the Fund declined from
$11.90 on September 30, 1996, to $11.27 on December 31, 1996, after deducting
the year-end distribution of $1.02 paid to shareholders during the quarter. The
market price of a share of the Fund traded in a range from $9.125 to $10.50
before closing the quarter at $9.25. The ending price represented a discount to
NAV of 17.9 percent, compared with a discount to NAV of 18.1 percent on
September 30, 1996. Key investment results and comparisons are noted below.
[GRAPHIC OMITTED]
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Fourth Quarter Full Year
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LIBERTY ALL-STAR GROWTH FUND, INC.
Shares Valued at Net Asset Value 4.2% 17.6%
Shares Valued at Net Asset Value
With Dividends Reinvested 4.9% 18.3%
Shares Valued at Market Price
With Dividends Reinvested 5.1% 9.3%
Fund's Closing Price Range $10.50 to $9.125 $10.50 to $8.50
Fund's Discount Range 19.5% to 15.8% 19.9% to 8.0%
Lipper Growth Mutual Fund Average 5.2% 19.1%
S&P 500 Stock Index 8.3% 23.0%
Dow Jones Industrial Average 10.2% 28.7%
Nasdaq Composite Index 5.2% 22.7%
Figures shown for the Fund and the Lipper Growth Mutual Fund Average are total
returns, which include income, after deduction of fees and other operating
expenses. Figures shown for the unmanaged S&P 500 and Dow Jones indices are
total returns including income. Figures for the unmanaged Nasdaq Index are total
returns excluding income.
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LIBERTY ALL*STAR GROWTH FUND
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1996 Annual Report Chairman's Letter
The stock market, as measured by the S&P 500 Stock Index, continued its
advance for the eighth quarter in a row, a string that has not been matched
since the market increased 11 consecutive quarters between the third quarter of
1962 and the first quarter of 1965. As the table on the previous page shows, the
Fund's net asset value with dividends reinvested was up 4.9 percent in the
quarter, which compares with 5.2 percent for the Lipper Growth Mutual Fund
Average (the Fund's primary benchmark comparison). For the full year 1996, the
Fund's net asset value with dividends reinvested was up 18.3 percent compared
with 19.1 percent for the Lipper Average.
Due to the transition in management from Growth Stock Outlook, Inc. to
Liberty Asset Management Company late in 1995, the Fund began 1996 only 55
percent invested in equities and it took two months to reach an essentially
fully invested position. Thus, the Fund partially missed the run-up in stock
values during the first two months of the year.
The Fund has been essentially fully invested in equities since March 1996.
We expect that to continue, absent unusual circumstances. Market timing is not
part of the multi-managed methodology LAMCO brings to the Fund.
More than 65 percent of the Fund's individual shareholders elected to take
newly issued shares, valued at market price, in the recent year-end distribution
of $1.02 per share, which was almost entirely realized capital gains. By taking
newly issued shares, rather than cash, shareholders are able to reinvest their
capital gains in the Fund so that these gains can build additional value through
compounding.
The Manager Roundtable, beginning on page 10, is a regular feature of our
annual reports. The three Portfolio Managers offer their views on the excellent
stock market performance in 1996, prospects for 1997 and notable portfolio
holdings.
Sincerely,
/s/ Harold W. Cogger
Harold W. Cogger
Chairman of the Board of Directors
Liberty All-Star Growth Fund, Inc.
Executive Vice President
Liberty Financial Companies, Inc.
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LIBERTY ALL*STAR GROWTH FUND
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1996 Annual Report President's Letter
To Our Fellow Shareholders: February 1997
While Liberty Asset Management Company (LAMCO) has been involved with the
Fund since June 1, 1994, when it was still The Charles Allmon Trust, Inc., 1996
was the first year in which LAMCO had full responsibility for the Fund's
management for the entire year. It was a good year, as Hal Cogger pointed out in
his Chairman's Letter.
Performance during the past two years has been extraordinary. The
LAMCO-managed portion of the Fund (about 20 percent of the Fund to November 6,
1995, and 100 percent thereafter) had a 24.3 percent average annualized return,
which compares to 24.7 percent for the Lipper Growth Mutual Fund Average. Not
since 1975-76 has a comparable two-year period been registered for the stock
market as a whole, as measured by the S&P 500 Stock Index.
For the entire period of LAMCO's involvement with the Fund (from June 1,
1994, to December 31, 1996), average annualized return for the LAMCO-managed
portion of the Fund has been 18.1 percent, which compares to 18.9 percent for
the Lipper Growth Mutual Fund Average. Thus, we are off to a respectable start
in building a sound long-term record.
During 1996, large companies significantly outperformed smaller companies,
as can be seen in the table below.
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MARKET CAP BREAKDOWN OF
THE S&P 500 STOCK INDEX 1996 RETURN
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Largest 20% 30.9%
Next 20% 29.6%
Middle 20% 19.4%
Next 20% 18.2%
Smallest 20% 9.2%
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The Fund's portfolio includes a broad range of company sizes, including
some smaller even than those in the bottom quintile of the S&P 500, and has a
weighted average market capitalization substantially lower than that of the S&P
500 ($17.2 billion for the Fund versus $39.5 billion for the S&P 500). An
important question confronting investment managers is how long this
size/performance disparity will continue. History suggests that the
underperformance of the smaller companies will not go on indefinitely. Should
there be an improvement in the relative performance of these smaller companies,
the Fund should benefit.
Sincerely,
/s/ Richard R. Christensen
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Richard R. Christensen
President and Chief Executive Officer
Liberty All-Star Growth Fund, Inc. and
Liberty Asset Management Company
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LIBERTY ALL*STAR GROWTH FUND
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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 to the right
illustrates this inconsistency by showing the four best performing growth funds
in 1991 and tracking their relative performance rankings over the next five
years. The lack of consistency is clear.
The problem is...
[THE FOLLOWING WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL]
THE TO RANKED FUNDS
Fund1 Fund2 Fund3 Fund4
1991 1 2 3 4
1992 31 124 185 72
1993 7 37 163 50
1994 277 233 265 136
1995 18 261 200 255
1996 16 236 261 48
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 cap growth stock
manager continues to hold small cap 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...
[GRAPHIC OMITTED]
MANAGER'S STYLE MANAGER'S STYLE
IN FAVOR IN FAVOR
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STOCK MARKET
RETURNS
MANAGER'S STYLE
OUT OF FAVOR
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TIME
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 institutional investors. 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...
[GRAPHIC OMITTED]
MANAGER A'S MANAGER B'S MANAGER A'S
STYLE IN FAVOR STYLE IN FAVOR STYLE IN FAVOR
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MULTI-MANAGER RETURNS: (MANAGER A PLUS MANAGER B)
STOCK MARKET RETURNS
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MANAGER B'S MANAGER B'S MANAGER A'S
STYLE OUT OF FAVOR STYLE OUT OF FAVOR STYLE OUT OF FAVOR
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TIME
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LIBERTY ALL*STAR GROWTH FUND
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LAMCO's Multi-Management Program:
Constructing the Manager Team
...LAMCO has identified three different styles as the best combination to
achieve the Fund's investment objectives.
There are two broad styles of 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 of
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, the other objective of
multi-management is to produce above-average returns; and to fulfill that
objective LAMCO searches for successful, independent investment management
organizations to hire as Portfolio Managers for the Fund. Several hundred equity
management organizations are both substantial in size and well-qualified to
manage large investment portfolios. In researching and selecting them, LAMCO
focuses on managers who have:
o A constant focus on a particular style of investing.
o A disciplined investment decision-making process.
o A sound record of success relative to other managers who practice the same
style.
o Continuity among the investment professionals, so that those who have built
the record remain the managers.
o A well-managed, highly responsive organization.
The pie chart below shows the Portfolio Manager lineup and percentage
allocations to each.
[THE FOLLOWING WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL]
OPPENHEIMER CAPITAL Contrarian holdings being overlooked and
undervalued by investors. ................................................ 1/3
PROVIDENT INVESTMENT COUNSEL, INC. Large capitalization
companies with fast-growing earnings and bright prospects. ............... 1/3
MISSISSIPPI VALLEY ADVISORS INC. Small capitalization growth
companies that sell at a reasonable current price relative
to anticipated future earnings. .......................................... 1/3
As with anything in investments, circumstances change, so...
-5-
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LIBERTY ALL*STAR GROWTH FUND
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LAMCO's Multi-Management Program:
Manager Evaluation and, Occasionally, Replacement
...LAMCO conducts continuing evaluation of the Portfolio Managers. The purpose
is to be sure that each is still the best choice for the Fund. Through frequent
meetings with the Portfolio Managers, and through qualitative and quantitative
analyses, each is continually evaluated to assure that:
o It is consistently practicing its Investment Style.
o Its transactions and holdings reflect the Style.
o Its organization and investment process continue to support the Style.
o 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 the Fund the full benefits of Multi-Management.
The procedures include:
o Assuring that the Fund's total portfolio has the proper investment
characteristics.
o Researching new investment managers as possible future Portfolio Managers.
o Making Portfolio Manager changes when necessary.
Further, LAMCO shifts assets among the Portfolio Managers at selected times. As
the previous pie chart indicates, The Fund's assets are allocated among the
three Portfolio Managers to provide the desired style diversification. However,
each day stock market action changes the actual assets under management of the
various managers. Accordingly, from time to time, LAMCO reallocates assets back
to the original allocations in order to preserve the benefits of the Fund's
Multi-Management methodology. This procedure is called rebalancing.
The anatomy of the Fund's Multi-Management structure is visible in its Portfolio
Characteristics on the following page. For reference, it is compared with the
S&P 500 Stock Index.
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LIBERTY ALL*STAR GROWTH FUND
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LAMCO's Multi-Management Program:
Portfolio Characteristics
MANAGERS' DIFFERING INVESTMENT STYLES ARE REFLECTED IN PORTFOLIO CHARACTERISTICS
The Portfolio Characteristics table on this page is a regular feature of
the Fund'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 the Fund'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 the Fund as a whole, while the final column
shows portfolio characteristics for the entire S&P 500 Stock Index.
THE INVESTMENT STYLES PRACTICED BY THE FUND'S THREE PORTFOLIO MANAGERS ARE:
MISSISSIPPI VALLEY ADVISORS INC. (MVA)
Small capitalization growth companies that sell at a reasonable current price
relative to anticipated 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.
PORTFOLIO CHARACTERISTICS
AS OF DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
MARKET CAPITALIZATION SPECTRUM
SMALL LARGE
------------------------------
[GRAPHIC]
------------------------------
TOTAL S&P
MVA OPPENHEIMER PROVIDENT FUND 500 INDEX
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<S> <C> <C> <C> <C> <C>
Number of Holdings 77 30 42 147 500
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Weighted Average Market Capitalization (billions) $1.2 $23.8 $29.2 $17.2 $39.5
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Percent of Holdings in S&P 500 8.0% 67.7% 71.5% 48.1% --
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Dividend Yield 0.8% 1.3% 0.6% 0.9% 1.9%
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Average Price/Earnings Ratio 17.7x 15.7x 28.6x 19.2x 19.0x
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Average Price/Book Value Ratio 3.3x 4.0x 8.7x 5.2x 4.7x
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Average Five-Year Earnings Per Share Growth 19.8% 25.8% 30.1% 25.9% 13.5%
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</TABLE>
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LIBERTY ALL*STAR GROWTH FUND
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Top 50 Holdings
As of December 31, 1996
<TABLE>
<CAPTION>
RANK VALUE PERCENT OF
RANK AS OF 9/30/96 SECURITY NAME ($000) NET ASSETS
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<C> <C> <S> <C> <C>
1 1 Microsoft Corp. $2,975 2.2%
2 2 Federal Home Loan Mortgage Corp. 2,643 1.9
3 9 Intel Corp. 2,357 1.7
4 3 Federal National Mortgage Assoc. 2,235 1.6
5 4 Pfizer, Inc. 2,072 1.5
6 7 Citicorp 2,060 1.5
7 6 Monsanto Co. 1,944 1.4
8 13 McDonnell Douglas Corp. 1,920 1.4
9 14 Travelers Group, Inc. 1,815 1.3
10 12 ACE, Limited 1,804 1.3
11 15 MBNA Corp. 1,743 1.3
12 16 AFLAC Inc. 1,710 1.3
13 5 First Data Corp. 1,693 1.2
14 25 Arrow Electronics, Inc. 1,605 1.2
15 10 LucasVarity PLC ADR 1,596 1.2
16 17 Countrywide Credit Industries, Inc. 1,574 1.2
17 23 Morgan Stanley Group, Inc. 1,542 1.1
18 19 EXEL Limited 1,515 1.1
19 30 Telefonaktiebolaget LM Ericsson, Class B ADR 1,509 1.1
20 11 Oracle Corp. 1,461 1.1
21 42 Nokia Corp. ADR 1,441 1.1
22 31 Merck & Co. Inc. 1,427 1.0
23 33 Transamerica Corp. 1,422 1.0
24 29 AMR Corp. 1,410 1.0
25 21 Cisco Systems, Inc. 1,400 1.0
26 36 Sprint Corp. 1,396 1.0
27 22 Lockheed Martin Corp. 1,373 1.0
28 28 Medtronic, Inc. 1,360 1.0
29 39 Caterpillar, Inc. 1,355 1.0
30 27 Wells Fargo & Co. 1,349 1.0
31 38 Progressive Corp. 1,348 1.0
32 35 Triton Energy Corp. 1,310 1.0
33 43 Freeport-McMoRan Copper & Gold, Inc. Class A 1,195 0.9
34 24 HFS, Inc. 1,195 0.9
35 44 General Electric Co. 1,187 0.9
36 34 May Department Stores Co. 1,169 0.9
37 45 Gillette Co. 1,166 0.9
38 41 PMI Group, Inc. 1,163 0.9
39 NEW Lucent Technologies, Inc. 1,156 0.8
40 52 Fisher Scientific International 1,107 0.8
41 40 R.R. Donnelley & Sons Co. 1,098 0.8
42 50 American International Group, Inc. 1,083 0.8
43 37 Champion International Corp. 1,081 0.8
44 20 Hercules, Inc. 1,081 0.8
45 57 Oxford Health Plans, Inc. 1,054 0.8
46 58 Hubbell, Inc., Class B 1,038 0.8
47 8 Computer Associates International, Inc. 1,035 0.8
48 32 Dole Foods, Inc. 1,016 0.7
49 60 R.P. Scherer Corp. 1,005 0.7
50 79 Crestar Financial Corp. 1,004 0.7
</TABLE>
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LIBERTY ALL*STAR GROWTH FUND
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Major Stock Changes in the Fourth Quarter
The following are the major ($300,000 or more) stock changes -- both additions
and reductions -- that were made in the Fund's portfolio during the fourth
quarter of 1996.
<TABLE>
<CAPTION>
SHARES
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HELD AS
SECURITY NAME ADDITIONS REDUCTIONS OF 12/31/96
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<S> <C> <C> <C>
Apria Healthcare Group Inc. 25,600 25,600
Ascend Communications, Inc. 10,000 10,000
Evergreen Media Corp., Class A 16,000 16,000
Lucent Technologies, Inc. 25,000 25,000
Lunar Corp. 16,800 16,800
Marks Brothers Jewelers, Inc. 25,100 25,100
Nellcor Puritan Bennett, Inc. 27,000 27,000
Oakley, Inc. 47,000 47,000
Schlumberger LTD. 6,000 6,000
Talbots, Inc. 17,000 17,000
Tidewater, Inc. 9,000 19,000
AccuStaff, Inc. (18,000) 0
Adaptec, Inc. (16,000) 0
AutoZone, Inc. (16,000) 0
Charter One Financial, Inc. (13,500) 9,600
Computer Associates International, Inc. (9,200) 20,800
Computer Sciences Corp. (10,000) 0
Credit Acceptance Corp. (11,200) 0
Danka Business Systems ADR (10,000) 0
Electronic Data Systems Corp. (12,000) 0
Flowers Industries, Inc. (32,000) 0
Hvide Marine, Inc. (23,000) 0
Mellon Bank Corp. (22,000) 0
Microchip Technology (7,300) 0
Mirage Resorts, Inc. (24,000) 0
Modine Manufacturing Co. (21,000) 9,000
Motorola, Inc. (20,000) 0
Quantum Corp. (11,200) 24,800
Robert Mondavi Corp., Class A (11,273) 3,227
Staples, Inc. (30,000) 0
SunGard Data Systems, Inc. (8,000) 23,200
Tuesday Morning Corp. (23,000) 0
</TABLE>
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<PAGE>
LIBERTY ALL*STAR GROWTH FUND
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Manager Roundtable
Growth Investing in a Strong Market
THE STOCK MARKET HAS BEEN REWARDING --
BUT SURPRISINGLY NARROW / The Portfolio Managers Analyze this Environment --
What Happened And What May Lie Ahead as 1997 Unfolds.
In this, our second Manager Roundtable, our portfolio managers review their
investment styles and philosophies, as well as the year just past as it affected
both. They also look ahead to their expectations for 1997 and summarize some
recent additions and deletions in their portfolios.
The Fund Manager, Liberty Asset Management Company (LAMCO), serves as the
moderator for the Roundtable. The participating Portfolio Managers and their
investment styles are:
MISSISSIPPI VALLEY ADVISORS
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 based 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; leadership
in one or two markets by one or two products; 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: As this is just the second Liberty All-Star Growth Fund Manager
Roundtable, a good place to start would be a brief review of each manager's
investment philosophy, style and process. John Lindenthal, will you start us off
with an overview of Oppenheimer's approach?
LINDENTHAL (OPPENHEIMER -- CONTRARIAN):
Oppenheimer Capital believes that discretionary capital and how management
chooses to use it on behalf of shareholders hold the key to economic value. We
emphasize the level and sustainability of a company's return on invested capital
and the allocation of cash flows among reinvestment alternatives, such as timely
acquisitions, share repurchases, dividend payments and other uses. We invest in
companies that generate high returns and create value for shareholders through
the allocation of these returns. Oppenheimer Capital believes that such
companies can compound their shareholder values for extended periods, even if
the increase is not immediately reflected in the market price of the stock.
In addition to successful cash flow generation and deployment, we typically
look for companies that combine the following characteristics:
o A proven management team whose financial interests are aligned with
those of the shareholders.
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The views expressed in this interview represent the managers' views at the
time of the discussion and are subject to change.
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"Oppenheimer Capital believes that discretionary capital and how management
chooses to use it on behalf of shareholders hold the key to economic value."
John Lindenthal / Oppenheimer
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<PAGE>
LIBERTY ALL*STAR GROWTH FUND
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Manager Roundtable
o A strong competitive position with significant barriers against entry
by other companies.
o 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 underperforming assets.
o Stability of sales, income and cash flow through varying industry and
economic cycles.
Through our analysis, we must be convinced that the true economic value of
the company exceeds its current stock price by a significant margin. If this
effort is successful, the stock is added to the approved list of securities.
Utilizing stocks from the approved list, portfolio managers construct portfolios
within individual client guidelines and restrictions.
LAMCO: Thank you, John. Jeff Miller, tell us about Provident's approach, please.
MILLER (PROVIDENT -- GROWTH): Our investment approach is based on the philosophy
that earnings drive prices. Over time, superior returns to shareholders are
produced by companies with superior earnings growth. Provident Investment
Counsel's investment style is to seek out companies with strong financial
characteristics and are in a period of high, sustainable earnings growth.
We utilize a "bottom-up" security selection process. In assessing a company
for investment, we seek exceptional profitability and market share leadership,
as well as superior return on equity, reinvestment rates, and 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.
Our equity research is based on both internal and external sources. Ideas
may be generated by direct company contacts, prospectuses, computer screens 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 our weekly investment policy committee meeting when stocks are
formally added to or deleted from our buy list. Our portfolio managers actively
participate in security analysis, thus keeping the two functions tightly
integrated and encouraging the flow of ideas.
LAMCO: Bob Anthony, give us a description of Mississippi Valley Advisors'
approach, please.
ANTHONY (MISSISSIPPI VALLEY ADVISORS-- GROWTH): Mississippi Valley Advisors'
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 (P/Es), at P/E discounts to their growth
rates and at P/Es below their peer groups. We also consider small companies with
unique features, including asset values, high cash flows or other factors that
offer the potential for above-average capital appreciation. Since we believe our
strength is in stock selection and not in market timing, our 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 10 equity analysts, each of
whom is responsible for a sector or sectors of the economy, and which are 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 P/E ratios. The stocks are ranked
in deciles and the portfolio is selected from the top four deciles. Stocks
become sale candidates when they fall below the sixth decile.
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"Over time, superior returns to shareholders are produced by
companies with superior earnings growth."
Jeff Miller / Provident
- --------------------------------------------------------------------------------
LAMCO: Let's turn now to the year just past. In general, 1996 was an excellent
year for investors. Would each of you review the year, particularly as it
affected your style, with emphasis on the fourth quarter? Bob Anthony, let's
stay with you.
--[11]--
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LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Manager Roundtable
ANTHONY (MISSISSIPPI VALLEY ADVISORS-- GROWTH): Nineteen ninety-six was an
excellent year for the stock market. Unfortunately for small cap investors, it
was once again a year of large cap stocks. For the second straight year the
Russell 2000 index lagged the S&P 500 Index, increasing 16.5 percent versus a
23.0 percent gain for the S&P 500. Moreover, performance was led by the largest
companies within the index, as the S&P 500 on an equal weighted basis was up
only 19.0 percent. According to Standard & Poor's, the largest companies were
also the best performers within the S&P 400 mid-cap index and the S&P 600 small
cap index.
Looking at the year as a whole, small capitalization stocks performed well
in the first half, with the Russell 2000 showing a 10.4 percent gain versus a
10.1 percent gain for the S&P 500. In the second half, however, smaller
companies lagged significantly, registering a 5.1 percent gain versus a 12.9
percent gain for the S&P 500. One major reason for this underperformance is
increased supply, as existing small cap stocks have to compete with new small
cap companies for investment dollars. Last year saw a record calendar of initial
public offerings totaling $49.8 billion. Perhaps most important was lackluster
domestic earnings growth. Small cap stocks continued to be extremely volatile,
with earnings surprises being rewarded or severely punished. The severe
reactions to short-term earnings disappointments remain characteristic of
momentum investing, making it difficult for patient investors looking for solid
long-term opportunity. Because of the market's short-term focus and the distinct
lack of breadth, our style continues to be out of favor in the marketplace. Some
of the sectors that aided our results in the most recent quarter included
consumer staples, health care, transportation and industrial cyclicals.
LAMCO: Jeff Miller, what are Provident's thoughts about the year?
MILLER (PROVIDENT -- GROWTH): The year was another excellent one for the stock
market. However, like 1995, 1996 was a year in which company size had more of an
effect on returns than investment style. This was certainly true in our
portfolio, as our larger capitalization companies had a greater effect on total
portfolio performance than did some of our mid-size companies.
The sectors that tended to help us the most during the year were the
finance sector, in which we have been consistently over-weighted, and the
technology area, specifically software. Health care also was a help. Throughout
the year, the biggest disappointment was our consistent underweighting of the
consumer nondurable sector. This sector includes industries such as food,
beverages and consumer products. We felt throughout the year, and continue to
believe, that the valuation of stocks in this sector is significantly
discounting future earnings prospects.
The fourth quarter of the year also saw continued volatility, highlighted
by the positive market move after the election and the sell-off after Fed
Chairman Greenspan's comments regarding the "irrational exuberance" exhibited by
the stock market. This did not last long, however, as the market snapped back
before the end of the year. The fourth quarter also saw value outperforming
growth as well as the continuation of the outperformance of what we call the
"mega caps" -the very large capitalization companies. Once again, in the fourth
quarter the portfolio was positively impacted by the finance and retail sectors
as well as health services. The portfolio was hurt by our underweighting in
consumer nondurables and a sell-off in some of the technology stocks.
- --------------------------------------------------------------------------------
"The year was another excellent one for the stock market. However, like 1995,
1996 was a year where company size had more of an impact on returns than
investment style."
Jeff Miller / Provident
- --------------------------------------------------------------------------------
LAMCO: What is Oppenheimer's perspective regarding 1996?
LINDENTHAL (OPPENHEIMER -- CONTRARIAN): With the economy slowing in the second
half of 1996 and interest rates generally falling, especially in the fourth
quarter, our interest rate-sensitive stocks outperformed the market. Close to 40
percent of the portfolio has been invested in banks, financial services and
insurance stocks. We own these particular stocks because of their industrial
positions, high and sustainable returns on capital, and shareholder-oriented
managements. We do not attempt to forecast interest rates, but, obviously,
changes in the direction of rates -- either up or down -- can have a near-term
impact on the price of financial stocks. Interest-sensitive stocks in the
portfolio that
--[12]--
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LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Manager Roundtable
were up more than 10 percent in the fourth quarter included AFLAC, Citicorp,
Countrywide Credit Industries, Federal Home Loan Mortgage Corporation, Travelers
Group and ACE Limited.
In addition to the financial stocks, the portfolio benefited from several
restructuring announcements that will improve the value-creation potential of
the affected companies. McDonnell Douglas is in the process of being acquired by
Boeing. Monsanto is spinning out its chemical division to concentrate on it
agricultural biotechnology business.
The technology sector also aided overall results, with Intel more than
doubling over the year and Arrow Electronics and Nokia outperforming the market.
LAMCO: Let's take a look at what may lie ahead. What is your overall outlook for
the stock market for 1997? And, more specifically, what factors do you expect to
have the most impact on the types on stocks you invest in? John Lindenthal,
start us off.
LINDENTHAL (OPPENHEIMER -- CONTRARIAN): We look for modest gains in the equity
market for 1997. Although we pay attention to the overall investment climate, we
don't let it dominate our investment process. Our investment style is to be
long-term relationship investors. We know the companies we own extremely well,
and have an ongoing dialogue with their management. Almost all of our time is
spent analyzing businesses and talking directly with the management. We do not
focus on overview considerations, such as the strength or weakness of the
economy, interest rate projections or political developments, etc. We want to
make sure the companies we own are creating value for the shareholder.
- --------------------------------------------------------------------------------
"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
- --------------------------------------------------------------------------------
LAMCO: Jeff Miller, what does Provident see on the
horizon?
MILLER (PROVIDENT -- GROWTH): Our outlook for 1997 is for less exciting returns
from the overall market. While we do not make top-down economic forecasts, the
consensus view is for a slowing economy and for slower profit growth. This
economic environment would result in relatively stable interest and inflation
rates. These factors would support current P/E ratios that we now see in the
market. However, we do not expect that P/E ratios would continue to expand from
current levels. Therefore, the bulk of stock market returns will come from
underlying earnings growth.
If this outlook pans out, it should be positive for high- and
consistent-growth companies. Were this to be the case, I would expect that we
would see greater separation between investment styles in the market. In such an
environment, I would expect to see a shift away from the very large but
slower-growing companies toward companies of smaller size but with high growth
rates.
What we have seen in the last two years is a market of excellent returns
that have been primarily driven by very large companies. Style has not been as
important as size. In the last two years, the Russell 2000 Value Index is up
52.6 percent and the Russell 2000 Growth Index is up 45.6 percent. However, at
the large cap end of the scale, the Russell 1000 Value Index is up 68.3 percent
and the Growth Index is up 68.9 percent. The large cap-dominated S&P 500 is up
even more -- 69.5 percent. So, clearly, it has been a market driven by large
companies. If this somewhat indiscriminate trend toward large company investing
tends to slow, we think it will place a premium on individual stock selection,
which should benefit the active manager.
I think the factors that would have the greatest impact, not only on our
style but on the market as a whole, would be inflation and interest rates.
Higher rates of both could cause the market to sell-off which would probably
affect all styles. More stable levels of both inflation and interest rates,
however, could cause the market to continue to move higher, albeit at a slower
pace.
LAMCO: How about Mississippi Valley Advisors' outlook?
ANTHONY (MISSISSIPPI VALLEY ADVISORS-- GROWTH): For 1997 our view is for a
slower-growth economy with continued low inflation and flat to possibly
declining long-term interest rates. High consumer debt and bankruptcies are
important factors in our projected slowdown in the economy and corporate
profits. In this environment, stock
--[13]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Manager Roundtable
selection will remain critical to performance within a broadly diversified
portfolio.
Small capitalization stocks have lagged large capitalization indices for
the past two years. This underperformance of smaller companies seems to have
been caused by investors seeking a flight to quality, a greater interest in
multinational companies and a clear preference for companies with more
predictable earning streams. All of these factors would be consistent with a
perceived slowdown in the U.S. economy. This period of underperformance has led
to smaller capitalization stocks becoming even more undervalued vis-a-vis their
larger counterparts on a P/E basis. The catalyst for small capitalization stocks
going forward could be the potential for faster earnings growth as investors
begin to look toward 1998.
LAMCO: Perhaps now we can focus on two or three recent additions to the Fund's
portfolio. What were they, and why were they purchased? And, how about
discussing two or three stocks that you sold recently, and why? Jeff Miller,
what portfolio moves has Provident made recently?
- --------------------------------------------------------------------------------
"Our investment style is to be long-term relationship investors. We know the
companies we own extremely well, and have an ongoing dialogue with their
management."
John Lindenthal / Oppenheimer
- --------------------------------------------------------------------------------
MILLER (PROVIDENT -- GROWTH): One of our recent purchases is AES Corp. AES is
the largest independent power producer in the world. It currently owns and
operates six electric generation facilities in the U.S. and five overseas. The
company's future expansion plans are directed almost entirely toward the
international market. We predict that international privatization of power
production will triple the company's capacity during the next five years,
driving annualized earnings growth in excess of 24 percent through the decade.
The company has six domestic and international projects approved for
construction, with long-term purchase power agreements already in hand. These
agreements provide a high degree of earnings visibility. We believe that
management is outstanding and its commitment is demonstrated by its ownership of
40 percent of the stock and its dedication to increasing shareholder value.
Two other recent additions to the portfolio are in the telecommunications
sector. The first, Ascend Communications, is more of a mid-sized company and is
a leading manufacturer of wide area networking access products that enable users
to build video conference, voice, video and data integrated networks. The
company stands to benefit from the explosive industry growth, which is being
driven by demand for higher bandwidth and migration from analog and private
access to switched digital access. The company has successfully diversified its
product line from video only to video, voice and data, and it has diversified
its distribution from carriers to value-added resellers, OEMs (original
equipment manufacturers) and information service providers.
The second company in the telecommunications area is Lucent Technologies.
Lucent, which was an AT&T spin-out, is the world's dominant developer and
manufacturer of telecommunication systems and software. The company supplies
sys-tems and software to 23 of the world's 25 largest network operators, and is
the largest supplier of consumer telecommunication products in the U.S. As a
result of increased demand for voice and data lines, wireless expansion,
deregulation and privatization, the telecommunications equipment market is
experiencing an acceleration in its growth. Lucent is well positioned to take
advantage of this. The spin-out from AT&T will allow the company to focus on the
fastest growing operating divisions and get out of nonstrategic businesses. In
addition to accelerating growth, market share gains should contribute to the
company's earnings growth over the longer term.
Recent liquidations from the portfolio include a stock we have owned for
some time. AutoZone operates retail auto parts stores with a focus on the
do-it-yourself customer, and its growth is based on new store openings. In the
last year or so, the company began to expand more into commercial markets, such
as garages and professional mechanics. This proved to be difficult to integrate
with its retail approach and led to some earnings disappointments. As a result,
we have sold the stock.
Another stock we sold was US Robotics Corp. US Robotics is a major
manufacturer of high-performance data communications products, including modems
for business and personal use. US Robotics had been a very good stock for us, as
the company benefited from the transition from 14.4-kilobit modems to the
28.8-kilobit environment. Given the expansion of the Internet, demand for 28.8
modems outpaced supply. However, like most areas of technology, time does not
stand still, and the next transition to the
--[14]--
<PAGE>
56-kilobit modem was more problematic for the company. We saw inventories of the
28.8-product begin to build from 4-5 weeks to 10-11 weeks. This resulted in
pricing pressure, with higher inventories resulting in a slowing in the
company's earnings growth pattern. Even though business in US Robotics'
commercial and systems area was continuing to do well, we believed that this
change warranted the sale of the stock.
LAMCO: Bob Anthony, what has MVA bought and sold recently?
ANTHONY (MISSISSIPPI VALLEY ADVISORS-- GROWTH):A recent addition to our
portfolio is Aptargroup. Aptargroup is a leading packaging company focusing on
one of the higher margin niches in the industry, pumps and closures. Aptargroup
dominates high-end markets within these niches as the premier supplier of pumps
and valves to the perfume, pharmaceutical, and consumer products market.
Aptargroup's closures are a small part of the total cost but represent an
integral component. With low debt and a significant positive cash flow,
Aptargroup is able to maintain its prominence while producing a mid teens growth
rate. Valued on either a P/E or cash flow basis, Aptargroup is trading near the
low end of its absolute and relative historical range and offers excellent
long-term potential.
Another purchase was Nellcor Puritan Bennett, which is a medical device
company that manufactures a wide variety of patient care monitors and sensors
for measuring blood gases and respiratory output. Through a combination of
several acquisitions and internally developed products, the company has become
the dominant supplier to the respiratory care market. Integration issues related
to recent acquisitions and revised Medicare reimbursement rates combined to
create an earnings growth disruption. Both issues, considered to be short-term
in duration, provided an opportunity to purchase the stock of a well-positioned,
high quality company offering attractive growth prospects at a considerable
discount to the market.
- --------------------------------------------------------------------------------
"The catalyst for small capitalization stocks going forward could be the
potential for faster earnings growth as investors begin to look toward 1998."
Bob Anthony /
Mississippi Valley Advisors
- --------------------------------------------------------------------------------
Two recent sales in the portfolio include Adaptec and Microchip Technology.
Both of these companies are niche semiconductor companies. Semiconductor stock
prices declined during the late spring/early summer due to an inventory
correction within the semiconductor industry. This inventory correction caused
orders to weaken and earnings expectations to decline. Given that the stocks are
extremely volatile, they weakened more than the fundamentals would have
suggested and we purchased the stocks. As we moved into fall, it became apparent
that the inventory correction was very short-lived and that, in fact, overall
demand was quite strong within the industry. As a result, both stocks rebounded
sharply. Given our sell discipline, which looks to remove those stocks in the
portfolio that fall in the bottom 40 percent of total return potential looking
forward, both stocks were fairly priced and were sold. This allowed us to
capture a gain of 55 percent in Microchip and 38 percent in Adaptec.
LAMCO: John Lindenthal, what has Oppenheimer bought recently and what has it
sold?
LINDENTHAL (OPPENHEIMER -- CONTRARIAN): We recently purchased two new stocks in
the Fund's portfolio. AMR Corp., the parent of American Airlines, has
restructured to produce higher and more consistent returns on capital. The
company is using a major portion of its free cash flow generation to pay down
debt and will have ample funds to eventually purchase new planes. We also
started a position in Wells Fargo Corp. Wells Fargo is the leading bank in the
U.S. in terms of return on capital and shareholder orientation. Its recent
acquisition of First Interstate strengthens its market position in the West. In
addition, management is utilizing the cost savings from the acquisition to
repurchase stock. Wells is a leader in electronic banking and its technology
expertise is unprecedented in the banking industry.
We sold our positions in Unilever and Motorola to purchase these two new
holdings. Unilever reached our price target and Motorola was sold because we
wanted to focus our cellular phone efforts on our existing position in Nokia.
LAMCO: Thank you very much for an interesting and useful discussion.
--[15]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1996
COMMON STOCKS (95.9%) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
AEROSPACE (2.4%)
Lockheed Martin Corp. 15,000 $1,372,500
McDonnell Douglas Corp. 30,000 1,920,000
---------
3,292,500
AUTO, TIRES & ACCESSORIES (1.6%)
Discount Auto Parts, Inc. (a) 24,000 561,000
LucasVarity PLC ADR (a) 42,000 1,596,000
---------
2,157,000
---------
BANKS (5.4%)
Charter One Financial, Inc. 9,600 403,200
Citicorp 20,000 2,060,000
Crestar Financial Corp. 13,500 1,004,063
First Financial Corp. 6,250 153,125
Signet Banking Corp. 25,000 768,750
Standard Federal Bancorporation 13,800 784,875
Union Planters Corp. 22,500 877,500
Wells Fargo & Co. 5,000 1,348,750
---------
7,400,263
---------
BROADCASTING & CABLE (1.1%)
British Sky Broadcasting Group PLC ADR 19,000 997,500
Evergreen Media Corp., Class A (a) 16,000 400,000
Paxson Communications Corp. (a) 16,000 126,000
---------
1,523,500
---------
BUSINESS SERVICES (1.4%)
First Data Corp. 46,370 1,692,505
SOS Staffing Services, Inc. (a) 17,700 185,850
---------
1,878,355
---------
CHEMICALS (3.2%)
Cytec Industries, Inc. (a) 14,500 589,063
Hanna (M.A.) Co. 36,000 787,500
Hercules, Inc. 25,000 1,081,250
Monsanto Co. 50,000 1,943,750
---------
4,401,563
---------
See Notes to Schedule of Investments
--[16]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Schedule of Investments
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMPUTER & BUSINESS EQUIPMENT (10.7%)
Active Voice Corp. (a) 20,000 $275,000
Ascend Communications, Inc. (a) 10,000 621,250
Ceridian Corp. (a) 9,000 364,500
Cisco Systems, Inc. (a) 22,000 1,399,750
Computer Associates International, Inc. 20,800 1,034,800
Intel Corp. 18,000 2,356,875
Komag, Inc. (a) 15,132 410,456
Microsoft Corp. (a) 36,000 2,974,500
Norand (a) 22,400 386,400
Nu-Kote Holdings, Inc., Class A (a) 42,000 430,500
Oracle Corp. (a) 35,000 1,461,250
Quantum Corp. (a) 24,800 709,900
Sungard Data Systems, Inc. (a) 23,200 916,400
The Peak Technologies Group (a) 36,000 432,000
Zebra Technologies Corp. Class A (a) 37,803 883,645
-----------
14,657,226
-----------
CONSTRUCTION (0.4%)
J. Ray McDermott, S.A. (a) 26,000 572,000
-----------
CONSUMER PRODUCTS (1.6%)
Department 56, Inc. (a) 25,000 618,750
Gucci Group NV ADR 8,000 511,000
Oakley, Inc. (a) 47,000 511,125
Tommy Hilfiger Corp. (a) 10,000 480,000
-----------
2,120,875
COSMETICS & TOILETRIES (0.9%)
Gillette Co. 15,000 1,166,250
-----------
DIVERSIFIED (1.9%.)
Ball Corp. 26,500 689,000
General Electric Co. 12,000 1,186,500
Lydall, Inc. (a) 23,000 517,500
Modine Manufacturing Co. 9,000 240,750
-----------
2,633,750
-----------
See Notes to Schedule of Investments
--[17]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Schedule of Investments
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DRUGS & HEALTH CARE (15.5%)
Allergan, Inc. 26,700 $951,187
Amgen, Inc. (a) 17,000 924,375
Apria Healthcare Group, Inc. (a) 25,600 480,000
Bard (C.R.) Inc. 20,000 560,000
Beverly Enterprises, Inc. (a) 50,000 637,500
Boston Scientific Corp. (a) 13,000 780,000
Cardinal Health, Inc. 15,000 873,750
Columbia/HCA Healthcare Corp. 16,500 672,375
Dentsply International, Inc. 15,000 712,500
Elan Corp. ADR (a) 16,000 532,000
Emeritus Corp. (a) 13,000 175,500
Fisher Scientific International 23,500 1,107,437
HEALTHSOUTH Corp. (a) 24,000 927,000
Horizon/CMS Healthcare Corp. (a) 40,000 505,000
Living Centers of America, Inc. (a) 27,900 774,225
Lunar Corp. (a) 16,800 588,000
Medtronic, Inc. 20,000 1,360,000
Merck & Co., Inc. 18,000 1,426,499
Millipore Corp. 16,500 682,687
Nellcor Puritan Bennett, Inc. (a) 27,000 590,625
Orthologic Corp. (a) 52,700 296,437
Oxford Health Plans, Inc. (a) 18,000 1,054,125
Pfizer, Inc. 25,000 2,071,875
Research Medical, Inc. (a) 25,000 575,000
R.P. Scherer Corp. (a) 20,000 1,005,000
Sterling House Corp. (a) 12,000 105,000
Sun Healthcare Group, Inc. (a) 57,600 777,600
----------
21,145,697
----------
ELECTRONICS & ELECTRICAL EQUIPMENT (2.9%)
Analog Devices, Inc. (a) 16,000 542,000
Arrow Electronics, Inc. (a) 30,000 1,605,000
Hubbell, Inc., Class B 24,000 1,038,000
Tyco International Ltd. 15,000 793,125
----------
3,978,125
----------
ELECTRICAL UTILITIES (0.4%)
AES Corp. (a) 12,000 558,000
----------
See Notes to Schedule of Investments
--[18]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Schedule of Investments
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (13.9%)
Advanta Corp., Class B 19,000 $776,625
Capital One Financial Corp. 25,000 900,000
Cityscape Financial Corp. (a) 30,800 808,500
CMAC Investment Corp. 15,000 551,250
Countrywide Credit Industries, Inc. 55,000 1,574,375
CUC International, Inc. (a) 20,000 475,000
Federal Home Loan Mortgage Corp. 24,000 2,643,000
Federal National Mortgage Assoc 60,000 2,235,000
Finova Group, Inc. 12,000 771,000
First USA, Inc. 28,000 969,500
Interim Services, Inc. (a) 14,300 507,650
MBNA Corp. 42,000 1,743,000
Morgan Stanley Group, Inc. 27,000 1,542,375
Paychex, Inc. 10,000 514,375
Southern Pacific Funding Corp. (a) 17,000 529,125
Travelers Group, Inc. 40,000 1,815,000
United Companies Financial Corp. 22,300 593,738
----------
18,949,513
----------
FOOD & BEVERAGE (2.9%)
Canandaigua Wine Co., Class A (a) 27,216 775,656
Dole Foods, Inc. 30,000 1,016,250
Hormel Foods Corp. 29,000 783,000
IBP, Inc. 30,000 727,500
Performance Food Group, Co. (a) 39,000 604,500
Robert Mondavi Corp., Class A (a) 3,227 117,786
----------
4,024,692
----------
HOTELS & LEISURE (0.9%)
HFS, Inc. (a) 20,000 1,195,000
INDUSTRIAL EQUIPMENT (1.0%)
Caterpillar, Inc. 18,000 1,354,500
----------
INSURANCE (8.3%)
ACE, Ltd. 30,000 1,803,750
AFLAC, Inc. 40,000 1,710,000
American International Group, Inc. 10,000 1,082,500
EXEL Limited 40,000 1,515,000
MGIC Investment Corp. 13,000 988,000
NAC Re Corp. 11,000 372,625
See Notes to Schedule of Investments
--[19]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Schedule of Investments
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
INSURANCE (CONT.)
PMI Group, Inc. 21,000 $1,162,875
Progressive Corp. 20,000 1,347,500
Transamerica Corp. 18,000 1,422,000
-----------
11,404,250
-----------
METALS & MINING (0.9%)
Freeport-McMoRan Copper & Gold, Inc., Class A 40,000 1,195,000
-----------
OIL & GAS (4.5%)
Enron Corp. 10,000 431,250
Murphy Oil Corp. 9,000 500,625
Schlumberger Ltd. 6,000 599,250
Tejas Gas Corp. (a) 15,000 714,375
Tenneco, Inc. 20,000 902,500
Tosco Corp. 7,000 553,875
Triton Energy Corp. (a) 27,000 1,309,500
Union Texas Petroleum Holdings, Inc. 30,000 671,250
Weatherford Enterra, Inc. (a) 17,538 526,140
-----------
6,208,765
-----------
PAPER & PLASTIC (1.0%)
Aptargroup, Inc. 7,800 274,950
Champion International Corp. 25,000 1,081,250
-----------
1,356,200
-----------
POLLUTION CONTROL (0.6%)
Republic Industries, Inc. (a) 25,000 779,688
-----------
PUBLISHING (0.8%)
R.R. Donnelley & Sons Co. 35,000 1,098,125
-----------
RETAIL TRADE (2.8%)
Marks Brothers Jewelers, Inc. (a) 25,100 291,788
May Department Stores Co. 25,000 1,168,750
Michaels Stores, Inc. (a) 42,000 504,000
Micro Warehouse, Inc. (a) 49,758 584,657
Safeway, Inc. (a) 18,000 769,500
Talbots, Inc. 17,000 486,625
-----------
3,805,320
-----------
See Notes to Schedule of Investments
--[20]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Schedule of Investments
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
SERVICES (0.8%)
Service Corp. International 18,000 $504,000
Unitog Co. 20,000 545,000
-----------
1,049,000
-----------
TELECOMMUNICATIONS (5.4%)
Arch Communications Group, Inc. (a) 45,310 424,781
InteliData Technologies Corp. (a) 50,500 366,125
Lucent Technologies, Inc. 25,000 1,156,250
Mobile Telecommunication Technologies Corp. (a) 60,000 510,000
Nokia Corp. ADR 25,000 1,440,625
Sprint Corp. 35,000 1,395,625
Telefonaktiebolaget LM Ericsson, Class B ADR 50,000 1,509,375
WorldCom, Inc. (a) 24,000 625,500
-----------
7,428,281
-----------
TEXTILE MILL PRODUCTS (0.2%)
Polymer Group, Inc. (a) 20,000 277,500
-----------
TRANSPORTATION (2.5%)
American Freightways Corp. (a) 40,825 454,178
AMR Corp. (a) 16,000 1,410,000
Tidewater, Inc. 19,000 859,750
U.S. Freightways Corp. 25,000 685,938
-----------
3,409,866
-----------
TOTAL COMMON STOCKS (Cost $108,674,226) 131,020,804
-----------
See Notes to Schedule of Investments.
--[21]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
REPURCHASE AGREEMENT (3.6%)
Lehman Brothers, Inc. dated 12/31/96, 6.900%, to be repurchased
at $4,988,912 on 01/02/97, collateralized by U.S. Treasury notes with
various maturities to 2022, with a current market value of $5,055,431 $ 4,987,000
TOTAL INVESTMENTS (99.5%) (COST $113,661,226)(b) 136,007,804
OTHER ASSETS AND LIABILITIES, NET (0.5%) 629,250
NET ASSETS (100.0%) $136,637,054
NET ASSET VALUE PER SHARE $ 11.27
(12,119,251 SHARES OUTSTANDING)
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) The cost of investments for federal income tax purposes is $113,892,688.
Gross unrealized appreciation and depreciation of investments at
December 31, 1996, is as follows:
Gross unrealized appreciation $ 28,031,691
Gross unrealized depreciation (5,916,575)
Net unrealized appreciation $ 22,115,116
</TABLE>
--[22]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at market value (identified cost $113,661,226) $136,007,804
Cash 2,405
Receivable for investments sold 1,205,872
Dividends and interest receivable 68,857
------------
TOTAL ASSETS 137,284,938
------------
LIABILITIES:
Payable for investments purchased 194,887
Management fees payable 247,949
Administrative and bookkeeping fees payable 95,118
Accrued other expenses 109,930
------------
TOTAL LIABILITIES 647,884
------------
NET ASSETS $136,637,054
============
NET ASSETS REPRESENTED BY:
Paid-in capital (authorized 20,000,000 shares
at $0.10 Par; 12,119,251 shares outstanding) $113,489,421
Undistributed net investment income 35,334
Accumulated net realized gains on investments
less distributions 765,721
Net unrealized appreciation of investments 22,346,578
------------
TOTAL NET ASSETS APPLICABLE
TO OUTSTANDING SHARES
OF BENEFICIAL INTEREST
($11.27 PER SHARE) $136,637,054
============
</TABLE>
See Notes to Financial Statements.
--[23]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Operations
Year ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,177,868
Interest 629,131
--------------
TOTAL INVESTMENT INCOME (NET OF
NONREBATABLE FOREIGN TAXES WITHHELD
AT SOURCE WHICH AMOUNTED TO $9,983) 1,806,999
EXPENSES:
Management fees $ 955,887
Administrative fee 318,629
Bookkeeping fee 48,161
Custodian fee 5,951
Transfer agent fee 95,528
Proxy and shareholder communication expense 42,196
Printing expense 76,999
Legal and audit fees 29,626
Insurance expense 55,417
Directors' fees and expense 33,504
Miscellaneous expense 67,438
-------------
TOTAL EXPENSE 1,729,336
--------------
NET INVESTMENT INCOME 77,663
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions:
Proceeds from sales 133,991,340
Cost of investments sold 126,391,185
-------------
Net realized gains on investment transactions 7,600,155
Net unrealized appreciation of investments:
Beginning of year 8,807,760
End of year 22,346,578
-------------
Change in unrealized appreciation-- net 13,538,818
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 21,216,636
==============
</TABLE>
See Notes to Financial Statements.
--[24]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995
- ------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C>
Net investment income $ 77,663 $ 3,464,873
Net realized gains on investment transactions 7,600,155 9,735,033
Change in unrealized appreciation-net 13,538,818 2,131,624
------------- -------------
Net increase in net assets resulting from operations 21,216,636 15,331,530
------------- -------------
DISTRIBUTIONS DECLARED FROM:
Net investment income (42,330) (3,491,283)
Net realized gains on investments (11,523,548) (5,098,057)
------------- -------------
Total distributions (11,565,878) (8,589,340)
------------- -------------
CAPITAL TRANSACTIONS:
Increase in net assets from capital share transactions 7,411,472 --
------------- -------------
Total increase in net assets 17,062,230 6,742,190
NET ASSETS:
Beginning of year 119,574,824 112,832,634
------------- -------------
End of year (including undistributed net investment
income of $35,334 and $21,687, respectively) $ 136,637,054 $ 119,574,824
============= =============
</TABLE>
See Notes to Financial Statements.
--[25]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of year $10.55 $9.95 $10.54 $10.28 $10.40
---------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income 0.01 0.31 0.23 0.18 0.29
Net realized and unrealized gain (loss)
on investments 1.86 1.05 (0.24) 0.56 0.03
---------- -------- -------- -------- --------
Total from Investment Operations 1.87 1.36 (0.01) 0.74 0.32
---------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment income (0.01) (0.31) (0.23) (0.18) (0.30)
Distributions from realized capital gains (1.01) (0.45) (0.35) (0.30) (0.14)
---------- -------- -------- -------- --------
Total Distributions (1.02) (0.76) (0.58) (0.48) (0.44)
Impact of shares issued in
dividend reinvestment (0.13)(a) -- -- -- --
---------- -------- -------- -------- --------
Total Distributions and Reinvestment (1.15) (0.76) (0.58) (0.48) (0.44)
---------- -------- -------- -------- --------
Net asset value at end of period $11.27 $10.55 $9.95 $10.54 $10.28
========== ======== ======== ======== ========
Per share market value at end of period $9.250 $9.375 $8.500 $10.250 $10.000
========== ======== ======== ======== ========
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS: (b)
Based on net asset value 18.3% 13.8% (1.1%) 7.2% 3.1%
Based on market price 9.3% 19.3% (11.6%) 7.2% 4.4%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (millions) $137 $120 $113 $125 $123
Ratio of expenses to average net assets 1.35% 1.42% 1.51% 1.35% 1.33%
Ratio of net investment income
to average net assets 0.06% 2.87% 2.12% 1.71% 2.80%
Portfolio turnover rate 51% 82% 50% 47% 19%
Average commission rate (c) $0.0555 -- -- -- --
</TABLE>
(a) Effect of issuing dividend reinvestment shares at a price below net asset
value in accordance with the 1996 Automatic Dividend Reinvestment and Cash
Purchase Plan.
(b) Calculated assuming all distributions invested.
(c) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
See Notes to Financial Statements.
--[26]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1996
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
Liberty All-Star Growth Fund, Inc. (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. The
Fund's investment objective is to seek long-term capital appreciation. The Fund
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
the Fund 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 determine that this does not represent fair value.
PROVISION FOR FEDERAL INCOME TAX -- The Fund 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. FEES PAID TO AFFILIATES
Under the Fund's Management and Portfolio Management Agreements, the Fund
pays the Manager a management fee for its investment management services at an
annual rate of 0.75% of the Fund's average weekly net assets. The Manager pays
each Portfolio Manager a portfolio management fee at an annual rate of 0.40% of
the average weekly net assets of the portion of the investment portfolio managed
by it. The Fund also pays the Manager a fee for its administrative services at
an annual rate of 0.25% of the Fund's average weekly net assets. 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 million up to $250
million and to 0.375% and 0.125%, respectively on average weekly net assets in
excess of $250 million. The aggregate annual fees payable by the Manager to the
Portfolio Managers are reduced to 0.30% of the Fund's average weekly net assets
in excess of $125 million up to $250 million and to 0.20% on average weekly net
assets in excess of $250 million. Colonial Management Associates, Inc. (an
affiliate of the Manager) provides bookkeeping and pricing services for $30,000
per year plus 0.0233% of the Fund's average weekly net assets over $50 million.
NOTE 3. CAPITAL TRANSACTIONS
During the year ended December 31, 1996, distributions in the amount of
$7,411,472 were paid in newly issued shares valued at market value or net asset
value, but not less than 95% of market value, resulting in the issuance of
780,155 shares.
NOTE 4. 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, 1996, were
$121,526,513 and $133,991,340, of which none and $56,642,078, were U.S.
government securities, respectively.
The Fund may enter into repurchase agreements and require the seller of the
instrument to maintain on deposit with the Fund'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.
The Fund may experience costs and delays in liquidating the collateral if the
issuer defaults or enters bankruptcy.
NOTE 5. 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.
The Fund has reclassified $21,686 from undistributed net investment income
to accumulated net realized gain (loss) on investments. This reclassification
has no impact on the net asset value of the Fund and is designed to present the
Fund's capital account on a tax basis.
--[27]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Independent Auditors' Report
KPMG Peat Marwick LLP
The Board of Directors 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., including the schedule of investments, as of
December 31, 1996, 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
are 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, 1996, 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, 1996, 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 12, 1997
--[28]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Automatic Dividend Reinvestment & Cash Purchase Plan
Each shareholder of the Fund will automatically be a participant in the
Fund's Automatic Dividend Reinvestment and Cash Purchase Plan as amended June
30, 1996 (the "Plan"), unless the shareholder specifically elects otherwise by
writing to the agent for participants in the Plan, State Street Bank and Trust
Company (the "Plan Agent"), P.O. Box 8200, Boston, MA 02266-8200 or by calling
1-800-LIB-FUND (1-800-542-3863). Shareholders whose shares are held in the name
of a brokerage firm, bank or other nominee must notify their brokerage firm,
bank or nominee if they do not wish to participate in the Plan.
Under the Plan, all dividends and other distributions on shares of the
Funds are automatically reinvested by the Plan Agent in additional shares of the
Fund. Distributions declared payable in shares or cash at the option of
shareholders are paid to participants in the Plan entirely in newly issued full
and fractional shares valued at the lower of market value or net asset value per
share on the valuation date for the distribution (but not a discount of more
than 5 percent from market price). Distributions declared payable only in cash
will be reinvested for the accounts of participants in the Plan in additional
shares purchased by the Plan Agent on the open market at prevailing market
prices. Dividends and distributions are subject to taxation, whether received in
cash or in shares.
Participants in the Plan have the option of making additional cash payments
in any amount from $100 to $3,000 on a monthly basis for investment in shares of
the Fund purchased on the open market. These voluntary cash payments will be
invested on or about the 15th day of each calendar month, and voluntary payments
should be sent so as to be received by the Plan Agent no later than 10 days
before the next investment date. Barring suspension of trading, voluntary cash
payments will be invested within 45 days of receipt. A participant may withdraw
a voluntary cash payment by written notice received by the Plan Agent at least
48 hours before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in non-certificated form in the name
of the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan.
There is no charge to participants for reinvesting distributions pursuant
to the Plan. The Plan Agent's fees are paid by the Fund. There are no brokerage
charges with respect to shares issued directly by the Fund as a result of
divdends or distributions declared payable in shares or in cash. However, each
participant bears a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of distributions declared payable only in cash.
With respect to purchases from voluntary cash payments, the Plan Agent will
charge $1.25 for each such purchase for a participant, plus a pro rata share of
the brokerage commissions. Brokerage charges for purchasing small amounts of
shares for individual accounts through the Plan are expected to be less than the
usual brokerage charges for such transactions, as the Plan Agent will be
purchasing shares for all participants in blocks and prorating the lower
commission thus attainable.
Shareholders whose shares are held in the name of a brokerage firm, bank or
other nominee will be able to participate in the Plan only if their brokerage
firm, bank or nominee is able to do so on their behalf. Shareholders
participating in the Plan through a brokerage firm may not be able to transfer
their shares to another brokerage firm and continue to participate in the Plan.
Shareholders may terminate their participation in the Plan by written
notice to the Plan Agent, P.O. Box 8200, Boston, MA 02266-8200. Such termination
will be effective immediately if received not less than 10 days prior to the
record date for a dividend or distribution; otherwise it will be effective on
the first business day after the payment date of such dividend or distribution.
On termination, participants may either have certificates for the Fund shares in
their Plan accounts delivered to them or have the Plan Agent sell such shares in
the open market and deliver the proceeds, less a $2.50 fee plus brokerage
commissions, to the participant.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan.
--[29]--
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
- --------------------------------------------------------------------------------
Tax Information
All 1996 distributions whether received in cash or shares of the Fund consist of
the following:
(1) ordinary dividend income and
(2) long-term capital gains distributions.
Approximately 9% of the Fund's ordinary income distributions (10% of gross
income) was derived from interest on direct investment in U.S. Treasury
Securities.
Below is a table that details the breakdown of the 1996 distribution for Federal
income tax purposes.
TAX STATUS OF 1996 DISTRIBUTIONS (UNAUDITED)
- --------------------------------------------------------------------------------
ORDINARY INCOME
-----------------------------
DATE PAID AMOUNT NET SHORT-TERM LONG-TERM
PER SHARE INVESTMENT CAPITAL CAPITAL
INCOME GAINS GAINS
- --------------------------------------------------------------------------------
12/27/96 $1.02 0.36% 16.03% 83.61%
FOR CORPORATE SHAREHOLDERS
- --------------------------------------------------------------------------------
56% of the ordinary income dividends qualify for the 70% dividend received
deduction available for corporations for the year ended December 31, 1996.
- --------------------------------------------------------------------------------
FIRST LIBERTY ALL-STAR FUND HAS 10TH ANNIVERSARY UNDER LAMCO MANAGEMENT
A companion fund to Liberty All-Star Growth Fund, Inc. is also listed on
the New York Stock Exchange, Liberty All-Star Equity Fund ("Equity Fund").
Liberty Asset Management Company founded the Equity Fund with an initial public
offering in late 1986. In November 1996, the Equity Fund passed two significant
milestones: the 10th anniversary of commencement of investment operations and
the first attainment of $1 billion in net assets. The table below summarizes a
few of the key features of the two Funds.
NYSE NUMBER OF NET ASSETS
TICKER FUND PORTFOLIO AT 1/31/97
NAME SYMBOL TYPE MANAGERS (MILLIONS)
- --------------------------------------------------------------------------------
Liberty All-Star ASG Growth Three $144
Growth Fund, Inc.
Liberty All-Star USA Growth & Five $1,046
Equity Fund Income
- --------------------------------------------------------------------------------
Additional information on both Funds is available from your broker or you
may contact Investor Assistance at 1-800-LIB-FUND (1-800-542-3863).
--[30]--
<PAGE>
[LOGO] LIBERTY
ALL*STAR
--------
GROWTH FUND
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 & DIVIDEND
DISBURSING AGENT & 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
Timothy J. Jacoby, Treasurer
Peter L. Lydecker, Controller
John L. Davenport, Secretary
* Member of the audit committee.
- --------------------------------------------------------------------------------
Liberty Asset Management Company, the Fund's manager,
is one of the Liberty Financial Companies (NYSE: L).
[LOGO] LIBERTY
FINANCIAL
