[cover graphic]
SEMI-
ANNUAL
REPORT
1997
[Liberty logo] LIBERTY
ALL (star graphic) STAR
-----------------------
GROWTH FUND
<PAGE>
CHAIRMAN'S LETTER
- --------------------------------------------------------------------------------
To Our Fellow Shareholders: August 1997
The net asset value (NAV) of a common share of the Fund rose from $10.82
on March 31, 1997, to $12.41 on June 30, 1997, after deducting the
distribution of $.29 declared during the quarter. The market price of a share
of the Fund ranged from $9.625 to $11.625 before closing the quarter at $11.375.
The ending price represented a discount to NAV of 8.3 percent compared with a
discount to NAV of 7.6 percent on March 31, 1997. Key investment results
and comparisons are noted below.
As the table shows, during the second quarter the Fund's net asset value
increased 17.6 percent, which compares with 15.8 percent for the Lipper Growth
Mutual Fund Average (the Fund's primary benchmark) and 18.0 percent for the
NASDAQ Composite Index. For the last six months, the Fund's net asset value
(with dividends reinvested) was up 16.3 percent compared with 14.3 percent for
the Lipper Average and 11.7 percent for the NASDAQ Index.
- --------------------------------------------------------------------------------
Second Quarter Latest Six Months
- --------------------------------------------------------------------------------
LIBERTY ALL-STAR GROWTH FUND, INC.
Shares Valued at Net Asset Value 17.6% 16.2%
Shares Valued at Net Asset Value
With Dividends Reinvested 17.6% 16.3%
Shares Valued at Market Price
With Dividends Reinvested 16.6% 29.9%
Fund's Closing Price Range $11.50 to $9.625 $11.50 to $9.125
Fund's Discount Range 12.7% to 6.5% 18.8% to 6.5%
Lipper Growth Mutual Fund Average 15.8% 14.3%
Nasdaq Composite Index 18.0% 11.7%
S&P 500 Stock Index 17.5% 20.6%
Dow Jones Industrial Average 17.1% 20.1%
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.
- --------------------------------------------------------------------------------
The stock market, as measured by the S&P 500, came back strongly from its
April 11 low of the year to register its best quarterly advance since the
first quarter of 1987. The S&P 500 also continued its advance for the tenth
quarter in a row, a string that has not been matched since the mid-1960s.
The NASDAQ Index, led by a rebound in growth stocks, advanced 18
percent, its best quarterly advance since the first quarter of 1991.
This strong upward advance was prompted by signs that economic activity
was moderating, which set the stage for higher bond and stock prices. Fears
of further interest rate hikes by the Federal Reserve waned, pushing yields
on ten-year treasury notes down almost one-half percent, driving stock prices
up more than 17 percent. The advance in stock prices during the quarter
included participation across the market capitalization spectrum, a positive
departure from the first quarter's focus on a narrow group of
mega-capitalization issues.
Richard Christensen's President's Letter, which follows, further
elaborates on these developments and contains important information about
long-term capital gains for 1997.
More than 61 percent of the Fund's individual shareholders elected to
take newly issued shares, valued at the closing market price of $11.50 on
June 20, in the recent second quarter distribution. The distribution
consisted entirely of net realized capital gains. By taking newly issued
shares, rather than cash, shareholders are able to reinvest their capital
gains in the Fund so they can build additional value through compounding.
Reinvested dividends constitute a major source of shareholder investment growth.
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.
1
<PAGE>
PRESIDENT'S LETTER
- --------------------------------------------------------------------------------
To Our Fellow Shareholders: August 1997
Hal Cogger's Chairman's letter mentioned the improved relative performance
of small and mid-cap stocks in the second quarter, which reversed a year-long
trend of large cap dominance. The price decline of small capitalization growth
stocks, in particular, had begun in the first quarter and continued in April so
that by the end of April, the Russell Small Capitalization Growth Index had a
trailing one-year return of more than 35 percent behind that of the Russell
Large Cap Growth Index. That represented the largest such annual difference
between those two Russell indices since that firm began compiling those
benchmarks back in 1979.
Later in the second quarter, however, while the large cap market indices
continued to be strong, smaller capitalization stocks finally began to
participate. The Russell Small Cap Growth Index advanced 17.6 percent during
the second quarter, which represents a significant change compared to the
first quarter in which it declined almost 11 percent and trailed the large
cap benchmarks by more than 12 percent. Although smaller cap stocks
managed to keep pace with their larger size brethren in the quarter, the
year-to-date and trailing twelve-month results continued to favor the larger
"household" names.
Liberty Asset Management Company ("LAMCO") utilizes a multi-management
investment approach for your Fund that blends complementary investment
strategies across a broad capitalization spectrum, which includes small and
mid-cap stocks where growth prospects are particularly attractive. We believe
that LAMCO's multi-management structure helped dampen the Fund's overall
volatility during this difficult period for small and mid-cap growth stocks.
While we all can be pleased with the extraordinary returns we have
enjoyed over the past one and one-half years since LAMCO assumed full
investment responsibility for the Fund, we should temper our enthusiasm with
realism. The stock market will fluctuate, as it always has. Long-term
investors should take these fluctuations in stride. The Fund is substantially
fully invested in equities and we expect that to continue, absent unusual
circumstances. Market timing is not part of the multi-managed methodology
LAMCO brings to the Fund.
The Fund's net realized capital gains for 1997 may exceed the minimum
amount required to be distributed under the Fund's pay-out policy. This would
be the result of realization of gains after the strong investment performance
during the last one and one-half years. LAMCO plans to recommend to the
Directors, for consideration at their October meeting, that the Fund retain
the excess gains, if any. In order to retain the excess gains, the Fund
would pay Federal income tax on the retained gains. The shareholders would be
required to record their pro-rata portion of the gains retained by the Fund
as a long-term capital gain, and their pro-rata portion of the tax paid by
the Fund would be claimed by the shareholders as a credit on their 1997
Federal income tax return. Additional information will be contained in the
third quarter report.
Mississippi Valley Advisors ("MVA") is the subject of the manager interview
beginning on page 7. Bob Anthony, MVA's Portfolio Manager for the Fund,
discusses the firm's investment philosophy and decision making process as well
as particular stocks that are representative of its style of investing.
We have received a number of inquiries concerning Liberty All-Star Equity
Fund, a companion fund of the Growth Fund. The table on the following page
describes basic characteristics of the two funds. 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).
Thank you for your continuing support of the Fund.
Sincerely,
/s/ Richard R. Christensen
Richard R. Christensen
President and Chief Executive Officer
Liberty All-Star Growth Fund, Inc. and
Liberty Asset Management Company
2
<PAGE>
THE TWO LIBERTY ALL-STAR FUNDS/DISTRIBUTION POLICY/DIVIDEND REINVESTMENT PLAN
THE TWO LIBERTY ALL-STAR FUNDS
<TABLE>
<CAPTION>
Liberty All-Star Liberty All-Star
Growth Fund Equity Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NYSE Ticker Symbol ASG USA
Fund Type Growth Growth & Income
Portfolio Managers Mississippi Valley Advisors Inc Columbus Circle Investors
Oppenheimer Capital J.P. Morgan Investment Management Inc.
William Blair & Company Oppenheimer Capital
Palley-Needelman Asset Management, Inc.
Wilke/Thompson Capital Management, Inc.
Net Assets at 7/31/97 (millions) $167 $1,198
Net Asset Value Per Share at 7/31/97 $13.32 $14.29
Discount at 7/31/97 6.2% 5.1%
Weighted Average Market
Capitalization (billions) $16 $25
Fixed Distribution Policy? Yes Yes
Dividend Rate Per Share 2.5% of NAV Quarterly 2.5% of NAV Quarterly
========================================================================================================================
</TABLE>
DISTRIBUTION POLICY
Liberty All-Star Growth Fund, Inc.'s current policy is to pay distributions
on its common shares totaling approximately 10 percent of its net asset value
per year, payable in four quarterly installments of 2.5 percent of the Fund's
net asset value at the close of the New York Stock Exchange on the Friday prior
to each quarterly declaration date. The fixed distributions are not related to
the amount of the Fund's net investment income or net realized capital gains or
losses. If, for any calendar year, the total distributions required by the 10
percent pay-out policy exceed the Fund's net investment income and net realized
capital gains, the excess will generally be treated as a tax-free return of
capital, reducing the shareholder's adjusted basis in his or her shares. If the
Fund's net investment income and net realized capital gains for any year exceed
the minimum amount required to be distributed under the 10 percent pay-out
policy, the Fund may, at its discretion, retain and not distribute net
long-term capital gains to the extent of such excess.
DIVIDEND REINVESTMENT PLAN
Each registered shareholder of the Fund will automatically be a
participant in the Fund's Automatic Dividend Reinvestment and Cash Purchase
Plan unless the shareholder specifically elects otherwise by writing to the
Plan Agent, State Street Bank and Trust Company, P.O. Box 8200, Boston, MA
02266-8200 or by calling 1-800-LIB-FUND (1-800-542-3863). If your shares are
held for you by a broker, bank or other nominee, you should contact the
institution holding your shares as to whether you wish to participate, or not
participate, in the Plan. Participants in the Plan have their dividends and
distributions automatically reinvested in additional shares of the Fund.
Participants are kept apprised of the status of their account through quarterly
statements.
3
<PAGE>
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 a different 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.
WILLIAM BLAIR & COMPANY
Companies with high profitability and enduring growth from a broad range of
market capitalizations.
OPPENHEIMER CAPITAL
Contrarian holdings being overlooked and undervalued by investors.
PORTFOLIO MARKET CAPITALIZATION SPECTRUM
CHARACTERISTICS AS SMALL LARGE
OF JUNE 30, 1997
(UNAUDITED)
MVA William Oppen- Total S&P
Blair heimer Fund 500 Index
- --------------------------------------------------------------------------------
Number of Holdings 81 39 33 150 500
- --------------------------------------------------------------------------------
Weighted Average Market
Capitalization (billions) $1.3 $20.6 $26.2 $15.5 $51.5
- --------------------------------------------------------------------------------
Percent of Holdings in S&P 500 6.2% 51.3% 60.6% 30.0% --
- --------------------------------------------------------------------------------
Dividend Yield 0.7% 0.6% 1.3% 0.8% 1.9%
- --------------------------------------------------------------------------------
Average Price/Earnings Ratio 19.5x 29.3x 16.3x 20.6x 21.0x
- --------------------------------------------------------------------------------
Average Price/Book Value Ratio 3.3x 6.6x 3.8x 4.4x 4.8x
- --------------------------------------------------------------------------------
Average Five-Year Earnings
Per Share Growth 21.9% 20.9% 25.4% 23.0% 17.3%
4
<PAGE>
<TABLE>
TOP 50 HOLDINGS
- ----------------------------------------------------------------------------------------
<CAPTION>
RANK RANK
AS OF AS OF VALUE PERCENT OF
6/30/97 3/31/97 SECURITY NAME ($000) NET ASSETS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 1 Federal Home Loan Mortgage Corp. $3,197 2.1%
2 13 First Data Corp. 2,543 1.6
3 2 Citicorp 2,411 1.6
4 8 MBNA Corp. 2,303 1.5
5 4 ACE, Ltd. 2,216 1.4
6 5 Travelers Group, Inc. 2,207 1.4
7 10 EXEL Limited 2,110 1.4
8 7 McDonnell Douglas Corp. 2,055 1.3
9 14 State Street Corp. 2,054 1.3
10 17 Microsoft Corp. 2,022 1.3
11 NEW Automatic Data Processing, Inc. 1,998 1.3
12 20 Caterpillar, Inc. 1,933 1.2
13 25 Cognizant Corp. 1,932 1.2
14 24 Household International, Inc. 1,926 1.2
15 22 Medtronic, Inc. 1,863 1.2
16 18 Nokia Corp. ADR 1,844 1.2
17 12 Sprint Corp. 1,842 1.2
18 98 Minerals Technologies, Inc. 1,796 1.2
19 30 Pfizer, Inc. 1,793 1.2
20 21 Molex, Inc. 1,792 1.2
21 16 Morgan Stanley, Dean Witter, Discover & Co. 1,776 1.1
22 19 Federal National Mortgage Assoc. 1,750 1.1
23 29 Progressive Corp. 1,740 1.1
24 26 Countrywide Credit Industries, Inc. 1,715 1.1
25 3 Intel Corp. 1,702 1.1
26 11 Transamerica Corp. 1,684 1.1
27 15 AFLAC, Inc. 1,654 1.1
28 32 HEALTHSOUTH Corp. 1,624 1.0
29 9 Arrow Electronics, Inc. 1,594 1.0
30 31 Lockheed Martin Corp. 1,553 1.0
31 36 American International Group, Inc. 1,491 1.0
32 27 AMR Corp. 1,480 1.0
33 28 LucasVarity PLC ADR 1,454 0.9
34 37 Champion International Corp. 1,381 0.9
35 23 Wells Fargo & Co. 1,348 0.9
36 48 Elan Corp. ADR 1,339 0.9
37 51 Hanna Co. 1,325 0.9
38 44 PMI Group, Inc. 1,310 0.8
39 41 Illinois Tool Works, Inc. 1,308 0.8
40 35 General Electric Co. 1,308 0.8
41 40 Shared Medical Systems Corp. 1,307 0.8
42 6 Monsanto Co. 1,292 0.8
43 39 Dole Food, Inc. 1,283 0.8
44 33 R. R. Donnelley & Sons Co. 1,282 0.8
45 55 Cintas Corp. 1,240 0.8
46 45 Triton Energy Corp. 1,237 0.8
47 64 Sun Healthcare Group, Inc. 1,199 0.8
48 43 Hercules, Inc. 1,197 0.8
49 125 Acxiom Corp. 1,193 0.8
50 38 May Department Stores Co. 1,181 0.8
</TABLE>
5
<PAGE>
MAJOR STOCK CHANGES IN THE SECOND 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 second quarter of
1997.
SHARES
=================================================
HELD AS
SECURITY NAME ADDITIONS REDUCTIONS OF 6/30/97
- --------------------------------------------------------------------------------
Aames Financial Corp. 37,000 37,000
Acxiom Corp. 27,800 58,200
Adaptec, Inc. 30,000 30,000
Automatic Data Processing 42,500 42,500
Barnett, Inc. 19,000 19,000
Biomet, Inc. 45,000 45,000
Computer Associates Int'l., Inc. 10,000 10,000
Credit Acceptance Corp. 29,500 82,400
First Data Corp. 11,500 57,870
First Financial Corp. 12,000 18,250
Gateway 2000, Inc. 20,000 20,000
Global Industries Ltd. 36,171 36,171
Minerals Technologies, Inc. 30,700 47,890
Multicare Companies, Inc. 14,674 14,674
Network General Corp. 25,400 25,400
OM Group, Inc. 15,000 15,000
SFX Broadcasting, Class A 15,000 15,000
SunGard Data Systems, Inc. 7,600 22,600
TCF Financial Corp. 12,000 12,000
Viking Office Products, Inc. 23,800 56,700
Baxter International, Inc. (12,462) 0
Blyth Industries, Inc.* (6,500) 11,700
Columbia/HCA Healthcare Corp. (16,500) 0
Gucci Group NV ADR (8,000) 0
Ikon Office Solutions, Inc. (19,700) 0
Interim Services, Inc. (11,300) 14,300
J. Ray McDermott, S.A. (26,000) 0
Micro Warehouse, Inc. (30,500) 26,258
Monsanto Co. (20,000) 30,000
NAC Re Corp. (11,000) 0
The Peak Technologies Group (36,000) 0
Quantum Corp. (14,800) 0
Regal Cinemas, Inc. (16,400) 0
Service Corp. International (18,000) 0
Standard Federal Bancorporation (13,800) 0
Tenneco, Inc. (20,000) 0
Tyco International Ltd. (15,000) 0
VeriFone, Inc. (20,000) 0
Weatherford Enterra, Inc. (16,838) 0
*Adjusted for Stock Split
6
<PAGE>
MANAGER INTERVIEW
- --------------------------------------------------------------------------------
[photo of Robert J. Anthony]
ROBERT J. ANTHONY
Mississippi Valley Advisors Inc.
At Mississippi Valley Advisors, Commitment and Consistency Uncover Small Cap
Stocks at Attractive Valuations.
Mississippi Valley Advisors (MVA) is one of the All-Star Growth Fund's three
portfolio managers. MVA's investment discipline seeks to achieve a high total
return by investing in a portfolio of small capitalization growth 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 quality management and managers with an equity stake
in the company; leadership in one or two products; and strong financial
condition, as well as companies that are under-researched by Wall Street.
We recently had the opportunity to talk with Robert J. Anthony, Small
Capitalization Portfolio Manager for MVA. The Fund Manager, Liberty Asset
Management Company (LAMCO) serves as moderator for the interview.
The views expressed in this interview represent the manager's views at the time
of the discussion and are subject to change.
LAMCO: As a refresher for existing shareholders and an introduction for new
ones, perhaps we could start with some fundamentals background on the firm,
your objectives and investment approach as they relate to the firm's style.
ANTHONY: Mississippi Valley Advisors' small capitalization equity style is
designed to take advantage of opportunities 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. In making our purchase decisions, we look for 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. Also considered are 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 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, each of whom
is responsible for a sector or sectors of the economy, which are broken down by
energy, technology, healthcare and so on. 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 with the portfolio being selected from the top four deciles. The
stocks become sale candidates when they fall below the sixth decile.
LAMCO: If you had to single out any one factor that really distinguishes
MVA, what would it be?
ANTHONY: It may be two things, but they go together: A long-term commitment
to what we're doing and consistency in our way of going about it. We practice
a very disciplined style, and we've been doing it for more than two decades.
We look to purchase stocks when they're inexpensive on a relative basis
within their industries.in other words, to buy the best growth opportunities
at the most reasonable prices. And we sell them when they've become fully
valued. In terms of consistency, I've been working with our small cap
portfolios since their inception. Our analysts average about 15 years'
experience and each of them is a sector specialist, so they really know their
industries.
7
<PAGE>
MANAGER INTERVIEW
- --------------------------------------------------------------------------------
In addition, we don't practice the "star" portfolio manager system that you
sometimes find with other firms. We take a team approach -- we're all playing
by the same rule book.
LAMCO: What's your assessment of the state of the stock market at mid-year
1997?
ANTHONY: There's probably no one who's not a little in awe of the strength of
this market. But, the fact is, when you look at "the market," particularly
the S&P 500 Index, it's not really a market, but a handful of let's call them
"Nifty 50, Nifty 30 or Nifty 25 stocks" that are selling at P/E multiples
that we haven't seen since the 1960s. I mean the Coca-Colas, the GEs, the
Mercks and so forth are all selling at extraordinary earnings multiples. But,
if you look at the broader market -- the "real stock market" -- in many cases
those valuations are far more reasonable. And if you do some digging, say, in
search of companies that don't have the best current earnings momentum or
companies that are a little bit out of favor, you can still find very reasonable
values in the stock market. So, our view is that while the market, overall,
looks expensive, if you take out that small group of mega-cap stocks that
dominates the S&P 500, there are decent underlying values.
[pull quote] "...our view is that while the market, overall, looks expensive,
if you take out that small group of mega-cap stocks that dominates the S&P
500, there are decent underlying values." [end pull quote]
LAMCO: Some investors have said that if the market is going to continue its
momentum, it has to broaden out so that more mid- and small cap stocks
participate. We've heard that for awhile, yet the S&P 500 keeps rising.
ANTHONY: One of the advantages -- or disadvantages, depending on how you look
at it -- of being in this business a long time is that I remember the days
when GE sold for just 10 times earnings and you couldn't give it away. Now,
it's selling for 30 times earnings and people can't get enough of it. But,
all things change, and I think if you're chasing the "Nifty 50" right now
it's not a whole lot different than when biotech stocks were at their peak,
or semiconductor stocks were at theirs, or oil stocks were at theirs. What's
changed, I believe, is that the market has become liquidity-driven, with
mutual fund managers putting their cash into the largest companies. Still,
someday something will change -- I don't know what and I don't know when, but
investors will shift their focus from the "Nifty 50" to some other segment of
the market.
LAMCO: What are your views of the small cap segment of the market?
ANTHONY: The 12 months or so prior to May were very difficult vis a vis large
cap stocks. But I think that has lead to a more positive situation. I mean that
there has been a very broad recognition that you can find higher growth at lower
multiples in small cap stocks. What happened in May was that, all of a sudden,
we saw a real reversal of trend and the small caps dramatically outperformed
the large caps. The Russell 2000 was up 11.1 percent in May while the S&P 500
was up 6.1 percent. That was the first time in awhile that we've seen a strong
double digit gain in the small cap sector while the large cap sector lagged.
In June, large cap beat small cap by a bit, but the small caps clearly
participated. The Russell 2000 was up 4.3 percent and the S&P 500 was up 4.5
percent. So, there has been a little broadening in the market and I think it's
a healthy sign.
LAMCO: Do you feel, at this point, that there might be better relative
performance ahead?
ANTHONY: Over time, the market has always been smart enough to find good values.
We think values in the small cap segment of the market are reasonably
compelling.
LAMCO: Give us an overview of your All-Star Growth Fund portfolio.
ANTHONY: The portfolio contains about 80 holdings and reflects our bottom-up,
growth at a reasonable price approach. Right now, we're finding some of the
best values in areas such as consumer growth, where we're in the nursing home
and medical technology areas, for example. In some other areas, such as broad-
8
<PAGE>
MANAGER INTERVIEW
casting stocks and retailing, we're also finding good value. We're overweighted
in industrial cyclicals, which includes specialty chemical companies, companies
serving the paper industry, packaging companies and so forth. These stocks
underperformed last year and we used that as a nice opportunity to add them to
the portfolio. An area where we're slightly underweighted is technology and the
reason is we can't find great values in technology right now.
LAMCO: Can you tell us about a couple of stocks that you have sold lately?
ANTHONY: One stock we sold is Blyth Industries, a household products company
manufacturing and distributing items such as candles and potpourri. The stock
got hit fairly hard in the market sell-off earlier this year. It showed up on
our screens, we did our work and discovered that it still had a lot of good
growth left in it. We purchased it at about 23 and just sold it after a 50
percent move up to more normal pricing levels.
Another stock we recently sold was Quantum Corp. Quantum is a disk drive
company, operating in an extremely volatile segment of the electronics
industry. We bought it at 9 and sold it at 23. Companies in the disk drive
industry can easily be characterized as "deep cyclicals" and we find that these
stocks are fully priced when they begin to reflect their full earning power and
more normalized margins, profitability and return on equity. Quantum has been on
a good run after struggling in the previous year. Their high end product area is
doing quite well now and that had been a problem. And the market was beginning
to give the company the benefit of the doubt going forward. We think the
industry is too cyclical and there are too many negative surprises that can
crop up from time to time and, feeling that Quantum was fairly priced, we sold
it.
[pull quote] "We practice a very disciplined style, and we've been doing it
for two decades plus. We look to purchase stocks when they're inexpensive on a
relative basis within their industries..." [end pull quote]
LAMCO: Tell us about some additions to the portfolio.
ANTHONY: One new stock that we're very enthusiastic about would be Aames
Financial. It's a stock that we owned previously. We sold it in the low 30s,
watched it go as high as about 40 and repurchased it at 13. Aames is a mortgage
lender. It has an excellent record and very good management. We're looking for
earnings per share of about $2, perhaps more, and we think there's mid-teens
topline sales growth. The stock was beaten down on the perception that the
consumer is falling off the face of the earth, that consumer balance sheets are
weak and that credit card debt is too high. Yet the company fundamentals
remained intact. We used its depressed price as an opportunity to buy.
A company that we just bought that's a little bit different is Rental
Service Corp. What Rental Service does is rent machinery, such as backhoes,
tractors and compressors. Rental Service is in an industry that's
consolidating, and the company is growing by acquisitions as well as "same
store" growth. In essence, the economics of renting or owning heavy equipment
dictate that you have to use the equipment nine months out of the year to
justify buying it. The rental market is growing at about 10 percent plus
annually, and Rental Service should be able to grow 20-25 percent a year.
Barnett, Inc. is another recent purchase. It's a national direct marketer
and distributor of plumbing, electrical and hardware products, and it's growing
by 20-25 percent a year. Barnett sells via catalog, so it grows by increasing
its distribution geographically as well as increasing the number of products in
the catalog. The company principally serves the commercial/industrial market --
plumbers and electricians in the repair market. That market is very steady --
few cyclical characteristics, unlike the new construction business. One
different twist with Barnett is that it is beginning to sell into South America.
That could be considered risky, but Barnett is doing it by sending mail order
catalogs to South America, so they're not making any asset commitment. What
they're finding is that in markets such as South America product availability
can be difficult. So Barnett is meeting a real need.
9
<PAGE>
MANAGER INTERVIEW
- --------------------------------------------------------------------------------
LAMCO: To conclude, tell us about a couple of longer term positions in the
portfolio.
ANTHONY: Finova is one --it's a Phoenix based commercial finance company that
specializes in leasing and commercial finance loans. This company focuses on
small and mid-sized companies with borrowing needs as low as $50,000. This
market is a little bit on the small side for a large bank's window of lending.
Finova is showing very steady 15 percent growth and has very solid management.
Nothing spectacular, just solid.
[pull quote] "Over time, the market has always been smart enough to find good
values. We think values in the small cap segment of the market are reasonably
compelling." [end pull quote]
Hubbell, Inc. is another long-term holding. It's a very diversified
supplier of electrical wiring devices and building premise wiring systems for
the commercial and industrial market. Hubbell is a quality, high end company. If
you want to put the highest quality building controls in a building, you're
probably putting in Hubbell. The company has a spectacular long-term record --
in excess of two decades of double digit quarterly results on an operating
basis. The company protects us nicely in down markets, which is something you
have to think about with a diversified portfolio. Hubbell is just a good,
steady performer.
10
<PAGE>
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS (97.2%) SHARES MARKET VALUE
AEROSPACE (2.3%)
Lockheed Martin Corp. 15,000 $ 1,553,438
McDonnell Douglas Corp. 30,000 2,055,000
-----------
3,608,438
-----------
AUTO, TIRES & ACCESSORIES (1.2%)
Discount Auto Parts, Inc. (a) 24,000 468,000
LucasVarity PLCADR (a) 42,000 1,454,250
-----------
1,922,250
-----------
BANKS (5.8%)
CCB Financial Corp. 6,300 460,688
Charter One Financial, Inc. 15,000 808,125
Citicorp 20,000 2,411,250
Crestar Financial Corp. 21,000 816,375
First Financial Corp. 18,250 538,375
State Street Corp. 44,400 2,053,500
TCF Financial Corp. 12,000 592,500
Wells Fargo & Co. 5,000 1,347,500
-----------
9,028,313
-----------
Broadcasting & Cable (0.8%)
Evergreen Media Corp., Class A (a) 14,500 647,063
SFX Broadcasting, Class A (a) 15,000 632,812
-----------
1,279,875
-----------
Business Services (10.0%)
Acxiom Corp. (a) 58,200 1,193,100
American Management Systems (a) 41,900 1,120,825
Automatic Data Processing (a) 42,500 1,997,500
Cognizant Corp. (a) 47,700 1,931,850
Concord EFS, Inc. (a) 27,700 716,737
First Data Corp. 57,870 2,542,663
National Data Corp. 23,500 1,017,844
Network General Corp. (a) 25,400 377,825
Paychex, Inc. 15,000 570,000
Reuters Holdings PLCADR 17,200 1,083,600
Shared Medical Systems 24,200 1,306,800
Sungard Data Systems, Inc. (a) 22,600 1,050,900
SystemSoft Corp. (a) 59,500 639,625
-----------
15,549,269
-----------
CHEMICALS (5.0%)
Cytec Industries, Inc. (a) 15,000 560,625
Hanna (M.A.) Co. 46,000 1,325,375
Hercules, Inc. 25,000 1,196,875
International Specialty Products, Inc. 30,000 421,875
Minerals Technologies, Inc. 47,890 1,795,875
Monsanto Co. 30,000 1,291,875
OM Group, Inc. 15,000 496,875
RPM, Inc. 34,000 624,750
-----------
7,714,125
-----------
SHARES MARKET VALUE
COMPUTER & BUSINESS EQUIPMENT (4.9%)
Active Voice Corp. (a) 20,000 $ 230,000
Black Box Corp. (a) 27,100 1,090,775
Computer Associates Int'l., Inc. 10,000 556,250
Gateway 2000, Inc. (a) 20,000 648,750
Intel Corp. 12,000 1,701,750
Komag, Inc. (a) 15,132 247,787
Microsoft Corp. (a) 16,000 2,022,000
Zebra Technologies Corp.,
Class A (a) 37,803 1,058,484
-----------
7,555,796
-----------
CONSUMER PRODUCTS (0.8%)
Blyth Industries, Inc. (a) 11,700 394,875
Furniture Brands International, Inc.(a) 12,500 241,406
Leggett & Platt, Inc. 14,000 602,000
-----------
1,238,281
-----------
DIVERSIFIED (1.6%)
Ball Corp. 21,800 654,700
General Electric Co. 20,000 1,307,500
Lydall, Inc. (a) 23,000 491,625
-----------
2,453,125
-----------
DRUGS & HEALTH CARE (13.4%)
Allergan, Inc. 26,700 852,731
Amgen, Inc. (a) 8,000 465,000
Apria Healthcare Group, Inc. (a) 36,800 653,200
Bard (C.R.), Inc. 20,000 730,000
Beverly Enterprises, Inc. (a) 47,000 769,625
Biomet, Inc. 45,000 838,125
Boston Scientific Corp. (a) 13,000 798,688
Cardinal Health, Inc. 15,000 858,750
Dentsply International, Inc. 15,000 735,000
Elan Corp. ADR (a) 29,600 1,339,400
Emeritus Corp. (a) 13,000 191,750
Fisher Scientific International 23,500 1,116,250
HEALTHSOUTH Corp. (a) 65,800 1,624.437
Horizon/CMS Healthcare Corp. (a) 40,000 802,500
Living Centers of America, Inc. (a) 22,700 896,650
Lunar Corp. (a) 11,600 252,300
Medtronic, Inc. 23,000 1,863,000
Millipore Corp. 16,500 726,000
Multicare Companies, Inc. (a) 14,674 401,701
Nellcor Puritan Bennett, Inc. (a) 27,000 489,375
Orthologic Corp. (a) 52,700 289,850
Pfizer, Inc. 15,000 1,792,500
R.P. Scherer Corp. (a) 18,600 960,225
Sterling House Corp. (a) 12,000 196,500
Sun Healthcare Group, Inc. (a) 57,600 1,198,800
-----------
20,842,357
-----------
See Notes to Schedule of Investments. 11
<PAGE>
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED)
COMMON STOCKS (CONT.) SHARES MARKET VALUE
ELECTRONICS & ELECTRICAL EQUIPMENT (5.2%)
Adaptec, Inc. 30,000 $ 1,042,500
Analog Devices, Inc. (a) 28,333 752,595
Arrow Electronics, Inc. (a) 30,000 1,593,750
Hubbell, Inc., Class B 24,000 1,060,500
Linear Technology Corp. 16,400 846,650
Molex, Inc. 51,375 1,791,703
Xilinix, Inc. (a) 21,800 1,069,563
-----------
8,157,261
-----------
FINANCIAL SERVICES (14.2%)
Aames Financial Corp. 37,000 684,500
Capital One Financial Corp. 25,000 943,750
Cityscape Financial Corp. (a) 30,800 614,075
CMAC Investment Corp. 15,000 712,500
Countrywide Credit Industries, Inc. 55,000 1,715,313
Credit Acceptance Corp. (a) 82,400 1,060,900
CUC International, Inc. (a) 43,100 1,112,519
Federal Home Loan Mortgage Corp .93,000 3,196,875
Federal National Mortgage Assoc. 40,000 1,750,000
Finova Group, Inc. 8,700 665,550
Household International, Inc. 16,400 1,925,975
MBNACorp. 63,000 2,303,438
Morgan Stanley, Dean Witter,
Discover & Co. 41,250 1,776,328
Southern Pacific Funding Corp. (a) 25,500 423,937
Travelers Group, Inc. 35,000 2,207,187
Union Acceptance Corp., Class A (a) 27,000 293,625
United Companies Financial Corp. 22,300 629,975
-----------
22,016,447
-----------
FOOD, BEVERAGE & RESTAURANTS (3.5%)
Canandaigua Wine Co., Class A (a) 27,216 772,344
Dole Food Co. 30,000 1,282,500
Grand Metropolitan PLCADR 30,000 1,175,625
Hormel Foods Corp. 26,000 698,750
IBP, Inc. 27,000 631,125
Performance Food Group, Co. (a) 39,000 819,000
Showbiz Pizza Time, Inc. (a) 4,741 125,044
-----------
5,504,388
-----------
INDUSTRIAL EQUIPMENT (2.7%)
Albany International 25,000 562,500
Barnett, Inc. (a) 19,000 460,750
Caterpillar, Inc. 18,000 1,932,750
Illinois Tool Works, Inc. 26,200 1,308,362
-----------
4,264,362
-----------
SHARES MARKET VALUE
INSURANCE (7.8%)
ACE, Ltd. 30,000 $ 2,216,250
AFLAC, Inc. 35,000 1,653,750
American International Group, Inc. 10,000 1,491,250
Exel Ltd. 40,000 2,110,000
PMI Group, Inc. 21,000 1,309,875
Progressive Corp. 20,000 1,740,000
Transamerica Corp. 18,000 1,684,125
-----------
12,205,250
-----------
METALS & MINING (0.8%)
Freeport-McMoRan Copper
& Gold, Inc., Class A 40,000 1,180,000
-----------
OIL & GAS (2.1%)
Global Industries LTD (a) 36,171 844,932
Tejas Gas Corp. (a) 15,000 588,750
Triton Energy Corp. (a) 27,000 1,236,937
Union Texas Petroleum Holdings, Inc. 30,000 628,125
-----------
3,298,744
-----------
PAPER & PLASTIC (1.8%)
Aptargroup, Inc. 9,567 432,907
Caraustar Industries, Inc. 13,000 450,125
Champion International Corp. 25,000 1,381,250
Consolidated Papers, Inc. 9,000 486,000
-----------
2,750,282
-----------
PUBLISHING (0.8%)
R. R. Donnelley & Sons Co. 35,000 1,281,875
-----------
RETAIL TRADE (4.4%)
CVS Corp. 20,900 1,071,125
Fastenal Co. (a) 13,100 641,900
Marks Brothers Jewelers, Inc. (a) 30,100 376,250
May Department Stores Co. 25,000 1,181,250
Micro Warehouse, Inc. (a) 26,258 449,668
Safeway, Inc. (a) 18,000 830,250
Staples, Inc. (a) 34,500 802,125
The Sports Authority, Inc. (a) 19,500 379,031
Viking Office Products, Inc. (a) 56,700 1,077,300
-----------
6,808,899
-----------
SERVICES (2.2%)
Cintas Corp. 18,000 1,239,750
Interim Services, Inc. (a) 14,300 636,350
Rental Service Corp. (a) 11,000 288,750
Robert Half International, Inc. (a) 12,300 578,869
Unitog Co. 22,700 612,900
-----------
3,356,619
-----------
12 See Notes to Schedule of Investments
<PAGE>
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED)
COMMON STOCKS (CONT.) SHARES MARKET VALUE
TELECOMMUNICATIONS (3.6%)
Airtouch Communications, Inc.(a) 34,500 $ 944,438
Arch Communications Group, Inc. (a) 47,500 285,937
Mobile Telecommunication
Technologies Corp. (a) 43,800 626,887
Nokia Corp. ADR 25,000 1,843,750
Sprint Corp. 35,000 1,841,875
-----------
5,542,887
-----------
SHARES MARKET VALUE
TEXTILE MILL PRODUCTS (0.2%)
Polymer Group, Inc. (a) 20,000 $ 322,500
TRANSPORTATION (2.1%)
American Freightways Corp. (a) 29,125 458,719
AMR Corp. (a) 16,000 1,480,000
Tidewater, Inc. 19,000 836,000
U.S. Freightways Corp. 18,800 486,450
-----------
3,261,169
-----------
TOTAL COMMON STOCKS
(Cost $116,790,772) 151,142,512
-----------
SHORT TERM INVESTMENT (3.5%) PAR
DISCOUNT NOTE VALUE
Federal Home Loan Mortgage Corp.
6.00% 07/01/97 (Cost $5,460,000) $5,460,000 5,460,000
------------
TOTAL INVESTMENTS (100.7%)
(COST $122,250,772)(b) 156,602,512
OTHER ASSETS AND LIABILITIES,
NET (-0.7%) (1,161,669)
------------
NET ASSETS (100.0%) $155,440,843
============
NET ASSET VALUE PER SHARE (12,527,800 SHARES OUTSTANDING) $ 12.41
============
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) The cost of investments for federal
income tax purposes is $122,424,437.
Gross unrealized appreciation and
depreciation of investments at
June 30, 1997, is as follows:
Gross unrealized appreciation $37,433,709
Gross unrealized depreciation (3,255,634)
-----------
Net unrealized appreciation $34,178,075
===========
Acronym Name
------- ---------------------------
ADR American Depository Receipt
See Notes to Financial Statements. 13
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES AS OF JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS:
Investments at market value (identified cost $122,250,772) $ 156,602,512
Cash 2,740
Receivable for investments sold 622,288
Dividends and interest receivable 84,562
-------------
TOTAL ASSETS 157,312,102
-------------
LIABILITIES:
Payable for investments purchased 73,576
Distributions payable to shareholders 1,388,123
Management fees payable 258,136
Administrative and bookkeeping fees payable 98,775
Accrued other expenses 52,649
-------------
TOTAL LIABILITIES 1,871,259
-------------
NET ASSETS $ 155,440,843
-------------
NET ASSETS REPRESENTED BY:
Paid-in capital (authorized 20,000,000
shares at $0.10 Par; 12,527,800 shares outstanding) $ 117,833,284
Accumulated net investment income (loss) (65,664)
Accumulated net realized gains on investments
less distributions 3,321,483
Net unrealized appreciation of investments 34,351,740
-------------
TOTAL NET ASSETS APPLICABLE
TO OUTSTANDING SHARES
OF BENEFICIAL INTEREST
($12.41 PER SHARE) $ 155,440,843
-------------
14 See Notes to Financial Statements.
<PAGE>
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30,1997 (UNAUDITED)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Dividends $ 629,671
Interest 181,842
-----------
TOTAL INVESTMENT INCOME (NET OF
NONREBATABLE FOREIGN TAXES WITHHELD
AT SOURCE WHICH AMOUNTED TO $6,354) 811,513
EXPENSES:
Management fees $ 515,567
Administrative fee 171,856
Bookkeeping fee 25,557
Custodian fees 4,375
Transfer agent fees 40,577
Proxy and shareholder communication expense 21,240
Printing expense 33,314
Legal and audit fees 25,141
Insurance expense 5,864
Directors' fees and expense 16,655
Miscellaneous expense 17,031
-----------
TOTAL EXPENSE 877,177
----------
NET INVESTMENT INCOME (LOSS) (65,664)
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains on investment transactions:
Proceeds from sales 58,027,135
Cost of investments sold 48,293,088
-----------
Net realized gains on investment transactions 9,734,047
Net unrealized appreciation of investments:
Beginning of period 22,346,578
End of period 34,351,740
-----------
Change in unrealized appreciation -- net 12,005,162
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $21,673,545
===========
</TABLE>
See Notes to Financial Statements. 15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
- ------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (65,664) $ 77,663
Net realized gains on investment transactions 9,734,047 7,600,155
Change in unrealized appreciation-net 12,005,162 13,538,818
------------ ------------
Net increase in net assets resulting from operations 21,673,545 21,216,636
------------ ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income (35,334) (42,330)
Net realized gains on investments (7,178,285) (11,523,548)
------------ ------------
Total distributions (7,213,619) (11,565,878)
------------ ------------
CAPITAL TRANSACTIONS:
Increase in net assets from capital share transactions 4,343,863 7,411,472
------------ ------------
Total increase in net assets 18,803,789 17,062,230
------------ ------------
NET ASSETS:
Beginning of year 136,637,054 119,574,824
------------ ------------
End of year (including accumulated net investment
income (loss) and undistributed net investment
income of $(65,664) and $35,334, respectively) $155,440,843 $136,637,054
============ ============
</TABLE>
16 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED -----------------------------------------------------------------------------
JUNE 30, 1997
(UNAUDITED) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 11.27 $ 10.55 $ 9.95 $ 10.54 $ 10.28 $ 10.40
Income from Investment Operations:
Net investment income (loss) (0.01) 0.01 0.31 0.23 0.18 0.29
Net realized and unrealized gain
(loss) on investments 1.78 1.86 1.05 (0.24) 0.56 0.03
-------- -------- -------- -------- -------- --------
Total from Investment Operations 1.77 1.87 1.36 (0.01) 0.74 0.32
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment income (a) (0.01) (0.31) (0.23) (0.18) (0.30)
Distributions from realized capital
gains (0.59) (1.01) (0.45) (0.35) (0.30) (0.14)
-------- -------- -------- -------- -------- --------
Total Distributions (0.59) (1.02) (0.76) (0.58) (0.48) (0.44)
Impact of shares issued in dividend
reinvestment (b) (0.04) (0.13) -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions and Reinvestments (0.63) (1.15) (0.76) (0.58) (0.48) (0.44)
-------- -------- -------- -------- -------- --------
Net asset value at end of period $ 12.41 $ 11.27 $ 10.55 $ 9.95 $ 10.54 $ 10.28
======== ======== ======= ======= ======= ========
Per share market value at end of
period $ 11.375 $ 9.250 $ 9.375 $ 8.500 $10.250 $ 10.000
======== ======== ======= ======= ======= ========
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS: (c)
Based on net asset value 16.3% (d) 18.3% 13.8% (1.1%) 7.2% 3.1%
Based on market price 29.9% (d) 9.3% 19.3% (11.6%) 7.2% 4.4%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (millions) $155 $137 $120 $113 $125 $123
Ratio of expenses to average net assets 1.24% (e) 1.35% 1.42% 1.51% 1.35% 1.33%
Ratio of net investment income
to average net assets (0.09%)(e) 0.06% 2.87% 2.12% 1.71% 2.80%
Portfolio turnover rate .39% (d) .51% .82% .50% .47% .19%
Average commission rate (f) $ 0.0501 $ 0.0555 -- -- -- --
(a) Rounds to less than $0.01.
(b) Effect of dividend reinvestment shares at a price below net asset value in accordance with the Automatic Dividend
Reinvestment and Cash Purchase Plan, as amended in 1996.
(c) Calculated assuming reinvestment of all distributions.
(d) Not annualized.
(e) Annualized.
(f) 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.
</TABLE>
See Notes to Financial Statements 17
<PAGE>
NOTES TO FINANCIAL STATEMENTS AS OF JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
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"). The Manager is a subsidiary of Liberty
Financial Companies, Inc., a publicly traded company of which Liberty Mutual
Insurance Company is the majority shareholder.
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 determines 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 and 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 six months ended June 30, 1997,
distributions in the amount of $4,343,863 were paid in newly issued shares
valued at the lower of market value or net asset value, but not less than 95%
of market value, resulting in the issuance of 408,549 shares.
During the year ended December 31, 1996, distributions in the amount of
$7,411,472 were paid in newly issued shares valued at the lower of 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 period ended June 30, 1997,
were $53,409,635 and $55,027,135, 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 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 -- The Fund currently has a policy of
paying distributions on its common shares totaling approximately 10% of its
net asset value per year, payable in four quarterly distributions of 2.5% of
the Fund's net asset value at the close of the New York Stock Exchange on the
Friday prior to each quarterly declaration date.
Distributions to shareholders are recorded on the ex-dividend date. The
characterization of 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
carryforwards) under income tax regulations.
18
<PAGE>
1997 ANNUAL MEETING
- --------------------------------------------------------------------------------
1997 ANNUAL MEETING
Liberty All-Star Growth Fund, Inc.'s 1997 Annual Meeting of Shareholders was
held on April 16, 1997. At the Meeting, Mr. James E. Grinnell was re-elected
Director of the class whose term expires with the Annual Meeting in the Year
2000. Messrs. Harold W. Cogger, Robert J. Birnbaum, and Richard W. Lowry
continue in office as Directors.
In addition, shareholders approved the Fund's new Portfolio Management Agreement
with William Blair & Company, L.L.C., and ratified the Board of Directors'
selection of KPMG Peat Marwick LLP as the Fund's independent auditors for the
year ending December 31, 1997. The number of votes cast for and against and the
number of abstentions on these matters were as follows:
1. Approval of Portfolio Management Agreement with Willliam Blair & Company,
L.L.C.
For: 10,125,586
Against: 261,388
Abstain: 144,770
2. Ratification of Selection of KPMG Peat Marwick LLP as Independent Auditors
for 1997.
For: 10,282,124
Against: 172,751
Abstain: 76,869
19
<PAGE>
[Liberty logo]
LIBERTY
ALL (star graphic) STAR
-----------------------------
GROWTH FUND
New York Stock Exchange Trading Symbol: ASG
FUND MANAGERS
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
Christopher S. Carabell, Vice President
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).
[Liberty logo] LIBERTY
FINANCIAL
