FUND MANAGER'S LETTER
................................................................................
To Our Fellow Shareholders: August 1998
The net asset value (NAV) of a common share of the Fund declined from $14.37
on March 31, 1998, to $14.03 on June 30, 1998, after deducting the distribution
of 36 cents declared during the quarter. The market price of a share of the Fund
traded in a range from $12.125 to $14.25 before closing the quarter at $12.75.
The ending price represented a discount to NAV of 9.1 percent compared with a
discount to NAV of 6.1 percent on March 31, 1998. Key investment results and
comparisons are noted below.
As the table shows, during the second quarter the Fund's net asset value
increased 0.5 percent, which compares with 1.9 percent for the Lipper Growth
Mutual Fund Average (the Fund's primary benchmark) and 3.2 percent for the
NASDAQ Composite Index. For the latest six months, the Fund's net asset value
was up 14.8 percent compared with 15.1 percent for the Lipper Average and 20.7
percent for the NASDAQ Index.
Large capitalization stocks continued to outperform small cap stocks in the
second quarter, both as to the market as a whole and as to growth stocks in
particular. The S&P 500, a large cap proxy, continued its advance for an
unprecedented 14th quarter in a row. The chart on the next page shows the
difference in performance over the past 10-1/2 years between large and small cap
growth stocks, as represented by the Russell 1000 and Russell 2000 Growth
indices, respectively. As you can see from the chart, the past 4-1/2 year period
has been unusual in the persistency of the dominance of large cap growth stocks.
Your Fund maintains a balance between large and small cap growth stocks and we
expect it to benefit when the small cap stocks come back into favor.
Mr. Harold W. Cogger, Chairman of the Board of Directors since April 1996,
has retired and Mr. John V. Carberry has been elected by the Board to replace
him. Hal served the Fund with distinction. We thank him and wish him well in his
retirement. John is a Senior Vice President of Liberty Financial Companies,
Inc., the parent company of Liberty Asset Management Company ("LAMCO"), and has
more than 25 years' experience in the financial services industry.
Mr. William R. Parmentier has been appointed President and Chief Executive
Officer of LAMCO, the Fund's Manager, to succeed Richard R. Christensen, who
assumes the position of Chairman. Messrs. Christensen and Parmentier will retain
their current positions as President and Chief Investment Officer, respectively,
of the Fund until Mr. Christensen retires in 1999.
The Fund's first rights offering of additional shares to shareholders was
oversubscribed and successfully concluded in July. A total of 1,314,122 shares
(one share for each 10 held on the record date) was issued at a price of $12.41
per share. This price was 95 percent of the market price at the close of the New
York Stock Exchange on July 10, 1998, the pricing date.
[boxed text]
<TABLE>
<CAPTION>
Second Quarter Latest Six Months
- --------------------------------------------------------------------------------
<S> <C> <C>
LIBERTY ALL-STAR GROWTH FUND, INC.
Shares Valued at Net Asset Value 0.5% 14.8%
Shares Valued at Net Asset Value
With Dividends Reinvested 0.6% 14.9%
Shares Valued at Market Price
With Dividends Reinvested (2.8%) 12.8%
Fund's Closing Price Range $14.063 to $12.188 $14.063 to $11.688
Fund's Discount Range 10.8% to 0.8% 10.8% to 0.3%
Lipper Growth Mutual Fund Average 1.9% 15.1%
NASDAQ Composite Index 3.2% 20.7%
S&P 500 Stock Index 3.3% 17.7%
Dow Jones Industrial Average 2.1% 14.1%
</TABLE>
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 Stock Index and Dow Jones
Industrial Average are total returns including income. Figures for the unmanaged
NASDAQ Index are total returns excluding income.
1
<PAGE>
FUND MANAGER'S LETTER
................................................................................
Russell 1000 Growth vs Russell 2000 Growth
Calendar Year Performance Since 1988
[bar chart]
Large Small
Outperformed Outperformed
Small Large
88 -9.1%
89 15.8%
90 17.2%
91 -10.0%
92 -2.8%
93 -10.5%
94 5.1%
95 6.2%
96 11.9%
97 17.5%
98-YTD* 14.9%
*Through June 30, 1998
Mississippi Valley Advisors ("MVA") is the subject of the manager interview
beginning on page 6. 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.
Thank you for your continuing support of the Fund.
Sincerely,
<TABLE>
<S> <C>
/s/ Richard R. Christensen /s/ William R. Parmentier, Jr.
Richard R. Christensen William R. Parmentier, Jr.
President, Liberty All-Star Growth Fund, Inc. Chief Investment Officer, Liberty All-Star Growth Fund, Inc.
Chairman, Liberty Asset Management Company President, Liberty Asset Management Company
</TABLE>
2
<PAGE>
PORTFOLIO MANAGERS / PORTFOLIO CHARACTERISTICS
................................................................................
THE FUND'S THREE PORTFOLIO MANAGERS AND THE INVESTMENT STYLES THEY PRACTICE ARE:
MISSISSIPPI VALLEY ADVISORS INC. (MVA)
Small capitalization growth companies that sell at a reasonable current price
relative to their projected one and three year growth rates.
WILLIAM BLAIR & COMPANY
Companies with high profitability and enduring growth across a broad range of
market capitalizations.
OPPENHEIMER CAPITAL
Companies that exhibit the ability to generate excess cash flow while earning
high returns on invested capital.
MANAGERS' DIFFERING INVESTMENT STYLES ARE REFLECTED IN PORTFOLIO CHARACTERISTICS
The Portfolio Characteristics table below 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 first column shows portfolio
characteristics for the S&PSmallCap 600 Index (a representative index of small
capitalization companies), and the final column shows portfolio characteristics
for the S&P 500 Stock Index (a representative index of large capitalization
companies).
PORTFOLIO CHARACTERISTICS MARKET CAPITALIZATION SPECTRUM
AS OF JUNE 30, 1998 SMALL LARGE
(UNAUDITED) [gradient filled bar--light to dark]
<TABLE>
<CAPTION>
S &P
SmallCap William Oppen- Total S&P
600 Index MVA Blair heimer Fund 500 Index
==========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Number of Holdings 600 75 44 34 148 500
- ----------------------------------------------------------------------------------------------------------
Percent of Holdings in S&P 500 -- 8% 59% 71% 47% --
- ----------------------------------------------------------------------------------------------------------
Weighted Average Market
- ----------------------------------------------------------------------------------------------------------
Capitalization (billions) $1.0 $1.3 $28.0 $39.6 $22.6 $70.4
- ----------------------------------------------------------------------------------------------------------
Average Five-Year Earnings
- ----------------------------------------------------------------------------------------------------------
Per Share Growth -- 17% 27% 20% 22% 17%
- ----------------------------------------------------------------------------------------------------------
Dividend Yield 0.7% 0.5% 0.4% 1.1% 0.7% 1.4%
- ----------------------------------------------------------------------------------------------------------
Average Price/Earnings Ratio 20x 20x 36x 16x 24x 23x
- ----------------------------------------------------------------------------------------------------------
Average Price/Book Value Ratio 2.7x 3.9x 6.4x 4.2x 4.8x 5.2x
- ----------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
TOP 50 HOLDINGS
................................................................................
<TABLE>
<CAPTION>
RANK RANK MARKET
AS OF AS OF VALUE PERCENT OF
6/30/98 3/31/98 SECURITY NAME ($000) NET ASSETS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 1 Federal Home Loan Mortgage Corp. $4,377 2.3%
2 2 Automatic Data Processing, Inc. 3,381 1.8
3 4 Morgan Stanley Dean Witter &Co. 3,198 1.7
4 3 EXEL Limited 3,113 1.7
5 10 R.R. Donnelley & Sons Co. 3,038 1.6
6 5 Travelers Group, Inc. 3,031 1.6
7 8 Citicorp 2,985 1.6
8 9 ACE Limited 2,925 1.6
9 11 Nokia Corp. ADR 2,903 1.5
10 6 Countrywide Credit Industries, Inc. 2,791 1.5
11 16 AMR Corp. 2,664 1.4
12 12 Minerals Technologies, Inc. 2,480 1.3
13 14 Sprint Corp. 2,468 1.3
14 15 Viking Office Products, Inc. 2,385 1.3
15 7 Intel Corp. 2,305 1.2
16 29 Staples, Inc. 2,214 1.2
17 23 American International Group, Inc. 2,190 1.2
18 24 Home Depot, Inc. 2,160 1.1
19 17 AFLAC,Inc. 2,122 1.1
20 13 Progressive Corp. 2,115 1.1
21 19 Transamerica Corp. 2,072 1.1
22 25 Household International, Inc. 1,985 1.1
23 38 AirTouch Communications, Inc. 1,928 1.0
24 22 Caterpillar, Inc. 1,904 1.0
25 20 MBNA Corp. 1,865 1.0
26 34 Wells Fargo & Co. 1,845 1.0
27 31 GeneralElectric Co. 1,820 1.0
28 26 LucasVarity PLC ADR 1,792 1.0
29 50 Medtronic, Inc. 1,753 0.9
30 21 Boeing Co. 1,738 0.9
31 18 State Street Corp. 1,724 0.9
32 43 Microsoft Corp. 1,701 0.9
33 27 Shared Medical Systems Corp. 1,696 0.9
34 42 Cognizant Corp. 1,682 0.9
35 41 Monsanto Co. 1,676 0.9
36 36 Illinois Tool Works, Inc. 1,674 0.9
37 32 Acxiom Corp. 1,668 0.9
38 40 May Department Stores Co. 1,638 0.9
39 New Sterling Commerce, Inc. 1,601 0.9
40 33 Lockheed Martin Corp. 1,588 0.8
41 49 Network Associates, Inc. 1,568 0.8
42 44 CVS Corp. 1,558 0.8
43 55 Carnival Corp., Class A 1,498 0.8
44 30 Molex, Inc. 1,494 0.8
45 56 Biomet, Inc.. 1,491 0.8
46 47 Dole Food Co. 1,491 0.8
47 59 Lowe's Companies, Inc. 1,476 0.8
48 52 National Data Corporation 1,439 0.8
49 45 Gartner Group, Inc., Class A 1,376 0.7
50 58 SunGard Data Systems, Inc. 1,349 0.7
</TABLE>
4
<PAGE>
MAJOR STOCK CHANGES IN THE SECOND QUARTER
................................................................................
The following are the major ($500,000 or more) stock changes -- both additions
and reductions -- that were made in the Fund's portfolio during the second
quarter of 1998.
<TABLE>
<CAPTION>
SHARES
==================================================
HELD AS
SECURITY NAME ADDITIONS REDUCTIONS OF 6/30/98
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aftermarket Technology Corp. 35,000 35,000
American Oncology Resources, Inc. 50,000 50,000
Bemis Co. 15,400 15,400
Borders Group, Inc. 19,600 19,600
Conseco, Inc. 15,000 15,000
Ocular Sciences, Inc. 23,000 23,000
Sterling Commerce, Inc. 33,000 33,000
Superior Industries International, Inc. 22,500 22,500
Texas Instruments, Inc. 12,900 12,900
Think New Ideas, Inc. 22,601 22,601
UniCapital Corporation 36,000 36,000
Vanstar Corp. 45,000 45,000
Albany International 29,500 0
American Management Systems 36,100 0
Amgen, Inc. 9,300 0
Black Box Corp. 18,800 0
Cole National Corp., Class A 21,600 0
Crestar Financial Corp. 14,000 0
HEALTHSOUTH Corp. 19,900 43,900
International Specialty Products, Inc. 30,000 0
Money Store, Inc. (The) 45,800 0
Morgan Stanley Dean Witter & Co. 6,250 35,000
Nokia Corp. ADR * 10,000 40,000
Pfizer, Inc. 5,000 11,000
R.P. Scherer Corp. 13,600 0
The Sports Authority, Inc. 49,000 0
U.S. Freightways Corp. 26,900 0
Union Texas Petroleum Holdings, Inc. 30,000 0
Viking Office Products, Inc. 25,700 76,000
Xilinix, Inc. 23,300 0
</TABLE>
* Adjusted for stock split
5
<PAGE>
MANAGER INTERVIEW
................................................................................
[photo]
ROBERT J. ANTHONY
Mississippi Valley Advisors Inc.
Manager Interview: Searching for Values Among Small Cap Growth Stocks -- and
Finding them in a Sector of the Market that Investors Have Been Overlooking
Mississippi Valley Advisors (MVA) is one of 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 strong 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.
LAMCO: Before talking about Mississippi Valley Advisors and the Fund's
portfolio, perhaps we could focus on small cap stocks themselves. The disparity
in market performance between large cap stocks and small cap stocks has never
been as great as it is now. And, in the past quarter the S&P 500 squeezed out
another gain of 3.3 percent while the Russell 2000 decreased 4.7 percent. How do
you assess the situation?
ANTHONY: We continue to have a favorable view of the small caps. But, as you
noted, the disparity between them and the large caps has widened. Actually, the
small cap sector of the market performed well in the first quarter of the year,
but went back into a period of underperformance in the second quarter. If we
measure small caps by the Russell 2000, they were down 10 percentage points from
May 1 to mid-June.
I think one of the problems is that the average mutual fund manager has only
seen price/earnings ratios expand on the so-called "Nifty Fifty" stocks. These
are the largest of the large cap stocks in the S&P 500 -- just one-tenth of the
companies that make up that index. Those stocks have given fund managers a lot
of their performance and they're loathe to sell them. So, there's even a gap
among the large cap stocks, with a few outperforming significantly, while all
the rest, at least in the second quarter, struggled quite a bit. A second
factor, I think, is a flight to safety -- in other words, investor preference
for quality and liquidity. Problems in Southeast Asia have accounted for much of
this. We saw money pour into U.S. Treasury bonds during the second quarter.
Among equities, the mega-cap stocks are perceived by many fund managers as the
safest havens. A third factor is the index funds. The mere fact that a stock is
in the most popular equity index, the S&P 500, means it's going to attract
buyers.
All this has led to phenomenal valuations. As we look at the S&P 500, the P/E
on estimated 1999 earnings is about 25 to 26 times. But, within the S&P 500, the
top 50 to 100 stocks in terms of market capitalization are selling at prices
well over 30 times earnings. Meanwhile, the rest of the market sells at 18 to 20
times earnings. It's interesting to note that the Russell 2000 has a P/E in the
18 to 20 range, yet it has higher growth prospects than the S&P 500.
When you look back, markets are pretty intelligent and over time they find a
way to gravitate back to the best values. No one knows when this period is going
to end. Investors should be aware that over time small cap stocks have
outperformed large cap stocks. Going back to 1925 and continuing through May
1998, small cap stocks returned an average of 12.3 percent annually, compared
with 11.1 percent for the S&P 500 Index. Seventy-three years is pretty
compelling evidence. The current period significantly departs from that
long-term trend. Since February 1994, small cap stocks have returned an average
of 15.3 percent a year, while the large-cap S&P 500 Index has produced an
average annual return of 24.9 percent. We think, over time, common sense and
traditional valuation measures will once again prevail.
It may be worth mentioning that despite the fact that we've been in a "Nifty
Fifty" market, there have been flashes of brilliance by small caps. Last spring
and summer these stocks were up about 35 percent versus a roughly 25 percent
gain for the S&P 500. But, then, economic and currency problems struck Southeast
Asia, setting the stage for a fourth quarter comeback by the large caps. Those
events were setbacks for small cap issues because of the "flight to safety"
scenario. The point is,
[callout]
The views expressed in this interview represent the manager's views at the time
of the discussion and are subject to change.
6
<PAGE>
MANAGER INTERVIEW
................................................................................
there have been stretches where small cap stocks have shown that they can
perform very well. There has not been a period of sustained outperformance by
small caps since 1991-1993.
LAMCO: There's a theory that a lot of small cap stocks, representing companies
that principally do business in the U.S., are less exposed to offshore problems
than, say, a mega-cap multinational corporation.
ANTHONY: We would subscribe to that belief. Multinationals have benefited from
cost reductions, often moving operations offshore. They've also pruned slower
moving product lines, reduced employment, sold off money-losing divisions and
reduced debt. You can only do that so many times -- those aren't recurring
sources of earnings. Now we have the news that Asia is not going to grow forever
and, in fact, it's facing a very severe recession. Large cap stocks are
continuing to outperform, but clearly they have the greatest exposure.
A larger percentage of small cap earnings growth is from U.S. domestic
sources, so we believe they do have prospects for better relative earnings
growth. An exception would be some companies in the technology sector that have
felt fallout from the Asian situation.
LAMCO: What do you think it's going to take for the small caps to outperform, or
at least close the gap with the large caps?
ANTHONY: A realization that the small cap sector offers very attractive values
and that large cap stocks selling at 30 to 35 times earnings are not immune to
earnings disappointments.
We at MVA don't have any difficulty at all finding undervalued stocks these
days, anywhere from 10 to 15 times earnings, with some pretty good growth
prospects as well. In this two-tiered market, you can find a lot of good values
if you're willing to look beyond the next quarter or six months. That's part of
our fundamental approach to investing and we believe it will prove itself out.
LAMCO: What's your assessment of the overall stock market at mid-year 1998? The
central question seems to be whether earnings will support the high valuations
you've talked about.
ANTHONY: Moderate, steady domestic growth has always been very good for stock
prices. We are seeing economic growth slowing a bit and we think there is going
to be some impact from Asia on our economy. But, we think the economy will hold
up. We see little risk of inflation, employment is at full levels, consumers are
very confident and there's a wealth effect driving spending. Individual
investors have watched their stock portfolios and 401(k)s perform dramatically.
They have a feeling of wealth and they're willing to spend. That's a pretty
strong catalyst to keep the U.S. economy going. The biggest risk right now is
that Asia begins to spread to Europe, and from Europe to the U.S. and the
economy slows much more than we think. In our opinion, problems in Asia are
going to take much longer to work out than people expect -- it could be several
years. The best thing that could happen right now would be for the Japanese --
they have the world's second largest economy -- to kick-start their economy. It
would have a positive impact throughout Southeast Asia.
LAMCO: Let's turn to Mississippi Valley Advisors. Can you give us a look at the
company, its background and investment process?
ANTHONY: Our small capitalization equity style is designed to take advantage of
opportunities in small cap 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 select stocks on a total return basis, looking out one and three years. We
search for stocks selling at P/Es that are low relative to the market or are at
discounts to their growth rates or their peer groups. We also consider small
companies with unique features, such as 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.
An ideal situation for us occurs when a company that used to trade at a
market P/E or above starts trading at a significant discount. It could be a slow
down in order growth or earnings growth. That causes us to look at that company
and seek to find out if anything has fundamentally changed. We want to
understand if the problem is short-term or long-term. Is it something that will
cause its valuation to change long term? If it's not, then it would be a stock
that we would consider buying. A good example is in the technology sector right
now. We've been through nine months when small cap technology stocks have
dramatically underperformed. We
[callout]
"Going back to 1925 and continuing through May 1998, small cap stocks returned
an average of 12.3 percent annually, compared with 11.1 percent for the S&P 500
Index."
7
<PAGE>
MANAGER INTERVIEW
................................................................................
don't think the long-term demand for technology has really changed, so we have
found attractive buys in that sector.
Stocks are analyzed by our internal staff of 11 equity analysts, each of whom
is responsible for a sector or sectors of the economy. 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: What factor do you believe is most unique about MVA?
ANTHONY: Two things that are closely related. 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. We want to buy the best growth companies 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. We're just bottom-up
stock investors and we don't get caught up into what I call faddish investing.
We're not going to chase Internet stocks because everybody else is chasing
Internet stocks. We want to know we're buying good growth companies at
reasonable valuations that have the potential to give us good long-term total
returns.
LAMCO: Do you make buy decisions as a committee?
ANTHONY: I make the buy/sell decisions with my partner, Greg Glidden, and the
individual industry analyst. The way we work, we're in close contact and we're
literally talking about possibilities from the moment we begin thinking about a
stock until we've actually finished the work. So, when an analyst favors buying
a stock it's no surprise because we've already scrutinized it and there's
usually not a whole lot left to discuss.
LAMCO: Tell us about your portion of the Fund's portfolio.
ANTHONY: We have about 75 stocks in the portfolio right now with an average
market cap of about $1.3 billion. We want to be broadly diversified among each
of the major economic sectors, such as technology and health care. We're
somewhat overweighted right now in technology and consumer growth stocks.
Technology includes software and some capital goods companies that have been
added within the past six months. In consumer growth we have a mix of health
care and retailing. Those are areas that we think will continue to do quite well
even if the U.S. economy weakens.
LAMCO:Can you tell us about some recent additions to the portfolio?
ANTHONY: Since our most recent purchases have been technology stocks, let's
stick with them. We've added several names to the portfolio in recent months in
the semiconductor capital goods area. This is an area where the stocks have been
hit very hard. In some cases, we bought stocks that are down from the upper 50s
to the teens. These are stocks that are currently trading about two times book
value, have very strong balance sheets and excellent long-term franchises. We
think they have reached rock bottom because the fundamentals of their customers
have reached bottom. We've been in a classic DRAM (computer memory) inventory
cycle in which there's too much inventory and prices plunge. The nice thing
about this type of inventory cycle is you can see its end coming. A year ago,
every PC came out with 16 megabytes of memory and now they all have 32 megabytes
of memory, and very soon to be 64. It's a very elastic market -- as prices come
down, demand explodes. So, the industry can grow out of this very easily.
Another reason the technology industry has been weak is too much personal
computer inventory. Some PC makers tried to grow at 30 percent when the industry
environment was growing much more slowly. Now, we're seeing PC inventories
coming back into line.
LAMCO: Can you give us a couple of names?
ANTHONY: One name we like a great deal is PRI Automation. This is a company
whose price reached a high last fall of $59 and is now in the mid-teens. The
company has a book value of over $8 a share and more than $2 a share in cash.
Earnings this fiscal year will be depressed, but earning power is in excess of
$1.50 to $2 a share. This company is a leader in robotics systems used in
semiconductor factories, in fact, they are number one in the industry in wafer
handling. In a typical semiconductor plant you move wafers several miles in
distance as you go
[callout]
"We don't have any difficulty at all finding undervalued stocks these days,
anywhere from 10 to 15 times earnings, with some pretty good growth prospects as
well."
8
<PAGE>
MANAGER INTERVIEW
................................................................................
through the 500 process steps involved with manufacturing semiconductors. PRI
Automation is a company with a unique technological position, but it is in the
capital spending-driven part of the electronics industry. When capital spending
picks up, it's ideally positioned.
Another company is Kulicke & Soffa Industries. It's another stock down from a
high of about $58 to the mid-teens. It's selling at slightly more than its $13
book value, with earning power of at least $2.50 a share. This company provides
the back-end assembly equipment for manufacturers of semiconductors. Kulicke &
Soffa is very dependent on semiconductor unit growth, so the recession in
electronics is having a big impact. But, the worst of the decline is behind us
and there's pent-up demand for this type of equipment. Right now, the stock is
reflecting nothing good and we think it's an extraordinary value if you're
willing to look out anywhere from six to 12 months.
Another technology company is Photronics. This is a company that makes
semiconductor masks, which, essentially, are the blueprints for making
semiconductor wafers. Instead of building new capacity, the electronics industry
is staying with existing wafers and making them smaller, so you get more chips
on a wafer. Photronics' masks are a critical ingredient in this process. The
company will benefit from this trend and can actually operate quite nicely in a
weak capital spending environment. It's a company with an excellent long-term
record and, again, this is another stock that's down by about half from a high
of $38.
LAMCO: What about some other sectors? You mentioned consumer products and
health care.
ANTHONY: We like Maxxim Medical, the leading company in non-latex surgical
gloves. Right now, the industry is dominated by latex gloves, but there is a
health problem for long-term users in the health care industry and many people
are allergic to latex gloves. Maxxim grows at a very healthy 25 percent-plus
rate and its biggest problem right now is adding capacity, because they're sold
out. We think the company has very strong growth prospects. Maxxim is continuing
to make niche acquisitions in their other business, like providing pre-packaged
surgical trays. So, while Maxxim has a very strong non-latex glove business, the
company has the ability to branch out into other areas where the marketing and
distribution channels are similar.
Another company we like is Marks Brothers Jewelers. This is a retailer that
operates 200-plus stores under the names of Whitehall Jewelers and Lundstrom
Jewelers. The company has a solid 15 to 20 percent growth rate, yet sells at a
P/E of only 12 times our calendar 1999 estimated earnings per share. The company
should continue to do well under our economic outlook for a strong consumer
sector.
LAMCO: How about the sell side -- what have you eliminated from the portfolio
recently?
ANTHONY: Actually, we have done very little selling lately. Most of the selling
has been related to buyouts -- companies that we owned which were acquired. One
exception was Crestar Financial Corp., a regional bank whose price benefited
from the company's potential as an acquisition. We bought the stock at $29 and
sold it at $61 because it became fully priced on all our screens. We sold The
Money Store after BancOne acquired it, and we sold The Sports Authority because
it is also being acquired.
LAMCO: To conclude, tell us about some long-term holdings.
ANTHONY: Finova Group is one. It's a Phoenix-based commercial finance company
that lends to mid-sized companies. The company provides excellent service, has a
great record and is a mid-teens grower. Another is Allergan, a leader in eye
care and other personal care products. The company is showing faster growth as
it moves away from personal care into the pharmaceutical side. Allergan has
numerous ventures with other drug companies, and has products for acne and
psoriasis coming out. A third name would be SunGard Data Systems. SunGard is a
technology company in the data services market. It provides disaster recovery
for computer systems as well as mutual fund processing. The data servicing
industry is characterized by extremely high reoccurring revenue and a very
predictable earnings stream. SunGard grows in excess of 15 percent every year,
making it a very good long-term holding.
[callouts]
"The way we work, we're in close contact and we're literally talking about
possibilities from the moment we begin thinking about a stock until we've
actually finished the work."
"We practice a very disciplined style, and we've been doing it for more than two
decades ...We want to buy the best growth companies at the most reasonable
prices."
9
<PAGE>
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
................................................................................
<TABLE>
<CAPTION>
COMMON STOCKS (96.6%) SHARES MARKET VALUE
<S> <C> <C>
AEROSPACE & DEFENSE (1.8%)
Boeing Co. 39,000 $1,737,938
Lockheed Martin Corp. 15,000 1,588,125
----------
3,326,063
----------
AUTO, TIRES, & ACCESSORIES (1.6%)
Aftermarket Technology Corp. (a) 35,000 656,250
LucasVarity PLC ADR 45,000 1,791,563
Superior Industries
International, Inc. 22,500 634,219
----------
3,082,032
----------
BANKS (5.7%)
Associated Banc-Corp 17,451 656,594
Bank United Corp., Class A 15,600 746,850
CCB Financial Corp. 1,200 667,800
Citicorp 20,000 2,985,000
Commercial Federal Corp. 20,000 632,500
Sovereign Bancorp, Inc. 42,000 686,440
State Street Corp. 24,800 1,723,600
TCF Financial Corp. 24,000 708,000
Wells Fargo & Co. 5,000 1,845,000
----------
10,651,784
----------
BUSINESS SERVICES (7.6%)
Cendant Corp. (a) 41,300 862,138
Cintas Corp. 12,700 647,700
Cognizant Corp. (a) 26,700 1,682,100
Cognos, Inc. (a) 47,600 1,261,400
Concord EFS, Inc. (a) 39,750 1,038,469
First Data Corp. 33,770 1,258,213
GartnerGroup, Inc., Class A (a) 39,300 1,375,500
Interim Services, Inc. (a) 22,200 713,175
Iron Mountain, Inc. (a) 16,957 758,826
National Data Corp. 32,900 1,439,375
Rental Service Corp. (a) 18,000 605,250
Robert Half International, Inc. (a) 17,650 986,194
Shared Medical Systems Corp. 34,900 1,696,406
----------
14,324,746
----------
CHEMICALS (4.4%)
Cytec Industries, Inc. (a) 15,000 663,750
Hanna (M.A.) Co. 44,693 818,441
Hercules, Inc. 25,000 1,028,125
Minerals Technologies, Inc. 48,690 2,480,147
Monsanto Co. 30,000 1,676,250
OM Group, Inc. 23,000 948,750
RPM, Inc. 42,500 722,500
----------
8,337,963
----------
COMMUNICATIONS EQUIPMENT (2.0%)
ADC Telecommunications, Inc. 24,100 880,404
Nokia Corp. ADR 40,000 2,902,500
----------
3,782,904
----------
COMPUTER & BUSINESS EQUIPMENT (2.2%)
Adaptec, Inc. (a) 35,000 $500,938
CFM Technologies (a) 41,300 598,850
Network Associates, Inc. (a) 32,755 1,568,146
SMART Modular
Technologies, Inc. (a) 13,319 194,790
Zebra Technologies Corp.,
Class A (a) 27,803 1,188,578
----------
4,051,302
----------
COMPUTER SERVICES & SOFTWARE (7.1%)
Acxiom Corp. (a) 66,900 1,668,319
Aspen Technology, Inc. 17,500 883,750
Automatic Data Processing, Inc. 46,400 3,381,400
Cotelligent Group, Inc. (a) 30,000 701,250
Microsoft Corp. (a) 15,700 1,701,488
SPSS, Inc. (a) 34,900 811,425
Sterling Commerce, Inc. (a) 33,000 1,600,500
SunGard Data Systems, Inc. (a) 35,100 1,349,156
Think New Ideas, Inc. (a) 22,601 597,514
Vanstar Corp. (a) 45,000 655,313
----------
13,350,115
----------
CONSUMER PRODUCTS (1.3%)
Blyth Industries, Inc. (a) 26,200 871,150
Mattel, Inc. 29,000 1,227,063
Philip Morris Companies, Inc. 10,000 393,750
----------
2,491,963
----------
DIVERSIFIED (1.0%)
General Electric Co. 20,000 1,820,000
----------
DRUGS & HEALTH CARE (11.2%)
Allergan, Inc. 26,700 1,238,213
American Oncology
Resources, Inc. (a) 50,000 610,938
Apria Healthcare Group, Inc. (a) 45,800 306,288
Bard (C.R.) Inc. 20,000 761,250
Beverly Enterprises, Inc. (a) 47,000 649,188
Biomet, Inc. 45,000 1,490,625
Cardinal Health, Inc. 14,100 1,321,875
Covance, Inc. (a) 56,500 1,271,250
DENTSPLY International, Inc. 36,000 897,750
Elan Corp. ADR (a) 20,400 1,311,975
Hanger Orthopedic Group, Inc. (a) 28,000 567,000
HEALTHSOUTH Corp. (a) 43,900 1,193,531
Integrated Health Services, Inc. 24,500 918,750
Maxxim Medical, Inc. (a) 30,545 885,805
Medtronic, Inc. 27,500 1,753,125
Millipore Corp. 16,500 449,625
Ocular Sciences, Inc. (a) 23,000 747,500
Omnicare, Inc. 28,400 1,082,750
Pfizer, Inc. 11,000 1,195,563
PharMecia, Inc. (a) 43,189 523,667
</TABLE>
10 See Notes to Schedule of Investments.
<PAGE>
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
................................................................................
<TABLE>
<CAPTION>
COMMON STOCKS (CONT.) SHARES MARKET VALUE
<S> <C> <C>
DRUGS & HEALTH CARE (CONT.)
Shire Pharmaceuticals Group
ADR (a) 35,000 $ 748,125
Sun Healthcare Group, Inc. (a) 57,600 842,400
----------
20,767,193
----------
ELECTRONICS & ELECTRICAL EQUIPMENT (6.3%)
Analog Devices, Inc. (a) 15,333 376,617
Arrow Electronics, Inc. (a) 60,000 1,305,000
General Scanning, Inc. (a) 61,500 549,656
Hubbell, Inc., Class B 19,000 790,875
Intel Corp. 31,100 2,305,288
Kulicke & Soffa Industries, Inc. (a) 63,900 1,086,300
Linear Technology Corp. 15,700 946,906
Molex, Inc. 63,918 1,494,083
PRI Automation, Inc. (a) 42,400 723,450
Photronics, Inc. (a) 30,000 553,125
SBS Technologies, Inc. (a) 22,000 654,500
Solectron Corp. (a) 7,000 294,438
Texas Instruments, Inc. 12,900 752,231
----------
11,832,469
----------
FINANCIAL SERVICES (11.5%)
Aames Financial Corp. 29,000 398,750
Countrywide Credit Industries, Inc. 55,000 2,791,250
Federal Home Loan Mortgage Corp. 93,000 4,376,813
Finova Group, Inc. 17,400 985,275
Household International, Inc. 39,900 1,985,025
MBNA Corp. 56,500 1,864,500
Morgan Stanley Dean Witter & Co. 35,000 3,198,125
Paychex, Inc. 22,500 915,469
Resource Bancshares
Mortgage Group, Inc. 35,000 651,875
Southern Pacific Funding Corp. (a) 30,500 478,469
Travelers Group, Inc. 50,000 3,031,250
UniCapital Corp. (a) 36,000 688,500
----------
21,365,301
----------
FOOD, BEVERAGE & RESTAURANTS (3.0%)
Brinker International, Inc. (a) 35,000 673,750
Canandaigua Brands, Class A (a) 13,916 684,493
Diageo PLC ADR 25,920 1,249,020
Dole Food Co. 30,000 1,490,625
Hormel Foods Corp. 26,000 898,625
Performance Food Group, Co. (a) 32,378 643,513
----------
5,640,026
----------
HOTELS & ENTERTAINMENT/LEISURE (0.8%)
Carnival Corp., Class A 19,400 1,497,825
----------
INDUSTRIAL EQUIPMENT (3.4%)
Barnett, Inc. (a) 32,000 648,000
Caterpillar, Inc. 36,000 1,903,500
DT Industries, Inc. 21,500 524,063
Dover Corp. 10,000 342,500
Fastenal Co. (a) 13,100 609,150
Illinois Tool Works, Inc. 25,100 1,673,856
MSC Industrial Direct Co., Inc. (a) 28,200 803,700
----------
6,504,769
----------
INSURANCE (9.0%)
ACE Limited 75,000 2,925,000
AFLAC, Inc. 70,000 2,121,875
American International Group, Inc. 15,000 2,190,000
CMAC Investment Corp. 15,000 922,500
Conseco, Inc. 15,000 701,250
EXEL Limited 2,800 3,112,500
HCC Insurance Holdings, Inc. 35,500 781,000
Progressive Corp. 15,000 2,115,000
Transamerica Corp. 18,000 2,072,250
----------
16,941,375
----------
METALS & MINING (0.3%)
Freeport-McMoRan Copper
& Gold, Inc., Class A 40,000 607,500
----------
OIL & GAS (1.2%)
Global Industries Ltd. (a) 30,000 506,250
IRI International Corp. (a) 53,000 569,750
Ocean Energy, Inc. (a) 11,500 699,359
Swift Energy Co. (a) 32,446 517,107
----------
2,292,466
----------
PAPER & PLASTIC (1.8%)
AptarGroup, Inc. 9,567 604,515
Bemis Co. 15,400 629,475
Caraustar Industries, Inc. 13,000 375,375
Champion International Corp. 25,0000 1,229,688
Consolidated Papers, Inc. 9,000 490,500
----------
3,329,553
----------
PUBLISHING (1.6%)
R. R. Donnelley & Sons Co. 66,400 3,037,800
----------
RETAIL TRADE (7.3%)
Borders Group, Inc. (a) 19,600 725,200
CDW Computer Centers, Inc. (a) 4,456 222,800
CVS Corp. 40,000 1,557,500
Home Depot, Inc. 2,600 2,159,625
Lowe's Companies, Inc. 36,400 1,476,475
Marks Brothers Jewelers, Inc. (a) 31,000 604,500
May Department Stores Co. 25,000 1,637,500
Petco Animal Supplies, Inc. 35,012 702,428
Staples, Inc. (a) 76,500 2,213,719
Viking Office Products, Inc. (a) 76,000 2,384,500
----------
13,684,247
----------
</TABLE>
See Notes to Schedule of Investments. 11
<PAGE>
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
................................................................................
<TABLE>
<CAPTION>
COMMON STOCKS (CONT.) SHARES MARKET VALUE
<S> <C> <C>
TELECOMMUNICATIONS (2.8%)
AirTouch Communications, Inc. (a) 33,000 $ 1,928,438
IXC Communications, Inc. (a) 33,000 1,003,950
Sprint Corp. 35,000 2,467,500
----------
5,399,888
----------
TRANSPORTATION (1.7%)
AMR Corp. (a) 32,000 $ 2,664,000
Hub Group, Inc., Class A (a) 27,500 580,938
----------
3,244,938
----------
TOTAL COMMON STOCKS
(Cost $119,922,448) 181,364,222
----------
SHORT-TERM INVESTMENT (2.9%) PAR
REPURCHASE AGREEMENT VALUE
ABN AMRO Chicago Corp., Repurchase Agreement -----
dated 6/30/98, 6.10%, to be repurchased at $5,434,921
on 7/1/98, collaterized by U.S. Treasury Notes and
Treasury Bill with various maturities to 2027, with a
current market value of $5,551,708 $ 5,434,000 5,434,000
----------
TOTAL INVESTMENTS (99.5%) (COST $125,356,448)(b) 186,798,222
OTHER ASSETS AND LIABILITIES, NET (0.5%) 994,031
----------
NET ASSETS (100.0%) $187,792,253
============
NET ASSET VALUE PER SHARE (13,384,317 SHARES OUTSTANDING) $ 14.03
============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) The cost of investments for federal income tax purpose is $125,540,288
Gross unrealized appreciation and depreciation of investments at June 30,
1998, is as follows:
Gross unrealized appreciation $66,317,848
Gross unrealized depreciation (5,059,914)
------------
Net unrealized appreciation $61,257,934
============
Acronym Name
--------- ---------------------------
ADR American Depository Receipt
12 See Notes to Financial Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES AS OF JUNE 30, 1998 (UNAUDITED)
................................................................................
<TABLE>
<S> <C>
ASSETS:
Investments at market value (identified cost $125,356,448) $ 186,798,222
Receivable for investments sold 4,086,852
Dividends and interest receivable 102,607
-------------
TOTAL ASSETS 190,987,681
-------------
LIABILITIES:
Payable for investments purchased 650,277
Distributions payable to shareholders 1,752,903
Payable due to custodian bank 338,432
Management fees payable 318,922
Administrative and bookkeeping fees payable 106,265
Accrued other expenses 28,629
-------------
TOTAL LIABILITIES 3,195,428
-------------
NET ASSETS $ 187,792,253
=============
NET ASSETS REPRESENTED BY:
Paid-in capital (authorized 20,000,000 shares
at $0.10 Par; 13,384,317 shares outstanding) $ 128,630,752
Accumulated net realized gains on investments
less distributions (2,280,273)
Net unrealized appreciation on investments 61,441,774
-------------
TOTAL NET ASSETS APPLICABLE
TO OUTSTANDING SHARES
OF BENEFICIAL INTEREST
($14.03 PER SHARE) $ 187,792,253
=============
</TABLE>
See Notes to Financial Statements. 13
<PAGE>
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
................................................................................
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 789,464
Interest 102,497
------------
TOTAL INVESTMENT INCOME (NET OF
NONREBATABLE FOREIGN TAXES WITHHELD AT
SOURCE WHICH AMOUNTED TO $11,361) 891,961
EXPENSES:
Management fees $ 621,385
Administrative fee 207,494
Bookkeeping fee 30,107
Custodian and transfer agent fees 45,498
Proxy and shareholder communication expense 22,377
Printing expense 29,747
Legal and audit fees 33,097
Directors' fees and expense 18,310
Miscellaneous expense 23,566
----------
TOTAL EXPENSES 1,031,581
------------
NET INVESTMENT LOSS (139,620)
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investments transactions:
Proceeds from sales 36,079,728
Cost of investments sold 30,604,854
----------
Net realized gains on investment transactions 5,474,874
Net unrealized appreciation on investments:
Beginning of period 42,214,044
End of period 61,441,774
----------
Change in unrealized appreciation -- net 19,227,730
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 24,562,984
============
</TABLE>
14 See Notes to Financial Statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment loss $ (139,620) $ (272,697)
Net realized gain on investment transactions 5,474,874 16,539,356
Change in unrealized appreciation--net 19,227,730 19,867,466
------------- -------------
Net increase in net assets resulting from operations 24,562,984 36,134,125
------------- -------------
DISTRIBUTIONS DECLARED FROM:
Net investment income -- (35,334)
Net realized gains on investment transactions (9,262,297) (15,385,610)
------------- -------------
Total distributions (9,262,297) (15,420,944)
------------- -------------
CAPITAL TRANSACTIONS:
Increase in net assets from capital share transactions 5,754,447 9,386,884
------------- -------------
Total increase in net assets 21,055,134 30,100,065
NET ASSETS:
Beginning of period 166,737,119 136,637,054
------------- -------------
End of period $ 187,792,253 $ 166,737,119
============= =============
</TABLE>
See Notes to Financial Statements. 15
<PAGE>
FINANCIAL HIGHLIGHTS
................................................................................
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 ----------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period $ 12.89 $ 11.27 $ 10.55 $ 9.95 $ 10.54 $ 10.28
------- ------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (loss) -- (0.02) 0.01 0.31 0.23 0.18
Net realized and unrealized
gains (losses) on investments 1.85 2.88 1.86 1.05 (0.24) 0.56
------- ------- ------- ------- ------- -------
Total from Investment Operations 1.85 2.86 1.87 1.36 (0.01) 0.74
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income -- -- (0.01) (0.31) (0.23) (0.18)
Distributions from realized capital gains (0.71) (1.24) (1.01) (0.45) (0.35) (0.30)
------- ------- ------- ------- ------- -------
Total Distributions (0.71) (1.24) (1.02) (0.76) (0.58) (0.48)
------- ------- ------- ------- ------- -------
Impact of shares issued in
dividend reinvestment (a) -- -- (0.13) -- -- --
------- ------- ------- ------- ------- -------
Total Distributions and Reinvestments (0.71) (1.24) (1.15) (0.76) (0.58) (0.48)
------- ------- ------- ------- ------- -------
Net asset value at end of period $ 14.03 $ 12.89 $ 11.27 $ 10.55 $ 9.95 $ 10.54
======= ======= ======= ======= ======= =======
Per share market value
at end of period $ 12.750 $ 11.938 $ 9.250 $ 9.375 $ 8.500 $ 10.250
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS: (b)
Based on net asset value 14.9%(c) 27.3% 18.3% 13.8% (1.1%) 7.2%
Based on market price 12.8%(c) 43.6% 9.3% 19.3% (11.6%) 7.2%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (millions) $ 188 $ 167 $ 137 $ 120 $ 113 $ 125
Ratio of expenses to average net assets 1.14%(d) 1.20% 1.35% 1.42% 1.51% 1.35%
Ratio of net investment income
to average net assets (0.14%)(d) (0.18%) 0.06% 2.87% 2.12% 1.71%
Portfolio turnover rate 16%(c) 57% 51% 82% 50% 47%
</TABLE>
(a) Effect of 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 reinvested at the actual reinvestment
price.
(c) Not annualized.
(d) Annualized.
16 See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS AS OF JUNE 30, 1998 (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 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.
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.
Effective August 1, 1998, based on new Fund Management and Portfolio
Management Agreements as approved by the Fund's shareholders, the annual fund
management and administrative fees will be 0.80% and 0.20%, respectively, on the
first $300 million in average weekly net assets and 0.72% and 0.18%,
respectively, on average weekly net assets in excess of $300 million. The
aggregate annual fees payable by the Manager to the Portfolio Managers will be
0.40% on the Fund's first $300 million in average weekly net assets and 0.36% on
average weekly net assets in excess of $300 million.
NOTE 3. CAPITAL TRANSACTIONS- During the period ended June 30, 1998, and the
year ended December 31, 1997, distributions in the amount of $5,754,447 and
$9,386,884, respectively, 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 446,637 and 818,429 shares, respectively.
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, 1998
were $27,736,994 and $36,079,728, respectively.
The Fund may enter into repurchase agreements and require the seller of the
instrument to maintain on deposit with the Funds'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-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. 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.
17
<PAGE>
THE THREE LIBERTY ALL-STAR FUNDS / DISTRIBUTION POLICY / DIVIDEND REINVESTMENT
PLAN
................................................................................
THE THREE LIBERTY ALL-STAR FUNDS
A companion fund to Liberty All-Star Growth Fund, Inc. is also listed on the
New York Stock Exchange, Liberty All-Star Equity Fund. In addition, a variable
annuity version of Liberty All-Star Equity Fund is available as part of the
Keyport Advisor variable annuity from Keyport Life Insurance Company, one of the
Liberty Financial Companies as is Liberty Asset Management Company. Variable
annuities, among other features, offer a way to accumulate retirement funds on a
tax-deferred basis and to distribute those funds efficiently after retirement.
<TABLE>
<CAPTION>
NYSE NET ASSETS
TICKER FUND AT 7/31/98
NAME FUND TYPE SYMBOL OBJECTIVE (millions)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liberty All-Star Closed-End ASG Growth $ 196
Growth Fund, Inc.
Liberty All-Star Closed-End USA Growth & Income 1,300
Equity Fund
Liberty All-Star Equity Open-End, -- Growth & Income 34
Fund, Variable Series Variable Annuity
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Additional information on all three funds is available from your broker. You
may also contact Investor Assistance at 1-800-LIB-FUND (1-800-542-3863) for
either of the closed-end funds. For the variable annuity fund, you may call
Keyport at 1-800-367-3653.
DISTRIBUTION POLICY
Liberty All-Star Growth Fund, Inc.'s current policy is to pay distributions on
its common stock 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 realized
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.
<PAGE>
1998 ANNUAL MEETING OF SHAREHOLDERS
................................................................................
1998 ANNUAL MEETING OF SHAREHOLDERS
Liberty All-Star Growth Fund, Inc.'s 1998 Annual Meeting of Shareholders was
held on April 22, 1998. At the Meeting, Messrs. Harold W. Cogger and Richard W.
Lowry were reelected Directors of the class whose term expires with the Annual
Meeting in 2001, and Mr. John J. Neuhauser was elected for the first time as a
Director of the class whose term expires with the Annual Meeting in 2000.
Messrs. Robert J. Birnbaum and James E. Grinnell continue in office as
Directors. By vote of the Board of Directors on June 18, 1998, Mr. John V.
Carberry was elected Chairman of the Board of Directors effective June 30, 1998
to fill the vacancy created by the retirement of Harold W. Cogger.
In addition, shareholders approved the Fund's new Portfolio Management Agreement
with Oppenheimer Capital, approved a new Fund Management Agreement with Liberty
Asset Management Company and new Portfolio Managment Agreements with the Fund's
Portfolio Managers providing for increases in the fees payable by the Fund
effective August 1, 1998, and ratified the Board of Directors' selection of KPMG
Peat Marwick LLP as the Fund's independent auditors for the year ending December
31, 1998. The number of votes cast for and against and the number of abstentions
and broker non-votes on these matters were as follows:
1. Approval of new Portfolio Management Agreement with Oppenheimer Capital.
For: 11,211,192
Against: 211,780
Abstain: 207,879
2. Approval of new Fund Management and Portfolio Managment Agreements
providing for fee increase.
For: 6,669,715
Against: 557,750
Abstain: 188,292
Broker non-votes: 4,215,094
3. Ratification of Selection of KPMG Peat Marwick LLP as Independent Auditors
for 1998.
For: 11,384,274
Against: 79,835
Abstain: 166,741
<PAGE>
[LOGO]
LIBERTY
ALL[star]STAR
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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
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017-2070
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 LLP
150 Federal Street
Boston, Massachusetts 02110
DIRECTORS
Robert J. Birnbaum*
John V. Carberry
James E. Grinnell*
Richard W. Lowry*
Dr. John J. Neuhauser*
OFFICERS
John V. Carberry, 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
J. Kevin Connaughton, 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
[type knocks out of photo of stock market newspaper page]
SEMI-
ANNUAL
REPORT
1998
[LOGO]
LIBERTY
ALL[star]STAR
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GROWTH FUND
