GROWTH
LARGE CAP SMALL CAP
[Logo] LIBERTY
ALL*STAR
-----------
GROWTH FUND
ANNUAL REPORT 1997
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[Logo] LIBERTY
ALL*STAR
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GROWTH FUND
...............................................................................
Why should the benefits of institutional-like investing be reserved for
institutions?
ONE OF THE MOST THOROUGH, SOPHISTICATED, DELIBERATE FORMS OF INVESTMENT
MANAGEMENT IS THAT PROVIDED ON BEHALF OF MAJOR INSTITUTIONS, INCLUDING LARGE
CORPORATE PENSION PLANS, MAJOR FOUNDATIONS AND UNIVERSITY ENDOWMENT FUNDS.
ALTOGETHER, THEIR ASSETS EXCEED $6 TRILLION IN THE UNITED STATES ALONE.
IN LATE 1995, LIBERTY ASSET MANAGEMENT COMPANY ("LAMCO") ASSUMED FULL MANAGEMENT
RESPONSIBILITY FOR LIBERTY ALL-STAR GROWTH FUND, INC. (THE "FUND"), FORMERLY THE
CHARLES ALLMON TRUST, INC., AND RESTRUCTURED IT TO BRING THE BENEFITS OF
INSTITUTIONAL-LIKE INVESTING TO YOU, THE INDIVIDUAL INVESTOR.
GENERALLY SPEAKING, THE INSTITUTIONAL INVESTING PROCESS IS CHARACTERIZED BY THE
STRATEGIC ALLOCATION OF ASSETS TO MULTIPLE MANAGERS WHO PRACTICE DIFFERENT
INVESTING STYLES. CAREFULLY SELECTED TO MEET SPECIFIC INVESTMENT OBJECTIVES, THE
MANAGERS ARE RIGOROUSLY MONITORED. SHOULD THEY FAIL TO MEET THE PERFORMANCE
OBJECTIVES SET OUT FOR THEM, THEY ARE REPLACED BY THOSE WHO CAN.
LIBERTY ASSET MANAGEMENT COMPANY HAS ADAPTED THIS PROCESS TO DEVELOP A SPECIFIC
INVESTMENT PROGRAM FOR THE FUND. A MORE DETAILED DESCRIPTION OF THIS PROGRAM IS
CONTAINED ON PAGES 5 THROUGH 8.
IF THERE'S ONE THING THIS TYPE OF INVESTING CAN BE COUNTED ON TO DELIVER, IT'S
CONSISTENT RESULTS. AND OUR GOALS FOR THE FUND ARE BETTER-THAN-AVERAGE LONG-TERM
RETURNS AND BETTER-THAN-AVERAGE CONSISTENCY, COMPARED WITH OTHER MAJOR GROWTH
FUNDS.
ON THIS SECOND ANNIVERSARY OF THE FUND UNDER OUR MANAGEMENT, WE RENEW OUR
COMMITMENT TO BRING TO THE FUND THE BEST APPLICABLE INSTITUTIONAL INVESTMENT
MANAGEMENT PRACTICES AS THEY CONTINUE TO EVOLVE.
LIBERTY ASSET MANAGEMENT COMPANY
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LIBERTY ALL*STAR GROWTH FUND
...............................................................................
1997 Annual Report Chairman's Letter
To Our Fellow Shareholders: February 1998
The net asset value (NAV) of a common share of the Fund declined from
$13.29 on September 30, 1997, to $12.89 on December 31, 1997, after deducting
the distribution of 32 cents declared during the quarter. The market price of a
share of the Fund traded in a range from $11.125 to $13.75 before closing the
quarter at $11.938. The ending price represented a discount to NAVof 7.4 percent
compared with a discount to NAV of 2.2 percent on September 30, 1997. Key
investment results and comparisons are noted below.
As the table shows, during the fourth quarter of 1997 the Fund's net asset
value decreased 0.5 percent, which compares with a negative 1.2 percent for the
Lipper Growth Mutual Fund Average (the Fund's primary benchmark)and a negative
6.8 percent for the NASDAQ Composite. For 1997, the Fund's net asset value was
up 27.1 percent compared with 25.2 percent for the Lipper Average and 21.6
percent for the NASDAQ Composite.
================================================================================
Fourth Quarter Full Year
- --------------------------------------------------------------------------------
LIBERTY ALL-STAR GROWTH FUND, INC.
Shares Valued at Net Asset Value (0.5)% 27.1%
Shares Valued at Market Price
With Dividends Reinvested (5.7)% 43.6%
Fund's Closing Price Range $13.063 to $11.75 $13.250 to $9.125
Fund's Discount Range 7.4% to 0.4% 18.8% to 0.4%
Lipper Growth Mutual Fund Average (1.2)% 25.2%
S&P 500 Stock Index 2.9% 33.4%
Dow Jones Industrial Average 0.0% 24.9%
NASDAQ Composite Index (6.8)% 21.6%
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 the Dow Jones
Industrial Average are total returns including income. Figures for the unmanaged
NASDAQ Index are total returns excluding income.
================================================================================
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LIBERTY ALL*STAR GROWTH FUND
...............................................................................
1997 Annual Report Chairman's Letter
The stock market, as measured by the S&P 500 Stock Index, continued its
advance for the twelfth quarter in a row, a string that has never been matched
in the 41 year history of the S&P 500. The overall performance of the S&P 500
during the fourth quart er of 1997, however, masked an underlying weakness
stemming from Asian financial turmoil, the most significant negative factor to
impact the equity markets since the sharp rise in interest rates in 1993-94. For
the first time since 1990, there was a correction in the S&P 500 of more than 10
percent. From its peak of 983.12 on October 7, that index dropped 10.8 percent
in three weeks, then rebounded to a new high on December 5. The rebound,
however, was largely a flight-to-quality and benefited mostly the large blue
chip stocks.
As we go to press with this report, concern over the Asian turmoil seems
to have abated somewhat. The S&P 500 and the Dow have set new all-time highs and
the NASDAQ is close to its high.
All of us can and should take satisfaction from the fact that the Fund
has produced a cumulative NAVreturn of 49.5 percent and a cumulative market
price return (with dividends reinvested)of 57.0 percent during the past two
years. At the same time, we do well to temper our expectations for the future.
The still high level of the market together with present uncertainties and
volatility suggest caution.
It is worth noting, once again, that the Fund has been essentially fully
invested in equities over the last two years. We expect that to continue, absent
unusual circumstances. Market timing is not part of the multi-managed
methodology LAMCObrings to the Fund. And, we continue to have confidence in our
multi-management approach, which has served us well for the past eleven years.
The Manager Roundtable, beginning on page 11, is a regular feature of
our annual reports. The three Portfolio Managers offer their views on the
excellent stock market performance during 1997 and 1996, as well as, prospects
for 1998 and notable portfolio holdings.
Accompanying this report is a proxy statement for the 1998 Annual
Meeting of Shareholders. Please read this material and promptly return your
proxy card to save the Fund the expense of solicitation to ensure a quorum.
Sincerely,
/s/ Harold W. Cogger
Harold W. Cogger
Chairman of the Board of Directors
Liberty All-Star Growth Fund, Inc.
Executive Vice President
Liberty Financial Companies, Inc.
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LIBERTY ALL*STAR GROWTH FUND
...............................................................................
1997 Annual Report President's Letter
To Our Fellow Shareholders: February 1998
We have now completed the second full year with LAMCO as the sole
manager of the Fund using our multi-management approach. The second year was
even better than the first in terms of both absolute NAV return and NAV return
relative to the Fund's benchmark, the Lipper Growth Mutual Fund Average.
Moreover, the market price return increased a remarkable 43.6 percent as the
discount narrowed from 17.9 percent at December 31, 1996, to 7.4 percent at
December 31, 1997. In addition, the expense ratio fell to 1.20 percent, an
all-time low for the Fund, as net assets increased to a record $167 million at
year-end.
In a prior report, we pointed out that the S&P 500 had not had a
correction of as much as 10 percent since 1990, the longest such period without
such a correction in the history of the S&P 500 Stock Index. That record came to
an end in the second half of 1997.
The table below shows all the corrections of more than seven percent in
the S&P 500 since January 1987. In the four years 1987 through 1990, we had
three such corrections, including the Crash of '87 and the severe correction of
'90. In the seven years since 1990, we have had four such corrections, all mild
compared with those of 1987 and 1990. The two 1997 corrections were the shortest
of all.
<TABLE>
<CAPTION>
=====================================================================================================
DEPTH OF RECOVERY TIME TOTAL TIME
YEAR CORRECTION CORRECTION CORRECTION TIME (from trough (from previous peak
BEGAN (from peak to trough) (from peak to trough) to new peak) to new peak)
=====================================================================================================
<S> <C> <C> <C> <C>
1987 34% 3 months 20 months 23 months
1989 10 4 4 8
1990 20 3 4 7
1994 9 2 10 12
1996 8 2 2 4
1997 - 1st 9 1 1 2
- 2nd 11 1 1 2
=====================================================================================================
</TABLE>
We saw unusual volatility in 1997 among stocks of different
capitalizations. Small cap stocks under performed large cap stocks by about 14%
in the first four months of the year, then reversed trend and made up virtually
all the lost ground by the end of the third quarter, and finally under performed
again by 6% in the fourth quarter.
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LIBERTY ALL*STAR GROWTH FUND
...............................................................................
1997 Annual Report President's Letter
LAMCO utilizes a multi-management investment approach for your Fund that
blends complementary investment strategies across a broad capitalization
spectrum in order to mitigate the volatility caused by such shifts in
performance patterns. We believe this strategy is well suited for your Fund.
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
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 now 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 PREMIUM/
FUND TICKER FUND (DISCOUNT)
NAME TYPE SYMBOL OBJECTIVE AT 1/31/98
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<S> <C> <C> <C> <C>
Liberty All-Star Closed-End ASG Growth (4.0)%
Growth Fund, Inc.
Liberty All-Star Closed-End USA Growth & Income 0.6%
Equity Fund
Liberty All-Star Equity Open-End, --- Growth & Income,
Fund, Variable Series Variable Annuity 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
information about either of the closed-end funds. For the variable annuity fund,
you may call Keyport at 1-800-367-3653.
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LIBERTY ALL*STAR GROWTH FUND
...............................................................................
Why Multi-Management?
EVEN THE BEST MANAGERS HAVE
INCONSISTENT RETURNS
Funds managed by one portfolio management organization, even a top one, tend to
produce inconsistent returns from one period to another. The graph to the right
illustrates this inconsistency by showing the four best performing growth funds
in 1992 and tracking their relative performance rankings over the next five
years. The lack of consistency is clear.
THE TOP- RANKING
RANKED AMONG
FUNDS 311
GROWTH
FUNDS
[Begin line chart]
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
FUND 1 1 7 42 113 243 58
FUND 2 2 202 155 66 299 277
FUND 3 3 234 3 309 284 100
FUND 4 4 215 2 274 247 284
[End line chart]
The problem is...
A SINGLE STYLE PRODUCES INCONSISTENCY
...a professional portfolio manager practices the same specific investment
style through all types of market environments. For example, a small cap
growth stock manager continues to hold small cap growth stocks even when the
stock market favors other types of stocks. Therefore, as the stock market
changes, a manager's returns fluctuate relative to the stock market, as
exhibited in this simplified graph.
[Linear graph that demonstrates investment returns fluctuate relative to the
stock market over a period of time]
MANAGER'S STYLE MANAGER'S STYLE
IN FAVOR IN FAVOR
- --------------------------------------------------------------------------------
STOCK MARKET
RETURNS
MANAGER'S STYLE
OUT OF FAVOR
- --------------------------------------------------------------------------------
TIME
In order to reduce these fluctuations...
COMBINING STYLES THROUGH MULTI-MANAGEMENT IMPROVES CONSISTENCY
...more than one portfolio manager, each employing a different style, manages
the fund. This approach is called "Multi-Management" and is practiced in some
form by most institutional investors. This graph shows a simplified example of
Multi-Management using two diametrically different styles of management. Notice
the combined results produce what neither manager can give alone: consistency.
[Linear graphs demonstrating the Multi-Management investment approach]
MANAGER A'S MANAGER B'S MANAGER A'S
STYLE IN FAVOR STYLE IN FAVOR STYLE IN FAVOR
- --------------------------------------------------------------------------------
MULTI-MANAGER RETURNS: (MANAGER A PLUS MANAGER B)
STOCK MARKET RETURNS
- --------------------------------------------------------------------------------
MANAGER B'S MANAGER A'S MANAGER B'S
STYLE IN FAVOR STYLE IN FAVOR STYLE IN FAVOR
- --------------------------------------------------------------------------------
TIME
Of course, the investment performance from styles is not as predictable as
shown, so...
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LIBERTY ALL*STAR GROWTH FUND
...............................................................................
LAMCO's Multi-Management Program:
Constructing the Manager Team
...LAMCO has identified three different styles as the best combination to
achieve the Fund's investment objectives.
There are two broad styles of investing, Growth and Value. The Growth style
focuses on the selection of companies whose growth prospects are better than the
average company. The other style is Value, which focuses on the selection of
companies whose ratios of stock price to estimated value are better than those
of similar companies. Since the Fund has a growth focus, two-thirds of the
assets are divided among two growth managers who practice a specific style of
investing within this broad style. The other style, representing one-third of
the assets, is contrarian in nature; that is, it has characteristics of both
Growth and Value. The style of each manager is shown in the pie chart below.
In addition to producing greater performance consistency, the other objective of
multi-management is to produce above-average returns; and to fulfill that
objective LAMCO searches for successful, independent investment management
organizations to hire as Portfolio Managers for the Fund. Several hundred equity
management organizations are both substantial in size and well-qualified to
manage large investment portfolios. In researching and selecting them, LAMCO
focuses on managers who have:
[bullet] A constant focus on a particular style of investing.
[bullet] A disciplined investment decision-making process.
[bullet] A record of success relative to other managers who practice the same
style.
[bullet] Continuity among the investment professionals, so that those who have
built the record remain the managers.
[bullet] A well-managed, highly responsive organization.
The pie chart below shows the Portfolio Manager lineup and percentage
allocations to each.
[DESCRIPTION OF PIE CHART]
OPPENHEIMER CAPITAL
Contrarian holdings being overlooked and
undervalued by investors.
1/3
WILLIAM BLAIR & COMPANY
Companies with high profitability and
enduring growth from across the market
capitalization spectrum.
1/3
MISSISSIPPI VALLEY ADVISORS INC.
Small capitalization growth companies that sell at
a reasonable current price relative to anticipated
future earnings.
1/3
As with anything in investments, circumstances change, so...
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LIBERTY ALL*STAR GROWTH FUND
................................................................................
LAMCO's Multi-Management Program:
Manager Evaluation and, Occasionally, Replacement
...LAMCO conducts continuing evaluation of the Portfolio Managers. The
purpose is to be sure that each is still the best choice for the Fund.
Through frequent meetings with the Portfolio Managers, and through
qualitative and quantitative analyses, each is continually evaluated to
assure that:
[bullet] It is consistently practicing its Investment Style.
[bullet] Its transactions and holdings reflect the Style.
[bullet] Its organization and investment process continue to support the
Style.
[bullet] Its investment performance is competitive when compared with other
managers using a similar Style.
Also, LAMCO is alert to assuring the proficiency of the Portfolio Manager team.
The objective is to be certain that the team remains an optimal combination,
giving the Fund the full benefits of Multi-Management. The procedures include:
[bullet] Assuring that the Fund's total portfolio has the proper investment
characteristics.
[bullet] Researching new investment managers as possible future Portfolio
Managers.
[bullet] Making Portfolio Manager changes when necessary. Two Portfolio
Managers have been replaced since LAMCOassumed management
responsibility for the entire Fund in November 1995.
Further, LAMCO shifts assets among the Portfolio Managers at selected times. As
the previous pie chart indicates, The Fund's assets are allocated among the
three Portfolio Managers to provide the desired style diversification. However,
each day stock market action changes the actual assets under management of the
various managers. Accordingly, from time to time, LAMCO reallocates assets back
to the original allocations in order to preserve the benefits of the Fund's
Multi-Management methodology. This procedure is called rebalancing.
The anatomy of the Fund's Multi-Management structure is visible in its
Portfolio Characteristics on the following page. For reference, it is
compared with the S&P 500 Stock Index.
---- 7 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
...............................................................................
LAMCO's Multi-Management Program:
Portfolio Characteristics
MANAGERS' DIFFERING INVESTMENT STYLES ARE REFLECTED IN PORTFOLIO
CHARACTERISTICS
The Portfolio Characteristics table on this page is a regular feature
of the Fund's shareholder reports. It serves as a useful tool for
understanding the value of a multi-managed portfolio. The characteristics are
different for each of the Fund's three Portfolio Managers. These differences
are a reflection of the fact that each pursues an individual Investment
Style. The shaded column highlights the characteristics of the Fund as a
whole, while the final column shows portfolio characteristics for the entire
S&P 500 Stock Index.
THE INVESTMENT STYLES PRACTICED BY THE FUND'S THREE PORTFOLIO MANAGERS ARE:
MISSISSIPPI VALLEY ADVISORS INC. (MVA)
Small capitalization growth companies that sell at a reasonable current price
relative to anticipated future earnings.
WILLIAM BLAIR & COMPANY
Companies with high profitability and enduring growth from across the market
capitalization spectrum.
OPPENHEIMER CAPITAL
Contrarian holdings being overlooked and undervalued by investors.
PORTFOLIO CHARACTERISTICS
AS OF DECEMBER 31, 1997
(UNAUDITED)
MARKET CAPITALIZATION SPECTRUM
SMALL LARGE
==============================
<TABLE>
<CAPTION>
WILLIAM OPPEN- TOTAL S&P
MVA BLAIR HEIMER FUND 500 INDEX
- ---------------------------------------------------==============================================
<S> <C> <C> <C> <C> <C>
Number of Holdings 79 46 32 152 500
- -------------------------------------------------------------------------------------------------
Weighted Average Market Capitalization (billions) $1.5 $22.0 $32.2 $17.8 $55.4
- -------------------------------------------------------------------------------------------------
Percent of Portfolio in S&P 500 7.3% 60.6% 70.2% 46.2% --
- -------------------------------------------------------------------------------------------------
Dividend Yield 0.6% 0.4% 1.2% 0.7% 1.6%
- -------------------------------------------------------------------------------------------------
Average Price/Earnings Ratio 19.8x 28.9x 16.1x 21.6x 21.9x
- -------------------------------------------------------------------------------------------------
Average Price/Book Value Ratio 3.9x 6.8x 4.1x 4.9x 5.5x
- -------------------------------------------------------------------------------------------------
Average Five-Year Earnings Per Share Growth 20.3% 27.9% 20.6% 23.5% 17.8%
- -------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
LIBERTY ALL*STAR GROWTH FUND
................................................................................
Top 50 Holdings
As of December 31, 1997
<TABLE>
<CAPTION>
RANK MARKET
AS OF VALUE PERCENT OF
RANK 9/30/97 SECURITY NAME ($000) NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 1 Federal Home Loan Mortgage Corp. $3,900 2.3%
2 8 Automatic Data Processing, Inc. 2,848 1.7
3 5 Travelers Group, Inc. 2,694 1.6
4 17 Intel Corp. 2,599 1.6
5 6 EXEL Limited 2,535 1.5
6 3 Citicorp 2,529 1.5
7 13 Minerals Technologies, Inc. 2,490 1.5
8 9 Morgan Stanley, Dean Witter, Discover &Co. 2,439 1.5
9 2 ACE, Limited 2,405 1.4
10 12 Progressive Corp. 2,398 1.4
11 18 Countrywide Credit Industries, Inc. 2,358 1.4
12 49 Viking Office Products, Inc. 2,218 1.3
13 26 AMR Corp. 2,058 1.2
14 28 Sprint Corp. 2,045 1.2
15 23 Household International, Inc. 2,028 1.2
16 29 Arrow Electronics, Inc. 1,946 1.2
17 25 Transamerica Corp. 1,917 1.1
18 14 Boeing Co. 1,909 1.1
19 24 Pfizer, Inc. 1,849 1.1
20 19 State Street Corp. 1,833 1.1
21 21 AFLAC, Inc. 1,789 1.1
22 16 Molex, Inc. 1,789 1.1
23 4 MBNA Corp. 1,781 1.1
24 27 HEALTHSOUTH Corp. 1,770 1.1
25 7 Nokia Corp. ADR 1,750 1.0
26 20 Caterpillar, Inc. 1,748 1.0
27 38 Wells Fargo & Co. 1,697 1.0
28 new Home Depot, Inc. 1,643 1.0
29 32 American International Group, Inc. 1,631 1.0
30 10 First Data Corp. 1,611 1.0
31 30 LucasVarity PLC ADR 1,569 0.9
32 15 Microsoft Corp. 1,551 0.9
33 46 Shared Medical Systems, Inc. 1,551 0.9
34 45 Illinois Tool Works, Inc. 1,509 0.9
35 31 Lockheed Martin Corp. 1,478 0.9
36 89 Gartner Group, Inc., ClassA 1,475 0.9
37 114 US Freightways Corp. 1,472 0.9
38 40 General Electric Co. 1,468 0.9
39 11 Medtronic, Inc. 1,440 0.9
40 new Cendant Corp. 1,433 0.9
41 36 Staples, Inc. 1,422 0.9
42 66 Sungard Data Systems, Inc. 1,401 0.8
43 41 Dole Food Co. 1,373 0.8
44 51 Airtouch Communications, Inc. 1,372 0.8
45 39 May Department Stores Co. 1,317 0.8
46 47 R.R. Donnelley & Sons Co. 1,304 0.8
47 52 CVS Corp. 1,294 0.8
48 57 Monsanto Co. 1,260 0.8
49 48 Hercules, Inc. 1,255 0.8
50 33 Cognizant Corp. 1,208 0.7
</TABLE>
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<PAGE>
LIBERTY ALL*STAR GROWTH FUND
...............................................................................
Major Stock Changes in the Fourth 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 fourth
quarter of 1997.
SHARES
------------------------------------
HELD AS
SECURITY NAME ADDITIONS REDUCTIONS OF 12/31/97
- --------------------------------------------------------------------------------
Blyth Industries, Inc. 26,200 26,200
CFM Technologies 27,546 27,546
Cole National Corp., Class A 21,600 21,600
Covance, Inc. 27,500 56,500
Global Industries Ltd. 36,500 36,500
Home Depot, Inc. 27,900 27,900
Intel Corp. 15,000 37,000
Kulicke & Soffa Industries, Inc. 32,000 32,000
Lowe's Companies, Inc. 17,900 17,900
Money Store, Inc. (The) 30,000 30,000
MSC Industrial Direct Co., Inc. 14,000 14,000
Revlon, Inc. 17,200 17,200
SBS Technologies 22,000 22,000
SPSS, Inc. 28,500 28,500
U.S. Freightways Corp. 26,500 45,300
Viking Office Products, Inc. 45,000 101,700
Cintas Corp.* (1,300) 16,700
Federal National Mortgage Assoc. (40,000) 0
Fisher Scientific International (20,500) 0
IBP, Inc. (27,000) 0
MBNA Corp.* (28,800) 65,200
Medtronic, Inc. (18,500) 27,500
Microsoft Corp. (4,000) 12,000
PMI Group, Inc. (9,000) 10,000
Tejas Gas Corp. (15,000) 0
Tidewater, Inc. (10,000) 9,000
Unitog Co. (24,700) 0
*Adjusted for stock split.
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<PAGE>
LIBERTY ALL*STAR GROWTH FUND
................................................................................
Manager Roundtable
Successful Growth Investing Doesn't
Result from Keeping Your Head in the
Sand -- but You Shouldn't Lose It
Every Time You Read the Newspaper
AFTER THREE STRONG YEARS, STOCK SELECTION BECOMES EVEN MORE IMPORTANT / The
Portfolio Managers Analyze the Current Environment, but Continue to Stress a
Long-Term Perspective.
This is the third Liberty All-Star Growth Fund Manager Roundtable, in which the
Fund's Portfolio Managers review the year past, analyze the investment
environment and highlight specific changes in their portfolios all from the
perspective of their investment style and philosophy. The Fund Advisor, Liberty
Asset Management Company (LAMCO), serves as the moderator for the Roundtable.
The participating portfolio managers and their investment styles are:
MISSISSIPPI VALLEY ADVISORS
Portfolio Manager / Robert J. Anthony,
Small Cap Portfolio Manager
Investment Style / Growth Mississippi Valley Advisors' (MVA) investment
discipline seeks to achieve a high total return by investing in a portfolio of
small capitalization stocks chosen based on a bottom-up "relative value"
approach in which MVA ranks candidates for investment based on relative
price/earnings ratio, earnings growth and total return. The firm looks for
strong management with an equity stake in the company; leadership in one or two
markets by one or two products; and strong financial condition as well as
companies that are under-researched by Wall Street analysts.
OPPENHEIMER CAPITAL
Portfolio Manager / John G. Lindenthal, Managing Director
Investment Style / Contrarian Oppenheimer invests in the stocks of quality
companies with sound business prospects that are considered undervalued because
they are currently disliked or are being overlooked by investors. Research
focuses on cash flow analysis. Purchase candidates exhibit a high return on
invested capital, large undedicated cash flow, and reasonable prices in relation
to book value.
WILLIAM BLAIR & COMPANY
Portfolio Manager / John F. Jostrand, Portfolio Manager
Investment Style / Growth William Blair emphasizes disciplined, fundamental
research to identify quality growth companies with the ability to sustain their
growth over long time periods. At the core of the firm is a group of analysts
who lead research aimed at identifying new and mid-sized companies that have the
opportunity to grow in a sustainable fashion for extended periods of time.
LAMCO: We'll take a look back at 1997 but before we do, the subject likely
to be uppermost in shareholders' minds is your outlook for 1998. In the
context of your investment style, what will you be doing to achieve your
investment objectives in 1998? John Lindenthal, start us off with
Oppenheimer's view, please.
LINDENTHAL (OPPENHEIMER -- CONTRARIAN): Our style of investing can be best
described as a long-term holder of superior businesses. We stress a high return
on invested capital, a high level of cash flow generation throughout the
economic cycle and managements that redeploy cash flow for the benefit of the
shareholder. Our style or philosophy does not change as a result of a market or
economic outlook. Well positioned companies create value for the shareholder
over extremely long periods of time. We want to own companies that will be
prospering 20 years from now.
[SIDE BAR SCREENED TEXT]
- -----------------------------
'Well positioned companies
create value for the
shareholder over extremely
long periods of time. We
want to own companies that
will be prospering 20 years
from now.'
John Lindenthal /
Oppenheimer
- -----------------------------
LAMCO: Bob Anthony, what are the thoughts at Mississippi Valley Advisors?
- --------------------------------------------------------------------------------
The views expressed in this interview represent the managers' views at the time
of the discussion and are subject to change.
- --------------------------------------------------------------------------------
---- 11 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
...............................................................................
Manager Roundtable
ANTHONY (MISSISSIPPI VALLEY ADVISORS -- GROWTH): We believe the primary key to
investment success in 1998 will be stock selection. We do not expect a
reoccurrence of the broad and very large sector moves which pushed up, for
example, nearly all bank, utility and oil service stocks in 1997. Individual
stock selection should move our sector overweightings into areas of good growth
and reasonable valuations.
LAMCO: John Jostrand, what will William Blair be stressing in 1998?
JOSTRAND (WILLIAM BLAIR -- GROWTH): As much as ever, we are emphasizing our
companies' durability. Our philosophy is to make investments in companies with
sustainable growth characteristics, based on our research. Durability means
built to last. With the strong headwinds currently coming from Southeast Asia
and declining pricing power in some sectors here in the U.S., we are closely
monitoring the strength of our investments' competitive advantages and the
durability of their business franchise. The challenge of growth companies today
is to grow through or recover from growing pains. We believe our research will
help sort out the growing pains from the severe dislocations and take advantage
of the stepped up volatility we have recently experienced, as well as be
prepared for either an economic slowdown or margin pressure.
Our investment holding periods are about three to four years ideally,
even longer so, we are not as good as others at near-term trends. Mid-cap
companies are now valued at price/earnings ratios less than large cap stocks.
For that better valuation you get superior expected and recent earnings growth.
They should perform well. Secondly, pricing for industrial materials in many
cases continue to fall, so we are optimistic that steady growth companies will
perform well in 1998.
LAMCO: Looking back at 1997, how would you summarize the year's story? John,
let's stay with you.
JOSTRAND (WILLIAM BLAIR -- GROWTH): The "three-peat" that pundits thought to be
very unlikely statistically was, in fact, amazing. It was a "Goldilocks" mixture
of lower inflation than expected (not too hot) and solid profit growth (not too
cold). The lower inflation and decline in bond yields were the economic
surprises of the year. Unfortunately, mid-cap and small cap growth did not
perform nearly as well as the large cap multinationals, with international
lagging badly.
LAMCO: Bob Anthony, how do you sum up '97?
[SIDEBAR SCREENED TEXT]
- --------------------------
'As much as ever, we are
emphasizing our companies'
durability. Our philosophy
is to make investments in
companies with sustainable
growth characteristics,
based on our research.
Durability means built to
last.'
John Jostrand /
William Blair
- --------------------------
ANTHONY (MISSISSIPPI VALLEY ADVISORS -- GROWTH): Small cap stocks in 1997 were
incredibly volatile as compared to the stocks of larger companies. For example,
smaller companies showed declines in the first and fourth quarters versus gains
for larger companies. Conversely, smaller companies showed very strong gains in
the second and third quarters as they kept pace with the S&P 500's strong gain
in the second quarter and soundly outperformed large stocks in the third
quarter.
LAMCO: John Lindenthal, what are your thoughts as you look back?
LINDENTHAL (OPPENHEIMER -- CONTRARIAN): The U.S. equity market was strong in
1997 because the economy remained on course with moderate growth, low declining
inflation, generally falling interest rates and positive liquidity flows.
Corporate profits were better than expected as a rule.
LAMCO: Now, perhaps, we could look a little more in depth at 1997 as it
affected your style, with emphasis on the fourth quarter. Bob Anthony, why
don't you lead off?
ANTHONY (MISSISSIPPI VALLEY ADVISORS -- GROWTH): In the fourth quarter small cap
stocks declined. Moreover, the decline was fairly broad based as there were few
places to hide. Broad based declines occurred in technology, energy, healthcare
and industrial cyclicals. The only areas that did well were utilities and bank
stocks which benefited from the decline in interest rates. As a result, the
fourth quarter represented a fairly good buying opportunity as we began to do
select buying in technology and energy.
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LIBERTY ALL*STAR GROWTH FUND
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Manager Roundtable
JOSTRAND (WILLIAM BLAIR -- GROWTH): Our companies respond less to an
acceleration (or deceleration) in the economy than the average company. This is
by design, since we look for companies with a history of stable profit margins.
As a result, many of our companies did not experience the upward revision in
earnings estimates that characterized other sectors. In the fourth quarter, the
reverse was true, and so our stocks generally performed well through the
volatility.
LINDENTHAL (OPPENHEIMER -- CONTRARIAN): Our results for the year were aided by
the strong performance of the financial stocks in our portfolio, a position we
have held since our inception as a manager in 1994. The more notable stocks in
this category included: Travelers (diversified financial services, +80 percent),
EXEL Ltd. (Bermuda-based insurer specializing in low frequency, high severity
business risk, +72 percent), Progressive Corp. (nonstandard auto insurer, +78
percent), and Federal Home Loan Mortgage (federally chartered corporation that
provides supplemental liquidity to the mortgage market, +53 percent). In the
fourth quarter, financial markets worldwide were buffeted by the impact of the
Asian financial crisis. Equity prices in some Asian nations fell precipitously
and the U.S. equity market was extremely volatile. We seek to invest in
superior, sustainable companies no matter where they are headquartered.
LAMCO: Actual events have a way of puncturing the "truths" served up by
conventional wisdom. For example, few thought 1997 could be as strong as it was
after great years in 1995 and 1996 yet it became a history-maker. What needs to
happen to give us another good year in 1998? John Jostrand, what are your
thoughts?
JOSTRAND (WILLIAM BLAIR -- GROWTH): On the company level, those that focus on
well-defined goals and operational excellence should do well. From a
macroeconomic standpoint, investors are focused on slowing sales and the
resulting margin pressure. If that is the case, short-term interest rates should
move down and support current price/earnings ratios.
ANTHONY (MISSISSIPPI VALLEY ADVISORS -- GROWTH): Another good year in 1998
depends very heavily on corporations producing earnings growth of 7 percent or
better. Investors are very optimistic and have already priced 7-12 percent
annual earnings gains into stock prices. If such growth appears impossible,
further assumptions will be reduced, possibly leading to lower price/earnings
multiples as well as lower expected earnings.
[SIDEBAR SCREENED TEXT]
- ----------------------------
'Another good year in 1998
depends very heavily on
corporations producing
earnings growth of 7 percent
or better. Investors are
very optimistic and have
already priced 7-12 percent
annual earnings gains into
stock prices.'
Bob Anthony / Mississippi
Valley Advisors
- ----------------------------
LINDENTHAL (OPPENHEIMER -- CONTRARIAN): For 1998 to be a good year, we need more
of what happened in 1997. Inflation must remain low and, as a consequence, the
Federal Reserve continues to be neutral. Also, the Asian problem must be
addressed in a positive manner that keeps it from spreading to the U.S. and
Europe. Money growth and inflation have remained fairly low in both the U.S. and
Europe, and we expect these low rates of growth to continue.
LAMCO: What may happen to send the bull running for cover?
JOSTRAND (WILLIAM BLAIR -- GROWTH): Earnings expectations may be too high. The
consumer sector is in good shape, but we have had five to six good years of
capital spending by corporations to improve and expand. There is plenty of
productive capacity here and abroad. If conditions slow, margins may be
pressured.
LINDENTHAL (OPPENHEIMER -- CONTRARIAN): If inflation were to pick up and,
therefore, the Federal Reserve were to decide to tighten credit, then the
market would turn very difficult.
ANTHONY (MISSISSIPPI VALLEY ADVISORS -- GROWTH): The bull market may run for
cover in 1998 if we begin to see serious reductions in U.S. earnings. Other
possible sources of weakness include a strong U.S. dollar, the declining
benefits of corporate restructurings and debt reductions, and, possibly lurking
in the future, a sharp uptrend in U.S. labor costs.
---- 13 ----
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LIBERTY ALL*STAR GROWTH FUND
...............................................................................
Manager Roundtable
LAMCO: Speaking of the way events can puncture conventional wisdom, what's your
own favorite bit of "unconventional wisdom?"
LINDENTHAL (OPPENHEIMER -- CONTRARIAN): Conventional wisdom is that the
economy and the equity market are closely related. The reality is that the
market is a function of many inputs, but primarily it is driven by liquidity.
In other words, the flow of funds in our financial system is more important
than the overall state of the economy. When we have excess liquidity that
is, a greater supply of funds rather than demand for funds financial assets
benefit.
ANTHONY (MISSISSIPPI VALLEY ADVISORS -- GROWTH): The conventional wisdom is
that stocks cannot fall far if interest rates are declining. We believe this
is only true if the earnings outlook for the coming year is bright. Low
interest rates in a very poor economy will not help stocks.
JOSTRAND (WILLIAM BLAIR -- GROWTH): Contrary to what some are thinking, we
believe the economy will stay on firm ground in North America and not slow
appreciably, and that technology stocks will rebound.
LAMCO: Turning to portfolio specifics, please discuss two or three recent
additions to the All-Star Growth Fund portfolio. What were they and why were
they purchased? What are two or three stocks that you sold recently, and why?
Can you start us off, John Lindenthal?
LINDENTHAL (OPPENHEIMER -- CONTRARIAN): One of our more recent buys was
Caterpillar. CAT has a worldwide franchise selling high quality earth moving and
construction equipment. Its plant is state of the art, its distribution is
unparalleled and its financial performance has improved dramatically. CATis
using the excess cash it has generated to buy in stock and make acquisitions
that bolster its existing product lines.
[SIDEBAR SCREENED TEXT]
- ----------------------------
'Conventional wisdom is that
the economy and the equity
market are closely related.
The market is... driven by
liquidity. In other words,
the flow of funds in our
financial system is more
important than the overall
state of the economy. When
we have excess liquidity
that is, a greater supply of
funds rather than demand for
funds -- financial assets
benefit.'
John Lindenthal /
Oppenheimer
- ----------------------------
We also added to our position in Wells Fargo, a leading bank in the
Western United States. Wells is on the brink of realizing efficiencies from its
merger with First Interstate following some integration difficulties. They have
been consolidating overlapping branches, replacing many free standing branches
with small "electronic" ones in supermarkets. Wells now has over 20,000
customers doing business with them over the Internet, more than any other bank.
We expect an average annual growth in net income of 12 percent during the next
four years. Furthermore, Wells has been purchasing approximately 6 percent of
its shares annually. Through this combination of earnings growth and share
reduction, we expect the stock's value to compound at a high-teens rate. Thus,
we believe the intrinsic value of Wells Fargo shares will increase at a faster
rate than most bank stocks, yet it sells at a lower price-to-cash earnings ratio
than the industry average.
As we mentioned, we are very long-term investors, so our turnover tends
to be extremely low. To illustrate, on the sell side, we only sold two positions
this past year. One was Gateway Computer. We felt that some of its initiatives
depart from the company's basic concept of selling PCs directly to the consumer.
Now, it is opening retail stores, and we feel that this won't generate the same
returns on capital as the core business given the capital intensive nature of
retail expansion.
The other name that we liquidated was Tenneco, which is an auto parts
and original equipment auto parts and packaging company. Underlying our
investment thesis has been the company's fairly dramatic restructuring. Now,
even though there's been a fair amount of restructuring, our feeling was that it
was going at a slower pace than anticipated. As the stock had moved up, we took
the opportunity to sell and move on to something else.
LAMCO: Bob Anthony, can you discuss portfolio decisions at Mississippi Valley
Advisors?
ANTHONY (MISSISSIPPI VALLEY ADVISORS -- GROWTH): During the fourth quarter of
1997 the biggest changes to the portfolio were a reduction in our interest rate
sensitive weighting and an increase in the technology weighting.
Regarding technology, due to the Asian crisis and over capacity in
certain segments of the semiconductor industry, one of the hardest hit sectors
was semiconductor capital
---- 14 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
................................................................................
Manager Roundtable
goods. This consists of sophisticated capital equipment used in the manufacture
of semiconductors. In the fourth quarter, most semiconductor capital goods
stocks declined more than 50 percent, reflecting the fact that a large
percentage of semiconductors are manufactured in Asia and are likely to
experience a slowdown in growth over the next few quarters. We believe that
investors overreacted. Essentially, they reflected short-term news, given the
strong underlying long-term growth of the semiconductor industry and the ongoing
capital spending required to continue to manufacture leading edge
semiconductors. Two stocks that we purchased during the quarter are Kulicke &
Soffa Industries, a manufacturer of semiconductor assembly equipment, and CFM
Technologies, which is a component supplier within the semiconductor
manufacturing process. With both stocks selling at price/earnings ratios of
roughly one-half their long-term revenue growth rates, they are extremely
attractive as we look toward 1998 and 1999.
Another stock purchased during the quarter was Global Industries. Due to
its unique expertise in deep water construction and development, Global
Industries is one of the fastest growing and best positioned oil service
companies. This is the area of focus by oil and gas explorers worldwide and,
therefore, has the highest certainty of a sustained strong level of activity
even in periods of temporary commodity price weakness.
[SIDEBAR SCREENED TEXT]
- ----------------------------
'The U.S. has the least
regulated, most competitive
and, because of its
excellent incentives, most
innovative major economy in
the world... Growth should
be higher in the U.S. than
in Europe and risk in the
U.S. is less than in Asia
because of U.S. accounting
and financial disciplines as
well as political
stability.'
Bob Anthony / Mississippi
Valley Advisors
- ----------------------------
Two sales during the quarter were in the financial services area. Due to
the flattening yield curve and the increase in mortgage refinancing activity, it
became more apparent that financial services companies such as United Companies
Financial, a subprime mortgage lender, and Charter One Financial, a traditional
thrift would have difficulty growing their respective loan portfolios without
the potential for meaningful margin compression. As a result, we thought both
companies could experience lower than expected earnings over the next few
quarters and they were sold.
LAMCO: John Jostrand, what portfolio decisions has William Blair made?
JOSTRAND (WILLIAM BLAIR -- GROWTH): We purchased MSC Industrial Direct, one of
the largest distributors of maintenance and repair items for industrial
customers. The company has a long, successful history, but nevertheless embarked
on a growth plan based on geographic expansion and direct mailing of general and
supplemental catalogs. MSC has a measurable, enduring advantage due to its
breadth of offerings 300,000 items and service same day shipment/next day
delivery. It has successfully implemented a new strategy in an old-line,
fragmented industry that utilizes technology and service representative
training. This strategy has produced definable advantages for the customer,
which many competitors cannot replicate, and it has given customers a reason to
use MSC in areas where several vendors were used before. We believe that
earnings will grow better than 25 percent a year for the next several years.
A second recent purchase is Covance. This company was formerly a
division of Corning Glass, but it was divested about a year ago. The first point
is that management in other spin-off situations has often found a new lease on
corporate life. We believe this management fits that category and is very
energized by the prospect of running their own company. The business is
pharmaceutical development for drug companies. This is a field with limited
competition, but offers significant value to their customers in the form of
biostatistical analysis, regulatory filing expertise and faster time-to-market.
Furthermore, pharmaceutical companies have stepped up the demands on their
development staff with attempts to launch new therapeutics in multiple countries
simultaneously and for several different therapeutic indications at the same
time. For example, Pfizer, which is also a Fund holding, launched a new
antibiotic on a multinational basis for 14 separate infectious conditions. This
is unprecedented and gives Pfizer a terrific sales boost. Covance improves
customers' competitiveness in this critical area.
On the sales side, we have just trimmed back some positions to make room
for these additions. We believe that valuation analysis is a helpful enhancement
to performance. In a market last year that was more volatile than any in the
last several, we kept an eye on issues that had unfairly
---- 15 ----
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LIBERTY ALL*STAR GROWTH FUND
...............................................................................
Manager Roundtable
corrected or unreasonably run too far. On that basis, we recently trimmed our
position in Microsoft. The company's earnings will slow appreciably in the first
half of calendar 1998, it faces two significant product upgrade challenges and
it has renewed its face-off with the U.S. Department of Justice. The stock had
appreciated significantly and reflected an extreme valuation, we believe, given
a price/earnings ratio of over 40. Therefore, we trimmed back the position.
LAMCO: Let's step back and take a long look at the market. Whatever 1998
brings, what, in your opinion, are the most compelling arguments for
individual investors to remain committed to the U.S. equity market? John
Jostrand, start us off on this final question, please.
- ------------------------------
'We believe that there is
enormous vitality in American
business and its management
today. Those focused on solid
growth opportunities,
production (or service)
efficiency, providing
incentives to employees and
satisfying customers are
producing very attractive
growth in earnings.'
John Jostrand / William Blair
- ------------------------------
JOSTRAND (WILLIAM BLAIR -- GROWTH): We believe that there is enormous vitality
in American business and its management today. Those focused on solid growth
opportunities, production (or service) efficiency, providing incentives to
employees and satisfying customers are producing very attractive growth in
earnings. No grand theories, such as synergy the keys are to plan and execute.
LAMCO: John Lindenthal, what's your view?
LINDENTHAL (OPPENHEIMER -- CONTRARIAN): If 1998 turns out to be a difficult year
for the U.S. equity market, opportunities will be presented to our managers to
purchase solid businesses at even better prices. Volatility and group rotation
create attractive entry points for managers to build a portfolio of companies
whose aggregate earnings march upward over the years, and so also will the
portfolio's market value.
LAMCO: Bob Anthony, make the case as you see it, please.
ANTHONY (MISSISSIPPI VALLEY ADVISORS -- GROWTH): The U.S. has the least
regulated, most competitive and, because of its excellent incentives, most
innovative major economy in the world. With returns on equity of roughly 15
percent and dividend payouts of 35 percent of earnings, nearly 65 percent of all
earnings are being reinvested each year to grow the businesses. This should
produce about 10 percent annual earnings growth, which is in line with historic
trends and compares favorably to Treasury bond yields at 5.5 percent. Growth
should be higher in the U.S. than in Europe and risk in the U.S. is less than in
Asia because of U.S. accounting and financial disciplines as well as political
stability.
LAMCO: Thank you all very much.
---- 16 ----
<PAGE>
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................................................................................
Schedule of Investments
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (98.9%) SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE (2.0%)
Boeing Co. 39,000 $ 1,908,563
Lockheed Martin Corp. 15,000 1,477,500
-----------
3,386,063
-----------
AUTO, TIRES & ACCESSORIES (1.1%)
Discount Auto Parts, Inc. (a) 18,000 344,250
LucasVarity PLC ADR (a) 45,000 1,569,375
-----------
1,913,625
===========
BANKS (6.3%)
Associated Banc-Corp 13,961 769,600
Bank United Corp., Class A 15,600 763,425
CCB Financial Corp. 6,300 677,250
Charter One Financial, Inc. 10,750 678,594
Citicorp 20,000 2,528,750
Crestar Financial Corp. 14,000 798,000
State Street Corp. 31,500 1,832,906
TCF Financial Corp. 24,000 814,500
Wells Fargo & Co. 5,000 1,697,188
10,560,213
BUSINESS SERVICES (12.5%)
Acxiom Corp. (a) 58,200 $1,120,350
American Management Systems (a) 36,100 699,438
Automatic Data Processing, Inc. (a) 46,400 2,847,800
Cintas Corp. 16,700 651,300
Cognizant Corp. (a) 27,100 1,207,644
Cognos, Inc. (a) 47,600 1,094,800
Concord EFS, Inc. (a) 27,700 689,038
Cotelligent Group, Inc. (a) 30,000 573,750
First Data Corp. 55,070 1,610,797
Gartner Group, Inc., Class A (a) 39,600 1,475,100
Intelliquest Information Group (a) 34,500 439,875
National Data Corp. 32,900 1,188,512
Network Associates, Inc. (a) 21,837 1,150,536
Rental Service Corp. (a) 18,000 445,500
Reuters Holdings PLCADR 17,200 1,139,500
Robert Half International, Inc. 18,450 738,000
</TABLE>
See Notes to Schedule of Investments.
---- 17 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
...............................................................................
Schedule of Investments
<TABLE>
<CAPTION>
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES (CONT.)
Shared Medical Systems, Inc. 23,500 $ 1,551,000
SPSS, Inc. (a) 28,500 548,625
Sungard Data Systems, Inc. (a) 45,200 1,401,200
SystemSoft Corp. (a) 49,903 324,369
-----------
20,897,134
-----------
CHEMICALS (5.1%)
Cytec Industries, Inc. (a) 15,000 704,063
Hanna (M.A.) Co. 44,693 1,128,498
Hercules, Inc. 25,000 1,254,688
International Specialty Products, Inc. (a) 30,000 448,125
Minerals Technologies, Inc. 54,790 2,489,521
Monsanto Co. 30,000 1,260,000
OM Group, Inc. 14,400 529,200
RPM, Inc. 42,500 653,438
-----------
8,467,533
-----------
COMPUTER & BUSINESS EQUIPMENT (4.9%)
Black Box Corp. (a) 18,800 665,050
CFM Technologies (a) 27,546 423,520
Computer Associates International, Inc. 15,000 793,125
DT Industries, Inc. 14,000 479,500
Intel Corp. 37,000 2,599,250
Komag, Inc. (a) 34,332 510,689
Microsoft Corp. (a) 12,000 1,551,000
Zebra Technologies Corp., Class A (a) 37,803 1,124,639
-----------
8,146,773
-----------
CONSUMER PRODUCTS (1.6%)
Blyth Industries, Inc. (a) 26,200 784,363
Cole National Corp., Class A (a) 21,600 646,650
Furniture Brands International, Inc. (a) 23,000 480,125
Samsonite Corp. (a) 24,400 771,650
-----------
2,682,788
-----------
COSMETICS & TOILETRIES (0.4%)
Revlon, Inc. (a) 17,200 607,375
-----------
</TABLE>
See Notes to Schedule of Investments.
---- 18 ----
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LIBERTY ALL*STAR GROWTH FUND
................................................................................
Schedule of Investments
<TABLE>
<CAPTION>
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
DIVERSIFIED (1.3%)
Ball Corp. 7,000 $ 247,188
General Electric Co. 20,000 1,467,500
Lydall, Inc. (a) 23,000 451,375
-----------
2,166,063
-----------
DRUGS & HEALTH CARE (11.5%)
Allergan, Inc. 26,700 897,787
Amgen, Inc. 9,300 503,362
Apria Healthcare Group, Inc. (a) 45,800 621,162
Bard (C.R.), Inc. 20,000 626,250
Beverly Enterprises, Inc. (a) 47,000 611,000
Biomet, Inc. 45,000 1,147,500
Boston Scientific Corp. (a) 13,000 596,375
Cardinal Health, Inc. 14,300 1,074,287
Covance, Inc. (a) 56,500 1,122,937
DENTSPLY International, Inc. 30,000 915,000
Elan Corp. ADR(a) 21,100 1,080,056
Hanger Orthopedic Group, Inc. (a) 28,000 360,500
HEALTHSOUTH Corp. (a) 63,800 1,770,450
Integrated Health Services, Inc. 24,500 764,093
Medtronic, Inc. 27,500 1,440,312
Millipore Corp. 16,500 559,968
Pfizer, Inc. 24,800 1,849,150
Pharmerica, Inc. (a) 43,189 448,085
R.P. Scherer Corp. (a) 13,600 829,600
Sun Healthcare Group, Inc. (a) 57,600 1,116,000
Omnicare,Inc. 27,500 852,500
-----------
19,186,374
-----------
ELECTRONICS & ELECTRICAL EQUIPMENT (5.1%)
Adaptec, Inc. (a) 30,000 1,113,750
Analog Devices, Inc. (a) 15,333 424,532
Arrow Electronics, Inc. (a) 60,000 1,946,250
Hubbell, Inc., Class B 19,000 941,687
Linear Technology Corp. 16,400 943,000
Molex, Inc. 62,218 1,788,767
SBS Technologies (a) 22,000 596,750
Xilinix, Inc. (a) 21,800 764,362
-----------
8,519,098
-----------
</TABLE>
See Notes to Schedule of Investments.
---- 19 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
...............................................................................
Schedule of Investments
<TABLE>
<CAPTION>
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES (13.1%)
Aames Financial Corp. 29,000 $ 377,000
Cendant Corp. (a) 41,700 1,433,438
CMACInvestment Corp. 15,000 905,625
Countrywide Credit Industries, Inc. 55,000 2,358,125
Credit Acceptance Corp. (a) 49,700 385,175
Federal Home Loan Mortgage Corp. 93,000 3,900,188
Finova Group, Inc. 17,400 864,562
Household International, Inc. 15,900 2,028,244
Interim Services, Inc. (a) 28,600 732,875
MBNA Corp. 65,200 1,780,775
Money Store, Inc. (The) 30,000 630,000
Morgan Stanley, Dean Witter, Discover & Co. 41,250 2,438,906
Paychex, Inc. 15,000 759,375
Southern Pacific Funding Corp. (a) 37,500 492,187
Travelers Group, Inc. 50,000 2,693,750
-----------
21,780,225
-----------
FOOD, BEVERAGE &RESTAURANTS (3.4%)
Brinker International, Inc. (a) 35,000 560,000
Canandaigua Brands, Inc. Class A (a) 18,716 1,036,399
Diageo PLC ADR 30,000 1,136,250
Dole Food Co. 30,000 1,372,500
Hormel Foods Corp. 26,000 851,500
Performance Food Group Co. (a) 32,378 768,978
-----------
5,725,627
-----------
HOTEL & LEISURE (0.6%)
Carnival Corp., Class A 19,400 1,074,275
-----------
INDUSTRIAL EQUIPMENT (3.3%)
Albany International 29,500 678,500
Barnett, Inc. (a) 19,000 418,000
Caterpillar, Inc. 36,000 1,748,250
Illinois Tool Works, Inc. 25,100 1,509,138
Kulicke & Soffa Industries, Inc. (a) 32,000 596,000
MSC Industrial Direct Co., Inc. (a) 14,000 588,000
-----------
5,537,888
-----------
</TABLE>
See Notes to Schedule of Investments.
---- 20 ----
<PAGE>
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................................................................................
Schedule of Investments
<TABLE>
<CAPTION>
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
INSURANCE (8.5%)
ACE Limited 25,000 $ 2,404,688
AFLAC, Inc. 35,000 1,789,375
American International Group, Inc. 15,000 1,631,250
EXEL Ltd. 40,000 2,535,000
HCC Insurance Holdings, Inc. 35,500 754,375
PMI Group, Inc. 10,000 723,125
Progressive Corp. 20,000 2,397,500
Transamerica Corp. 18,000 1,917,000
-----------
14,152,313
-----------
METALS & MINING (0.4%)
Freeport-McMoRan Copper & Gold, Inc., Class A 40,000 630,000
-----------
OIL & GAS (2.6%)
Global Industries Ltd. (a) 36,500 620,500
Ocean Energy, Inc. (a) 11,500 567,094
Swift Energy Co. (a) 29,446 620,204
Tidewater, Inc. 9,000 496,125
Triton Energy Corp. (a) 27,000 788,063
Union Texas Petroleum Holdings, Inc. 30,000 624,375
United Meridian Corp. (a) 19,900 559,688
-----------
4,276,049
-----------
PAPER & PLASTIC (1.6%)
Aptar Group, Inc. 9,567 530,969
Caraustar Industries, Inc. 13,000 445,250
Champion International Corp. 25,000 1,131,250
Consolidated Papers, Inc. 9,000 480,375
-----------
2,587,844
PUBLISHING (0.8%)
R.R. Donnelley & Sons Co. 35,000 1,303,750
-----------
RETAIL TRADE (5.8%)
CVS Corp. 20,200 1,294,063
Fastenal Co. (a) 13,100 501,075
Home Depot, Inc. 27,900 1,642,613
Lowe's Companies, Inc. 17,900 853,606
Marks Brothers Jewelers,Inc. (a) 31,000 511,500
May Department Stores Co. 25,000 1,317,188
</TABLE>
See Notes to Schedule of Investments.
---- 21 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
...............................................................................
Schedule of Investments
<TABLE>
<CAPTION>
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL TRADE (CONT.)
Staples, Inc. (a) 51,000 $ 1,421,625
Viking Office Products, Inc. (a) 101,700 2,218,331
-----------
9,760,001
TELECOMMUNICATIONS (4.5%)
Airtouch Communications, Inc. (a) 33,000 1,371,563
Arch Communications Group, Inc. (a) 48,482 248,470
IXCCommunications, Inc. (a) 33,000 1,035,375
Mobile Telecommunication Technologies Corp. (a) 49,946 1,098,812
Nokia Corp. ADR 25,000 1,750,000
Sprint Corp. 35,000 2,045,313
-----------
7,549,533
TRANSPORTATION (2.5%)
AMR Corp. (a) 16,000 2,058,000
Hub Group, Inc., Class A(a) 18,500 550,375
U.S. Freightways Corp. 45,300 1,472,250
-----------
4,080,625
-----------
TOTAL COMMON STOCKS (Cost $122,777,125) 164,991,169
-----------
</TABLE>
See Notes to Schedule of Investments.
---- 22 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
................................................................................
Schedule of Investments
<TABLE>
<CAPTION>
REPURCHASE AGREEMENT (1.7%) PAR VALUE MARKET VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ABN AMRO Chicago Corp., dated 12/31/97, 6.60%, to
be repurchased at $2,779,019 on 01/2/98, collaterized
by U.S. Treasury Notes with various maturities to
2016, with a current market value of $2,842,078. $ 2,778,000 $ 2,778,000
------------
TOTAL INVESTMENTS (100.6%) (Cost $125,555,125)(b) 167,769,169
OTHER ASSETS AND LIABILITIES, NET (-0.6%) (1,032,050)
------------
NET ASSETS (100.0%) $166,737,119
============
NET ASSET VALUE PER SHARE (12,937,680 SHARES OUTSTANDING) $ 12.89
============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) The cost of investments for federal income tax purposes is $125,751,189.
Gross unrealized appreciation and depreciation of investments at
December 31, 1997, is as follows:
Gross unrealized appreciation $ 47,930,605
Gross unrealized depreciation (5,912,625)
------------
Net unrealized appreciation $ 42,017,980
============
Acronym Name
------- ---------------------------
ADR American Depository Receipt
See Notes to Financial Statements.
---- 23 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
...............................................................................
Statement of Assets and Liabilities
December 31, 1997
ASSETS:
Investments at market value (identified cost $125,555,125) $167,769,169
Cash 710
Receivable for investments sold 1,037,457
Dividends and interest receivable 103,010
------------
TOTAL ASSETS 168,910,346
------------
LIABILITIES:
Payable for investments purchased 78,865
Distributions payable to shareholders 1,590,287
Management fees payable 290,160
Administrative and bookkeeping fees payable 110,716
Accrued other expenses 103,199
------------
TOTAL LIABILITIES 2,173,227
------------
NET ASSETS $166,737,119
============
NET ASSETS REPRESENTED BY:
Paid-in capital (authorized 20,000,000 shares
at $0.10 Par; 12,937,680 shares outstanding) $122,876,305
Accumulated net realized gains on investments
less distributions 1,646,770
Net unrealized appreciation on investments 42,214,044
------------
TOTAL NET ASSETS APPLICABLE
TO OUTSTANDING SHARES
OF BENEFICIAL INTEREST
($12.89 PER SHARE) $166,737,119
============
See Notes to Financial Statements.
---- 24 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
................................................................................
Statement of Operations
Year ended December 31, 1997
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Dividends $ 1,265,415
Interest 293,433
------------
TOTAL INVESTMENT INCOME (NET OF
FOREIGN TAXES WITHHELD AT SOURCE
WHICH AMOUNTED TO $13,348) 1,558,848
EXPENSES:
Management fees $ 1,093,343
Administrative fee 361,802
Bookkeeping fee 53,795
Custodian and transer agent fees 91,567
Proxy and shareholder communication expense 38,756
Printing expense 73,572
Legal and audit fees 53,547
Directors' fees and expense 34,955
Miscellaneous expense 30,208
------------
TOTAL EXPENSE 1,831,545
------------
NET INVESTMENT LOSS (272,697)
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions:
Proceeds from sales 86,998,115
Cost of investments sold 70,458,759
------------
Net realized gains on investment transactions 16,539,356
Net unrealized appreciation on investments:
Beginning of year 22,346,578
End of year 42,214,044
------------
Change in unrealized appreciation -- net 19,867,466
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 36,134,125
============
</TABLE>
See Notes to Financial Statements.
---- 25 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
...............................................................................
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (272,697) 77,663
Net realized gain on investment transactions 16,539,356 7,600,155
Change in unrealized appreciation-net 19,867,466 13,538,818
------------- -------------
Net increase in net assets resulting from operations 36,134,125 21,216,636
------------- -------------
DISTRIBUTIONS DECLARED FROM:
Net investment income (35,334) (42,330)
Net realized gains on investments (15,385,610) (11,523,548)
------------- -------------
Total distributions (15,420,944) (11,565,878)
------------- -------------
CAPITAL TRANSACTIONS:
Increase in net assets from capital share transactions 9,386,884 7,411,472
------------- -------------
Total increase in net assets 30,100,065 17,062,230
NET ASSETS:
Beginning of year 136,637,054 119,574,824
------------- -------------
End of year (including undistributed net investment
income of $0 and $35,334, respectively) $ 166,737,119 $ 136,637,054
============= =============
</TABLE>
See Notes to Financial Statements.
---- 26 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
................................................................................
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of year $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 gain (loss)
on investments 2.88 1.86 1.05 (0.24) 0.56
------- ------ ------ ------ -------
Total from Investment Operations 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 (1.24) (1.01) (0.45) (0.35) (0.30)
------- ------ ------ ------ -------
Total Distributions (1.24) (1.02) (0.76) (0.58) (0.48)
Impact of shares issued in dividend reinvestment (a) -- (0.13) -- -- --
------- ------ ------ ------ -------
Total Distributions and Reinvestments (1.24) (1.15) (0.76) (0.58) (0.48)
------- ------ ------ ------ -------
Net asset value at end of year $12.89 $11.27 $10.55 $9.95 $10.54
======= ====== ====== ====== =======
Per share market value at end of year $11.938 $9.250 $9.375 $8.500 $10.250
======= ====== ====== ====== =======
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS: (b)
Based on net asset value 27.3% 18.3% 13.8% (1.1%) 7.2%
Based on market price 43.6% 9.3% 19.3% (11.6%) 7.2%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (millions) $167 $137 $120 $113 $125
Ratio of expenses to average net assets 1.20% 1.35% 1.42% 1.51% 1.35%
Ratio of net investment income to average net assets (0.18%) 0.06% 2.87% 2.12% 1.71%
Portfolio turnover rate 57% 51% 82% 50% 47%
Average commission rate (c) $0.0502 $0.0555 -- -- --
</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.
(c) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged.
See Notes to Financial Statements.
---- 27 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
...............................................................................
Notes to Financial Statements
December 31, 1997
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.
NOTE 3. CAPITAL TRANSACTIONS
During the year ended December 31, 1997 and December 31, 1996,
distributions in the amount of $9,386,884 and $7,411,472, 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 818,429 and 780,155
shares, respectively.
---- 28 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
................................................................................
Notes to Financial Statements
NOTE 4. SECURITIES TRANSACTIONS
Realized gains and losses are recorded on the identified cost basis for
both financial reporting and federal income tax purposes. The cost of
investments purchased and the proceeds from investments sold, excluding
short-term debt obligations for the year ended December 31, 1997, were
$84,561,657 and $86,998,115, respectively.
The Fund may enter into repurchase agreements and require the seller of
the instrument to maintain on deposit with the Fund's custodian bank or in the
Federal Reserve Book-Entry System securities in the amount at all times equal to
or in excess of the value of the repurchase agreement, plus accrued interest.
The Fund may experience costs and delays in liquidating the collateral if the
issuer defaults or enters bankruptcy.
NOTE 5. DISTRIBUTIONS TO SHAREHOLDERS
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.
---- 29 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
...............................................................................
Independent Auditors' Report
[LOGO] KPMG Peat Marwick LLP
The Board of Directors and Shareholders
Liberty All-Star Growth Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Liberty
All-Star Growth Fund, Inc. (the Fund), including the schedule of investments, as
of December 31, 1997, and the related statement of operations for the year then
ended, the statement s of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the five-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Investment securities held in custody are
confirmed to us by the custodian. As to securities purchased and sold, but not
received or delivered, we request confirmations from brokers and, where replies
are not received, we carry out other appropriate procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Liberty All-Star Growth Fund, Inc. as of December 31, 1997, the results of its
operations for the year then ended, changes in its net assets for each of the
years in the two-year period then ended, and financial highlights for each of
the years in the five-year period then ended, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
February 13, 1998
---- 30 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
................................................................................
Automatic Dividend Reinvestment & Cash Purchase Plan
Each shareholder of the Fund will automatically be a participant in the
Fund's Automatic Dividend Reinvestment and Cash Purchase Plan as amended June
30, 1996 (the "Plan"), unless the shareholder specifically elects otherwise by
writing to the agent for participants in the Plan, State Street Bank and Trust
Company (the "Plan Agent"), P.O. Box 8200, Boston, MA 02266-8200 or by calling
1-800-LIB-FUND (1-800-542-3863). Shareholders whose shares are held in the name
of a brokerage firm, bank or other nominee must notify their brokerage firm,
bank or nominee if they do not wish to participate in the Plan.
Under the Plan, all dividends and other distributions on shares of the
Funds are automatically reinvested by the Plan Agent in additional shares of the
Fund. Distributions declared payable in shares or cash at the option of
shareholders are paid to participants in the Plan entirely in newly issued full
and fractional shares valued at the lower of market value or net asset value per
share on the valuation date for the distribution (but not a discount of more
than 5 percent from market price). Distributions declared payable only in cash
will be reinvested for the accounts of participants in the Plan in additional
shares purchased by the Plan Agent on the open market at prevailing market
prices. Dividends and distributions are subject to taxation, whether received in
cash or in shares.
Participants in the Plan have the option of making additional cash
payments in any amount from $100 to $3,000 on a monthly basis for investment in
shares of the Fund purchased on the open market. These voluntary cash payments
will be invested on or about the 15th day of each calendar month, and voluntary
payments should be sent so as to be received by the Plan Agent no later than 10
days before the next investment date. Barring suspension of trading, voluntary
cash payments will be invested within 45 days of receipt. A participant may
withdraw a voluntary cash payment by written notice received by the Plan Agent
at least 48 hours before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and
furnishes written confirmations of all transactions in the account, including
information needed by shareholders for tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in non- certificated form
in the name of the participant, and each shareholder's proxy will include those
shares purchased or received pursuant to the Plan.
There is no charge to participants for reinvesting distributions
pursuant to the Plan. The Plan Agent's fees are paid by the Fund. There are no
brokerage charges with respect to shares issued directly by the Fund as a result
of divdends or distributions declared payable in shares or in cash. However,
each participant bears a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of distributions declared payable only in cash.
With respect to purchases from voluntary cash payments, the Plan Agent
will charge $1.25 for each such purchase for a participant, plus a pro rata
share of the brokerage commissions. Brokerage charges for purchasing small
amounts of shares for individual accounts through the Plan are expected to be
less than the usual brokerage charges for such transactions, as the Plan Agent
will be purchasing shares for all participants in blocks and prorating the lower
commission thus attainable.
Shareholders whose shares are held in the name of a brokerage firm, bank
or other nominee will be able to participate in the Plan only if their brokerage
firm, bank or nominee is able to do so on their behalf. Shareholders
participating in the Plan through a brokerage firm may not be able to transfer
their shares to another brokerage firm and continue to participate in the Plan.
Shareholders may terminate their participation in the Plan by written
notice to the Plan Agent, P.O. Box 8200, Boston, MA 02266-8200. Such termination
will be effective immediately if received not less than 10 days prior to the
record date for a dividend or distribution; otherwise it will be effective on
the first business day after the payment date of such dividend or distribution.
On termination, participants may either have certificates for the Fund shares in
their Plan accounts delivered to them or have the Plan Agent sell such shares in
the open market and deliver the proceeds, less a $2.50 fee plus brokerage
commissions, to the participant.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan.
---- 31 ----
<PAGE>
LIBERTY ALL*STAR GROWTH FUND
...............................................................................
Tax Information
All 1997 distributions whether received in cash or shares of the Fund consist
of the following:
(1) ordinary dividend income
(2) 28% rate gains distributions and
(3) 20% rate gains distributions.
Below is a table that details the breakdown of each 1997 distribution for
Federal income tax purposes.
TAX STATUS OF 1997 DISTRIBUTIONS (UNAUDITED)
- --------------------------------------------------------------------------------
ORDINARY INCOME
---------------------------
NET SHORT-TERM
AMOUNT INVESTMENT CAPITAL 28% RATE 20% RATE
DATE PAID PER SHARE INCOME GAINS GAINS GAINS
- ------------------------------------------------------------------------------
05/07/97 $0.30 0.97% 80.34% 18.69% --
- --------------------------------------------------------------------------------
07/07/97 $0.29 -- 12.45% 61.40% 26.15%
- --------------------------------------------------------------------------------
10/06/97 $0.33 -- 10.77% 62.57% 26.66%
- --------------------------------------------------------------------------------
01/05/98 $0.32 -- 10.93% 62.46% 26.61%
FOR CORPORATE SHAREHOLDERS
- --------------------------------------------------------------------------------
25% of the ordinary income dividends qualify for the 70% dividend received
deduction available for corporations for the year ended December 31, 1997.
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 realized
capital gains and pay income tax thereon to the extent of such excess.
---- 32 ----
<PAGE>
[Logo] LIBERTY
ALL*STAR
-----------
GROWTH FUND
New York Stock Exchange Trading Symbol: ASG
FUND MANAGER
Liberty Asset Management Company
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210-2214
1-617-722-6036
Internet: http://www.lamco.com
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
99 High Street
Boston, Massachusetts 02110
CUSTODIAN
Boston Safe Deposit & Trust Company
One Cabot Road
Medford, Massachusetts 02155
INVESTOR ASSISTANCE,
TRANSFER & DIVIDEND
DISBURSING AGENT & REGISTRAR
State Street Bank and Trust Company
P.O. Box 8200, Boston, Massachusetts 02266-8200
1-800-LIB-FUND (1-800-542-3863)
LEGAL COUNSEL
Bingham Dana LLP
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 &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
