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[LOGO] LIBERTY
ALL*STAR
-----------
GROWTH FUND
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SMALL-CAP
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MID-CAP
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LARGE-CAP
ANNUAL REPORT 1999
<PAGE>
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A SINGLE INVESTMENT...
A DIVERSIFIED PORTFOLIO
Only one mutual fund offers:
o A diversified, multi-managed portfolio of small, mid- and large cap stocks
o Exposure to the industry sectors that make the U.S. economy the world's most
dynamic
o Access to institutional-quality portfolio managers
o Objective and ongoing manager evaluation
o A quarterly fixed distribution policy
o Listing on the New York Stock Exchange (ticker symbol: ASG)
LIBERTY ALL-STAR GROWTH FUND, INC.
<PAGE>
President's Letter
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Fellow Shareholders: February 2000
The net asset value (NAV) of a common share of the Fund increased during
the fourth quarter from $11.64 to $13.44, after deducting the quarter's
distribution of 31 cents. The Fund's NAV increased 18.9 percent for the quarter
compared to increases of 28.6 percent for the Lipper Mid-Cap Mutual Fund
Average, and 17.2 percent for the Russell Midcap and S&PMidCap indices. The Fund
trailed the Lipper Mid-Cap Mutual Fund Average and the Russell Midcap Index for
the year which returned 39.2 percent and 18.2 percent, respectively. However,
the Fund outperformed the S&P MidCap Index which returned 14.7 percent. During
the quarter, the market price for a share of the Fund traded in a range of
$9.313 to $10.938 before closing the quarter at $10.813. The ending price
represented a discount to NAV of 19.5 percent compared with a discount to NAV of
14.1 percent at the end of the third quarter.
<TABLE>
<CAPTION>
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Short-Term Summary Fourth Full
through December 31, 1999 Quarter Year
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<S> <C> <C>
LIBERTY ALL-STAR GROWTH FUND, INC.
Shares Valued at Net Asset Value 18.9% 15.2%
Shares Valued at Net Asset Value with Dividends Reinvested 19.0% 15.9%
Shares Valued at Market Price with Dividends Reinvested 11.5% 6.2%
Fund's Closing Market Price Range $9.438 to $10.813 $9.438 to $11.875
Fund's Discount Range 21.6% to 13.7% 21.6% to 7.5%
Lipper Mid-Cap Mutual Fund Average 28.6% 39.2%
Russell Midcap Index 17.2% 18.2%
S&P MidCap Index 17.2% 14.7%
<CAPTION>
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Long-Term Performance Summary Annualized Rates of Return
through December 31, 1999 Year 4 Year*
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<S> <C> <C>
LIBERTY ALL-STAR GROWTH FUND, INC.
Shares Valued at Net Asset Value 19.0% 18.7%
Shares Valued at Net Asset Value with Dividends Reinvested 19.4 19.1
Shares Valued at Market Price with Dividends Reinvested 18.6 16.2
Lipper Mid-Cap Mutual Fund Average 23.8 21.1
Russell Midcap Index 18.9 18.9
S&P MidCap Index 21.8 21.2
</TABLE>
Figures shown for the Fund and the Lipper Mid-Cap Mutual Fund Average are total
returns, which include dividends, after deducting fund expenses. The Fund's
reinvested returns assume all primary subscription rights in the Fund's rights
offering were exercised. Figures shown for the unmanaged Russell Midcap and
S&PMidCap indices are total returns, including income.
* Liberty Asset Management Company (LAMCO) assumed complete management of the
Fund in November 1995, therefore, 1996 represents the first full calendar year
of management by LAMCO.
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1
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President's Letter -- continued
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The outperformance of the Fund's NAV when compared to the Fund's market
price during the fourth quarter resulted in the widening of the Fund's discount
from 14.1 percent to 19.5 percent. Financial observers have noted that the
widening of the discount for some closed-end funds had been more dramatic during
the fourth quarter due to liquidity concerns related to Y2K along with
investors' preference for more aggressive momentum-oriented growth funds.
Although we can only speculate as to the validity of such assertions, we can say
with certainty that we are keenly aware of the issue and are closely monitoring
the situation as this new year unfolds.
During 1999, the range of returns for the individual mutual funds that
comprised the Lipper Mid-Cap Mutual Fund Average was extraordinary. Of the 418
funds in that universe, returns ranged from a low of -14.5 percent to a high of
197.8 percent with a median return of 30.5 percent. The Fund ranked in the third
quartile (66th percentile) for the year. While our 1999 results did not keep
pace with our more aggressive growth peers, it was the first calendar year that
the Fund ranked below the 50th percentile since LAMCO assumed complete
management responsibility. The following chart illustrates the dispersions of
mid-cap mutual fund returns as well as where the Fund ranked over these four
years. Please note how wide the range of returns was in 1999 compared to the
prior three years.
[GRAPHIC MISSING]
What makes the 1999 results even more surprising is that the best performing
stocks were companies that had little or no earnings. Based on a Salomon Smith
Barney study, the stock price of companies that were anticipated to have no
earnings for 1999 delivered the best results by a wide margin. Using the Russell
Smallcap, Midcap and Largecap Indices, the Salomon Smith Barney chart on the
following page demonstrates this point.
2
<PAGE>
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President's Letter -- continued
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[The following tables were depicted as bar charts in the printed material.]
1999 Russell Index Performance Versus
Performance of Constitutuent Companies with Projected Losses
1999 Total Index
Russell 2000 Russell Midcap Russell 1000
19.6% 16.5% 19.5%
Average 1999 Performance of Companies with Projected Earnings Per Share Losses
Russell 2000 Russell Midcap Russell 1000
96.5% 194.3% 184.2%
Another way to explain such dispersion in returns is to examine how high
quality companies were perceived during 1999. The following Merrill Lynch study
shows how stocks performed based upon Standard and Poor's (S&P) generated
quality ratings. Ratings assigned to companies' range from the lowest quality,
D, to the highest quality, A+. One important criterion used by S&P in
determining a company's rating is earnings growth. The charts below show the S&P
quality ratings for the past two calendar years which demonstrate how the
market's focus shifted from one year to the next.
[BAR CHARTS]
Merrill Lynch "Quality" Indices
1999 Price Performance
Indices are based on S&P Common Stock Ratings
A+ A A- B+ B B- C&D
- -1.6% -6.5% -5.1% 7.1% 12.3% 20.6% 71.4%
Merrill Lynch "Quality" Indices
1998 Price Performance
Indices are based on S&P Common Stock Ratings
A+ A A- B+ B B- C&D
19.8% 12.1% 9.3% 5.0% 8.5% -10.9% -4.4%
Based on companies ranked by S&P, the Fund had approximately 51 percent of
its holdings rated among the three "A" categories, and 49 percent among the
three "B" rated categories, with none rated among the "C" or "D" categories
during 1999. The Fund's focus on quality companies contributed to its relative
underperformance during 1999.
As you know, the Fund utilizes a multi-managed approach wherein two
managers employ a growth style and one, Oppenheimer Capital, employs a value
style. Even with its value orientation, Oppenheimer does not follow a
traditional quantitative
3
<PAGE>
President's Letter -- continued
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value approach that selects just statistically "cheap" stocks, as approximately
15 percent of its portfolio is in such technology names as Intel, Nokia, and
Computer Associates. Of the three "original" managers in the Fund when
LAMCOassumed complete management responsibility in November 1995, Oppenheimer is
the only one remaining. Oppenheimer has remained in the lineup due to its
successful approach to value investing. When combining the technology sector
exposure of Oppenheimer with that of the two growth managers, that sector at
year-end totaled approxi mately one-third of the Fund's assets. With technology
having been the most influential area of the market in 1999, the Fund seemed to
be in position to perform well. Unfortunately, on a relative basis, it did not.
By year-end, many growth oriented benchmarks and growth oriented mutual funds
had technology sector exposures of 50 percent or higher. More significant than
those large exposures was that most of the gains in the technology sector were
driven by the more aggressive momentum-oriented telecommunication and Internet
related stocks, many of which have yet to turn a profit. Our current growth
managers focus on quality growth companies with sustainable earnings trends, and
due to their investment philosophy, many of the more speculative, unprofitable
companies owned by other funds were not owned by our managers during 1999. Our
current managers believe that technology exposure can be obtained while
controlling risk. They attempt to find proven companies in many sectors of the
market, including technology, whose businesses are profitable and have dominant
market shares. In assessing our current fund structure, LAMCO is aware that by
having a value oriented manager in the lineup, there is an implicit technology
sector underweighting and a financial sector overweighting which could result in
underperformance relative to more aggressive growth funds. We are committed to
improving the Fund's ability to compete with other growth oriented mutual funds
as well as with growth oriented benchmarks, but not to the extent of sacrificing
the multi-management approach or by becoming a "technology" fund. We do,
however, constantly monitor the investment philosophy of each manager in the
Fund and will not be adverse to making changes in the future if deemed
appropriate.
We hope you find the review of multi-management as practiced by LAMCO,
which begins on page 7, to be of interest. You may also want to read the
insightful comments of our three portfolio managers in this year's Manager
Roundtable (beginning on page 13).
Let me take this opportunity to thank you for your continuing support of
the Fund, and to pledge our continued very best efforts on your behalf as we
move into this exciting new century.
Sincerely,
/s/ William R. Parmentier, Jr.
William R. Parmentier, Jr.
President and Chief Executive Officer
Liberty All-Star Growth Fund, Inc. and
Liberty Asset Management Company
4
<PAGE>
Investment Growth as of December 31, 1999
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[The following table was depicted as a mountain chart in the printed material.]
<--- NEED PLOT POINTS --->
To evaluate NAV performance of the Fund, these values should be used. Each shows
how the NAV has fared by keeping distributions at work in the Fund. The upper
value includes additional investments made through the rights offering in 1998.
Net asset value of one share of the Fund as of 12/31/99.
The Fund maintains an optional Automatic Dividend Reinvestment and Cash
Purchase Plan, whereby distributions are automatically invested in additional
shares of the Fund. In addition, since 1996 -- the first full year that Liberty
Asset Management Company assumed complete management responsibilities for the
Fund -- one rights offering has allowed investors to acquire additional shares
at a discount from the market price. The rights offering in July 1998 allowed
investors to acquire one share at $12.41 for every 10 shares held.
As the graph above shows, an original share*, assuming participation in
the rights offering and reinvestment of all distributions, has grown to a net
asset value of $22.97 (1.709 shares times the current $13.44 net asset value per
share). Excluding the rights offering shares, an original share* has grown to a
net asset value of $20.87 (1.553 shares times the current $13.44 net asset value
per share).
Determining investment growth using the market price, an original share*,
assuming participation in the rights offering and reinvestment of all
distributions, has grown to a market value of $18.48 (1.709 shares times the
current $10.813 market price per share). Excluding the rights offering shares,
an original share* has grown to a market value of $16.79 (1.553 shares times the
current $10.813 market price per share).
* Since 1996, which is the first full year that Liberty Asset Management Company
assumed complete management responsibilities for the Fund.
5
<PAGE>
A Table of Per-Share Values, Distributions and Reinvestment
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<TABLE>
<CAPTION>
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Shares Shares
Shares Purchased Acquired Shares NAV(2) Market Price Total Market
Owned At Through Through Owned Per Share Total NAV Per Share Price Of
Beginning Per Share Reinvestment Rights At End At End Of Shares At End Shares
Year Of Year Distributions Program Offering Of Year Of Year Owned Of Year Owned
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996(1) 1.000 1.02 0.107 - 1.107 11.27 12.48 9.25 10.24
- -----------------------------------------------------------------------------------------------------------------------------
1997 1.107 1.24 0.125 - 1.232 12.89 15.88 11.938 14.71
- -----------------------------------------------------------------------------------------------------------------------------
1998 1.232 1.35 0.159 0.130(3) 1.521 13.03 19.82 11.438 17.40
- -----------------------------------------------------------------------------------------------------------------------------
1999
1st Quarter 1.521 0.31 0.044 - 1.565 12.28 19.22 10.625 16.63
2nd Quarter 1.565 0.32 0.047 - 1.612 12.82 20.67 11.063 17.83
3rd Quarter 1.612 0.29 0.045 - 1.657 11.64 19.29 10.00 16.57
4th Quarter 1.657 0.31 0.052 - 1.709 13.44 22.97 10.813 18.48
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Represents the first full year that Liberty Asset Management Company assumed
complete management responsibility for the Fund.
2. Net Asset Value.
3. Rights offering completed in July 1998. One share offered at $12.41 for every
10 shares owned.
DISTRIBUTION POLICY
Liberty All-Star Growth Fund, Inc.'s current policy, in effect since 1997, 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 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.
6
<PAGE>
LAMCO's Multi-Management Program
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Why Multi-Management?
Most mutual funds are run by a single portfolio manager or an in-house team of
managers who pursue a particular investment style. This structure produces
commendable results when the manager's or team's investment style is working.
But styles go in and out of favor. When that happens, performance usually
follows suit as depicted below:
[GRAPHIC MISSING]
Liberty All-Star Growth Fund utilizes multi-management, the same approach that
is practiced by most large institutions such as pension and endowment plans.
Rather than rely on a single investment style, multi-management combines
managers who practice different investment styles to reduce volatility while
producing attractive returns. The graph below shows the improved consistency and
return that can be achieved by combining managers who employ different
investment styles. Note that the combined results produce a greater and more
consistent return than a single manager can typically achieve.
[GRAPHIC MISSING]
7
<PAGE>
LAMCO's Multi-Management Program -- continued
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Constructing the Manager Team
LAMCO has identified three different styles 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 that trade at comparatively low multiples of company earnings and book
value. 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 well-qualified to manage large investment
portfolios. In researching and selecting them, LAMCO focuses on managers who
have:
o A constant focus on a particular style of investing.
o A disciplined investment decision-making process.
o A record of success relative to other managers who practice the same
style.
o Continuity among the investment professionals, so that those who have
built the record remain the managers.
o A well-managed, highly responsive organization.
The pie chart below shows the portfolio manager lineup and percentage
allocations to each.
[The following information was depicted as a pie chart in the printed material.]
OPPENHEIMER CAPITAL
Companies that exhibit the ability to generate excess cash flow while earning
high returns on invested capital. 1/3
WILLIAM BLAIR & COMPANY, L.L.C.
Companies with high profitability and enduring growth across a broad range of
market capitalizations. 1/3
M.A. WEATHERBIE & CO., INC.
Small capitalization growth companies with enduring competitive advantages and
high, sustainable earnings growth. 1/3
As with anything in investments, circumstances change, so...
8
<PAGE>
LAMCO's Multi-Management Program -- continued
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Manager Evaluation and, Occasionally, Replacement
...LAMCO conducts continuing evaluation of the portfolio managers. The purpose
is to be sure that each is still the best choice for the Fund. Through frequent
meetings with the portfolio managers, and through qualitative and quantitative
analyses, each is continually evaluated to assure that:
o They are consistently practicing their investment style.
o Their transactions and holdings reflect their style.
o Their organization and investment process continue to support their
style.
o Their investment performance is competitive when compared with other
portfolio managers using a similar style.
Also, LAMCO is alert to assuring the proficiency of the portfolio manager team.
The objective is to be certain that the team remains an optimal combination,
giving the Fund the full benefits of multi-management. The procedures include:
o Assuring that the Fund's total portfolio has the proper investment
characteristics.
o Researching new investment managers as possible future portfolio
managers.
o Making portfolio manager changes when necessary. Three portfolio
managers have been replaced since LAMCO assumed 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 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, they are compared with the
S&P/BARRA Growth SmallCap, MidCap and LargeCap indices.
9
<PAGE>
LAMCO's Multi-Management Program -- continued
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Portfolio Managers/Portfolio Characteristics
THE FUND'S THREE PORTFOLIO MANAGERS AND THE INVESTMENT STYLES THEY PRACTICE ARE:
M.A. WEATHERBIE & CO., INC.
Small capitalization growth companies with enduring competitive advantages and
high, sustainable earnings growth.
WILLIAM BLAIR & COMPANY, L.L.C.
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 three columns show
portfolio characteristics for the S&P/Barra Growth SmallCap, MidCap and LargeCap
indices.
PORTFOLIO CHARACTERISTICS
AS OF DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
MARKET CAPITALIZATION SPECTRUM
SMALL LARGE
---------------------------------------
S&P/BARRA GROWTH:
--------------------------------
SmallCap MidCap LargeCap M.A. William Total
600 Index 400 Index 500 Index Weatherbie Blair Oppenheimer Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Number of Holdings 198 121 107 57 31 34 119
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Median Market
Capitalization
(billions) $0.8 $2.8 $19.3 $2.0 $15.1 $16.4 $4.2
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Average Five-Year
Earnings Per Share
Growth 14% 14% 19% 27% 22% 13% 21%
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Dividend Yield 0.3% 0.2% 0.7% 0.1% 0.4% 1.2% 0.5%
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Average Price/
Earnings Ratio 33x 40x 50x 37x 39x 18x 29x
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Average Price/Book
Value Ratio 6.4x 8.0x 14.8x 5.8x 7.2x 4.3x 5.8x
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</TABLE>
10
<PAGE>
Top 50 Holdings (Unaudited)
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<TABLE>
<CAPTION>
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RANK AS RANK AS MARKET PERCENT OF
OF 12/31/99 OF 9/30/99 SECURITY NAME VALUE ($000) NET ASSETS
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 10 The Home Depot, Inc. $5,348 2.4%
2 1 Citigroup, Inc. 5,001 2.3
3 7 Westwood One, Inc. 4,945 2.3
4 2 Freddie Mac 4,142 1.9
5 11 Texas Instruments, Inc. 4,127 1.9
6 9 Automatic Data Processing, Inc. 4,095 1.9
7 5 Vodafone AirTouch PLC ADR 4,084 1.9
8 6 Sprint Corp. (FON Group) 4,039 1.8
9 4 Intel Corp. 3,967 1.8
10 12 Concord EFS, Inc. 3,931 1.8
11 8 Nokia Corp. ADR 3,800 1.7
12 24 Molex, Inc. 3,345 1.5
13 22 Catalina Marketing Corp. 3,331 1.5
14 New Oracle Corp. 3,295 1.5
15 25 Microsoft Corp. 3,082 1.4
16 21 American International Group, Inc. 3,041 1.4
17 18 AFLAC, Inc. 2,831 1.3
18 20 Computer Associates
International, Inc. 2,798 1.3
19 30 AMR Corp. 2,680 1.2
20 15 Fastenal Co. 2,678 1.2
21 29 Dollar Tree Stores, Inc. 2,673 1.2
22 34 Financial Federal Corp. 2,637 1.2
23 17 Bed Bath & Beyond, Inc. 2,533 1.2
24 23 Minnesota Mining &
Manufacturing Co. 2,447 1.1
25 26 USFreightways Corp. 2,408 1.1
26 19 Staples, Inc. 2,381 1.1
27 14 Illinois Tool Works, Inc. 2,371 1.1
28 44 Robert Half International, Inc. 2,329 1.1
29 33 MBNA Corp. 2,309 1.1
30 36 Linear Technology Corp. 2,247 1.0
31 3 Paychex, Inc. 2,240 1.0
32 39 Microchip Technology, Inc. 2,216 1.0
33 New Genentech, Inc. 2,179 1.0
34 28 Morgan Stanley Dean Witter & Co. 2,141 1.0
35 35 BMC Software, Inc. 2,094 1.0
36 16 Family Dollar Stores, Inc. 2,089 1.0
37 37 XL Capital Ltd. 2,075 0.9
38 77 Cognex Corp. 2,069 0.9
39 47 National Instruments Corp. 2,035 0.9
40 67 MiniMed, Inc. 2,029 0.9
41 31 Wells Fargo & Co. 2,022 0.9
42 32 Medtronic, Inc. 2,004 0.9
43 49 AMFM, Inc. 1,956 0.9
44 71 Cintas Corp. 1,950 0.9
45 41 Dover Corp. 1,815 0.8
46 45 State Street Corp. 1,812 0.8
47 New Computer Sciences Corp. 1,798 0.8
48 74 ADC Telecommunications, Inc. 1,749 0.8
49 46 Royal Caribbean Cruises Ltd. 1,741 0.8
50 New Micrel, Inc. 1,718 0.8
</TABLE>
11
<PAGE>
Major Stock Changes in the Fourth Quarter (Unaudited)
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The following are the major ($500,000 or more) stock changes -- both purchases
and sales -- that were made in the Fund's portfolio during the fourth quarter of
1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
SHARES
----------------------------------------------
SECURITY NAME PURCHASED SOLD AS OF 12/31/99
- -------------------------------------------------------------------------------------
<S> <C> <C>
American Tower Corp. 28,300 42,100
Aspect Development, Inc. 22,240 22,240
BioChem Pharma, Inc. 42,700 42,700
Cintas Corp. 18,200 36,710
Cognex Corp. 22,100 53,050
Computer Sciences Corp. 19,000 19,000
Cytyc Corp. 13,215 13,215
Dionex Corp. 21,800 29,080
Genentech, Inc.* 10,100 16,200
Investment Technology Group, Inc. 38,200 58,625
MedQuist, Inc. 60,930 60,930
Micrel, Inc. 30,170 30,170
MiniMed, Inc. 15,100 27,700
NOVA Corp. 36,300 36,300
Oracle Corp. 29,400 29,400
Peregrine Systems, Inc. 15,600 15,600
Pharmacia & Upjohn, Inc. 22,000 22,000
Predictive Systems, Inc. 14,635 14,635
Textron, Inc. 15,000 15,000
Whole Foods Market, Inc. 36,000 36,000
CheckFree Holdings Corp. (24,900) 11,590
Citigroup, Inc. (15,000) 90,000
Clarify, Inc. (28,120) 0
Flycast Communications Corp. (15,310) 0
Legato Systems, Inc. (20,865) 10,655
Maxim Integrated Products, Inc. (47,250) 0
Minerals Technologies, Inc. (28,900) 0
Morgan Stanley Dean Witter & Co. (10,000) 15,000
MSC Industrial Direct Co., Inc. (78,320) 80,000
Nokia Corp. ADR (20,000) 20,000
Outdoor Systems, Inc. (65,990) 0
Paychex, Inc. (71,110) 56,000
Safeguard Scientifics, Inc. (5,520) 0
The ServiceMaster Co. (94,830) 0
Sprint Corp. (FON Group) (10,000) 60,000
TMP Worldwide, Inc. (21,100) 5,720
Westwood One, Inc. (14,800) 65,060
</TABLE>
* Adjusted for stock split.
12
<PAGE>
Manager Roundtable
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Profitability, Quality, Valuation: Our Managers See the Measures They Use to
Evaluate Stocks Validated Over the Long Term
EVERY TIME PERIOD HAS HAD ITS FADS AND THE LATE '90S WAS NO EXCEPTION AS TECHS
AND DOTCOMS DOMINATED THE LEADING INDICES. IS THE INVESTMENT WORLD REALLY
DIFFERENT THIS TIME? OUR MANAGERS THINK NOT.
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The views expressed in this interview represent the managers' views at the time
of the discussion (January 2000) and are subject to change.
- --------------------------------------------------------------------------------
This is another in our series of Liberty All-Star Growth Fund Manager
Roundtables, which we are pleased to present in our Annual Report. In this
Roundtable, 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 specific investment styles and philosophies. The
Fund Manager, Liberty Asset Management Company (LAMCO), serves as the moderator
for the Roundtable. The participating portfolio managers and their investment
styles are:
M. A. WEATHERBIE & CO., INC.
Portfolio Manager / Matthew A. Weatherbie, President and Founder
Investment Style / Small Cap Growth -- M. A. Weatherbie practices a small
capitalization growth investment style focusing on high quality companies that
demonstrate superior earnings growth prospects, yet are reasonably priced
relative to their intrinsic value. The firm seeks to provide superior returns
relative to small capitalization growth indices over a full market cycle.
OPPENHEIMER CAPITAL
Portfolio Manager / John G. Lindenthal, Managing Director
Investment Style / Large Cap Core -- Oppenheimer invests in the stocks of
quality companies with sound business prospects that are considered undervalued.
Research focuses on cash flow analysis. Purchase candidates exhibit a
high return on equity, large undedicated cash flow, and reasonable prices in
relation to intrinsic value.
WILLIAM BLAIR & COMPANY, L.L.C.
Portfolio Manager / John F. Jostrand, Principal and Portfolio Manager
Investment Style / All Cap 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 companies of all sizes that
have the opportunity to grow in a sustainable fashion for extended periods of
time.
LAMCO: On the surface, 1999 was a great year for growth stocks. But you had to
be in the right growth stocks and/or sectors. From your perspective, how do you
view 1999, particularly the fourth quarter? What forces drove the market higher
- -- were they the same factors that have accounted for its upward move over the
past four years, or were there shifts over this multi-year period? John
Jostrand, why don't you tackle this one?
JOSTRAND (WILLIAM BLAIR -- ALL CAP GROWTH):
In a dramatic reversal from 1998, investors disregarded company quality in 1999.
An analysis of approximately 1,600 companies using Standard & Poor's rankings
evidenced the following:
o On average, high quality stocks, rated "A" or better earned between 9
percent and 20 percent in 1998 versus average returns that were modestly
negative to down 5 percent in 1999.
o Low rated companies were negative in 1998 then shifted to lead the
market in 1999, posting 20 to 70 percent increases on average.
In addition, companies that posted no earnings in 1999 dramatically
outperformed companies that posted earnings across the market capitalization
spectrum. For smaller companies, this is illustrated by the Russell 2000 Index,
which was up 19.6 percent in 1999, while the stocks in the index which posted no
earnings were up on average 96.5 percent. Larger companies, as evidenced by the
Russell 1000, returned 19.5 percent in 1999. However, the stocks in this index
with no earnings returned 184.2 percent on average.
13
<PAGE>
Manager Roundtable -- continued
- --------------------------------------------------------------------------------
LAMCO: John Lindenthal, what's the view of 1999 at Oppenheimer?
LINDENTHAL (OPPENHEIMER -- LARGE CAP CORE): The market was dominated in 1999 by
the technology and communications sectors. Although we had exposure to these
groups, we were not overweighted. Our larger holdings such as Nokia, Intel and
Computer Associates did well, but not enough to offset our underweighting.
Overall, the factor that drove the market higher in 1999 was mainly continued
excess liquidity in the financial system.
LAMCO: Matt Weatherbie, what are your thoughts on 1999?
WEATHERBIE (M. A. WEATHERBIE -- SMALL CAP GROWTH): 1999, particularly the fourth
quarter, was notable for finally providing very strong investment returns from
smaller growth companies. Although we participated in this strong market, we
lagged the smaller cap growth index. Our focus is to own rapidly growing and
profitable companies, yet 1999 particularly rewarded companies with projected
earnings per share losses. In fact, companies with projected losses outperformed
the Russell 2000 Index by over 40 percentage points in 1999! Which companies
were these? Generally, they were found in the technology sector. Many technology
stocks, which had stellar returns during the year, were companies that do not
meet our quality, profitability and valuation criteria. Our technology
investments, which also had strong performance, are companies with proven
business models, demonstrated strong growth in revenue and profitability, and a
high return on equity.
LAMCO: What's the future of diversification when concentrated cap-weighted
indices such as the Nasdaq and the S&P 500 rack up big gains and the stock
market separates into tech stocks and "all other?" Matt Weatherbie, why don't
you continue?
WEATHERBIE (M. A. WEATHERBIE -- SMALL CAP GROWTH): Historically, the market has
moved from one fad to another, whether it be conglomerates in the late 1960s,
the "nifty fifty" in the early '70s, energy stocks in the early '80s, biotech in
the early '90s, or now, Internet stocks. However, over the long term, there's
been a strong correlation between the earnings of a company and its growth rate
and stock price. In 1999, our holdings in the consumer, health care and
diversified business services sectors lagged the overall market. Although these
stocks have recently been ignored by the market, they continue to meet our
strict guidelines for quality and earnings growth. We are very confident they
will prove to be rewarding investments.
- --------------------------------------------------------------------------------
" . . . over the long term, there's been a strong correlation between the
earnings of a company and its growth rate and stock price."
- --------------------------------------------------------------------------------
LAMCO: What are your thoughts on this issue, John Jostrand?
JOSTRAND (WILLIAM BLAIR -- ALL CAP GROWTH): Savvy investors recognize the
cyclicality of market sectors and investment styles. Concentrated market
capitalization weighted benchmarks are not as diversified as many investors
believe and may consequently cause a rude awakening for the uninformed index
investor down the road when small to mid-size companies lead the market. While
technology is clearly a critical component of the world economy, we recognize
the ebb and flow of enthusiasm from investors for varying sectors of the market.
Consequently, we continue to firmly believe in diversification across market
sectors and across companies that span the market capitalization spectrum.
- --------------------------------------------------------------------------------
"Concentrated market capitalization weighted benchmarks are not as diversified
as many investors believe and may consequently cause a rude awakening for the
uninformed index investor down the road . . ."
- --------------------------------------------------------------------------------
LAMCO: These are interesting perspectives from Weatherbie and William Blair. How
about the thinking at Oppenheimer, John Lindenthal?
LINDENTHAL (OPPENHEIMER -- LARGE CAP CORE): The market will eventually rotate
away from large cap technology stocks, so a diversified portfolio will benefit.
However, the timing of this rotation is uncertain, so it is best to be prepared
ahead of time.
14
<PAGE>
Manager Roundtable -- continued
- --------------------------------------------------------------------------------
LAMCO: Looking back over the decade of the '90s, what sticks in your mind as an
investor? How has the decade changed the behavior and/or psychology of the
individual investor? John Lindenthal, let's stay with you.
LINDENTHAL (OPPENHEIMER -- LARGE CAP CORE): For most of the '90s, we have had
sound policies from the Federal Reserve Board and, therefore, low inflation.
During a sustained low inflation environment, financial assets, mainly equities,
usually do well. Another important ingredient of the 1990s bull market was a
powerful increase in returns on invested capital. This supported a solid growth
in earnings for U.S.-based corporations. Also, advancements in technology have
improved the individual investor's ability to trade on his/her own. With much
more information available through the Internet, individuals are able to make
better choices among alternative investments.
- --------------------------------------------------------------------------------
"The 1990s were remarkable for two things. One, the longest period of prosperity
with low inflation in the nation's history and, two, the advent of the Internet
. . ."
- --------------------------------------------------------------------------------
LAMCO: John Jostrand, how do you see the '90s?
JOSTRAND (WILLIAM BLAIR -- ALL CAP GROWTH): The decade provided incredible
economic growth and investment opportunities for an ever increasing number of
investors. In fact, the extraordinarily high return levels experienced
throughout most of the decade are viewed as "the norm" by many investors despite
the market's long-term 12 percent to 13 percent average nominal return level. As
an organization that has successfully invested in the stock market since 1935,
we are skeptical of the high return expectations shared by many individual
investors, who got on the bandwagon during the last decade.
LAMCO: Let's round out this question with Matt Weatherbie.
WEATHERBIE (M. A. WEATHERBIE -- SMALL CAP GROWTH): The 1990s were remarkable for
two things. One, the longest period of prosperity with low inflation in the
nation's history and, two, the advent of the Internet, a technology that is
beginning to transform our lives. Point one has led to a prolonged bull market
in which it has paid to stay fully invested. Point two has enabled individual
investors to trade inexpensively online. The combination has greatly increased
individual investors' interest in the market and their collective tolerance for
risk.
- --------------------------------------------------------------------------------
"For most of the '90s, we have had sound policies from the Federal Reserve Board
and, therefore, low inflation. During a sustained low inflation environment,
financial assets, mainly equities, usually do well."
- --------------------------------------------------------------------------------
LAMCO: Now, coming into 2000, do you anticipate "more of the same" from the
domestic equity market or should investors expect a change in the environment?
John Jostrand, why don't you lead off?
JOSTRAND (WILLIAM BLAIR -- ALL CAP GROWTH): Always expect change. The stock
market is a dynamic reflection of our economic strength and productivity and has
historically migrated between market sectors and industries. Clearly, sectors
such as technology will continue to play a key role in our economy, but stock
prices often run ahead or fall behind "real" economic progress, priming the
market for a shift in sector/industry leadership. Additionally, we continue to
believe that high quality, well managed companies with strong financials --
including actual earnings -- will win out over time. Consequently, we do not
anticipate an extended period of "more of the same" with the market being driven
by lower quality companies with no earnings. We have all witnessed a sharp
increase in volatility of both individual stock prices and managed portfolios
over the past few years. Currently, we see no signs of stock market volatility
scaling back to historic norms.
- --------------------------------------------------------------------------------
"Always expect change. The stock market is a dynamic reflection of our economic
strength and productivity and has historically migrated between market sectors
and industries."
- --------------------------------------------------------------------------------
LAMCO: Thank you, John. How about John Lindenthal and Oppenheimer's point of
view?
LINDENTHAL (OPPENHEIMER -- LARGE CAP
15
<PAGE>
Manager Roundtable -- continued
- --------------------------------------------------------------------------------
CORE): We expect the market to broaden over the course of 2000. It has shown
some signs of doing this over the past year, but so far none of these moves has
been sustained. The leadership in the market has been extremely narrow, and a
broadening would be healthy for the long run.
LAMCO: Matt Weatherbie, share your thoughts, please.
WEATHERBIE (M. A. WEATHERBIE -- SMALL CAP GROWTH): 1999 marked the fifth
straight year of 20 percent or greater gains for the S&P 500 index. This is
unprecedented in U.S. financial history. While there is nothing on the horizon
to suggest a recession, both long- and short-term interest rates have risen
significantly over the past year, and seem to be still going up. History
suggests that sooner or later, such competition from fixed income securities
will lead to a market correction. Certainly, over a period of several years,
investors should expect an annualized return from stocks closer to the 9 percent
long-term trend rather than the 20 percent trend of the last five years. This is
because the price-to-earnings ratio on the S&P 500 has risen to 27 times
earnings, a historic high.
LAMCO: What are you keying on for 2000, especially in terms of factors such as
interest rates, inflation, corporate earnings, economic growth or the election?
John Lindenthal, start us off, please.
LINDENTHAL (OPPENHEIMER -- LARGE CAP CORE): The only macro factor we focus on is
financial liquidity. The Federal Reserve will not allow money to grow at close
to double-digit rates for much longer. Therefore, we could get somewhat of a
squeeze between the demand for funds and how much the Fed is willing to supply.
Historically, high price-to-earnings stocks, such as those that have led the
Nasdaq, have not fared well in this type of environment.
LAMCO: Matt Weatherbie, any factors attracting your attention?
WEATHERBIE (M. A. WEATHERBIE -- SMALL CAP GROWTH): The key macro factors I am
focusing on for 2000 are the level and direction of interest rates, both
long-term and short-term, the outlook for inflation, and key statements from
Alan Greenspan, which could signal a much greater determination to wring out the
speculation that is a feature of the current investment environment. On a micro
level, I am focusing on the earnings growth of the companies in our portion of
the Fund's portfolio.
LAMCO: How is William Blair approaching the year, John Jostrand?
JOSTRAND (WILLIAM BLAIR -- ALL CAP GROWTH): We are cautiously optimistic as we
look forward to 2000. We believe that during 2000 investors will once again
focus on the importance of quality and earnings. The catalyst(s) for this shift
in focus could emanate from a number of sources, including fear of rising
inflation and/or interest rates, a slowdown in corporate growth, increasing
strength of non-U.S. economies and their global competitiveness or a cooling-off
in domestic housing. While we continue to expect to find opportunities,
identifying these opportunities will demand good, solid fundamental research.
Consistent with our investment philosophy, we will continue to pursue a
bottom-up stock selection strategy with the intent of making good intermediate
to long-term investments regardless of the frenzy of speculative short-term
trading strategies prevalent in the market today.
LAMCO: All of you have provided terrific insights, for which we thank you.
Current stocks in your portfolio are always of interest. So, let's close by
asking you to highlight two stocks you're high on right now. Matt Weatherbie,
start us off, will you?
WEATHERBIE (M. A. WEATHERBIE -- SMALL CAP GROWTH): One stock we're high on is
Catalina Marketing. This company provides a supermarket point of sale network
that allows consumers to redeem coupons at the checkout counter. The company
provides a valuable service to supermarket chains (by building consumer
loyalty), to consumers (by saving them money), and to the consumer packaged
goods company (by enabling cost-efficient targeted promotions). The company is
duplicating this point of sale network in the drugstore chain industry,
providing the same services for consumers, drugstore operators and pharma-
16
<PAGE>
Manager Roundtable -- continued
- --------------------------------------------------------------------------------
ceutical companies, using an advertising-based consumer newsletter. Finally, it
is leveraging these strengths by leading the way into secure coupons to
consumers over the Internet. The company has a 35 percent return on equity and
is growing 25 percent per year in earnings.
The second company we like is Microchip Technology. The company is the
second largest and fastest-growing producer of microcontrollers, those
single-purpose chips that are found in a wide variety of communications,
consumer, computing and industrial products ranging from cell phones to garage
door openers. The company has outperformed its competitors decisively over the
past two years of industry slowdown caused by the Asian economic collapse.
Business is now reaccelerating and Microchip has the capacity and a strong new
product introduction schedule to further these market share gains over the next
two to three years. Sales and earnings growth could exceed 30 percent annually
and the company is solidly profitable with a 22 percent return on equity.
LAMCO: John Jostrand, what do you like at William Blair?
JOSTRAND (WILLIAM BLAIR -- ALL CAP GROWTH): I would like to talk about two
great, long-term holdings that got overlooked in the risk-takers' market of
1999. They are Medtronic, the medical technology company, and MBNA, the credit
card direct marketing bank. The financial profile of each is everything that the
Internet is not -- superior return on equity (consistently 26 to 30 percent),
high positive free cash flow and very good to steady growth.
Medtronic should report an 18 percent increase in earnings this fiscal
year and accelerate slightly next year. The company digested two major
acquisitions and still grew base business slightly better than budget. Market
share rose virtually across the board -- to over 53% in pacemakers (more than
twice its nearest competitor) and 52% in defibrillators. New product development
is kicking in as well. Medtronic has an important new business in neurological
and spine products that grew sales substantially. Finally, the pharmaceutical
sector is on Washington's legislative agenda this year, so Medtronic should be
an attractive alternative to investors.
MBNA grew earnings in 1999 by 24 percent. Financial performance has far
outstripped almost all companies in its sector for years -- indeed, outstripped
most companies its size in any industry. Its key differentiation is a singular
devotion to customer service -- as a direct marketer, its primary product is
service that is reliable, convenient and prompt. Service is measured and
re-measured, and employees are rewarded when it's done well. MBNA also must be
efficient, particularly in the area of new customer acquisition costs. The
credit card industry continues to grow, as cards continue to take market share
as a form of payment around the world, but the industry structure is shifting.
It has become important to be large in this business, and so MBNA has become one
of the few who profitably acquires smaller banks' portfolios. Market shares have
shifted in favor of the larger participants, but there are still many years left
for superior natural growth.
LAMCO: John Lindenthal, wrap it up for us, please.
LINDENTHAL (OPPENHEIMER -- LARGE CAP CORE): Computer Associates is a leading
software supplier that services both large mainframe type installations and also
the networking and server markets. Its business is benefiting from the
advancements in technology, especially the growth in the Internet and
e-commerce. Given these exciting prospects, the stock remains reasonably valued
and it remains a large position in the portfolio.
AFLAC is a supplemental insurance company that operates in both the U.S.
and Japan. The Japanese subsidiary has an industrial position few global
companies can match (it has over 90 percent of the cancer insurance market). Its
sales force is the best in Japan, and it continually offers new products to
stimulate sales. Excess cash flow is returned to the U.S. parent and is used to
buy back stock. AFLAC's management is the best in the business and future
prospects are bright.
LAMCO: Thank you all very much.
17
<PAGE>
Schedule of Investments as of December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS (95.2) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.0%)
Boeing Co. 40,000 $ 1,662,500
Raytheon Co., Class A 25,000 620,312
------------
2,282,812
------------
BANKS (1.8%)
State Street Corp. 24,800 1,811,950
Wells Fargo & Co. 50,000 2,021,875
------------
3,833,825
------------
BROADCASTING & CABLE (4.2%)
AMFM, Inc. (a) 25,000 1,956,250
BHC Communications, Inc. (a) 6,890 1,102,400
Citadel Communications Corp. (a) 20,050 1,300,744
Westwood One, Inc. (a) 65,060 4,944,560
------------
9,303,954
------------
BUSINESS & CONSUMER SERVICES (5.9%)
Autoweb.com, Inc. (a) 32,100 349,088
Catalina Marketing Corp. (a) 28,780 3,331,285
C-bridge Internet Solutions, Inc. (a) 8,300 403,588
Cintas Corp. 36,710 1,950,219
Getty Images, Inc. (a) 27,445 1,341,374
Labor Ready, Inc. (a) 100,350 1,216,744
Robert Half International, Inc. (a) 81,535 2,328,843
Shared Medical Systems Corp. 23,100 1,176,656
TMP Worldwide, Inc. (a) 5,720 812,240
------------
12,910,037
------------
CHEMICALS (1.4%)
Dionex Corp. (a) 29,080 1,197,733
Hercules, Inc. 25,000 696,875
Monsanto Co. 35,000 1,246,875
------------
3,141,483
------------
COMMUNICATIONS EQUIPMENT (3.3%)
ADC Telecommunications, Inc. (a) 24,100 1,748,756
American Tower Corp. (a) 42,100 1,286,681
Ezenia!, Inc. (a) 51,550 409,178
Nokia Corp. ADR 20,000 3,800,000
------------
7,244,615
------------
See Notes to Schedule of Investments.
18
<PAGE>
Schedule of Investments -- continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMPUTER & BUSINESS EQUIPMENT (1.8%)
Cognex Corp. (a) 53,050 $ 2,068,950
Compaq Computer Corp. 50,000 1,353,125
Extreme Networks, Inc. (a) 5,500 459,250
------------
3,881,325
------------
COMPUTER SERVICES & SOFTWARE (16.7%)
Acxiom Corp. (a) 66,900 1,605,600
Affiliated Computer Services, Inc. (a) 25,970 1,194,620
Aspect Development, Inc. (a) 22,240 1,523,440
Automatic Data Processing, Inc. 76,000 4,094,500
Billing Concepts Corp. (a) 57,670 374,855
BMC Software, Inc. (a) 26,200 2,094,362
CheckFree Holdings Corp. (a) 11,590 1,211,155
Computer Associates International, Inc. 40,000 2,797,500
Computer Sciences Corp. (a) 19,000 1,797,875
Concord EFS, Inc. (a) 152,655 3,930,866
F5 Networks, Inc. (a) 3,800 433,200
Keane, Inc. (a) 29,140 925,195
Legato Systems, Inc. (a) 10,655 733,197
Microsoft Corp. (a) 26,400 3,082,200
National Instruments Corp. (a) 53,195 2,034,709
NOVA Corp. (a) 36,300 1,145,719
Oracle Corp. (a) 29,400 3,294,637
Peregrine Systems, Inc. (a) 15,600 1,288,950
Predictive Systems, Inc. (a) 14,635 958,593
Sterling Commerce, Inc. (a) 49,500 1,686,094
Transaction Systems Architects, Inc. (a) 10,750 301,000
------------
36,508,267
------------
CONSUMER PRODUCTS (0.2%)
Avon Products, Inc. 15,000 495,000
------------
DIVERSIFIED (1.6%)
Minnesota Mining & Manufacturing Co. 25,000 2,446,875
Textron, Inc. 15,000 1,150,313
------------
3,597,188
------------
DRUGS & HEALTH CARE (6.6%)
BioChem Pharma, Inc. (a) 42,700 928,725
Cytyc Corp. (a) 13,215 806,941
Elan Corp. ADR (a) 40,800 1,203,600
Foundation Health Systems, Inc. (a) 51,240 509,198
See Notes to Schedule of Investments.
19
<PAGE>
Schedule of Investments -- continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DRUGS & HEALTH CARE (CONT.)
Genentech, Inc. (a) 16,200 $ 2,178,900
MedQuist, Inc. (a) 60,930 1,572,756
Medtronic, Inc. 55,000 2,004,062
MiniMed, Inc. (a) 27,700 2,029,025
PacifiCare Health Systems, Inc. (a) 13,390 709,670
Pharmacia & Upjohn, Inc. 22,000 990,000
Quintiles Transnational Corp. (a) 16,840 314,698
ResMed, Inc. (a) 26,665 1,113,264
------------
14,360,839
------------
ELECTRONICS & ELECTRICAL EQUIPMENT (9.5%)
Arrow Electronics, Inc. (a) 60,000 1,522,500
Emerson Electric Co. 15,000 860,625
Intel Corp. 48,200 3,967,462
Linear Technology Corp. 31,400 2,247,062
Maker Communications, Inc. (a) 17,200 735,300
Micrel, Inc. (a) 30,170 1,717,804
Microchip Technology, Inc. (a) 32,380 2,216,006
Molex, Inc. 73,918 3,344,790
Texas Instruments, Inc. 42,600 4,126,875
------------
20,738,424
------------
FINANCIAL SERVICES (10.0%)
Citigroup, Inc. 90,000 5,000,625
Countrywide Credit Industries, Inc. 50,000 1,262,500
Financial Federal Corp. (a) 115,600 2,637,125
Freddie Mac 88,000 4,141,500
Investment Technology Group, Inc. 58,625 1,685,469
Investors Financial Services Corp. 9,665 444,590
MBNA Corp. 84,750 2,309,437
Morgan Stanley Dean Witter & Co. 15,000 2,141,250
Paychex, Inc. 56,000 2,240,000
------------
21,862,496
------------
FOOD, BEVERAGE & RESTAURANTS (2.8%)
Buffets, Inc. (a) 58,920 589,200
Diageo PLC ADR 35,000 1,120,000
McDonald's Corp. 35,000 1,410,938
Outback Steakhouse, Inc. (a) 30,550 792,391
Papa John's International, Inc. (a) 8,400 534,281
Whole Foods Market, Inc. (a) 36,000 1,669,500
------------
6,116,310
------------
See Notes to Schedule of Investments.
20
<PAGE>
Schedule of Investments -- continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HOTELS & ENTERTAINMENT/LEISURE (0.8%)
Royal Caribbean Cruises Ltd. 35,300 $ 1,740,731
------------
INDUSTRIAL EQUIPMENT (4.3%)
Caterpillar, Inc. 30,000 1,411,875
Dover Corp. 40,000 1,815,000
Fastenal Co. 59,590 2,677,825
Illinois Tool Works, Inc. 35,100 2,371,444
MSC Industrial Direct Co., Inc. (a) 80,000 1,060,000
------------
9,336,144
------------
INSURANCE (4.7%)
ACE Ltd. 75,000 1,251,562
AFLAC, Inc. 60,000 2,831,250
American International Group, Inc. 28,125 3,041,015
Conseco, Inc. 40,000 715,000
XL Capital Ltd. 40,000 2,075,000
------------
9,913,827
------------
OIL & GAS (1.2%)
Petroleum Geo-Services ADR (a) 66,580 1,185,956
Pride International, Inc. (a) 99,990 1,462,354
------------
2,648,310
------------
POLLUTION CONTROL (0.3%)
Waste Management, Inc. 40,000 687,500
------------
PUBLISHING (0.6%)
R.R. Donnelley & Sons Co. 50,000 1,240,625
------------
RETAIL TRADE (8.3%)
Bed Bath & Beyond, Inc. (a) 72,880 2,532,580
The Children's Place Retail Stores, Inc. (a) 24,005 394,582
Dollar Tree Stores, Inc. (a) 55,180 2,672,781
Family Dollar Stores, Inc. 128,080 2,089,305
The Home Depot, Inc. 78,000 5,347,875
May Department Stores Co. 45,000 1,451,250
99 Cents Only Stores (a) 37,820 1,446,615
Staples, Inc. (a) 114,750 2,381,063
------------
18,316,051
------------
See Notes to Schedule of Investments.
21
<PAGE>
Schedule of Investments -- continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED SHARES MARKET VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (5.8%)
Price Communications Corp. (a) 61,127 $ 1,700,095
Sprint Corp. (FON Group) 60,000 4,038,750
U.S. Cellular Corp. (a) 14,900 1,503,969
Vodafone AirTouch PLC ADR 82,500 4,083,750
Western Wireless Corp. (a) 23,360 1,559,280
------------
12,885,844
------------
TRANSPORTATION (2.4%)
AMR Corp. (a) 40,000 2,680,000
Burlington Northern Santa Fe Corp. 10,000 242,500
USFreightways Corp. 50,300 2,408,112
------------
5,330,612
------------
TOTAL COMMON STOCKS (Cost $139,583,017) 208,376,219
------------
PREFERRED STOCK (0.5%)
BROADCASTING & CABLE (0.5%)
The News Corp., Ltd. (Cost $1,083,848) 35,000 1,170,313
------------
See Notes to Schedule of Investments.
22
<PAGE>
Schedule of Investments -- continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
PAR MARKET
SHORT-TERM INVESTMENT (6.2%) VALUE VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT (6.2%)
SBC Warburg Ltd., Repurchase Agreement
dated 12/31/99, 2.50% to be repurchased at
$13,598,833 on 01/03/00, collateralized by U.S. Treasury
bonds and notes with various maturities to 2021, with a
current market value of $13,877,034. $13,596,000 $ 13,596,000
------------
TOTAL INVESTMENTS (101.9%) (COST $154,262,865) (B) 223,142,532
OTHER ASSETS AND LIABILITIES, NET (-1.9%) (4,098,979)
------------
NET ASSETS (100.0%) $219,043,553
============
NET ASSET VALUE PER SHARE (16,302,347 SHARES OUTSTANDING) $13.44
============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Cost of investments for federal income tax purposes is $154,576,154.
Gross unrealized appreciation and depreciation of investments at
December 31, 1999 is as follows:
Gross unrealized appreciation $81,901,439
Gross unrealized depreciation (13,335,061)
-----------
Net unrealized appreciation $68,566,378
===========
Acronym Name
- -------- ---------------------------
ADR American Depositary Receipt
See Notes to Financial Statements.
23
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments at market value (identified cost $154,262,865) $223,142,532
Receivable for investments sold 489,919
Dividends and interest receivable 81,779
Cash 60,387
Other assets 42,006
------------
TOTAL ASSETS 223,816,623
------------
LIABILITIES:
Payable for investments purchased 2,520,054
Distributions payable to shareholders 2,140,902
Accrued expenses 112,114
------------
TOTAL LIABILITIES 4,773,070
------------
NET ASSETS $219,043,553
============
NET ASSETS REPRESENTED BY:
Paid-in capital (authorized 60,000,000 shares at $0.10 Par;
16,302,347 shares outstanding) $149,607,826
Accumulated net realized gains on investments
less distributions 556,060
Net unrealized appreciation on investments 68,879,667
------------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES
OF BENEFICAL INTEREST ($13.44 PER SHARE) $219,043,553
============
See Notes to Financial Statements.
24
<PAGE>
Financial Statements -- continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 1,131,426
Interest 485,243
-----------
Total investment income (Net of foreign taxes
withheld at source which amounted to $8,996) 1,616,669
EXPENSES:
Management fees $ 1,555,244
Administrative fee 387,850
Bookkeeping fee 63,522
Custodian and transfer agent fees 71,253
Proxy and shareholder communication expense 48,783
Printing expense 63,930
Legal and audit fees 58,533
Directors' fees and expense 25,164
Miscellaneous expense 57,224
------------
TOTAL EXPENSES 2,331,503
-----------
NET INVESTMENT LOSS (714,834)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gains on investment transactions:
Proceeds from sales 147,436,502
Cost of investments sold 124,855,189
------------
Net realized gains on investment transactions 22,581,313
Net unrealized appreciation on investments:
Beginning of year 62,101,991
End of year 68,879,667
------------
Change in unrealized appreciation -- net 6,777,676
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $28,644,155
===========
See Notes to Financial Statements.
25
<PAGE>
Financial Statements -- continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------
STATEMENT OF CHANGES IN NET ASSETS 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment loss $ (714,834) $ (387,717)
Net realized gains on investment transactions 22,581,313 3,436,236
Change in unrealized appreciation -- net 6,777,676 19,887,947
------------ ------------
Net increase in net assets resulting from operations 28,644,155 22,936,466
------------ ------------
DISTRIBUTIONS DECLARED FROM:
Paid-in capital -- (11,582,263)
Net realized gains on investments (19,222,792) (7,170,633)
------------ ------------
Total distributions (19,222,792) (18,752,896)
------------ ------------
CAPITAL TRANSACTIONS:
Increase in net assets from capital share transactions 11,108,320 27,593,181
------------ ------------
Total increase in net assets 20,529,683 31,776,751
NET ASSETS:
Beginning of year 198,513,870 166,737,119
------------ ------------
End of year $219,043,553 $198,513,870
============ ============
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
Financial Highlights -- continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of year $ 13.03 $ 12.89 $ 11.27 $ 10.55 $ 9.95
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (loss) (0.05) (0.03) (0.02) 0.01 0.31
Net realized and unrealized gains on investments 1.83 1.73 2.88 1.86 1.05
-------- -------- -------- -------- --------
Total from Investment Operations 1.78 1.70 2.86 1.87 1.36
-------- -------- -------- -------- --------
Less Distributions from:
Net investment income -- -- -- (0.01) (0.31)
Paid-in capital -- (0.83) -- -- --
Realized capital gains (1.23) (0.52) (1.24) (1.01) (0.45)
-------- -------- -------- -------- --------
Total Distributions (1.23) (1.35) (1.24) (1.02) (0.76)
-------- -------- -------- -------- --------
Change due to rights offering (a) -- (0.21) -- -- --
Impact of shares issued in dividend reinvestment (b) (0.14) -- -- (0.13) --
-------- -------- -------- -------- --------
Total Distributions, Reinvestments and
Rights Offering (1.37) (1.56) (1.24) (1.15) (0.76)
-------- -------- -------- -------- --------
Net asset value at end of year $ 13.44 $ 13.03 $ 12.89 $ 11.27 $ 10.55
======== ======== ======== ======== ========
Market price at end of year $ 10.813 $ 11.438 $ 11.938 $ 9.250 $ 9.375
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS: (c)
Based on net asset value 15.9% 15.3% 27.3% 18.3% 13.8%
Based on market price 6.2% 9.3% 43.6% 9.3% 19.3%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (millions) $219 $199 $167 $137 $120
Ratio of expenses to average net assets 1.20% 1.22% 1.20% 1.35% 1.42%
Ratio of net investment income to
average net assets (0.37)% (0.22)% (0.18)% 0.06% 2.87%
Portfolio turnover rate 71% 33% 57% 51% 82%
</TABLE>
(a) Effect of Fund's rights offering for shares at a price below net asset
value.
(b) Effect of payment of a portion of distributions in newly issued shares
valued at a discount from net asset value.
(c) Calculated assuming all distributions reinvested at the actual reinvestment
price and all primary rights exercised.
See Notes to Financial Statements.
27
<PAGE>
Notes to Financial Statements December 31, 1999
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
Liberty All-Star Growth Fund, Inc. (the "Fund"), is registered under the
Investment Company Act of 1940, as amended, as a closed-end, diversified
management investment company and commenced operations on March 14, 1986. The
Fund's investment objective is to seek long term capital appreciation. The Fund
is managed by Liberty Asset Management Company (the "Manager"). The Manager is a
subsidiary of Liberty Financial Companies, Inc., a publicly traded company of
which Liberty Mutual Insurance Company is the majority shareholder.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results, if different,
are expected to be immaterial to the net assets of the Fund.
VALUATION OF INVESTMENTS -- Portfolio securities listed on an exchange and
over-the-counter securities quoted on the NASDAQ system are valued on the basis
of the last sale on the date as of which the valuation is made, or, lacking any
sales, at the mean of the closing bid and asked quotations on that date.
Over-the-counter securities not quoted on the NASDAQ system are valued at the
most recent bid prices on that date. Securities for which reliable quotations
are not readily available are valued at fair value, as determined in good faith
and pursuant to procedures established by the Board of Directors. Short-term
instruments maturing in more than 60 days for which market quotations are
readily available are valued at current market value. Short-term instruments
with remaining maturities of 60 days or less are valued at amortized cost,
unless the Board of Directors determines that this does not represent fair
value.
PROVISION FOR FEDERAL INCOME TAX -- The Fund qualifies as a "regulated
investment company." As a result, a federal income tax provision is not required
for amounts distributed to shareholders.
OTHER -- Security transactions are accounted for on the trade date.
Interest income and expenses are recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date.
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 0.80% 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 investment portfolio managed by it. The
Fund also pays the Manager a fee for its administrative services at an annual
rate of 0.20% of the Fund's average weekly net assets. The annual fund
management and administrative fees are reduced to 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 are reduced to 0.36% of
the Fund's average weekly net assets in excess of $300 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 years ended December 31, 1999 and December 31, 1998,
distributions in the amount of $11,108,320 and $11,371,038, 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 1,065,787 and
984,758 shares, respectively. In a rights offering commencing June 9, 1998,
shareholders exercised rights to purchase 1,314,122 shares at $12.41 per share
for proceeds, net of expenses, of $16,222,143.
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
28
<PAGE>
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
proceeds from investments sold excluding short-term debt obligations for the
year ended December 31, 1999 were $132,092,749 and $147,436,502, 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. The
characterization of income and capital gain distributions are determined in
accordance with federal income tax regulations, which may differ from generally
accepted accounting principles. Reclassifications are made to the Fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations.
NOTE 6. CHANGE IN INDEPENDENT AUDITOR
Based on the recommendation of the Audit Committee of the Fund on June 18,
1999, the Board of Directors determined not to retain KPMG Peat Marwick LLP
(KPMG) as the Fund's independent auditor and voted to appoint
PricewaterhouseCooopers LLP (PwC) for the fiscal year ended December 31, 1999.
During the two most recent fiscal years, KPMG's audit reports contained no
adverse opinion or disclaimer of opinion; nor were its reports qualified or
modified as to uncertainty, audit scope, or accounting principle. Further, in
connection with its audits for the two most recent fiscal years, there were no
disagreements between the Fund and KPMG on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of KPMG would have caused it to make
reference to the disagreements in its report on the financial statements for
such years.
29
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and the Board of Directors of Liberty All-Star
Growth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations, changes in
net assets and the financial highlights present fairly, in all material
respects, the financial position of Liberty All-Star Growth Fund, Inc. (the
"Fund") at December 31, 1999, the results of its operations, the changes in its
net assets and the financial highlights for the year then ended in conformity
with accounting principles generally accepted in the United States. These
financial statements and the financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of portfolio positions at December 31, 1999 by correspondence with the custodian
and brokers, provides a reasonable basis for the opinion expressed above. The
financial statements of the Fund for periods prior to January 1, 1999 were
audited by other independent accountants whose report dated February 12, 1999
expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
30
<PAGE>
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
Fund 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. If, prior to the Plan Agent's completion of such open market purchases,
the market price of a share equals or exceeds its net asset value, the remainder
of the distribution will be paid in newly issued shares valued at net asset
value (but not at a discount of more than 5% from market price). 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, State Street Bank and Trust Company, c/o EquiServe,
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>
Tax Information
- --------------------------------------------------------------------------------
All 1999 distributions whether received in cash or shares of theFund consist of
the following:
(1) ordinary income and
(2) long-term capital gains distributions
Below is a table that details the breakdown of each 1999 distribution for
federal income tax purposes.
TAX STATUS OF 1999 DISTRIBUTIONS (UNAUDITED)
- --------------------------------------------------------------------------------
ORDINARY INCOME
----------------------------
NET SHORT-TERM LONG-TERM
AMOUNT INVESTMENT CAPITAL CAPITAL
DATE PAID PER SHARE INCOME GAINS GAINS
- --------------------------------------------------------------------------------
04/19/99 $0.31 -- 13.68% 86.32%
- --------------------------------------------------------------------------------
07/06/99 $0.32 -- 13.03% 86.97%
- --------------------------------------------------------------------------------
10/04/99 $0.29 -- 14.14% 85.86%
- --------------------------------------------------------------------------------
01/03/00 $0.31 -- 13.00% 87.00%
- --------------------------------------------------------------------------------
FOR CORPORATE SHAREHOLDERS
- --------------------------------------------------------------------------------
37% of the ordinary income dividends qualify for the 70% dividend received
deduction available for corporations for the year ended December 31, 1999.
32
<PAGE>
[LOGO] LIBERTY ASG
ALL*STAR Listed
----------- NYSE
GROWTH FUND THE NEW YORK STOCK EXCHANGE
FUND MANAGER
Liberty Asset Management Company
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210-2214
1-617-722-6036
Internet: www.libertyallstar.com
INDEPENDENT AUDITORS
PricewaterhouseCoopers, LLP
160 Federal 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 c/o EquiServe
P.O. Box 8200, Boston, Massachusetts 02266-8200
1-800-LIB-FUND (1-800-542-3863)
Internet: www.equiserve.com
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
DIRECTORS
Robert J. Birnbaum*
John V. Carberry
James E. Grinnell*
Richard W. Lowry*
William E. Mayer
Dr. John J. Neuhauser*
OFFICERS
John V. Carberry, Chairman of the Board of Directors
William R. Parmentier, Jr., President and Chief Executive Officer
Christopher S. Carabell, Vice President
Mark T. Haley, Vice President
Timothy J. Jacoby, Treasurer
Nancy L. Conlin, Secretary
J. Kevin Connaughton, Controller
* 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
<PAGE>
[GRAPHIC OMITTED]
[LOGO] LIBERTY ASG A MEMBER OF THE
ALL*STAR Listed CLOSED-END
----------- NYSE FUND
GROWTH FUND THE NEW YORK STOCK EXCHANGE ASSOCIATION, INC.
WWW.CLOSED-ENDFUNDS.COM
Liberty Asset Management Company, Fund Manager
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210-2214
1-800-LIB-FUND (1-800-542-3863)
Internet: www.libertyallstar.com
CHACM-AR-00
