[BACK COVER]
LIBERTY ALL-STAR EQUITY FUND
Federal Reserve Plaza, Boston, Massachusetts 02210-2214
Fund Manager
Liberty Asset Management Company
One Financial Center, Boston, Massachusetts 02111-2621
Independent Auditors
KPMG Peat Marwick LLP
One Boston Place, Boston, Massachusetts 02108
Investor Assistance
Custodian, Transfer and Dividend
Disbursing Agent and Registrar
State Street Bank and Trust Company
P.O. Box 8200, Boston, Massachusetts 02266-8200
1-800-LIB-FUND [1-800-542-3863]
Legal Counsel
Bingham, Dana & Gould
150 Federal Street, Boston, Massachusetts 02110
Trustees
Robert J. Birnbaum*
James E. Grinnell*
Richard W. Lowry*
Richard I. Roberts
Officers
Richard I. Roberts, Chairman, Board of Trustees
Richard R. Christensen, President
Peter L. Lydecker, Treasurer and Controller
John A. Benning, Secretary
New York Stock Exchange Trading Symbol: USA
*Member of the audit committee.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Fund may from time to time purchase
its shares of beneficial interest in the open market when the shares are
trading at a discount of 10 percent or more from their net asset value.
[Liberty All-Star Equity Fund Logo (Statue of Liberty)
Printed with Soybean Inks
["Recycled" logo] Printed on Recycled Paper
[FRONT COVER]
[Liberty All-Star Equity Fund Logo (Statue of Liberty)
LIBERTY
ALL-STAR
EQUITY FUND
1st
Quarter Report
1995
<PAGE>
Liberty ALL-STAR Equity Fund
First Quarter Report
Chairman's Letter
To Our Fellow Shareholders: April 20, 1995
The net asset value (NAV) of a common share of ALL-STAR rose from $9.26 on
December 31, 1994 to $9.83 on March 31, 1995, after deducting the cash
distribution of 24 cents paid to shareholders during the quarter.
The market price of a share of ALL-STAR traded in a range from $8.50 to $9.75
before closing the quarter at $9.625. The ending price represented a discount
to NAV of 2.1 percent, compared with a discount to NAV of 8.2 percent on
December 31, 1994. The first quarter was the strongest for stocks in some
time, in fact since 1991. As may be seen in the box, ALL-STAR gained 8.8%,
which compared with 7.9% for the Lipper Growth and Income Mutual Fund Average
and 9.7% for the Standard and Poor's 500 Index.
Although there was still some concern about valuation levels, new all-time
highs were established for several of the well-known stock market averages
spurred by reduced concern about higher future interest rates, dampened
inflation, and expanding corporate profits. This, despite a disturbingly weak
dollar.
During the quarter, there was a reversal in investors' emphasis toward better
quality stocks which helped ALL-STAR. A continuation of the trend would
provide a friendly foundation for the future. The LAMCO letter which follows
elaborates on this theme.
Our manager interview this quarter is timely. Jim McClennen emphasizes Cooke
and Bieler's dedication to high quality companies as the cornerstone of their
value style.
Fund Performance for the first quarter and latest 12 months earned by
ALL-STAR's Portfolio Managers, after fees and expenses. Figures shown are
total returns, which include dividends and capital gains.
First Latest
Quarter 12 Months
ALL-STAR 8.8% 11.1%
Lipper Growth & Income Mutual Fund
Average 7.9% 10.2%
S&P 500 Stock Index 9.7% 15.5%
Dow Jones Industrial Average 9.2% 17.5%
ALL-STAR Price Range 8-1/2 to 8-1/4 to
9-3/4 10-3/4
ALL-STAR Discount/Premium Range -8.7% to -10.2% to
-0.8% +9.0%
Investor Returns for first quarter and latest 12 months earned by ALL-STAR
shareholders, with distributions reinvested in shares acquired from ALL-STAR
at NAV or in the open market through the Dividend Reinvestment Program. The
12-month returns assume that shareholders fully participated in the September
1994 rights offering.
First Latest
Quarter 12 Months
Shares Valued at Net Asset Value 8.8% 11.2%
Shares Valued at Market Price 16.1% 7.3%
Sincerely,
/s/ Richard I. Roberts
Richard I. Roberts
Chairman
Board of Trustees
Liberty ALL-STAR Equity Fund
<PAGE>
First Quarter Report
President's Letter
To Our Fellow Shareholders: April 20, 1995
As discussed in the preceding Chairman's letter, investors turned their
interest toward higher quality stocks in the first quarter. The highest
ranked stocks in terms of quality reversed their negative performance in 1994
and 1993 and did well in the first quarter, as shown in the table below. The
lowest ranked stocks went from being the best performers in 1993 and 1994 to
being the worst performers in the first quarter of 1995. As we pointed out in
the 1994 annual report, ALL-STAR was designed as a core equity investment
and, therefore, has a natural bias towards the stocks of high quality
companies.
First
Quarter 1993 & 1994
S&P Stock Ranking 1995 Return 1994 Return Two Year Return
A+ (highest ranking) +8.8% -2.4% -3.7%
A +8.0 -7.5 -7.5
A- +7.7 -7.1 0.0
B+ +8.1 -5.2 +5.9
B +7.1 -1.8 +20.8
B- +8.6 +1.9 +26.7
C & D (lowest ranking) +2.2 +6.3 +41.5
The portfolio characteristics on page 3 show that ALL-STAR has better average
characteristics than the S&P 500 as measured by the lower average debt/total
capital ratio (33% vs. 34%), higher five year earnings growth per share (21%
vs. 18%), higher five year sales per share growth (12% vs. 9%) and higher
return on equity (23% vs. 21%).
With these better than average characteristics, coupled with the recent trend
toward quality being back in favor, ALL-STAR appears to be well positioned
for the future.
Sincerely,
/s/ Richard R. Christensen
Richard R. Christensen
President, Liberty Asset Management Company and
Liberty ALL-STAR Equity Fund
<PAGE>
Commentary
Managers' Differing Investment Styles
Are Reflected in Portfolio Characteristics
The Portfolio Characteristics table on this page is a regular feature of
ALL-STAR shareholder reports. It serves as a useful tool for understanding
the value of a multi-managed portfolio. The characteristics are different for
each of ALL-STAR's five investment managers. These differences are a
reflection of the fact that each pursues an individual Investment Style. The
shaded column highlights the characteristics of the ALL-STAR Fund, while the
final column shows portfolio characteristics for the entire S&P 500 Stock
Index.
The Styles practiced by ALL-STAR's five investment managers are:
Cooke & Bieler, Inc./Value--
Companies with sound fundamentals: seasoned, well-managed and financially
strong.
Oppenheimer Capital/Value--
Contrarian holdings being overlooked and undervalued by investors.
Palley-Needelman Asset Management, Inc./Value--
Large capitalization companies with attractive valuations, sound fundamentals
and good prospects
Columbus Circle Investors/Growth--
Companies whose growing earnings are not fully reflected in their share
prices.
Provident Investment Counsel, Inc./Growth--
Companies with fast growing earnings and bright prospects.
Portfolio Characteristics
as of
March 31, 1995
<TABLE>
<CAPTION>
VALUE STYLES GROWTH STYLES
Cooke S&P
& Palley- Columbus Total 500
Bieler Oppenheimer Needelman Circle Provident ALL-STAR Index
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio 1. Number of
Holdings 32 31 44 51 61 181 500
2. Percent in Top
Ten 43% 40% 30% 28% 37% 14% 18%
Size and Debt 3. Average Sales
or Revenues
(billions) $ 12.4 $ 10.2 $ 20.5 $ 14.9 $ 8.3 $ 13.2 $ 21.9
4. Average
Debt/Capital
Ratio 20% 48% 39% 26% 24% 33% 34%
Profitability 5. Average Return
on Total
Capital 19% 13% 11% 17% 18% 16% 14%
6. Average Return
on Equity 23% 22% 21% 24% 24% 23% 21%
Growth 7. Average 5-Year
Sales
Per Share
Growth 7% 12% 8% 13% 18% 12% 9%
8. Average 5-Year
Earnings
Per Share
Growth 12% 20% 19% 23% 28% 21% 18%
Yield 9. Dividend
Yield 3.0% 1.8% 2.8% 1.3% 0.7% 1.9% 2.7%
10. Average 5-Year
Dividend
Payout Ratio 52% 30% 45% 32% 17% 36% 47%
Valuation 11. Average
Price/Earnings
Ratio 16.5x 14.0x 14.6x 18.5x 23.5x 16.9x 15.7x
12. Average
Price/Book
Value Ratio 3.0x 2.5x 2.3x 3.3x 4.7x 3.0x 2.7x
</TABLE>
<PAGE>
LIBERTY ALL-STAR EQUITY FUND
Major Stock Changes in the
First Quarter
The following are the major ($2.5 million or
more) stock changes--both additions and
reductions--that were made in ALL-STAR's
portfolio during the first quarter of 1995.
Shares
Held
Name Additions Reductions 3-31-95
Intel Corp. 87,700 145,300
Nokia Corp. ADR 77,000 77,000
Penney (J.C.) Co., Inc. 100,000 100,000
PepsiCo., Inc. 95,600 185,600
Shawmut National Corp. 100,000 100,000
Westinghouse Electric Corp. 182,400 182,400
The Boeing Co. (88,700) 151,700
Caterpillar, Inc. (62,400) 0
Circuit City Stores, Inc. (149,900) 0
Compaq Computer Corporation (144,900) 0
CPC International, Inc. (70,000) 0
General Electric Co. (65,000) 145,800
H&R Block, Inc. (76,300) 0
International Flavours and
Fragrances, Inc. (89,000) 0
Martin Marietta Corp. (81,800) 0
Motorola, Inc. (44,600) 174,000
R.R. Donnelley & Sons Co. (135,000) 0
YPF Sociedad Anonima ADR
Class D (190,000) 107,200
1995 Annual Meeting
At ALL-STAR's 1995 Annual Meeting held on April 27, shareholders reelected
Richard Lowry and elected Robert Birnbaum as Trustees, ratified portfolio
management agreements with the successors to Columbus Circle Investors and
Provident Investment Counsel, Inc., and ratified the selection of KPMG Peat
Marwick as the Fund's Independent Auditors for the current year.
Shareholders'
Investment Growth
A report on per-share
values, distributions and
reinvestment since
ALL-STAR's inception
Since its inception, ALL-STAR has maintained an optional Automatic Dividend
Reinvestment and Cash Repurchase Plan, whereby distributions are
automatically used to acquire additional shares of ALL-STAR. In addition,
three rights offerings have allowed investors to acquire additional shares.
The rights offering in April 1992 allowed investors to acquire one share at
$10.05 for every ten shares held, the one in October 1993 allowed investors
to acquire one share at $10.41 for every 15 shares held; and the one in
September 1994 allowed investors to acquire one share at $9.14 for every 15
shares held.
As the graph on the facing page shows, an original share, including the
rights offering and dividend reinvestment shares, has grown to a net asset
value of $29.74 (3.03 shares times the current $9.83 net asset value per
share) and a market price value of $29.12 (3.03 times $9.625). Excluding the
rights offering shares, an original share has grown to 2.45 shares. Thus, the
original share has grown to a net asset value of $24.12 (2.45 shares times
the current $9.83 net asset value per share) and a market price value of
$23.61 (2.45 times $9.625).
Long-Term Investment
Performance Update
Annualized through March 31, 1995
1-1/4 Years 3-1/4 Years 5-1/4 Years
Since Since Since
12/31/93 12/31/91 12/31/89
ALL-STAR 6.2% 7.3% 11.8%
ALL-STAR
(Distributions
Reinvested) 6.3% 7.3% 12.1%
Lipper Growth & Income
Mutual Fund Average 5.3% 8.0% 9.1%
Standard & Poor's
500 Stock Index 8.8% 8.8% 10.2%
Dow Jones Industrial
Average 11.5% 11.9% 11.6%
<PAGE>
[Mountain chart]
Oct 86 9.30
Dec 86 9.11
Mar 87 11.03
Jun 87 11.23
Sep 87 10.87
Dec 87 7.90
Mar 88 8.29
Jun 88 8.43
Sep 88 8.28
Dec 88 8.29
Mar 89 8.60
Jun 89 9.07
Sep 89 9.82
Dec 89 9.58
Mar 90 9.14
Jun 90 9.72
Sep 90 8.23
Dec 90 8.92
Mar 91 10.18
Jun 91 9.87
Sep 91 10.33
Dec 91 11.20
Mar 92 10.56
Jun 92 10.24
Sep 92 10.45
Dec 92 10.78
Mar 93 10.75
Jun 93 10.56
Sep 93 10.79
Dec 93 10.40
Mar 94 9.85
Jun 94 9.48
Sep 94 9.69
Dec 94 9.26
Mar 95 9.83
<TABLE>
<CAPTION>
Price
Shares Per
Owned Shares Shares Shares NAV(1) Total Share
at Per Purchased Acquired Owned Per NAV at Total
Beginning Share Through Through at End Share of End Price
of Distri- Reinvestment Rights of at End Shares of Shares
Year Period butions Program Offering Period of Period Owned Period Owned
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 1.00 $1.18 .14 -- 1.14 $ 7.90 $ 9.01 6 $ 6.85
1988 1.14 $0.64 .11 -- 1.25 $ 8.29 $10.33 7-1/4 $ 9.04
1989 1.25 $0.95 .16 -- 1.40 $ 9.58 $13.43 8-1/4 $11.57
1990 1.40 $0.90 .17 -- 1.57 $ 8.92 $13.99 7-3/4 $12.16
1991 1.57 $1.02 .17 -- 1.74 $11.20 $19.49 10-3/4 $18.71
1992 1.74 $1.07 .20 0.18(2) 2.12 $10.78 $22.81 11-1/8 $23.54
1993 2.12 $1.25(5) .25 0.14(3) 2.52 $10.40 $26.20 11-1/8 $28.03
1994 2.52 $1.00 .28 0.16(4) 2.95 $ 9.26 $27.34 8-1/2 $25.09
1995
1st
Quarter 2.95 $0.24 .07 -- 3.03 $ 9.83 $29.74 9-5/8 $29.12
</TABLE>
1) Net Asset Value 2) Rights offering completed in April 1992. One share
offered at $10.05 for every 10 shares owned. 3) Rights offering completed in
October 1993. One share offered at $10.41 for every 15 shares owned.
4) Rights offering completed in September 1994. One share offered at $9.14
for every 15 shares owned. 5) Includes the $0.18 per share tax credit passed
through to shareholders, which was assumed to be reinvested at the year-end
price of 11-1/8.
<PAGE>
LIBERTY ALL-STAR EQUITY FUND
Top 50
Holdings
As of
March 31, 1995
<TABLE>
<CAPTION>
Rank
as of Value % of
Rank 12/31/94 Security Name ($000) Net Assets
<S> <C> <C> <C> <C>
1 1 Royal Dutch Petroleum Co. 14,520 1.9%
2 72 Intel Corp. 12,332 1.6%
3 7 International Business Machines Corp. 9,907 1.3%
4 11 May Dept Stores Co 9,620 1.3%
5 2 Motorola Inc. 9,505 1.3%
6 6 Capital Cities/ABC Inc. 9,443 1.3%
7 13 Hewlett-Packard Co. 9,389 1.2%
8 14 Avon Products, Inc. 9,178 1.2%
9 9 United Healthcare Corp. 9,088 1.2%
10 10 U.S. Healthcare Inc. 8,990 1.2%
11 5 Microsoft Corp. 8,848 1.2%
12 8 Home Depot Inc. 8,823 1.2%
13 3 The Boeing Co 8,173 1.1%
14 12 Citicorp 8,096 1.1%
15 17 Monsanto Company 8,017 1.1%
16 4 General Electric Co. 7,891 1.0%
17 20 Federal Home Loan Mortgage Corp. 7,744 1.0%
18 16 Marsh & McLennan Companies, Inc. 7,556 1.0%
19 31 Oracle Systems Corp. 7,473 1.0%
20 94 PepsiCo Inc. 7,238 1.0%
L.M. Ericsson Telefonaktiebolaget ADR
21 19 Class E 7,158 0.9%
22 21 Procter & Gamble Co. 6,903 0.9%
23 32 Dover Corp. 6,799 0.9%
24 28 McDonnell Douglas Corp. 6,690 0.9%
25 24 Exxon Corp. 6,675 0.9%
26 50 Raytheon Co. 6,632 0.9%
27 15 Unilever N.V. 6,563 0.9%
28 36 Medtronic Inc. 6,480 0.9%
Readers Digest Association Inc.
29 18 Class A 6,449 0.9%
30 29 Union Camp Corp. 6,448 0.9%
31 27 Merck & Co. 6,394 0.8%
32 66 American Telephone & Telegraph 6,360 0.8%
33 30 Pacific Telesis Group 5,899 0.8%
34 34 The Gillette Co. 5,869 0.8%
35 23 AMP Inc. 5,846 0.8%
36 35 First Data Corp. 5,820 0.8%
37 25 The Dun & Bradstreet Corp. 5,789 0.8%
38 37 Triton Energy Corp. 5,738 0.8%
39 38 Applied Materials, Inc. 5,705 0.8%
40 41 Progressive Corp. 5,688 0.8%
41 NEW Nokia Corp. ADR 5,660 0.8%
42 49 AFLAC Inc. 5,653 0.7%
43 40 EXEL Limited 5,516 0.7%
44 44 Corning Inc. 5,494 0.7%
45 48 Browning-Ferris Industries Inc 5,369 0.7%
46 42 Warnaco Group, Inc, Class A 5,363 0.7%
47 52 Sprint Corp. 5,294 0.7%
48 47 Arrow Electronics Inc. 5,266 0.7%
49 Computer Associates International,
65 Inc. 5,255 0.7%
50 43 Genuine Parts Co. 5,196 0.7%
</TABLE>
<PAGE>
ALL-STAR
James C. A. McClennen
Cooke & Bieler
Manager Profile
Building Better Returns On Quality, Value, Research and Low Risk
Cooke & Bieler is one of ALL-STAR's five investment managers. A Value style
manager, the firm invests primarily in the stocks of well managed companies
which are industry leaders and are characterized by sound finances and high
profitability. Consistency and predictability of earnings and dividend growth
are highly prized. Intense fundamental analysis is performed on all potential
portfolio holdings. Recently, we had the opportunity to visit again with James
C. A. McClennen, Senior Partner and Director of the firm.
LAMCO: Since it has been two years since we have interviewed you for a
quarterly report, please review Cooke & Bieler's investment approach.
McClennen: Our approach is built on three cornerstones: quality, value and
intensive research.
LAMCO: Can you elaborate on these cornerstones?
McClennen: Low risk is a function of value and quality.
As for research, we visit at least 150 companies a year. We look very closely
at what makes these companies succeed, and we get to know them very well.
Addressing value, our primary measures are dividend yield, cash flow and
earnings growth. We like a portfolio that yields as much as or more than the
stock market and is composed of companies with much-above-average potential
for future dividend growth.
To us, quality derives from financial strength and excellence of management.
Start with strong balance sheets: typically, the companies in which we invest
have half the debt-to-total capital ratios of the average company. Next, the
companies have a very high return on equity--and because they're under-
leveraged that is a true measure of profitability. In addition, they sell
products or services to reasonably stable markets, they have differentiated
products and they are the low-cost manufacturer. The companies also have very
sound financial management.
LAMCO: Of those three cornerstones, is there any one that is receiving
particular emphasis at this time or has changed in importance recently?
McClennen: No. I should point out that we have always focused on the high
quality aspect of the philosophy. Being a low-risk type manager, this is
essential if we are going to deliver strong relative performance during flat
or down markets, such as we had in 1994.
LAMCO: Please share with us your view of what happened in domestic equity
markets during the first three months of 1995?
McClennen: After a period of rather poor performance in 1994, the stock
market, as measured by the S&P 500 Index, performed very well in the first
quarter of 1995. The 9.7% total return posted by the S&P 500 Index was the
best quarterly result since the first quarter of 1991. Like the most recent
quarter, the first quarter of 1991 followed a difficult year in the U.S.
equity market. Unlike 1991, when investors saw signs of improvement in a
receding U.S. economy, the strong performance posted this year comes at a
time when investors are looking at an
Continued on page 8
<PAGE>
Continued from page 7
economy that is in the advanced stages of expansion. Thus, the recent strength
of the U.S. stock market is somewhat surprising, but seems to be generally
attributable to investors' feelings that the actions taken by the Federal
Reserve during 1994 will slow the U.S. economy and relieve mounting inflationary
pressures without creating a full-blown recession. Additionally, the demand for
U.S. equities was stimulated during the quarter by the flow of investment funds
from certain high risk, emerging markets--where economic problems have recently
become very serious--to "safe havens" like the U.S. equity market.
In the context of this very strong quarter, several observations can be made
regarding trends in the U.S. equity market. First, the stocks of higher
quality companies outperformed the stocks of lower quality companies. This
trend, which began in the fourth quarter of 1994, is characteristic of a
volatile market with anxious participants. We believe that these conditions
will prevail for some time because valuation characteristics are particularly
favorable for high quality relative to low quality. Second, companies that
have operations in Europe and Japan benefited in the first quarter from the
precipitous decline of the dollar against those currencies. Because larger
companies tend to have more meaningful international operations, they benefit
more from a dollar devaluation than do smaller, more domestically-oriented
companies. It follows that the stocks of larger companies did well relative
to smaller companies during the first quarter. Third, although the stocks of
economically-sensitive companies rallied in response to investors'
increasing conviction that economic recession can be avoided this cycle, the
stock prices of more defensive companies continued to do relatively well, as
has been the case for the past six to 12 months. Finally, the stocks of
companies that are sensitive to interest rate movements did very well during
the quarter as a result of the fact that interest rates have steadily
declined thus far in 1995.
'In the context of this very strong quarter,
several observations can be made regarding
trends...first, the stocks of higher
quality companies outperformed the stocks of
lower quality companies.'
LAMCO: Can you elaborate on your belief that conditions should remain
favorable for high quality stocks relative to low quality?
McClennen: Yes, I think it's worth noting that three measures of value favor
high quality over low. First, the price-to-cash flow ratios of higher
quality companies are lower than the price-to-cash flow measures for lower
quality companies. Secondly, another measure of value is price-to-sales, and
in that case, as well, high quality companies are selling at lower multiples
than are low quality companies. Finally, specific to our portfolio, the
relative price/earnings ratios are currently lower than the five-year
average price/earnings ratios of this same group of companies. So, there are
three measures that indicate high quality is priced very attractively.
As a general observation, I think that there is a tendency for high quality
to be priced down when the economy is very strong and when interest rates are
low. The opposite occurs when interest rates are rising and the economy is
slowing.
LAMCO: You refer to the stock prices of "more defensive companies" doing well
in the first quarter, continuing a trend begun last year. Could you elaborate
on that a bit?
McClennen: Starting in 1994, investors began to worry
<PAGE>
ALL-STAR
about an economic slow-down or recession. As a result of tightening by the
Federal Reserve, defensive companies began to do better. I would cite the
healthcare industry, in particular, which also has had the benefit recently
of less concern about federal regulations and the resulting effect on their
pricing power.
LAMCO: There has been some investor concern about the weak dollar, in spite
of the favorable currency translation for American multinationals. What is
your opinion?
McClennen: We would be concerned if the dollar was weak because our currency
is being debased by our monetary policy and inflation was moving up. But, we
think what we are seeing here is not so much a weak dollar but a strong yen
and deutschemark. I think the thing we should look at is a basket of
commodities, particular noting the price of oil and gold. If those are not
going up and are just trading in a range, then the issue is not our policy,
but those of Japan and Germany. So far, it looks like the Federal Reserve has
been on a true course and that we may not see a substantial increase in
inflation.
LAMCO: Last year you were bullish on interest rate-sensitive stocks. Do you
still feel that way?
McClennen: We are less bullish right now because prices have risen
considerably and you do not have as good value as you had six months ago.
But, we do not think the trend is over yet. We are in sort of a hold mode
right now.
LAMCO: Please discuss some stocks that you have held in the ALL-STAR
portfolio for a long period.
McClennen: We would single out Dover Corporation and Avery-Dennison as two
long-term holdings that we like very much. The Dover position has been held
since 1990. This company is a highly diversified manufacturer that actively
pursues acquisitions. Normally, we avoid companies that aggressively make
acquisitions, but Dover is an exception because the company's management is
astute at identifying well-managed, medium-sized manufacturing companies and
is highly disciplined as to the price it pays for them. Our holding of
Dover's stock over time represents a good example of how we add value to the
ALL-STAR portfolio by reducing or increasing a position based on the
disciplined use of our valuation methodology.
'...there are three measures that
indicate high quality is priced very
attractively...I think that there is a
tendency for high quality to be priced down
when the economy is very strong and when
interest rates are low.'
LAMCO: You are referring to your dividend discount model?
McClennen: Yes, we use a proprietary dividend discount model, but that's just
one of many tools we use when making buy/sell decisions.
LAMCO: Tell us about Avery-Dennison.
McClennen: We have held a position in this stock since late 1991. This
company is the world's leading manufacturer of pressure-sensitive materials
and is also a leading producer of office products. Our interest in the
company stemmed from on-site visits with the company's top management team.
We identified improvements in the way the company was being managed and took
advantage of a stock price depressed because of problems associated with the
company's acquisition of Dennison Manufacturing. Avery-Dennison has
aggressively repurchased its shares since the acquisition. Total shares
outstanding have been reduced by almost 12 percent over the past three years.
We like businesses that are inherently profitable enough to
Continued on page 10
<PAGE>
ALL-STAR
Continued from page 9
generate free cash flow, and we applaud a management that is disciplined
enough to use the excess cash to raise dividends and repurchase shares.
LAMCO: What about some newcomers to the ALL-STAR portfolio?
McClennen: Let me talk about two additions we made during the first quarter.
The first is McGraw-Hill, a company with interests in the publishing and
information services industries. By purchasing in 1993 the 50 percent
interest in MacMillan that it did not already own, McGraw-Hill became the
nation's largest elementary and secondary school publisher. The company
benefits from growth in the financial services industry through its ownership
of Standard & Poor's rating services, the number one factor in the rating
services business. McGraw-Hill also publishes Business Week magazine and
several other industry-specific magazines and journals These businesses
dominate their respective industries and generate significant amounts of free
cash. After making several ill-conceived acquisitions that contributed to
poor stock price performance, management is now properly disciplined to use
the free cash flow in value-enhancing ways.
The other addition to the portfolio was Service Corp. International, the
largest provider of funeral services in the world. Service Corp.'s management
has designed and successfully implemented a strategy for acquiring funeral
homes in highly-populated areas so as to create value by sharing costs. This
well-focused approach has positioned the company as the most efficient
operator of funeral homes and services. Because the funeral services business
is highly fragmented and Service Corp. still has a small share of the total
market, there is a substantial opportunity for the company to continue to
grow rapidly by driving consolidation in the industry.
<PAGE>
Schedule of Investments as of March 31, 1995
(Unaudited)
Common Stocks (96.3%)
Shares Market Value
Aerospace (2.0%)
The Boeing Co. 151,700 $ 8,172,837
McDonnell Douglas Corp. 120,000 6,690,000
14,862,837
Auto Manufacturing (0.8%)
General Motors Corp. 147,100 6,229,138
Auto Parts (0.7%)
Genuine Parts Co. 130,300 5,195,712
Banks (3.6%)
Ahmanson (H.F.) & Co. 139,100 2,503,800
Bank of New York, Inc. 75,000 2,465,625
Citicorp 190,500 8,096,250
CoreStates Financial Corp. 120,000 3,840,000
Shawmut National Corp. 100,000 2,637,500
State Street Boston Corp. 145,000 4,621,875
Wachovia Corp. 88,000 3,124,000
27,289,050
Broadcasting & Cable (2.6%)
British Sky Broadcasting Group PLC
ADS (a) 60,000 1,477,500
Cabletron Systems, Inc. (a) 40,000 1,795,000
Capital Cities/ABC, Inc. 107,000 9,442,750
Ericsson (L.M.) Telefonaktiebolaget
ADR, Class B 115,800 7,157,887
19,873,137
Business Services (2.3%)
The Dun & Bradstreet Corp. 110,000 5,788,750
First Data Corp. 112,200 5,820,375
First Financial Management Corp. 53,100 3,836,475
Reuters Holdings PLC ADS 35,900 1,651,400
17,097,000
Chemicals (2.7%)
Hercules, Inc. 39,000 1,818,375
The Lubrizol Corp. 108,000 3,807,000
Monsanto Co. 99,900 8,016,975
Sherwin-Williams Co. 124,000 4,200,500
Sigma-Aldrich Corp. 68,500 2,654,375
20,497,225
Computers & Business Equipment (9.8%)
Applied Materials, Inc. (a) 103,500 5,705,437
Automatic Data Processing, Inc. 50,000 3,150,000
Computer Associates International,
Inc. 88,500 5,254,687
Computer Sciences Corp. (a) 40,000 1,975,000
Compuware Corp. (a) 20,000 740,000
Hewlett-Packard Co. 78,000 9,389,250
Intel Corp. 145,300 12,332,338
International Business Machines
Corp. 121,000 $ 9,906,875
Microsoft Corp. (a) 124,400 8,847,950
Oracle Systems Corp. (a) 239,150 7,473,438
Pitney Bowes, Inc. 110,000 3,960,000
Texas Instruments, Inc. 18,300 1,619,550
Xerox Corp. 28,100 3,298,238
73,652,763
Construction (1.3%)
Fluor Corp. 55,000 2,653,750
Foster-Wheeler Corp. 75,000 2,540,625
MASCO Corp. 160,000 4,420,000
9,614,375
Consumer Products (3.5%)
Fruit of the Loom, Inc. (a) 150,000 3,937,500
Lowe's Co., Inc. 60,000 2,070,000
Newell Co. 82,300 2,098,650
Procter & Gamble Co. 104,200 6,903,250
Sunbeam-Oster Co., Inc. 45,000 1,029,375
VF Corp. 77,500 4,117,188
Warnaco Group, Inc., Class A (a) 300,000 5,362,500
Williams-Sonoma, Inc. (a) 50,000 1,250,000
26,768,463
Cosmetics & Toiletries (2.0%)
Avon Products, Inc. 151,700 9,177,850
The Gillette Co. 71,900 5,868,837
15,046,687
Diversified (3.9%)
Coltec Industries, Inc. (a) 250,000 4,312,500
Corning, Inc. 152,600 5,493,600
General Electric Co. 145,800 7,891,425
Hanson PLC ADR 220,000 4,152,500
Minnesota Mining & Manufacturing
Co. 62,800 3,650,250
Whitman Corp. 200,000 3,825,000
29,325,275
Drugs & Health Care (11.1%)
Alza Corp. (a) 135,000 2,868,750
Amgen, Inc. (a) 55,400 3,732,575
Becton, Dickinson & Co. 59,700 3,238,725
Bristol-Myers Squibb Co. 70,000 4,410,000
Cardinal Health, Inc. 30,000 1,428,750
Ciba-Geigy A G ADR 92,900 3,042,475
Columbia Healthcare Corp. 97,100 4,175,300
Humana, Inc. 75,000 1,921,875
Johnson & Johnson 75,600 4,498,200
Medtronic, Inc. 93,400 6,479,625
Merck & Co., Inc. 150,000 6,393,750
<PAGE>
Schedule of Investments (continued)
Common Stocks--continued
Shares Market Value
Drugs & Health Care (continued)
Oxford Health Plans, Inc. (a) 24,000 $ 1,344,000
Pfizer, Inc. 35,800 3,069,850
Quorum Health Group, Inc. (a) 50,000 1,037,500
Scherer R.P. (a) 30,000 1,507,500
Schering Plough Corp. 48,000 3,570,000
SmithKline Beecham PLC ADR 135,500 5,081,250
Stryker Corp. 38,600 1,765,950
Sun Healthcare Group, Inc. (a) 45,000 1,147,500
United Healthcare Corp. 194,400 9,088,200
U.S. Healthcare, Inc. 203,175 8,990,494
Warner Lambert Co. 60,000 4,695,000
83,487,269
Electrical Utilities (0.5%)
Pinnacle West Capital Corp. 170,000 3,548,750
Electronics & Electrical Equipment
(6.9%)
AMP, Inc. 162,400 5,846,400
Analog Devices, Inc. (a) 36,000 918,000
Arrow Electronics, Inc. (a) 125,000 5,265,625
Cooper Industries, Inc. 115,000 4,456,250
General Instrument Corp. (a) 30,000 1,042,500
General Motors Corp.,
Class H 72,500 2,990,625
Loral Corp. 70,000 2,975,000
Molex, Inc. 31,250 1,054,688
Motorola, Inc. 174,000 9,504,750
Nokia Corp. ADR 77,000 5,659,500
Raytheon Co. 91,000 6,631,625
Sensormatic Electronics Corp. 60,000 1,680,000
Tyco International Ltd. 30,000 1,586,250
Westinghouse Electric Corp. 182,400 2,576,400
52,187,613
Financial Services (3.6%)
Federal Home Loan Mortgage Corp. 128,000 7,744,000
Federal National Mortgage
Association 45,000 3,661,875
First USA, Inc. 60,000 2,520,000
MBNA Corp. 125,000 3,625,000
Mercury Finance Co. 75,000 1,209,375
Morgan Stanley Group, Inc. 65,000 4,379,375
Travelers, Inc. 110,000 4,248,750
27,388,375
Food & Beverage (3.8%)
The Coca-Cola Co. 58,000 3,277,000
Dole Food, Inc. 90,000 2,610,000
McDonalds Corp. 67,700 2,310,262
PepsiCo, Inc. 185,600 7,238,400
Pioneer Hi-Bred International, Inc. 103,300 3,718,800
Safeway, Inc. (a) 81,000 2,814,750
Unilever N.V. 50,000 $ 6,562,500
28,531,712
Hotels & Leisure (0.7%)
Circus Circus Enterprises, Inc. (a) 35,000 1,128,750
Disney (Walt) Co. 33,400 1,782,725
Hospitality Franchise Systems,
Inc. (a) 40,000 1,280,000
National Gaming Corp. (a) 4,000 34,000
The Promus Companies, Inc. (a) 25,000 937,500
5,162,975
Industrial Equipment (0.9%)
Dover Corp. 105,000 6,798,750
Insurance (7.9%)
AFLAC, Inc. 140,000 5,652,500
American General Corp. 105,000 3,386,250
American International Group, Inc. 30,000 3,127,500
Aon Corp. 111,450 4,067,925
The Chubb Corp. 45,000 3,555,000
Cigna Corp. 26,000 1,943,500
EXEL Ltd. 125,000 5,515,625
Marsh & McLennan Comps, Inc. 92,000 7,555,500
MBIA, Inc. 63,000 3,961,125
MGIC Investment Corp. 50,000 2,037,500
Progressive Corp. 140,000 5,687,500
Providian Corp. 104,000 3,653,000
Transamerica Corp. 80,000 4,530,000
UNUM Corp. 100,000 4,525,000
59,197,925
Metals & Mining (0.6%)
Freeport-McMoRan Copper & Gold,
Inc., Class A 12,500 273,438
Freeport-McMoRan, Inc. 250,000 4,531,250
4,804,688
Oil & Gas (8.5%)
Amoco Corp. 53,200 3,384,850
Anadarko Petroleum 31,100 1,360,625
Atlantic Richfield Co. 15,000 1,725,000
Baker Hughes, Inc. 155,000 3,158,125
British Petroleum PLC ADR 22,127 1,855,902
Elf Aquitaine, Inc. ADR 98,543 3,818,541
Enron Corp. 119,000 3,927,000
Exxon Corp. 100,000 6,675,000
Pacific Enterprises 10,000 247,500
Repsol S.A. ADR 125,000 3,625,000
Royal Dutch Petroleum Co. 121,000 14,520,000
Tenneco, Inc. 95,700 4,509,863
Triton Energy Corp. (a) 150,000 5,737,500
Union Texas Petroleum Holdings,
Inc. 200,000 4,600,000
<PAGE>
Schedule of Investments (continued)
Common Stocks--continued
Shares Market Value
Oil & Gas (continued)
USX Marathon Group 184,800 $ 3,234,000
YPF Sociedad Anonima ADR, Class D 107,200 2,036,800
64,415,706
Paper (2.1%)
Alco Standard Corp. 25,000 1,812,500
Avery Dennison Corp. 96,000 3,828,000
International Paper Co. 24,100 1,810,512
James River Corp. of VA 86,200 2,241,200
Union Camp Corp. 124,300 6,448,063
16,140,275
Photographic Equipment & Supplies
(1.0%)
Eastman Kodak Co. 70,000 3,718,750
Polaroid Corp. 110,000 3,822,500
7,541,250
Pollution Control (0.7%)
Browning-Ferris Industries, Inc. 157,900 5,368,600
Publishing (2.0%)
American Greetings Corp. 59,900 1,789,512
Gannett Co., Inc. 77,300 4,125,887
McGraw Hill, Inc. 33,000 2,367,750
Readers Digest Association, Inc.,
Class A 134,000 6,448,750
14,731,899
Railroads (0.6%)
Burlington Northern, Inc. 76,500 4,542,188
Retail Trade (4.8%)
AutoZone, Inc. (a) 110,000 2,736,250
Barnes & Noble, Inc. 35,000 1,063,125
Home Depot, Inc. 199,400 8,823,450
Kohls Corp. (a) 26,000 1,150,500
May Department Stores Co. 260,000 9,620,000
Office Depot, Inc. (a) 136,600 3,329,625
Penney (J.C.) Co., Inc. 100,000 4,487,500
Talbots, Inc. 30,000 1,016,250
Wal-Mart Stores, Inc. 160,000 4,080,000
36,306,700
Rubber & Plastics (0.5%)
The Goodyear Tire and Rubber Co. 104,800 $ 3,851,400
Services (0.6%)
Loewen Group, Inc. 55,000 1,498,750
Manpower, Inc. 40,000 1,285,000
Service Corp. International 55,000 1,540,000
4,323,750
Telecommunications (3.7%)
Airtouch Communications (a) 160,700 4,379,075
American Telephone & Telegraph 122,900 6,360,075
Andrew Corp. (a) 37,500 1,528,125
Northern Telecom Ltd. 56,000 2,121,000
Pacific Telesis Group 195,000 5,898,750
Sprint Corp. 175,000 5,293,750
Tele Communications, Inc. N.E.,
Class A (a) 100,600 2,112,600
27,693,375
Transportation (0.6%)
Pittston Services Group 25,000 687,500
Ryder Systems, Inc. 163,200 3,916,800
4,604,300
Total Common Stocks
(Cost $575,554,518) 726,079,162
<PAGE>
Schedule of Investments (continued)
Short-term Investments (4.6%)
<TABLE>
<CAPTION>
Interest Maturity Par Market
Rate Date Value Value
<S> <C> <C> <C> <C>
Commercial Paper (2.2%)
American Express Credit Corp. 5.88% 04/05/95 $3,000,000 $ 2,998,040
Chevron Oil Finance Co. 5.93 04/12/95 3,000,000 2,994,564
Cooperative Assoc. of Tractor
Dealers 6.00 04/06/95 1,000,000 999,167
Cooperative Assoc. of Tractor
Dealers 6.05 04/20/95 1,000,000 996,807
Goldman Sachs Group 5.98 04/03/95 2,000,000 1,999,335
PHH Corp. 5.97 04/05/95 1,000,000 999,337
Prudential FDG Corp. 5.93 04/05/95 3,000,000 2,998,023
Student Loan Corp. 6.10 04/13/95 1,000,000 997,967
U.S. Leasing Intl., Inc. 5.97 04/17/95 2,000,000 1,994,693
Total Commercial Paper 16,977,933
U.S. Government Securities (1.1%)
U.S. Treasury Bill 5.42 04/06/95 7,500,000 7,468,500
U.S. Treasury Bill (effective rate
6.290%) 0.00 12/14/95 1,000,000 953,120
8,421,620
Repurchase Agreements (1.3%)
State Street Bank & Trust Co. dated 03/31/95, 5.500%, to be
repurchased at $9,486,346 on 4/01/95, collateralized by
$6,980,000 U.S. Treasury Notes at 12.00%, due 08/15/13,
with a current market value of $9,575,688 9,482,000
Total Short-term Investments (Cost $34,881,553) 34,881,553
Total Investments (100.9%) (Cost $610,436,071) (b) 760,960,715
Other Assets and Liabilities, Net (-0.9%) (6,750,382)
Net Assets (100.0%) $754,210,333
Net Asset Value Per Share (76,742,380 shares outstanding) $9.83
(a) Non-income producing security.
(b) Gross unrealized appreciation
and depreciation of investments
at March 31, 1995 is as follows:
Gross unrealized appreciation $157,024,235
Gross unrealized depreciation (6,499,591)
Net unrealized appreciation $150,524,644
</TABLE>
Per Share Changes in Net Assets
<TABLE>
<CAPTION>
Three
Months
Ended
March 31,
1995 Year Ended December 31,
(Unaudited) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning of
period $9.26 $10.40 $10.78 $11.20 $ 8.92 $9.58
Net investment
income .02 .11 .12 .16 .17 .18
Distributions
declared (.24) (1.00) (1.07) (1.07) (1.02) (.90)
Change due to
rights offering (.05) ((a)) (.03) ((a)) (.05) ((a))
Net realized and
unrealized gain
(loss) on
investments .79 (.20) .78 .54 3.13 .06
Provision for
Federal income
tax (.18)
Net asset value
at end of
period $9.83 $ 9.26 $10.40 $10.78 $11.20 $8.92
</TABLE>
(a) Effect of ALL-STAR's rights offering for shares at a price below net
asset value.
