[LOGO] LIBERTY
ALL*STAR
-----------
GROWTH FUND
[COVER GRAPHIC]
SMALL-CAP MID-CAP
LARGE-CAP
SECOND QUARTER REPORT 2000
<PAGE>
[BACKGROUND GRAPHIC]
LIBERTY ALL-STAR GROWTH FUND, INC.
1st Quarter 2nd Quarter
Fund Facts 2000 2000
---------- ----------- -----------
Net Asset Value (NAV) $14.34 $13.90
Market Price $11.000 $11.875
Quarter End Discount 23.3% 14.6%
Dividends Declared $0.32 $0.33
Market Price Trading Range $9.875 to $11.563 $9.875 to $12.125
Discount Range 23.6% to 17.2% 23.9% to 13.5%
Annualized Rates of Return
--------------------------
Performance Summary 6 1 3 4 1/2
Periods Ending June 30, 2000 Quarter Months Year Year Year*
---------------------------- ------- ------ ---- ---- -----
Shares Valued at NAV (0.6)% 8.4% 20.2% 16.3% 18.5%
Shares Valued at NAV
with Dividends Reinvested (0.3) 9.5 21.7 17.0 19.2
Shares Valued at Market Price
with Dividends Reinvested 11.0 16.3 20.5 14.3 18.1
Lipper Multi-Cap Core
Mutual Fund Average (2.8) 2.6 11.6 16.5 18.7
Lipper Multi-Cap Growth
Mutual Fund Average (6.1) 6.6 46.0 31.1 25.9
Russell Midcap Index (4.5) 5.1 12.6 16.2 17.9
Figures shown for the Fund and the Lipper Multi-Cap Core and Multi-Cap Growth
Mutual Fund Averages 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 Index 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.
<PAGE>
PRESIDENT'S LETTER
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Fellow Shareholders: August 2000
The stock market fell sharply during April and May, with the most
significant declines occurring in aggressive growth stocks. Stocks rebounded in
June, but not significantly enough to push the widely followed indices into
positive territory for the second quarter. At this point in the year, it appears
the market's volatility is signaling a change in market sentiment. During the
quarter, a greater focus on corporate earnings and sound business fundamentals
emerged, which clearly precipitated the shakeout in the dot-com stocks. LAMCO
welcomes this change in focus. The stock selection process of all three managers
in the Fund focuses on sound business fundamentals and growth prospects and
should, therefore, perform well in this environment.
Last quarter, LAMCO introduced one of Lipper's new benchmarks, the Lipper
Multi-Cap Core Mutual Fund Average. Along with redefining size constraints that
govern its capitalization categories, Lipper has also incorporated value,
growth, and core investment styles into its classifications. At the time, the
Lipper average used for the first quarter report better reflected the Fund's
investment style since the Fund invested across the capitalization spectrum with
two growth managers and one value manager. But as stated in the first quarter
President's Letter, the final structural change to the Fund was completed on May
1, 2000, when Oppenheimer Capital was replaced by TCW Investment Management
Company. With this change, the Fund now employs three growth managers across
small, medium, and large capitalization stocks and, therefore, the Lipper
Multi-Cap Growth Mutual Fund Average is the more appropriate performance
comparison. Since longer-term results of the Fund are largely a result of the
prior structure, LAMCO will continue to provide historical performance of the
Lipper Multi-Cap Core Mutual Fund Average.
Referring to the table on the inside front cover, the Russell Midcap
Index, Lipper Multi-Cap Core, and Lipper Multi-Cap Growth Mutual Fund Averages
declined 4.5, 2.8, and 6.1 percent, respectively, for the second quarter.
Returns for the Fund valued at NAV with dividends reinvested exceeded all those
benchmarks for both the quarter and year-to-date periods. The Fund's longer term
results valued at NAV with dividends reinvested, when compared to the Lipper
Multi-Cap Core Mutual Fund Average and the Russell Midcap Index, are also
favorable for all periods depicted. The Fund's year-to-date returns valued at
market price have considerably outperformed NAV based returns as reflected by
the narrowing of the Fund's discount during the quarter.
In closing, to reiterate what was mentioned in the first quarter
President's Letter, a number of shareholders have inquired as to why their
second quarter dividend payments have not been reinvested for them. This was
because the dividends were declared payable in cash, not newly issued shares,
which was a departure from dividends prior to the first quarter of this year.
Shareholders who want to reinvest their dividends should contact the Fund's
transfer agent, EquiServe, at 1-800-LIB-FUND (1-800-542-3863) to enroll in the
Fund's Automatic Dividend Reinvestment and Cash Purchase Plan. Shareholders
whose shares are held in the name of a brokerage firm, bank or other nominee
must notify their brokerage firm, bank or nominee in order to reinvest.
LIBERTY ALL-STAR GROWTH FUND 1
<PAGE>
PRESIDENT'S LETTER -- CONTINUED
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TCW Investment Management Company, the newest of the Fund's three
independent portfolio managers, is the focus of the manager interview beginning
on page 8. Douglas S. Foreman, Chief Investment Officer U.S. Equities, provides
us with a closer look at the firm, its investment philosophy and decision making
process, as well as particular stocks that are representative of TCW's mid-cap
growth style of investing.
Thank you for your continuing support of the Fund.
Sincerely,
/s/ William R. Parmentier
William R. Parmentier, Jr.
President and Chief Executive Officer
Liberty All-Star Growth Fund, Inc. and
Liberty Asset Management Company
2 LIBERTY ALL-STAR GROWTH FUND
<PAGE>
INVESTMENT GROWTH AS OF JUNE 30, 2000
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[The following table was represented as a mountain chart in the printed
material.]
1996 1997 1998 1999 2000
<PLOT POINTS NEEDED>
Net Asset Value of One Share $13.90(1)
Net Asset Value of Shares Acquired Through Dividend Reinvestment $22.85(2)
Includes Additional Investments Made Through Rights Offering $25.15(2)
1. Net asset value (NAV) of one share of the Fund as of 6/30/00.
2. 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.
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 $25.15 (1.809 shares times the current $13.90 net asset value per
share). Excluding the rights offering shares, an original share has grown to a
net asset value of $22.85 (1.644 shares times the current $13.90 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 price value of $21.48 (1.809 shares times
the current 11.875 market price per share). Excluding the rights offering
shares, an original share has grown to a market price value of $19.52 (1.644
shares times the current 11.875 market price per share).
* Since 1996, which is the first full year that Liberty Asset Management
Company assumed complete management responsibilities for the Fund.
LIBERTY ALL-STAR GROWTH FUND 3
<PAGE>
A TABLE OF PER-SHARE VALUES, DISTRIBUTIONS AND REINVESTMENT /
DISTRIBUTION POLICY
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<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
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 Period Distributions Program Offering Of Period Of Period Owned Of Period 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 1.521 1.23 0.188 -- 1.709 13.44 22.97 10.813 18.48
-----------------------------------------------------------------------------------------------------------------------------
2000
1st Quarter 1.709 0.32 0.051 -- 1.760 14.34 25.24 11.000 19.36
2nd Quarter 1.760 0.33 0.049 -- 1.809 13.90 25.15 11.875 21.48
-----------------------------------------------------------------------------------------------------------------------------
</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.
4 LIBERTY ALL-STAR GROWTH FUND
<PAGE>
PORTFOLIO MANAGERS/PORTFOLIO CHARACTERISTICS
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THE FUND'S THREE GROWTH PORTFOLIO MANAGERS AND THE MARKET CAPITALIZATION THEY
FOCUS ON:
M.A. WEATHERBIE & CO., INC. (SMALL-CAP GROWTH)
Companies with enduring competitive advantages and high, sustainable earnings
growth.
TCW INVESTMENT MANAGEMENT COMPANY (MID-CAP GROWTH)
Companies with competitive advantages and superior business models that should
result in rapidly growing sales and earnings.
WILLIAM BLAIR & COMPANY, L.L.C. (LARGE-CAP GROWTH)
Companies that have demonstrated consistent high rates of growth and are highly
profitable.
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
the Fund's 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 MARKET CAPITALIZATION SPECTRUM
CHARACTERISTICS
AS OF JUNE 30, 2000 SMALL LARGE
(UNAUDITED) ------------------------------
------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
S&P/BARRA GROWTH:
-------------------------------
SmallCap MidCap LargeCap M.A. William Total
600 Index 400 Index 500 Index Weatherbie TCW Blair Fund
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Number of Holdings 177 123 110 58 59 30 136
------------------------------------------------------------------------------------------------
Median Market
Capitalization (billions) $0.9 $2.8 $19.9 $1.9 $8.8 $20.7 $4.7
------------------------------------------------------------------------------------------------
Average Five-Year
Earnings Per Share
Growth 13% 9% 20% 29% 28% 23% 26%
------------------------------------------------------------------------------------------------
Dividend Yield 0.3% 0.3% 0.6% 0.1% 0.2% 0.4% 0.2%
------------------------------------------------------------------------------------------------
Average Price/
Earnings Ratio 30x 35x 52x 28x 46x 32x 32x
------------------------------------------------------------------------------------------------
Average Price/Book
Value Ratio 6.1x 7.1x 13.1x 6.4x 7.6x 6.8x 6.8x
------------------------------------------------------------------------------------------------
</TABLE>
LIBERTY ALL-STAR GROWTH FUND 5
<PAGE>
TOP 50 HOLDINGS
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RANK RANK MARKET
AS OF AS OF VALUE PERCENT OF
6/30/00 3/31/00 SECURITY NAME ($000) NET ASSETS
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1 1 Intel Corp. $6,043 2.7%
2 2 Bed Bath & Beyond, Inc. 5,614 2.5
3 New Siebel Systems, Inc. 5,332 2.4
4 4 Westwood One, Inc. 5,055 2.2
5 New VeriSign, Inc. 4,465 2.0
6 9 Concord EFS, Inc. 4,398 1.9
7 21 Paychex, Inc. 4,190 1.8
8 13 Automatic Data Processing, Inc. 4,071 1.8
9 15 Linear Technology Corp. 4,015 1.8
10 7 Nokia Corp. ADR 3,995 1.8
11 32 Genentech, Inc. 3,681 1.6
12 5 The Home Depot, Inc. 3,596 1.6
13 6 Vodafone AirTouch PLC ADR 3,419 1.5
14 17 American International Group, Inc. 3,305 1.5
15 11 Robert Half International, Inc. 3,303 1.5
16 New Xilinx, Inc. 3,245 1.4
17 8 Molex, Inc. 3,234 1.4
18 18 Dollar Tree Stores, Inc. 3,216 1.4
19 New Yahoo! Inc. 3,097 1.4
20 12 Sprint Corp. (FON Group) 3,060 1.4
21 New Solectron Corp. 3,015 1.3
22 19 Catalina Marketing Corp. 2,889 1.3
23 43 MedQuist, Inc. 2,880 1.3
24 16 Texas Instruments, Inc. 2,830 1.2
25 24 Medtronic, Inc. 2,740 1.2
26 44 Micrel, Inc. 2,692 1.2
27 New Juniper Networks, Inc. 2,649 1.2
28 22 Fastenal Co. 2,646 1.2
29 34 State Street Corp. 2,630 1.2
30 26 Microchip Technology, Inc. 2,578 1.1
31 20 Cognex Corp. 2,564 1.1
32 23 National Instruments Corp. 2,498 1.1
33 New Vignette Corp. 2,377 1.0
34 45 Investment Technology Group, Inc. 2,350 1.0
35 28 Family Dollar Stores, Inc. 2,347 1.0
36 30 Financial Federal Corp. 2,335 1.0
37 56 American Tower Corp. 2,330 1.0
38 New AT&T Corp. - Liberty Media Group 2,328 1.0
39 37 Pride International, Inc. 2,303 1.0
40 41 MBNA Corp. 2,299 1.0
41 25 Microsoft Corp. 2,112 0.9
42 51 Oracle Corp. 2,102 0.9
43 14 MiniMed, Inc. 2,071 0.9
44 10 Freddie Mac 2,035 0.9
45 New Maxim Integrated Products, Inc. 2,011 0.9
46 52 Illinois Tool Works, Inc. 2,001 0.9
47 53 Elan Corp. ADR 1,976 0.9
48 42 Cintas Corp. 1,910 0.8
49 49 99 Cents Only Stores 1,893 0.8
50 86 CheckFree Holdings Corp. 1,885 0.8
6 LIBERTY ALL-STAR GROWTH FUND
<PAGE>
MAJOR STOCK CHANGES IN THE SECOND QUARTER
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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 second quarter of
2000, not including changes made in connection with the substitution of TCW
Investment Management Company for Oppenheimer Capital as a portfolio manager
effective May 1, 2000.
--------------------------------------------------------------------------------
SHARES
-------------------------------------
SECURITY NAME PURCHASED SOLD AS OF 6/30/00
--------------------------------------------------------------------------------
AT&T Corp. - Liberty Media Group 96,000 96,000
Investors Financial Services Corp. 8,280 37,110*
Micrel, Inc. 9,320 61,980*
Solectron Corp. 72,000 72,000
TMP Worldwide, Inc. 8,030 20,480
ADC Telecommunications, Inc. (48,200) 0
Affiliated Computer Services, Inc. (23,390) 12,380
Cytyc Corp. (10,170) 26,695
Freddie Mac (37,750) 50,250
Labor Ready, Inc. (100,350) 0
MiniMed, Inc. (10,150) 17,550
MSC Industrial Direct Co., Inc. (80,000) 0
Robert Half International, Inc. (34,420) 115,890*
Shared Medical Systems Corp. (23,100) 0
Siebel Systems, Inc. (7,000) 32,600
* Adjusted for stock split.
LIBERTY ALL-STAR GROWTH FUND 7
<PAGE>
MANAGER INTERVIEW
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[PHOTO] DOUGLAS S. FOREMAN
TCW Investment
Management Company
Manager Interview
'Watering Flowers and Pulling Weeds,' TCW Invests Early in the Fastest Growing
Mid-Sized Companies, Holds Winners but Exits When Fundamentals Fail to Meet
Expectations
TCW is Liberty All-Star Growth Fund's (ASG) newest portfolio manager. TCW's
mid-cap growth strategy complements the large-cap growth strategy of William
Blair and the small-cap growth strategy of M. A. Weatherbie. TCW's approach
seeks capital appreciation through investment in the securities of rapidly
growing companies whose business prospects, in TCW's belief, are not properly
perceived by consensus research. Douglas S. Foreman, Chief Investment Officer
U.S. Equities, shared his thoughts recently with the Fund Manager, Liberty Asset
Management Company (LAMCO).
--------------------------------------------------------------------------------
The views expressed in this interview represent the portfolio manager's views at
the time of the discussion (July 2000) and are subject to change.
--------------------------------------------------------------------------------
LAMCO: This interview really serves to introduce TCW Investment Management
Company to Liberty All-Star Growth Fund shareholders, so a good place to start
would be with an overview of the firm. Can you describe the company in terms of
history, size, ownership, types of clients, locations and other distinguishing
factors?
FOREMAN: TCW was established in 1971 and we continue today as a privately held
firm that focuses solely on investment management. The shares of ownership are
held primarily by employees and some outside members of the Board of Directors.
As of June 30, 2000, we had in excess of $79 billion under management for more
than 1,300 clients. The assets we manage are about one-half equity and one-half
fixed income. We have in excess of 600 employees, and we're headquartered in Los
Angeles. We also have offices in New York, Houston, San Francisco, Hong Kong and
London.
With our focus on the investment management business and our private ownership,
we have the ability to attract and retain the best people in the business and to
create a true entrepreneurial spirit. The firm has several distinct and
independent investment styles that are offered to our clients.
LAMCO: Tell us about the mid-cap growth strategy that you're implementing for
ASG in terms of investment objective and philosophy.
--------------------------------------------------------------------------------
"We're trying to find the fastest growing medium-sized companies in the fastest
growing industries in the country."
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8 LIBERTY ALL-STAR GROWTH FUND
<PAGE>
MANAGER INTERVIEW -- CONTINUED
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FOREMAN: We're trying to find the fastest growing medium-sized companies in the
fastest growing industries in the country. We're doing that because we want to
maximize capital appreciation over time.
We want to buy companies that are growing quickly because at the end of the day
a stock price only goes up because the underlying business grows on a sustained
basis. So, we're in the business of trying to extract the biggest and best
amount of capital appreciation out of the mid-cap sector, and we do that by
owning the fastest growing companies in the fastest growing industries.
We think there are two things that a great growth stock always demonstrates, and
they're absolutely critical for a great growth stock. Number one, it's got to be
a good business. This is sort of "Investing 101," but high barriers to entry, a
competitive advantage over the competition and few or no substitutes are all
important factors. There will always be competition, but usually the competition
is a couple of years behind and, frequently, falling further behind. You want
something that's difficult to replicate, such as a patented process, a
proprietary product or a cost advantage. So, that's requirement number one. I
should observe, however, that this is not always sufficient because great
companies aren't always great stocks.
As a result, we believe there's a second factor that turns a great company into
a great stock, and that's what we call earnings surprise. What we think happens
in the mid-cap sector of the market -- and, I would argue, in the equity market
generally -- is investors tend to accept standard, conventional Wall Street
estimates of a company's earnings this year and next, plus a certain growth
rate. That information is all widely available to everybody on the planet these
days for virtually no cost. Now, what we think happens is that the market takes
that information and knows precisely what to pay for every business. It's only
major deviations from what people already expect and have already paid for that
cause a material move up or down in a stock's price.
Obviously, we're trying to find situations where companies are going to do a lot
better than what investors have already paid for and fully discounted. What ends
up happening when we get those situations is that the stock price increases
much, much faster than investors had previously thought.
So, we feel both of these factors are always present in any great investment,
particularly in growth stocks. When you have them, you have a stock that you
absolutely have to own. That's what we're after. We're after stocks that you
absolutely have to own -- not so-so stocks or nice, diversifying stocks. We're
after companies that really matter to a portfolio.
LAMCO: Because there are different ways to define mid-cap stocks, why don't you
share your own definition with us?
FOREMAN: We buy stocks within the capitalization range of the S&P 400
--------------------------------------------------------------------------------
"We are in the business of trying to find companies that are going to grow in
size and become very large companies over time. The sooner we can find them, the
better."
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LIBERTY ALL-STAR GROWTH FUND 9
<PAGE>
MANAGER INTERVIEW -- CONTINUED
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MidCap Index at the time of initial investment. Right now, that goes from
approximately $300 million to $11 billion in market cap. Typically, we want to
own the stock as soon as possible -- the sooner the better. The sooner we can
identify a company that meets the two key criteria, the better it is for us.
LAMCO: How large is the mid-cap universe?
FOREMAN: There are about 2,000 stocks. At any one time, it could be plus or
minus 20 percent of that figure, depending on how the market is doing.
LAMCO: So, you'd like to buy small-cap stocks that are rapidly becoming mid-caps
and on their way to becoming large-caps?
FOREMAN: That's right. We are in the business of trying to find companies that
are going to grow in size and become very large companies over time. The sooner
we can find them, the better. And, if it's not a business that's going to scale
and it's not a business that has the potential to become a very large company,
then no matter how successful the company is we have absolutely no interest in
it.
LAMCO: What do you find particularly attractive about the mid-cap space?
FOREMAN: What's great about mid-cap overall is two key things. One is what I'll
call an institutional factor and the other is what I'll call a company factor.
On the institutional side, most large investment managers can't even look at a
company that's less than $500 million in market cap. It's just not worth their
time. So, as a company starts to grow in value what ends up happening is every
computer on the planet starts lighting up, and suddenly everyone wants to get to
know the company. You've got a lot of potential buyers out there. This is what I
call the institutional discovery process. It all comes down to this: if there's
a company that is changing the world or changing an industry and you don't own
it, you're going to buy it one day. It's only a question of when. So, it's a
very rewarding time to be a shareholder.
The second part is business growth, and it's maybe even more important. What
happens is that the actual company itself is at a point in its life where it can
continue to grow very rapidly, sometimes even more rapidly then it did as a
small company. The major risk factors -- that is, whether the business can
survive, grow rapidly and become profitable -- usually have already been
addressed. So, the investor has a lot less business risk than when the company
was small, yet is getting in at a point in time when the business is still
exploding. The company is in a very, very sweet growth spot. It hasn't grown too
big and bureaucratic and the basic business model has been proven. So, we can
invest comfortably in the company and still enjoy rapid growth.
LAMCO: So, to the institutional factor, the mid-caps, especially at the lower
end of the range, are a lot more inefficient than the large-cap area. That gets
to TCW's emphasis on research.
--------------------------------------------------------------------------------
"We don't care what a stock does in the short term ... However, when the
fundamentals of the business have not evolved in the way that we thought then
we'll sell."
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10 LIBERTY ALL-STAR GROWTH FUND
<PAGE>
MANAGER INTERVIEW -- CONTINUED
--------------------------------------------------------------------------------
FOREMAN: There's no question about mid-caps being less efficient than large
caps. There are fewer analysts following these stocks. That's also why we own
only 40 to 60 stocks, even in the mid-cap area. We're trying to bet on our
research edge. We like to think that we've figured out these companies before
everybody else does. Others are going to figure them out in time because these
businesses are growing very rapidly.
LAMCO: Perhaps you could give us some insights into your investment process.
FOREMAN: It's partly quantitative and partly qualitative. Once a month, we
screen for companies that have grown at a minimum of 15 percent a year each year
over the last three years. We want to see a track record of success and we want
these companies to be consistently profitable or trending toward profitability.
We also look at companies that are a little newer but, again, we want to see
good revenue growth and profitability improvement every quarter. Typically, the
fixed costs of these newer businesses never grow as fast as the underlying
growth of the business. As a result, the profit margins and return on invested
capital improve significantly over time.
The first step eliminates all but about 200 companies, and the second step,
which I'll describe now, eliminates all but about 120. In this step, we
eliminate companies that are enjoying short-term periods of prosperity based on
commodity prices. Examples right now are oil service companies. We don't
investigate them because we know that their profitability is based on the price
of a commodity that we believe no one can predict. In addition, we include in
this category companies such as utilities, energy and most financials --
anything where there's some variable that drives earnings that we believe is
unpredictable.
Step three is visiting the company, and this is where we add 95 percent of our
value. In this phase, we're sitting down with management and getting to know the
business, how it makes money, and what the industry and competition are like.
Step four is coming up with a per-share forecast for revenue, earnings and cash
flow over a three- to five-year period. We compare our analysis to Wall Street
to be sure that our numbers are higher than the consensus. At that point, we'll
buy the stock. Typically, we buy in at 2 percent or less for a new position.
Then we allow the company's stock price to grow in line with the business growth
over a reasonable time period. For us, this is about three years.
LAMCO: What causes you to sell a stock?
FOREMAN: Our sell decisions are based on fundamentals, not on any sort of price
action. We don't care what a stock does in the short term -- up, down, sideways,
it doesn't really matter. However, when the fundamentals of the business have
not evolved in the way that we thought then we'll sell.
Our turnover is in the low 40 percent range. We tend to be fairly tax efficient
--------------------------------------------------------------------------------
" ... we sell losers right away but hang on to winners for a very long time. ...
We think this is very important to managing money. To use a gardening analogy,
we're watering flowers and pulling weeds."
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LIBERTY ALL-STAR GROWTH FUND 11
<PAGE>
MANAGER INTERVIEW -- CONTINUED
--------------------------------------------------------------------------------
because we sell losers right away but hang on to winners for a very long time.
So, we defer capital gains on the long side while recognizing short-term capital
losses and ideas that simply don't work out on a fundamental basis. You'll see
positions in the portfolio that are significantly higher than 2 percent and that
is because we've owned the stock for a long time and it has assumed a larger
weighting in the portfolio through appreciation. We think this is very important
to managing money. To use a gardening analogy, we're watering flowers and
pulling weeds.
LAMCO: In constructing a portfolio, do you look at sector diversification?
You've already mentioned that there are some sectors that you don't participate
in at all, so we would assume that's not especially important to you.
FOREMAN: We're not trying to run a technology sector fund or a health care
sector fund or anything like that. We want a diversified growth portfolio in the
mid-cap area. That being said, we have been in many of the same sectors for 15
years because these are the areas in the U.S. economy that are growing. They
include technology, services, media and health care because companies in these
sectors often meet our criteria.
LAMCO: What do you do when a rapidly rising market, like we had in 1999, propels
some stocks from small caps to large caps in a matter of months? You wouldn't
buy an initial position at the higher price, but it probably doesn't mean you'll
sell, either.
FOREMAN: That's correct. We definitely let our winners run because it's a key
way that we generate good returns for investors over time.
LAMCO: Can you give us some examples of stocks from the TCW portion of ASG's
portfolio that you feel exemplify what we've been talking about?
FOREMAN: Ariba is a good one. It's in an exploding field, business-to-business
(B2B) e-commerce. Basically, businesses are moving their transactions to the
Internet, where they can connect electronically with partners, suppliers and
customers. Ariba sells the software that allows them to do that. It's a clear,
early leader in the space. Revenue is growing rapidly and the business
demonstrates good cash flow characteristics, even though the business model
isn't at full scale yet. In the semiconductor area, Xilinx is another good
example. The company essentially shares a duopoly in fast growing programmable
logic devices (PLDs). Xilinx enjoys tremendous customer loyalty because the
costs for switching from one vendor to another are very high.
Paychex is another company we like. It's a business services concern that more
or less dominates check processing for small- and medium-sized businesses. The
company is also selling an increasing array of additional services, such as
401(k) plans and workers compensation plans. Paychex competes with ADP, but ADP
is more of a larger company supplier. For small businesses, payroll services are
a nightmare because of all kinds of rules and regulations that nobody has the
time or resources to keep up with. As a result, companies outsource this and
--------------------------------------------------------------------------------
"Investors who want to build wealth over a three- to five-year period should
look beyond short-term events."
--------------------------------------------------------------------------------
12 LIBERTY ALL-STAR GROWTH FUND
<PAGE>
MANAGER INTERVIEW -- CONTINUED
--------------------------------------------------------------------------------
Paychex tends to get the business. As the business grows, Paychex enjoys
tremendous economies of scale and once you're in it's hard for a customer to
switch.
LAMCO: What's a specialty retailer that you like?
FOREMAN: We like Bed Bath & Beyond in the housewares area. It competes with the
department stores and Linens 'n Things. I love businesses where all you do for a
living is bed and bath accessories because department stores try to do
everything and do nothing really well. Bed Bath & Beyond does it well, so it
tends to take market share and have good pricing relative to the department
stores. The company has good management, wonderful cash flow characteristics and
attractive returns on invested capital. The company has about 250 stores right
now and over time could go to about 600 pretty easily.
LAMCO: To close, let us ask you about mid-cap stocks in general. They were very
much overlooked prior to last year. It seems as though investors were infatuated
with large- and mega-cap stocks.
FOREMAN: You're talking about the mid-cap market as measured by the S&P 400
MidCap Index or the Russell Midcap Index. Those indices did lag. We don't really
care about benchmarks because -- as you've probably figured out by now -- we are
not that benchmark sensitive. We don't really care which stocks are in the
benchmark. In fact, we sort of prefer that our companies aren't in the mid-cap
benchmarks because we want them to end up in the S&P 500.
We will be more volatile than the benchmarks, and the reason for that is we
don't own utilities and other low beta companies that are in the benchmark. We
swing quite a bit on a short-term basis relative to the benchmark. For some
investors, that causes problems. We try to set expectations by telling potential
investors right up front that there may be weeks or months when we're down. Of
course, for ASG shareholders, all of this occurs within the context of a
multi-managed fund, so the volatility of any one manager's investment style is
balanced by the other managers. Most important, despite some shorter-term
volatility, we believe our approach is effective over the longer term. Investors
who want to build wealth over a three- to five-year period should look beyond
short-term events.
The bottom line is you can't ignore companies that are growing at 50 to 100
percent a year for very long. As long as the growth in the business is there
there's really not much to worry about at the end of the day.
LAMCO: Thank you very much and welcome to the ASG team.
--------------------------------------------------------------------------------
"The bottom line is you can't ignore companies that are growing at 50 to 100
percent a year for very long."
--------------------------------------------------------------------------------
LIBERTY ALL-STAR GROWTH FUND 13
<PAGE>
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
COMMON STOCKS (98.2%) SHARES MARKET VALUE
--------------------------------------------------------------------------------
BANKS (1.1%)
State Street Corp. 24,800 $ 2,630,350
------------
BROADCASTING & CABLE (6.4%)
AT&T Corp. - Liberty Media Group Class A (a) 96,000 2,328,000
Cablevision Systems Corp. Class A (a) 15,400 1,045,275
Citadel Communications Corp. (a) 44,975 1,571,314
Clear Channel Communications, Inc. (a) 8,700 652,500
Cox Radio, Inc. Class A (a) 24,900 697,200
EchoStar Communications Corp. Class A (a) 31,400 1,039,634
Hispanic Broadcasting Corp. (a) 14,000 463,750
Mediacom Communications Corp. (a) 29,500 453,563
Univision Communications, Inc. Class A (a) 11,300 1,169,550
Westwood One, Inc. (a) 148,140 5,055,278
------------
14,476,064
------------
BUSINESS & CONSUMER SERVICES (7.9%)
Autoweb.com, Inc. (a) 32,100 115,015
Catalina Marketing Corp. (a) 28,320 2,888,640
C-bridge Internet Solutions, Inc. (a) 20,815 361,660
Cintas Corp. 52,060 1,909,951
eBay, Inc. (a) 20,000 1,086,250
GetThere.com, Inc. (a) 35,050 370,216
Getty Images, Inc. (a) 41,390 1,534,017
HomeStore.com, Inc. (a) 11,100 323,981
Paychex, Inc. 99,750 4,189,500
Robert Half International, Inc.(a) 115,890 3,302,865
StarMedia Network, Inc. (a) 16,400 309,550
TMP Worldwide, Inc. (a) 20,480 1,511,680
------------
17,903,325
------------
COMMUNICATIONS EQUIPMENT (6.9%)
American Tower Corp. Class A (a) 55,897 2,330,206
Ditech Communications Corp. (a) 5,940 561,701
Ezenia!, Inc. (a) 49,915 221,498
Foundry Networks, Inc. (a) 5,800 640,900
Juniper Networks, Inc. (a) 18,200 2,649,238
Metromedia Fiber Network, Inc. Class A (a) 21,400 849,313
Nokia Corp. (b) 20,000 3,995,000
ONI Systems Corp. (a) 1,000 117,203
Powerwave Technologies, Inc. (a) 10,165 447,260
Sonus Networks, Inc. (a) 5,000 789,375
Spectrasite Holdings, Inc. (a) 38,300 1,086,763
Stanford Microdevices, Inc. (a) 24,525 1,065,305
Sycamore Networks, Inc. (a) 7,000 772,625
------------
15,526,387
------------
14 LIBERTY ALL-STAR GROWTH FUND See Notes to Schedule of Investments.
<PAGE>
SCHEDULE OF INVESTMENTS (UNAUDITED) -- CONTINUED
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED SHARES MARKET VALUE
--------------------------------------------------------------------------------
COMPUTER & BUSINESS EQUIPMENT (1.5%)
Cognex Corp. (a) 49,545 $ 2,563,953
Extreme Networks, Inc. (a) 8,715 919,433
StorageNetworks, Inc. (a) 500 45,125
------------
3,528,511
------------
COMPUTER SERVICES & SOFTWARE (22.8%)
Active Software, Inc. (a) 4,000 310,750
Acxiom Corp. (a) 66,900 1,823,025
Affiliated Computer Services, Inc. Class A (a) 12,380 409,314
Akamai Technologies, Inc. (a) 2,500 296,835
Ariba, Inc. (a) 19,100 1,872,695
Automatic Data Processing, Inc. 76,000 4,070,750
BMC Software, Inc. (a) 26,200 955,890
CheckFree Holdings Corp. (a) 36,555 1,884,867
Commerce One, Inc. (a) 12,900 585,539
Computer Sciences Corp. (a) 25,200 1,882,125
Concord EFS, Inc. (a) 169,170 4,398,420
Critical Path, Inc. (a) 9,480 552,803
Exodus Communications, Inc. (a) 28,200 1,298,962
Extensity, Inc. (a) 25,680 879,540
F5 Networks, Inc. (a) 8,035 438,410
Kana Communications, Inc. (a) 11,300 699,188
Microsoft Corp. (a) 26,400 2,112,000
National Instruments Corp. (a) 57,270 2,498,403
NOVA Corp. (a) 35,150 982,003
Oracle Corp. (a) 25,000 2,101,563
Packeteer, Inc. (a) 20,235 589,344
Peregrine Systems, Inc. (a) 25,385 880,542
Phone.com, Inc. (a) 2,900 188,863
Portal Software, Inc. (a) 18,100 1,156,138
Predictive Systems, Inc. (a) 14,520 521,813
Proxicom, Inc. (a) 9,485 454,094
Rational Software Corp. (a) 8,400 780,675
Register.com, Inc. (a) 15,180 463,939
Scient Corp. (a) 18,100 798,663
Siebel Systems, Inc. (a) 32,600 5,332,138
VeriSign, Inc. (a) 25,300 4,465,450
Viant Corp. (a) 20,100 595,463
Vignette Corp. (a) 45,700 2,377,114
Yahoo! Inc. (a) 25,000 3,096,875
------------
51,754,193
------------
DRUGS & HEALTH CARE (11.1%)
Abgenix, Inc. (a) 9,100 1,090,720
Affymetrix, Inc. (a) 1,700 280,713
Andrx Corp. (a) 15,900 1,016,357
See Notes to Schedule of Investments. LIBERTY ALL-STAR GROWTH FUND 15
<PAGE>
SCHEDULE OF INVESTMENTS (UNAUDITED) -- CONTINUED
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED SHARES MARKET VALUE
--------------------------------------------------------------------------------
DRUGS & HEALTH CARE (CONTINUED)
BioChem Pharma, Inc. (a) 58,580 $ 1,442,533
Cytyc Corp. (a) 26,695 1,424,845
Elan Corp. (a)(b) 40,800 1,976,250
Genentech, Inc. (a) 21,400 3,680,800
Gilead Sciences, Inc. (a) 4,700 334,287
Healtheon/WebMD Corp. (a) 13,700 202,931
Human Genome Sciences, Inc. (a) 6,800 906,950
MedQuist, Inc. (a) 84,715 2,880,310
Medtronic, Inc. 55,000 2,739,688
MiniMed, Inc. (a) 17,550 2,070,900
ORATEC Interventions, Inc. (a) 15,460 515,977
PacifiCare Health Systems, Inc. (a) 16,450 990,084
Pharmacia Corp. 26,180 1,353,179
ResMed, Inc. (a) 44,085 1,179,274
Sepracor, Inc. (a) 8,200 989,125
------------
25,074,923
------------
ELECTRONICS & ELECTRICAL EQUIPMENT (13.7%)
Altera Corp. (a) 13,200 1,345,575
Intel Corp. 45,200 6,042,675
Linear Technology Corp. 62,800 4,015,275
Maxim Integrated Products, Inc. (a) 29,600 2,010,950
Micrel, Inc. (a) 61,980 2,692,256
Microchip Technology, Inc. (a) 44,250 2,578,254
Molex, Inc. Class A 92,397 3,233,895
Solectron Corp. (a) 72,000 3,015,000
Texas Instruments, Inc. 41,200 2,829,925
Xilinix, Inc. (a) 39,300 3,244,706
------------
31,008,511
------------
FINANCIAL SERVICES (5.1%)
E*TRADE Group, Inc. (a) 43,400 716,100
Financial Federal Corp. (a) 134,400 2,335,200
Freddie Mac 50,250 2,035,125
Investment Technology Group, Inc. 55,215 2,350,088
Investors Financial Services Corp. 37,110 1,472,803
MBNA Corp. 84,750 2,298,843
T. Rowe Price Associates, Inc. 9,900 420,750
------------
11,628,909
------------
FOOD, BEVERAGE & RESTAURANTS (1.5%)
Buffets, Inc. (a) 39,525 501,473
Outback Steakhouse, Inc. (a) 29,580 865,215
Papa John's International, Inc. (a) 19,850 486,325
Whole Foods Market, Inc. (a) 36,000 1,487,250
------------
3,340,263
------------
16 LIBERTY ALL-STAR GROWTH FUND See Notes to Schedule of Investments.
<PAGE>
SCHEDULE OF INVESTMENTS (UNAUDITED) -- CONTINUED
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED SHARES MARKET VALUE
--------------------------------------------------------------------------------
HOTELS & ENTERTAINMENT/LEISURE (0.3%)
Royal Caribbean Cruises Ltd. 35,300 $ 653,050
------------
INDUSTRIAL EQUIPMENT (2.1%)
Fastenal Co. 52,260 2,645,663
Illinois Tool Works, Inc. 35,100 2,000,700
------------
4,646,363
------------
INSURANCE (1.4%)
American International Group, Inc. 28,125 3,304,688
------------
OIL & GAS (1.4%)
Petroleum Geo-Services (a)(b) 45,770 780,950
Pride International, Inc. (a) 93,045 2,302,864
------------
3,083,814
------------
REAL ESTATE INVESTMENT TRUSTS (0.3%)
Pinnacle Holdings, Inc. (a) 12,735 687,690
------------
RETAIL TRADE (9.0%)
Amazon.com, Inc. (a) 14,800 537,425
Bed Bath & Beyond, Inc. (a) 154,880 5,614,400
The Children's Place Retail Stores, Inc. (a) 51,810 1,062,105
Dollar Tree Stores, Inc. (a) 81,285 3,215,838
Family Dollar Stores, Inc. 119,950 2,346,522
The Home Depot, Inc. 72,000 3,595,500
99 Cents Only Stores (a) 47,471 1,892,906
Staples, Inc. (a) 114,750 1,764,281
The Talbots, Inc. 5,400 296,663
------------
20,325,640
------------
TELECOMMUNICATIONS (5.2%)
CoreComm Ltd. (a) 27,210 530,595
McLeodUSA, Inc. Class A (a) 36,000 744,750
Price Communications Corp. (a) 59,187 1,394,594
Sprint Corp. (FON Group) 60,000 3,060,000
U.S. Cellular Corp. (a) 18,300 1,152,900
Vodafone AirTouch PLC (b) 82,500 3,418,594
Western Wireless Corp. Class A (a) 28,815 1,570,418
------------
11,871,851
------------
TRANSPORTATION (0.5%)
USFreightways Corp. 50,300 1,235,494
------------
TOTAL COMMON STOCKS
(Cost $157,523,800) 222,680,026
------------
See Notes to Schedule of Investments. LIBERTY ALL-STAR GROWTH FUND 17
<PAGE>
SCHEDULE OF INVESTMENTS (UNAUDITED) -- CONTINUED
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (2.0%) PAR MARKET
VALUE VALUE
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT (2.0%)
SBC Warburg Ltd, Repurchase Agreement dated 6/30/00,
6.60% to be repurchased at $4,492,470 on 7/03/00,
collateralized by U.S. Treasury notes with various
maturities to 2026, with a current market value
of $4,584,248. $ 4,490,000 $ 4,490,000
------------
TOTAL INVESTMENTS (100.2%) (COST $162,013,800) (C) 227,170,026
OTHER ASSETS AND LIABILITIES, NET (-0.2%) (542,522)
------------
NET ASSETS (100.0%) $226,627,504
============
NET ASSET VALUE PER SHARE (16,302,347 SHARES OUTSTANDING) $13.90
============
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Represents an American Depositary Receipt.
(c) Cost of investments for federal income tax purposes is $162,327,089.
Gross unrealized appreciation and depreciation
of investments at June 30, 2000 is as follows:
Gross unrealized appreciation $ 75,564,548
Gross unrealized depreciation (10,721,611)
------------
Net unrealized appreciation $ 64,842,937
============
18 LIBERTY ALL-STAR GROWTH FUND See Notes to Schedule of Investments.
<PAGE>
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS:
Investments at market value (identified cost $162,013,800) $227,170,026
Receivable for investments sold 1,033,916
Dividends and interest receivable 53,701
Other assets 31,842
------------
TOTAL ASSETS 228,289,485
============
LIABILITIES:
Payable due to custodian bank 879,002
Payable for investments purchased 46,783
Management, administrative and bookkeeping fees payable 576,131
Accrued other expenses 160,065
------------
TOTAL LIABILITIES 1,661,981
------------
NET ASSETS $226,627,504
============
NET ASSETS REPRESENTED BY:
Paid-in capital (authorized 60,000,000 shares at
$0.10 Par; 16,302,347 shares outstanding) $149,607,826
Overdistributed net investment income (661,122)
Accumulated net realized gains on investments
less distributions 12,524,574
Net unrealized appreciation on investments 65,156,226
------------
TOTAL NET ASSETS APPLICABLE TO
OUTSTANDING SHARES OF BENEFICIAL
INTEREST ($13.90 PER SHARE) $226,627,504
============
See Notes to Schedule of Investments. LIBERTY ALL-STAR GROWTH FUND 19
<PAGE>
FINANCIAL STATEMENTS -- CONTINUED
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 444,096
Interest 234,423
------------
TOTAL INVESTMENT INCOME (NET OF FOREIGN TAXES
WITHHELD AT SOURCE WHICH AMOUNTED TO $7,013) 678,519
EXPENSES:
Management fee $ 886,364
Administrative fee 220,754
Custodian and transfer agent fees 78,923
Printing expense 31,303
Legal and audit fees 25,482
Proxy and shareholder communication expense 25,296
Bookkeeping fee 34,894
Directors' fees and expenses 12,560
Miscellaneous expense 24,065
------------
TOTAL EXPENSES 1,339,641
------------
NET INVESTMENT LOSS (661,122)
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains on investment transactions:
Proceeds from sales 94,048,519
Cost of investments sold 71,483,495
------------
Net realized gains on investment
transactions 22,565,024
Net unrealized appreciation on investments:
Beginning of year 68,879,667
End of period 65,156,226
------------
Change in net unrealized appreciation (3,723,441)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 18,180,461
============
20 LIBERTY ALL-STAR GROWTH FUND See Notes to Schedule of Investments.
<PAGE>
FINANCIAL STATEMENTS -- CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
SIX MONTHS ENDED
STATEMENT OF CHANGES IN NET ASSETS JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
-------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment loss $ (661,122) $ (714,834)
Net realized gains on investment transactions 22,565,024 22,581,313
Change in net unrealized appreciation (3,723,441) 6,777,676
------------- -------------
Net increase in net assets resulting
from operations 18,180,461 28,644,155
------------- -------------
DISTRIBUTIONS DECLARED FROM:
Net realized gains on investments (10,596,510) (19,222,792)
------------- -------------
CAPITAL TRANSACTIONS:
Increase in net assets from capital share transactions -- 11,108,320
------------- -------------
Total increase in net assets 7,583,951 20,529,683
NET ASSETS:
Beginning of year 219,043,553 198,513,870
------------- -------------
End of period $ 226,627,504 $ 219,043,553
============= =============
</TABLE>
See Notes to Schedule of Investments. LIBERTY ALL-STAR GROWTH FUND 21
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 -------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of year $ 13.44 $ 13.03 $ 12.89 $ 11.27 $ 10.55 $ 9.95
---------- ---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net investment income (loss) (0.04) (0.05) (0.03) (0.02) 0.01 0.31
Net realized and unrealized
gains on investments 1.15 1.83 1.73 2.88 1.86 1.05
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 1.11 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 (0.65) (1.23) (0.52) (1.24) (1.01) (0.45)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions (0.65) (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 period $ 13.90 $ 13.44 $ 13.03 $ 12.89 $ 11.27 $ 10.55
========== ========== ========== ========== ========== ==========
Market price at end of period $ 11.875 $ 10.813 $ 11.438 $ 11.938 $ 9.250 $ 9.375
========== ========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS: (c)
Based on net asset value 9.5%(d) 15.9% 15.3% 27.3% 18.3% 13.8%
Based on market price 16.3%(d) 6.2% 9.3% 43.6% 9.3% 19.3%
RATIOS AND SUPPLEMENTAL DATA:
Net asset at end of period (millions) $227 $219 $199 $167 $137 $120
Ratio of expenses to average net assets 1.21%(e) 1.20% 1.22% 1.20% 1.35% 1.42%
Ratio of net investment income to
average net assets (0.60)%(e) (0.37)% (0.22)% (0.18)% 0.06% 2.87%
Portfolio turnover rate 41%(d) 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.
(d) Not annualized.
(e) Annualized.
22 LIBERTY ALL-STAR GROWTH FUND See Notes to Schedule of Investments.
<PAGE>
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES: Liberty All-Star Growth Fund, Inc.
(the "Fund"), is registered under the Investment Company Act of 1940, as
amended, as a closed-end, diversified management investment company and
commenced operations on March 14, 1986. The Fund's investment objective is to
seek long term capital appreciation. The Fund is managed by Liberty Asset
Management Company (the "Manager"). The Manager is a subsidiary of Liberty
Financial Companies, Inc., a publicly traded company of which Liberty Mutual
Insurance Company is the majority shareholder.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results, if different,
are expected to be immaterial to the net assets of the Fund.
VALUATION OF INVESTMENTS -- Portfolio securities listed on an exchange and
over-the-counter securities quoted on the NASDAQ system are valued on the basis
of the last sale on the date as of which the valuation is made, or, lacking any
sales, at the mean of the closing bid and asked quotations on that date.
Over-the-counter securities not quoted on the NASDAQ system are valued at the
most recent bid prices on that date. Securities for which reliable quotations
are not readily available are valued at fair value, as determined in good faith
and pursuant to procedures established by the Board of Directors. Short-term
instruments maturing in more than 60 days for which market quotations are
readily available are valued at current market value. Short-term instruments
with remaining maturities of 60 days or less are valued at amortized cost,
unless the Board of Directors determines that this does not represent fair
value.
PROVISION FOR FEDERAL INCOME TAX -- The Fund qualifies as a "regulated
investment company." As a result, a federal income tax provision is not required
for amounts distributed to shareholders.
OTHER -- Security transactions are accounted for on the trade date. Interest
income and expenses are recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date.
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.
LIBERTY ALL-STAR GROWTH FUND 23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
--------------------------------------------------------------------------------
NOTE 3. CAPITAL TRANSACTIONS During the year ended December 31, 1999,
distributions in the amount of $11,108,320 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 shares.
NOTE 4. SECURITIES TRANSACTIONS Realized gains and losses are recorded on the
identified cost basis for both financial reporting and federal income tax
purposes. The cost of investments purchased and the proceeds from investments
sold excluding short-term debt obligations for the six months ended June 30,
2000 were $88,340,430 and $94,048,519, 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 stock 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.
24 LIBERTY ALL-STAR GROWTH FUND
<PAGE>
2000 ANNUAL MEETING OF SHAREHOLDERS
--------------------------------------------------------------------------------
Liberty All-Star Growth Fund, Inc.'s 2000 Annual Meeting of Shareholders was
held on April 19, 2000. At the meeting Messrs. James E. Grinnell and John J.
Neuhauser were reelected as Directors of the class whose terms expire with the
Annual Meeting in 2003. Messrs. Robert J. Birnbaum, Richard W. Lowry and William
E. Mayer continue in office as Directors. Mr.John V. Carberry continues to serve
as Chairman of the Board of Directors.
In addition, shareholders did not approve the proposal to convert the Fund from
a closed-end investment company to an open-end investment company, approved a
distribution plan which will not take effect since the conversion vote was not
approved, approved the Fund's new Portfolio Management Agreement with M.A.
Weatherbie & Co., Inc. and Oppenheimer Capital, and ratified the Board of
Directors' selection of PricewaterhouseCoopers LLP as the Fund's independent
auditors for the year ending December 31, 2000. The number of votes cast for and
against and the number of abstentions on these matters were as follows:
1. Approval to convert the Fund from a closed-end investment company to an
open-end investment company.
For: 2,726,447
Against: 5,728,163
Abstain: 495,146
2. Approval of a distribution plan.
For: 7,484,201
Against: 1,128,125
Abstain: 337,431
3. Approval of Portfolio Management Agreement with M.A. Weatherbie & Co., Inc.
For: 12,891,120
Against: 398,210
Abstain: 308,656
4. Approval of new Portfolio Management Agreement with Oppenheimer Capital.
For: 12,901,451
Against: 375,580
Abstain: 320,955
5. Ratification of selection of PricewaterhouseCoopers LLP as independent
auditors for 2000.
For: 13,195,391
Against: 230,070
Abstain: 172,525
LIBERTY ALL-STAR GROWTH FUND 25
<PAGE>
DIVIDEND REINVESTMENT PLAN
--------------------------------------------------------------------------------
Each registered shareholder of the Fund will automatically be a participant in
the Fund's Automatic Dividend Reinvestment and Cash Purchase Plan unless the
shareholder specifically elects otherwise by writing to the Plan Agent, State
Street Bank and Trust Company, c/o of EquiServe, P.O. Box 8200, Boston, MA
02266-8200 or by calling 1-800-LIB-FUND (1-800-542-3863). If your shares are
held for you by a broker, bank or other nominee, you should contact the
institution holding your shares as to whether you wish to participate, or not
participate, in the Plan. Participants in the Plan have their dividends and
distributions automatically reinvested in additional shares of the Fund. Since
1996 -- the first full year that Liberty Asset Management Company assumed
complete management responsibilities for the Fund -- participating shareholders
have been rewarded as a result of the consistent reinvestment of distributions.
Each share of the Fund owned by shareholders, who have participated in the
Dividend Reinvestment since 1996, would have grown to 1.644 shares as of June
30, 2000, with a total net asset value of $22.85. Participants are kept apprised
of the status of their account through quarterly statements.
26 LIBERTY ALL-STAR GROWTH FUND
<PAGE>
NOTES
--------------------------------------------------------------------------------
LIBERTY ALL-STAR GROWTH FUND 27
<PAGE>
NOTES
--------------------------------------------------------------------------------
28 LIBERTY ALL-STAR GROWTH FUND
<PAGE>
[LOGO] LIBERTY ASG
ALL*STAR ------
----------- Listed
GROWTH FUND ------
NYSE
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
Pamela A. McGrath, 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>
[LOGO] LIBERTY
ALL*STAR
-----------
GROWTH FUND
Liberty Asset Management Company
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210-2214
ASG A MEMBER OF THE
------ CLOSED-END
Listed FUND
------ ASSOCIATION, INC.
NYSE WWW.CLOSED-ENDFUNDS.COM
THE NEW YORK STOCK EXCHANGE
