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In a placid environment in which almost nothing seemed capable of unsettling investors, stocks continued their steady advance during the third quarter. On the final trading day of the period, the S&P 500® Index and the NASDAQ Composite Index reached new record highs, while the widely‐followed Dow Jones Industrial Average (DJIA) ended the period only 7‐plus points below its all‐time closing high of 22,419.59 on September 20.

 

An almost complete absence of volatility characterized the quarter, as the average daily move, up or down, of the S&P 500 during the period was 0.3 percent, the lowest since 1968, according to The Wall Street Journal. The S&P 500 and the DJIA have now gained ground for eight consecutive quarters.

 

For the quarter, the S&P 500 returned 4.48 percent; the DJIA returned 5.58 percent; and the NASDAQ Composite gained 6.06 percent. For the first nine months of 2017, these indices’ respective gains are 14.24 percent, 15.45 percent and 21.67 percent.

 

Growth style stocks continued to strongly outperform their value counterparts across all capitalization ranges for the third quarter and the three quarters year to date. Among key growth benchmarks in the third quarter, the broad market Russell 3000® Growth Index returned 5.93 percent. Among market capitalization indices for the third quarter, the Russell 1000® Growth Index (large cap) returned 5.90 percent while the Russell Midcap® Growth Index returned 5.28 percent. Small cap stocks, as represented by the Russell 2000® Growth Index, returned 6.22 percent.

 

Solid corporate earnings and good economic data served as the foundation for the third quarter’s positive results. Corporations as diverse as Caterpillar, McDonald’s, Facebook and Boeing reported strong second quarter earnings; overall, earnings for S&P 500 companies rose over 10 percent year over year for the second quarter, above the expectations of most analysts. Employment  data continued to show steady gains, with employers adding 210,000 jobs in June (reported in July) and 138,000 jobs in July. August’s addition of 169,000 jobs was in line with expectations while the unemployment rate was at 4.4 percent. In September, the Commerce Department reported that U.S. GDP grew at a rate of 3.1 percent in the second quarter (revising the 2.6 percent originally reported in July and a revised 3.0 percent reported in August); this represented a marked increase over the first quarter’s 1.2 percent rate. Favorable news also emerged from the Federal Reserve’s July policy‐making meeting; the Fed made no change in short‐term rates and announced that it would gradually wind down its $4 trillion‐plus portfolio of assets, accumulated in the wake of the financial crisis. As the quarter closed, President Trump announced a sweeping tax reform package proposing changes that will bear watching over the near‐term, especially the potential reduction in the top corporate tax rate to 20 percent from the current 35 percent.

 

Negative news was scarce during the quarter, and what there was came mostly as a result of geopolitical tensions. In particular, North Korea’s missile and nuclear bomb testing set off heated verbal  exchanges between President Trump and Kim Jung Un, North Korea’s supreme leader. On August 10, the S&P 500 dropped 1.41 percent—the first time in 58 sessions it had moved more than 1 percent up or down—with its decline largely attributed to escalating U.S.–North Korea tensions. An active hurricane season caused extreme personal hardships but did little to upset equity markets. While hurricane Irma was devastating parts of the Caribbean and inflicting damage on Florida—and hurricanes Jose and Maria brewed in the Atlantic—the DJIA logged its best weekly advance of 2017, rising 2.2 percent during the week of September 11. September employment (reported in early October after the quarter closed) was negatively impacted by the storms, with the Labor Department reporting a loss of 33,000 net jobs, the first monthly decline in seven years. Job losses were attributed to hurricanes Harvey and Irma, which temporarily closed thousands of businesses and shut down the travel/tourism and hospitality industry in key markets in the Southeast.

 

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Liberty All‐Star® Growth Fund

Liberty All‐Star® Growth Fund posted a positive quarter, especially when performance is measured by the market price of its shares. For the quarter, the Fund returned 4.11 percent with shares valued at net asset value (NAV) with dividends reinvested and 8.65 percent with shares valued at market price with dividends reinvested. For the nine months year to date, the Fund returned 21.77 percent with shares valued at NAV with dividends reinvested and 33.45 percent with shares valued at market price with dividends reinvested. By comparison, the Lipper Multi‐Cap Growth Mutual Fund Average returned 5.36 percent for the third quarter and 20.41 percent for the first nine months. While the Fund’s NAV return modestly lagged the S&P 500, DJIA and NASDAQ Composite for the quarter, it is ahead of all three indices year to date. Fund returns based on market price are significantly ahead for the third quarter and the nine‐month year‐to‐date period.

 

Fund shares valued at market price were helped in the third quarter by a continued narrowing of the discount at which Fund shares trade relative to NAV; during the period, Fund shares traded in a discount range of ‐4.6 percent to ‐8.3 percent relative to their underlying NAV. This compares to a wider range of ‐8.0 percent to ‐10.8 percent in the second quarter.

 

In accordance with the Fund’s distribution policy, the Fund paid a distribution of $0.11 to shareholders during the quarter, bringing the total distributed to shareholders since 1997, when the distribution policy commenced, to $13.32 per share. The Fund’s distribution policy is a major component of the Fund’s total return, and we continue to emphasize that shareholders should include these distributions when determining the return on their investment in the Fund.

 

The Fund continued to perform well in the third quarter, and investors benefited from strong market price performance for both the quarter and the first nine months of the year. In addition, the Fund’s one‐ and three‐year returns rank it in the top quartile of funds in the Lipper Multi‐Cap Growth universe for those periods. We are hopeful that the positive environment for stocks will continue through the fourth quarter, setting the stage for the Fund to close out a highly rewarding 2017. As always, we will remain vigilant and be guided in our decisions by the Fund’s long‐term objectives, philosophy and strategy.

The views expressed in the President’s letter reflect the views of the President as of October 2017 and may not reflect his views on the date this report is first published or anytime thereafter. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict so actual outcomes and results may differ significantly from the views expressed. These views are subject to change at any time based upon economic, market or other conditions and the Fund disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for the Fund are based on numerous factors, may not be relied on as an indication of trading intent.

 

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		Rights Offerings
Year	Per Share Distributions	Month Completed	Shares Needed to Purchase One Additional Share	Subscription Price
1997	$1.24
1998	1.35	July	10	$12.41
1999	1.23
2000	1.34
2001	0.92	September	8	6.64
2002	0.67
2003	0.58	September	81	5.72
2004	0.63
2005	0.58
2006	0.59
2007	0.61
2008	0.47
20092	0.24
2010	0.25
2011	0.27
2012	0.27
2013	0.31
2014	0.33
20153	0.77
2016	0.36
2017
1st Quarter	0.10
2nd Quarter	0.10
3rd Quarter	0.11
Total	$13.32

 

1	The number of shares offered was increased by an additional 25 percent to cover a portion of the over-subscription requests.

2	Effective with the second quarter distribution, the annual distribution rate was changed from 10 percent to 6 percent.

3	Effective with the second quarter distribution, the annual distribution rate was changed from 6 percent to 8 percent.

 

DISTRIBUTION POLICY

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The current policy is to pay distributions on its shares totaling approximately 8 percent of its net asset value per year, payable in four quarterly installments of 2 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. Sources of distributions to shareholders may include ordinary dividends, long‐term capital gains and return of capital. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund’s investment experience during its fiscal year and may be subject to changes based on tax regulations. If a distribution includes anything other than net investment income, the Fund provides a Section 19(a) notice of the best estimate of its distribution sources at that time. These estimates may not match the final tax characterization (for the full year’s distributions) contained in shareholders’ 1099‐DIV forms after the end of the year. If the Fund’s ordinary dividends and long‐term capital gains for any year exceed the amount distributed under the distribution policy, the Fund may, in its discretion, retain and not distribute capital gains and pay income tax thereon to the extent of such excess.

 

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THE FUND’S THREE GROWTH INVESTMENT MANAGERS AND THE MARKET CAPITALIZATION ON WHICH EACH FOCUSES:

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ALPS Advisors, Inc., the investment advisor to the Fund, has the ultimate authority (subject to oversight by the Board of Directors) to oversee the investment managers and recommend their hiring, termination and replacement.

 

MANAGERS’ DIFFERING INVESTMENT STRATEGIES ARE REFLECTED IN PORTFOLIO CHARACTERISTICS

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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 investment managers. These differences are a reflection of the fact that each has a different capitalization focus and investment strategy. The shaded column highlights the characteristics of the Fund as a whole, while the first three columns show portfolio characteristics for the Russell Smallcap, Midcap and Largecap Growth indices. See page 17 for a description of these indices.

 

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				Market Capitalization Spectrum
	RUSSELL GROWTH
	SMALLCAP INDEX	MIDCAP INDEX	LARGECAP INDEX	WEATHERBIE	CONGRESS	SUSTAINABLE	TOTAL FUND
Number of Holdings	1,172	420	550	50	39	29	115*
Weighted Average Market Capitalization (billions)	$2.5	$14.6	$197.8	$3.3	$8.7	$112.6	$41.0
Average Five-Year Earnings Per Share Growth	16%	13%	15%	15%	14%	14%	14%
Average Five-Year Sales Per Share Growth	10%	9%	11%	14%	9%	13%	12%
Price/Earnings Ratio**	27x	28x	26x	33x	27x	33x	31x
Price/Book Value Ratio	4.3x	5.5x	6.3x	5.5x	4.6x	6.1x	5.4x

 

*	Certain holdings are held by more than one manager.

**	Excludes negative earnings.

 

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*	Because the Fund is actively managed, there can be no guarantee that the Fund will continue to hold securities of the indicated issuers and sectors in the future.

 

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The following are the major ($600,000) stock changes - both purchases and sales - that were made in the Fund’s portfolio during the third quarter of 2017.

 

 

 

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As of September 30, 2017 (Unaudited)

 

 

See Notes to Schedule of Investments.

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As of September 30, 2017 (Unaudited)

 

 

See Notes to Schedule of Investments.

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As of September 30, 2017 (Unaudited)

 

 

See Notes to Schedule of Investments. 

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As of September 30, 2017 (Unaudited)

See Notes to Schedule of Investments.

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As of September 30, 2017 (Unaudited)

 

See Notes to Schedule of Investments.

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As of September 30, 2017 (Unaudited)

 

(a)	Non-income producing security.

(b)	Security, or a portion of the security position, is currently on loan.  The total market value of securities on loan is $8,888,154.

(c)	American Depositary Receipt.

(d)	Rate reflects seven-day effective yield on September 30, 2017.

(e)	Cost of investments for federal income tax purposes is $112,093,648.

 

Gross unrealized appreciation and depreciation at September 30, 2017 based on cost of investments for federal income tax purposes is as follows:

 

 

See Notes to Schedule of Investments.

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Liberty All-Star® Growth Fund

Notes to Schedule of Investments

Security Valuation

Equity securities are valued at the last sale price at the close of the principal exchange on which they trade, except for securities listed on the NASDAQ Stock Market LLC (“NASDAQ”), which are valued at the NASDAQ official closing price. Unlisted securities or listed securities for which there were no sales during the day are valued at the closing bid price on such exchanges or over‐the‐counter markets.

Cash collateral from securities lending activity is reinvested in the State Street Navigator Securities Lending Government Money Market Portfolio, a registered investment company under the Investment Company Act of 1940 (the “1940 Act”), which operates as a money market fund in compliance with Rule 2a‐7 under the 1940 Act. Shares of registered investment companies are valued daily at that investment company’s net asset value per share.

The Fund’s investments are valued at market value or, in the absence of market value with respect to any portfolio securities, at fair value according to procedures adopted by the Fund's Board of Directors (the "Board"). When market quotations are not readily available, or in management’s judgment they do not accurately reflect fair value of a security, or an event occurs after the market close but before the Fund is priced that materially affects the value of a security, the security will be valued by the Fund’s Valuation Committee, using fair valuation procedures established by the Board. Examples of potentially significant events that could materially impact a Fund’s net asset value include, but are not limited to: single issuer events such as corporate actions, reorganizations, mergers, spin‐offs, liquidations, acquisitions and buyouts; corporate announcements on earnings or product offerings; regulatory news; and litigation and multiple issuer events such as governmental actions; natural disasters or armed conflicts that affect a country or a region; or significant market fluctuations. Potential significant events are monitored by the Advisor, ALPS Advisors, Inc. (the “Advisor”), Sub‐Advisers and/or the Valuation Committee through independent reviews of market indicators, general news sources and communications from the Fund’s custodian. As of September 30, 2017, the Fund held no securities that were fair valued.

Security Transactions

Security transactions are recorded on trade date. Cost is determined and gains/(losses) are based upon the specific identification method for both financial statement and federal income tax purposes.

Income Recognition

Interest income is recorded on the accrual basis. Corporate actions and dividend income are recorded on the ex‐date.

The Fund estimates components of distributions from real estate investment trusts (“REITs”). Distributions received in excess of income are recorded as a reduction of the cost of the related investments. Once the REIT reports annually the tax character of its distributions, the Fund revises its estimates. If the Fund no longer owns the applicable securities, any distributions received in excess of income are recorded as realized gains.

Lending of Portfolio Securities

The Fund may lend its portfolio securities only to borrowers that are approved by the Fund’s securities lending agent, State Street Bank & Trust Co. (“SSB”). The Fund will limit such lending to not more than 20% of the value of its total assets. The borrower pledges and maintains with the Fund collateral consisting of cash (U.S. Dollar only), securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, or by irrevocable bank letters of credit issued by a person other than the borrower or an affiliate of the borrower. The initial collateral received by the Fund is required to have a value of no less than 102% of the market value of the loaned securities for securities traded on U.S. exchanges and a value of no less than 105% of the market value for all other securities. The collateral is maintained thereafter, at a market value equal to no less than 100% of the current value of the securities on loan. The market value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.

 

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Third Quarter Report (Unaudited) | September 30, 2017

13

		Valuation Inputs
Investments in Securities at Value*		Level 1				Level 2				Level 3				Total
Common Stocks		$	144,809,214			$	—			$	—			$	144,809,214
Short Term Investment			2,727,761				—				—				2,727,761
Investments Purchased with Collateral from Securities Loaned			6,122,208				—				—				6,122,208
Total		$	153,659,183			$	—			$	—			$	153,659,183

Third Quarter Report (Unaudited) | September 30, 2017

15

Liberty All-Star® Growth Fund

Notes to Schedule of Investments

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As of September 30, 2017 (Unaudited)

 

Indemnification

In the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties and which provide general indemnities. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims against the Fund. Also, under the Fund’s organizational documents and by contract, the Directors and Officers of the Fund are indemnified against certain liabilities that may arise out of their duties to the Fund. However, based on experience, the Fund expects the risk of loss due to these warranties and indemnities to be minimal.

Maryland Statutes

By resolution of the Board of Directors, the Fund has opted into the Maryland Control Share Acquisition Act and the Maryland Business Combination Act. In general, the Maryland Control Share Acquisition Act provides that “control shares” of a Maryland corporation acquired in a control share acquisition may not be voted except to the extent approved by shareholders at a meeting by a vote of two‐thirds of the votes entitled to be cast on the matter (excluding shares owned by the acquirer and by officers or directors who are employees of the corporation). “Control shares” are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within certain statutorily defined ranges (one‐tenth but less than one‐third, one‐third but less than a majority, and more than a majority of the voting power). In general, the Maryland Business Combination Act prohibits an interested shareholder (a shareholder that holds 10% or more of the voting power of the outstanding stock of the corporation) of a Maryland corporation from engaging in a business combination (generally defined to include a merger, consolidation, share exchange, sale of a substantial amount of assets, a transfer of the corporation’s securities and similar transactions to or with the interested shareholder or an entity affiliated with the interested

shareholder) with the corporation for a period of five years after the most recent date on which the interested shareholder became an interested shareholder. At the time of adoption, March 19, 2009, the Board and the Fund were not aware of any shareholder that held control shares or that was an interested shareholder under the statutes.

Shareholder Meeting Results

On August 24, 2017, the Annual Meeting of Shareholders of the Fund was held to elect two Directors. On June 12, 2017, the record date for the meeting, the Fund had outstanding 26,701,198 shares of common stock. The votes cast at the meeting were as follows:

Proposal 2 – To elect two Directors:

 

Nominee	For	Against/Withheld
John A. Benning	23,806,156.896	825,554.319
Richard C. Rantzow	23,814,772.585	816,938.630

Liberty All-Star® Growth Fund

Description of Lipper Benchmark And Market Indices

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September 30, 2017 (Unaudited)

 

Dow Jones Industrial Average

A price‐weighted measure of 30 U.S. blue‐chip companies.

Lipper Multi‐Cap Growth Mutual Fund Average

The average of funds that, by portfolio practice, invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. Multi‐Cap growth funds typically have above‐average characteristics compared to the S&P SuperComposite 1500^® Index.

NASDAQ Composite Index

Measures all NASDAQ domestic and international based common type stocks listed on the NASDAQ Stock Market.

Russell 3000^® Growth Index

Measures the performance of those Russell 3000^® companies with higher price‐to‐book‐ratios and higher forecasted growth values. The Russell 3000^® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.

Russell Top 200^® Growth Index

Measures the performance of those Russell Top 200^® companies with higher price‐to‐book ratios and higher forecasted growth values. The Russell Top 200^® Index measures the performance of the 200 largest companies in the Russell 3000^® Index.

Russell 1000^® Growth Index (Largecap)

Measures the performance of those Russell 1000^® companies with higher price‐to‐book ratios and higher forecasted growth values. The Russell 1000^® Index measures the performance of the 1,000 largest companies in the Russell 3000^® Index.

Russell Midcap^® Growth Index

Measures the performance of those Russell Midcap^® companies with higher price‐to‐book ratios and higher forecasted growth values. The Russell Midcap^® Index measures the performance of the 800 smallest companies in the Russell 1000^® Index.

Russell 2000^® Growth Index (Smallcap)

Measures the performance of those Russell 2000^® companies with higher price‐to‐book ratios and higher forecasted growth values. The Russell 2000^® Index measures the performance of the 2,000 smallest companies in the Russell 3000^® Index.

Russell Growth Benchmark

The average of the Russell Top 200^®, Midcap^® and 2000® Growth Indices.

S&P 500^® Index

A large cap U.S. equities index that includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

An investor cannot invest directly in an index.

 

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Third Quarter Report (Unaudited) | September 30, 2017

17

 

 

 

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