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LIBERTY ALL-STAR^® EQUITY FUND
Period Ended March 31, 2017 (Unaudited)

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*

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. Pursuant to Section 852 of the Internal Revenue Code, the taxability of this distribution will be reported on Form 1099-DIV for 2017.

Performance returns for the Fund are total returns, which include dividends. Returns are net of management fees and other Fund expenses.

The return shown for the Lipper Large-Cap Core Mutual Fund Average is based on open-end mutual funds’ total returns, which include dividends, and are net of fund expenses. Returns shown for the unmanaged Dow Jones Industrial Average, NASDAQ Composite Index and the S&P 500^®Index are total returns, including dividends. A description of the Lipper benchmark and the market indices can be found on page 20.

Past performance cannot predict future results. Performance will fluctuate with market conditions. Current performance may be lower or higher than the performance data shown. Performance information does not reflect the deduction of taxes that shareholders would pay on Fund distributions or the sale of Fund shares. An investment in the Fund involves risk, including loss of principal.

Closed-end funds raise money in an initial public offering and shares are listed and traded on an exchange. Open-end mutual funds continuously issue and redeem shares at net asset value. Shares of closed-end funds frequently trade at a discount to net asset value. The price of the Fund’s shares is determined by a number of factors, several of which are beyond the control of the Fund. Therefore, the Fund cannot predict whether its shares will trade at, below or above net asset value.

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(Unaudited)

 

Building on fourth quarter post-election momentum—while departing entirely from the way markets opened 2016—stocks posted solid gains for the first quarter of 2017.

Investors may recall that a year ago U.S. equity markets got off to their worst 10-day start in history before rebounding in mid-February and closing the quarter with flattish returns. This year, stocks bolted from the gate, with the S&P 500^® Index, the Dow Jones Industrial Average (DJIA) and the NASDAQ Composite Index all setting records throughout January and continuing for most of the quarter. On January 25, the DJIA closed above 20,000 for the first time, just 42 trading days after hitting 19,000. The same index opened March with a 303-point gain, which propelled it to close above 21,000 for the first time; the 1,000-point rise from 20,000 was achieved in a record-tying 24 trading sessions. The S&P 500^® closed on March 3 with its sixth consecutive week of gains. March was not without some setbacks, however, as the DJIA declined for eight straight trading days into March 27, while the S&P 500^® absorbed its biggest weekly loss since early November.

For the quarter, the S&P 500^® returned 6.07 percent, the DJIA advanced 5.19 percent and the NASDAQ gained 10.13 percent. The CBOE Volatility Index, Wall Street’s so-called “fear gauge”, posted its lowest quarterly average on record, as reported by The Wall Street Journal. The rally’s leadership changed over the course of the quarter, with financials and industrials pulling back from their early gains to moderately underperform over the three-month period. Energy was the laggard, as it closed lower over the quarter.

The ebullient mood on Wall Street clearly reflected investors’ hopes for Trump campaign promises of lower taxes, deregulation and infrastructure spending. But data gave a substantive foundation to their hopes for a stronger economy. The Institute of Supply Management’s manufacturing index rose to its highest level of 2016 in December, and in early January the Department of Labor reported that the U.S. added 155,000 new nonfarm jobs (also in December). The employment news got better as the first quarter progressed, as jobs grew by 216,000 in January and 219,000 in February.

Blended into all the positive news, the Department of Commerce reported that GDP rose a tepid 1.9 percent in Q4-2016 (later revised to an increase of 2.1 percent). The Federal Reserve raised the fed funds rate by 0.25 percent on March 25, taking short-term rates to a range of 0.75 to 1.00 percent. During the same late March period, stocks retreated due in large part to the failure of the health care bill pushed hard by Speaker of the House Paul Ryan in partnership with the president. That setback cast doubts on other parts of the Trump legislative agenda.

Liberty All-Star^® Equity Fund

Liberty All-Star Equity Fund posted a strong opening quarter. For the period, the Fund returned 7.21 percent with shares valued at net asset value (NAV) with dividends reinvested and 8.32 percent with shares valued at market price with dividends reinvested. (Fund returns are net of expenses.) As noted, returns for the S&P 500^®, the DJIA and the NASDAQ were 6.07 percent, 5.19 percent and 10.13 percent, respectively. The Fund’s return was well ahead of its principal benchmark, the Lipper Large-Cap Core Mutual Fund Average, which returned 5.51 percent for the quarter. The Fund’s return placed it in the ninth percentile of the Lipper universe, meaning that it outperformed 91 percent of peer funds.
 

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(Unaudited)

 

Fund shares valued at market price were helped in the first quarter by a modest narrowing of the discount at which Fund shares trade relative to NAV; during the period, Fund shares traded in a discount range of -13.9 percent to -15.2 percent relative to their underlying NAV.

In accordance with the Fund’s distribution policy, the Fund paid a distribution of $0.13 per share in the first quarter, up from $0.12 last quarter. As shareholders may recall, the Fund's distribution policy has been in place since 1988 and is a major component of the Fund’s total return. These distributions add up to $25.78 since 1987 (the Fund's first full calendar year of operations). We continue to emphasize that shareholders should include these distributions when determining the return on their investment in the Fund.

In Fund news, value style manager Delaware Investments announced that it changed its name to Macquarie Investment Management as of the close of the quarter. Delaware was acquired by the Macquarie Group seven years ago, and the name change was made to reflect the firm’s global investment capabilities. No structural or managerial changes were involved.

We are pleased that markets have gotten off to a strong start in 2017, and further gratified that in this positive environment the Fund was able to outperform. As always, market performance is impossible to predict. Nevertheless, we remain confident that the Fund is well positioned as we move deeper into 2017 and, more importantly, well positioned to pursue its objective of being a high quality, well-diversified core equity holding for long-term investors.
 

Sincerely,

 

William R. Parmentier, Jr.

President and Chief Executive Officer

Liberty All-Star^® Equity Fund

The views expressed in the President’s letter reflect the views of the President as of April 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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March 31, 2017 (Unaudited)

 

 

1	The Fund’s net investment income and net realized capital gains exceeded the amount to be distributed under the Fund’s distribution policy. In each case, the Fund elected to pay taxes on the undistributed income and passed through a proportionate tax credit to shareholders.

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

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

4	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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March 31, 2017 (Unaudited)

*	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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March 31, 2017 (Unaudited)

The following are the largest ($3 million or more) stock changes - both purchases and sales - that were made in the Fund’s portfolio during the first quarter of 2017.

 

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March 31, 2017 (Unaudited)

THE FUND’S ASSETS ARE APPROXIMATELY EQUALLY DISTRIBUTED AMONG THREE VALUE MANAGERS AND TWO GROWTH MANAGERS:

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*	Name changed from Delaware Investments

ALPS Advisors, Inc., the investment advisor to the Fund, has the ultimate authority (subject to oversight by the Board of Trustees) 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 a multi-managed portfolio. The characteristics are different for each of the Fund’s five investment 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 final column shows portfolio characteristics for the S&P 500^® Index.

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*	Certain holdings are held by more than one manager.

**	Excludes negative earnings.

 

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As of March 31, 2017 (Unaudited)

See Notes to Schedule of Investments.

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As of March 31, 2017 (Unaudited)

 

See Notes to Schedule of Investments.

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As of March 31, 2017 (Unaudited)

 

See Notes to Schedule of Investments.

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As of March 31, 2017 (Unaudited)

 

See Notes to Schedule of Investments.

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As of March 31, 2017 (Unaudited)

 

See Notes to Schedule of Investments.

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As of March 31, 2017 (Unaudited)

 

 

See Notes to Schedule of Investments.

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As of March 31, 2017 (Unaudited)

 

(a)	Non-income producing security.

(b)	American Depositary Receipt.

(c)	Security, or a portion of the security position, is currently on loan. The total market value of securities on loan is $16,304,910.

(d)	Rate reflects seven-day effective yield on March 31, 2017.

(e)	Cost of investments for federal income tax purposes is $1,034,946,816.

 

Gross unrealized appreciation and depreciation at March 31, 2017 based on cost of investments for federal income tax purposes is as follows:

  

 

See Notes to Schedule of Investments.

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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 Trustees (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 March 31, 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 30% 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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14	www.all-starfunds.com

Liberty All-Star® Equity Fund

Notes to Schedule of Investments

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The following is a summary of the Fund’s securities lending agreement and related cash and non‐cash collateral received as of March 31, 2017:

 

 

The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by SSB. SSB’s indemnity allows for full replacement of securities lent wherein SSB will purchase the unreturned loaned securities on the open market by applying the proceeds of the collateral, or to the extent such proceeds are insufficient or the collateral is unavailable, SSB will purchase the unreturned loan securities at SSB’s expense. However, the Fund could suffer a loss if the value of the investments purchased with cash collateral falls below the value of the cash collateral received.

 

Fair Value Measurements

The Fund discloses the classification of its fair value measurements following a three‐tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained  from  sources  independent  of  the  reporting  entity.  Unobservable  inputs  reflect  the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.

 

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March 31, 2017 (Unaudited)

 

Valuation techniques used to value the Fund’s investments by major category are as follows:

 

Equity  securities  that  are  valued  based  on  unadjusted  quoted  prices  in  active  markets  are categorized as Level 1 in the hierarchy. In the event there were no sales during the day or closing prices are not available, securities are valued at the mean of quoted bid and ask prices on such day and are generally categorized as Level 2 in the hierarchy. Investments in shares of registered investment companies are valued at their closing NAV each business day and are categorized as Level 1 in the hierarchy.

 

Various inputs are used in determining the value of the Fund’s investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments.

 

These  inputs  are  categorized  in  the  following  hierarchy  under  applicable  financial accounting standards:

 

Level 1 –

Unadjusted  quoted  prices  in  active  markets  for  identical  investments,  unrestricted assets or liabilities that a Fund has the ability to access at the measurement date;

 

Level 2 –

Quoted prices which are not active, quoted prices for similar assets or liabilities in active markets or inputs other than quoted prices that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and

 

Level 3 –

Significant unobservable prices or inputs (including the Fund’s own assumptions in determining the fair value of investments) where there is little or no market activity for the asset or liability at the measurement date.

 

The following is a summary of the inputs used to value the Fund’s investments as of  March 31, 2017:

 

 

*	See Schedule of Investments for industry classifications.

 

The Fund recognizes transfers between levels as of the end of the period. For the period ended March 31, 2017, the Fund did not have any transfers between Level 1 and Level 2 securities. The Fund  did  not  have  any  securities  which  used  significant  unobservable  inputs  (Level  3)  in determining fair value during the period.

 

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March 31, 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 Trustees 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.

 

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(Unaudited)

 

This Privacy Policy Notice discloses the privacy policies of the Liberty All‐Star^® Funds, which are advised by ALPS Advisors, Inc. and serviced by ALPS Fund Services, Inc. (the “Companies”). The Companies and the Funds are referred to herein collectively as “we” or “us.”

 

Protecting Your Privacy is a Top Priority

We realize that our ability to offer superior products and services depends on the personal and financial  information  we  collect  from  you.  We  value  your  business  and  are  committed  to maintaining your trust. That is why we have made your privacy a top priority.

 

The Information We Have and Where We Get It

We collect information about you from a variety of sources, including:

 

•	Information we receive from you on applications or other forms, such as your name, address and  phone  number;  your  social  security  number;  and  your  assets,  income  and  other household information;

•	Information about your other transactions with us, our affiliates or others, such as your account balances and transactions history; and

•	Information from visitors to our websites provided through online forms, site visitorship data and online information‐collecting devices known as “cookies.”

 

We do not solicit personal or financial information from minors without written parental consent, nor do we knowingly market products and services to minors.

 

How We Use This Information

We may share all of the information we collect with the Companies as part of the ordinary course of providing financial products and services to you, for the purpose of offering you new products and services to address your financial needs, for product development purposes and as otherwise required or permitted by law.

 

To assist in our business dealings with you, we may also share this information with companies (other than the Companies) that perform services, including marketing services, on our behalf (such as vendors that package and mail our investor statements and marketing research firms that enhance our ability to market our products and services). We do not share your information with mailing list or direct marketing companies. Thus, the information you provide to us will not result in unwanted solicitations from third‐party marketers.

 

Finally, we may share this information with other entities outside of the Companies for the following purposes, including among others:

 

•	To respond to a subpoena or court order, judicial process or regulatory inquiry;

•	To report suspicious transactions to government agencies and law enforcement officials;

•	To protect against fraud;

•	To provide products and services with the consent or the direction of a customer; or

•	In connection with the proposed or actual sale or merger of all or a portion of a business or operating unit.

 

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(Unaudited)

 

Except as described above, and except for information we provide to nonaffiliated third parties as otherwise required or permitted by law, we do not share information about you with nonaffiliated third parties.

 

Security of Personal Financial Information

We restrict access to information about you to those employees we determine need to know that information  to  provide  products  and  services  to  you.  We  maintain  physical,  electronic  and procedural safeguards to protect this information.

 

If you provide information to us via our websites in order to view your account activity or conduct transactions, we use 128‐bit SSL encryption security with passwords to ensure a safe transmission of data between you and us. Information you provide is stored and transmitted in a secure environment, accessible only by a select group of people who are given a secure passcode to access the information.

 

We continuously assess new technology for protecting information and upgrade our systems where appropriate.

 

If You Have Any Questions or Concerns About This Privacy Policy Notice,  Please Write to Us at:

 

ALPS Advisors, Inc.

Attn: Compliance Department
1290 Broadway, Suite 1100
Denver, CO 80203

 

Former Customers

If,  for  whatever  reason,  our  customer  relationship  with  you  ends,  we  will  preserve  your information as necessary to comply with applicable laws. The measures we take to protect the privacy of customer information, as described in this Privacy Policy Notice, will continue to apply to you. We also will comply with more restrictive state laws to the extent they apply.

 

We reserve the right to change this Privacy Policy Notice, and any of the policies described herein, at any time. The examples contained in this Privacy Policy Notice are illustrations; they are not intended to be exclusive.

 

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March 31, 2017 (Unaudited)

 

CBOE Volatility Index

A key measure of market expectations of near‐term volatility conveyed by S&P 500^® stock index option prices.

 

Dow Jones Industrial Average

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

 

Lipper Large‐Cap Core Mutual Fund Average

The average of funds that, by portfolio practice, invest at least 75% of their equity assets in companies with market capitalizations (on a three‐year weighted basis) above Lipper’s U.S. domestic equity large‐cap floor. These funds typically have average characteristics compared to the S&P 500^® Index.

 

NASDAQ Composite Index

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

 

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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Secondary market support provided to the Fund by ALPS Fund Services, Inc.’s affiliate ALPS Portfolio Solutions  Distributor, Inc., a FINRA member.