Contents

 

A SINGLE INVESTMENT...

A DIVERSIFIED GROWTH PORTFOLIO

A single fund that offers:

 

·	A diversified, multi-managed portfolio of small, mid- and large cap growth stocks

·	Exposure to many of the industries that make the U.S. economy one of the world’s most dynamic

·	Access to institutional quality investment managers

·	Objective and ongoing manager evaluation

·	Active portfolio rebalancing

·	A quarterly fixed distribution policy

·	Actively managed, exchange-traded closed-end fund listed on the New York Stock Exchange (ticker symbol: ASG)

LIBERTY ALL-STAR^® GROWTH FUND, INC.

The views expressed in the President’s Letter, Unique Fund Attributes and Manager Roundtable reflect the current views of the respective parties. 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 respective parties disclaim 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. References to specific company securities should not be construed as a recommendation or investment advice.

---

(Unaudited)

Although equity returns were flattish for 2015, market action throughout the year was anything but calm. Periodic downdrafts roiled markets at various times in all four quarters, with the net result being the poorest year since 2008 for U.S. stocks overall.

The S&P 500^® Index returned 1.38 percent, ending three years of double-digit gains, while the widely-followed Dow Jones Industrial Average returned 0.21 percent. The best performance was turned in by the technology-focused NASDAQ Composite Index, which gained 6.96 percent. Six of the 10 sectors in the S&P 500^® posted losses for the year, with energy being the laggard at a decline of 21 percent. These key market metrics saved their best for last in 2015, posting their greatest advance in the fourth quarter, buoyed in particular by a strong month in October. That followed the weakest period, the third quarter, when all three indices declined in a range of 6 – 7 percent.

As they did in 2014, growth stocks again outperformed their value counterparts on a relative basis. Among market capitalization indices, the Russell Top 200^® Growth Index (large cap) returned 8.18 percent while the Russell Midcap^® Growth Index returned -0.20 percent. Small cap stocks, as represented by the Russell 2000^® Growth Index, returned -1.38 percent.

Investors scanning the world for indicators of future equity market conditions found more cause for concern than comfort in 2015. A leading source of worry was the sharp decline in energy prices, continuing a trend that, for crude oil, started in mid-year 2014. The domestic benchmark, West Texas Intermediate (WTI) crude, closed 2015 at $37 per barrel versus $94 per barrel in July 2014. Increasing supply as a result of the U.S. “energy revolution,” Saudi reluctance to limit production and the strong U.S. dollar all contributed to oil’s precipitous decline in price. Softer demand affected iron ore, copper and other metals as well. This accounted for a good portion of the weakness in emerging markets. In some emerging markets—like Brazil and Russia—energy and natural resources represent a significant portion of the economy.

Another source of worry was China, where reported nominal GDP has fallen into the 6 percent range from 12 percent a few years ago. China surprised financial markets on August 11 by announcing a devaluation of its currency. Its subsequent attempts to intervene and settle its own highly volatile stock market only served to heighten fears that its leadership was losing control of the world’s second-largest economy. Worries over China were reflected in a 6.03 percent decline in the S&P 500® during August, the index’s worst monthly performance in more than three years.

Investors scanning the world for indicators of future equity market conditions found more cause for concern than comfort in 2015...the U.S. was the safest port in the storm, but that was not without its own choppiness.

The geopolitical situation also served to keep investors on edge. Ongoing conflict in the Middle East was a source of headlines on a daily basis. But there was also fighting in Ukraine in the wake of Russia’s seizure of Crimea in late 2014; the massive influx of refugees across much of Western Europe; and Greece very nearly withdrawing from the Eurozone.

While the U.S. was the safest port in the storm, it was not without its own choppiness. There were three sources of concern: lackluster corporate earnings, modest economic growth and the increasing likelihood that the Federal Reserve Board would raise short-term interest rates. To the latter point, after months of speculation, the Fed finally ended the suspense in December with a 0.25 percent increase in the fed funds rate. As to economic expansion, sequential GDP growth through the first three quarters of the year was -0.2 percent, 3.9 percent and 2.0 percent. Preliminary data from the Commerce Department indicated that the domestic economy grew at a 0.7 percent annual rate in the fourth quarter of 2015. Like the first quarter of 2014, the negative 1Q15 GDP could be traced to an extremely harsh winter (exacerbated by a rising U.S. dollar and a West Coast port labor dispute). There were positive offsets to these factors, however. Perhaps the brightest spot was jobs, which showed solid growth throughout the year, including 307,000 new jobs in October, 252,000 in November and 262,000 in December as the unemployment rate dipped to 5.0 percent. Wages also rose, albeit modestly. Auto sales were another bright spot, as was consumer spending in general. In June, new home sales surged to a seven-year high, but this volatile metric weakened for the balance of the year. And inflation as measured by the consumer price index remained muted, rising just 0.7 over the trailing 12 months as of December. Low oil prices were a double-edge sword: good for consumers, but bad for industrial companies supplying capital equipment to the oil and gas industries.

---

(Unaudited)

 

Liberty All-Star^® Growth Fund

Liberty All-Star^® Growth Fund returns compared favorably for 2015. Returning 3.88 percent with shares valued at net asset value (NAV) with dividends reinvested and 5.14 percent with shares valued at market price with dividends reinvested, Fund results were ahead of all relevant benchmarks except the technology-focused NASDAQ Composite Index for the year. (Fund returns are net of expenses.)

For the fourth quarter, the Fund returned 9.30 percent with shares valued at net asset value (NAV) with dividends reinvested and 12.25 percent with shares valued at market price with dividends reinvested (net of expenses). Comparable fourth quarter gains were 7.04 percent for the S&P 500^® Index; 7.70 percent for the Dow Jones Industrial Average; and 8.71 percent for the NASDAQ Composite Index. The Lipper Multi-Cap Growth Mutual Fund Average returned 5.68 percent, while the Russell Growth Benchmark advanced 5.69 percent.

The Fund’s performance was very good for both periods, even though it was hindered somewhat by lower returns from mid- and small-cap growth stocks—which comprise two-thirds of the Fund’s assets— compared with large-cap growth stocks. As noted earlier in this letter, only the large-cap Russell Top 200® Growth Index showed a positive result for the year, while the Russell Midcap^® Growth Index and the small-cap Russell 2000® Growth Index both posted negative performance. Compared with 2014, the discount at which Fund shares traded relative to their underlying NAV widened during the year, ranging from a low of -7.3 percent to a high of -12.0 percent.

Fund distributions totaled $0.77 per share in 2015, including $0.45 in the fourth quarter. The exceptional fourth quarter amount included an additional distribution made in December for the purpose of allowing the Fund to meet its 2015 distribution requirement for federal excise tax purposes. The 2015 distributions bring the total distributed to shareholders since 1997, when the distribution policy commenced, to $12.65 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.

---

(Unaudited)

 

One of the key principles on which the Fund was founded is multi-management, or the practice of allocating the Fund’s assets to carefully selected growth style managers investing across the capitalization spectrum of large-, mid- and small-cap growth stocks. Thus, we are once again offering insights into the managers’ thinking through our annual roundtable question-and-answer exchange, and invite shareholders to read the managers’ comments.

On December 3, 2015 Richard Lowry retired as Chairman of the Board of Directors.  Mr. Lowry was a board member since 1994 when the multi-management structure was first implemented. He deserves special mention not only because of his long association with the Fund - but also for his enthusiastic support and dedication to the Fund for all those years. His guidance and expertise will be missed and we wish him all the best. Thomas Brock who has been a member of the Board since 2005 will succeed Mr. Lowry as your new Chairman. We congratulate and welcome him as the Fund’s new Chair and shareholders will be well served by his vast experience in the investment management industry.

As investors are well aware, the volatility that characterized 2015 continued and even greatly heightened as 2016 opened, the concerns being much the same as described in this letter. This is a painful situation for all investors. In a world in which the primary worry can be summed up as a lack of growth, there is promise in those companies with proprietary competitive advantages operating in sectors and industries where innovation drives opportunity. Finding those companies and unlocking their value is what the Fund’s managers do every day. We at Liberty All-Star^® Growth Fund will continue to do our job of complementing the managers’ skills by remaining vigilant, disciplined and focused on providing a high-quality, multi-cap growth fund for long-term investors. We thank you for your confidence in the Fund, and pledge our continued best efforts on your behalf.

---

(Unaudited)

FUND STATISTICS AND SHORT-TERM PERFORMANCE
PERIODS ENDED DECEMBER 31, 2015

---

(Unaudited)

*	All 2015 distributions consist of ordinary dividends and long-term capital gains. A breakdown of each 2015 distribution for federal income tax purposes can be found in the table on page 42.

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

The returns shown for the Lipper Multi-Cap Growth Mutual Fund Average are based on open-end mutual funds' total returns, which include dividends, and are net of fund expenses. Figures shown for the unmanaged Dow Jones Industrial Average, NASDAQ Composite Index, the Russell Growth Benchmark 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 55.

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.

---

(Unaudited)

UNIQUE ATTRIBUTES OF Liberty All-Star^® Growth Fund

Several attributes help to make the Fund a core equity holding for investors seeking a diversified growth portfolio, income and the potential for long-term appreciation.

---

---

---

---

(Unaudited)

---

---

---

---

 

---

---

THE FUND’S THREE GROWTH INVESTMENT MANAGERS

AND THE MARKET CAPITALIZATION ON WHICH EACH FOCUSES:

MANAGERS’ DIFFERING INVESTMENT STRATEGIES 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 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 55 for a description of these indices.

*	Certain holdings are held by more than one manager.

**	Excludes negative earnings.

---

---

(Unaudited)

MANAGER ROUNDTABLE

 

 

Liberty All-Star Growth Fund’s investment managers have long experience, in-depth knowledge, a proven track record and a firm commitment to growth style investing. Once again, therefore, we are grateful to be able to call upon this resource to provide Fund shareholders with timely commentary and insight. The Fund’s Investment Advisor, ALPS Advisors, serves as moderator of the roundtable. Participating investment management firms, the portfolio manager for each and their respective capitalization ranges are:

WEATHERBIE CAPITAL, LLC

Portfolio Manager/Matthew A. Weatherbie, CFA

President and Founder

Capitalization Focus/Small-Cap Growth – Weatherbie practices a small capitalization growth investment style focusing on high quality companies that demonstrate superior earnings growth prospects, yet are reasonably priced relative to their intrinsic value. The firm seeks to provide superior returns relative to small capitalization growth indices over a full market cycle.

TCW INVESTMENT MANAGEMENT COMPANY

Portfolio Manager/Chang Lee

Managing Director

Capitalization Focus/Mid-Cap Growth – TCW seeks capital appreciation through investment in the securities of rapidly growing companies whose business prospects, in TCW’s view, are not properly perceived by consensus research.

SUSTAINABLE GROWTH ADVISERS, LP

Portfolio Manager/George Fraise

Founding Principal

Capitalization Focus/Large-Cap Growth—SGA focuses on companies that have unique characteristics that lead to a high degree of predictability, strong profitability and above-average earnings and cash flow growth over the long term.

 

If 2015 could be summed up in one word it may well be “growth” ... or the lack thereof. From China to Europe to the U.S., slow/no growth was the worry that hung over equity markets all year. Where are you focusing as you search for growth opportunities over the next 12 – 18 months?

 

---

---

(Unaudited)

Weatherbie (Weatherbie – Small-Cap Growth): The U.S. economy is in an interesting period—while we believe the next recession is at least 18-24 months away, we also wonder if the next downturn might be caused by a non-economic event and not by central bank policy. As the long cycle of quantitative easing comes to an end, we have identified specific subsectors and industries—like energy services—that may face headwinds and we are underweight. Through careful fundamental research, however, we remain confident in our ability to identify smaller companies with good performance and are bullish on new health care, technology and financial services names. With the recent interest rate hike and the end of planned quantitative easing in the U.S., we believe the environment is ideal for well-researched, quality growth portfolios to outperform the broader equity markets.

Thank you. Let’s continue up the capitalization range by getting TCW’s mid-cap perspective and Sustainable Growth Advisers’ large-cap point of view.

Lee (TCW – Mid-Cap Growth): The world is in the early stages of consumer behavioral transformation driven by the latest technologies. This change in consumption patterns, whether it is in the form of an individual buying groceries online or a patient ordering genetic tests, is forcing every business in every sector to innovate. Existing infrastructures and business models themselves are being highly disrupted. In order for businesses to survive and thrive in this new world, they must fundamentally transform how they operate and utilize technologies. We are finding growth opportunities in companies that provide innovative solutions in today’s rapidly changing world. Companies such as Splunk (SPLK) and Workday (WDAY) in information technology, Athenahealth (ATHN) and Illumina (ILMN) in health care, and MarketAxess (MKTX) and WisdomTree (WETF) in financials are outpacing their competitors because of their differentiation.

Fraise (Sustainable – Large-Cap Growth): We continue to believe that growth will likely remain scarce in 2016 and that selectivity will be very important for investment success. Sustainable Growth Advisers (SGA) seeks unique businesses with superior and sustainable revenue and earnings growth regardless of geographic location or business segment. A central part of our investment process is finding companies with long runways of growth both in and outside the U.S. While such unique businesses can be found in the U.S. within the e-commerce, health care and consumer discretionary areas, to name a few, we have also increased our exposure to select growth businesses that generate higher levels of revenue from overseas to take advantage of valuation opportunities. A number of these businesses are attractively valued based on our enterprise yield valuation metrics. We also believe that for longer-term investors, such as ourselves, there are select opportunities today within the energy service segment that offer sustainable growth propositions and attractive valuations.

Some U.S. growth stocks have very high P/E ratios and there are those who believe the U.S. market in general is fully valued, especially as earnings growth has slowed. Are you finding companies with good growth prospects that you also consider to be attractively priced? George Fraise, start us off, please.

Fraise (Sustainable – Large-Cap Growth): U.S. market index returns in 2015 were strongly influenced by a small number of stocks that performed very well. While we own a number of those stocks and remain confident that they have solid long-term growth prospects, we have trimmed some of those positions as the stocks appreciated. We also continue to find other long-term growth opportunities that are still attractively valued based on our proprietary cash flow-based enterprise yield metric. SGA’s portfolio offers attractive forecasted earnings growth of 16.7 percent versus 9.6 percent for the Russell 1000 Growth Index over the next three years while the forecasted portfolio enterprise yield of the portfolio is about 3.6 percent compared to a long-term average for this metric of about 2.5 percent. In a slow growth global environment with low interest rates and little inflation, we believe there is also still opportunity for further multiple appreciation in select high quality, long-term, secular growth businesses.

 

---

---

(Unaudited)

Let’s get the mid-cap and small-cap perspectives.

Lee (TCW – Mid-Cap Growth): Even though the overall U.S. equity market performance was flattish for the year and some growth stocks are trading at the high end of their normal multiple range, approximately 45 percent of the stocks in the Russell Midcap Growth Index and 65 percent of the stocks in the Russell 2000 Growth Index are down 20 percent or more from their 52-week highs. As a result, we are finding many investment opportunities with attractive valuations. Companies like Hain Celestial (HAIN) and United Natural Foods (UNFI) in consumer staples and CarMax (KMX) and Polaris (PII) in consumer discretionary are trading at attractive price/earnings (P/E) multiples that we have not seen in many years.

“About 45 percent of the stocks in the Russell Midcap Growth Index and 65 percent of stocks in the Russell 2000 Growth Index are down 20 percent or more from their 52-week highs. As a result, we are finding many investment opportunities with attractive valuations.”

—Chang Lee

(TCW – Mid-Cap Growth)

Weatherbie (Weatherbie – Small-Cap Growth):

Weatherbie Capital builds a portfolio of smaller capitalization companies. As part of our overall portfolio risk management, we seek to have an average P/E ratio lower than our clients’ chosen benchmarks—like the Russell 2000 Growth Index. With that said, it is important to point out that we sometimes discover new, exciting companies with solid long-term growth prospects that, at the time of investment, may not have yet turned profitable—and as a result initially will have no P/E ratio to report. When we select firms like this for investment it is important to consider P/E and P/E growth alongside other metrics, for example, debt/capital or long-term growth forecasts, to make a complete assessment of the investment.

A follow-up question from last year, when we asked about periods of high volatility roiling equity markets: The same thing happened again in 2015, as early as the first quarter—when the S&P 500^® Index was up or down by 1 percent or more 19 times—and more recently the 12 percent correction in August and the weak markets at year end. What, in your view, is behind these bouts of high volatility, and is higher volatility the “new normal”? Chang Lee, we’ll turn to you first.

Lee (TCW – Mid-Cap Growth): In a slow growth environment, the market is more susceptible to economic shocks, and there are many areas of uncertainty that are reducing investor risk appetites. First and foremost, the Federal Reserve’s attempt to normalize its monetary policy is causing stress in many financial markets, including currency, commodity and credit. Second, Japanese and European economies have not fully recovered and require additional help from their central banks. Third, China is trying to transition to a more consumer-oriented economy, but that requires time and arduous reforms. Lastly, the world is dealing with significant geopolitical risks. While we do not expect these concerns to dissipate quickly, we expect volatility to subside as the fundamentals improve.

 

---

---

(Unaudited)

Matt and George, share your thoughts, please.

Weatherbie (Weatherbie – Small-Cap Growth): In 1976 the first U.S. equity index mutual fund was launched, and in 1985 the first U.S. equity exchange-traded fund (ETF) was introduced. By 2004 there were over 150 of these funds launched and running. Today there are over 1,300. According to Morningstar, approximately 38 percent of all daily U.S. stock trading is driven by index-based funds where pre-programmed algorithms send trade orders. One contributor to the “new normal” referenced in this question may well be index funds holding hundreds or thousands of positions traded by robots.

Liberty All-Star Growth Fund’s Weatherbie Specialized Growth portfolio is not composed of thousands of stock positions—we seek to research and own 50 to 60 of what we believe are the best smaller growth companies in America. Furthermore, our head trader, who is a 16-year veteran of our firm, carefully places trades for each position, evaluating price, liquidity and volume with a conservative, cautious approach.

“One contributor to (volatility) may well be index funds holding hundreds or thousands of positions traded by robots ... we seek to research and own 50 to 60 of what we believe are the best smaller growth companies in America.”

—Matt Weatherbie

(Weatherbie – Small-Cap Growth)

Fraise (Sustainable – Large-Cap Growth):

Volatility increased in 2015 relative to 2014 as growth expectations were scaled back and investors moved from an overly optimistic stance to a more cautious mindset. As growth expectations declined due to economic weakening overseas, geopolitical and terrorism issues, as well as continued  tepid and choppy growth in the U.S., the sense of risk in the market increased leading to greater variations in stock prices. SGA tends to perform better in more volatile environments as the quality, predictability and sustainability of our growth businesses are recognized and rewarded. Just as emotions go through variations, so do the markets. The factors driving increased volatility today are not unusual and should be looked upon as creating an opportunity for disciplined investment strategies.

“SGA tends to perform better in more volatile environments as the quality, predictability and sustainability of our growth businesses are recognized and rewarded.”

—George Fraise

(Sustainable – Large-Cap Growth)

What is a stock in the portion of the Liberty All-Star Growth Fund portfolio that you manage that did especially well for you in 2015, and what is a stock whose prospects you like for 2016?

Fraise (Sustainable – Large-Cap Growth): In 2015, Amazon.com (AMZN) benefited from strong growth in its retail platform as well as a better understanding of the value of its Amazon Web Services (AWS) business. We purchased Amazon believing that the company will dominate the e-commerce space here in the U.S. given its success in building its Prime customer base, its unprecedented distribution and fulfillment networks, its long growth runways abroad and the opportunity present in its high-margin AWS business. We believe Amazon continues to have unrecognized potential over our three- to five-year year time horizon but have trimmed our position consistent with our valuation discipline.

---

---

(Unaudited)

Whole Foods Market (WFM) underperformed the Russell 1000 Growth Index by a wide margin in 2015 as it faced concern over rising competition in the lucrative natural/organic food segment. While in retrospect we purchased the shares too early, we believe the company’s plan to address the competition issue by investing selectively in lower pricing, educating the consumer on the quality differential that exists, and capitalizing on its scale and supply advantages relative to peers should make 2016-2017 a much better period for the stock. We have added to the position opportunistically on weakness.

Weatherbie (Weatherbie – Small-Cap Growth): We owned EPAM Systems (EPAM) throughout 2015, during which it returned 65 percent, and we remain bullish for 2016. EPAM creates software with delivery centers primarily located in Central and Eastern Europe, and is focused on complex, high-value projects for Fortune 2000 companies. EPAM’s projects mostly involve emerging technologies, often referred to as SMAC (social, mobile, analytics and cloud). We believe EPAM is well positioned given its deep expertise in these digital technologies, sticky client relationships and the robust secular demand for SMAC technologies. Another stock we favor for 2016 is Diplomat Pharmacy (DPLO), which we started buying in Q2 of 2015. DPLO is a specialty pharmacy that serves patients with complex, chronic diseases by facilitating the dispensing of clinically intensive, high-cost specialty drugs. DPLO is uniquely positioned as the largest independent specialty pharmacy, and offers investors diversified exposure to the strong biotech industry drug pipeline and robust pricing environment.

Lee (TCW – Mid-Cap Growth): In 2015, Keurig Green Mountain (GMCR) was a standout performer as it was acquired at a high premium in December. For 2016, we like stocks that underperformed in 2015 despite demonstrating strong underlying fundamentals, such as Splunk (SPLK). Over the past few years, SPLK has successfully expanded the use cases for its differentiated technology from core machine data analytics to new areas such as security, user behavior and IT health monitoring. These new use cases are scalable across the enterprise, and are thus driving a growing addressable market, larger deal sizes and organic revenue growth comfortably above 40 percent in 2015. In contrast to many of its high-growth software peers, SPLK has a strong balance sheet, generates healthy cash flows and has been profitable on a non-GAAP basis since 2014. We also anticipate a smooth transition with the newly appointed CEO and believe the company was grooming him for the role internally for some time.  

Many thanks for your thoughtful comments. The year just past was challenging and 2016 appears to be shaping up that way as well. So, it’s heartening to see sound fundamental research, proprietary investment models and a disciplined process followed on a consistent basis when so much of the market is driven by emotion and algorithms.

 

---

---

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT

The graph below illustrates the growth of a hypothetical $10,000 investment assuming the purchase of shares of common stock at the closing market price (NYSE: ASG) of $9.25 on December 31, 1996, and tracking its progress through December 31, 2015. For certain information, it also assumes that a shareholder exercised all primary rights in the Fund’s rights offerings (see below). This graph covers the period since the Fund commenced its distribution policy in 1997.

 

		The growth of the investment assuming all distributions were received in cash and not reinvested back into the Fund. The value of the investment under this scenario grew to $18,627 (including the December 31, 2015 value of the original investment of $4,951, plus distributions during the period of $13,676).
		The additional value realized through reinvestment of all distributions. The value of the investment under this scenario grew to $31,850.
		The additional value realized by exercising all primary rights in the Fund’s rights offerings. The value of the investment under this scenario grew to $39,243 excluding the cost to exercise all primary rights in the rights offerings which was $5,299.

Past performance cannot predict future results. Performance will fluctuate with changes in 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.

---

---

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

 

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 net investment income and net realized 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.

---

---

 

 

*	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.

 

---

---

The following are the major ($600,000) stock changes - both purchases and sales - that were made in the Fund’s portfolio during the fourth quarter of 2015.

 

*	Adjusted for stock split

 

---

---

 

---

---

 

See Notes to Schedule of Investments and Financial Statements.

---

---

 

 

See Notes to Schedule of Investments and Financial Statements.

---

---

 

 

Annual Report | December 31, 2015

21

 

See Notes to Schedule of Investments and Financial Statements.

22	www.all-starfunds.com

Liberty All-Star® Growth Fund

Schedule of Investments

December 31, 2015

 

Annual Report | December 31, 2015

23

Liberty All-Star® Growth Fund

Schedule of Investments

December 31, 2015

Notes to Schedule of Investments:

(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 $13,242,673.

(c)	American Depositary Receipt.

(d)	Cost of investments for federal income tax purposes is $121,221,974.

Gross unrealized appreciation and depreciation at 12/31/2015 based on cost of investments for federal income tax purposes is as follows:

See Notes to Schedule of Investments and Financial Statements.

---

---

December 31, 2015

 

 

See Notes to Financial Statements.

---

---

For the Year Ended December 31, 2015

See Notes to Financial Statements. 

---

---

 

See Notes to Financial Statements.

---

Liberty All-Star^® Growth Fund

---

Financial Highlights

(a)	Calculated using average shares outstanding during the period.

(b)	Effect of Fund's tender offer for shares at a price below net asset value, net of costs.

(c)

Calculated assuming all distributions are reinvested at actual reinvestment prices. The net asset value and market price returns will differ depending upon the level of any discount from or premium to net asset value at which the Fund's shares traded during the period. Past performance is not a guarantee of future results.

See Notes to Financial Statements. 

---

Financial Highlights

---

---

---

December 31, 2015

 

 

---

---

December 31, 2015

 

---

---

December 31, 2015

 

---

---

December 31, 2015

 

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.

 

---

---

December 31, 2015

The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2015:

*	See Schedule of Investments for industry classifications.

 

NOTE 3. FEDERAL TAX INFORMATION

---

---

---

Net investment income/(loss) and net realized gain/(loss) may differ for financial statement and tax purposes. The character of distributions made during the year from net investment income or net realized gains may differ from its ultimate characterization for federal income tax purposes. The amounts and characteristics of tax basis distributions and composition of distributable earnings/(accumulated losses) are finalized at fiscal year-end. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or realized gain was recorded by the Fund.

---

 

The fund elects to defer to the fiscal year ending December 31, 2016, capital losses recognized during the period from November 1, 2015 to December 31, 2015 in the amount of $636,116.

For federal income tax purposes, the Fund currently qualifies, and intends to remain qualified, as a regulated investment company under the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended, by distributing substantially all of its investment company taxable net income including realized gain, not offset by capital loss carryforwards, if any, to its shareholders. Accordingly, no provision for federal income or excise taxes has been made.

As of and during the year ended December 31, 2015, the Fund did not have a liability for any unrecognized tax benefits. The Fund files U.S. federal, state, and local tax returns as required. The Fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations which is generally three years after the filing of the tax return. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.