N-CSRS 1 fp0045037_ncsrs.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number: 811-04809

 

Liberty All-Star Equity Fund

(exact name of registrant as specified in charter)

 

1290 Broadway, Suite 1100, Denver, Colorado 80203

(Address of principal executive offices) (Zip code)

 

ALPS Fund Services, Inc.

1290 Broadway, Suite 1100

Denver, Colorado 80203

(Name and address of agent for service)

 

Registrant’s telephone number, including area code: 303-623-2577

 

Date of fiscal year end:   December 31

 

Date of reporting period: January 1, 2019 – June 30, 2019

 

 

Item 1. Report of Shareholders.

 

 

 

 

 

Contents

 

1 President’s Letter
4 Top 20 Holdings and Economic Sectors
5 Major Stock Changes in the Quarter
6 Table of Distributions and Rights Offerings
7 Investment Managers/Portfolio Characteristics
8 Manager Interview
10 Schedule of Investments
17 Statement of Assets and Liabilities
18 Statement of Operations
19 Statements of Changes in Net Assets
20 Financial Highlights
22 Notes to Financial Statements
29 Privacy Policy
32 Description of Lipper Benchmark and Market Indices
Inside Back Cover: Fund Information

 

A SINGLE INVESTMENT ...

A DIVERSIFIED CORE PORTFOLIO

 

A single fund that offers:

 

●A diversified, multi-managed portfolio of growth and value 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: USA)

 

LIBERTY ALL-STAR® EQUITY FUND

 

Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website at www.all-starfunds.com, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

 

Beginning on January 1, 2019, you may, notwithstanding the availability of shareholder reports online, elect to receive all future shareholder reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Fund and your shares are held with the Fund’s transfer agent, Computershare, you can call 1-800-542-3863 to let the Fund know you wish to continue receiving paper copies of your shareholder reports.

 

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from a Fund electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor you may log into your Investor Center account at www.computershare.com/investor and go to “Communication Preferences”.

 

 

Liberty All-Star® Equity Fund President’s Letter
 

(Unaudited)

 

Fellow Shareholders: July 2019

 

The equity market did not provide investors with a smooth ride over the three months of the second quarter, but at the end of the period the results made it all worthwhile. April got the quarter off to a good start, May saw stocks caught in a downdraft before a rebound in June led to a stellar month to close the quarter and the first half.

 

For the quarter and the half, the S&P 500® Index returned 4.30 percent and 18.54 percent, respectively. The widely-followed Dow Jones Industrial Average (DJIA) returned 3.21 percent and 15.40 percent, while the NASDAQ Composite Index returned 3.87 percent and 21.33 percent.

 

Underlying economic fundamentals were supportive throughout the quarter and the half. It was the trade/tariff standoff between the U.S. and China that was the principal source of second quarter volatility. The week of May 6 was the worst of the year to date for stocks, as trade talks between the U.S. and China collapsed and the U.S. imposed 25 percent tariffs on $200 billion of Chinese imports. The following week wasn’t any better, as China retaliated with higher tariffs on $60 billion of U.S. goods. The situation was aggravated by the Trump administration’s ban on equipment from Chinese telecom network gear producer Huawei over security concerns. Another round of selling gripped Wall Street to close out the month, as the Trump administration threatened to impose a 5 percent duty on goods from Mexico if the country did not take more overt action to stem the flow of migrants crossing the country from Central America en route to the U.S. border. May closed with a monthly loss of 6.35 percent for the S&P 500®.

 

The tide turned in early June on comments from Fed Chair Jerome Powell that the Fed was “closely monitoring” developments on the trade front and may lower interest rates if the tariff battles proved injurious to the U.S. economy. A less-than-forecast addition of 75,000 new jobs in May—along with downwardly revised job figures from March and April—stoked speculation that the Fed would act if the economy slowed. Offsetting May’s decline, the S&P 500® rose 7.05 percent in June, and reached an all-time high during the third week of the month. As to tariff disputes, President Trump and President Xi Jinping of China met in person at the G20 summit in Japan at the end of June and pledged to continue working to resolve trade issues.

 

Liberty All-Star® Equity Fund

Liberty All-Star Equity Fund built on its good first quarter with a strong second quarter and first six months of 2019. For the second quarter, the Fund returned 4.49 percent with shares valued at net asset value (NAV) with dividends reinvested and 7.97 percent with shares valued at market price with dividends reinvested. (Fund returns are net of expenses.) The return on Fund shares valued at NAV and market price both exceeded that of the Lipper Large-Cap Core Mutual Fund Average, which returned 4.16 percent in the second quarter.

 

For the first half of the year, the Fund returned 19.06 percent with shares valued at NAV with dividends reinvested and 25.65 percent with shares valued at market price with dividends reinvested. The return on Fund shares valued at NAV and market price exceeded that of the Lipper Large-Cap Core Mutual Fund Average, which returned 17.59 percent for the first half. The Fund’s returns in the second quarter and first half also exceeded that of its secondary benchmark, the S&P 500®.

 

We note that growth style investing continued to produce better relative returns than value style stocks in the second quarter and first half. The broad market Russell 3000® Growth Index returned 4.50 percent for the quarter and 21.41 percent for the first six months. By comparison, its value counterpart returned 3.68 percent for the quarter and 16.05 percent for the half.

 

 
Semi-Annual Report (Unaudited) | June 30, 2019 1

 

 

Liberty All-Star® Equity Fund President’s Letter
 

(Unaudited)

 

The discount at which Fund shares trade relative to their underlying NAV narrowed during the second quarter. For the second quarter, Fund shares traded in a discount range of -3.6 percent to -7.0 percent versus -5.5 percent to -10.2 percent in the first quarter.

 

In accordance with the Fund’s distribution policy, the Fund paid a distribution of $0.17 per share in the second quarter. 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 $27.21 per share for a total of more than $2.9 billion since 1987 (the Fund's first full calendar year of operations). We continue to emphasize that shareholders should include these distributions when determining the total return on their investment in the Fund.

 

We are pleased with the Fund’s strong absolute and relative investment results through the first half of the year, as well as for the past several years. The Fund has trailing three-year annualized NAV and market price returns of 14.75 and 20.03 percent, respectively, with both measures exceeding the Fund’s primary and secondary benchmarks. We continue to have confidence that the Fund’s multi-manager, multi-style structure together with adherence to disciplined investing will serve shareholders’ best long-term interests.

 

Sincerely,

 

 

 

William R. Parmentier, Jr.

President and Chief Executive Officer
Liberty All-Star® Equity Fund

 

The views expressed in the President’s letter and the Manager Interview reflect the views of the President and Manager as of July 2019 and may not reflect their 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.

 

 
2 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund President’s Letter
 

(Unaudited)

 

Fund Statistics (Periods ended June 30, 2019)    
Net Asset Value (NAV)  $6.66 
Market Price  $6.42 
Discount   -3.6%

 

   Quarter   Year-to-Date 
Distributions*  $0.17   $0.32 
Market Price Trading Range   $5.90 to $6.46    $5.28 to $6.46 
Discount Range   -3.6% to -7.0%    -3.6% to -10.2% 
Performance (Periods ended June 30, 2019)          
Shares Valued at NAV with Dividends Reinvested   4.49%   19.06%
Shares Valued at Market Price with Dividends Reinvested   7.97%   25.65%
Dow Jones Industrial Average   3.21%   15.40%
Lipper Large-Cap Core Mutual Fund Average   4.16%   17.59%
NASDAQ Composite Index   3.87%   21.33%
S&P 500® Index   4.30%   18.54%

 

*Sources of distributions to shareholders may include ordinary dividends, long-term capital gains and return of capital. The final determination of the source of all distributions in 2019 for tax reporting purposes will be made after year end. 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. Based on current estimates a portion of the distributions consist of a return of capital. Pursuant to Section 852 of the Internal Revenue Code, the taxability of these distributions will be reported on Form 1099-DIV for 2019.

 

Performance 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 Large-Cap Core Mutual Fund Average are based on open-end mutual funds’ total returns, which include dividends, and are net of fund expenses. Returns 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 32.

 

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.

 

 
Semi-Annual Report (Unaudited) | June 30, 2019 3

 

 

Liberty All-Star® Equity Fund Top 20 Holdings & Economic Sectors
 

June 30, 2019 (Unaudited)

 

Top 20 Holdings*  Percent of
Net Assets		 
Visa, Inc.   2.27%
Adobe, Inc.   2.16 
PayPal Holdings, Inc.   2.10 
Amazon.com, Inc.   2.09 
Microsoft Corp.   1.80 
Alphabet, Inc.   1.77 
salesforce.com, Inc.   1.62 
Facebook, Inc.   1.52 
Halliburton Co.   1.45 
Abbott Laboratories   1.42 
American International Group, Inc.   1.37 
Equinix, Inc.   1.34 
Bank of America Corp.   1.28 
Capital One Financial Corp.   1.28 
Mondelez International, Inc.   1.19 
Edison International   1.15 
Danaher Corp.   1.15 
Home Depot, Inc.   1.14 
Oracle Corp.   1.04 
American Tower Corp.   1.02 
    30.16%

 

Economic Sectors* 

Percent of

Net Assets

 
Information Technology   20.49%
Financials   16.09 
Health Care   15.00 
Consumer Discretionary   12.47 
Industrials   7.96 
Communication Services   6.70 
Energy   5.68 
Consumer Staples   5.25 
Real Estate   3.62 
Materials   3.00 
Utilities   1.25 
Other Net Assets   2.49 
    100.00%

 

*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.

 

 
4 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund Major Stock Changes in the Quarter
 

(Unaudited)

 

The following are the major ($5 million or more) stock changes - both purchases and sales - that were made in the Fund’s portfolio during the second quarter of 2019.

 

   Shares 
Security Name  Purchases (Sales)   Held as of 6/30/19 
Purchases        
Halliburton Co.   234,452    866,924 
           
Sales          
Booking Holdings, Inc.   (2,781)   5,095 
Franklin Resources, Inc.   (168,889)   0 
Mondelez International, Inc.   (157,253)   301,199 
Ulta Beauty, Inc.   (19,915)   20,180 

 

 
Semi-Annual Report (Unaudited) | June 30, 2019 5

 

 

Liberty All-Star® Equity Fund Table of Distributions & Rights Offerings
 

(Unaudited)

 

           Rights Offerings      
Year  

Per Share

Distributions

  

Month

Completed

   

Shares Needed to

Purchase One

Additional Share

  

Subscription

Price

   Tax Credits1 
1988   $0.64                       
1989    0.95                       
1990    0.90                       
1991    1.02                       
1992    1.07     April     10   $10.05      
1993    1.07     October     15    10.41   $0.18 
1994    1.00     September     15    9.14      
1995    1.04                       
1996    1.18                     0.13 
1997    1.33                     0.36 
1998    1.40     April     20    12.83      
1999    1.39                       
2000    1.42                       
2001    1.20                       
2002    0.88     May     10    8.99      
2003    0.78                       
2004    0.89     July     102    8.34      
2005    0.87                       
2006    0.88                       
2007    0.90     December     10    6.51      
2008    0.65                       
20093    0.31                       
2010    0.31                       
2011    0.34                       
2012    0.32                       
2013    0.35                       
2014    0.39                       
20154    0.51                       
2016    0.48                       
20175    0.56                       
2018    0.68                       
2019                            
1st Quarter    0.15                       
2nd Quarter    0.17                       
Total   $26.03                       

 

1The 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.
2The number of shares offered was increased by an additional 25 percent to cover a portion of the over-subscription requests.
3Effective with the second quarter distribution, the annual distribution rate was changed from 10 percent to 6 percent.
4Effective with the second quarter distribution, the annual distribution rate was changed from 6 percent to 8 percent.
5Effective with the fourth quarter distribution, the annual distribution rate was changed from 8 percent to 10 percent.

 

DISTRIBUTION POLICY

 

The current policy is to pay distributions on its shares 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. Sources of distributions to shareholders may include ordinary dividends, long-term capital gains and return of capital. The final determination of the source of all distributions in 2019 for tax reporting purposes will be made after year end. 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 shareholder 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.

 

 
6 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund Investment Managers/
Portfolio Characteristics
 

(Unaudited)

 

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

 

 

 

 

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

 

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.

 

PORTFOLIO CHARACTERISTICS As of June 30, 2019 (Unaudited)

 
   Investment Style Spectrum             
   Value               Growth         
             
   PZENA   MACQUARIE   ARISTOTLE   SUSTAINABLE   TCW   TOTAL FUND  

S&P 500®

INDEX

 
Number of Holdings   38    33    44    28    32    148*   505 
Percent of Holdings in Top 10   37%   33%   35%   43%   52%   19%   22%
Weighted Average Market Capitalization (billions)  $67   $100   $125   $224   $220   $147   $245 
Average Five-Year Earnings Per Share Growth   5%   3%   14%   14%   28%   13%   11%
Dividend Yield   2.5%   2.6%   1.7%   1.0%   0.5%   1.6%   2.0%
Price/Earnings Ratio**   14x   18x   17x   31x   39x   21x   21x
Price/Book Value Ratio   1.3x   2.1x   2.4x   7.4x   7.5x   2.6x   3.4x

 

*Certain holdings are held by more than one manager.
**Excludes negative earnings.

 

 
Semi-Annual Report (Unaudited) | June 30, 2019 7

 

 

Liberty All-Star® Equity Fund Manager Interview
 

(Unaudited)

 

  Craig C. Blum, CFA
Group Managing Director
TCW Investment Management Company

 

TCW BLENDS OFFENSIVE AND DEFENSIVE STOCKS WITHOUT SACRIFICING GROWTH POTENTIAL

 

 

TCW Investment Management Company invests in companies that have superior sales growth, leading and/or rising market shares, and high and/or rising profit margins. TCW’s concentrated growth equity strategy seeks companies with distinct advantages in their business model. We recently had the chance to talk with Craig C. Blum, CFA, Group Managing Director and Portfolio Manager at TCW. The Fund’s Investment Advisor, ALPS Advisors, Inc., conducted the interview.

 

You commented in the Fund’s 2018 Annual Report that the volatility experienced in the fourth quarter would likely continue in 2019. Thus far, your comment seems prescient. At the same time, you viewed volatility as an opportunity to increase your allocation to “high-conviction” holdings at favorable prices. What actions have you taken through the first half of 2019 to increase exposures to those themes, sectors and companies in which you have “high conviction?” And, on the upside, if a stock rises what triggers a full or partial sale?

 

While our portfolio turnover remained relatively low in the first half of 2019, we have used market volatility to initiate a new position (ASML Holding, a Dutch manufacturer of chip-making equipment) as well as to add modestly to some of our more defensive growth stocks. We remain resolute in our belief that many of the secular themes to which we are exposed—e.g., cloud, digital transformation, mobile, e-commerce and digital payments—should continue to grow despite the trickiness of this late cycle environment. With the market hovering at all-time highs, we have been trimming a few names that we believe may be extended. A partial sale, or trim, occurs when a stock reaches our near-term, 12- to 18-month price target. For a full stock sale, or exiting a position, our process remains repeatable as we ask two questions: First, is the business model impaired? And, second, is the revenue opportunity impaired? If the answer to either is yes, we sell the position.

 

 

This year is shaping up as one in which macro factors are playing a significant role in driving equity markets. Those factors include the U.S.-China tariff dispute; tariff issues between the U.S. and other countries/regions, such as Mexico, Canada and the European Union; the possibility of interest rate cuts by the Federal Reserve; and geopolitical considerations like Iran and North Korea—not to mention references to the possibility of an outright recession in the U.S. Review for us, please, how TCW balances bottom-up research and stock-picking with larger macro issues. “Given the macro forces at work today and the unprecedented amount of global stimulus, we believe it is critical to have a balanced portfolio.”

 

 
8 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund Manager Interview
 

(Unaudited)

 

The portfolio is constructed bottom-up, one stock at a time but our portfolio construction process is top-down. Prior to the Great Recession (2008), we elected to employ a light macro overlay to our portfolio construction process whereby about two-thirds of our stocks are “offensive,” i.e., more cyclical, and about one-third are “defensive,” or less cyclical and uncorrelated to GDP. Importantly, we are not sacrificing growth with our defensive stocks; these companies still meet our stringent investment criteria but also tend to limit down capture in an increasingly macro, policy-driven stock market. Given the macro forces at work today and the unprecedented amount of global stimulus, we believe it is critical to have a balanced portfolio. For investors with increasingly short time horizons, it can be easy to get whipsawed by alternating between “risk-on” and “risk-off” sentiment. Timing this is almost impossible. We consider our balanced portfolio construction process another form of risk control.

 

What is a recent addition to the portion of the Liberty All-Star Equity Fund portfolio that you manage that exemplifies your approach to growth style investing, especially in the current environment?

 

IHS Markit Ltd., ticker symbol INFO, is a leading information services business with difficult to replicate data sets and deeply embedded data feeds and analytics in the transportation, resources and financial services industries. When we purchased the stock last year, we were attracted to its strong business model—83 percent recurring revenue, low capital intensity, negative working capital via pre-paid subscriptions and high free cash flow generation—but also our belief that INFO might prove to be a bit more defensive in the event of an economic downturn. While not a 20 percent top-line grower like some of our other companies, we believe INFO should be able to grow revenues 5-7 percent annually, improve EBITDA margins about 100 basis points per year and grow earnings 15 percent-plus for several years. And, while financial services would likely be most susceptible in an economic downturn and overall company growth would slow, we believe INFO’s other segments may provide a buffer and organic growth should remain positive.

 

Craig, thank you very much for your insights.

 

 
Semi-Annual Report (Unaudited) | June 30, 2019 9

 

 

Liberty All-Star® Equity Fund Schedule of Investments
 

June 30, 2019 (Unaudited)

 

   SHARES   MARKET VALUE 
COMMON STOCKS (97.51%)          
COMMUNICATION SERVICES (6.70%)          
Diversified Telecommunication Services (1.18%)          
AT&T, Inc.   238,600   $7,995,486 
Verizon Communications, Inc.   141,100    8,061,043 
         16,056,529 
Entertainment (0.82%)          
Walt Disney Co.   80,185    11,197,033 
           
Interactive Media & Services (3.73%)          
Alphabet, Inc., Class C(a)   22,304    24,108,617 
Facebook, Inc., Class A(a)   107,733    20,792,469 
Twitter, Inc.(a)   170,200    5,939,980 
         50,841,066 
Media (0.97%)          
Interpublic Group of Cos., Inc.   329,201    7,436,651 
Omnicom Group, Inc.   71,400    5,851,230 
         13,287,881 
CONSUMER DISCRETIONARY (12.47%)          
Auto Components (0.81%)          
Lear Corp.   79,050    11,009,293 
           
Automobiles (0.62%)          
Ford Motor Co.   822,817    8,417,418 
           
Hotels, Restaurants & Leisure (0.90%)          
Yum! Brands, Inc.   110,849    12,267,659 
           
Household Durables (1.97%)          
Lennar Corp., Class A   117,000    5,669,820 
Lennar Corp., Class B   2,500    96,275 
Mohawk Industries, Inc.(a)   55,744    8,220,568 
Newell Brands, Inc.   407,591    6,285,053 
Sony Corp.(b)   126,400    6,622,096 
         26,893,812 
Internet & Direct Marketing Retail (2.79%)          
Amazon.com, Inc.(a)   15,042    28,483,983 
Booking Holdings, Inc.(a)   5,095    9,551,647 
         38,035,630 
Multiline Retail (0.60%)          
Dollar Tree, Inc.(a)   76,100    8,172,379 

 

See Notes to Financial Statements.

 
10 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund Schedule of Investments
 

June 30, 2019 (Unaudited)

 

   SHARES   MARKET VALUE 
COMMON STOCKS (continued)          
Specialty Retail (3.33%)          
Home Depot, Inc.   74,645   $15,523,921 
Lowe's Cos., Inc.   132,549    13,375,520 
TJX Cos., Inc.   180,763    9,558,747 
Ulta Beauty, Inc.(a)   20,180    7,000,240 
         45,458,428 
Textiles, Apparel & Luxury Goods (1.45%)          
Gildan Activewear, Inc.   84,164    3,255,463 
NIKE, Inc., Class B   112,907    9,478,543 
PVH Corp.   73,653    6,970,520 
         19,704,526 
CONSUMER STAPLES (5.25%)          
Beverages (1.01%)          
Coca-Cola Co.   148,000    7,536,160 
Monster Beverage Corp.(a)   97,400    6,217,042 
         13,753,202 
Food & Staples Retailing (0.81%)          
Costco Wholesale Corp.   26,000    6,870,760 
Walgreens Boots Alliance, Inc.   77,000    4,209,590 
         11,080,350 
Food Products (2.23%)          
Archer-Daniels-Midland Co.   177,300    7,233,840 
Mondelez International, Inc., Class A   301,199    16,234,626 
Tyson Foods, Inc., Class A   85,000    6,862,900 
         30,331,366 
Personal Products (1.20%)          
Estee Lauder Cos., Inc., Class A   51,877    9,499,197 
Unilever NV   114,000    6,922,080 
         16,421,277 
ENERGY (5.68%)          
Energy Equipment & Services (2.47%)          
Baker Hughes a GE Co.   220,794    5,438,156 
Halliburton Co.   866,924    19,713,852 
National Oilwell Varco, Inc.   384,909    8,556,527 
         33,708,535 
Oil, Gas & Consumable Fuels (3.21%)          
Cenovus Energy, Inc.   528,447    4,660,902 
Concho Resources, Inc.   20,900    2,156,462 
ConocoPhillips   118,600    7,234,600 
Marathon Oil Corp.   514,010    7,304,082 
Occidental Petroleum Corp.   137,200    6,898,416 
Phillips 66   70,000    6,547,800 

 

See Notes to Financial Statements.

 
Semi-Annual Report (Unaudited) | June 30, 2019 11

 

 

Liberty All-Star® Equity Fund Schedule of Investments
 

June 30, 2019 (Unaudited)

 

   SHARES   MARKET VALUE 
COMMON STOCKS (continued)          
Oil, Gas & Consumable Fuels (continued)          
Pioneer Natural Resources Co.   25,500   $3,923,430 
Royal Dutch Shell PLC, Class A(b)   77,126    5,018,589 
         43,744,281 
FINANCIALS (16.09%)          
Banks (5.96%)          
Banco Bilbao Vizcaya Argentaria SA(b)   810,000    4,503,600 
Bank of America Corp.   602,603    17,475,487 
BB&T Corp.   159,300    7,826,409 
BOK Financial Corp.   42,000    3,170,160 
Citigroup, Inc.   161,935    11,340,308 
Commerce Bancshares, Inc.   67,500    4,027,050 
Cullen/Frost Bankers, Inc.   38,000    3,559,080 
East West Bancorp, Inc.   94,300    4,410,411 
JPMorgan Chase & Co.   108,487    12,128,846 
Mitsubishi UFJ Financial Group, Inc.(b)   650,000    3,087,500 
Wells Fargo & Co.   206,430    9,768,268 
         81,297,119 
Capital Markets (3.39%)          
Ameriprise Financial, Inc.   48,500    7,040,260 
Bank of New York Mellon Corp.   152,200    6,719,630 
Charles Schwab Corp.   128,600    5,168,434 
Goldman Sachs Group, Inc.   31,782    6,502,597 
KKR & Co., Inc., Class A   169,926    4,294,030 
Morgan Stanley   177,414    7,772,507 
S&P Global, Inc.   21,300    4,851,927 
UBS Group AG   325,600    3,858,360 
         46,207,745 
Consumer Finance (1.28%)          
Capital One Financial Corp.   192,039    17,425,619 
           
Diversified Financial Services (0.90%)          
AXA Equitable Holdings, Inc.   331,351    6,925,236 
Voya Financial, Inc.   97,006    5,364,432 
         12,289,668 
Insurance (4.56%)          
Allstate Corp.   82,200    8,358,918 
American International Group, Inc.   351,890    18,748,699 
Axis Capital Holdings, Ltd.   89,225    5,322,271 
Chubb, Ltd.   88,000    12,961,520 
Marsh & McLennan Cos., Inc.   85,700    8,548,575 
MetLife, Inc.   166,053    8,247,853 
         62,187,836 

 

See Notes to Financial Statements.

 
12 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund Schedule of Investments
 

June 30, 2019 (Unaudited)

 

   SHARES   MARKET VALUE 
COMMON STOCKS (continued)          
HEALTH CARE (15.00%)          
Biotechnology (2.02%)          
Alexion Pharmaceuticals, Inc.(a)   30,500   $3,994,890 
Amgen, Inc.   69,530    12,812,989 
BioMarin Pharmaceutical, Inc.(a)   46,500    3,982,725 
Regeneron Pharmaceuticals, Inc.(a)   21,804    6,824,652 
         27,615,256 
Health Care Equipment & Supplies (4.58%)          
Abbott Laboratories   230,817    19,411,710 
Alcon, Inc.(a)   94,313    5,852,121 
Align Technology, Inc.(a)   21,480    5,879,076 
Becton Dickinson and Co.   32,713    8,244,003 
Danaher Corp.   109,353    15,628,731 
Medtronic PLC   76,500    7,450,335 
         62,465,976 
Health Care Providers & Services (4.09%)          
Acadia Healthcare Co., Inc.(a)   112,000    3,914,400 
Cardinal Health, Inc.   243,147    11,452,224 
Cigna Corp.   46,457    7,319,300 
CVS Health Corp.   135,000    7,356,150 
McKesson Corp.   52,029    6,992,177 
Quest Diagnostics, Inc.   80,000    8,144,800 
UnitedHealth Group, Inc.   43,677    10,657,625 
         55,836,676 
Life Sciences Tools & Services (0.51%)          
Illumina, Inc.(a)   18,735    6,897,290 
           
Pharmaceuticals (3.80%)          
Johnson & Johnson   59,300    8,259,304 
Merck & Co., Inc.   99,900    8,376,615 
Mylan NV(a)   205,038    3,903,924 
Novartis AG(b)   71,400    6,519,534 
Novo Nordisk A/S(b)   160,301    8,181,763 
Pfizer, Inc.   182,000    7,884,240 
Zoetis, Inc.   76,100    8,636,589 
         51,761,969 
INDUSTRIALS (7.96%)          
Aerospace & Defense (1.63%)          
General Dynamics Corp.   36,000    6,545,520 
Northrop Grumman Corp.   26,700    8,627,037 
Raytheon Co.   40,300    7,007,364 
         22,179,921 

 

See Notes to Financial Statements.

 
Semi-Annual Report (Unaudited) | June 30, 2019 13

 

 

Liberty All-Star® Equity Fund Schedule of Investments
 

June 30, 2019 (Unaudited)

 

   SHARES   MARKET VALUE 
COMMON STOCKS (continued)          
Building Products (1.05%)          
Allegion PLC   68,500   $7,572,675 
Johnson Controls International PLC   163,000    6,733,530 
         14,306,205 
Commercial Services & Supplies (1.06%)          
Waste Connections, Inc.   62,600    5,983,308 
Waste Management, Inc.   73,300    8,456,621 
         14,439,929 
Industrial Conglomerates (0.72%)          
General Electric Co.   929,137    9,755,939 
           
Machinery (2.45%)          
Oshkosh Corp.   90,500    7,555,845 
Parker-Hannifin Corp.   39,000    6,630,390 
Stanley Black & Decker, Inc.   51,049    7,382,196 
Wabtec Corp.   80,124    5,749,698 
Xylem, Inc.   73,500    6,147,540 
         33,465,669 
Professional Services (1.05%)          
IHS Markit, Ltd.(a)   97,900    6,238,188 
TransUnion   110,700    8,137,557 
         14,375,745 
INFORMATION TECHNOLOGY (20.49%)          
Communications Equipment (0.61%)          
Cisco Systems, Inc.   151,800    8,308,014 
           
IT Services (6.92%)          
Automatic Data Processing, Inc.   50,658    8,375,287 
Cognizant Technology Solutions Corp., Class A   119,301    7,562,491 
FleetCor Technologies, Inc.(a)   34,173    9,597,487 
Mastercard, Inc., Class A   35,055    9,273,099 
PayPal Holdings, Inc.(a)   249,795    28,591,536 
Visa, Inc., Class A   178,558    30,988,741 
         94,388,641 
Semiconductors & Semiconductor Equipment (2.27%)          
ASML Holding N.V.   15,171    3,154,506 
Broadcom Ltd.   27,300    7,858,578 
Intel Corp.   146,400    7,008,168 
Microchip Technology, Inc.   89,000    7,716,300 
NVIDIA Corp.   31,943    5,245,999 
         30,983,551 

 

See Notes to Financial Statements.

 
14 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund Schedule of Investments
 

June 30, 2019 (Unaudited)

 

   SHARES   MARKET VALUE 
COMMON STOCKS (continued)          
Software (10.13%)          
Adobe, Inc.(a)   99,765   $29,395,757 
ANSYS, Inc.(a)   40,500    8,295,210 
Autodesk, Inc.(a)   64,710    10,541,259 
Intuit, Inc.   36,368    9,504,050 
Microsoft Corp.   183,530    24,585,679 
Oracle Corp.   248,853    14,177,155 
salesforce.com, Inc.(a)   145,625    22,095,681 
ServiceNow, Inc.(a)   49,281    13,531,084 
Splunk, Inc.(a)   47,900    6,023,425 
         138,149,300 
Technology Hardware, Storage & Peripherals (0.56%)          
Hewlett Packard Enterprise Co.   509,076    7,610,686 
           
MATERIALS (3.00%)          
Chemicals (2.47%)          
Ecolab, Inc.   56,093    11,075,002 
EI du Pont de Nemours & Co.   105,151    7,893,686 
Linde PLC   40,209    8,073,967 
PPG Industries, Inc.   57,000    6,652,470 
         33,695,125 
Construction Materials (0.53%)          
Martin Marietta Materials, Inc.   31,000    7,133,410 
           
REAL ESTATE (3.62%)          
Equity Real Estate Investment Trusts (REITs) (3.62%)          
American Tower Corp.   68,300    13,963,935 
Equinix, Inc.   36,258    18,284,547 
Equity LifeStyle Properties, Inc.   36,800    4,465,312 
Equity Residential   107,700    8,176,584 
Sun Communities, Inc.   35,100    4,499,469 
         49,389,847 
UTILITIES (1.25%)          
Electric Utilities (1.15%)          
Edison International   231,988    15,638,311 
           
Gas Utilities (0.10%)          
National Fuel Gas Co.   27,043    1,426,518 
           
TOTAL COMMON STOCKS          
(COST OF $1,040,395,463)        1,329,612,630 

 

See Notes to Financial Statements.

 
Semi-Annual Report (Unaudited) | June 30, 2019 15

 

 

Liberty All-Star® Equity Fund Schedule of Investments
 

June 30, 2019 (Unaudited)

 

   SHARES   MARKET VALUE 
SHORT TERM INVESTMENTS (2.50%)          
MONEY MARKET FUND (2.50%)          
State Street Institutional US Government Money Market Fund, 2.296%(c)          
(COST OF $34,088,362)   34,088,362   $34,088,362 
           
TOTAL SHORT TERM INVESTMENTS          
(COST OF $34,088,362)        34,088,362 
           
TOTAL INVESTMENTS (100.01%)          
(COST OF $1,074,483,825)        1,363,700,992 
           
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.01%)        (81,906)
           
NET ASSETS (100.00%)       $1,363,619,086 
           
NET ASSET VALUE PER SHARE          
(204,697,796 SHARES OUTSTANDING)       $6.66 

 

(a)Non-income producing security.
(b)American Depositary Receipt.
(c)Rate reflects seven-day effective yield on June 30, 2019.

 

See Notes to Financial Statements.

 
16 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund Statement of Assets and Liabilities
 

June 30, 2019 (Unaudited)

 

ASSETS:    
Investments at market value (Cost $1,074,483,825)  $1,363,700,992 
Receivable for investment securities sold   112,267 
Dividends and interest receivable   1,143,178 
Tax reclaim receivable   187,683 
Prepaid and other assets   140,362 
TOTAL ASSETS   1,365,284,482 
      
LIABILITIES:     
Payable for investments purchased   211,107 
Investment advisory fee payable   775,685 
Payable for administration, pricing and bookkeeping fees   392,353 
Accrued expenses   286,251 
TOTAL LIABILITIES   1,665,396 
NET ASSETS  $1,363,619,086 
      
NET ASSETS REPRESENTED BY:     
Paid-in capital  $1,115,401,680 
Total distributable earnings  $248,217,406 
NET ASSETS  $1,363,619,086 
      
Shares of common stock outstanding (unlimited number of shares of beneficial interest without par value authorized)   204,697,796 
NET ASSET VALUE PER SHARE  $6.66 

 

See Notes to Financial Statements.

 
Semi-Annual Report (Unaudited) | June 30, 2019 17

 

 

Liberty All-Star® Equity Fund Statement of Operations
 

For the Six Months Ended June 30, 2019 (Unaudited)

 

INVESTMENT INCOME:    
Dividends (Net of foreign taxes withheld at source which amounted to $129,528)  $11,458,541 
Securities lending income   13,753 
TOTAL INVESTMENT INCOME   11,472,294 
      
EXPENSES:     
Investment advisory fee   4,602,889 
Administration fee   1,150,727 
Pricing and bookkeeping fees   81,494 
Audit fee   23,533 
Custodian fee   52,821 
Insurance expense   26,530 
Legal fees   131,133 
NYSE fee   105,191 
Shareholder communication expenses   64,621 
Transfer agent fees   62,711 
Trustees’ fees and expenses   133,992 
Miscellaneous expenses   23,147 
TOTAL EXPENSES   6,458,789 
NET INVESTMENT INCOME   5,013,505 
      
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:     
Net realized gain on investment transactions   50,797,492 
Net realized gain on foreign currency transactions   768 
Net change in unrealized appreciation on investments   165,505,046 
Net change in unrealized appreciation on foreign currency transactions   1,683 
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS   216,304,989 
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  $221,318,494 

 

See Notes to Financial Statements.

 
18 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund Statements of Changes in Net Assets
 

 

  

For the Six

Months Ended

June 30, 2019

(Unaudited)

  

For the

Year Ended

December 31, 2018

 
FROM OPERATIONS:          
Net investment income  $5,013,505   $9,569,061 
Net realized gain on investment transactions   50,798,260    100,668,585 
Net change in unrealized appreciation/(depreciation) on investments   165,506,729    (168,327,936)
Net Increase/(Decrease) in Net Assets From Operations   221,318,494    (58,090,290)
           
DISTRIBUTIONS TO SHAREHOLDERS:          
From distributable earnings   (64,567,326)   (109,670,517)
Return of capital   –    (23,661,265)
Total Distributions   (64,567,326)   (133,331,782)
           
CAPITAL SHARE TRANSACTIONS:          
Dividend reinvestments   23,792,384    44,719,226 
Net increase resulting from Capital Share Transactions   23,792,384    44,719,226 
           
Total Increase/(Decrease) in Net Assets   180,543,552    (146,702,846)
           
NET ASSETS:          
Beginning of period   1,183,075,534    1,329,778,380 
End of period  $1,363,619,086   $1,183,075,534 

 

See Notes to Financial Statements.

 
Semi-Annual Report (Unaudited) | June 30, 2019 19

 

 

Liberty All-Star® Equity Fund

 

Financial Highlights

 

 
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)
Net realized and unrealized gain/(loss) on investments
Total from Investment Operations
 
LESS DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Net realized gain on investments
Return of capital
Total Distributions
Net asset value at end of period
Market price at end of period
 
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS:(b)
Based on net asset value
Based on market price
 
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (millions)
Ratio of expenses to average net assets
Ratio of net investment income to average net assets
Portfolio turnover rate

 

(a)Calculated using average shares outstanding during the period.
(b)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.
(c)Not annualized.
(d)Annualized.

 

See Notes to Financial Statements.

 
20 www.all-starfunds.com

 

 

Financial Highlights

 

 

For the Six

Months Ended

June 30, 2019

   For the Year Ended December 31, 
(Unaudited)   2018   2017   2016   2015   2014 
                      
$5.89   $6.87   $6.13   $6.18   $6.84   $6.71 
                            
 0.02    0.05    0.04    0.04    0.04    0.02 
 1.07    (0.35)   1.26    0.39    (0.19)   0.50 
 1.09    (0.30)   1.30    0.43    (0.15)   0.52 
                            
 (0.32)   (0.05)   (0.04)   (0.05)   –    (0.08)
 –    (0.51)   (0.45)   (0.38)   (0.51)   (0.30)
 –    (0.12)   (0.07)   (0.05)   –    (0.01)
 (0.32)   (0.68)   (0.56)   (0.48)   (0.51)   (0.39)
$6.66   $5.89   $6.87   $6.13   $6.18   $6.84 
$6.42   $5.38   $6.30   $5.16   $5.35   $5.98 
                            
 19.1%(c)   (4.5%)   23.4%   9.1%   (1.0%)   8.9%
 25.7%(c)   (4.9%)   34.4%   6.1%   (2.0%)   7.0%
                            
$1,364   $1,183   $1,330   $1,161   $1,137   $1,225 
 1.00%(d)   1.00%   1.01%   1.07%   1.04%   1.03%
 0.77%(d)   0.72%   0.64%   0.76%   0.60%   0.32%
 11%(c)   22%   21%   46%   76%   36%

 

 
Semi-Annual Report (Unaudited) | June 30, 2019 21

 

 

Liberty All-Star® Equity Fund Notes to Financial Statements

June 30, 2019 (Unaudited)

 

NOTE 1. ORGANIZATION

Liberty All-Star® Equity Fund (the “Fund”) is a Massachusetts business trust registered under the Investment Company Act of 1940 (the “1940 Act”), as amended, as a diversified, closed-end management investment company.

 

Investment Goal

The Fund seeks total investment return comprised of long-term capital appreciation and current income through investing primarily in a diversified portfolio of equity securities.

 

Fund Shares

The Fund may issue an unlimited number of shares of beneficial interest.

 

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The Fund is considered an investment company under U.S. generally accepted accounting principles (“GAAP”) and follows the accounting and reporting guidance applicable to investment companies in the Financial Accounting Standards Board Accounting Standards Codification Topic 946.

 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates.

 

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 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 securities will be valued by the Fund’s Fair Valuation Committee using fair valuation procedures established by the Board. Examples of potentially significant events that could materially impact the value of a security 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” and “AAI”), 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 June 30, 2019, the Fund held no securities that were fair valued.

 

 
22 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund Notes to Financial Statements

June 30, 2019 (Unaudited)

 

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.

 

Any cash collateral received is reinvested in a money market fund managed by SSB as disclosed in the Fund’s Schedule of Investments and is reflected in the Statement of Assets and Liabilities as a payable for collateral upon return of securities loaned. Non-cash collateral, in the form of securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, is not disclosed in the Fund’s Statements of Assets and Liabilities as it is held by the lending agent on behalf of the Fund and the Fund does not have the ability to re-hypothecate these securities. Income earned by the Fund from securities lending activity is disclosed in the Statement of Operations.

 

 
Semi-Annual Report (Unaudited) | June 30, 2019 23

 

 

Liberty All-Star® Equity Fund Notes to Financial Statements

June 30, 2019 (Unaudited)

 

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.

 

As of June 30, 2019 there were no securities on loan.

 

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.

 

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 the most recent quoted bid and ask prices on such day and are generally categorized as Level 2 in the hierarchy. Investments in open-end mutual funds 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

 

 
24 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund Notes to Financial Statements

June 30, 2019 (Unaudited)

 

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 June 30, 2019:

 

   Valuation Inputs     
Investments in Securities at Value*  Level 1   Level 2   Level 3   Total 
Common Stocks  $1,329,612,630  $–   $–   $1,329,612,630 
Short Term Investments   34,088,362    –    –    34,088,362 
Total  $1,363,700,992  $–   $–   $1,363,700,992 

 

*See Schedule of Investments for industry classifications.

 

The Fund did not have any securities that used significant unobservable inputs (Level 3) in determining fair value during the period.

 

Distributions to Shareholders

The Fund currently has a policy of paying distributions on its shares of beneficial interest totaling approximately 10% of its net asset value per year. The distributions are 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 ex-date.

 

NOTE 3. FEDERAL TAX INFORMATION AND TAX BASIS INFORMATION

The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. If, for any calendar year, the total distributions made under the distribution policy exceed the Fund’s net investment income and net realized capital gains, the excess will generally be treated as a non-taxable 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 distributed under the distribution policy, the Fund may, in its discretion, retain and not distribute net realized capital gains and pay income tax thereon to the extent of such excess.

 

Classification of Distributions to Shareholders

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. 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 amounts and characteristics of tax basis distributions and composition of distributable earnings/(accumulated losses) are determined at the time in which distributions are paid, which may occur after the fiscal year end. Accordingly, tax basis balances have not been determined as of June 30, 2019.

 

 

Semi-Annual Report (Unaudited) | June 30, 2019 25

 

 

Liberty All-Star® Equity Fund Notes to Financial Statements

June 30, 2019 (Unaudited)

 

The tax character of distributions paid during the year ended December 31, 2018 were as follows:

 

Distributions Paid From:  December 31, 2018 
Ordinary Income  $11,589,164 
Long-term capital gains   98,081,353 
Return of Capital   23,661,265 
Total  $133,331,782 

 

As of June 30, 2019, the cost of investments for federal income tax purposes and accumulated net unrealized appreciation/(depreciation) on investments was as follows:

 

Cost of Investments   Gross unrealized
Appreciation (excess of
value over tax cost)		    Gross unrealized
Depreciation (excess of
tax cost over value)		    Net Unrealized
Appreciation		 
$1,075,135,314   $ 353,577,983    $ (65,012,305)    $288,565,678 

 

The differences between book-basis and tax-basis are primarily due to deferral of losses from wash sales and the differing treatment of certain other investments.

 

Federal Income Tax Status

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 six months ended June 30, 2019, 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.

 

 
26 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund Notes to Financial Statements

June 30, 2019 (Unaudited)

 

NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES

Investment Advisory Fee

AAI serves as the investment advisor to the Fund. AAI receives a monthly investment advisory fee based on the Fund’s average daily net assets at the following annual rates:

 

Average Daily Net Assets   Annual Fee Rate  
First $400 million   0.800%  
Next $400 million   0.720%  
Next $400 million   0.648%  
Over $1.2 billion   0.584%  

 

Investment Advisory Fees for the six months ended June 30, 2019 are reported on the Statement of Operations.

 

AAI retains multiple Portfolio Managers to manage the Fund’s investments in various asset classes. AAI pays each Portfolio Manager a portfolio management fee based on the assets of the investment portfolio that they manage. The portfolio management fee is paid from the investment advisory fees collected by AAI and is based on the Fund’s average daily net assets at the following annual rates:

 

Average Daily Net Assets   Annual Fee Rate  
First $400 million   0.400%  
Next $400 million   0.360%  
Next $400 million   0.324%  
Over $1.2 billion   0.292%  

 

Administration, Bookkeeping and Pricing Services

ALPS Fund Services, Inc. (“ALPS”) serves as the administrator to the Fund and the Fund has agreed to pay expenses incurred in connection with this service. Pursuant to an Administrative, Bookkeeping and Pricing Services Agreement, ALPS provides operational services to the Fund including, but not limited to, fund accounting and fund administration and generally assists in the Fund’s operations. Officers of the Trust are employees of ALPS. The Fund’s administration fee is accrued on a daily basis and paid monthly. Administration, Pricing and Bookkeeping fees paid by the Fund for the six months ended June 30, 2019 are disclosed in the Statement of Operations.

 

The Fund also reimburses ALPS for out-of-pocket expenses and charges, including fees payable to third parties for pricing the Fund’s portfolio securities and direct internal costs incurred by ALPS in connection with providing fund accounting oversight and monitoring and certain other services.

 

Fees Paid to Officers

All officers of the Fund, including the Fund’s Chief Compliance Officer, are employees of AAI or its affiliates, and receive no compensation from the Fund. The Board of Trustees has appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations.

 

 
Semi-Annual Report (Unaudited) | June 30, 2019 27

 

 

Liberty All-Star® Equity Fund Notes to Financial Statements

 

June 30, 2019 (Unaudited)

 

NOTE 5. PORTFOLIO INFORMATION

 

Purchases and Sales of Securities

For the six months ended June 30, 2019, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $141,146,873 and $179,688,886, respectively.

 

NOTE 6. CAPITAL TRANSACTIONS

 

During the six months ended June 30, 2019 and year ended December 31, 2018, distributions in the amounts of $23,792,384 and $44,719,226, respectively, were paid in newly issued shares valued at market value or net asset value, but not less than 95% of market value. Such distributions resulted in the issuance of 3,885,892 and of 7,228,907 shares, respectively.

 

Under the Fund’s Automatic Dividend Reinvestment and Direct Purchase Plan (the “Plan”), shareholders automatically participate and have all their Fund dividends and distributions reinvested. Under the Plan, all dividends and distributions will be reinvested in additional shares of the Fund. Distributions declared payable in cash will be reinvested for the accounts of participants in the Plan in additional shares purchased by the Plan Agent on the open market at prevailing market prices, subject to certain limitations as described more fully in the Plan. Distributions declared payable in shares are paid to participants in the Plan entirely in newly issued full and fractional shares valued at the lower of market value or net asset value per share on the valuation date for the distribution (but not at a discount of more than 5 percent from market price). Dividends and distributions are subject to taxation, whether received in cash or in shares.

 

NOTE 7. 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.

 

NOTE 8. RECENT ACCOUNTING PRONOUNCEMENT

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, which changes the fair value measurement disclosure requirements of FASB Accounting Standards Codification Topic 820, Fair Value Measurement. The update to Topic 820 includes new, eliminated, and modified disclosure requirements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods. Early adoption is permitted for any eliminated or modified disclosures. Eliminated and modified disclosures have been adopted.

 

 

28 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund Privacy Policy

 

(Unaudited)

 

FACTS WHAT DO THE LIBERTY ALL-STAR FUNDS DO WITH YOUR
PERSONAL INFORMATION?
WHY? Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.
WHAT? The types of personal information we collect and share depend on the product or service you have with us. This information can include:
 

   Social Security number

   Assets

   Retirement Assets

   Transaction History

   Checking Account Information

Purchase History

Account Balances

Account Transactions

Wire Transfer Instructions

  When you are no longer our customer, we continue to share your information as described in this notice.
HOW? All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons the Liberty All-Star Funds choose to share; and whether you can limit this sharing.

 

REASONS WE CAN SHARE YOUR

PERSONAL INFORMATION

DO THE LIBERTY

 ALL-STAR FUNDS

 SHARE? 

CAN YOU LIMIT

 THIS SHARING?

For our everyday business purposes -
such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus		 Yes No
For our marketing purposes -
to offer our products and services to you		 No We don’t share
For joint marketing with other financial companies No We don’t share
For our affiliates’ everyday business purposes -
information about your transactions and experiences		 No We don’t share
For our affiliates’ everyday business purposes -
information about your creditworthiness		 No We don’t share
For non-affiliates to market to you No We don’t share

 

QUESTIONS? Call 1-800-241-1850

 

 

Semi-Annual Report (Unaudited) | June 30, 2019 29

 

 

Liberty All-Star® Equity Fund Privacy Policy

 

(Unaudited)

 

WHO WE ARE  
Who is providing this notice? Liberty All-Star Funds
WHAT WE DO  

How do the Liberty All-Star Funds

protect my personal information?

To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.

 

Our service providers are held accountable for adhering to strict policies and procedures to prevent any misuse of your nonpublic personal information.

How do the Liberty All-Star Funds

collect my personal information?

 

We collect your personal information, for example, when you

 

●    Open an account

●    Provide account information

●    Give us your contact information

●    Make deposits or withdrawals from your account

●    Make a wire transfer

●    Tell us where to send the money

●    Tells us who receives the money

●    Show your government-issued ID

●    Show your driver’s license

 

We also collect your personal information from other companies.

Why can’t I limit all sharing?

Federal law gives you the right to limit only:

 

●    Sharing for affiliates’ everyday business purposes - information about your creditworthiness

●    Affiliates from using your information to market to you

●    Sharing for non-affiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing. 

 

 

30 www.all-starfunds.com

 

 

Liberty All-Star® Equity Fund Privacy Policy

 

(Unaudited)

 

DEFINITIONS  
Affiliates

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

●     The Liberty All-Star Funds do not share with our affiliates for marketing purposes.

Non-affiliates

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

●     The Liberty All-Star Funds do not share with non-affiliates so they can market to you. 

Joint marketing

A formal agreement between non-affiliated financial companies that together market financial products or services to you.

 

●     The Liberty All-Star Funds don’t jointly market.

 

 

Semi-Annual Report (Unaudited) | June 30, 2019 31

 

 

Liberty All-Star® Equity Fund Description of Lipper
Benchmark and Market Indices

 

(Unaudited)

 

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.

 

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 3000® Growth Index

Measures the performance of those Russell 3000® companies with higher price-to-book-ratios and higher forecasted growth values.

 

Russell 3000® Value Index

Measures the performance of those Russell 3000® companies with lower price-to-book-ratios and lower forecasted growth values.

 

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.

 

 

32 www.all-starfunds.com

 

 

 (GRAPHIC) (GRAPHIC) 
   
INVESTMENT ADVISOR LEGAL COUNSEL
ALPS Advisors, Inc. K&L Gates LLP
1290 Broadway, Suite 1100 1601 K Street, NW
Denver, Colorado 80203 Washington, DC 20006
303-623-2577  
www.all-starfunds.com  
  DIRECTORS
  Thomas W. Brock*, Chairman
INDEPENDENT REGISTERED Edmund J. Burke
PUBLIC ACCOUNTING FIRM George R. Gaspari*
Deloitte & Touche LLP Milton M. Irvin*
1601 Wewatta Street, Suite 400 Dr. John J. Neuhauser*
Denver, Colorado 80202 Maureen K. Usifer*
   
CUSTODIAN OFFICERS
State Street Bank & Trust Company William R. Parmentier, Jr., President Mark
One Lincoln Street T. Haley, CFA, Senior Vice President
Boston, Massachusetts 02111 Kimberly R. Storms, Treasurer
  Sareena Khwaja-Dixon, Secretary
  Jennifer Craig, Assistant Secretary
INVESTOR ASSISTANCE, Erin D. Nelson, Chief Compliance Officer
TRANSFER & DIVIDEND  
DISBURSING AGENT & REGISTRAR * Member of the Audit Committee
Computershare Trust Company, N.A.  
P.O. Box 505000  
Louisville, Kentucky 40233  
1-800-LIB-FUND (1-800-542-3863)  
www.computershare.com  
   

A description of the Fund’s proxy voting policies and procedures is available (i) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov, and (ii) without charge, upon request, by calling 1-800-542-3863. Information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30 is available from the SEC’s website at www.sec.gov.

 

The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year in Form N-Q or Form N-PORT (beginning March 31, 2019). The Fund’s Form N-Qs and Form N-PORTs are/will be available on the SEC’s website at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

 

Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that the Fund may purchase at market prices from time to time shares of its own common stock in the open market.

 

This report is transmitted to shareholders of Liberty All-Star® Equity Fund for their information. It is not a prospectus or other document intended for use in the purchase of Fund shares.

 

 

 

(GRAPHIC) 

 

 

Item 2. Code of Ethics.

 

Not Applicable to this report.

 

Item 3. Audit Committee Financial Expert.

 

Not Applicable to this report.

 

Item 4. Principal Accountant Fees and Services.

 

Not Applicable to this report.

 

Item 5. Audit Committee of Listed Registrants.

 

Not Applicable to this report.

 

Item 6. Schedule.

 

(a)Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form N-CSR.

 

(b)Not applicable to registrant.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

 

Not Applicable to this report.

 

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

 

(a)Not applicable to semi-annual report.

 

(b)Not applicable.

 

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

 

During the six months ended June 30, 2019, there were no purchases made by or on behalf of the registrant or any “affiliated purchaser”, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934 (“Exchange Act”), of shares or other units of any class of the registrant’s equity securities that are registered by the registrant pursuant to Section 12 of the Exchange Act.

 

Item 10. Submission of Matters to a Vote of Security Holders.

 

There have not been any material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of trustees.

 

 

Item 11. Controls and Procedures.

 

(a)         The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.

 

(b)         There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.

 

Not applicable to the semi-annual report.

 

Item 13. Exhibits.

 

(a)(1) Not applicable to this report.

 

(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 attached hereto as Exhibit 99.302CERT.

 

(a)(3) Not applicable.

 

(a)(4) Not applicable.

 

(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 attached hereto as Exhibit 99.906CERT.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

LIBERTY ALL-STAR EQUITY FUND  
     
By: /s/ William R. Parmentier  
  William R. Parmentier, Jr.
President (Principal Executive Officer)		  
     
Date: September 4, 2019  

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

LIBERTY ALL-STAR EQUITY FUND.  
     
By: /s/ William R. Parmentier  
  William R. Parmentier, Jr.
President (Principal Executive Officer)		  
     
Date: September 4, 2019  

 

By: /s/ Kimberly R. Storms  
  Kimberly R. Storms
Treasurer (Principal Financial Officer)		  
     
Date: September 4, 2019