As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 3/09/07  Liberty All Star Growth F..Inc/MD N-CSR      12/31/06    4:203                                    Merrill Corp-MD/FA

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSR       Certified Annual Shareholder Report of a            HTML    822K 
                          Management Investment Company                          
 2: EX-99.CODEETH  Miscellaneous Exhibit                            HTML     40K 
 3: EX-99.CERT  Miscellaneous Exhibit                               HTML     19K 
 4: EX-99.906CERT  Miscellaneous Exhibit                            HTML     12K 

 

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
Liberty All-Star Growth Fund, Inc.
(Exact name of registrant as specified in charter)
1625 Broadway, Suite 2200, Denver, Colorado								80202
(Address of principal executive offices)								(Zip code)
Tane T. Tyler, Secretary Liberty All-Star Growth Fund, Inc. 1625 Broadway, Suite 2200 Denver, Colorado 80202
(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:		December 31, 2006

 

 

LIBERTY ALL-STAR® GROWTH FUND

 

 

 

 

2006 ANNUAL REPORT

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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 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 fund listed on the New York Stock Exchange (ticker symbol: ASG)

LIBERTY ALL-STAR GROWTH FUND, INC.

CONTENTS

1		President’s Letter
4		Foundation for the Future
6		Editorial Feature: Amid Change, Fundamentals Endure
10		Investment Managers/Portfolio Characteristics
11		Manager Roundtable
16		Investment Growth (Chart)
17		Table of Distributions and Rights Offerings
18		Top 20 Holdings and Economic Sectors
19		Major Stock Changes in the Fourth Quarter
20		Schedule of Investments
27		Financial Statements
30		Financial Highlights
31		Notes to Financial Statements
34		Report of Independent Registered Public Accounting Firm
35		Automatic Dividend Reinvestment and Cash Purchase Plan
36		Tax Information
37		Proxy Information
38		Directors and Officers
41		Board Evaluation of New Agreements with ALPS Advisers
44		Privacy Policy
45		Description of Lipper Benchmark and Market Indices
Inside Back Cover: Fund Information

 

The views expressed in the President’s Letter, Editorial Feature 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.

 

LIBERTY ALL-STAR® GROWTH FUND

PRESIDENT’S LETTER 

Fellow Shareholders:

February 2007

 

By just about all accounts, 2006 was a rewarding year for equity investors. It might be more accurate, however, to say that it was an especially rewarding second half for equity investors. You may recall that one of the most widely recognized measures of the U.S. stock market, the S&P 500 Index, was ahead just 2.7 percent through June 30 of last year, and it looked as though it was on track for another mid-single-digit gain for the second consecutive year. After drifting lower through the first two weeks of July, the market found its footing and the S&P 500 Index rose sharply to finish the year up 15.8 percent.

Growth stock indices did not fare as well, as value style stocks once again dominated leadership. The Russell 3000 Growth Index, for example, finished the year up 9.5 percent compared to 22.3 percent for the Russell 3000 Value Index. Thus, 2006 marked the seventh consecutive year in which value outperformed growth – a period that is without precedent since the inception of those style benchmarks nearly three decades ago. Investors may recall the opposite trend throughout the latter half of the 1990s, when growth left value behind. While the longevity of the current trend gives pause to those of us managing growth stock funds, the fundamental underlying principles of investment management have not been repealed, and we are confident our patience will be rewarded.

There were several catalysts sparking the market’s strong second half performance. Perhaps the leading one was the Federal Reserve’s decision in September to leave short-term interest rates unchanged after 17 consecutive quarter-point increases. But other positive factors contributed as well. Energy prices, gasoline in particular, declined after a summer spike and crude oil prices ended the year about where they started. Corporate earnings proved surprisingly resilient. Economic growth eased, but not too dramatically. Housing experienced a significant slowdown – it couldn’t stay white-hot forever – but did not collapse. And inflation, while a little above the Federal Reserve’s target range, flashed no ominous signals.

For shareholders of Liberty All-Star Growth Fund, the biggest news of 2006 was the change in the Fund’s adviser from Banc of America Investment Advisors, Inc. to ALPS Advisers, Inc. I’ll say more about this momentarily. First, let me address Fund investment performance.

For the full year, the Fund returned 5.6 percent with shares valued at net asset value (NAV) and 6.4 percent with shares valued at NAV with dividends reinvested. In terms of the market price of its shares, the Fund rose 10.2 percent. The Fund’s primary benchmark, the Lipper Multi-Cap Growth Mutual Fund Average, advanced 8.2 percent. Bottom line: performance was mixed. The Fund’s market price return topped its Lipper benchmark and the Russell 3000 Growth Index while NAV-based results did not. As a purely growth investment vehicle, the Fund lagged broad market indices such as the S&P 500 Index.

Although we are not satisfied with the Fund’s relative results, our analysis confirms that there has been a tendency during the past several years for investors to focus on short-term cyclical earnings growth and less on the quality or sustainability of those earnings. That focus has generally resulted in the underperformance of higher quality companies with more predictable and sustainable earnings growth, as the multiples on these companies’ forward earnings compressed. The Fund’s growth managers place a good deal of emphasis on the quality and sustainability of their portfolio companies’ earnings as part of their process, and that has clearly negatively impacted the Fund’s relative results for the past couple of years.

We assure you that we monitor the Fund’s structure and manager lineup very closely and always question whether we have overlooked anything when our relative results lag. Stock prices are ultimately driven by earnings and it is our belief that as this profit cycle matures, an emphasis on quality companies with sustainable growth characteristics will be a rewarding strategy for shareholders of the Fund. I encourage you to read our investment manager roundtable beginning on page 11

www.all-starfunds.com

ASG

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for a more in-depth perspective on the dynamics impacting growth stock investors.

The following tables trace key metrics for the fourth quarter and full year of 2006, as well as longer-term three- and five-year periods:

FUND STATISTICS AND SHORT-TERM PERFORMANCE
PERIODS ENDING DECEMBER 31, 2006		4TH QUARTER		2006
LIBERTY ALL-STAR GROWTH FUND, INC. STATISTICS:
Year End Net Asset Value (NAV)				$5.69
Year End Market Price				$5.37
Year End Discount				5.6%
Distributions		$0.14		$0.59
Market Price Trading Range		$5.00 to $5.49		$4.75 to $5.86
Premium/(Discount) Range		(4.6)% to (9.9)%		(4.6)% to (10.8)%
PERFORMANCE:
Shares Valued at NAV		5.6%		5.6%
Shares Valued at NAV with Dividends Reinvested		5.6%		6.4%
Shares Valued at Market Price with Dividends Reinvested		8.7%		10.2%
NASDAQ Composite Index		7.2%		10.4%
Russell 3000 Growth Index		6.2%		9.5%
S&P 500 Index		6.7%		15.8%
Lipper Multi-Cap Growth Mutual Fund Average		6.3%		8.2%
NAV Reinvested Percentile Rank (1 = best; 100 = worst)		62nd		64th
Number of Funds in Category		525		489

 

LONG-TERM PERFORMANCE SUMMARY		ANNUALIZED RATES OF RETURN
PERIODS ENDING DECEMBER 31, 2006		3 YEARS		5 YEARS
LIBERTY ALL-STAR GROWTH FUND, INC.
Shares Valued at NAV		5.8	%	2.8	%
Shares Valued at NAV with Dividends Reinvested		5.9	%	3.0	%
Shares Valued at Market Price with Dividends Reinvested		2.3	%	1.7	%
NASDAQ Composite Index		7.2	%	5.0	%
Russell 3000 Growth Index		7.2	%	3.0	%
S&P 500 Index		10.5	%	6.2	%
Lipper Multi-Cap Growth Mutual Fund Average*		9.5	%	4.8	%
NAV Reinvested Percentile Rank (1 = best; 100 = worst)		85th		70th
Number of Funds in Category		394		310

 

* Percentile ranks calculated using the Fund’s NAV Reinvested results within the Lipper Mutli-Cap Growth Open-end Mutual Fund Universe.

Performance shown is since restructure to a multi-cap growth Fund. Figures shown for the Fund and the Lipper Multi-Cap Growth Mutual Fund Average are total returns, which include dividends, after deducting Fund expenses. The Fund’s reinvested returns assume that all of the Fund’s rights offerings were fully subscribed under the terms of each offering. Figures shown for the unmanaged NASDAQ Composite Index, the Russell 3000 Growth Index and the S&P 500 Index are total returns, including income.  A description of the Lipper benchmark and the market indices can be found on page 45.

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.

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.

ANNUAL REPORT DECEMBER 31, 2006

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Returning to the change in the Fund’s Adviser, as shareholders know Banc of America Investment Advisors, Inc., in December concluded an agreement with ALPS Holdings, Inc. and ALPS Advisers, Inc. (ALPS) to sell to ALPS its advisory business of managing the Liberty All-Star Growth Fund, Inc. (and its companion Fund, the Liberty All-Star Equity Fund). Shareholders will find more information about ALPS in the editorial section of this report, which immediately follows this letter.

The Fund’s management team and staff members continue to manage the Fund, having completed the transition to ALPS. We believe that ALPS will afford the Fund and its shareholders some distinct benefits, specifically its marketing, shareholder servicing and wholesaling capabilities, which should help support the trading of the Fund in the marketplace.

Once again, I would like to draw your attention to our traditional manager roundtable in this report. It’s another chance to hear directly from the Fund’s three investment managers, who are well-recognized thought leaders in growth stock investing. In addition to providing information on ALPS, this report’s editorial section also features a recap of the Fund’s key investment attributes.

As always, it is a pleasure and privilege to guide Liberty All-Star Growth Fund, to team with fine investment managers and to serve the best long-term interests of shareholders. Be assured that we remain dedicated to those propositions as we move into 2007, and equally committed to enhancing the Fund’s investment performance. We are grateful for your ongoing support of the Fund and will do all in our power to maintain your trust and confidence.

Sincerely,

William R. Parmentier, Jr.
President and Chief Executive Officer
Liberty All-Star Growth Fund, Inc.

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LIBERTY ALL-STAR® GROWTH FUND
FOUNDATION FOR THE FUTURE 

 

 

In 2006, the Fund marked 11 years as a multi-managed investment vehicle. Of greater significance, it entered a new era with a new investment adviser, ALPS Advisers, Inc. In successfully completing the transition, the Fund maintained its continuity and looks to a promising future.

For shareholders of Liberty All-Star Growth Fund, the biggest news of 2006 didn’t occur officially until December 18. On that date, ALPS Advisers, Inc. assumed the role of the Fund’s Investment Adviser from Banc of America Investment Advisors, Inc. Shareholders paved the way by voting to approve related advisory agreements and other proposals on November 21.

As a subsidiary of one of the largest financial organizations in the world, Banc of America Investment Advisors was a familiar name to shareholders. But, what about ALPS Advisers?

Its parent, ALPS Holdings, Inc. (A