As filed with the Securities and Exchange Commission on March 28, 2002
1933 Act File No. 333-83252
1940 Act File No. 811-4809
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-2
(Check appropriate box or boxes)
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 1
[ ] Post-Effective Amendment No._________
and
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 19
Liberty All-Star Equity Fund
---------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
One Financial Center
Boston, Massachusetts 02111-2621
-----------------------------------------
(Address of Principal Executive Offices)
(Number, Street, City, State, Zip Code)
(617) 426-3750
--------------------------------------------------
Registrant's Telephone Number, including Area Code
Jean S. Loewenberg Jeremiah J. Bresnahan
Secretary Bingham Dana LLC
Liberty All-Star Equity Fund 150 Federal Street
One Financial Center Boston, MA 02110
Boston, MA 02111
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are offered on a delayed
or continuous basis in reliance on Rule 415 under the Securities Act of 1933,
other than securities offered in connection with a dividend reinvestment plan,
check the following box. [X]
It is proposed that this filing will become effective (check appropriate box)
[X] when declared effective pursuant to section 8(c)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 486
[ ] on (date) pursuant to paragraph (b) of Rule 486
[ ] 60 days after filing pursuant to paragraph (a) of Rule 486
[_] on(date) pursuant to paragraph (a) of Rule 486
[_] This post-effective amendment designates a new effective date for a
previously filed registration statement.
[_] The Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration number of the earlier effective registration statement is
--------.
PROPOSED PROPOSED
TITLE MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES AMOUNT OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED BEING REGISTERED(1) PER UNIT(1) OFFERING PRICE(1) FEE(2)
---------------- ------------------- -------------- -------------- -------------
Shares of Beneficial
Interest 10,910,830 $11.15 $121,655,755 $11,193
(1) Previously registered.
(2) Previously paid.
106,885,060 Rights for 10,688,506 Shares
LIBERTY ALL-STAR EQUITY FUND
Shares of Beneficial Interest
Liberty All-Star Equity Fund ("All-Star" or the "Fund") is offering rights
(the "Rights") to its shareholders (the "Offer"). These Rights will allow you to
subscribe for new shares of beneficial interest of All-Star (the "Shares"). For
every ten Rights that you receive, you may buy one new All-Star Share. You will
receive one Right for each outstanding All-Star Share you own on April 1,
2002 (the "Record Date"). Fractional Shares will not be issued upon the exercise
of the Rights. Accordingly, Shares may be purchased only pursuant to the
exercise of Rights in integral multiples of ten. Also, Shareholders on the
Record Date may purchase Shares not acquired by other shareholders in this
Rights offering, subject to limitations discussed in this prospectus. The Rights
are not transferable and will not be admitted for trading on the New York Stock
Exchange ("NYSE"). See "The Offer." THE SUBSCRIPTION PRICE PER SHARE WILL BE 95%
OF THE LOWER OF (i) THE LAST REPORTED SALE PRICE ON THE NYSE ON MAY 7, 2002
(the "Pricing Date") OF A SHARE OF ALL-STAR, OR (ii) THE NET ASSET VALUE OF A
SHARE OF ALL-STAR ON THAT DATE.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MAY 6, 2002
(the "Expiration Date"). SINCE THE CLOSE OF THE OFFERING ON THE EXPIRATION DATE
IS PRIOR TO THE PRICING DATE, SHAREHOLDERS WHO CHOOSE TO EXERCISE THEIR RIGHTS
WILL NOT KNOW THE SUBSCRIPTION PRICE PER SHARE AT THE TIME THEY EXERCISE SUCH
RIGHTS.
For additional information, please call Georgeson Shareholder
Communications Inc. (the "Information Agent") toll free at 1-866-904-6821.
All-Star is a multi-managed diversified, closed-end management investment
company that allocates its portfolio assets on an approximately equal basis
among several independent investment organizations (currently five in number)
("Portfolio Managers") having different investment styles recommended and
monitored by Liberty Asset Management Company, All-Star's fund manager ("LAMCO"
or "Fund Manager"). All-Star's investment objective is to seek total investment
return, comprised of long term captial appreciation and current income. Under
normal market conditions, it seeks its objective through investing at least 80%
of net assets (plus any borrowings for investment purposes) in a diversified
portfolio of equity securities. An investment in All-Star is not appropriate for
all investors. No assurances can be given that All-Star's investment objective
will be achieved. For a discussion of certain risk factors and special
considerations with respect to owning Shares of All-Star, see "Special
Considerations and Risk Factors" beginning on page 20 and "Investment
Objective, Policies and Risks" on page 23 of this Prospectus.
The address of All-Star is One Financial Center, Boston, Massachusetts
02111 and its telephone number is (800) 542-3863. All-Star's Shares are listed
on the NYSE under the symbol "USA."
All-Star announced the terms of the Offer before the opening of trading on
the NYSE on February 13, 2002. The net asset value per Share of beneficial
interest of All-Star at the close of business on February 12, 2002 and April
1, 2002 was $10.19 and $[ ], respectively, and the last reported sale price
of a Share on such Exchange on those dates was $11.06 and $[ ], respectively.
Neither the Securities and Exchange Commission nor any State securities
commission has approved or disapproved these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
crime.
-----------------------------------------------------------------------------------------------------------------------------------
Subscription Price(1) Sales Load Proceeds to All-Star(2)
---------------------------------------------- --------------------------- ----------------------------- -------------------------
---------------------------------------------- --------------------------- ----------------------------- -------------------------
Per Share..................................... $[ ] NONE $[ ]
---------------------------------------------- --------------------------- ----------------------------- -------------------------
---------------------------------------------- --------------------------- ----------------------------- -------------------------
Total.......................................... $[ ] NONE $[ ]
---------------------------------------------- --------------------------- ----------------------------- -------------------------
(1) Estimated based on an assumption that the Subscription Price will be 95% of
the net asset value on April 1, 2002 (the "Estimated Subscription
Price").
(2) Before deduction of expenses payable by All-Star, estimated at $315,000.
Shareholders who do not exercise their Rights should expect that they
will, at the completion of the Offer, own a smaller proportional interest in the
Fund than if they exercised their Rights. As a result of the Offer you may
experience an immediate dilution of the aggregate net asset value of your
Shares, which under certain circumstances, could be substantial. This is because
the Subscription Price per Share and/or the net proceeds to All-Star for each
new Share sold will be less than All-Star's net asset value per Share on the
Expiration Date. All-Star cannot state precisely the extent of this dilution at
this time because it does not know what the net asset value or market price per
Share will be when the Offer expires or what proportion of the Rights will be
exercised.
This Prospectus sets forth concisely the information that a shareholder
ought to know before exercising his or her Rights. Investors are advised to read
and retain it for future reference. A Statement of Additional Information dated
April [ ], 2002 has been filed with the Securities and Exchange Commission and
is incorporated by reference in its entirety into this Prospectus. The table of
contents of the Statement of Additional Information appears on page 34 of this
Prospectus, and a copy is available at no charge by calling the Information
Agent toll-free at 1-866-904-6821.
The date of this Prospectus is April [ ], 2002.
PROSPECTUS SUMMARY
This summary highlights some information that is described more fully
elsewhere in this Prospectus. It may not contain all of the information that is
important to you. To understand the Offer fully, you should read the entire
document carefully, including the risk factors.
Purpose of the Offer
The Board of Trustees of All-Star has determined that it would be in the
best interest of All-Star and its Shareholders to increase the assets of
All-Star available for investment so that it may be in a better position to take
advantage of investment opportunities that may arise. The Offer seeks to reward
existing shareholders in All-Star by giving them the opportunity to purchase
additional Shares at a price below market and/or net asset value and without
incurring any brokerage commissions. See "The Offer-Purpose of the Offer."
Important Terms of the Offer
Total number of Shares available for primary
subscription..... 10,688,506 Shares
Number of Rights you will receive for each
outstanding Share you own on the Record One Right for every one Share
Date...................................
Number of Shares you may purchase with
your Rights at the Subscription
Price per Share.................... One Share for every ten Rights
Subscription Price........................ 95% of the lower of (i) the
last reported sale price on
the NYSE on May 7, 2002
(the "Pricing Date") of a
Share of All-Star, or (ii) the
net asset value of a Share of
All-Star on the Pricing Date.
--------------------------------------------------------------------------------
Shareholders' inquiries should be directed to:
Georgeson Shareholder Communications Inc.
1-866-904-6821
--------------------------------------------------------------------------------
Over-Subscription Privilege
The right to acquire during the Subscription Period at the Subscription
Price one additional Share for each ten Rights held is hereinafter referred to
as the "Primary Subscription." Shareholders on the Record Date who fully
exercise all Rights issued to him or her (other than those Rights which cannot
be exercised because they represent the right to acquire less than one Share)
are entitled to subscribe for Shares which were not otherwise subscribed for by
others on Primary Subscription (the "Over-Subscription Privilege"). For purposes
of determining the maximum number of Shares a Shareholder may acquire pursuant
to the Offer, broker-dealers whose Shares are held of record by Cede & Co., Inc.
("Cede"), nominee for Depository Trust Company, or by any other depository or
nominee will be deemed to be the holders of the Rights that are issued to Cede
or such other depository or nominee. If enough Shares are available, all
Shareholder requests to buy Shares that were not bought by other Rights holders
will be honored in full. If the requests for Shares exceed the Shares available,
the available Shares will be allocated pro rata among those shareholders on the
Record Date who over-subscribe based on the number of Rights originally issued
to them by the Fund. Shares acquired pursuant to the Over-Subscription Privilege
are subject to allotment, which is more fully discussed under "The
Offer--Over-Subscription Privilege."
Method for Exercising Rights
Except as described below, subscription certificates evidencing the Rights
("Subscription Certificates") will be sent to shareholders on the Record Date
("Record Date Shareholders") or their nominees. If you wish to exercise your
Rights, you may do so in the following ways:
(1) Complete and sign the Subscription Certificate. Mail it in the
envelope provided or deliver it, together with payment in full to EquiServe
Trust Company, N.A. ("EquiServe" or "Subscription Agent") at the address
indicated on the Subscription Certificate. Your completed and signed
Subscription Certificate and payment must be received by the Expiration Date.
(2) Contact your broker, banker or trust company, which can arrange, on
your behalf, to guarantee delivery of payment and delivery of a properly
completed and executed Subscription Certificate pursuant to a notice of
guaranteed delivery ("Notice of Guaranteed Delivery") by the close of business
on the third business day after the Expiration Date. A fee may be charged for
this service. The Notice of Guaranteed Delivery must be received by the
Expiration Date.
Rights holders will have no right to rescind a purchase after the
Subscription Agent has received payment. See "The Offer - Method of Exercise of
Rights" and "The Offer - Payment for Shares."
Since the Expiration Date is prior to the Pricing Date, Shareholders who
choose to exercise their Rights will not know at the time they exercise such
Rights what the purchase price for Shares acquired pursuant to such exercise
will be. Shareholders will have no right to rescind their subscription after
receipt of their payment for Shares by the Subscription Agent. Subscription
payments will be held by the Subscription Agent pending completion of the
processing of the subscription. No interest thereon will be paid to subscribers.
The Rights are not transferable. Therefore, only the underlying Shares, and
not the Rights, will be admitted for trading on the NYSE. Since fractional
Shares will not be issued on exercise of Rights, shareholders who receive, or
are left with, fewer than ten Rights will be unable to exercise such Rights and
will not be entitled to receive any cash in lieu of unexercised rights.
Shareholders' inquiries about the Offer should be directed to their broker,
bank or trust company, or to:
Georgeson Shareholder Communications Inc.
1-866-904-6821
Important Dates to Remember
Please note that the dates in the table below may change if the Offer is
extended.
Event Date
-------------------------------------------------------------------------------
Record Date .............................................. April 1, 2002
--------------------------------------------------------------------------------
Subscription Period.................................. .. April 5, 2002 through
May 6, 2002*
-------------------------------------------------------------------------------
Expiration Date (Deadline for delivery of Subscription Certificate
together with payment of estimated purchase price (See "The Offer -
Payment of Shares" on page 17 of this Prospectus) or for delivery of
Notice of Guaranteed Delivery)......................... May 6, 2002
-------------------------------------------------------------------------------
Pricing Date........................................... May 7, 2002
-------------------------------------------------------------------------------
Deadline for payment of final Subscription Price pursuant to Notice of
Guaranteed Delivery .................................. May 9, 2002
--------------------------------------------------------------------------------
Confirmation to Registered Shareholders................. May 21, 2002
--------------------------------------------------------------------------------
For Registered Shareholders' Subscriptions - deadline for payment of
unpaid balance if final Subscription Price is higher than Estimated
Subscription Price..................................... May 31, 2002
--------------------------------------------------------------------------------
* Unless the Offer is extended.
Offering Fees and Expenses
Offering expenses incurred by the Fund are estimated to be $315,000.
Restrictions on Foreign Shareholders
Record date Shareholders whose record addresses are outside the United
States will receive written notice of the Offer; however, Subscription
Certificates will not be mailed to such shareholders. The Rights to which those
Subscription Certificates relate will be held by the subscription agent for such
foreign Record Date Shareholders' accounts until instructions are received in
writing with payment to exercise the Rights. If no such instructions are
received by the Expiration Date, such Rights will expire. See "Subscription
Agent."
Information about All-Star
All-Star is a multi-managed diversified, closed-end management investment
company registered under the Investment Company Act of 1940, as amended ("1940
Act") that allocates its assets on an approximately equal basis among a number
of independent investment management organizations (currently five in number)
each having a different investment style. See "The Multi-Manager Concept."
All-Star's investment objective is to seek total investment return, comprised of
long term capital appreciation and current income. Under normal market
conditions, it seeks its objective through investing at least 80% of net
assets (plus any borrowings for investment purposes) in a diversified portfolio
of equity securities. The portion of All-Star's portfolio not invested in equity
securities (not more than 20% of net assets under normal conditions) is
generally invested in Short-Term Money Market Instruments. See "Investment
Objective, Policies and Risks."
All-Star commenced investment operations in November, 1986. Its outstanding
Shares of beneficial interest are listed and traded on the NYSE (Symbol "USA").
The average weekly trading volume of the Shares on the NYSE during the year
ended December 31, 2001 was 115,971 Shares. As of April 1, 2002,
All-Star's net assets were $[ ], and 10,688,506 Shares of All-Star were issued
and outstanding.
Information about Liberty Asset Management Company
LAMCO provides selection, evaluation and monitoring services to All-Star
and is responsible for the provision of administrative services to the Fund,
some of which are delegated to LAMCO's affiliate, Colonial Management
Associates, Inc. ("Colonial"). See "Management of All-Star" for the fees paid by
the Fund to LAMCO and by LAMCO to the Portfolio Managers. Since the fees of
LAMCO and the Portfolio Managers are based on the average weekly net assets of
All-Star, LAMCO and the Portfolio Managers will benefit from the Offer. See
"Management of All-Star." As of December 31, 2001, LAMCO managed over $1.3
billion in assets.
LAMCO, organized in 1985, is a direct wholly owned subsidiary of Columbia
Management Group, Inc. (formerly known as Fleet/Liberty Holdings, Inc.), which
is a direct wholly owned subsidiary of Fleet National Bank, a national banking
association, which in turn is a direct wholly owned subsidiary of FleetBoston
Financial Corporation, a U.S. financial holding company. The principal executive
offices of LAMCO are located at One Financial Center, Boston,
Massachusetts 02111. The principal executive offices of Columbia Management
Group, Inc., Fleet National Bank and FleetBoston Financial Corporation are
located at 100 Federal Street, Boston, Massachusetts 02110.
Special Considerations and Risk Factors
The following summarizes some of the matters that you should consider
before investing in All-Star through the Offer.
Dilution............Shareholders who do not fully exercise their Rights should
expect that they will, at the completion of the Offer,
own a smaller proportional interest in the Fund than if
they exercised their Rights. As a result of the Offer
you may experience an immediate dilution of the
aggregate net asset value of your Shares, which, under
certain circumstances, may be substantial. This is
because the Subscription Price per Share and/or the net
proceeds to the Fund for each new Share sold will be
less than the Fund's net asset value per Share on the
Expiration Date. Although it is not possible to state
precisely the amount of such dilution because it is not
known at this time how many Shares will be subscribed
for or what the net asset value or market price per
Share will be on the Pricing Date, All-Star estimates
that such dilution should not be substantial. For
example, if All-Star's Shares are trading at a premium
from their net asset value of 9.5% (the average premium
for the six-month period ended January 31, 2001), and
assuming all Rights are exercised, the Subscription
Price would be 5% below All-Star's net asset value per
Share, resulting in a reduction of such net asset value
of approximately $0.05 per Share, or less than
0.45%. See "Special Considerations and Risk Factors -
Dilution."
Distributions..... All-Star currently has a policy of
paying distributions on its Shares totaling approximately
10% of its net asset value per year, payable in four
quarterly distributions of 2.5% of its net asset value at
the close of the NYSE on the Friday prior to each quarterly
declaration date. These fixed distributions, which are not
related to All-Star's net investment income or net realized
capital gains or losses, will be treated as ordinary
dividend income up to the amount of All-Star's current and
accumulated earnings and profits. If, for any calendar year,
the total distributions made under the 10% pay-out policy
exceed All-Star's net investment income and net realized
capital gains, the excess will be treated as a tax-free
return of capital to each shareholder (up to the amount of
the Shareholder's basis in his or her Shares) and thereafter
as gain from the sale of Shares. The amount treated as a
tax-free return of capital will reduce the Shareholder's
adjusted basis in his or her Shares, thereby increasing his
or her potential gain or reducing his or her potential loss
on the subsequent sale of his or her Shares.
All-Star may, in the discretion of the Board of
Trustees, retain for reinvestment, and not distribute, net
long-term capital gains in excess of net short-term capital
losses ("net capital gain") for any year to the extent that
its net investment income and net realized gains exceed the
minimum amount required to be distributed for such year
under the 10% pay-out policy, although All-Star reserves the
right to distribute such excess. Retained net capital gain
will be taxed to All-Star and, as may be designated by
All-Star, to the Shareholders as long-term capital gains.
Each Shareholder will be able to claim a proportionate
share of the federal income tax paid by All-Star with
respect to such gain as a credit against his or her own
federal income tax liability and will be entitled to
increase the adjusted tax basis in his or her Shares by the
difference between the amount so taxed and the credit. See
"Distributions; Automatic Dividend Reinvestment and Cash
Purchase Plan." Although All-Star's tax on such retained
capital gain might be greater (up to a maximum 35% rate)
from the Shareholder's tax on such gain, the Shareholder
will be entitled to a credit (or refund) for the full amount
of tax paid by All-Star on such gain.
Closed-end fund Shares of closed-end funds frequently trade at a market
discounts........ price that is less than the value of the net assets
attributable to those shares. The possibility that
Shares of All-Star will trade at a discount from net
asset value is a risk separate and distinct from the
risk that All-Star's net asset value will decrease. The
risk of purchasing shares of a closed-end fund that
might trade at a discount is more pronounced for
investors who wish to sell their shares in a relatively
short period of time because, for those investors,
realization of a gain or loss on their investments is
likely to be more dependent upon the existence of a
premium or discount than upon portfolio performance.
See "Share Price Data."
Anti-takeover All-Star's Declaration of Trust and By-Laws have provisions
Provisions (commonly referred to as "anti-takeover provisions")
which are intended to have the effect of limiting the
ability of other entities or persons to acquire control
of All-Star, to cause it to engage in certain
transactions, or to modify its structure. For instance,
the affirmative vote of 75 percent of the Shares of the
Fund is required to authorize All-Star's conversion
from a closed-end to an open-end investment company,
unless such conversion is recommended by All-Star's
Board of Trustees, in which event such conversion would
only require the majority vote of All-Star's
Shareholders, as defined in the 1940 Act. A similar
Shareholder vote is required to authorize a merger,
sale of a substantial part of the assets or similar
transactions with persons beneficially owning five
percent or more of All-Star's Shares, unless approved
by All-Star's Board of Trustees under certain
conditions. These provisions cannot be amended without
a similar super-majority vote. In addition, All-Star's
Board of Trustees is divided into three classes, each
of which has a term of three years and only one of
which is elected at each annual meeting of
shareholders. See "Description of Shares--Anti-takeover
Provisions of the Declaration of Trust;
Super-majority Vote Requirement for Conversion to
Open-End Status."
Repurchase....... You will be free to dispose of your Shares on
the NYSE or other markets on which the Shares may
trade, but, because the Fund is a closed-end fund,
you do not have the right to redeem your Shares.
You should carefully consider your ability to assume the foregoing risks
before making an investment in the Fund. An investment in Shares of the Fund is
not appropriate for all investors.
EXPENSES
Shareholder Transaction Expenses
These are the expenses that an investor incurs when buying Shares of
All-Star, whether in this Offer, in the open-market or through All-Star's
Automatic Dividend Reinvestment and Cash Purchase Plan, as amended ("Plan").
Sales Load .......................................... None(l)
Automatic Dividend Reinvestment
and Cash Purchase Plan Fees ........ $1.25 per voluntary cash investment
(1) No sales load or commission will be payable in connection with this Offer.
Purchases of Shares through brokers in secondary market transactions are
subject to brokers' commissions and charges.
Annual Expenses (as a percentage of net assets attributable to beneficial
interests)
Management and Administrative Fees ................................. [ ]%
-------
Other Expenses...................................................... [ ]%
-------
Total Annual Expenses .............................................. [ ]%
-------
Example: You would pay the following expenses on an investment (at net asset
value) of $1,000, assuming a 5% annual return.
1 Year 3 Years 5 Years 10 Years
------- -------- -------- --------
[ ] [ ] [ ] [ ]
These figures are intended to illustrate the effect of All-Star's expenses,
but are not meant to predict its future returns and expenses, which may be
higher or lower than those shown.
The purpose of the above tables is to assist investors in understanding the
various costs and expenses that an investor in All-Star will bear directly or
indirectly. The numbers shown under the Annual Expenses table are projections
based on All-Star's actual expenses for the year ended December 31, 2001, and on
its projected net assets assuming the Offer is fully subscribed for at the
Estimated Subscription Price of $[ ] per Share. See "Financial Highlights" for
All-Star's actual ratio of expenses to average net assets for the year ended
December 31, 2001.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance. Information is shown for the Fund's last ten fiscal
years. Certain information reflects financial results from a single Fund Share.
The information for the fiscal years ended December 31, 1999, December 31,
2000 and December 31, 2001 has been audited by PricewaterhouseCoopers LLP,
independent accountants. The information included in the Fund's financial
statements for periods prior to 1999 had been audited by other independent
auditors, whose report expressed an unqualified opinion on those financial
statements and financial highlights. The report of the independent accountants,
together with the financial statements of the Fund, are included in the Fund's
December 31, 2001 Annual Report and are incorporated by reference into the
Statement of Additional Information (see cover page).
For the Year Ended December 31,
2001 2000 1999 1998 1997
PER SHARE OPERATING PERFORMANCE:
$13.61 $14.02 $14.22 $13.32 $11.95
------ ------ ------ ------ ------
Net asset value at beginning of year
Income from Investment Operations:
0.03 0.05 0.05 0.05 0.05
Net investment income
Net realized and unrealized gain
(loss) on investments (1.79) 0.96 1.22 2.35 -
----------------------
3.01(a)
---- ---- ---- ---- (0.36)
Provision for federal income tax
(1.76) 1.01 1.27 2.40 2.70
------ ---- ---- ---- ----
Total from Investment Operations
Less Distributions from:
(0.03) (0.06) (0.05) (0.05) (0.05)
Net investment income
(1.17) (1.36) (1.34) (1.35) (1.28)
Realized capital gain
---- ---- ---- ---- ----
Return of capital
(1.20) (1.42) (1.39) (1.40) (1.33)
------ ------ ------ ------ ------
Total Distributions
---- ---- ---- (0.10) ----
Change due to rights offering (b)
Impact of Shares issued in dividend reinvestment (c) ---- ---- (0.08) ---- ----
---- ---- ------ ---- ----
Total Distributions, Reinvestments and Rights Offering (1.20) (1.42) (1.47) (1.50) (1.33)
------ ------ ------ ------ ------
$10.65 $13.61 $14.02 $14.22 $13.32
------ ------ ------ ------ ------
Net asset value at end of year
$11.09 $12.375 $11.063 $12.938 $13.313
------ ------- ------- ------- -------
Market price at end of year
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS: (d)
(12.7)% 8.8% 10.2% 19.8% 26.6%
Based on net asset value
0.0% 25.4% (4.4)% 9.1% 34.4%
Based on market price
RATIOS AND SUPPLEMENTAL DATA:
$1,133 $1,376 $1,396 $1,351 $1,150
Net assets at end of year (millions)
1.03% 0.96% 0.97% 1.00% 1.01%
Ratio of expenses to average net assets
Ratio of net investment income 0.27% 0.37% 0.37% 0.39% 0.38%
to average net assets
Portfolio turnover rate 64% 83% 90% 76% 99%
(a) Before provision for federal income tax
(b) Effect of All-Star' rights offering for shares at a price below net
asset value.
(c) Effect of payment of a portion of distributions in newly issued shares
valued at a discount from net asset value.
(d) Calculated assuming all distributions reinvested at the actual
reinvestment price and all primary rights exercised.
For the Year Ended December 31,
1996 1995 1994 1993 1992
PER SHARE OPERATING PERFORMANCE:
$11.03 $9.26 $10.40 $10.78 $11.20
Net asset value at beginning of year
Income from Investment Operations:
0.08 0.10 0.11 0.12 0.16
Net investment income
Net realized and unrealized gain 2.15(a) 2.71 (0.20) 0.78(a) 0.54
(losses) on investments
(0.13) ---- ---- (0.18) ----
------ ---- ---- ------ ----
Provision for federal income tax
2.10 2.81 (0.09) 0.72 0.70
---- ---- ------ ---- ----
Total from Investment Operations
Less Distributions from:
(0.08) (0.10) (0.12) (0.12) (0.18)
Net investment income
(1.10) (0.94) (0.52) (0.58) (0.66)
Realized capital gain
---- ---- (0.36) (0.37) (0.23)
---- ---- ------ ------ ------
Return of capital
(1.18) (1.04) (1.00) (1.07) (1.07)
------ ------ ------ ------ ------
Total Distributions
---- ---- (0.05) (0.03) (0.05)
Change due to rights offering (b)
Impact of Shares issued in dividend ---- ---- ---- ---- ----
reinvestment (c) ---- ---- ---- ---- ----
Total Distributions, Reinvestments and Rights (1.18) (1.04) (1.05) (1.10) (1.12)
Offering ------ ------ ------ ------ ------
Net asset value at end of year $11.95 $11.03 $9.26 $10.40 $10.78
------ ------ ----- ------ ------
Market price at end of year $11.250 $10.875 $8.500 $11.125 $11.125
------- ------- ------ ------- -------
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS: (d)
Based on net asset value 21.7% 31.8% (0.8%) 8.8% 6.9%
Based on market price 16.2% 41.4% (14.9%) 12.7% 14.9
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (millions) $988 $872 $710 $725 $665
Ratio of expenses to average net assets 1.03% 1.06% 1.07% 1.08% 1.08%
Ratio of net investment income 0.73% 0.92% 1.16% 1.08% 1.44%
to average net assets
Portfolio turnover rate 70% 54% 44% 72% 57%
(a) Before provision for federal income tax
(b) Effect of All-Star'S rights offering for shares at a price below net
asset value.
(c) Effect of payment of a portion of distributions in newly issued shares
valued at a discount from net asset value.
(d) Calculated assuming all distributions reinvested at the actual
reinvestment price and all primary rights exercised.
SHARE PRICE DATA
Trading in All-Star's Shares on the NYSE commenced on October 24, 1986. For
the two years ended December 31, 2001 and the quarter ended March 31, 2002,
the high and low sales prices for All-Star's Shares, as reported in the
consolidated transaction reporting system, and the highest discount from or
premium to net asset value per Share and the net asset value on the day or days
when the Shares traded at such high and low sales prices, were as follows:
Discount from Discount
or Premium to from or
Net Asset Premium to
High Sales Net Asset Value Low Sales Net Asset Net Asset
-----
2000 Price Value Price Value Value
---- ----- ----- ----- ----- -----
1st Quarter................ $11.75 $14.52 -19.1% $9.75 $12.98 -24.9%
2nd Quarter................ $12.75 $14.17 -10.0% $10.313 $14.10 -26.8%
3rd Quarter................ $13.25 $14.84 -10.7% $12.313 $14.31 -13.9%
4th Quarter................ $13.25 $14.23 -6.9% $11.313 $13.42 -15.7%
2001
1st Quarter............... $13.57 $13.80 -1.7% $11.50 $11.07 3.9%
2nd Quarter............... $13.55 $12.78 6.0% $11.50 $10.82 6.3%
3rd Quarter.............. $13.25 $12.05 9.9% $8.60 $8.83 -2.6%
4th Quarter............... $11.85 $10.33 14.7% $10.40 $9.43 10.2%
2002
1st Quarter............... [ ] [ ] [ ] [ ] [ ] [ ]
----------------------------------
All-Star's Shares have traded in certain periods at a discount from their
net asset value. Certain features of and steps taken by All-Star may have tended
to reduce the discount from net asset value at which its Shares might otherwise
have traded, although All-Star is not able to determine what effect, if any,
these various features and steps may have had. All-Star's current 10%
distribution policy (see "Distributions; Automatic Dividend Reinvestment and
Cash Purchase Plan-10% Distribution Policy" below), begun in July, 1988, may
have contributed to this effect. This trend may also have resulted in whole or
in part from other factors, such as the Fund's investment performance and
increased attention directed to All-Star by securities analysts and market
letters.
The net asset value of a Share of All-Star on April 1, 2002 was $[ ].
The last reported sale price of an All-Star Share on that day was $[ ],
representing a [discount from/premium to] net asset value of [ ]%.
INVESTMENT PERFORMANCE
The table below shows two measures of All-Star's return to investors for
the one, five, ten and fifteen year periods through December 31, 2001. No. 1
("All-Star NAV") shows All-Star's investment performance based on a
valuation of its Shares at net asset value ("NAV"). No. 2 ("All-Star
Price") shows All-Star's investment performance based on the market price of
All-Star's Shares. Both measures assume reinvestment of all of the Fund's
dividends and distributions in additional Shares pursuant to All-Star's
Automatic Dividend Reinvestment and Cash Purchase Plan (see "Distributions;
Automatic Dividend Reinvestment and Cash Purchase Plan" below), and full
exercise of primary subscription rights in All-Star's 1992, 1993, 1994 and 1998
rights offerings.
The Lipper Large-Cap Core Mutual Fund Average has been included so that the
Fund's results may be compared with an unweighted average of the total return of
open-end mutual funds classified as large-cap core funds (i.e., mutual funds
having investment objectives and policies comparable to All-Star) published by
Lipper, Inc. The Lipper Large-Cap Core Average information reflects the total
return of the mutual funds included in the average, in each case assuming
reinvestment of dividends and distributions. The record of the S&P 500 Index has
also been included so that All-Star's results may be compared with those of an
unmanaged group of securities widely regarded by investors as representative of
the stock market in general. The S&P 500 Index is a broad based
capitalization-weighted index which reflects the total return of the securities
included in the index.
No. 1 No. 2 Lipper Large-Cap Core S&P 500
All-Star NAV All-Star Price Mutual Fund Average Index
------------ -------------- ------------------- -----
1 Year beginning January 1, 2001 -12.7% 0.0% -13.8% -11.9%
5 Years beginning January 1, 1997 9.7% 11.9% 8.2% 10.7%
10 Years beginning January 1, 1992 11.4% 12.3% 11.0% 12.9%
15 Years beginning January 1, 1987 13.0% 12.9% 11.9% 13.7%
The above results represent All-Star's past performance and are not
intended as a prediction of its future performance. The investment return, net
asset value and market value of All-Star's Shares will fluctuate, so that such
Shares when sold may be worth more or less than their original cost.
THE OFFER
Terms of the Offer
All-Star is issuing to Record Date Shareholders nontransferable Rights to
subscribe for the Shares, without par value, of the Fund's beneficial interest.
Each such shareholder is being issued one Right for each Share of beneficial
interest owned on the Record Date. The Rights entitle the holder to acquire on
Primary Subscription at the Subscription Price one Share for each ten Rights
held. No Rights will be issued for fractional Shares. Accordingly, Shares may be
purchased only pursuant to the exercise of Rights in integral multiples of ten.
Rights may be exercised at any time during the Subscription Period, which
commences on April 5, 2002 and ends at 5:00 p.m., New York City time, on
May 6, 2002, the Expiration Date.
In addition, any Shareholder who fully exercises all Rights initially
issued to him or her in the Primary Subscription (other than those Rights which
cannot be exercised because they represent the right to acquire less than one
Share) is entitled to subscribe for Shares which were not otherwise subscribed
for by others on Primary Subscription. For purposes of determining the number of
Shares a Shareholder may acquire pursuant to the Offer, broker-dealers whose
Shares are held of record on the Record Date by Cede or by any other depository
or nominee will be deemed to be the holders of the Rights that are issued to
Cede or such other depository or nominee on their behalf. Shares acquired
pursuant to the Over-Subscription Privilege are subject to allotment, which is
more fully discussed below under "Over-Subscription Privilege."
The Rights are not transferable. Therefore, only the underlying Shares, and
not the Rights, will be admitted for trading on the NYSE. Since fractional
Shares will not be issued, shareholders who receive, or who are left with, fewer
than ten Rights will be unable to exercise such Rights and will not be entitled
to receive any cash in lieu of such fractional Shares.
The Rights will be evidenced by Subscription Certificates which will be
mailed to Record Date Shareholders. Rights may be exercised by completing a
Subscription Certificate and delivering it, together with payment by means of
(i) a check or money order, or (ii) a Notice of Guaranteed Delivery, to the
Subscription Agent during the Subscription Period. The method by which Rights
may be exercised and the Shares paid for is set forth below under "Method of
Exercise of Rights" and "Payment for Shares."
Purpose of the Offer
The Board of Trustees of All-Star has determined that it would be in the
best interests of All-Star and its Shareholders to increase the assets of
All-Star available for investment thereby permitting the Fund to be in a better
position to more fully take advantage of investment opportunities that may
arise, and that the potential benefits of the Offer to All-Star and its
shareholders will outweigh the dilution to shareholders who do not fully
exercise their Rights. The proceeds of the Offer will enable All-Star's
Portfolio Managers to take advantage of perceived investment opportunities
without having to sell existing portfolio holdings which they otherwise would
retain. The Offer seeks to reward investors by giving existing shareholders the
opportunity to purchase additional Shares at a price below market and/or net
asset value and without brokerage commissions. In addition, the Offer will
enhance the likelihood that All-Star will continue to have sufficient assets
remaining after the distributions called for by its current 10% distribution
policy to permit the Fund to maintain the current ratio of its fixed expenses to
its net assets.
All-Star's Fund Manager and Portfolio Managers will benefit from the Offer
because their fees are based on the average weekly net assets of All-Star. See
"Management of All-Star." It is not possible to state precisely the amount of
additional compensation they will receive as a result of the Offer because it is
not known how many Shares will be subscribed for and because the net proceeds of
the Offer will be invested in additional portfolio securities that will
fluctuate in value. One of All-Star's Trustees who voted to authorize the Offer
is an "interested person," within the meaning of the 1940 Act, of LAMCO. ^ The
other four Trustees are not "interested persons" of All-Star or LAMCO.
All-Star may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of Shares and on
terms which may or may not be similar to the Offer. Any such future rights
offering will be made in accordance with the 1940 Act. In 1992, All-Star
completed a rights offering to shareholders of 5,464,168 additional Shares at a
subscription price of $10.05 per Share, for proceeds to the Fund after expenses
of $54,683,782. In 1993, All-Star completed a second rights offering to
shareholders of 4,227,570 additional Shares at a subscription price of $10.41
per Share, for proceeds to the Fund after expenses of $43,759,004. In 1994,
All-Star completed a third rights offering to shareholders of 4,704,931
additional Shares at a subscription price of $9.14 per Share, for proceeds to
the Fund after expenses of $42,793,069. In 1998, All-Star completed a fourth
rights offering to shareholders of 4,318,134 additional Shares at a subscription
price of $12.83 per Share, for proceeds to the Fund after expenses of
$55,166,659. All four rights offerings were oversubscribed. Under the laws of
Massachusetts, the state in which the Fund is organized, the Board of Trustees
has the authority to approve rights offerings without obtaining shareholder
approval. The staff of the Securities and Exchange Commission ("SEC") has
interpreted the 1940 Act as not requiring shareholder approval of a rights
offering at a price below the then current net asset value so long as certain
conditions are met, including a good faith determination by the fund's board of
trustees that such offering would result in a net benefit to existing
shareholders.
Over-Subscription Privilege
If all of the Rights initially issued in the Primary Subscription are not
exercised, any Shares for which Subscriptions have not been received ("Excess
Shares") will be offered, by means of the Over-Subscription Privilege, to Record
Date Shareholders who have exercised all the Rights initially issued to them and
who wish to acquire more than the number of Shares for which the Rights issued
to them are exercisable. Record Date Shareholders who exercise all the Rights
initially issued to them will have the opportunity to indicate on the
Subscription Certificate how many Shares they are willing to acquire pursuant to
the Over-Subscription Privilege. If sufficient Excess Shares remain, all
over-subscriptions will be honored in full. If sufficient Excess Shares are not
available to honor all over-subscriptions, the available Excess Shares will be
allocated (subject to elimination of fractional Shares) among those who
over-subscribe based on the number of Rights originally issued to them by the
Fund. The allocation process may involve a series of allocations in order to
assure that the total number of Shares available for over-subscriptions is
distributed on a pro rata basis.
The method by which Excess Shares will be distributed and allocated
pursuant to the Over-Subscription Privilege is as follows. Excess Shares will be
available for purchase pursuant to the Over-Subscription Privilege only to the
extent that the maximum number of Shares is not subscribed for through the
exercise of the Primary Subscription by the Expiration Date. If the Excess
Shares are not sufficient to satisfy all subscriptions pursuant to the
Over-Subscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional Shares) among those holders of Rights
exercising the Over-Subscription Privilege, in proportion, not to the number of
Shares requested pursuant to the Over-Subscription Privilege, but to the number
of Shares held on the Record Date; provided, however, that if this pro rata
allocation results in any holder being allocated a greater number of Excess
Shares than the holder subscribed for pursuant to the exercise of such holder's
Over-Subscription Privilege, then such holder will be allocated only such number
of Excess Shares as such holder subscribed for and the remaining Excess Shares
will be allocated among all other holders exercising Over-Subscription
Privileges. The formula to be used in allocating the Excess Shares is as
follows:
Holder's Record Date Position
-----------------------------
Total Record Date Position x Excess Shares
of all Oversubscribers Remaining
The allocation process may involve a series of allocations in order to
assure that the total number of Shares available for Over-Subscription is
distributed on a pro rata basis. The Fund will not offer or sell any Shares
which are not subscribed for under the Primary Subscription or the
Over-Subscription Privilege.
The Subscription Price
The Subscription Price for the Shares to be issued pursuant to the Rights
will be 95% of the lower of (i) the last reported sale price of a Share of
All-Star on the NYSE on May 7, 2002, the Pricing Date, or (ii) the net asset
value of a Share of All-Star on the Pricing Date.
All-Star announced the terms of the Offer before the opening of trading on
the NYSE on February 13, 2002. The net asset value per Share of All-Star at the
close of business on February 12, 2002 and on April 1, 2002 was $10.19 and
$[ ], respectively, and the last reported sale price of a Share on the NYSE on
those dates was $11.06 and $[ ], respectively, representing a 8.5% premium
and a [ ]% discount/premium, respectively, in relation to the net asset value
per Share at the close of business on these dates.
Expiration of the Offer
The Offer will expire at 5:00 p.m., New York City time, on May 6, 2002.
Rights will expire on the Expiration Date and thereafter may not be exercised,
unless the Offer is extended. Since the Expiration Date is prior to the Pricing
Date, shareholders who decide to acquire Shares on Primary Subscription or
pursuant to the Over-Subscription Privilege will not know, when they make such
decision, what the purchase price for such Shares will be.
Any extension, termination, or amendment of the Offer will be followed as
promptly as practicable by announcement thereof, such announcement in the case
of an extension to be issued no later than 9:00 a.m., New York City time, on the
next business day following the previously scheduled Expiration Date. The Fund
will not, unless otherwise required by law, have any obligation to publish,
advertise, or otherwise communicate any such announcement other than by making a
release to the Dow Jones News Service or such other means of announcement as the
Fund deems appropriate.
Subscription Agent
The Subscription Agent is EquiServe Trust Company, N.A. EquiServe is also the
Fund's dividend paying agent, transfer agent and registrar. The Subscription
Agent will receive from All-Star a fee estimated at approximately $100,000 plus
reimbursement for its out-of-pocket expenses related to the Offer. Inquiries by
all holders of Rights should be directed to EquiServe Trust Company, N.A., P.O.
Box 43025, Providence, RI 02940-3025 (telephone (800) 542-3863); holders may
also consult their brokers or nominees.
Information Agent
Any questions or requests for assistance regarding the Offer may be
directed to the Information Agent at its telephone number and address listed
below:
Georgeson Shareholder Communications Inc.
111 Commerce Road
Carlstadt, New Jersey 07072-2586
Call Toll Free 1-866-904-6821
The Information Agent will receive a fee estimated at approximately $15,000
plus reimbursement for its out-of-pocket expenses.
Method of Exercise of Rights
Rights may be exercised by filling in and signing the reverse side of the
Subscription Certificate and mailing it in the envelope provided, or otherwise
delivering the completed and signed Subscription Certificate to the Subscription
Agent, together with payment for the Shares as described below under "Payment
for Shares." Rights may also be exercised through a Rights holder's broker, who
may charge such Rights holder a servicing fee in connection with such exercise.
Fractional Shares will not be issued, and Rights holders who receive, or who are
left with, fewer than ten Rights will not be able to exercise such Rights.
Completed Subscription Certificates and related payments must be received
by the Subscription Agent prior to 5:00 p.m., New York City time, on the
Expiration Date (unless payment is effected by means of a Notice of Guaranteed
Delivery as described below under "Payment for Shares") at the offices of the
Subscription Agent at one of the addresses set forth below.
The Subscription Certificate and payment should be sent to EQUISERVE TRUST
COMPANY, N.A. by one of the following methods:
Subscription Certificate
Delivery Method Address
If By Mail: EquiServe
Attn: Corporate Actions
------
P.O. Box 43025
Providence, RI 02940-3025
If By Hand: Securities Transfer
and Reporting Services, Inc.
c/o EquiServe
100 Williams St. Galleria
New York, NY 10038
If By Overnight Courier or EquiServe
Express Mail: Attn: Corporate Actions
40 Campanelli Drive
Braintree, MA 02184
By Broker-Dealer or Shareholders whose Shares
other Nominee: are held in a brokerage,
bank or trust account may
contact their broker or
other nominee and instruct
them to submit a Notice of
Guaranteed Delivery and
payment on their behalf.
Delivery by any method or to any address not listed above will not constitute
good delivery.
All questions as to the validity, form, eligibility (including times of
receipt and matters pertaining to beneficial ownership) and the acceptance of
subscription forms and the Subscription Price will be determined by All-Star,
which determinations will be final and binding. No alternative, conditional or
contingent subscriptions will be accepted. All-Star reserves the absolute right
to reject any or all subscriptions not properly submitted or the acceptance of
which would, in the opinion of the Fund's counsel, be unlawful. All-Star also
reserves the right to waive any irregularities or conditions, and the Fund's
interpretations of the terms and conditions of the Offer shall be final and
binding. Any irregularities in connection with subscriptions must be cured
within such time, if any, as the Fund shall determine unless waived. Neither
All-Star nor the Subscription Agent shall be under any duty to give notification
of defects in such subscriptions or incur any liability for failure to give such
notification. Subscriptions will not be deemed to have been made until such
irregularities have been cured or waived.
Payment for Shares
Holders of Rights who subscribe for Shares on Primary Subscription or
pursuant to the Over-Subscription Privilege may choose between the following
methods of payment:
(1) A subscription will be accepted by the Subscription Agent if, prior to
5:00 p.m., New York City time, on the Expiration Date, the Subscription Agent
shall have received a Notice of Guaranteed Delivery, by facsimile or otherwise,
from a bank or trust company or a NYSE or National Association of Securities
Dealers member firm, guaranteeing delivery of (a) payment of the full
Subscription Price for the Shares subscribed for on Primary Subscription and any
additional Shares subscribed for pursuant to the Over-Subscription Privilege and
(b) a properly completed and executed Subscription Certificate. The Subscription
Agent will not honor a Notice of Guaranteed Delivery if a properly completed and
executed Subscription Certificate and full payment for the Shares is not
received by the Subscription Agent by May 9, 2002. The Notice of Guaranteed
Delivery may be delivered to the Subscription Agent in the same manner as
Subscription Certificates at the addresses set forth above, or may be
transmitted to the Subscription Agent by facsimile transmission (telecopy number
(781) 380-3388; telephone number to confirm receipt (781) 575-4816).
(2) Alternatively, a holder of Rights can, together with the Subscription
Certificate, send payment for the Shares acquired on Primary Subscription and
any additional Shares subscribed for pursuant to the Over-Subscription Privilege
to the Subscription Agent based on the estimated purchase price of $[ ] per
Share. To be accepted, such payment, together with the Subscription Certificate,
must be received by the Subscription Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. The Subscription Agent will not accept cash as a
means of payment for Shares. Except as otherwise set forth below, a payment
pursuant to this method must be in United States dollars by money order or check
drawn on a bank located in the continental United States, must be payable to the
Liberty All-Star Equity Fund, and must accompany an executed Subscription
Certificate to be accepted.
Within ten business days following the Expiration Date (the "Confirmation
Date"), a confirmation will be sent by the Subscription Agent to each
shareholder exercising his or her Rights (or, if the All-Star Shares on the
Record Date are held by Cede or any other depository or nominee, to Cede or such
other depository or nominee), showing (i) the number of Shares acquired pursuant
to the Primary Subscription; (ii) the number of Shares, if any, acquired
pursuant to the Over-Subscription Privilege; (iii) the per Share and total
purchase price for the Shares; and (iv) any additional amount payable by such
shareholder to All-Star or any excess to be refunded by All-Star to such
shareholder, in each case based on the Subscription Price as determined on the
Pricing Date. Any additional payment required from a shareholder must be
received by the Subscription Agent prior to 5:00 p.m., New York City time, on
May 9, 2002, and any excess payment to be refunded by All-Star to such
shareholder will be mailed by the Subscription Agent with the confirmation. All
payments by a shareholder must be in United States dollars by money order or
check drawn on a bank located in the United States of America and be payable to
Liberty All-Star Equity Fund. Such payments will be held by the Subscription
Agent pending completion of the processing of the subscription, and will then be
paid to All-Star. Any interest earned on such amounts will accrue to All-Star
and none will be paid to the subscriber.
Whichever of the above two methods of payment is used, issuance and
delivery of the Shares subscribed for are subject to collection of checks and
actual payment pursuant to any Notice of Guaranteed Delivery.
Rights holders will have no right to rescind their subscription after
receipt of their payment for Shares by the Subscription Agent.
If a holder of Rights who acquires Shares pursuant to the Primary
Subscription or the Over-Subscription Privilege does not make payment of any
amounts due, All-Star reserves the right to take any or all of the following
actions: (i) find other purchasers for such subscribed and unpaid for Shares;
(ii) apply any payment actually received by it toward the purchase of the
greatest number of whole Shares which could be acquired by such holder upon
exercise of the Primary Subscription or the Over-Subscription Privilege; (iii)
sell in the open market all or a portion of the Shares purchased by the holder,
and apply the proceeds to the amounts owed; and (iv) exercise any and all other
rights or remedies to which it may be entitled, including, without limitation,
the right to set off against payments actually received by it with respect to
such subscribed Shares to enforce the relevant guaranty of payment or monetary
damages.
All-Star shareholders whose Shares are held by a broker-dealer, bank, trust
company or other nominee should contact the nominee to exercise their Rights and
request the nominee to exercise their Rights in accordance with their
instructions.
Brokers, banks, trust companies, depositories and other nominees who hold
All-Star Shares for the account of others should notify the respective
beneficial owners of such Shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to
exercising the Rights. If the beneficial owner so instructs, the record holder
of such Right should complete Subscription Certificates and submit them to the
Subscription Agent with the proper payment.
The instructions contained on the Subscription Certificate should be read
carefully and followed in detail. Do Not Send Subscription Certificates to
All-Star. (They should be sent to EquiServe Trust Company, N.A. as indicated
above).
The method of delivery of Subscription Certificates and payment of the
Subscription Price to the Subscription Agent will be at the election and risk of
the Rights holders, but if sent by mail it is recommended that the certificates
and payments be sent by registered mail, properly insured, with return receipt
requested, and that a sufficient number of days be allowed to ensure delivery to
the Subscription Agent and clearance of payment prior to 5:00 p.m., New York
City time, on the Expiration Date. Because uncertified personal checks may take
at least five business days to clear, you are strongly urged to pay, or arrange
for payment, by means of a certified or cashier's check or money order. Shares
will not be delivered until checks have cleared.
Delivery of Stock Certificates
Participants in All-Star's Automatic Dividend Reinvestment and Cash
Purchase Plan who exercise the Rights issued on the Shares held in their
accounts in the Plan will have their Shares acquired on Primary Subscription and
pursuant to the Over-Subscription Privilege credited to their shareholder
distribution reinvestment accounts in the Plan. Shareholders whose Shares are
held of record by Cede or by any other depository or nominee on their behalf or
their broker-dealers' behalf will have their Shares acquired on Primary
Subscription and pursuant to the Over-Subscription Privilege credited to the
account of Cede or such other depository or nominee. With respect to all other
shareholders, stock certificates for all Shares acquired on Primary Subscription
and pursuant to the Over-Subscription Privilege will be mailed, together with
the confirmation and refund of the amount, if any, paid in excess of the final
Subscription Price, on or about May 21, 2002 if the estimated Subscription
Price is equal to or in excess of the final Subscription Price. If the
shareholder's confirmation shows that an additional amount is payable due to the
final Subscription Price exceeding the estimated Subscription Price, the stock
certificates will be mailed on or about May 31, 2002, provided that such
additional amount has been paid and payment for the Shares subscribed for has
cleared, which clearance may take up to five days from the date of receipt of
the payment. If such payment does not clear within five business days from the
date of receipt, All-Star may exercise its rights in the event of nonpayment
under "Payment for Shares" above.
Record Date Shareholders whose record addresses are outside the United
States will receive written notice of the Offer; however, Subscription
Certificates will not be mailed to such shareholders. The Rights to which those
Subscription Certificates relate will be held by the Subscription Agent for such
foreign Record Date Shareholders' accounts until instructions are received in
writing with payment to exercise the Rights. If no such instructions are
received by the Expiration Date, such Rights will expire. See "Subscription
Agent."
Federal Income Tax Consequences
The following is a general summary of the significant federal income tax
consequences of the receipt of Rights by a Record Date Shareholder and a
subsequent lapse or exercise of Rights. The discussion is based on applicable
provisions of the Internal Revenue Code of 1986, as amended ("Code"), the
Treasury Regulations promulgated thereunder and other authorities currently in
effect, all of which are subject to change, possibly with a retroactive effect.
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation that may be relevant to shareholders in light of their
particular circumstances or to shareholders subject to special treatment under
the Code (such as insurance companies, financial institutions, tax-exempt
entities, employee benefit plans, dealers in securities, foreign corporations
and persons who are not U.S. citizens or residents), and does not address any
state, local or foreign tax consequences.
For federal income tax purposes, neither the receipt nor the exercise of
the Rights by Record Date Shareholders will result in taxable income to them,
and they will realize no loss with respect to any Rights that expire without
being exercised. All-Star will realize no gain or loss on the issuance, exercise
or expiration of the Rights.
A Record Date Shareholder's holding period for a Share acquired on exercise
of Rights will begin with the date of exercise, and the shareholder's basis for
determining gain or loss on the sale of that Share will equal the sum of the
shareholder's basis in the exercised Rights, if any, plus the Subscription Price
for the Share. A Record Date Shareholder's basis in Rights will be zero unless
either (1) the Rights' fair market value on the date of distribution is 15% or
more of the fair market value on that date of the Shares with respect to which
the Rights were distributed or (2) the shareholder elects, on his, her or its
federal income tax return for the taxable year in which the Rights are received,
to allocate part of the basis of those Shares to the Rights. If either clause
(1) or (2) applies, then if the Rights are exercised, the shareholder will
allocate his, her or its basis in the Shares with respect which the Rights were
distributed between those Shares and the Rights in proportion to their
respective fair market values on the distribution date. A Record Date
Shareholder's gain or loss recognized on sale of a Share acquired on the
exercise of Rights will be a capital gain or loss (assuming the Share was held
as a capital asset at the time of sale) and will be long-term capital gain or
loss, taxable at a maximum rate of 20% in the case of a noncorporate
shareholder, if the shareholder then held the Share for more than one year.
Employee Benefit Plan Considerations
Shareholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including separate
profit sharing/retirement and savings plans, and plans for self-employed
individuals and their employees) and individual retirement accounts ("IRAs)
(collectively, "Retirement Plans") should be aware that additional contributions
of cash to a Retirement Plan (other than rollover contributions or
trustee-to-trustee transfers from other Retirement Plans) in order to exercise
Rights may, when taken together with contributions previously made, be treated
as excess or nondeductible contributions subject to excise taxes. In the case of
Retirement Plans qualified under section 401(a) of the Code, additional cash
contributions could cause violations of the maximum contribution limitations of
section 415 of the Code or other qualification rules. Retirement Plans in which
contributions are so limited should consider whether there is an additional
source of funds available within the Retirement Plan, including the liquidation
of assets, with which to exercise the Rights. Because the rules governing
Retirement Plans are extensive and complex, Retirement Plans contemplating the
exercise of Rights should consult with their counsel prior to such exercise.
Retirement Plans and other tax-exempt entities, including governmental
plans, should also be aware that if they borrow to finance their exercise of
Right, they become subject to tax on unrelated business taxable income under
Section 511 of the Code. If any portion of an IRA is used as security for a
loan, that portion will be treated as a distribution to the IRA owner.
ERISA contains fiduciary responsibility requirements, and ERISA and the
Code contain prohibited transaction rules, that may impact the exercise of
Rights. Due to the complexity of these requirements and rules and the penalties
for non-compliance, Retirement Plans should consult with their counsel regarding
the consequences of their exercise of Rights under ERISA and the Code.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Dilution
If you do not exercise all of your Rights during the Subscription Period,
when the Offering is over you will own a relatively smaller percentage of the
Fund than if you had exercised all of your Rights. The Fund cannot tell you
precisely how much smaller the percentage of the Fund that you would own because
the Fund does not know how many of the Fund's Record Date Shareholders will
exercise their Rights and how many of their Rights they will exercise.
Shareholders will experience an immediate dilution of the aggregate NAV of
Shares as a result of the completion of the Offer because (i) the Subscription
Price per Share will be less than the Fund's NAV per Share on the Expiration
Date, (ii) the Fund will incur expenses in connection with the Offer, and (iii)
the number of Shares outstanding after the Offer will increase in a greater
percentage than the increase in the size of the Fund's assets. This dilution
also will affect Record Date Shareholders to a greater extent if they do not
exercise their Rights in full. It is not possible to state precisely the amount
of any decreases in either NAV or in ownership interests, because it is not
known at this time what the NAV per Share will be at the Expiration Date or what
proportion of the Shares will be subscribed. Finally, there may be a dilution of
earnings per Share due to the increase in the number of Shares outstanding, but
only to the extent that investments of the proceeds of the Offer do not achieve
the same return as current investments held by the Fund. To the extent such
investments achieve a better return than current investments, earnings per Share
will experience appreciation.
The following example assumes that all of the Shares are sold at the
Estimated Subscription Price of $[ ] and after deducting all expenses related to
the issuance of the Shares.
NAV per Share on Dilution Percentage
April 1, 2002 per Share in Dollars Dilution
--------------- -------------------- --------
Primary Subscription
or 10,688,506 Shares $[ ] $[ ] [ ]%
Market Value and Net Asset Value
The shares of closed-end investment companies frequently trade at a
discount from NAV. This characteristic of shares of a closed-end fund is a
risk separate and distinct from the risk that the Fund's net asset value may
decrease. Since the commencement of the Fund's operations, the Fund's Shares
have traded in certain periods in the market at a discount to NAV. See
"Share Price Data." The risk of purchasing shares of a closed-end fund that
might trade at a discount is more pronounced if you wish to sell your shares in
a relatively short period of time. If you do so, realization of a gain or loss
on your investment is likely to be more dependent upon the existence of a
premium or discount than upon portfolio performance. The Fund's Shares are not
subject to redemption. Investors desiring liquidity may, subject to applicable
securities laws, trade their Shares in the Fund on any exchange where such
Shares are then trading at current market value, which may differ from the then
current NAV. Moreover, Shareholders expecting to sell their Shares during
the course of the Offer should be aware that there is a greater risk that the
potential discount referred to above, which may increase during the Offer, will
adversely affect them. This increased risk is because, among other things, the
market price per Share may reflect the anticipated dilution that will result
from this Offer. The Fund cannot predict whether the Shares will trade at a
discount or premium to NAV after completion of the Offer.
Possible Suspension of the Offer
All-Star has, as required by the Securities and Exchange Commission's
registration form, undertaken to suspend the Offer until it amends this
Prospectus if subsequent to March 29, 2002, the effective date of the Fund's
Registration Statement, All-Star's net asset value declines more than 10% from
its net asset value as of March 29, 2002. Accordingly, All-Star will notify
shareholders of any such decline and thereby permit them to cancel their
exercise of Rights.
USE OF PROCEEDS
The net proceeds of the Offer, assuming that all Shares offered hereby are
sold at an Estimated Subscription Price of $[ ] per Share, are estimated to
be approximately $[ ], after deducting expenses payable by All-Star estimated at
$315,000. Such net proceeds will be invested by All-Star's Portfolio
Managers in portfolio securities in accordance with All-Star's investment
objective and policies. It is anticipated that investment of such net proceeds
under normal market conditions will take place during a period of approximately
30 days from their receipt by All-Star, and would in any event be completed
within three months. Pending such investment the net proceeds will be invested
in Short-Term Money Market Instruments (as defined under "Investment Objective,
Policies and Risks" below).
THE MULTI-MANAGER CONCEPT
All-Star allocates its portfolio assets on an approximately equal basis
among a number of independent investment management firms ("Portfolio
Managers"), currently five in number, recommended by LAMCO, each of which
employs a different investment style, and from time to time rebalances the
portfolio among the Portfolio Managers so as to maintain an approximately equal
allocation of the portfolio among them throughout all market cycles.
In the opinion of LAMCO, the multi-manager concept provides advantages over
the use of a single manager because of the following primary factors:
(i) most equity investment management-firms consistently employ a distinct
investment style which causes them to emphasize stocks with particular
characteristics;
(ii) because of changing investor preferences, any given investment style
will move into and out of market favor and will result in better investment
performance under certain market conditions but less successful performance
under other conditions;
(iii) consequently, by allocating All-Star's portfolio on an approximately
equal basis among Portfolio Managers employing different styles, the impact of
any one such style on investment performance will be diluted, and the investment
performance of the total portfolio will be more consistent and less volatile
over the long-term than if a single style were employed throughout the entire
period;
(iv) consistent performance at a given annual rate of return over time
produces a higher rate of return for the long-term than more volatile
performance having the same average annual rate of return.
LAMCO, based on the foregoing principles and on its analysis and evaluation
of information regarding the personnel and investment styles and performance of
a universe of numerous professional investment management firms, has selected
for appointment by All-Star a group of Portfolio Managers representing a
blending of different investment styles which, in its opinion, is appropriate to
All-Star's investment objective.
LAMCO continuously monitors the performance and investment styles of
All-Star's Portfolio Managers and from time to time recommends changes of
Portfolio Managers based on factors such as changes in a Portfolio Manager's
investment style or a departure by a Portfolio Manager from the investment style
for which it had been selected, a deterioration in a Portfolio Manager's
performance relative to that of other investment management firms practicing a
similar style, or adverse changes in its ownership or personnel. Portfolio
Manager changes may also be made to change the mix of investment styles employed
by All-Star's Portfolio Managers. Since its inception, All-Star has had eleven
Portfolio Manager changes.
All-Star Portfolio Manager changes, as well as the periodic rebalancings of
its portfolio among the Portfolio Managers and the need to raise cash for
All-Star's quarterly distributions, may result in some portfolio turnover in
excess of what would otherwise be the case (see "Financial Highlights" above).
Increased portfolio turnover would cause increased brokerage commission costs to
All-Star, and may result in greater realization of capital gains, which are
taxable to shareholders.
Under the terms of an exemptive order issued to All-Star and LAMCO by the
Securities and Exchange Commission, a portfolio management agreement with a new
or additional Portfolio Manager may be entered into in advance of shareholder
approval, provided that the new agreement is at a fee no higher than that
provided in, and is on other terms and conditions substantially similar to,
All-Star's agreements with its other Portfolio Managers, and that its
continuance is subject to approval by shareholders at All-Star's regularly
scheduled annual shareholder meeting (normally held in April) next following the
date of the new or additional portfolio management agreement. Information about
Portfolio Manager changes or additions made in advance of shareholder approval
will be announced to the press following Board of Trustees action and will be
included in the next report to shareholders.
All-Star's current Portfolio Managers are:
Boston Partners Asset Management, L.P.
Mastrapasqua & Associates, Inc.
Oppenheimer Capital LLC
Schneider Capital Management Corporation
TCW Investment Management Company
See Appendix A for information about these Portfolio Managers, including
the employees primarily responsible for the day-to-day management of the portion
of All-Star's portfolio allocated to each.
INVESTMENT OBJECTIVE, POLICIES AND RISKS
All-Star's investment objective is to seek total investment return,
comprised of long term capital appreciation and current income. It seeks its
investment objective through investment primarily in a diversified portfolio of
equity securities.
Under normal market conditions, All-Star invests at least 80% of its net
assets (plus any borrowings for investment purposes) in equity securities,
defined as common stocks and securities convertible into common stocks such as
bonds and preferred stocks, and securities having common stock characteristics
such as warrants and rights to purchase equity securities (although, as a
non-fundamental policy, not more than 20% of the value of All-Star's total
assets may be invested in rights and warrants). The 80% component of this
policy only may be changed following provision of at least 60 days prior notice
to shareholders. All-Star may lend its portfolio securities, write covered call
and put options and engage in options and futures strategies (see "Investment
Practices" below).
Although under normal market conditions All-Star will remain substantially
fully invested in equity securities, up to 20% of the value of All-Star's
net assets may generally be invested in short-term money market instruments,
including certificates of deposit (negotiable certificates issued against bank
deposits), other interest-bearing bank deposits such as savings and money market
accounts, and bankers' acceptances (short-term bank-guaranteed credit
instruments used to finance transactions in goods) of domestic branches of U.S.
banks having assets of not less than $1 billion, obligations issued or
guaranteed by the U.S. Government and its agencies and instrumentalities ("U.S.
Government Securities"), commercial paper (unsecured short-term promissory notes
issued by corporations) rated not lower than A-1 by Standard & Poor's
Corporation ("S&P") or Prime-1 by Moody's Investors Service, Inc. ("Moody's"),
short-term corporate debt securities rated not lower than AA by S&P or Aa by
Moody's, and repurchase agreements with respect to the foregoing (collectively,
"Short-Term Money Market Instruments"). All-Star may temporarily invest without
limit in Short-Term Money Market Instruments for defensive purposes when LAMCO
or the Portfolio Managers deem that market conditions are such that a more
conservative approach to investment is desirable.
All-Star's investment objective of seeking total investment return and its
policy of investing under normal market conditions at least 80% of the value of
its net assets (plus borrowings for investment purposes) in equity
securities, as well as certain of its investment restrictions referred to under
Reducing Risk below and in the Statement of Additional Information, are
fundamental and may not be changed without a majority vote of All-Star's
outstanding Shares. Under the 1940 Act, a "majority vote" means the vote of the
lesser of (a) 67% of the Shares of All-Star represented at a meeting at which
the holders of more than 50% of the outstanding Shares of All-Star are present
or represented, or (b) more than 50% of the outstanding Shares of All-Star.
Non-fundamental policies may be changed by vote of the Board of Trustees.
Investment Practices
The following describes certain of the investment practices in which one or
more of All-Star's Portfolio Managers may engage, each of which may involve
certain special risks.
Lending of Portfolio Securities. Although All-Star has not to date engaged
in securities lending, consistent with applicable regulatory requirements,
All-Star, in order to generate additional income, may lend its portfolio
securities (principally to broker-dealers) where such loans are callable at any
time and are continuously secured by collateral (cash or U.S. Government
Securities) equal to not less than the market value, determined daily, of the
securities loaned. All-Star would receive amounts equal to the interest on the
securities loaned. It will also be paid for having made the loan. Any cash
collateral pursuant to these loans would be invested in Short-Term Money Market
Instruments. All-Star could be subjected to delays in recovering the loaned
securities in the event of default or bankruptcy of the borrower. All-Star will
limit such lending to not more than 30% of the value of All-Star's total assets.
The Fund may pay fees to its custodian bank or others for administrative
services in connection with securities loans.
Repurchase Agreements. All-Star may enter into repurchase agreements with
banks or broker-dealer firms whereby such institutions sell U.S. Government
Securities or other securities in which it may invest to All-Star and agree at
the time of sale to repurchase them at a mutually agreed upon time and price.
The resale price is greater than the purchase price, reflecting an agreed-upon
interest rate which is effective during the time between the purchase and resale
and is not related to the stated interest rate on the purchased securities.
All-Star requires the seller of the securities to maintain on deposit with
All-Star's custodian bank securities in an amount at all times equal to or in
excess of the value of the repurchase agreement. In the event that the seller of
the securities defaults on its repurchase obligation or becomes bankrupt,
All-Star could receive less than the repurchase price on the sale of the
securities to another party or could be subjected to delays in selling the
securities. Under normal market conditions, not more than 20% of
All-Star's net assets will be invested in Short-Term Money Market
Instruments, including repurchase agreements, and not more than 10% of
All-Star's net assets will be invested in repurchase agreements maturing in more
than seven days.
Options and Futures Strategies. All-Star may seek to increase the current
return of All-Star's portfolio by writing covered call or put options with
respect to the types of securities in which All-Star is permitted to invest.
Call options written by the Fund give the purchaser the right for a stated
period to buy the underlying securities from All-Star at a stated price; put
options written by the Fund give the purchaser the right for a stated period to
sell the underlying securities to All-Star at a stated price. By writing a call
option, All-Star limits its opportunity to profit from any increase in the
market value of the underlying security above the exercise price of the option;
by writing a put option, All-Star assumes the risk that it may be required to
purchase the underlying security at a price in excess of its current market
value.
All-Star may purchase put options to protect its portfolio holdings in the
underlying security against a decline in market value. It may purchase call
options to hedge against an increase in the prices of portfolio securities that
it plans to purchase. By purchasing put or call options, All-Star, for the
premium paid, acquires the right (but not the obligation) to sell (in the case
of a put option) or purchase (in the case of a call option) the underlying
security at the option exercise price, regardless of the then current market
price.
All-Star may also seek to hedge against declines in the value of securities
owned by it or increases in the price of securities it plans to purchase, or to
gain or maintain market exposure, through the purchase of stock index futures
and related options. For example, All-Star may purchase stock index futures and
related options to enable a newly appointed Portfolio Manager to gain immediate
exposure to underlying securities markets pending the investment of the portion
of All-Star portfolio assigned to it. A stock index future is an agreement in
which one party agrees to deliver to the other an amount of cash equal to a
specific dollar amount times the difference between the value of the specific
stock index at the close of the last trading day of the contract and the price
at which the agreement is made.
Expenses and losses incurred as a result of the hedging strategies
described above will reduce All-Star's current return.
Transactions in options and futures contracts may not achieve the intended
goals of protecting portfolio holdings against market declines or gaining or
maintaining market exposure, as applicable, to the extent that there is an
imperfect correlation between the price movements of the options and futures
contracts and those of the securities to be hedged. In addition, if a Portfolio
Manager's prediction on stock market movements is inaccurate, All-Star may be
worse off than if it had not engaged in such options or futures transactions.
See the Statement of Additional Information for additional information
concerning options and futures transactions and the risk thereof.
Risks
As an investment company that holds common stocks, All-Star's portfolio is
subject to the possibility that common stock prices will decline over short or
even extended periods. All-Star may remain substantially fully invested during
periods when stock prices generally rise and also during periods when they
generally decline. In addition, All-Star's portfolio is subject to the risks
associated with growth stocks. Growth stock prices may be more sensitive to
changes in current or expected earnings than the prices of other stocks, and
growth stocks may not perform as well as value stocks or the stock market in
general. Risks are inherent in investments in equities, and Fund shareholders
should be able to tolerate significant fluctuations in the value of their
investment in All-Star. All-Star is intended to be a long-term investment
vehicle and is not designed to provide investors with a means of speculating on
short-term stock market movements. Investors should not consider the Fund a
complete investment program.
In addition to the foregoing investment risks, shares of closed-end
investment companies such as All-Star are not redeemable and frequently trade at
a discount from their net asset value. This risk is separate and distinct from
the risk that All-Star's net asset value may decline. See "Share Price Data" for
information about the market price and net asset value of All-Star's Shares
since January 1, 2000.
Reducing Investment Risk
As a matter of fundamental policy, All-Star will not (i), as to 75% of its
total assets, purchase the securities (other than U.S. Government Securities) of
any one issuer if after such purchase more than 5% of its assets would be
invested in the securities of that issuer, (ii) purchase more than 10% of the
outstanding voting securities of such issuer, (iii) invest 25% or more of its
total assets in the securities of issuers in the same industry, or (iv) invest
more than 10% of its total assets in securities that at the time of purchase
have legal or contractual restrictions on resale (including unregistered
securities that are eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933). See "Investment
Restrictions" in the Statement of Additional Information.
MANAGEMENT OF ALL-STAR
The management of All-Star's business and affairs is the responsibility of
its Board of Trustees.
All-Star has a Fund Management Agreement with LAMCO pursuant to which LAMCO
provides the Portfolio Manager selection, evaluation, monitoring and rebalancing
services ("investment management services") described above under "The
Multi-Manager Concept." No single individual at LAMCO is responsible for LAMCO's
decisions with respect to the retention or replacement of the Portfolio
Managers.
LAMCO is also responsible for the provision of administrative services to
All-Star, including the provision of office space, shareholder and broker-dealer
communications, compensation of officers of All-Star who are officers or
employees of LAMCO or its affiliates, and the supervision of transfer agency,
dividend disbursing, custodial and other services provided to others. Certain of
LAMCO's administrative responsibilities have been delegated to Colonial.
LAMCO has its offices at One Financial Center, Boston, Massachusetts
02111. LAMCO was organized in 1985 and is an indirect wholly owned subsidiary
of Columbia Management Group, Inc., which in turn is an indirect majority owned
subsidiary of FleetBoston Financial Corporation, a U.S. financial holding
company.
Under All-Star's Portfolio Management Agreements with each of its Portfolio
Managers and LAMCO, each Portfolio Manager has discretionary authority
(including for the selection of brokers and dealers for the execution of
All-Star's portfolio transactions) with respect to the portion of All-Star's
assets allocated to it by LAMCO from time to time, subject to All-Star's
investment objective and policies, to the supervision and control of the
Trustees, and to instructions from LAMCO. As described under the section
entitled "The Multi-Manager Concept", LAMCO from time to time reallocates
All-Star's portfolio assets in order to maintain an approximately equal
allocation among the Portfolio Managers and to preserve an approximately equal
weighting among the different investment styles practiced by the Portfolio
Managers. Although the Portfolio Managers' activities are subject to general
oversight by LAMCO and the Trustees and officers of All-Star, neither LAMCO nor
such Trustees and officers evaluate the investment merits of the Portfolio
Managers' selections of individual securities. See Appendix A for a description
of the Portfolio Managers.
Although All-Star does not permit a Portfolio Manager to act or have a
broker-dealer affiliate act as broker for Fund portfolio transactions initiated
by it, All-Star's Portfolio Managers are permitted to place portfolio
transactions initiated by them with another Portfolio Manager or its
broker-dealer affiliate for execution on an agency basis, provided the
commission does not exceed the usual and customary broker's commission being
paid to other brokers for comparable transactions and is otherwise in accordance
with All-Star's procedures adopted under Rule 17e-1 under the 1940 Act.
Under All-Star's Fund Management Agreement with LAMCO and its Portfolio
Management Agreements with the Portfolio Managers, All-Star pays LAMCO a fund
management fee and an administrative fee, and LAMCO in turn pays the fees of the
Portfolio Managers from the fund management fees paid to it. The annual fees
that are paid under the current agreements are shown below (fees are payable
monthly based on the indicated percentage of the Fund's average weekly net
assets during the prior month).
Fund Management
Fee Paid to LAMCO
and Portfolio Management
Average weekly Fee Paid to Administrative
Net Asset Value Portfolio Managers Fee Paid to LAMCO Total Fees
---------------- ------------------ ----------------- ----------
First $400 million 0.800% (0.400% to Portfolio Managers) 0.200% 1.00%
Next $400 million 0.720% (0.360% to Portfolio Managers) 0.180% 0 90%
Next $400 million 0.648% (0.324% to Portfolio Managers) 0.162% 0.81%
Over $1.2 billion 0.584% (0.292% to Portfolio Managers) 0.146% 0.73%
Colonial provides pricing and bookkeeping services to All-Star for an
annual fee of $10,000 per year plus a fee based on the Fund's average net assets
for any month that such assets are over $50 million. The fee shall be calculated
as follows: $190,000 divided by the sum of the Fund's average monthly net assets
plus the average monthly net assets of Liberty All-Star Growth Fund, Inc. The
Fund also reimburses Colonial for its out-of-pocket expenses, including fees
payable to third parties for pricing services.
Custodian and Transfer Agent
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is All-Star's custodian. EquiServe Trust Company, N.A., 150
Royall Street, Canton, Massachusetts 02021, is the transfer and dividend
disbursing agent and registrar for All-Star.
Expenses of the Fund
LAMCO provides the Portfolio Manager selection, evaluation, monitoring and
rebalancing services and assumes responsibility for the administrative services
described above, pays the compensation of and furnishes office space for the
officers of All-Star who are affiliated with LAMCO, and pays the management fees
of the Portfolio Managers. All-Star pays all of its expenses, other than those
expressly assumed by LAMCO. The expenses payable by All-Star include: fees of
the Manager; expenses of all audits by independent public accountants; expenses
of transfer agent, registrar, dividend disbursing agent and shareholder record
keeping services (including reasonable fees and expenses payable to the Manager
for such services); expenses of custodial services including fund accounting and
record keeping services provided by the Custodian; expenses of obtaining
quotations for calculating the value of the Company's net assets; salaries and
other compensation of any of its executive officers and employees who are not
officers, directors, stockholders or employees of the Manager or any of its
affiliates; taxes levied against the Company and the expenses of preparing tax
returns and reports; brokerage fees and commissions in connection with the
purchase and sale of portfolio securities for the Company; organizational and
offering expenses; costs, including the interest expense, of borrowing money;
costs and/or fees incident to Trustee and shareholder meetings of the Company,
the preparation and mailings of proxy material, prospectuses and reports of the
Company to its shareholders, the filing of reports with regulatory bodies, the
maintenance of the maintenance of the Company's legal existence, membership dues
and fees of investment company industry trade associations, the listing (and
maintenance of such listing) of the Company's shares on stock exchanges, and the
registration of shares with federal and state securities authorities; legal fees
and expenses (including reasonable fees for legal services rendered by the
Manager of its affiliates), including the legal fees related to the registration
and continued qualification of the Company's shares for sale: costs of printing
stock certificates representing shares of the Company; Trustees' fees and
expenses of Trustees who are not directors, officers, employees or stockholders
of the Manager or any of its affiliates; its pro rata portion of the fidelity
bond required by Section 17(g) of the Investment Company Act, or other insurance
premiums; and fees payable to federal and state authorities in connection with
the registration of the Company's shares.
DESCRIPTION OF SHARES
General
All-Star's authorized capitalization consists of an unlimited number of
Shares of beneficial interest, without par value, of which 106,885,060
Shares were issued and outstanding on the date of this Prospectus. The currently
outstanding Shares are, and the Shares offered hereby when issued and paid for
pursuant to the terms of the Offer will be, fully paid and non-assessable.
Shareholders would be entitled to share pro rata in the net assets of All-Star
available for distribution to Shareholders upon liquidation of All-Star.
Shareholders are entitled to one vote for each Share held. All-Star's
Shares do not have cumulative voting rights, which means that the holders of
more than 50% of the Shares of All-Star voting for the election of Trustees can
elect all the Trustees standing for election, and, in such event, the holders of
the remaining Shares will not be able to elect any of such Trustees.
Repurchase of Shares
All-Star is a closed-end investment company and as such its Shareholders do
not have the right to cause All-Star to redeem their All-Star Shares. All-Star,
however, is authorized to repurchase its Shares on the open market when its
Shares are trading at a discount from their net asset value. All-Star has no
current plans to repurchase its Shares.
Anti-takeover Provisions of the Declaration of Trust; Super-majority Vote
Requirement for Conversion to Open-End Status
All-Star's Declaration of Trust contains provisions (commonly referred to
as "anti-takeover" provisions) which are intended to have the effect of limiting
the ability of other entities or persons to acquire control of All-Star, to
cause it to engage in certain transactions, or to modify its structure. The
Board of Trustees is divided into three classes, each having a term of three
years. On the date of the annual meeting of shareholders in each year the term
of one class expires. This provision could delay for up to three years the
replacement of a majority of the Board of Trustees. The affirmative vote of 75%
of the Shares will be required to authorize All-Star's conversion from a
closed-end to an open-end investment company, unless such conversion is
recommended by All-Star's Board of Trustees, in which event such conversion
would only require the majority vote of All-Star's Shareholders (as defined
under "Investment Objective, Policies and Risks" above).
In addition, the affirmative vote of the holders of 75% of the Shares of
the Fund will be required generally to authorize any of the following
transactions:
(i) All-Star's merger or consolidation with or into any other corporation;
(ii) the issuance of any securities of All-Star to any person or entity for
cash;
(iii) the sale, lease or exchange of all or any substantial part of All-Star's
assets to any entity or person (except assets having an aggregate fair
market value of less than $1,000,000); or
(iv) the sale, lease or exchange to All-Star, in exchange for securities of
All-Star, of any assets of any entity or person (except assets having an
aggregate fair market value of less than $1,000,000);
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of five percent or more of the outstanding
Shares of All-Star. (A 66 2/3% vote would otherwise be required for a merger or
consolidation or a sale, lease or exchange of all or substantially all of
All-Star's assets unless recommended by the Trustees, in which case only a
majority vote would be required). However, such 75% vote will not be required
with respect to the transactions listed in (i) through (iv) above where the
Board of Trustees under certain conditions approves the transaction. However,
depending upon the transaction, a different Shareholder vote may nevertheless
be required under Massachusetts law.
The foregoing super-majority vote requirements may not be amended except
with a similar supermajority vote of the Shareholders.
These provisions will make more difficult a change in All-Star's structure
or management or consummation of the foregoing transactions without the
Trustees' approval. The anti-takeover provisions could have the effect of
depriving Shareholders of an opportunity to sell their Shares at a premium over
prevailing market prices by discouraging a third party from seeking to obtain
control of All-Star in a tender offer or similar transaction. However, the Board
of Trustees continues to believe that the anti-takeover provisions are in the
best interests of All-Star and its Shareholders because they provide the
advantage of potentially requiring persons seeking control of All-Star to
negotiate with its management regarding the price to be paid and facilitating
the continuity of All-Star's management and its continuing application of the
multi-manager concept.
The Board also believes that the super-majority vote requirement for
conversion to an open-end investment company is in the best interest of All-Star
and its shareholders because it will allow All-Star to continue to benefit from
the advantages of its closed-end structure until such time that, based on
relevant factors including the then current relationship of the market price of
All-Star's Shares to their net asset value, the Board determines to recommend to
Shareholders All-Star's conversion to an open-end investment company.
In accordance with the Declaration of Trust, the question of conversion to
an open-end investment company was submitted to the vote of Shareholders at
All-Star's 1993 annual meeting held on April 6, 1993, such conversion then
requiring only the affirmative vote of a majority of All-Star's Shares (as
defined in the 1940 Act). In accordance with the Trustees' recommendation,
Shareholders, by substantial majorities, rejected the conversion proposal and
approved an amendment to All-Star's Declaration of Trust instituting the 75%
super-majority vote referred to above for any future conversion to open-end
status.
DISTRIBUTIONS; AUTOMATIC DIVIDEND
REINVESTMENT AND CASH PURCHASE PLAN
10% Distribution Policy
All-Star's current distribution policy is to pay distributions on its
Shares totaling approximately 10% of its net asset value per year, payable in
four quarterly distributions of 2.5% of its net asset value at the close of the
NYSE on the Friday prior to each quarterly declaration date. These fixed
distributions, which are not related to All-Star's net investment income or net
realized capital gains or losses, will be treated as ordinary dividend income up
to the amount of All-Star's current and accumulated earnings and profits. If,
for any calendar year, the total distributions made under the 10% pay-out policy
exceed All-Star's net investment income and net realized capital gains, the
excess will be treated as a tax-free return of capital to each Shareholder (up
to the amount of the shareholder's basis in his or her Shares) and thereafter as
gain from the sale of Shares. The amount treated as a tax-free return of capital
will reduce the shareholder's adjusted basis in his or her Shares, thereby
increasing his or her potential gain or reducing his or her potential loss on
the subsequent sale of his or her Shares. All-Star made distribution from
capital in 1987, 1988, 1989, 1990, 1992, 1993 and 1994 (See "Financial
Highlights").
To the extent All-Star's 10% payout policy results in distributions in
excess of its net investment income and net realized capital gains, such
distributions will decrease its total assets and increase its expense ratio to a
greater extent than would have been the case without the 10% payout policy. In
addition, in order to make distributions under the 10% payout policy, All-Star
may have to sell portfolio securities at times when the particular investment
styles of its Portfolio Managers would dictate not doing so.
All-Star may, in the discretion of the Board of Trustees, retain for
reinvestment, and not distribute, net capital gain for any year to the extent
that its net investment income and net realized gains exceed the minimum amount
required to be distributed for such year under the 10% pay-out policy, although
All-Star reserves the right to distribute such excess. Retained net capital gain
will be taxed to both All-Star and the Shareholders as long-term capital gains;
however, each shareholder will be able to claim a proportionate share of the
federal income tax paid by All-Star as a credit against his or her own federal
income tax liability and will be entitled to increase the adjusted tax basis in
his or her Shares by the difference between the amount taxed and the credit.
All-Star may pay all or a substantial portion of its distributions in each
year in the form of newly issued Shares (plus cash in lieu of any fractional
Shares that would otherwise be issuable) to all shareholders except those
non-participants in the Plan who specifically elect to receive their
distribution in cash by completing and signing an option card, a copy of which
will be enclosed with the notice of each such distribution payable in Shares,
and returning it on a timely basis to EquiServe Trust Company, N.A., All-Star's
transfer agent and dividend paying agent.
The number of Shares to be issued to a Shareholder in payment of a
distribution declared payable in Shares will be determined by dividing the total
dollar amount of the distribution by the lower of the market value or the net
asset value per Share on the valuation date for the distribution (but not at a
discount of more than 5% from the market value). Market value per Share for this
purpose will be the last sales price on the NYSE on the valuation date or, if
there are no sales on that day, the mean between the closing bid and closing
asked quotations for that date.
Automatic Dividend Reinvestment and Cash Purchase Plan
Under All-Star's Automatic Dividend Reinvestment and Cash Purchase Plan
(the "Plan"), shareholders whose shares are registered in their own name may
elect to participate in the Plan and have all distributions automatically
reinvested by EquiServe Trust Company, as agent for participants in the Plan
(the "Plan Agent"), in additional Shares of All-Star. Shareholders who do not
elect to participate in the Plan will receive all distributions (other than
those declared payable in Shares as described above) in cash.
Under the Plan, distributions declared payable in Shares or cash at the
option of shareholders are paid to participants in the Plan entirely in newly
issued full and fractional Shares valued at the lower of the market value or the
net asset value per Share on the valuation date for the distribution (but not a
discount of more than 5% from the then current market value). 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 or
on the NYSE (if the Fund's Shares are trading at a discount to their net asset
value) or in newly issued Shares (if the Fund's Shares are trading at or above
their net asset value). Dividends and distributions are subject to taxation,
whether received in cash or in Shares (see "Tax Status" below).
Participants in the Plan have the option of making additional cash payments
in any amount on a monthly basis for investment in All-Star Shares purchased
on the open market. These voluntary cash payments will be invested on or about
the 15th day of each calendar month, and voluntary payments should be sent so as
to be received by the Plan Agent no later than ten business days before the next
investment date. Barring suspension of trading, voluntary cash payments will be
invested within 45 days of receipt. A participant may withdraw a voluntary
cash payment by written notice received by the Plan Agent at least 48 hours
before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in non-certificated form in the name
of the participant, and each shareholder's proxy will include those Shares
purchased or received pursuant to the Plan.
In the case of Shareholders such as banks, brokers or nominees that hold
Shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of Shares certified from time to time by the
record shareholder as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who
participate in the Plan.
There is no charge to participants for reinvesting distributions payable in
either Shares or cash. The Plan Agent's fees for handling the reinvestment of
such distributions are paid by All-Star. There are no brokerage charges with
respect to Shares issued directly by All-Star as a result of distributions
payable in Shares or in cash. However, each participant bears a pro rata share
of brokerage commissions incurred whenever the Plan Agent makes open market
purchases.
With respect to purchases from voluntary cash payments, the Plan Agent will
charge $1.25 for each such purchase for a participant, plus a pro rata share of
the brokerage commissions. Brokerage charges for purchasing small amounts of
Shares for individual accounts through the Plan are expected to be less than the
usual brokerage charges for such transactions, as the Plan Agent will be
purchasing Shares for all participants in blocks and prorating the lower
commission thus attainable.
The automatic reinvestment of dividends and other distributions will not
relieve plan participants of any income tax that may be payable thereon. See
"Tax Status" below.
Either Liberty ALL-STAR Equity Fund or the Plan Agent may amend or
terminate the Plan. Participants will receive written notice at least 90 days
before the effective date of any amendment. In the case of termination,
participants will receive written notice of termination at least 90 days before
the record date of any dividend or distribution by the Fund.
Shareholders must affirmatively elect to participate in the Plan, and may
do so by completing an application and filing it with the Plan Agent.
Shareholders may call or write the Plan Agent, EquiServe Trust Company, N.A.,
P.O. Box 43011, Providence, RI 02940-3011(800-542-3863) for information about
the Plan.
Shareholders who own shares in their own name can participate directly in
the Plan. Shareholders whose shares are held in the name of a brokerage firm,
bank or other nominee should instruct the nominee to participate on their
behalf.
A Shareholder who wishes to participate in the Plan, but whose brokerage
firm, bank or other nominee is unable to participate on the shareholder's
behalf, should request the nominee to re-register the shares in the
shareholder's name which will enable the shareholder to participate in the Plan.
A participant may elect to withdraw from the Plan at any time by
notifying the Plan Agent in writing. There will be no penalty for withdrawal
from the Plan and Shareholders who have previously withdrawn from the Plan may
rejoin it at any time. A withdrawal will only be effective for subsequent
distributions with a record date at least ten days after the notice of
withdrawal is received by the Plan Agent.
TAX STATUS
The following discussion briefly summarizes the general rules applicable to
taxation of All-Star and its shareholders. Shareholders are urged to consult
with their own tax advisers concerning the tax consequences of their continued
investment in All-Star and of their receipt and exercise of the Rights.
All-Star has elected to be, and intends to continue to qualify each year
for federal income tax treatment as a regulated investment company under the
Code, and intends to make distributions to the Shareholders in accordance with
the timing requirements set out in the Code. As a result, it is expected that
All-Star will be relieved of federal income tax on its net investment income and
net realized capital gains to the extent it distributes them to its
Shareholders. (See "Distributions; Automatic Dividend Reinvestment and Cash
Purchase Plan--10% Distribution Policy" regarding All-Star's authority to retain
and pay taxes on, and not distribute, net capital gain). All-Star also expects
to make sufficient annual distributions to avoid being subject to a
nondeductible 4% federal excise tax imposed on regulated investment companies.
If All-Star fails to qualify as a regulated investment company in any year, it
would incur federal corporate income tax on its taxable income and its
distributions would be taxable as ordinary dividend income to the Shareholders
to the extent of its net investment income and net capital gain. In addition,
All-Star could be required to recognize unrealized gains, pay substantial taxes
and interest and make substantial distributions before requalifying for
treatment as a regulated investment company.
Distributions by All-Star from net investment income and net realized
capital gains will be taxable to Shareholders] whether received by shareholders
in cash or in Shares of All-Star. Shareholders receiving a dividend or other
distribution in the form of newly issued Shares will be treated for federal
income tax purposes as receiving a distribution in an amount equal to the fair
market value, determined as of the distribution date, of the Shares received.
Such Shareholders will have a cost basis in each newly issued Share equal to the
fair market value of a Share of All-Star on the distribution date. Distributions
are generally taken into account for tax purposes when paid, except that
distributions paid in January but declared in the last quarter of the preceding
calendar year must be taken into account as if paid on December 31 of such
preceding calendar year. A portion of All-Star's net investment income paid to
corporate shareholders that is attributable to dividends from domestic
corporations may be eligible for the 70% dividends-received deduction available
to corporations. Availability of the deduction for particular corporate
shareholders is subject to certain limitations, and deducted amounts may be
subject to the alternative minimum tax or result in certain basis adjustments.
Distributions from net capital gain are taxable as long-term capital gains,
regardless of how long the Shareholder has held the Shares, and are not eligible
for the dividends-received deduction. Net capital gain is taxable, in the case
of a noncorporate shareholder, at a maximum rate of 20%. As All-Star may elect,
net capital gain not distributed by All-Star will also be taxable to
Shareholders, but Shareholders will be able to claim a tax credit for the tax
paid by All-Star with respect to such undistributed capital gain.
In general, any gain or loss realized upon a taxable disposition of Shares
by a shareholder who holds such shares as a capital asset will be treated as a
long-term capital gain or loss if the shares have been held for more than twelve
months and otherwise as a short-term capital gain or loss. However, if a
shareholder holds Shares of All-Star for six months or less, any loss on the
sale of the Shares will be treated as a long-term capital loss to the extent of
any amount reportable by the Shareholder as long-term capital gain with respect
to such Shares. Any loss realized on a disposition of Shares may also be
disallowed under rules relating to wash sales.
At the time of an investor's purchase of All-Star Shares, All-Star's net
asset value may reflect undistributed net investment income or capital gains or
net unrealized appreciation of securities it holds. As of December 31, 2001,
All-Star's investments had net unrealized gains of $98,462,182. Realization and
a subsequent distribution to a shareholder of such amount, although it may in
effect constitute a return of his or her investment, would be taxable to the
shareholder as ordinary income or capital gain, as described above. For federal
income tax purposes, All-Star is permitted to carry forward to another taxable
year its net realized capital losses, if any, from earlier taxable years and
thus may realize net capital gains in the later year up to the amount of such
losses without being required to pay taxes on or to distribute such gains. As of
December 31, 2001, the end of its last completed fiscal year, All-Star had no
capital loss carryovers.
Individuals and certain other non-corporate All-Star Shareholders may be
subject to withholding tax on reportable dividends and capital gain
distributions and certain other payments at the rate in effect at the time of
distribution (currently 30%) ("back-up withholding"). Generally, Shareholders
subject to back-up withholding will be those for whom a taxpayer identification
number and certain required certificates are not on file with All-Star or who,
to All-Star's knowledge, have furnished an incorrect number. In addition,
All-Star is required to withhold from distributions to any Shareholder who does
not certify to All-Star that the Shareholder is not subject to back-up
withholding due to notification by the Internal Revenue Service that the
shareholder has under-reported interest or dividend income.
Distributions from net investment income paid to Shareholders who are
non-resident aliens or foreign entities may be subject to withholding of federal
income tax (but not, in such event, subject to back-up withholding) at the rate
of 30% unless a reduced rate of withholding or a withholding exemption is
provided under an applicable treaty. Non-U.S. shareholders are urged to consult
their own tax advisers concerning the applicability of the withholding tax.
Information concerning the federal income tax status of All-Star dividends
and other distributions is mailed to shareholders annually.
Distributions and the transactions referred to in the preceding paragraphs
may be subject to state and local income taxes, and the treatment thereof may
differ from the federal income tax consequences discussed herein. Shareholders
are advised to consult with their tax advisers concerning the application of
state and local taxes.
See "The Offer-Federal Income Tax Consequences" for a discussion of the
federal income tax consequences regarding the Rights.
GENERAL
All-Star was organized on August 20, 1986 as a "Massachusetts business
trust" and commenced investment operations on November 3, 1986. Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, All-Star's Declaration of Trust contains an express disclaimer of
Shareholder liability for the acts or obligations of All-Star and provides for
indemnification and reimbursement of expenses out of All-Star's property for any
shareholder held personally liable for the obligations of All-Star. Thus, the
risk of a Shareholder incurring financial loss on account of an All-Star
liability is limited to circumstances in which both inadequate insurance existed
and All-Star itself were unable to meet its obligations from the liquidation of
its portfolio investments.
LAMCO is a direct wholly owned subsidiary of Columbia Management Group,
Inc., an indirect majority owned subsidiary of FleetBoston Financial
Corporation.
Under the Fund Management Agreement between All-Star and LAMCO, All-Star
may use the name "Liberty All-Star" only so long as the Fund Management
Agreement remains in effect. If the Fund Management Agreement is no longer in
effect, All-Star is obligated (to the extent it lawfully can) to cease using
such name or any other name indicating that it is advised by or otherwise
connected with LAMCO. In addition, LAMCO may grant the non-exclusive right to
use the name "Liberty All-Star" to any other entity, including any other
investment company of which LAMCO or any of its affiliates is the investment
adviser or distributor.
STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Fund is contained in the Statement of
Additional Information, a copy of which is available at no charge by calling the
Information Agent at the telephone number indicated on the cover of the
Prospectus. Set forth below is the Table of Contents of the Statement of
Additional Information.
Table of Contents
Investment Objective and Policies......................................... 2
Investment Restrictions................................................... 5
Investment Advisory and Other Services.................................... 7
Trustees and Officers ......................................... 9
Portfolio Security Transactions...........................................17
Principal Shareholders....................................................19
Financial Statements......................................................19
A-1
APPENDIX A
INFORMATION ABOUT THE PORTFOLIO MANAGERS
Current Portfolio Managers
Boston Partners Asset Management, L.P.
28 State Street
Boston, Massachusetts 02109
Boston Partners Asset Management, L.P. ("Boston Partners") was appointed as an
All-Star Portfolio Manager effective May 11, 1998.
Boston Partners has been an investment advisor since 1995. The Sole General
Partner of Boston Partners is Boston Partners, Inc., a
Delaware Subchapter S Corporation. Desmond J. Heathwood is the President of
Boston Partners, Inc. As of December 31, 2001, Boston
Partners managed over $10.2 billion in assets.
Mark E. Donovan, CFA, Chairman, Equity Strategy Committee, has managed the
portion of All-Star's portfolio allocated to Boston Partners since its
appointment as an All-Star manager in 1998. Mr. Donovan has been with Boston
Partners since its founding in 1985 and has 21 years of investment experience.
Mastrapasqua & Associates, Inc.
814 Church Street, Suite 600
Nashville, Tennessee 37203
Mastrapasqua & Associates, Inc. ("Mastrapasqua") was appointed as an All-Star
Portfolio Manager effective November 1, 2000. Mastrapasqua, an investment
advisor since 1993, is an independently owned firm. Ownership of Mastrapasqua
lies 100% with its officers and trustees. Mastrapasqua's principal executive
officer is Frank Mastrapasqua, Ph.D., Chairman and Chief Executive Officer. Mr.
Mastrapasqua, Thomas A. Trantum, President, and Mauro Mastrapasqua, First Vice
President, may be deemed to be control persons of Mastrapasqua by virtue of
their aggregate ownership of more than 25% of the outstanding voting stock of
Mastrapasqua. As of December 31, 2001, Mastrapasqua managed approximately $1.8
billion in assets.
Frank Mastrapasqua and Thomas Trantum, CFA, have managed the portion of
All-Star's portfolio allocated to Mastrapasqua since its appointment as an
All-Star manager. Messrs. Mastrapasqua and Trantum have over 62 years of
investment experience and have managed portfolios together for the last 14
years.
Oppenheimer Capital LLC
1345 Avenue of the Americas
New York, New York 10105
Oppenheimer Capital, LLC ("Oppenheimer") was appointed as an All-Star Portfolio
Manager effective February 15, 1990. Oppenheimer, an investment advisor since
1969, is a Delaware partnership and an indirect subsidiary of Allianz A.G.
Oppenheimer's principal executive officer is Kenneth M. Poovey. As of December
31, 2001, Oppenheimer managed over $37.2 billion in assets.
John G. Lindenthal, Managing Director, has managed the portion of All-Star's
portfolio allocated to Oppenheimer since its appointment as an All-Star manager
in 1990. Mr. Lindenthal joined Oppenheimber in 1979 and has 32 years of
investment experience.
Schneider Capital Management Corporation
450 East Swedesford Road
Wayne, PA 19087
Schneider Capital Management Corporation ("Schneider") was appointed as an
All-Star Portfolio Manager effective March 1, 2002, replacing Westwood
Management Corp. Schneider, a registered investment advisor, was founded in 1996
by Arnold C. Schneider III, CFA. Schneider is 100% employee-owned. Mr. Schneider
may be deemed to be a control person of Schneider by virtue of his aggregate
ownership of more than 25% of the outstanding voting stock of Schneider. As of
December 31, 2001, Schneider managed approximately $1.6 billion in assets.
Mr. Schneider serves as President and Chief Investment Officer of Schneider and
manages the portion of the Fund's portfolio allocated to Schneider. Prior to
founding Schneider, Mr. Schneider was a Senior Vice President and Partner of the
Wellington Management Company.
TCW Investment Management Company
865 South Figueroa Street
Los Angeles, CA 90017
TCW Investment Management Company ("TCW") was appointed as an All-Star
Portfolio Manager effective April 1, 1999. TCW is a wholly owned subsidiary of
The TCW Group, Inc. ("TCW Group"). Established in 1971, TCW Group's direct and
indirect subsidiaries, including TCW, provide a variety of trust, investment
management and investment advisory services. Societe Generale Asset Management,
S.A. ("SGAM") owns 51% of the TCW Group. SGAM is a wholly owned subsidiary of
Societe Generale, S.A. ("Societe Generale "). SGAM is located at 92708 place de
la Corpole, 92078 Paris, France. Societe Generale is located at 29 boulevard
Haussman, 75009, Paris, France. The employees, management, and other
shareholders of the TCW Group own the remaining 49% of the company. Under the
terms of an agreement between the TCW Group and SGAM, SGAM will acquire an
additional 19% interest in the TCW Group over the course of the next five years.
SGAM and TCW have stated their intention to maintain the personnel, processes,
investment strategy and operations of TCW, which will continue to operate under
the TCW brand name. As of December 31, 2001, TCW and its affiliates had over
$87.7 billion in assets under management or committed to management.
Glen E. Bickerstaff, Group Managing Director U.S. Equities, has managed the
portion of All-Star's portfolio allocated to TCW since its appointment as an
All-Star Portfolio Manager. Mr. Bickerstaff has been with TCW since 1994.
No person has been authorized to give any information or to make any
representation not contained in this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized.
This Prospectus does not constitute an offering of any securities other than the
registered securities to which it relates or an offer to any person in any State
or jurisdiction of the United States or any country where such offer would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that there has been no
change in the facts as set forth in the Prospectus or in the affairs of the Fund
since the date hereof.
------------
TABLE OF CONTENTS
Prospectus Summary...........................................2
Expenses.....................................................8
Financial Highlights.........................................9
Share Price Data............................................11
Investment Performance......................................12
The Offer...................................................13
Special Considerations and Risk Factors.....................20
Use of Proceeds.............................................21
The Multi-Manager Concept...................................21
Investment Objective, Policies and Risks....................23
Management of All-Star .....................................25
Description of Shares.......................................27
Distributions; Automatic Dividend
Reinvestment and Cash Purchase Plan.....................29
Tax Status..................................................31
General.....................................................32
Statement of Additional Information.........................34
Appendix A--
Information about the Portfolio Managers......A-1
[LOGO HERE]
LIBERTY
ALL-STAR
EQUITY FUND
A Multi-Managed Investment Company
10,688,506 Shares of Beneficial Interest Issuable upon
Exercise of Rights to Subscribe for Such Shares
-------------------
PROSPECTUS
April [ ], 2002
-------------------
LIBERTY ALL-STAR EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
April [ ] , 2002
This Statement of Additional Information ("SAI") is not a prospectus, and
should be read in conjunction with the Prospectus of Liberty All-Star Equity
Fund ("All-Star" or the "Fund") dated April [ ], 2002. A copy of the
Prospectus may be obtained, without charge, by calling or writing Liberty Asset
Management Company at One Financial Center, Boston, Massachusetts
02111(800-542-3863).
TABLE OF CONTENTS PAGE
Investment Objective and Policies 2
Investment Restrictions 5
Investment Advisory and Other Services 7
Trustees and Officers of All-Star 9
Portfolio Security Transactions 17
Principal Shareholders 19
Financial Statements 19
INVESTMENT OBJECTIVE AND POLICIES
A description of the investment objective of All-Star and the types of
securities in which it may invest is contained in the Prospectus under
"Investment Objective, Policies and Risks."
Options and Futures Strategies
The effective use of options and future strategies is dependent, among other
things, on All-Star's ability to terminate options and futures positions at
times when it or its Portfolio Managers deem it desirable to do so. Although
All-Star will not enter into an option or futures position unless it believes
that a liquid secondary market exists for such option or future, there is no
assurance that All-Star will be able to effect closing transactions at any
particular time or at an acceptable price. All-Star generally expects that its
options and futures transactions will be conducted on recognized securities
exchanges. In certain instances, however, All-Star may purchase and sell options
in the over-the-counter market. All-Star's ability to terminate option positions
established in the over-the-counter market may be more limited than in the case
of exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to
All-Star. All-Star may not purchase or sell future contracts and related options
if immediately thereafter the sum of the amount of initial margin deposits on
All-Star's existing futures and premiums paid for such related options would
exceed 5% of the market value of All-Star's net assets. Such limitation,
however, will not limit All-Star's loss on such contracts and options, which is
potentially unlimited.
Writing Covered Put and Call Options on Securities
All-Star may write covered call options and covered put options on optionable
securities of the types in which it is permitted to invest from time-to-time as
its respective Portfolio Managers determine is appropriate in seeking to attain
its objectives. Call options written by All-Star give the holder the right to
buy the underlying securities from All-Star at a stated exercise price; put
options give the holder the right to sell the underlying security to All-Star at
a stated price.
All-Star may write only covered options, which means that, so long as All-Star
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, All-Star will
maintain in a separate account cash or short-term U.S. Government Securities
with a value equal to or greater than the exercise price of the underlying
securities. All-Star may also write combinations or covered puts and calls on
the same underlying security.
All-Star will receive a premium from writing a put or call option, which
increases All-Star's return in the event the option expires unexcercised or
is closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a call option, All-Star
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, All-Star assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss if the purchase price exceeds the
market value plus the amount of the premium received, unless the security
subsequently appreciates in value.
All-Star may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an option
having the same terms as the option written. All-Star will realize a profit or
loss from such transaction if the cost of such transaction is less or more than
the premium received from the writing of the option. In the case of a put
option, any loss so incurred may be partially or entirely offset by the premium
received from a simultaneous or subsequent sale of a different put option.
Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by unrealized appreciation of the underlying security owned by
All-Star.
Purchasing Put and Call Options on Securities
All-Star may purchase put options to protect its portfolio holdings in an
underlying security against a decline in market value. Such hedge protection is
provided during the use of the put options since All-Star, as holder of the put
option, is able to sell the underlying security at the put exercise price
regardless of any decline in the underlying security's market price. In order
for a put option to be profitable, the market price of the underlying security
must decline sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, All-Star will reduce any
profit it might otherwise have realized in its underlying security by the
premium paid for the put option and by transaction costs.
All-Star may also purchase call options to hedge against an increase in prices
of securities that it wants ultimately to buy. Such hedge protection is provided
during the life of the call option since All-Star, as holder of the call option,
is able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. In order for a call option
to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. By using call options in this manner, All-Star will reduce any profit it
might have realized had it bought the underlying security at the time it
purchased the call option by the premium paid for the call option and by
transaction costs.
Purchase and Sale of Options and Futures on Stock Indices
All-Star may purchase and sell options on stock indices and stock index futures
as a hedge against movements in the equity markets.
Options on stock indices are similar to options on specific securities except
that, rather than the right to take or make delivery of the specific security at
a specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
that stock index is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. This amount of cash is equal to
such difference between the closing price of the index and the exercise price of
the option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Unlike options on specific securities, all settlements of options
on stock indices are in cash and gain or loss depends on general movements in
the stocks included in the index rather than price movements in particular
stocks.
A stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of securities is made.
If a Portfolio Manager of All-Star expects general stock market prices to rise,
it might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
it wants ultimately to buy. If in fact the stock index does rise, the price of
the particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of All-Star's
index option or futures contract resulting from the increase in the index. If,
on the other hand, the Portfolio Manager expects general stock market prices to
decline, it might purchase a put option or sell a futures contract on the index.
If that index does in fact decline, the value of some or all of the equity
securities in All-Star's portfolio may also be expected to decline, but that
decrease would be offset in part by the increase in the value of All-Star's
position in such put option or future. All-Star may purchase call options on a
stock index or a futures contracts on that index to enable a newly appointed
Portfolio Manager to gain immediate exposure to the underlying securities market
pending the investment in individual securities of the portion of All-Star's
portfolio assigned to it.
In connection with transactions in stock index options, futures and related
options, All-Star will be required to deposit as "initial margin" an amount of
cash and short-term U.S. Government Securities equal to from 5% to 8% of the
contract amount. Thereafter, subsequent payments (referred to as "variation
margin") are made to and from the broker to reflect changes in the value of the
futures contract.
Options on Stock Index Futures Contracts
All-Star may purchase and write call and put options on stock index futures
contracts. All-Star may use such options on futures contracts in connection with
its hedging strategies in lieu of purchasing and writing options directly on the
underlying securities or stock indices or purchasing and selling the underlying
futures. For example, All-Star may purchase put options or write call options on
stock index futures, rather than selling futures contracts, in anticipation of a
decline in general stock market prices, or purchase call options or write put
options on stock index futures, rather than purchasing such futures, to hedge
against possible increases in the price of equity securities which All-Star
intends to purchase.
Risk Factors in Options and Futures Transactions
The effective use of options and futures strategies is dependent, among other
things, on All-Star's ability to terminate options and futures positions at
times when its respective Portfolio Managers deem it desirable to do so.
Although All-Star will not enter into an option or futures position unless its
Portfolio Managers believe that a liquid secondary market exists for such option
or future, there is no assurance that All-Star will be able to effect closing
transactions at any particular time or at an acceptable price. All-Star
generally expects that its option and futures transactions will be conducted on
recognized securities exchanges. In certain instances, however, All-Star may
purchase and sell options in the over-the-counter market. All-Star's ability to
terminate option positions established in the over-the-counter market may be
more limited than in the case of exchange-traded options and may also involve
the risk that securities dealers participating in such transactions would fail
to meet their obligations to All-Star.
The use of options and futures involves the risk of imperfect correlation
between movements in options and future prices and movements in the price of
securities which are the subject of the hedge. Such correlation, particularly
with respect to options on stock indices and stock index futures, is imperfect,
and such risk increases as the composition of All-Star's portfolio diverges from
the composition of the relevant index. The successful use of these strategies
also depends on the ability of the Portfolio Manager to correctly forecast
interest rate or general stock market price movements.
Regulatory Matters
All-Star will conduct its purchases and sales of futures contracts and writing
of related options transactions in accordance with the rules, regulations and
any exemptions promulgated by the Commodity Futures Trading Commission ("CFTC")
and the Securities and Exchange Commission ("SEC") with respect to such
transactions.
INVESTMENT RESTRICTIONS
Except as indicated otherwise, the following investment restrictions have been
adopted for All-Star as fundamental policies and may be changed only by a
majority vote (as defined under "Investment Objective, Policies and Risks" in
the Prospectus) of All-Star's outstanding shares. Non-fundamental policies may
be changed by the Board of Trustees without shareholder approval.
All-Star may not:
(1) Issue senior securities, except as permitted by (2) below.
(2) Borrow money, except that it may borrow in an amount not exceeding 7% of its
total assets (including the amount borrowed) taken at market value at the time
of such borrowing, and except that it may make borrowings in amounts up to an
additional 5% of its total assets (including the amount borrowed) taken at
market value at the time of such borrowing to finance the repurchase of its
shares, to obtain such short-term credits as are necessary for the clearance of
securities transactions, or for temporary or emergency purposes, and may
maintain and renew any of the foregoing borrowings, provided that All-Star
maintains asset coverage of 300% with respect to all such borrowings. As a
non-fundamental policy, All-Star will not borrow in an amount in excess of 5% of
its total assets (including the amount borrowed).
(3) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if such pledging,
mortgaging or hypothecating does not exceed 12% of All-Star's total assets taken
at market value at the time of such pledge, mortgage or hypothecation. The
deposit in escrow of securities in connection with the writing of put and call
options and collateral arrangements with respect to margin for futures contracts
are not deemed to be pledges or hypothecation for this purpose.
(4) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities,
All-Star may be deemed to be an underwriter for purposes of the Securities Act
of 1933.
(5) Purchase or sell real estate or any interest therein, except that
All-Star may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such as
mortgage pass-throughs and collateralized mortgage obligations, or issued by
companies that invest in real estate or interests therein.
(6) Make loans to other persons except for loans of portfolio securities
(up to 30% of total assets) and except through the use of repurchase agreements,
the purchase of commercial paper or the purchase of all or a portion of an issue
of debt securities in accordance with its investment objective, policies and
restrictions, and provided that not more than 10% of All-Star's net assets will
be invested in repurchase agreements maturing in more than seven days.
(7) Invest in commodities or in commodity contracts (except stock index
futures and options).
(8) Purchase securities on margin (except to the extent that the purchase
of options and futures may involve margin and except that it may obtain such
short-term credits as may be necessary for the clearance of purchases or sales
of securities), or make short sales of securities.
(9) Purchase the securities of issuers conducting their principal business
activity in the same industry (other than securities issued or guaranteed by the
United States, its agencies and instrumentalities) if, immediately after such
purchase, the value of its investments in such industry would comprise 25% or
more of the value of its total assets taken at market value at the time of each
investment.
(10) Purchase securities of any one issuer, if (a) more than 5% of
All-Star's total assets taken at market value would at the time be invested in
the securities of such issuer, except that such restriction does not apply to
securities issued or guaranteed by the United States Government or its agencies
or instrumentalities or corporations sponsored thereby, and except that up to
25% or All-Star's total assets may be invested without regard to this
limitation; or (b) such purchase would at the time result in more than 10% of
the outstanding voting securities of such issuer being held by All-Star, except
that up to 25% of All-Star's total assets may be invested without regard to this
limitation.
(11) Invest in securities of another registered investment company, except
(i) as permitted by the Investment Company Act of 1940, as amended from time to
time, or any rule or order thereunder, or (ii) in connection with a merger,
consolidation, acquisition or reorganization.
(12) Purchase any security, including any repurchase agreement maturing in
more than seven days, which is subject to legal or contractual delays in or
restrictions on resale (including unregistered securities that are eligible for
resale pursuant to Rule 144A under the Securities Act of 1933), or which is not
readily marketable, if more than 10% of the net assets of All-Star, taken at
market value, would be invested in such securities.
(13) Invest for the purpose of exercising control over or management of any
company.
(14) Purchase securities unless the issuer thereof or any company on whose
credit the purchase was based, together with its predecessors, has a record of
at least three years' continuous operations prior to the purchase, except for
investments which, in the aggregate, taken at cost do not exceed 5% of
All-Star's total assets.
If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from a change in the market values of All-Star's assets
will not be considered a violation of the restriction.
INVESTMENT ADVISORY AND OTHER SERVICES
As stated under "Management of All-Star" in the Prospectus, Liberty Asset
Management Company ("LAMCO") performs the investment management services and is
responsible for the administrative services described therein. LAMCO, through
Columbia Management Group, Inc. ("Columbia"), is an indirect majority owned
subsidiary of FleetBoston Financial Corporation, Boston, Massachusetts. As
indicated under "Trustees and Officers of All-Star" below, ^ all of its officers
are officers of LAMCO, Colonial Management Associates, Inc., Columbia or other
affiliates of Columbia.
Reference is made to Appendix A of the Prospectus for the names of the
controlling persons of All-Star's current and new Portfolio Managers and the
names of the individual at each Portfolio Manager primarily responsible for the
management of the portion of All-Star's portfolio assigned to it. None of such
Portfolio Managers has any affiliation with LAMCO or (except as Portfolio
Manager) with All-Star.
As described under "Management of All-Star" in the Prospectus, All-Star
pays LAMCO a fund management fee for its investment management services (from
which LAMCO pays the Portfolio Managers' fee), and an administrative fee for its
administrative services.
For the years ended December 31, 2000 and 2001 the total fund management
and administrative fees paid to LAMCO were $12,256,060 and $10,701,655,
respectively, of which an aggregate of $4,900,684 and $4,268,503, respectively,
was paid to the Portfolio Managers.
All-Star's current Fund Management Agreement and Portfolio Management
Agreements will continue in effect until July 31, 2003 and will continue in
effect thereafter so long as such continuance is specifically approved annually
by (a) the Board of Trustees or (b) the majority vote of All-Star's outstanding
shares (as defined under "Investment Objective, Policies and Risks" in the
Prospectus), provided that, in either event, the continuance is also approved by
a majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of All-Star (the "Disinterested Trustees"), LAMCO or the Portfolio
Managers by a vote cast in person at a meeting called for the purpose of voting
on such approval. The Fund Management Agreement may be terminated on 60 days
written notice by either party, and the Portfolio Management Agreements may be
terminated on 30 days' notice by any party, and any such agreements will
terminate automatically if assigned.
On March 1, 2002, Schneider Capital Managment Corporation
("Schneider") replaced Westwood Management Corp. as a Portfolio Manager of
All-Star. On February 12, 2002, the Board of Trustees approved this change as
well as the proposed Portfolio Management Agreement between All-Star, LAMCO and
Schneider. The new Portfolio Management Agreement with Schneider is
substantially identical to one formerly in place with Westwood Management
Corp. Under the new Portfolio Management Agreement, Schneider is paid the
same portfolio management fee that was paid to Westwood Management Corp. prior
to the effective date of the change.
The Fund and LAMCO have adopted Codes of Ethics pursuant to the
requirements of the Investment Company Act of 1940, as amended. These Codes of
Ethics permit personnel subject to the Codes to invest in securities, including
securities that may be purchased or held by the funds. Copies of the Codes of
Ethics of the Fund and LAMCO can be reviewed and copied at the Commission's
Public Reference Room in Washington, D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-202-942-8090. The Codes of Ethics are also available on the EDGAR database on
the Commission's Internet site at www.sec.gov, or may be obtained, after paying
a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing
the Commission's Public Reference Section, Washington, D.C. 20549-0102.
Custodian and Pricing and Bookkeeping Agent
State Street Bank and Trust Company (the "Bank"), 225 Franklin Street,
Boston, Massachusetts 02110, is the custodian of the portfolio securities and
cash of All-Star. As such, the Bank holds All-Star's portfolio securities and
cash in separate accounts on All-Star's behalf and receives and delivers
portfolio securities and cash in connection with portfolio transactions
initiated by All-Star's Portfolio Managers, collects income due on its portfolio
securities and disburses funds in connection with the payment of distributions
and expenses.
Colonial Management Associates, Inc. ("Colonial"), an affiliate of LAMCO,
performs pricing and bookkeeping services for All-Star (see "Management of
All-Star" in the Prospectus). For the years ended December 31, 2000 and 2001,
All-Star paid pricing and bookkeeping fees to Colonial of $283,483 and
$233,932 respectively.
Independent Accountants
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110], are the independent accountants of All-Star. The independent accountants
audit and report on the annual financial statements and provide tax return
review services and assistance and consultation in connection with the review
of various SEC filings.
TRUSTEES AND OFFICERS
The names, addresses and ages of the Trustees and officers of the Liberty
All-Star Equity Fund, the date each was first elected or appointed to office,
their term of office, their principal business occupations during at least the
last five years, the number of portfolios overseen by each Trustee and other
directorships they hold, are shown below.
Number of
Portfolios
Year First in Fund
Position Elected or Complex Other
Name, Address with Liberty Appointed to Principal Occupation(s) Overseen Directorships
And Age All-Star Equity Office During Past Five Years By Trustee Held
Fund
------- ----- ------ ---------------------- ---------- ----
DISINTERESTED TRUSTEES
Robert J. Birnbaum Trustee Trustee Retired since January, 1994; 2 Dresdner RCM
(Age 74) Since 1994; Special Counsel, Dechert, Price Global Funds
c/o Liberty Asset Term Expires & Rohads (September 1988 to (investment
Management Company 2003 December 1993); President and companies
One Financial Center Chief Operating Officer, New Chicago
Boston, MA 02111 York Stock Exchange, Inc. (May Options
1985 to June 1988). Exchange
Board
James E. Grinnell Trustee Trustee Private Investor since November 2 None
(Age 71) Since 1986; 1988; President and Chief
c/o Liberty Asset Term Expires Executive Officer, Distribution
Management Company 2002 Management Systems, Inc. (1983
One Financial Center to May 1986); Senior Vice President,
Boston, MA 02111 Operations, The Rockport Company
(importer and distributor of shoes
(May 1986 to November 1988).
Richard W. Lowry (Age 65) Trustee Trustee Private Investor since August, 105 None
c/o Liberty Asset Since 1987 (formerly Chairman and
Management Company 1986; Term Chief Executive Officer, U.S.
One Financial Center Expires 2004 Plywood Corporation (building
Boston, MA 02111 products manufacturer)).
Number of
Portfolios
Year First in Fund
Position Elected or Complex Other
Name, Address with Liberty Appointed to Principal Occupation(s) Overseen Directorships
And Age All-Star Office During Past Five Years By Trustee Held
Fund
------- ----- ------ ---------------------- ---------- ----
DISINTERESTED TRUSTEES
John J. Neuhauser (Age 58) Trustee Trustee Academic Vice President and 105 Saucony, Inc.
c/o Liberty Asset Management Company Since 1998; Dean of Faculties since (athletic
One Financial Center Term Expires August, 1999, Boston College footwear); .
Boston, MA 02111 2004 (formerly Dean, Boston College SkillSoft Corp
School of Management from (E-Learning)
September, 1977 to September,
1999).
INTERESTED TRUSTEES
William E. Mayer* (Age 61) Trustee Trustee Managing Partner, Park Avenue 105 Lee Enterprises
c/o Liberty Asset Management Company Since Equity Partners (private (print and
One Financial Center 1998; equity fund) since February, on-line media),
Boston, MA 02111 Term 1999 (formerly Founding WR Hambrecht + Co.
Expires Partner, Development Capital (financial service
2003 LLC from November 1996 to provider) First
February, 1999; Dean and Health (healthcare)
Professor, College of Business and Systech
and Management, University of Retail Systems
Maryland from October, 1992 to (retail industry
November, 1996). technology
provider)
*A Trustee who is an "interested person" (as defined in the Investment Company
Act of 1940 ("1940 Act")) of Liberty All-Star Equity Fund or LAMCO. Mr. Mayer
is an interested person by reason of his affiliation with HR Hambrecht + Co.,
a registered broker-dealer.
Position Year First Elected
Name, Address With Liberty All- or Appointed to Principal Occupation(s)
And Age Star Equity Fund Office During Past Five Years
------- ----- ------ ----------------------
William R. Parmentier, Jr. (Age 49) President, Chief Executive 1998 President and Chief Executive Officer (since June,
Liberty Asset Management Company Officer and Chief 1998) and Chief Investment Officer (since May,
One Financial Center Investment Officer 1995), Senior Vice President (May, 1995 to June,
Boston, MA 02111 1998), LAMCO
Christopher S. Carabell (Age 38) Vice President 1997 Senior Vice President - Product Development and
Liberty Asset Management Company Marketing (since January, 1999), Vice President -
One Financial Center Investments, LAMCO (March, 1996 to January, 1999)
Boston, MA 02111
Mark T. Haley, CFA (Age 37) Vice President 1999 Vice President-Investments (since January, 1999),
Liberty Asset Management Company Director of Investment Analysis (December, 1996 to
One Financial Center December, 1998), Investment Analyst (January, 1994
Boston, MA 02111 to November, 1996), LAMCO
J. Kevin Connaughton (Age 37) Treasurer 2000 Treasurer of the Liberty Funds and of the
One Financial Center Liberty All- Star Funds since December, 2000
Boston, MA 02111 (formerly Controller of the
Liberty Funds and of the Funds from February, 1998
to October, 2000); Treasurer of the Stein Roe Funds
since February 2001 (formerly Controller from May,
2000 to February, 2001); Senior Vice President of
Liberty Funds Group LLC (LFG) since January 2001
(formerly Vice President from April 2000 to January
2001; Vice President of Colonial Management
Associates, Inc. (Colonial) from February 1998 to
October 2000; Senior Tax Manager, Coopers &
Lybrand, LLP from April 1996 to January 1998
Michelle G. Azrialy (Age 32) Controller 2001 Controller of the Liberty Funds and of the Liberty
One Financial Center All-Star Funds since May, 2001; Vice President of
Boston, MA 02111 LFG since March, 2001 (formerly Assistant Vice
President of Fund Administration from September,
2000 to February, 2001; Compliance Manager of Fund
Administration from September, 1999 to August,
2000) (formerly Assistant Vice President and
Assistant Treasurer, Chase Global Fund Services -
Boston from August, 1996 to September, 1999).
Vicki L. Benjamin (Age 40) Chief Accounting 2001 Chief Accounting Officer of the Liberty Funds and
One Financial Center Officer Liberty All-Star Funds since June, 2001; Vice
Boston, MA 02111 President of LFG since April, 2001 (formerly Vice
President, Corporate Audit, State Street Bank and
Trust Company from May, 1998 to April, 2001; Audit
Manager from July, 1994 to June, 1997; Senior
Audit Manager from July, 1997 to May, 1998,
Coopers & Lybrand, LLP).
Jean S. Loewenberg (Age 56) Secretary 2002 Secretary of the Liberty Funds and of the Liberty
One Financial Center All-Star Funds since February, 2002; Senior Vice
Boston, MA 02111 President and Group Senior Counsel, FleetBoston
Financial Corporation since November, 1996.
Role of the Board of Trustees
The Trustees of All-Star are responsible for the overall management and
supervision of All-Star's affairs and for protecting the interests of the
shareholders. The Trustees meet periodically throughout the year to oversee
All-Star's activities, review contractual arrangements with service providers
for All-Star and review All-Star's performance.
Audit Committee
Messrs. Birnbaum, Grinnell, Lowry and Neuhauser are members of the Audit
Committee of the Board of Trustees of All-Star. The Audit Committee's functions
include making recommendations to the Trustees regarding the selection and
performance of the independent accountants, and reviewing matters relative to
accounting and auditing practices and procedures, accounting records, and the
internal accounting controls, of All-Star, and certain service providers. In the
fiscal year ended December 31, 2001, the Audit Committee convened two times.
Share Ownership
The following table shows the dollar range of equity securities beneficially
owned by each Trustee in All-Star and in all Liberty Funds overseen by the
Trustee as of December 31, 2001.
Aggregate Dollar Range of Equity Securities Owned in
Dollar Range of Equity All Registered Funds Overseen by Trustee in Liberty
Name of Trustee Securities Owned in All-Star Family of Funds
Disinterested Trustees
Robert J. Birnbaum $50,001-100,000 $50,001-100,000
James E. Grinnell Over $100,000 Over $100,000
Richard W. Lowry Over $100,000 Over $100,000
John J. Neuhauser $1-10,000 Over $100,000
Interested Trustee
William E. Mayer $1-10,000 $50,001-100,000
As of December 31, 2001, no disinterested Trustee or any of their immediate
family members owned beneficially or of record any class of securities of LAMCO,
a portfolio manager or any person controlling, controlled by or under common
control with LAMCO or a portfolio manager.
During the calendar years ended December 31, 2000 and December 31, 2001, no
disinterested Trustee (or their immediate family members) had any direct or
indirect interest in LAMCO, a portfolio manager or any person controlling,
controlled by or under common control with LAMCO or a portfolio manager.
During the calendar years ended December 31, 2000 and December 31, 2001, no
disinterested Trustee (or their immediate family members) had any direct or
indirect material interest in any transaction or series of similar transactions
with (i) All-Star; (ii) another fund managed by LAMCO, a portfolio manager or a
person controlling, controlled by or under common control with LAMCO or a
portfolio manager; (iii) LAMCO or a portfolio manager; (iv) any person
controlling, controlled by or under common control with LAMCO or a portfolio
manager; or (v) an officer of any of the above.
During the calendar years ended December 31, 2000 and December 31, 2001, no
disinterested Trustee (or their immediate family members) had any direct or
indirect relationship with (i) All-Star; (ii) another fund managed by LAMCO,a
portfolio manager or a person controlling, controlled by or under common control
with LAMCO or a portfolio manager; (iii) LAMCO or a portfolio manager; (iv) a
person controlling, controlled by or under common control with LAMCO or a
portfolio manager; or (v) an officer of any of the above.
During the calendar years ended December 31, 2000 and December 31, 2001, no
officer of LAMCO, a portfolio manager or any person controlling, controlled by
or under common control with LAMCO or a portfolio manager served on the board of
directors of a company where a disinterested Trustee of All-Star or any of their
immediate family members served as an officer.
Approving the Investment Advisory Contracts
In determining to approve the Fund's Fund Management Agreement and Portfolio
Management Agreements and recommend their approval to shareholders, the
Trustees met over the course of the year with the relevant investment advisory
personnel from LAMCO and the Portfolio Managers and considered information
provided by LAMCO and the Portfolio Managers relating to the education,
experience and number of investment professionals and other personnel providing
services under that agreement. See "Management of All-Star" in the Fund's
Prospectus and "Trustees and Officers" in this SAI. The Trustees also took into
account the time and attention devoted by senior management of LAMCO and the
Portfolio Managers to the Fund and the other funds in the complex. The Trustees
evaluated the level of skill required to manage the Fund and concluded that the
human resources devoted by LAMCO and the Portfolio Managers to the Fund were
appropriate to fulfill effectively each of their duties under the agreements.
The Trustees also considered the business reputation of LAMCO and the Portfolio
Managers and each of their respective financial resources, and concluded that
each of them would be able to meet any reasonably foreseeable obligations under
the agreements.
The Trustees received information concerning the investment philosophy and
investment process applied by LAMCO and the Portfolio Managers in managing the
Fund. See "Investment Objective, Policies and Risks" in the Fund's Prospectus.
In this connection, the Trustees considered the in-house research capabilities
of LAMCO and the Portfolio Managers as well as other resources available to
their personnel, including research services available to LAMCO and the
Portfolio Managers as a result of securities transactions effected for the Fund
and other investment advisory clients. The Trustees concluded that investment
process, research capabilities and philosophy of each Portfolio Manager and
LAMCO were well suited to the Fund, given the Fund's investment objective
and policies.
The Trustees considered the scope of the services provided by LAMCO and each
Portfolio Manager to the Fund under the agreements relative to services provided
by third parties to other mutual funds. See "Investment Advisory and Other
Services." The Trustees concluded that the scope of the services provided by
LAMCO and each Portfolio Manager to the Fund was consistent with the Fund's
operational requirements, including, in addition to its investment objective,
compliance with the Fund's investment restrictions, tax and reporting
requirements and related shareholder services.
The Trustees considered the quality of the services provided by LAMCO and each
Portfolio Manager to the Fund. The Trustees evaluated each of their records with
respect to regulatory compliance and compliance with the investment policies of
the Fund. The Trustees also evaluated the procedures of LAMCO and each Portfolio
Manager designed to fulfill their fiduciary duty to the Fund with respect to
possible conflicts of interest, including each of their codes of ethics
(regulating the personal trading of its officers and employees) (see "Investment
Advisory and Other Services"), the procedures by which LAMCO and each Portfolio
Manager allocates trades among its various investment advisory clients and the
record of LAMCO and each Portfolio Manager in these matters. The Trustees also
received information concerning standards of LAMCO and each Portfolio Manager
with respect to the execution of portfolio transactions. See "Portfolio Security
Transactions."
The Trustees considered LAMCO's management of non-advisory services provided by
persons other than LAMCO by reference, among other things, to the Fund's total
expenses and the reputation of the Fund's other service providers. See
"Expenses" in the Fund's Prospectus. The Trustees also considered information
provided by third parties relating to the Fund's investment performance relative
to its performance benchmark(s), relative to other similar funds managed by
LAMCO and each Portfolio Manager and relative to funds managed similarly by
other advisors. The Trustees reviewed performance over various periods,
including the Fund's one, five and ten year calendar year periods and/or the
life of the Fund, as applicable (See "Investment Performance" in the Fund's
Prospectus), as well as factors identified by LAMCO as contributing to the
Fund's performance. See the Fund's most recent annual and semi-annual reports.
The Trustees concluded that the scope and quality of the services provided by
LAMCO and each Portfolio Manager was sufficient to merit approval of each
agreement for two years.
In reaching that conclusion, the Trustees also gave substantial consideration to
the fees payable under the agreements. The Trustees reviewed information
concerning fees paid to investment advisors of similarly managed funds. The
Trustees also considered the fees of the Fund as a percentage of assets at
different asset levels and possible economies of scale to LAMCO and each
Portfolio Manager. The Trustees evaluated the profitability of LAMCO with
respect to the Fund, concluding that such profitability appeared to be generally
consistent with levels of profitability that had been determined by courts to be
"not excessive." For these purposes, the Trustees took into account not only the
actual dollar amount of fees paid by the Fund directly to LAMCO, but also
so-called "fallout benefits" to the Advisor such as reputational value derived
from serving as fund manager to the Fund and the research services available to
LAMCO and each Portfolio Manager by reason of brokerage commissions generated by
the Fund's turnover. In evaluating the Fund's advisory fees, the Trustees also
took into account the complexity of investment management for the Fund relative
to other types of funds. Based on challenges associated with less readily
available market information about foreign issuers and smaller capitalization
companies, limited liquidity of certain securities, and the specialization
required for focused funds, the Trustees concluded that generally greater
research intensity and trading acumen is required for equity funds, and for
international or global funds, as compared to funds investing, respectively, in
debt obligations or in U.S. issuers. See "Investment Objective, Policies and
Risks" in the Fund's Prospectus.
Based on the foregoing, the Trustees concluded that the fees to be paid to LAMCO
and each Portfolio Manager under the advisory agreement were fair and
reasonable, given the scope and quality of the services rendered by LAMCO and
each Portfolio Manager.
General
All-Star's Board of Trustees is divided into three classes, each of which has a
term of three years expiring with the annual meeting of shareholders in the
third year of the term. All-Star holds annual meetings of shareholders to vote
on, among other things, the election or re-election of the Trustees whose terms
are expiring with that meeting. The term of office of Mr. Grinnell will
expire upon the final adjournment of the 2002 annual meeting, unless he is
re-elected at that meeting; The term of office of Messrs. Birnbaum and Mayer
will expire upon the final adjournment of the 2003 annual meeting (Mr. Birnbaum
will reach mandatory retirement age during his term and will retire at that
time); the term of office of Messrs. Lowry and Neuhauser will expire upon
final adjournment of the annual meeting for the year 2004. Messrs. Lowry, Mayer,
and Neuhauser are also Trustees of Liberty Funds Trusts I through VII (the
"Liberty Trusts"), the umbrella trusts for an aggregate of 53 open-end funds
managed by affiliates of LAMCO, nine closed-end funds managed by Colonial (the
"Colonial Closed-End Funds"), Liberty Variable Investment Trust, the umbrella
trust for 17 open-end funds managed by Colonial or its affiliates that serve as
investment vehicles for variable annuities and variable life insurance products;
Liberty Floating Rate Fund; Stein Roe Floating Rate Limited Liability Company,
Liberty-Stein Roe Institutional Floating Rate Income Fund and Liberty-Stein Roe
Funds Income Trust, Liberty-Stein Roe Funds Municipal Trust, Liberty-Stein Roe
Funds Investment Trust, Liberty-Stein Roe Advisor Trust, Stein Roe Trust, SR&F
Base Trust and Stein Roe Variable Investment Trust, the umbrella trusts for
40 open-end funds managed by Stein Roe & Farnham Incorporated, a LAMCO
affiliate. The All Star's Board of Trustees are also directors of Liberty
All-Star Growth Fund, Inc., another closed-end multi-managed fund managed by
LAMCO.
Trustee Compensation
LAMCO or its affiliates pay the compensation of all the officers of All-Star,
including the Trustees who are affiliated with LAMCO. Beginning January 1, 1999,
the aggregate of the fees paid to the Trustees by All-Star that have the same
Board of Directors as the Liberty All-Star Growth Fund, Inc., and Liberty
All-Star Growth and Income Fund and hold their meetings concurrently with those
of the Fund, consists of Trustee/Director fees of $125,000 per annum,
assuming a minimum of four meetings are held and all meetings are attended.
One-third of the retainer and the fees for concurrently held meetings was
allocated among the Fund and the two other funds on a per fund basis, and the
remaining two thirds was allocated among the three funds based on their net
assets. Effective February 9, 2001, Liberty All-Star Growth and Income Fund was
merged into another open-end fund in the Liberty Trusts and the retainer and
meeting fees will be allocated between the Fund and Liberty All-Star Growth
Fund, Inc. For 2001, All-Star paid the independent Trustees an aggregate of
$94,733 in fees and expenses.
The following table shows, for the year ended December 31, 2001, the
compensation received from the Fund by each current Trustee, and the aggregate
compensation paid to each current Trustee for service on the Board of Trustees
of the Fund and the two All-Star Funds. The Fund has no bonus, profit sharing or
retirement plans.
Aggregate
Compensation from Total Compensation from the
Name the Fund Liberty All-Star Funds (including the Fund)
Robert J. Birnbaum $19,186.39 $25,300
James E. Grinnell $19,186.39 $25,300
Richard W. Lowry $18,806.88 $24,800
William E. Mayer $18,806.88 $24,800
John J. Neuhauser $18,806.88 $24,800
Joseph R. Palombo(1) N/A N/A
(1) For the fiscal year ended December 31,Mr. Palombo did not receive
compensation because he was an affiliated Trustee and an employee of
Liberty Financial Companies, Inc.("LFC"). Mr. Palombo resigned as Trustee
of the Liberty All-Star Funds effective November 1, 2001. Because Mr.
Palombo is an "interested person" of LAMCO, he resigned his position as a
Trustee/Director of the Liberty All-Star Funds on November 1, 2001, in
connection with the acquistion of the asset management business of LFC by
Fleet National Bank.
The following table shows, for the calendar year ended December 31, 2001, the
compensation received from the Liberty Funds by the Trustees. The Liberty Funds
have no bonus, profit sharing or retirement plans.
Name Total Compensation from Liberty Funds
Robert J. Birnbaum $25,300
James E. Grinnell(2) $75,300
Richard W. Lowry $135,300
William E. Mayer $132,300
John J. Neuhauser $132,510
Joseph R. Palombo(3) N/A
(2) Resigned as Trustee of the Liberty Funds on December 27, 2000. In
connection with the combination of the Liberty and Stein Roe boards of
trustees, Mr. Grinnell will receive $75,000 for retiring prior to his
the respective board's mandatory retirement age. This payment will con-
tinue for the lesser of two years of until the date Mr. Grinnell would
otherwise have retired at age 72. The payments, which began in 2001, are
paid quarterly. FleetBoston Financial Corporation (FleetBoston) and the
Liberty Fund Complex will each bear one-half of the cost of the payments.
The portion of the payments borne by FleetBoston was paid by Liberty
Financial Companies, Inc. (LFC) prior to November 1, 2001, when the asset
management business of LFC was acquired by Fleet National Bank, a
subsidiary of FleetBoston. The Liberty Fund Complex portion of the pay-
ments will be allocated among the Liberty Fund Complex based on each
fund's share of the Trustee fees for 2000.
(3) For the fiscal year ended December 31, Mr. Palombo did not receive
compensation because he was an affiliated Trustee and an employee of LFC.
PORTFOLIO SECURITY TRANSACTIONS
Each of All-Star's Portfolio Managers has discretion to select brokers and
dealers to execute portfolio transactions initiated by the Portfolio Manager for
the portion of All-Star's portfolio assets allocated to it, and to select the
markets in which such transactions are to be executed. The Portfolio Management
Agreements with All-Star provide, in substance, that, except as provided in the
following paragraph, in executing portfolio transactions and selecting brokers
or dealers, the primary responsibility of the Portfolio Manager is to seek to
obtain best net price and execution for All-Star. It is expected that securities
will ordinarily be purchased in the primary markets, and that, in assessing the
best net price and execution available to All-Star, the Portfolio Manager will
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the commission, if
any, for the specific transaction and on a continuing basis. Recognizing these
factors, All-Star may pay a brokerage commission in excess of that which another
broker or dealer may have charged for effecting the same transaction.
The Portfolio Management Agreements also provide that LAMCO has the right to
request that transactions giving rise to brokerage commissions, in amounts to be
agreed upon from time to time between LAMCO and the Portfolio Manager, be
executed by brokers and dealers (to be agreed upon from time to time between
LAMCO and the Portfolio Manager) which provide, directly or through third
parties, research products and services to LAMCO or to All-Star. The commissions
paid on such transactions may exceed the amount of commissions another broker
would have charged for effecting that transaction. Research products and
services made available to LAMCO through brokers and dealers executing
transactions for All-Star involving brokerage commissions include performance,
portfolio characteristics, investment style and other qualitative and
quantitative data relating to investment managers in general and the Portfolio
Managers in particular; data relating to the historic performance of categories
of securities associated with particular investment styles; mutual fund
portfolio, performance and fee and expense data; data relating to portfolio
manager changes by pension plan fiduciaries; quotation equipment; and related
computer hardware and software, all of which are used by LAMCO in connection
with its selection and monitoring of portfolio managers (including the Portfolio
Managers) for All-Star and other multi-managed clients of LAMCO, the assembly of
a mix of investment styles appropriate to the investment objective of
All-Star or such other clients, and the determination of overall portfolio
strategies.
LAMCO from time to time reaches understandings with each of the Portfolio
Managers as to the amount of the All-Star portfolio transactions initiated by
such Portfolio Manager that are to be directed to brokers and dealers which
provide or make available research products and services to LAMCO and the
commissions to be charged to All-Star in connection therewith. These amounts may
differ among the Portfolio Managers based on the nature of the markets for the
types of securities managed by them and other factors.
These research products and services are used by LAMCO in connection with its
management of All-Star, Liberty All-Star Growth Fund, Inc., Liberty All-Star
Equity Fund, Variable Series, and other multi-managed clients of LAMCO,
regardless of the source of the brokerage commissions. In instances where LAMCO
receives from broker-dealers products or services which are used both for
research purposes and for administrative or other non-research purposes, LAMCO
makes a good faith effort to determine the relative proportions of such products
or services which may be considered as investment research, based primarily on
anticipated usage, and pays for the costs attributable to the non-research usage
in cash.
The Portfolio Managers are authorized to cause All-Star to pay a commission to a
broker or dealer who provides research products and services to the Portfolio
Manager for executing a portfolio transaction which is in excess of the amount
of commission another broker or dealer would have charged for effecting that
transaction. The Portfolio Managers must determine in good faith, however, that
such commission was reasonable in relation to the value of the research products
and services provided to them, viewed in terms of that particular transaction or
in terms of all the client accounts (including All-Star) over which the
Portfolio Manager exercises investment discretion. It is possible that certain
of the services received by a Portfolio Manager attributable to a particular
transaction will primarily benefit one or more other accounts for which
investment discretion is exercised by the Portfolio Manager.
During 1999, 2000 and 2001, All-Star paid total brokerage commissions of
$2,341,013, $2,274,317 and $1,838,717, respectively. Approximately $504,593 of
the commissions paid in 1999, and $793,194 and $602,531, respectively, of the
commissions paid in 2000 and 2001 on transactions aggregating approximately
$451,713,793, $686,662,586 and $422,625,822, respectively, were paid to
brokerage firms which provided or made available to All-Star's Portfolio
Managers or to LAMCO research products and services as described above.
Although All-Star does not permit a Portfolio Manager to act or have an
affiliate act as broker for Fund portfolio transactions initiated by it, the
Portfolio Managers are permitted to place Fund portfolio transactions initiated
by them with another Portfolio Manager or its broker-dealer affiliate for
execution on an agency basis, provided the commission does not exceed the usual
and customary broker's commission being paid to other brokers for comparable
transactions and is otherwise in compliance with Rule 17e-1 under the Investment
Company Act of 1940. During 1999, 2000 and 2001 no Fund portfolio transactions
were placed with any Portfolio Manager or its broker-dealer affiliate.
PRINCIPAL SHAREHOLDERS
On April 1, 2002, Cede & Co. Fast, Depository Trust Company, 55 Water Street,
New York, NY 10004 and Liberty Mutual Insurance Company and Liberty Mutual Fire
Insurance Company owned of record [ ] and [ ] Shares, respectively, representing
[ ]% and [ ]%, respectively of All-Star's then outstanding Shares.
FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, are the independent accountants for the Fund.
PricewaterhouseCoopers LLP provides audit and tax return review services and
assistance and consultation in connection with the review of various Securities
and Exchange Commission filings. Prior to September, 1999, there were other
independent auditors for the Fund. The financial statements incorporated by
reference in this SAI have been so incorporated, and the financial statements in
the Prospectus have been so included, in reliance upon the report of
PricewaterhouseCoopers LLP given on authority of said firm as experts in
accounting. The Fund's Annual Report, which includes financial statements for
the fiscal year ended December 31, 2001, is incorporated herein by reference
with respect to all information other than the information set forth on pages 1
through 17 and 35 through 40 thereof. Any statement contained in the Fund's
Annual Report that was incorporated herein shall be deemed modified or
superseded for purposes of the Prospectus or this SAI to the extent a statement
contained in the Prospectus or this SAI varies from such statement. Any such
statement so modified or superseded shall not, except as so modified or
superseded, be deemed to constitute a part of the Prospectus or this SAI. The
Fund will furnish, without charge, a copy of its Annual Report, upon request to
Liberty Asset Management Company, One Financial Center, Boston, Massachusetts
02111, telephone (800) 542-3863.
PART C.
Other Information.
Item 24. Financial Statements and Exhibits
(1) Financial Statements:
Included in Part A:
Financial statements included in Part A of this
registration statement: Financial Highlights
Included in Part B:
Financial statements included in Part B of this
registration statement: Incorporated by reference
to the Annual Report dated December 31, 2001,
filed electronically pursuant to Section 30(b)(2)
of the Investment Company Act of 1940
(2) Exhibits
(a)(1) Declaration of Trust dated 8/20/86 as
amended through 9/16/86
(a)(2) Amendment to Declaration of Trust dated 5/11/93
(b) Amended By-Laws(2)
(c) Not Applicable
(d)(1) Form of Specimen Certificate for Shares of
Beneficial Interest
(d)(2) Form of Subscription Certificate
(d)(3) Form of Notice of Guaranteed Delivery
(e) Automatic Dividend Reinvestment and Cash
Purchase Plan Brochure, as amended (1)
(f) Not Applicable
(g)(1) Fund Management Agreement between Registrant and
Liberty Asset Management Company dated 11/1/01 (2)
(g)(2) Portfolio Management Agreement between Registrant,
Liberty Asset Management Company and Boston
Partners Asset Management, L.P. dated 11/1/01 (2)
(g)(3) Portfolio Management Agreement between Registrant,
Liberty Asset Management Company and Mastrapasqua
& Associates, Inc. dated 11/1/01 (2)
(g)(4) Portfolio Management Agreement between Registrant,
Liberty Asset Management Company and TCW
Investment Management Company dated 11/1/01 (2)
(g)(5) Portfolio Management Agreement between Registrant,
Liberty Asset Management Company and Oppenheimer
Capital dated 11/1/01 (2)
(g)(6) Portfolio Management Agreement between Registrant,
Liberty Asset Management Company and Schneider
Capital Management Corporation dated 3/1/02
(h) Not Applicable
(i) Not Applicable
(j)(1) Form of Custodian Agreement with State Street
Bank and Trust Company dated October 10, 2001 -
filed as Exhibit (g) in Part C, Item 23 of Post-
Effective Amendment No. 56 to the Registration
Statement on Form N-1A of Liberty Funds Trust II
(File Nos. 2-66976 & 811-3009), filed with the
Commission on or about October 26, 2001, and is
hereby incorporated by reference and made a part
of this Registration Statement
(k)(1) Registrar, Transfer Agency and Service Agreement
between Registrant and State Street Bank & Trust
Company dated 10/1/86
(k)(2) Pricing and Bookkeeping Agreement between
Registrant and Colonial Management Associates,
Inc. dated 1/1/96 (1)
(k)(3) Form of Amendment dated 7/1/01 to Pricing and
Bookkeeping Agreement between Registrant and
Colonial Management Associates, Inc. (2)
(k)(4) Form of Subscription Agreement between Registrant
and EquiServe Trust Company, N.A.
(k)(5) Form of Information Agent Agreement between
Registrant and Georgeson Shareholder
Communications, Inc.
(l) Opinion and Consent of Counsel
(m) Not Applicable
(n) Consent of Independent Accountants
(o) Not Applicable
(p) Not Applicable
(q) Not Applicable
(r) Code of Ethics - filed in Part C, Item 23 of
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A of Liberty Funds Trust II
(File Nos. 2-66976 & 811-3009), filed with the
Commission on or about October 26, 2001, and is
hereby incorporated and made a part of this
Registration Statement
-------------------------------------------------------------------------------
Power of Attorney for: Robert J. Birnbaum, James E. Grinnell, Richard W. Lowry,
William E. Mayer and John J. Neuhauser(2)
---------------------------------------------------------------------------
(1) Incorporated by reference to the Registration Statement on Form N-2
filed with the Commission on February 23, 1998.
(2) Incorporated by reference to the Registration Statement on Form N-2
filed with the Commission on February 22, 2002.
Item 25. Marketing Arrangements
Not Applicable.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the expenses to be incurred in connection
with the offering described in this Registration Statement:
Registration fee $ 11,500
New York Stock Exchange listing fee 38,500
Printing 25,000
Accounting fees and expenses 7,000
Legal fees and expenses 50,000
Information Agent fees and expenses 13,000
Subscription Agent fees and expenses 90,000
Miscellaneous 80,000
----------
Total $315,000
==========
Item 27. Persons Controlled By or Under Common Control with Registrant
None.
Item 28. Number of Holders of Securities
Number of Record Holders
as of 3/22/02: 6,246
Item 29. Indemnification
See Article V to the Amended Declaration of Trust as filed
as Exhibit (a)(1) hereto.
The Registrant, its advisor, Liberty Asset Management Company,
and its Administrator, Colonial Management Associates, Inc.
(Colonial), and their respective trustees, directors and
officers are insured by a Directors and Officers/Errors and
Omissions Liability insurance policy through ICI Mutual
Insurance Company. The policy provides indemnification to
the Registrant's Trustees and Officers.
ITEM 30. Business and Other Connections of Investment Adviser.
Liberty Asset Management Company ("LAMCO"), the Registrant's
Fund Manager, was organized on August 16, 1985 and is primarily engaged in the
corporate administration of and the provision of its multi-management services
for the Registrant and Liberty All-Star Growth Fund, Inc., another
multi-managed closed-end investment company. It also provides its multi-
management services to Liberty All-Star Equity Fund, Variable Series, a multi-
managed open-end investment company which serves as an investment vehicle for
variable annuity contracts issued by affiliated insurance companies. As of
December 31, 2001, LAMCO had $1.4 billion assets under management.
The following sets forth the business and other connections of each director
and officer of LAMCO:
(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Other business, profession,
directors of investment vocation or employment
investment adviser adviser connection Affiliation
------------------ ---------- ------------------------------ -----------
Banks, Keith T. Director Liberty Variable Investment Trust President
Palombo, Joseph R. Director Liberty Variable Investment Trust None
Sayler, Roger Director None None
Parmentier, Jr., William R. President, Chief Liberty All-Star Growth Fund, Inc. Pres., Chief
Executive Officer & Exec. Officer &
Chief Investment Officer Chief Investment
Officer
Carabell, Christopher S. Senior Vice President Liberty All-Star Growth Fund, Inc. Vice President
Haley, Mark T. Vice President Liberty All-Star Growth Fund, Inc. Vice President
Loewenberg, Jean S. Secretary Liberty Variable Investment Trust Secretary
Liberty All-Star Growth Fund, Inc. Secretary
Iudice, Philip J., Jr. Treasurer None None
--------------------------------
*The principal address of the officers and directors of the Investment Adviser
is One Financial Center, Boston, MA 02111.
Item 31. Location of Accounts and Records:
Registrant maintains the records required to be maintained by it
under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment
Company Act of 1940 at its principal executive offices at One
Financial Center, Boston, MA 02111. Certain records, including
records relating to Registrant's shareholders and the physical
possession of its securities, may be maintained pursuant to Rule
31a-3 at the main office of Registrant's transfer agent or
custodian.
Item 32. Management Services
None
Item 33. Undertakings
(1) The Registrant undertakes to suspend the offering of shares
until the prospectus is amended, if subsequent to the
effective date of this Registration Statement, its net
asset value declines more than ten percent from its net
asset value, as of the effective date of the Registration
Statement or its net asset value increases to an amount
greater than its net proceeds as stated in the prospectus.
(2) Not applicable.
(3) Not applicable.
(4) Not applicable.
(5) Registrant undertakes that, for the purpose of determining
any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant
pursuant to Rule 497(h) will be deemed to be a part of the
Registration Statement as of the time it was declared
effective.
Registrant undertakes that, for the purpose of determining
any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus will be deemed
to be a new Registration Statement relating to the
securities offered therein, and the offering of such
securities at that time will be deemed to be the initial
bona fide offering thereof.
(6) Registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery, within
two business days of receipt of a written or oral request,
any Statement of Additional Information constituting Part B
of this Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused
this Amendment to its Registration Statement on Form N-2 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City
of Boston and the Commonwealth of Massachusetts on the 28th day of March,
2002.
LIBERTY ALL-STAR EQUITY FUND
/s/ WILLIAM R. PARMENTIER, JR.
By: ------------------------------
/s/ William R. Parmentier, Jr.
President, Chief Executive
Officer & Chief Investment
Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in their capacities and
on the date indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/WILLIAM R. PARMENTIER, JR. President (chief March 28, 2002
----------------------------- executive officer)
/s/William R. Parmentier, Jr.
/s/J. KEVIN CONNAUGHTON Treasurer March 28, 2002
----------------------- (principal financial officer)
/s/J. Kevin Connaughton
/s/ VICKI L. BENJAMIN Chief Accounting Officer March 28, 2002
--------------------- (principal accounting officer)
/s/Vicki L. Benjamin
ROBERT R. BIRNBAUM* Trustee
------------------
Robert R. Birnbaum
JAMES E. GRINNELL* Trustee
---------------------
James E. Grinnell
RICHARD W. LOWRY* Trustee */s/ ROBERT R. LEVEILLE
----------------- ----------------------
Richard W. Lowry Robert R. Leveille
Attorney-in-fact
For each Trustee
March 28, 2002
WILLIAM E. MAYER* Trustee
-----------------
William E. Mayer
JOHN J. NEUHAUSER* Trustee
------------------
John J. Neuhauser
INDEX OF EXHIBITS FILED WITH THIS AMENDMENT
Exhibit
Number Exhibit
-------- --------------------------------------------------
(a)(1) Declaration of Trust dated 8/20/86 as amended through
9/16/86
(a)(2) Amendment to Declaration of Trust dated 5/11/93
(d)(1) Form of Specimen Certificate for Shares of Beneficial Interest
(d)(2) Form of Subscription Certificate
(d)(3) Form of Notice of Guaranteed Delivery
(g)(6) Portfolio Management Agreement between Registrant, Liberty Asset
Management Company and Schneider Capital Management Corporation
dated 3/1/02
(k)(1) Registrar, Transfer Agency and Service Agreement
between Registrant and State Street Bank & Trust
Company dated 10/1/86
(k)(4) Form of Subscription Agreement between Registrant and EquiServe
Trust Company, N.A.
(k)(5) Form of Information Agent Agreement between Registrant and
Georgeson Shareholder Communications, Inc.
(l) Opinion and Consent of Counsel
(n) Consent of Independent Accountants