As filed with the Securities and Exchange Commission on March 8, 2004
1933 Act File No.
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
[ ] Pre-Effective Amendment No.
[ ] Post-Effective Amendment No._________
and
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 20
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
David A. Rozenson Clifford J. Alexander, Esq.
Secretary Kirkpatrick & Lockhart LLP
Liberty All-Star Equity Fund 1800 Massachusetts Ave., NW
One Financial Center Washington, DC 20036
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
--------.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICIALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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(1)
---------------- ------------------- -------------- -------------- -------------
Shares of Beneficial 12,673,647 $10.115 $128,193,939.41 $16,242.17
Interest
(1) Estimated solely for the purpose of calculating the Registration fee in
accordance with Rule 457(c) under the Securities Act of 1933. Based on the
average of the high and low price reported on the New York Stock Exchange
on March 2, 2004.
5
[ ] RIGHTS FOR [ ] 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 [ ], 2004
(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. See "Over-Subscription
Privilege". The Rights are not transferable and will not be admitted for trading
on the New York Stock Exchange. See "The Offer". THE SUBSCRIPTION PRICE PER
SHARE (THE "SUBSCRIPTION PRICE") WILL BE 95% OF THE LOWER OF (i) THE LAST
REPORTED SALE PRICE ON THE NEW YORK STOCK EXCHANGE ON _________, 2004 (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 [ ], 2004 (THE
"EXPIRATION DATE") AND WILL CONSTITUTE THE END OF THE SUBSCRIPTION PERIOD (THE
"SUBSCRIPTION PERIOD"). 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 the Altman Group, Inc. (the
"Information Agent") toll free at (800) 467-4954.
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 capital appreciation and current income. Under
normal market conditions, it seeks its investment objective through investing at
least 80% of its net assets 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 [ ] of this
prospectus.
The address of All-Star is One Financial Center, Boston, Massachusetts 02111 and
its telephone number is 1-800-542-3863. All-Star's shares are listed on the New
York Stock Exchange ("NYSE") under the symbol "USA".
All-Star announced the terms of the Offer before the opening of trading on
the New York Stock Exchange on February 11, 2004. The net asset value per share
of beneficial interest of All-Star at the close of business on February 10, 2004
and [ ], 2004 was $9.46 and $[ ], respectively, and the last reported sale price
of a share on such Exchange on those dates was $9.97 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.
Sales Load Proceeds to All-Star (2) Subscription Price (1)
Per share [ ] None
Total [ ] None
(1) Estimated based on an assumed Subscription Price of 95% of the last
reported sale price on the NYSE on [ ], 2004 (the "Estimated Purchase
Price"). The Estimated Purchase Price is presented solely for illustration
purposes. Shareholders wishing to exercise rights must send the per share
amount presented under "The Offer--Payment for Shares" on page [17].
(2) Before deduction of expenses payable by All-Star, estimated at $335,000.
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
[ ], 2004 has been filed with the Securities and Exchange Commission ("SEC") and
is incorporated by reference in its entirety into this prospectus. The Table of
Contents of the Statement of Additional Information appears on page [33] of this
prospectus and a copy is available at no charge by calling the information agent
at (800) 467-4954 or at the SEC's internet web site (http://www.sec.gov).
The date of this Prospectus is [ ], 2004.
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...... [ ] Shares
Number of Rights you will receive for each outstanding
share you own on the Record Date............. One Right for every one share
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 [ ], 2004 (the "Pricing Date") of a share of beneficial
interest 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 their broker, bank or
trust company, or to:
The Altman Group, Inc.
[(800) 467-4954]
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 them (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 that 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 Fund may, at its discretion, issue up to an additional 25% of the Shares
available pursuant to the Offer in order to honor such over-subscriptions. The
Fund may sell additional Shares to Shareholders if and to the extent that Shares
issued through the Offer would not cause any undue dilution (reduction) of the
net asset value of the Shares. Whether or not the Fund determines to issue
additional Shares to honor all over-subscriptions, 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.
Since the Expiration Date is prior to the Pricing Date, shareholders who
choose to exercise their Rights will not know the final Subscription Price at
the time they exercise such Rights. Shareholders will have no right to rescind
their subscription after receipt of their payment for Shares by the Subscription
Agent. See "The Offer--Method of Exercise of Rights" and "The Offer--Payment for
Shares." 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:
The Altman Group, Inc.
[(800)-467-4954]
Important Dates to Remember
Please note that the dates in the table below, other than the Record Date,
may change if the Offer is extended.
EVENT DATE
Record Date.......................... [ ], 2004
Subscription Period................... [ ] through [ ], 2004*
Expiration Date (Deadline for delivery of Subscription Certificate together
with payment of Estimated Subscription Price (see "The Offer--Payment for
Shares" on page [17] of this Prospectus) or for delivery of Notice of
Guaranteed Delivery)................ [ ], 2004
Pricing Date........................ [ ], 2004
Deadline for payment of final Subscription Price pursuant to Notice of
Guaranteed Delivery............................[ ], 2004
Confirmation to Registered Shareholders........[ ], 2004
For Registered Shareholders' Subscriptions--deadline for payment of unpaid
balance if final Subscription Price is higher than Estimated Subscription
Price.................................. [ ], 2004
------------------------------------------
* Unless the Offer is extended.
Offering Fees and Expenses
Offering expenses incurred by the Fund are estimated to be $335,000.
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 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 daily trading volume of the shares on the NYSE during the year ended
December 31, 2003 was 190,810 shares. As of [ ], 2004, All-Star's net assets
were [ ] and [ ] 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, Columbia Management Advisors,
Inc. ("Columbia"). 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, 2003 LAMCO managed over $1.3 billion in assets.
LAMCO, organized in 1985, is a direct, wholly owned subsidiary of Columbia
Management Group, Inc. which 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 subscribing for Shares of 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 5.7% the average premium for the six-month
period ended February 29, 2004), 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 0.6 %. Further, if you do not submit subscription
requests pursuant to the Over-Subscription Privilege, you may experience
dilution in your holdings if the Fund offers additional Shares for
subscription. The Fund may sell additional Shares to Shareholders if and to
the extent that Shares issued through the Offer would not cause any undue
dilution (reduction) of the NAV of the Shares. 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
necessarily related to All-Star's net investment income or net realized
capital gains or losses, may be treated as ordinary dividend income up to
the amount of All-Star's current and accumulated earnings and profits or as
qualified dividend income (taxable at a maximum 15% tax rate) to the extent
they reflect qualified dividend income received by All-Star and are so
designated by All-Star. 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
amount distributed for such year under the 10% pay-out policy. 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. See "Distributions; Automatic
Dividend Reinvestment and Cash Purchase Plan".
Closed-end fund discounts...... Shares of closed-end funds frequently trade at a
market 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 Provisions........ All-Star's Declaration of Trust and By-Laws
have 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".
Disposition of Shares............ 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 (1)
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 shares of
beneficial interest)
Management and Administrative Fees.......................... 0.93%
Other Expenses.............................................. 0.11%
Total Annual Expenses....................................... 1.04%
Example: You would pay the following expenses on an investment (at net asset
value) of $1,000, assuming a 5% annual return and reinvestment of all dividends
and distributions at net asset value.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$11 $33 $57 $127
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, 2003, and on
its projected net assets assuming the Offer is fully subscribed for at the
Estimated Purchase 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, 2003.
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 through
December 31, 2003 has been audited by PricewaterhouseCoopers LLP, independent
auditors. 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 auditors, together with the
financial statements of the Fund, are included in the Fund's December 31, 2003
Annual Report and are incorporated by reference into the Statement of Additional
Information (see cover page).
FOR THE YEAR ENDED DECEMBER 31,
PER SHARE OPERATING PERFORMANCE: 2003 2002 2001 2000 1999
Net asset value at beginning of year................ $7.14 $10.65 $13.61 $14.02 $14.22
Income from Investment Operations:
Net investment income...................... 0.01 0.01 0.03 0.05 0.05
Net realized and unrealized gain (loss) on
Investments.................................. 2.76 (2.56) (1.79) 0.96 1.22
Provision for federal income tax.................... ---- ---- ---- ---- ----
Total from Investment Operations.................. 2.77 (2.55) (1.76) 1.01 1.27
Less Distributions from:
Net investment income..................... (0.01) (0.01) (0.03) (0.06) (0.05)
Realized capital gain........................ (0.30) (0.02) (1.17) (1.36) (1.34)
Return of capital............................. (0.47) (0.85) ---- ---- ----
Total Distributions................................... (0.78) (0.88) (1.20) (1.42) (1.39)
Change due to rights offering(b)................... ---- (0.08) ---- ---- ----
Impact of Shares issued in dividend
reinvestment(c).............................. ---- ---- ---- ---- (0.08)
------- -------- -------- ------- --------
Total Distributions, Reinvestments and Rights
Offering..................................... (0.78) (0.96) (1.20) (1.42) (1.47)
-------- --------- ---------- -------- ---------
Net asset value at end of year...................... $9.13 $7.14 $10.65 $13.61 $14.02
--------- ---------- ---------- --------- -----------
Market price at end of year........................ $9.46 $6.64 $11.09 $12.375 $11.063
---------- ---------- ----------- --------- -----------
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS: (d)
Based on net asset value...........................
Based on market price.............................. 40.7% (25.0)% (12.7)% 8.8% 10.2%
56.7% (33.0)% 0.0% 25.4% (4.4)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (millions).............. $1,153 $869 $1,133 $1,376 $1,396
Ratio of expenses to average net assets (e)... 1.04% 1.05% 1.03% 0.96% 0.97%
Ratio of net investment income to average net assets
(e).................................... 0.11% 0.11% 0.27% 0.37% 0.37%
Portfolio turnover rate............................. 64% 83% 64% 83% 90%
------------------------
(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.
(e) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
FOR THE YEAR ENDED DECEMBER 31,
PER SHARE OPERATING PERFORMANCE: 1998 1997 1996 1995 1994
Net asset value at beginning of year................ $13.32 $11.95 $11.03 $9.26 $10.40
------ ------ ------- ------ -------
Income from Investment Operations:
Net investment income...................... 0.05 0.05 0.08 0.10 0.11
Net realized and unrealized gain (loss) on
Investments.................................. 2.35 3.01(a) 2.15(a) 2.71 (0.20)
Provision for federal income tax.................... --- (0.36) (0.13) --- ---
------- --------- -------- -------- --------
Total from Investment Operations.................. 2.40 2.70 2.10 2.81 (0.09)
------- --------- -------- -------- --------
Less Distributions from:
Net investment income..................... (0.05) (0.05) (0.08) (0.10) (0.12)
Realized capital gain........................ (1.35) (1.28) (1.10) (0.94) (0.52)
Paid-in capital............................. --- --- --- --- (0.36)
-------- ------- ------- ------- -------
Total Distributions................................... (1.40) (1.33) (1.18) (1.04) (1.00)
------ ------- ------- -------- -------
Change due to rights offering(b)................... (0.10) --- --- --- (0.05)
------ ------- ------ -------- --------
Impact of Shares issued in dividend
reinvestment(c)..............................
Total Distributions, Reinvestments and Rights
Offering......................................... (1.50) (1.33) (1.18) (1.04) (1.05)
------- ------ ------- ------- ---------
Net asset value at end of year...................... $14.22 $13.32 $11.95 $11.03 $9.26
------- ------- -------- -------- ---------
Market price at end of year........................ $12.938 $13.313 $11.250 $10.875 $8.500
------- ------- -------- -------- ---------
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS: (d)
Based on net asset value........................... 19.8% 26.6% 21.7% 31.8% (0.08)%
ased on market price.............................. 9.1% 34.4% 16.2% 41.4% (14.9)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (millions).............. $1,351 $1,150 $988 $872 $710
Ratio of expenses to average net assets (e)... 1.00% 1.01% 1.03% 1.06% 1.07%
Ratio of net investment income to average net assets
(e).................................. 0.39% 0.38% 0.73% 0.92% 1.16%
Portfolio turnover rate............................. 76% 99% 70% 54% 44%
------------------------
(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.
(e) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
SHARE PRICE DATA
Trading in All-Star's shares on the NYSE commenced on October 24, 1986. For
the two years ended December 31, 2002 and 2003 and the quarters ended March 31,
2004, 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:
High Sales Net Asset Discount From or Low Sales Net Asset Discount From or
__Price__ __Value__ Premium to Net Asset __Price__ __Value__ Premium to Net
Value Asset Value
2002
1st Quarter $12.39 $10.26 20.8% $10.55 $10.34 2.0%
2nd Quarter 11.09 10.43 6.3 8.00 8.33 -4.0
3rd Quarter 8.66 8.26 4.8 6.01 7.28 -17.5
4th Quarter 7.69 7.70 -0.1 5.80 6.53 -11.2
2003
1st Quarter 7.36 7.51 -2.0 6.08 6.45 -5.7
2nd Quarter 8.34 7.92 5.3 6.67 6.92 -3.6
3rd Quarter 8.89 8.24 7.9 8.14 7.98 2.0
4th Quarter 9.80 8.73 12.3 8.44 8.29 1.8
2004
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"), 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 [ ], 2004 was $[ ]. The last
reported sale price of an All-Star share on that day was $[ ], representing a
discount 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, 2003. 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"), and full exercise of primary subscription rights in All-Star's
1992, 1993, 1994,1998 and 2002 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 Mutual Fund 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 MUTUAL S&P 500 INDEX
ALL-STAR NAV ALL-STAR PRICE FUND AVERAGE
1 Year beginning 40.7% 56.7% 25.6% 28.7%
January 1, 2003
5 Years beginning 2.0% 4.7% -1.8% -0.6%
January 1, 1999
10 Years beginning 10.3% 9.9% 8.8% 11.1%
January 1, 1994
15 Years beginning 12.5% 13.8% 10.6% 12.2%
January 1, 1989
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 non-transferable Rights to
subscribe for the Shares, without par value, of the Fund's shares of 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 [ ], 2004 and ends at 5:00 p.m., New York City time,
on [ ], 2004, 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. 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 Fund may, at its discretion, issue up to an additional 25%
of the Shares available pursuant to the Offer in order to honor such
over-subscriptions. The Fund may sell additional Shares to Shareholders if and
to the extent that Shares issued through the Offer would not cause any undue
dilution (reduction) of the NAV of the Shares. Whether or not the Fund
determines to issue additional Shares to honor all over-subscriptions, 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 "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 with addresses in the United States. 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 under "Method of Exercise of Rights" and "Payment for Shares".
Purpose of the Offer
The Board of Trustees of All-Star has determined that (i) 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 (ii) 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, and
therefore could benefit indirectly from the Offer. 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 this 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. In 2002, All-Star completed a fifth rights offering to shareholders
of 10,688,506 additional Shares at a subscription price of $8.99 per Share, for
proceeds to the Fund after expenses of $95,753,976. [All five rights offerings
were oversubscribed.]
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 Fund may issue up to an
additional 25% of the Shares available pursuant to the Primary Subscription, to
satisfy over-subscription requests. The Fund may sell additional Shares to
Shareholders if and to the extent that Shares issued through the Offer would not
cause any undue dilution (reduction) of the NAV of the Shares. Whether or not
the Fund determines to issue additional Shares to honor all over-subscriptions,
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 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
__________________________ X Excess Shares Remaining
Total Record Date Position
of all Oversubscribers
The allocation process with regard to any additional Shares the Fund may
offer may involve a similar allocation process as to Excess Shares. 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 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 11, 2004. The net asset value per Share of All-Star at the
close of business on February 10, 2004 and on [ ], 2004 was $9.46 and $[ ],
respectively, and the last reported sale price of a Share on the NYSE on those
dates was $9.97 and $[ ], respectively, representing a 5.4% [premium] and a [ ]%
[discount], 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 [ ], 2004.
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 final Subscription 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., P.O. Box 859208,
Braintree, MA 02185. EquiServe Trust Company N.A. 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 reimbursements for
its out-of-pocket expenses related to the Offer.
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:
The Altman Group, Inc.
1275 Valley Brook Avenue
Lyndhurst, NJ 07071
Call Toll Free (800) 467-4954
The Information Agent will receive a fee from All-Star estimated at
approximately $[ ] and reimbursement for its out-of-pocket expenses related to
the Offer.
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
through a Notice of Guaranteed Delivery, 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
ATT: Corporate Actions
P.O. Box 859208
Braintree, MA 02185-9208
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 Express Mail: EquiServe
Attn: Corporate Actions
161 Bay State Road
Braintree, MA 02184
By Broker-Dealer or other Nominee: Shareholders whose Shares are held in a brokerage, bank
(Notice of Guaranteed Delivery) 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 [ ], 2004. 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) 843-1833 ext.
0200]).
(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 Subscription Price of $[ ] per
Share. Please note that the Estimated Subscription Price differs from the
Estimated Purchase Price, which is presented for illustration purposes only,
shown on the cover page of this Prospectus. 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. A
payment pursuant to this method must be in United States Dollars by money order
or certified or cashier's 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[
], 2004, 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. All 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) reallocate such subscribed and unpaid for Shares to shareholders
exercising the Over-Subscription Privilege who did not receive the full
Over-Subscription requested; (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) 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.
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
dividend 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 on or about [ ], 2004. A refund of the amount, if any, paid in
excess of the final Subscription Price will be mailed as soon as practicable
after the Confirmation Date. 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[
], 2004, 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".
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 exercised 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 to 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 15% in the case of a noncorporate
shareholder, if the shareholder then holds 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 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 will be 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. Further,
if you do not submit subscription requests pursuant to the Over-Subscription
Privilege, you may experience dilution in your holdings if the Fund offers
additional Shares for subscription. The Fund may sell additional Shares to
Shareholders if and to the extent that Shares issued through the Offer would not
cause any undue dilution (reduction) of the NAV of the Shares.
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 Purchase Price of $[ ] and after deducting all expenses related to the
issuance of the Shares.
NAV Per Share on Dilution Per Share
[ ], 2004 ___in Dollars___
Primary Subscription or [ ] shares $ [ ] $[ ]
Market Value and Net Asset Value
The shares of closed-end investment companies frequently trade at a
discount from net asset value. 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 net asset
value. 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 net
asset value. 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 [ ], 2004, the effective date of the Fund's
Registration Statement, All-Star's net asset value declines more than 10%.
All-Star will notify shareholders of any such decline and suspension 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 the Estimated Purchase Price of $[ ] per share, are estimated to be
approximately $[ ], after deducting expenses related to the Offer payable by
All-Star estimated at $[ ]. If the Fund in its sole discretion increases the
number of Shares subject to the Offer by 25% in order to satisfy
over-subscriptions, net proceeds will be approximately $[ ]. 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 (see "Investment Objective, Policies and Risks--Repurchase
Agreements").
THE MULTI-MANAGER CONCEPT
All-Star allocates its portfolio assets on an approximately equal basis
among a number of 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) 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 was 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
[thirteen] 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").
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 next regularly
scheduled annual shareholder meeting (normally held in April) 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:
Mastrapasqua Asset Management
Matrix Asset Advisors, Inc.
Pzena Investment Management, 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 that 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, a portion of All-Star's portfolio is subject to
the risks associated with growth stocks as approximately 40% of the Fund's net
assets are allocated to Portfolio Managers that practice the Growth Style of
investing. 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, 2002.
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 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 also officers or
employees of LAMCO or its affiliates, and the supervision of transfer agency,
dividend disbursing, custodial and other services provided to All-Star. Certain
of LAMCO's administrative responsibilities have been delegated to Columbia.
LAMCO, organized in 1985, is a direct wholly owned subsidiary of Columbia
Management Group, Inc. which 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.
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).
AVERAGE WEEKLY NET ASSET FUND MANAGEMENT FEE PAID TO LAMCO AND PORTFOLIO ADMINISTRATIVE FEE PAID
VALUE MANAGEMENT FEE PAID TO PORTFOLIO MANAGERS 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%
Under All-Star's Pricing and Bookkeeping agreement with the Fund, LAMCO
receives from the Fund an annual flat fee of $10,000, paid monthly, and in any
month that the Fund's average weekly net assets exceed $50 million, an
additional monthly fee is paid as calculated pursuant to the terms of the
Pricing and Bookkeeping Agreement. The Fund also pays additional fees for its
out-of-pocket expenses, including fees payable to third parties for pricing
services.
Custodian and Transfer Agent
State Street Bank & 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 its expenses, other than those
expressly assumed by LAMCO. The expenses payable by All-Star include: management
and administrative fees payable to LAMCO; pricing and bookkeeping fees payable
to LAMCO; fees and expenses of independent auditors; fees for transfer agent and
registrar, dividend disbursing, custodian and portfolio recordkeeping services;
expenses in connection with the Automatic Dividend Reinvestment and Cash
Purchase Plan; expenses in connection with obtaining quotations for calculating
the value of All-Star's net assets; taxes (if any) and the preparation of
All-Star's tax returns; brokerage fees and commissions; interest; costs of
trustee and shareholder meetings (including expenses of printing and mailing
proxy material therefor); expenses of printing and mailing reports to
shareholders; fees for filing reports with regulatory bodies and the maintenance
of All-Star's existence; membership dues for investment company industry trade
associations; legal fees; stock exchange listing fees and expenses; fees to
federal and state authorities for the registration of shares; fees and expenses
of Trustees who are not trustees, officers, employees or stockholders of LAMCO
or its affiliates; insurance and fidelity bond premiums; and any extraordinary
expenses of a non-recurring nature.
DESCRIPTION OF SHARES
General
All-Star's authorized capitalization consists of an unlimited number of
Shares of beneficial interest without par value, of which [ ] 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, may be treated as ordinary dividend income up
to the amount of All-Star's current and accumulated earnings and profits.
Although distributions of net long-term capital gains are generally taxable to
shareholders at reduced capital gains rate (as described in more detail below),
the application of capital loss carryovers against current year capital gains
can result in an increase in the portion of current year distributions being
treated as ordinary income. If, for any calendar year, the total distributions
made under the 10% pay-out policy exceed All-Star's current and accumulated
earnings and profits, 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.
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. 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 intends to 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
as otherwise noted below.
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 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, N.A. 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 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, on the NYSE or
elsewhere at prevailing market prices (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").
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 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 participant 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 with respect to the Plan Agent's open market
purchases in connection with the reinvestment of distributions declared payable
in cash.
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".
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 be effective only for subsequent distributions
with a record date at least ten days after the notice of withdrawal is received
by the Plan Agent.
Experience under the Plan may indicate that changes are desirable.
Accordingly, All-Star reserves the right to amend or terminate the Plan.
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 ("RIC") under
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.
In order to avoid incurring a federal excise tax obligation, the Code
requires that All-Star distribute (or be deemed to have distributed) by December
31 of each calendar year an amount at least equal to the sum of (i) 98% of its
ordinary income for such year and (ii) 98% of its capital gain net income (which
is the excess of its realized net long-term capital gain over its realized net
short-term capital loss), generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, plus 100% of any ordinary income and capital gain net income from
the prior year (as previously computed) that were not paid out during such year
and on which All-Star paid no federal income tax. Under current law, provided
that All-Star qualifies as a RIC for federal income tax purposes, All-Star
should not be liable for any income, corporate excise or franchise tax in the
Commonwealth of Massachusetts.
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 are subject to taxation 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 may 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.
Under the "Jobs and Growth Tax Relief Reconciliation Act of 2003" (the "Tax
Act"), the U.S. federal income tas rate on long-term capital gains recognized by
individuals was reduced to 15% (or 5% for individuals in the 10% or 15% tax
brackets). Certain income distributions paid by All Star to individual taxpayers
will also be taxed at these reduced long-term capital gains rates if certain
holding period requirements and other requirements are satisfied by the
shareholder and All Star's dividends are attributable to qualified dividend
income received by All Star itself. For this purpose, "qualified dividend
income" means dividends received by All Star from United States corporations and
"qualified foreign corporations," provided that All Star satisfies certain
holding period and other requirements in respect of the stock of such
corporations. In the case of securities lending transactions, payments in lieu
of dividends are not qualified dividends. Dividends received by All Star from
REITs are qualified dividends eligible for this lower tax rate only in limited
circumstances. These special rules relating to the taxation of ordinary income
dividends from regulated investment companies generally apply to taxable years
beginning after December 31, 2002 and beginning before January 1, 2009.
Thereafter, All Star's dividends, other than capital gain dividends, will be
fully taxable at ordinary income tax rates unless further Congressional action
is taken.
The Tax Act, in amending certain Code provisions to provide that dividends
paid by a RIC would be treated as "qualified dividend income" to the extent that
such dividends were derived from qualified dividends received by a RIC, failed
to make certain conforming amendments to other provisions of the Code. As a
result, the Code contains certain contradictory provisions creating some
ambiguity as to whether the Code authorizes All Star to designate in certain
circumstances as qualified dividend income that portion of its dividends that is
derived from dividends it has received from qualified foreign corporations. All
Star believes, however, that the intention of the Tax Act was to authorize All
Star's designation of such dividends as qualified dividend income. Further,
bills proposing to make technical corrections to the Tax Act (the "Technical
Corrections Bills") have been filed in both the Senate and the House of
Representatives, and these Technical Corrections Bills would amend the Code to
make it clear that a RIC's dividends can be designated qualified dividends to
the extent that they are derived from dividends received from qualified foreign
corporations. All Star cannot predict whether the Technical Corrections Bills
will be enacted or, if so, when that will occur. Nevertheless, the Treasury
Department and the Internal Revenue Service have announced that they will apply
the provisions of the Technical Corrections Bills relating to qualified dividend
income in advance of the enactment of such legislation.
A dividend will not be treated as qualified dividend income (whether
received by All Star or paid by All Star to a shareholder) if (1) the dividend
is received with respect to any share held for fewer than 61 days during the
120-day period beginning on the date which is 60 days before the date on which
such share becomes ex-dividend with respect to such dividend or, in the case of
certain preferred shares, 91 days during the 180-day period beginning 90 days
before such ex-dividend date (the 120-day period would be expanded to a 121-day
period, and the 180-day period would be expanded to a 181-day period, under the
Technical Corrections Bills), (2) to the extent that the recipient is under an
obligation (whether pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related property,
or (3) if the recipient elects to have the dividend treated as investment income
for purposes of the limitation on deductibility of investment interest.
Subject to certain exceptions, a "qualified foreign corporation" is any
foreign corporation that is either (i) incorporated in a possession of the
United States (the "possessions test"), or (ii) eligible for benefits of a
comprehensive income tax treaty with the United States, which the Secretary of
the Treasury determines is satisfactory for these purposes and which includes an
exchange of information program (the "treaty test"). The Secretary of the
Treasury has identified tax treaties between the United States and 52 other
countries that satisfy the treaty test.
Subject to the same exceptions, a foreign corporation that does not satisfy
either the possessions test or the treaty test will still be considered a
"qualified foreign corporation" with respect to any dividend paid by such
corporation if the stock with respect to which such dividend is paid is readily
tradable on an established securities market in the United States. The Treasury
Department has issued a notice stating that common or ordinary stock, or an
American Depositary Receipt in respect of such stock, is considered readily
tradable on an established securities market in the United States if it is
listed on a national securities exchange that is registered under section 6 of
the Securities Exchange Act of 1934, as amended, or on the Nasdaq Stock Market.
A qualified foreign corporation does not include any foreign corporation
that, for the taxable year of the corporation in which the dividend is paid or
the preceding taxable year, is a foreign personal holding company, a foreign
investment company or a passive foreign investment company.
The benefits of the reduced tax rates applicable to long-term capital gains
and qualified dividend income may be impacted by the application of the
alternative minimum tax to individual shareholders.
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, 2003,
All-Star's investments had net unrealized gains of $121,537,662. Dividends and
distributions on All-Star's shares are generally subject to federal income tax
as described herein to the extent they do not exceed All-Star's realized income
and gains, even though such dividends and distributions may economically
represent a return of a particular shareholder's investment. Such distributions
are likely to occur in respect of shares purchased at a time when All-Star's net
asset value reflects gains that are either unrealized, or realized but not
distributed. Such realized gains may be required to be distributed even when
All-Star's net asset value also reflects unrealized losses. Certain
distributions declared in October, November or December and paid in the
following January will be taxed to shareholders as if received on December 31 of
the year in which they were declared. In addition, certain other distributions
made after the close of a taxable year of All-Star may be "spilled back" and
treated as paid by All-Star (except for purposes of the 4% excise tax) during
such taxable year. In such case, Shareholders will be treated as having received
such dividends in the taxable year in which the distributions were actually
made.
Individuals and certain other non-corporate All-Star shareholders may be
subject to 28% withholding on reportable dividends and capital gain
distributions ("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 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 30% federal
withholding tax (but not, in such event, subject to back-up withholding) 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
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.................................... 2
Investment Advisory and Other Services................... 4
Proxy Voting............................................... 5
Trustees and Officers of All-Star.......................... 8
Portfolio Security Transactions............................ 16
Taxes...................................................... 18
State and Local Taxes...................................... 19
Principal Shareholders..................................... 19
Financial Statements....................................... 19
APPENDIX A
INFORMATION ABOUT THE PORTFOLIO MANAGERS
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. 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, 2003, Schneider
managed approximately $2.1 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.
MATRIX ASSET ADVISORS, INC.
747 Third Avenue
New York, NY 10017
Matrix Asset Advisors, Inc. ("Matrix") was appointed as an All-Star
Portfolio Manager effective February 15, 2004, replacing Boston Partners Asset
Management, L.P ("Boston Partners"). Matrix is an independently owned firm
founded in 1986 by David A. Katz, CFA and John M. Gates. Mr. Katz serves as
President and Chief Investment Officer of Matrix and manages that portion of the
Equity Fund's portfolio previously assigned to Boston Partners. Prior to
co-founding Matrix in 1986, Mr. Katz was with Management Asset Corporation.
Matrix is 100% employee-owned. As of December 31, 2003, Matrix managed
approximately [$1.1 billion] in assets.
MASTRAPASQUA ASSET MANAGEMENT, INC.
814 Church Street, Suite 600
Nashville, Tennessee 37203
Mastrapasqua Asset Management, 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, 2003, Mastrapasqua managed
approximately $1.1 billion in assets. Frank Mastrapasqua, Ph.D. 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 64 years of investment experience and have managed
portfolios together for the last 16 years.
PZENA INVESTMENT MANAGEMENT, LLC
120 West 45th Street, 34th Floor
New York, NY 10036
Pzena Investment Management, LLC ("Pzena") was appointed as an All-Star
Portfolio Manager effective October 15, 2003, replacing Oppenheimer Capital LLC
("Oppenheimer"). Pzena is an independently owned firm founded in 1995 by Richard
S. Pzena. Mr. Pzena serves as President and Chief Investment Officer of Pzena
and manages that portion of the Equity Fund's portfolio previously assigned to
Oppenheimer. Prior to founding Pzena in 1995, Mr. Pzena was Director of U.S.
Equity Investment and Chief Research Officer for Sanford C. Bernstein & Company.
Pzena is 75% owned by Pzena employees and 25% owned by a private investor. As of
December 31, 2003, Pzena managed approximately $5.8 billion in assets.
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 between 2003 and 2006. 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, 2003, TCW and its affiliates had over $89.6
billion in assets under management or committed to management.
Glen E. Bickerstaff, Group Managing Vice Chairman, 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......................................................................33
Statement of Additional Information..........................................34
Appendix A--
Information about the Portfolio Managers..................................A-1
[LOGO]
LIBERTY
ALL-STAR
EQUITY FUND
A MULTI-MANAGED INVESTMENT COMPANY
________ SHARES OF
BENEFICIAL INTEREST
ISSUABLE UPON EXERCISE
OF RIGHTS TO SUBSCRIBE
FOR SUCH SHARES
------------------------------
PROSPECTUS
___________, 2004
-----------------------------
LIBERTY ALL-STAR EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
_________, 2004
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 ________,2004. 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
Proxy Voting 8
Trustees and Officers 11
Portfolio Security Transactions 20
Taxes 21
Principal Shareholders 23
Financial Statements 23
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 wholly owned
subsidiary of FleetBoston Financial Corporation ("FleetBoston"), Boston,
Massachusetts. As indicated under "Trustees and Officers" below, all of
All-Star's officers are officers of LAMCO, Columbia or other affiliates of
Columbia. On October 27, 2003, FleetBoston Financial Corporation ("FleetBoston")
announced that Bank of America agreed to acquire FleetBoston. Bank of America is
one of the world's largest financial institutions, serving individual consumers,
small businesses and large corporations and institutions with a full range of
banking, investing, asset management and other financial and risk management
products and services. The closing of the proposed transaction is expected to
take place during the first half of 2004 and is subject to a number of
conditions, including approval by FleetBoston's shareholders. Consummation of
the acquisition by Bank of America is subject to a number of contingencies,
including regulatory approvals and approval of the shareholders of FleetBoston.
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(s) 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, 2003, 2002 and 2001 the total fund
management and administrative fees paid to LAMCO were $8,931,510, $9,103,079 and
$10,701,655, respectively, of which an aggregate of $3,570,621, $3,640,965 and
$4,279,735, 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, 2004] 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 October 15, 2003, Pzena Investment Management, LLC ("Pzena") replaced
Oppenheimer Capital LLC as a Portfolio Manager of All-Star. On October 7, 2003,
the Board of Trustees approved this change as well as the proposed Portfolio
Management Agreement between All-Star, LAMCO and Pzena. The new Portfolio
Management Agreement with Pzena is substantially identical to the one formerly
in place with Oppenheimer Capital LLC. Under the new Portfolio Management
Agreement, Pzena is paid the same portfolio management fee that was paid to
Oppenheimer Capital LLC prior to the effective date of the change.
On February 17, 2004, Matrix Asset Advisors, Inc. ("Matrix") replaced
Boston Partners Asset Management, L.P. ("Boston Partners") as a Portfolio
Manager of All-Star. On February 10, 2004, the Board of Trustees approved this
change as well as the proposed Portfolio Management Agreement between All-Star,
LAMCO and Matrix. The new Portfolio Management Agreement with Matrix is
substantially identical to the one formerly in place with Boston Partners. Under
the new Portfolio Management Agreement, Matrix is paid the same portfolio
management fee that was paid to Boston Partners 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; Pricing and Bookkeeping Agent
State Street Bank and Trust Company (the "Custodian"), 225 Franklin Street,
Boston, Massachusetts 02110, is the custodian of the portfolio securities and
cash of All-Star. As such, the Custodian 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 the portfolio
securities and disburses funds in connection with the payment of distributions
and expenses.
Columbia, an affiliate of LAMCO, performs pricing and bookkeeping services
for All-Star. For the years ended December 31, 2003, 2002 and 2001, All-Star
paid pricing and bookkeeping fees to Columbia of $220,437,
$173,764 and $233,932 respectively.
Independent Auditors
PricewaterhouseCoopers LLP, 125 High Street, Boston, Massachusetts 02110,
are the independent auditorsof All-Star. The independent accountants audit and
report on the annual financial statements and provide tax return preparation
services and assistance and consultation in connection with the review of
various SEC filings.
PROXY VOTING
All-Star has delegated to LAMCO the responsibility to vote proxies relating
to portfolio securities held by All-Star. In deciding to delegate this
responsibility to LAMCO, the Board of Directors of All-Star reviewed and
approved the policies and procedures adopted by LAMCO. These include the
procedures that LAMCO follows when a vote presents a conflict between the
interests of LAMCO or its affiliates and the interests of LAMCO's clients,
including All-Star.
LAMCO's policy is to vote all proxies for securities owned by All-Star in a
manner considered by LAMCO to be in the best interest of All-Star and its
shareholders without regard to any benefit to LAMCO or its affiliates. LAMCO
examines each proposal and votes against the proposal, if, in its judgment,
approval or adoption of the proposal would be expected to impact adversely the
current or potential market value of the issuer's securities.
LAMCO addresses potential material conflicts of interest by having
predetermined voting guidelines. For those proposals that require special
consideration, or in instances where special circumstances may require varying
from the predetermined guidelines, LAMCO's proxy committee ("Proxy Committee")
determines the vote in the best interest of All-Star, without consideration of
any benefit to LAMCO, its affiliates, its other clients or other persons. A
member of the Proxy Committee is prohibited from voting on any proposal for
which he or she has a conflict of interest by reason of a direct relationship
with the issuer or other party affected by a given proposal. Persons making
recommendations to the Proxy Committee or its members are required to disclose
to the Proxy Committee any relationship with a party making a proposal or any
other matter known to that person which would create a potential conflict of
interest.
LAMCO divides proxy proposals into three classes. The first two classes are
proposals that LAMCO votes according to predetermined guidelines, unless
otherwise directed by the Proxy Committee. The third class is proposals given
special consideration by the Proxy Committee. In addition, the Proxy Committee
considers requests to vote on proposals in either of the first two classes other
than according to the predetermined guidelines.
LAMCO generally votes in favor of proposals related to the following
matters: selection of auditors (unless the auditor receives more than 50% of its
revenues from non-audit activities from the company and its affiliates),
election of directors (unless the proposal gives management the ability to alter
the size of the board without shareholder approval), different persons for
chairman of the board /chief executive officer (unless, in light of the size of
the company and the nature of its shareholder base, the role of chairman and CEO
are not held by different persons), compensation (if provisions are consistent
with standard business practices), debt limits (unless proposed specifically as
an anti-takeover action), indemnifications (unless it is proposed to eliminate
Director responsibility for negligence and/or breaches of fiduciary duty),
meetings, name of company, principal office (unless the purpose is to reduce
regulatory or financial supervision), reports and accounts (if the
certifications required by Sarbanes/Oxley Act of 2002 have been provided), par
value, shares (unless proposed as an anti-takeover action), share repurchase
programs, independent committees, and equal opportunity employment.
LAMCO generally votes against proposals related to the following matters:
super majority voting, cumulative voting, preferred stock, warrants, rights,
poison pills, reclassification of common stock, and the elimination of the right
of shareholders to act by written consent without a meeting.
LAMCO gives the following matters special consideration: new types of
proposals, proxies of investment company shares (other than election of
directors, selection of accountants), mergers/acquisitions (proposals where a
hostile merger/acquisition is apparent or where LAMCO represents ownership in
more than one of the companies involved), shareholder proposals (other than
those covered by the predetermined guidelines), executive/director compensation
(other than those covered by the predetermined guidelines), pre-emptive rights
and proxies of international issuers which block securities sales between
submission of a proxy and the meeting (proposals for these securities are voted
only on the specific instruction of the Proxy Committee and to the extent
practicable in accordance with predetermined guidelines).
In addition, if a Portfolio Manager or other party involved with a LAMCO
client or Fund account concludes that the interest of the client or Fund
requires that a proxy be voted on a proposal other than according to the
predetermined guidelines, he or she may request that the Proxy Committee
consider voting the proxy differently. If any person (or entity) requests the
Proxy Committee (or any of its members) to vote a proxy other than according to
a predetermined guideline, that person must furnish to the Proxy Committee a
written explanation of the reasons for the request and a description of the
person's (or entity's) relationship with the party proposing the matter to
shareholders or any other matter known to the person that would create a
potential conflict of interest.
The Proxy Committee may vary from the predetermined guideline if it
determines that voting on the proposal according to the predetermined guideline
would be expected to impact adversely the current or potential market value of
the issuer's securities or to affect adversely the best interest of the client.
References to the best interest of a client refer to the interest of the client
in terms of the potential economic return on the client's investment. In
determining the vote on any proposal, the Proxy Committee does not consider any
benefit other than benefits to the owner of the securities to be voted.
LAMCO's Proxy Committee is composed of operational and investment
representatives as well as senior representatives of equity investments, equity
research, compliance and legal. During the first quarter of each year, the Proxy
Committee reviews all guidelines and establishes guidelines for expected new
proposals. In addition to these reviews and its other responsibilities described
above, its functions include annual review of its Proxy Voting Policy and
Procedures to ensure consistency with internal policies and regulatory agency
policies, and development and modification of voting guidelines and procedures
as it deems appropriate or necessary.
LAMCO uses Institutional Shareholder Services ("ISS"), a third party
vendor, to implement its proxy voting process. ISS provides proxy analysis,
record keeping services and vote disclosure services. Information regarding how
All-Star voted proxies relating to the portfolio securities after June 30, 2003
is available without charge, upon request, by calling 1-800-241-1850 and on the
SEC website at http://www.sec.gov.
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
Position with Term of Portfolios in
Liberty All- Office and Principal Occupation Fund Complex
Star Equity Length of During Past Five Overseen by
Name, Address and Age Fund Service Years Trustee Other Directorships Held
--------------------- -------------- ------------- -------------------- ------------- -------------------------
Disinterested Trustees
John A. Benning Trustee Trustee since Retired since December, 2 TT International USA
(Age 69) 2002; Term 1999; Senior Vice (investment company); TT
c/o Liberty Asset Management Expires 2006 President, General Counsel Europe Fund (investment
Company and Secretary, Liberty company)
One Financial Center Financial Companies, Inc.
Boston, MA 02111 (July, 1985 to December,
1999); Vice President,
Secretary and Director,
Liberty Asset Management
Company (August, 1985 to
December, 1999)
Number of
Position with Term of Portfolios in
Liberty All- Office and Principal Occupation Fund Complex
Star Equity Length of During Past Five Overseen by
Name, Address and Age Fund Service Years Trustee Other Directorships Held
--------------------- -------------- ------------- -------------------- ------------- -------------------------
James E. Grinnell (Age 74) Trustee Trustee Since Private investor since 2 None
c/o Liberty Asset Management 1986; Term November 1988; President
Company Expires 2005 and Chief Executive Officer,
One Financial Center Distribution Management Systems, Inc.
Boston, MA 02111 (1983 to May 1986); Senior Vice President,
Operations, The Rockport Company
(importer and distributor of shoes)
(May 1986 to November 1988).
Richard W. Lowry (Age 67) Trustee Trustee Since Private Investor since 1987 121 None
c/o Liberty Asset Management 1986; Term (formerly Chairman and Chief
Company Expires 2004 Executive Officer, U.S. Plywood
One Financial Center Corporation (building products
Boston, MA 02111 manufacturer)).
John J. Neuhauser (Age 60) Trustee Trustee Since Academic Vice President and 122 None
c/o Liberty Asset 1998; Term Dean of Faculties since
Management Company Expires August 1999, Boston College
One Financial Center 2004 School of Management from
Boston, MA 02111 September 1977 to September 1999).
Interested Trustee
William E. Mayer* (Age 63) Trustee Trustee Since Managing Partner, Park Avenue 94 Lee Enterprises
c/o Liberty Asset 1998; Term Equity Partners (private equity) (print); WR
Management Company Expires since February 1999 (formerly Hambrecht + Co
One Financial Center 2006 Founding Partner, Development (financial service
Boston, MA 02111 Capital, LLC from November 1996 provider); First
to Feburary 1999). Health (health-
care)
* 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 WR Hambrecht + Co.
Officers
Position with Liberty Year First Elected or Principal Occupation(s)
Name, Address and Age All-Star Equity Fund Appointed to Office During Past Five Years
------------------------------------ ----------------------- ----------------------- -----------------------------
William R. Parmentier, Jr. (Age 51) President, Chief 1998 President (since June 1998) and Chief
Liberty Asset Management Company Executive Officer Investment Officer (since April 1995),
One Financial Center Senior Vice President (May 1995 to
Boston, MA 02111 June 1998), Liberty Asset Management
Company.
Mark T. Haley, CFA Vice President 1999 Vice President-Investments (since
(Age 39) January 1999), Director of Investment
Liberty Asset Management Company Analysis (December 1996 to December
One Financial Center 1998), Investment Analyst (January
Boston, MA 02111 1994 to November 1996), Liberty Asset
Management Company.
Fred H. Wofford (48) Vice President 2003 Director of Funds Operations (since
Liberty Asset Management Company March 2003), Liberty Asset Management
One Financial Center Company (formerly Director Of
Boston, MA 02111 Investment Compliance, Deutche Asset
Managemetn from February 1999 to
March 2003, Manager of Fund
Administration, BankBoston 1784
Funds from November 1995 to February
1999).
J. Kevin Connaughton Treasurer 2000 President of the Columbia Funds since
(Age 39) March 2004; Treasurer of the Columbia
One Financial Center Funds and of the Liberty All-Star
Boston, MA 02111 Funds since December 2000 (formerly
Controller of the Columbia Funds and
of the Liberty All-Star Funds from
February 1998 to October 2000); Vice
President of Columbia Management
Advisors, Inc. since April 2003;
Treasurer of the Galaxy Funds since
September 2002, Treasurer of the
Columbia Management Multi-Strategy
Hedge Fund LLC since December 2002;
(formerly Vice President of Colonial
Management Associates, Inc.from
February 1998 to October 2000;
Senior Tax Manager, Coopers &
Lybrand, LLP from April 1996 to
January 1998).
Vicki L. Benjamin Chief Accounting 2001 Controller of the Columbia Funds and
(Age 42) Officer and Liberty All-Star Funds since
One Financial Center Controller June 2002; Chief Accounting Officer
Boston, MA 02111 of the Columbia Funds and of the
Liberty All-Star Funds since
June 2001; Controller and Chief
Accounting Officer of the Galaxy
Funds since September 2002; (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).
David A. Rozenson Secretary 2003 Secretary of the Columbia Funds and
(Age 49) the Liberty All-Star Funds since
One Financial Center December 2003; Senior Counsel of
Boston, MA 02111 FleetBoston Financial Corporation
since January 1996; Associate
General Counsel of Columbia
Management Group since November 2002.
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. Benning, Grinnell, Lowry and Neuhauser are the current members of
the Audit Committee of the Board of Trustees of All-Star. The Fund's Audit
Committee members for 2003 were MessrsBenning, Grinnell, Lowry and Neuhauser.
The Audit Committee's functions include making recommendations to the Trustees
regarding the selection and performance of the independent auditors, 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, 2003, the Audit
Committee convened four 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, 2003.
Aggregate Dollar Range of Equity Securities
Dollar Range of Equity Owned in All Registered Funds Overseen by
Securities Owned in All-Star Trustee in
Name of Trustee Liberty Family of Funds
---------------------------- -------------------------------- ----------------------------------------------
Disinterested Trustees
John A. Benning [$1-$10,000] [$50,001-100,000]
Robert J. Birnbaum(1) [$10,001-50,000] [$50,001-100,000]
James E. Grinnell [$50,001-$100,000] [Over $100,000]
Richard W. Lowry [$10,001-50,000] [Over $100,000]
John J. Neuhauser [$1-10,000] [Over $100,000]
Interested Trustee
William E. Mayer [$1-10,000] [$50,001-100,000]
(1) Retired from the Board of Trustees/Directors of the Liberty All-Star Funds
effective February 2003.
As of December 31, 2003, 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, 2003 and December 31, 2002, 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, 2003 and December 31, 2002, 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, 2003 and December 31, 2002, 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, 2003 and December 31, 2002, 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 All-Star's Fund Management Agreement and
Portfolio Management Agreements , 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.
The Trustees also 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 one year.
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 Mssrs. Lowry and
Neuhauser will expire upon the final adjournment of the 2004 annual meeting,
unless each is re-elected at that meeting; The term of office of Mr. Grinnell
will expire upon the final adjournment of the 2005 annual meeting; the term of
office of Messrs. Benning and Mayer will expire upon final adjournment of the
annual meeting for the year 2006. Messrs. Lowry, Mayer, and Neuhauser are also
Trustees of the Columbia family of funds (the "Columbia Funds"), which consists
of 132 open-end funds and 15 closed-end management investment company portfolios
(the "Columbia Fund Complex") managed by Columbia Management Advisors, Inc.
All-Star's Board of Trustees are also Directors of Liberty All-Star Growth Fund,
Inc. Another closed-end multi-managed funds managed by LAMCO.
Trustee Compensation
The following table shows, for the year ended December 31, 2003, the
compensation received from All-Star by each current Trustee, and the aggregate
compensation paid to each current Trustee for service on the Board of each of
the two All-Star Funds. All-Star has no bonus, profit sharing or retirement
plans.
Compensation Table
Pension or Total Compensation from
Retirement the Liberty All-Star
Benefits Accrued Estimated Annual Funds (including the Fund)
Aggregate as Part of Fund Benefits Upon
Compensation Expenses Retirement
Name of Director from the Fund
----------------- -------------- -------------------- --------------- -----------------------------
John A. Benning $18,077.25 $0 $0 $23,900.00
Robert J. Birnbaum(1) $4,161.05 $0 $0 $5,500.00
James E. Grinnell $18,077.55 $0 $0 $23,900.00
Richard W. Lowry $18,077.55 $0 $0 $23,900.00
William E. Mayer $18,077.55 $0 $0 $23,900.00
John J. Neuhauser $18,077.55 $0 $0 $23,900.00
(1) Mr. Birnbaum retired from the Boards of Trustees/Directors effective
February 2003.
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 2003, 2002 and 2001, All-Star paid total brokerage commissions of
$2,277,406, $3,048,047 and $1,838,717, respectively. Approximately $628,260 of
the commissions paid in 2003, and $891,552 and $602,531, respectively, of the
commissions paid in 2002 and 2001 on transactions aggregating approximately
$387,264,241, $549,559,432 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 2003, 2002 and 2001 no Fund portfolio transactions
were placed with any Portfolio Manager or its broker-dealer affiliate.
TAXES
The following discussion of federal income tax matters is based on the
advice of Kirkpatrick & Lockhart LLP, counsel to All-Star. All-Star intends to
elect to be treated and to qualify each year as a RIC under the Internal Revenue
Code (the "Code"). Accordingly, All-Star intends to satisfy certain requirements
relating to sources of its income and diversification of its assets and to
distribute substantially all of its net income and net short-term and long-term
capital gains (after reduction by any available capital loss carryforwards) in
accordance with the timing requirements imposed by the Code, so as to maintain
its RIC status and to avoid paying any federal income or excise tax. To the
extent it qualifies for treatment as a RIC and satisfies the above-mentioned
distribution requirements, All-Star will not be subject to federal income tax on
income paid to its shareholders in the form of dividends or capital gain
distributions.
In order to avoid incurring a federal excise tax obligation, the Code
requires that All-Star distribute (or be deemed to have distributed) by December
31 of each calendar year an amount at least equal to the sum of (i) 98% of its
ordinary income for such year and (ii) 98% of its capital gain net income (which
is the excess of its realized net long-term capital gain over its realized net
short-term capital loss), generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, plus 100% of any ordinary income and capital gain net income from
the prior year (as previously computed) that were not paid out during such year
and on which All-Star paid no federal income tax. Under current law, provided
that All-Star qualifies as a RIC for federal income tax purposes, All-Star
should not be liable for any income, corporate excise or franchise tax in the
Commonwealth of Massachusetts.
If All-Star does not qualify as a RIC for any taxable year, All-Star's
taxable income will be subject to corporate income taxes, and all distributions
from earnings and profits, including distributions of net capital gain (if any),
will be taxable to the shareholder as ordinary income. In addition, in order to
requalify for taxation as a RIC, All-Star may be required to recognize
unrealized gains, pay substantial taxes and interest, and make certain
distributions.
All-Star's investments in options, futures contracts, hedging transactions,
forward contracts (to the extent permitted) and certain other transactions will
be subject to special tax rules (including mark-to-market, constructive sale,
straddle, wash sale, short sale and other rules), the effect of which may be to
accelerate income to All-Star, defer Fund losses, cause adjustments in the
holding periods of securities held by All-Star, convert capital gain into
ordinary income and convert short-term capital losses into long-term capital
losses. These rules could therefore affect the amount, timing and character of
distributions to shareholders. All-Star may be required to limit its activities
in options and futures contracts in order to enable it to maintain its RIC
status.
Any loss realized upon the sale or exchange of Fund shares with a holding
period of 6 months or less will be disallowed to the extent of any dividends
received with respect to such shares, and if the loss exceeds the disallowed
amount, will be treated as a long-term capital loss to the extent of any capital
gain distributions received with respect to such shares. In addition, all or a
portion of a loss realized on a disposition of Fund shares may be disallowed
under "wash sale" rules to the extent the shareholder acquires other shares of
All-Star within the period beginning 30 days before the disposition of the loss
shares and ending 30 days after such date. Any disallowed loss will result in an
adjustment to the shareholder's tax basis in some or all of the other shares
acquired.
Dividends and distributions on All-Star's shares are generally subject to
federal income tax as described herein to the extent they do not exceed
All-Star's current year and accumulated earnings and profits, even though such
dividends and distributions may economically represent a return of a particular
shareholder's investment. Such distributions are likely to occur in respect of
shares purchased at a time when All-Star's net asset value reflects gains that
are either unrealized, or realized but not distributed. Such realized gains may
be required to be distributed even when All-Star's net asset value also reflects
unrealized losses. Certain distributions declared in October, November or
December and paid in the following January will be taxed to shareholders as if
received on December 31 of the year in which they were declared, to the extent
they do not exceed current year and accumulated earnings and profits.
Distributions in excess of the funds current year and accumulated earnings and
profits will be treated as a return of capital to the investor and therefore not
taxable as a dividend. In addition, certain other distributions made after the
close of a taxable year of All-Star may be "spilled back" and treated as paid by
All-Star (except for purposes of the 4% excise tax) during such taxable year. In
such case, Shareholders will be treated as having received such dividends in the
taxable year in which the distributions were actually made.
In general, distributions of investment income properly designated by
All-Star as derived from qualified dividend income may be treated as qualified
dividend income by a shareholder taxed as an individual provided the shareholder
meets the holding period and other requirements described above with respect to
his or her shares. Only qualified dividend income received by All-Star after
December 31, 2002 is eligible for pass-through treatment. If the aggregate
qualified dividends received by a fund during any taxable year are 95% or more
of its gross income, then 100% of All-Star's dividends (other than properly
designated capital gain dividends) will be eligible to be treated as qualified
dividend income. For this purpose, the only gain included in the term "gross
income" is the excess of net short-term capital gain over net long-term capital
loss.
Amounts paid by All-Star to individuals and certain other shareholders who
have not provided All-Star with their correct taxpayer identification number
("TIN") and certain certifications required by the Internal Revenue Service (the
"IRS") as well as shareholders with respect to whom All-Star has received
certain information from the IRS or a broker may be subject to "backup"
withholding of federal income tax arising from All-Star's taxable dividends and
other distributions as well as the gross proceeds of sales of shares), at a rate
of up to 30% (declining to 29% in 2004 and to 28% in 2006) for amounts paid
during 2003. An individual's TIN is generally his or her social security number.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a Shareholder may be refunded or
credited against such shareholder's U.S. federal income tax liability, if any,
provided that the required information is furnished to the IRS.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, foreign investors,
insurance companies and financial institutions. Shareholders should consult
their own tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local, and, where applicable,
foreign tax consequences of investing in All-Star.
STATE AND LOCAL TAXES
Shareholders should consult their own tax advisers as the state or local
tax consequences of investing in All-Star.
PRINCIPAL SHAREHOLDERS
On ______,2004, Cede & Co. Fast, Depository Trust Company,
55 Water Street, New York, NY 10004 and Liberty Mutual Insurance Company and
Liberty Mutual Fire Insurance Company, 175 Berkeley Street, Boston, MA 02116,
owned of record ________ and _________ Shares, respectively, representing _____%
and ______%, respectively of All-Star's then outstanding Shares.]
FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, are the independent auditors 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, 2003, is incorporated herein by reference
with respect to all information other than the information set forth on pages 1
through [ 23 ] and [ 41 ] through [ 44 ] 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, 2003,
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 (3)
(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 Pzena Invest-
ment Management, LLC dated 10/15/03, filed herewith
(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 Matrix
Asset Advisors, Inc. dated 2/17/04, filed herewith
(g)(6) Portfolio Management Agreement between Registrant,
Liberty Asset Management Company and Schneider
Capital Management Corporation dated 3/1/02 (3)
(h) Not Applicable
(i) Not Applicable
(j)(1) Form of the Custodian Agreement with State Street
Corporation (formerly known as 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
(j)(2) Appendix A to the Custodian Agreement with
State Street Corporation (formerly known as
State Street Bank and Trust Company - filed
as Exhibit (j)(2) in Part C, Item 24(2) of Post-
Effective Amendment No. 6 to the Registration
Statement of Form N-2 of Columbia Floating Rate
Fund (File Nos. 333-51466 & 811-8953), filed with
the Commission on or about December 17, 2003,
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 (3)
(k)(2) Pricing and Bookkeeping Agreement, as amended*
(k)(3) Form of Subscription Agreement between Registrant
and EquiServe Trust Company, N.A.*
(k)(4) Form of Information Agent Agreement between
Registrant and The Altman Group, Inc.*
(l) Opinion and Consent of Counsel*
(m) Not Applicable
(n) Consent of Independent Auditors*
(o) Not Applicable
(p) Not Applicable
(q) Not Applicable
(r) Code of Ethics - filed in Part C, Item 24(2) of
Post-Effective Amendment No. 6 to the Registration
Statement on Form N-2 of Columbia Floating Rate
Fund (File Nos. 333-51466 & 811-8953), filed with
the Commission on or about December 17, 2003, and
is hereby incorporated and made a part of this
Registration Statement
-------------------------------------------------------------------------------
Power of Attorney for: John A. Benning, James E. Grinnell, Richard W. Lowry,
William E. Mayer and John J. Neuhauser
---------------------------------------------------------------------------
*To be filed by Amendment.
(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.
(3) Incorporated by reference to the Registration Statement on Form N-2
filed with the Commission on March 28, 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 $ 17,000
New York Stock Exchange listing fee 13,000
Printing 25,000
Accounting fees and expenses 5,000
Legal fees and expenses 50,000
Information Agent fees and expenses 85,000
Subscription Agent fees and expenses 100,000
Miscellaneous 40,000
----------
Total $335,000
==========
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 3/1/04: 5,935
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, Columbia Management Advisors, Inc.
(Columbia), 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
Equity Fund, 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.
Information regarding the business of Liberty Asset Management
Company and its officers and directors is set forth in the
Prospectus and in the Statement of Additional Information and is
incorporated herein by reference.
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 8th day of March,
2004.
LIBERTY ALL-STAR EQUITY FUND
/s/ WILLIAM R. PARMENTIER, JR.
By: ------------------------------
/s/ William R. Parmentier, Jr.
President
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 8, 2004
----------------------------- executive officer)
/s/William R. Parmentier, Jr.
/s/J. KEVIN CONNAUGHTON Treasurer March 8, 2004
----------------------- (principal financial officer)
/s/J. Kevin Connaughton
/s/ VICKI L. BENJAMIN Chief Accounting Officer March 8, 2004
--------------------- and Controller
(principal accounting officer)
/s/Vicki L. Benjamin
/S/JOHN A. BENNING* Trustee
------------------
Robert R. Birnbaum
/S/JAMES E. GRINNELL* Trustee
---------------------
James E. Grinnell
/S/RICHARD W. LOWRY* Trustee */s/ HEIDI HOEFLER
----------------- ----------------------
Richard W. Lowry Heidi Hoefler
Attorney-in-fact
For each Trustee
March 8, 2004
/S/WILLIAM E. MAYER* Trustee
-----------------
William E. Mayer
/S/JOHN J. NEUHAUSER* Trustee
------------------
John J. Neuhauser
INDEX OF EXHIBITS FILED WITH THIS AMENDMENT
Exhibit
Number Exhibit
-------- --------------------------------------------------
(g)(2) Portfolio Management Agreement between Registrant,
Liberty Asset Management Company and Pzena Invest-
ment Management, LLC dated 10/15/03
(g)(5) Portfolio Management Agreement between Registrant,
Liberty Asset Management Company and Matrix
Asset Advisors, Inc. dated 2/17/04