Securities Act of 1933 File No. 333-46741
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 |X|
PRE-EFFECTIVE AMENDMENT NO. 1 |X|
POST-EFFECTIVE AMENDMENT NO. |_|
and/or
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 |_|
AMENDMENT NO. |_|
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LIBERTY ALL-STAR EQUITY FUND
(Exact Name of Registrant as Specified in Declaration of Trust)
Federal Reserve Plaza, Boston, Massachusetts 02210
(Address of Principal Executive Offices)
617-722-6000
(Registrant's Telephone Number, Including Area Code)
John L. Davenport, Esq.
Vice President and Associate General Counsel
Liberty Financial Companies, Inc.
Federal Reserve Plaza
Boston, MA 02210
(Name and Address of Agent for Service)
- ------------------------------------------------------------------
With copy to:
Jeremiah J. Bresnahan, Esq.
Bingham, Dana & Gould
150 Federal Street, 24th Floor
Boston, MA 02110
Approximate Date of Proposed Offering:
As soon as practicable after the effective date of this Registration
Statement.If any securities being registered on this form will be 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 for the following box. |X|
LIBERTY ALL-STAR EQUITY FUND
REGISTRATION STATEMENT ON FORM N-2
CROSS REFERENCE SHEET
Item Number and Heading
- -----------------------
Part A Caption in Prospectus
- ------ ----------------------
1. Outside Front Cover Cover Page
2. Inside Front and Outside Back Cover
Page Cover Page
3. Fee Table and Synopsis Expenses; Prospectus Summary
4. Financial Highlights Financial Highlights
5. Plan of Distribution The Offer
6. Selling Shareholders *
7. Use of Proceeds Use of Proceeds
8. General Description of Registrant General; Cover Page; The Multi-
Manager Concept; Investment
Objective and Policies;
Description of Shares -
Share Price Data
9. Management ALL-STAR; Appendix A
10. Capital Stock, Long-Term Debt, and Description of Shares;
Other Securities Distributions; Automatic
Reinvestment and Cash Purchase
Plan; Tax Status
11. Defaults and Arrears on Senior *
Securities
12. Legal Proceedings *
13. Table of Contents of the Statement of Statement of Additional Information
Additional Information
Part B
- ------ Caption in Statement
of Additional Information
--------------------------
14. Cover Page Cover Page
15. Table of Contents Table of Contents
16. General Information
and History *
17. Investment Objective and
Policies Investment Objective and Policies
18. Management Trustees and Officers of ALL-STAR
19. Control Persons and
Principal Holders Principal Shareholders
of Securities
Caption in Statement
Part B of Additional Information
-------------------------
20. Investment Advisory and
Other Services Investment Advisory and Other Services
21. Brokerage Allocation and
Other Practices Portfolio Security Transactions
22. Tax Status (See "Tax Status" in Prospectus)
23. Financial Statements Financial Statements
- ----------------
* Not applicable
[Preliminary]
PROSPECTUS
[Logo]
4,318,134 Shares of Beneficial Interest
Issuable Upon Exercise of Rights
to Subscribe for such Shares
LIBERTY ALL-STAR EQUITY FUND
Liberty All-Star Equity Fund ("All-Star") is offering to its shareholders
of record as of the close of business on March 20, 1998 rights ("Rights")
entitling the holders thereof to subscribe for an aggregate of 4,318,134 shares
of beneficial interest of All-Star (the "Shares") at the rate of one share for
each twenty Rights held (the "Offer"), and entitling such shareholders to
subscribe, subject to certain limitations and subject to allotment, for any
shares not acquired by exercise of primary subscription Rights. 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 WILL BE 95% OF THE
LOWER OF (i) THE LAST REPORTED SALE PRICE ON THE NEW YORK STOCK EXCHANGE ON
APRIL , 1998 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 TIME, ON APRIL , 1998 (the
"Expiration Date"). SINCE THE CLOSE OF THE OFFERING ON THE EXPIRATION DATE IS
PRIOR TO THE PRICING DATE, SHAREHOLDERS WHO CHOOSE TO EXERCISE THEIR RIGHTS WILL
NOT KNOW THE SUBSCRIPTION PRICE PER SHARE AT THE TIME THEY EXERCISE SUCH RIGHTS.
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)
having different investment styles recommended and monitored by Liberty Asset
Management Company, All-Star's fund manager. All-Star's investment objective is
to seek total investment return, comprised of long term capital appreciation and
current income, through investment primarily in a diversified portfolio of
equity securities.
The address of All-Star is Federal Reserve Plaza, Boston, Massachusetts
02210 and its telephone number is 1-800-542-3863. All-Star's shares are listed
on the New York Stock Exchange under the symbol "USA".
All-Star announced the terms of the Offer before the opening of trading on
the New York Stock Exchange on December 19, 1997. The net asset value per share
of beneficial interest of All-Star at the close of business on December 18, 1997
and March , 1998 was $13.35 and $________, respectively, and the last reported
sale price of a share on such Exchange on those dates was $13.3125 and $_______,
respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
===============================================================================
Subscription Proceeds to
Price (1) Sales Load All-Star(2)
- -------------------------------------------------------------------------------
Per Share...$___________ NONE $__________
- -------------------------------------------------------------------------------
Total.......$___________ NONE $__________
===============================================================================
(1) Estimated based on an assumed Subscription Price of 95% of the [last
reported sale price on the New York Stock Exchange] [net asset value per share]
on March , 1998.
(2) Before deduction of expenses payable by All-Star,
estimated at $220,000.
---------------------------
As a result of the terms of the Offer, shareholders who do not exercise
their Rights will, upon completion of the Offer, own a smaller proportional
interest in All-Star. In addition, because the Subscription Price per share will
be less than the then current net asset value per share, the Offer will result
in some dilution of the aggregate net asset value of the shares owned by
shareholders who do not fully exercise their Rights.
-----------------------------
This Prospectus sets forth concisely the information
that a shareholder ought to know before exercising his
or her Rights and should be retained for future
reference. A Statement of Additional Information dated
March , 1998 has been filed with the Securities and
Exchange Commission and is incorporated herein by reference.
The table of contents of the Statement of Additional
Information appears on page ___ of this Prospectus, and a
copy is available at no charge by calling or writing All-Star
at 600 Atlantic Avenue,
Boston, Massachusetts 02210 (1-800-542-3863)
-------------------------------
The date of this Prospectus
is March , 1998
[End of Cover]
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.
Sales load None(1)
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 common shares)
- ---------------
Management and administrative fees 0.89%
Other Expenses 0.11%
Total Annual Expenses 1.00%
Example: You would pay the following expenses on an
investment (at net asset value) of $1,000, assuming a 5% annual return.
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
$10 $32 $55 $122
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, 1997,
adjusted to reflect current fees, and on its projected net assets assuming the
offer is fully subscribed for at an assumed Subscription Price of $ per share,
and are shown as a percentage of net assets.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus.
Purpose of the Offer
The Board of Trustees 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. The Offer seeks to reward investors in All-Star by giving
existing shareholders the opportunity to purchase additional Shares at a price
below market value and without brokerage commissions. See "The Offer-Purpose of
the Offer".
Terms of the Offer
Liberty All-Star Equity Fund ("All-Star") is issuing to its shareholders of
record as of the close of business on March 20, 1998 (the "Record Date") rights
("Rights") to subscribe for an aggregate of 4,318,134 shares (sometimes referred
to herein as the "Shares") of beneficial interest in All-Star. Each such
shareholder is being issued one Right for each full share of beneficial interest
owned on the Record Date. The Rights entitle the holder to acquire, at the
Subscription Price (as hereinafter defined), one Share for each twenty Rights
held. Rights may be exercised at any time during the period (the "Subscription
Period") which commences on the date of this Prospectus and ends at 5:00 p.m.,
New York time, on April , 1998 (the "Expiration Date"). The right to acquire
during the Subscription Period at the Subscription Price one additional Share
for each twenty Rights held is hereinafter referred to as the "Primary
Subscription."
In addition, any shareholder who fully exercises all Rights issued to him
or her (other than those Rights which cannot be exercised because they represent
the right to acquire less than one Share) is entitled to subscribe for Shares
which were not otherwise subscribed for by others on Primary Subscription (the
"Over-Subscription Privilege"). For purposes of determining the 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 holder
of the Rights that are issued to Cede or such other depository or nominee.
Shares acquired pursuant to the Over-Subscription Privilege are subject to
allotment, which is more fully discussed under "The Offer--Over-Subscription
Privilege."
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
April , 1998 (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. Since
the Expiration Date is prior to the Pricing Date, shareholders who choose to
exercise their Rights will not know at the time they exercise such Rights what
the purchase price for Shares acquired pursuant to such exercise will be.
Shareholders will have no right to rescind their subscription after receipt of
their payment for Shares by the Subscription Agent. Subscription payments will
be held by the Subscription Agent pending completion of the processing of the
subscription. No interest thereon will be paid to subscribers.
The Rights are not transferable. Therefore, only the underlying Shares, and
not the Rights, will be admitted for trading on the New York Stock Exchange.
Since fractional shares will not be issued on exercise of Rights, shareholders
who receive, or are left with, fewer than 20 Rights will be unable to exercise
such Rights and will not be entitled to receive any cash in lieu of fractional
shares.
Shareholders' inquiries about the Offer should be directed to:
Liberty All-Star Equity Fund
1-800-542-3863
Important Dates to Remember
Event Date
- ----- ----
Record Date........... March 20, 1998
Subscription
Period.............. March , 1998 through
April , 1998
Expiration of
the Offer........... April , 1998
Pricing Date.......... April , 1998
Confirmation .........
to Participants..... May , 1998
Final Payment for
Shares May , 1998
Information about All-Star
All-Star is a multi-managed diversified closed-end management investment
company 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, through investment primarily
(at least 65% of total assets under normal conditions) in a diversified
portfolio of equity securities. The portion of All-Star's portfolio not invested
in equity securities (not more than 35% of total assets under normal conditions)
is invested in Short-Term Money Market Instruments. See "Investment Objective
and Policies".
All-Star commenced investment operations in November 1986. Its outstanding
shares of beneficial interest are listed and traded on the New York Stock
Exchange (Symbol USA). The average weekly trading volume of the shares on the
New York Exchange during the year ended December 31, 1997 was 109,226 shares. As
at March , 1998 All-Star's net assets were $___________ and 86,362,669 shares of
All-Star were issued and outstanding.
Information about the Fund Manager
Liberty Asset Management Company (the "Fund Manager") provides Portfolio
Manager 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 the Fund Manager's affiliate, Colonial Management
Associates, Inc. ("Colonial"). All-Star pays the Fund Manager a monthly fund
management fee at an annual rate of 0.80% of All-Star's average weekly net asset
value up to $400 million, 0.72% of such net asset value exceeding $400 million
up to $800 million, 0.648% of such net asset value exceeding $800 million up to
$1.2 billion, and 0.584% of such net asset value over $1.2 billion. From such
amounts the Fund Manager pays the Portfolio Managers a portfolio management fee
at 50% of the above rates in proportion to the portions of All-Star's investment
portfolio managed by them. All-Star also pays the Fund Manager a monthly
administration fee at an annual rate of 0.20% of its average weekly net asset
value up to $400 million, 0.18% of such net asset value exceeding $400 million
up to $800 million, 0.162% of such net asset value exceeding $800 million up to
$1.2 billion, and 0.146% of such net asset value over $1.2 billion. Since the
fees of the Fund Manager and the Portfolio Managers are based on the average
weekly net assets of All-Star, the Fund Manager and the Portfolio Managers will
benefit from the Offer.
The Fund Manager, organized in 1985, is an indirect wholly-owned subsidiary
of Liberty Financial Companies, Inc. Approximately 75% of the outstanding shares
common stock of Liberty Financial Companies, Inc. are owned by Liberty Mutual
Insurance Company, and the remaining shares are listed on the New York Stock
Exchange.
Special Considerations and Risk Factors
The following summarizes certain matters that should be considered, among
others, in connection with the Offer.
Dilution............. As a result of the terms of the
Offer, 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
All-Star than if they fully
exercise their Rights. In
addition, some dilution of the
aggregate net asset value of the
shares owned by shareholders who do
not fully exercise their Rights
will be experienced as a result of
the Offer because the Subscription
Price will be less than the net
asset value per share and therefore
the number of shares outstanding
after the Offer will increase by a
greater percentage than the
increase in All-Star's assets.
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
discount from their net asset value
of .82% (the average discount for
the three month period ended
February 28, 1998), and assuming
all Rights are exercised, the
Subscription Price would be 5.82%
below All-Star's net asset value
per share, resulting in a reduction
of such net asset value of
approximately $.05 per share, or
less than 0.37%.
Anti-takeover
Provisions........... All-Star's Declaration of
Trust has 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 or to cause it to engage
in certain transactions. For
instance, the vote of the holders
of 75% of the outstanding shares 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 Investment Company Act of
1940 (the "1940 Act"). Certain
merger, sale of assets or similar
transactions with persons owning
five percent or more of All-Star's
shares, unless approved by
All-Star's Board of Trustees, would
require a similar 75% vote. 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--Certain
Provisions of the Declaration of
Trust."
Distributions..........All-Star currently has a policy of paying distributions
on its common shares totalling approximately 10% of its
net asset value per year, payable in four quarterly
distributions of 2.5% of All-Star's net asset value at
the close of the New York Stock Exchange on the Friday
prior to each quarterly declaration date. 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 generally
be treated as a tax-free return of capital to
shareholders (up to the amount of the shareholder's basis
in his or her shares), and thereafter as gain from the
sale of shares. All-Star made distributions from capital
in 1987, 1988, 1989, 1990, 1992, 1993 and 1994 (see
"Financial Highlights"). 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 sale of his or her shares. Such excess, however, will
be treated first as ordinary dividend income up to the
amount of All-Star's current and accumulated earnings and
profits, and then as return of capital and capital gain
as set forth above.
All-Star may, in the
discretion of the Board of Trustees, retain for
reinvestment net long-term capital gains in excess of net
short-term capital losses for any year to the extent that
its net investment income, net short-term realized gains,
and net long-term realized gains exceed the minimum
amount required to be distributed for such year under the
10% pay-out policy. Such retained capital gains will be
taxed to both All-Star and the shareholders as long-term
capital gains; however shareholders will be able to claim
their proportionate share of the federal income taxes
paid by All-Star as a credit against their own federal
income tax liabilities, and will be entitled to increase
the adjusted tax basis of their All-Star shares by the
difference between their pro rata share of the
undistributed capital gains and their tax credit. See
"Distributions; Automatic Dividend Reinvestment and Cash
Purchase Plan".
Closed-end fund
discounts............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."
FINANCIAL HIGHLIGHTS
The following information as to per share operating performance, total
investment return and ratios for each of the ten years ended December 31, 1997
has been audited by KPMG Peat Marwick LLP, Boston, Massachusetts, independent
auditors. The report of KPMG Peat Marwick LLP, together with the financial
statements of All-Star, are included in the Statement of Additional Information
(see cover page).
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---------------------------------------------------------------------
PER SHARE
OPERATING
PERFORMANCE:
Net asset
value
at beginning
of year $11.95 $11.03 $9.26 $10.40 $10.78 $11.20 $8.92 $9.58 $8.29 $7.90
------ ----- ----- ------ ----- ------ ----- ----- ----- -----
Income from Investment Operations:
Net
investment
income 0.05 0.08 0.10 0.11 0.12 0.16 0.17 0.18 0.19 0.16
Net
realized
and
unrealize
gain
(loss)
on
investments 3.01(a) 2.15(a) 2.71 (0.20) 0.78(a) 0.54 3.13 0.06 2.05 0.87
Provision
for federal
income
tax (0.36)(0.13) _____ ____ (0.18)_____ ______ ______ _____ _____
Total
from
Investment 2.70 2.10 2.81 (0.09) 0.72 0.70 3.30 0.24 2.24 1.03
Operation---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Less Distributions:
Dividends
from
net
investment
income (0.05) (0.08) (0.10) (0.12)(0.12) (0.18) (0.15)(0.20)(0.20)(0.16)
Distributions
from realized
capital
gains (1.28) (1.10) (0.94) (0.52)(0.58)(0.66) (0.87) (0.47) (0.31) ____
Returns
of capital _____ ______ _____ (0.36)(0.37)(0.23) ______ (0.23) (0.44) (0.48)
Total
Distributions (1.33)(1.18) (1.04) (1.00)(1.07) (1.07)(1.02)(0.90) (0.95) (0.64)
Change due to
rights
offerings(b)____ _____ _____ (0.05)(0.03) (0.05) ____ _____ _____ ______
Net asset value
at end
of year $13.32 $11.95 $11.03 $9.26 $10.40 $10.78 $11.20 $8.92 $9.58 $8.29
====== ====== ====== ===== ====== ====== ====== ===== ==== ======
Per share
market
value
at end
of year
$13.313 $11.250 $10.875 $8.500 $11.125 $11.125 $10.750 $7.750 $8.250 $7.250
====== ======= ======= ====== ======= ======= ======= ====== ====== ======
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS:(C)
Based on
net
asset
value 26.6% 21.7% 31.8% (0.08%) 8.8% 6.9% 39.3% 4.2% 30.0% 14.6%
Based on
market
price 34.4% 16.2% 41.4% (14.9%) 12.7% 14.9% 53.9% 5.1% 28.0% 32.0%
RATIOS AND SUPPLEMENTAL DATA:
Net
assets
at end
of year
(millions)$1,150 $988 $872 $710 $725 $665 $601 $479 $514 $445
Ratio of
expenses
to
average
net
assets 1.01% 1.03% 1.06% 1.07 1.08% 1.44% 1.16% 1.23% 1.25% 1.33%
Ratio of
net
investment
income
to
average
net
assets 0.38% 0.73% 0.92% 1.16% 1.08% 1.44% 1.66% 1.98% 2.07 % 1.96%
Portfolio
turnover
rate 99% 70% 54% 44% 72% 57% 72% 68% 70% 73%
Average
commission
rate(d) $0.0502 $0.0537 -- --- --- -- -- -- -- ---
(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) Calculated assuming all distributions reinvested and
all rights exercised.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
SHARE PRICE DATA
Trading in All-Star's shares on the New York Stock Exchange commenced on
October 24, 1986. For the two years ended December 31, 1997 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:
============================================================
(Dis- (Dis-
count count
from) from)
or or
Premium Premium
High Net to Net Low Net to Net
Sales Asset Asset Sales Asset Asset
Price Value Value Price Value Value
============================================================
1996
============================================================
- ------------------------------------------------------------
1st $11.500 $11.42 0.70% $10.500 $10.63 (1.22)%
Quarter
- ------------------------------------------------------------
2nd $11.625 $11.56 0.56% $10.625 $11.47 (7.37)%
Quarter
- ------------------------------------------------------------
3rd $11.125 $11.51 (3.34)% $9.500 $10.64 (10.71)%
Quarter
- ------------------------------------------------------------
4th $11.625 $12.37 (6.02)% $10.875 $11.82 (7.99)%
Quarter
============================================================
1997
============================================================
1st $12.125 $11.98 1.21% $11.125 $11.86 (6.20)%
Quarter
- ------------------------------------------------------------
2nd $13.000 $13.31 (2.33)% $11.500 $11.66 (1.37)%
Quarter
- ------------------------------------------------------------
3rd $14.250 $14.01 1.71% $12.875 $13.80 (6.70)%
Quarter
- ------------------------------------------------------------
4th $14.750 $14.34 2.86% $11.750 $13.59 (13.54)%
Quarter
=============================================================
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 and, for some periods, to cause its shares to trade at a premium over net
asset value, although All-Star is not able to determine what effect, if any,
these various features and steps may have had. All-Star's current 10%
distribution policy (see "Distributions; Automatic Dividend Reinvestment and
Cash Purchase Plan-10% Distribution Policy" below), begun in July, 1988, may
have contributed to this effect. This trend may also have resulted in whole or
in part from other factors, such as the Fund's investment performance and
increased attention directed to All-Star by securities analysts and market
letters.
The net asset value of a share of All-Star on March , 1998 was $__________.
The last reported sale price of and All-Star share on that day was $___________,
representing a [premium to][discount from] net asset value of ____%
INVESTMENT PERFORMANCE
The table below shows two measures of All-Star's return to investors for
various periods beginning December 31, 1987 through December 31, 1997. No. 1
("All-Star NAV") shows All-Star's investment performance based on a valuation of
its shares at net asset value ("NAV"). No. 2 ("All-Star Price") shows All-Star's
investment performance based on the market price of All-Star's shares. Both
measures assume reinvestment of all of the Fund's dividends and distributions in
additional shares pursuant to All-Star's Automatic Dividend Reinvestment and
Cash Purchase Plan (see "Distributions; Automatic Dividend Reinvestment and Cash
Purchase Plan" below), and full exercise of primary subscription rights in
All-Star's 1992, 1993 and 1994 rights offerings.
The Lipper Growth and Income Fund Average has been included so that the
Fund's results may be compared with an unweighted average of the total return of
mutual funds classified as growth and income funds (i.e. mutual funds having
investment objectives and policies comparable to All-Star) published by Lipper
Analytical Services, Inc. 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 information reflects the total return (change in the
market price) of the securities included in the index, and the Lipper Growth and
Income Fund Average information reflects the total return (change in net asset
value) of the mutual funds included in the average, in each case assuming
reinvestment of dividends and distributions.
- -------------------------------------------------------------
Lipper
All-Star Growth &
All-Star Price Income S&P 500
NAV Fund Index
Average
-----------------------------------------------
-----------------------------------------------
1 Year Since
12/31/96 26.6% 34.4% 27.1% 33.4%
- -------------------------------------------------------------
- -------------------------------------------------------------
2 Years
Since 24.2% 25.0% 23.9% 28.1%
12/31/95
- -------------------------------------------------------------
- -------------------------------------------------------------
3 Years
Since 26.6% 30.2% 26.1% 31.1%
12/31/94
- -------------------------------------------------------------
- -------------------------------------------------------------
4 Years
Since 19.1% 17.1% 18.6% 22.9%
12/31/93
- -------------------------------------------------------------
- -------------------------------------------------------------
5 Years
Since 17.0% 16.2% 17.1% 20.2%
12/31/92
- -------------------------------------------------------------
- -------------------------------------------------------------
6 Years
Since 15.2% 16.0% 15.6% 18.0%
12/31/91
- -------------------------------------------------------------
- -------------------------------------------------------------
7 Years
Since 18.4% 20.8% 17.4% 19.7%
12/31/90
- -------------------------------------------------------------
- -------------------------------------------------------------
8 Years
Since 16.5% 18.7% 14.4% 16.6%
12/31/89
- -------------------------------------------------------------
- -------------------------------------------------------------
9 Years
Since 18.0% 19.7% 15.3% 18.2%
12/31/88
- -------------------------------------------------------------
- -------------------------------------------------------------
10 Years
Since 17.6% 20.9% 15.2% 18.0%
12/31/87
- -------------------------------------------------------------
- -----------------
The return shown is the average annual return for the period indicated to
December 31, 1997.
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 the holders of its shares of beneficial interest of
record on the Record Date non-transferable Rights to subscribe for the Shares.
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 twenty Rights
held. No Rights will be issued for fractional shares. Rights may be exercised at
any time during the Subscription Period, which commences on the date of this
Prospectus and ends at 5:00 p.m., New York time, on April , 1998 (the
"Expiration Date").
In addition, any shareholder who fully exercises all Rights initially
issued to him or her in the Primary Subscription (other than those Rights which
cannot be exercised because they represent the right to acquire less than one
Share) is entitled to subscribe for Shares which were not otherwise subscribed
for by others on Primary Subscription. For purposes of determining the number of
Shares a shareholder may acquire pursuant to the Offer, broker-dealers whose
shares are held of record on the Record Date by Cede or by any other depository
or nominee will be deemed to be the holders of the Rights that are issued to
Cede or such other depository or nominee on their behalf. Shares acquired
pursuant to the Over-Subscription Privilege are subject to allotment, which is
more fully discussed below under "Over-Subscription Privilege."
The Rights are not transferable. Therefore, only the underlying Shares, and
not the Rights, will be admitted for trading on the New York Stock Exchange.
Since fractional shares will not be issued, shareholders who receive, or who are
left with, fewer than twenty Rights will be unable to exercise such Rights and
will not be entitled to receive any cash in lieu of such fractional shares.
The Rights will be evidenced by Subscription Certificates which will be
mailed to Record Date shareholders. Rights may be exercised by completing a
Subscription Certificate and delivering it, together with payment by means of
(i) a check or money order, or (ii) Notice of Guaranteed Delivery, to the
Subscription Agent during the Subscription Period. The method by which Rights
may be exercised and the Shares paid for is set forth below under "Method of
Exercise of Rights" and "Payment for Shares".
Purpose of the Offer
The Board of Trustees of All-Star has determined that it would be in the
best interests of All-Star and its shareholders to increase the assets of
All-Star available for investment, and that the potential benefits of the Offer
to All-Star and its shareholders will outweigh the dilution to shareholders who
do not fully exercise their rights. The proceeds of the Offer will enable
All-Star's Portfolio Managers to take advantage of perceived investment
opportunities without having to sell existing portfolio holdings which they
otherwise would retain. The Offer seeks to reward investors by giving existing
shareholders the opportunity to purchase additional Shares at a price below
market 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 the Fund
Manager, and therefore could benefit indirectly from the Offer. The other three
Trustees are not "interested persons" of All-Star or the Fund Manager.
All-Star may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms which may or may not be similar to the Offer. Any such future rights
offering will be made in accordance with the 1940 Act. In 1992, All-Star
completed a rights offering to shareholders of 5,464,168 additional shares at a
subscription price of $10.05 per share, for proceeds to the Fund after expenses
of $54,683,782. In 1993, All-Star completed a second rights offering to
shareholders of 4,227,570 additional shares at a subscription price of $10.41
per share, for proceeds to the Fund after expenses of $43,759,004. In 1994,
All-Star completed a third rights offering to shareholders of 4,704,931
additional shares at a subscription price of $9.14 per share, for proceeds to
the Fund after expenses of $42,793,069. All three rights offerings were fully
subscribed.
Over-Subscription Privilege
If some shareholders do not exercise all of their Rights initially issued
to them in the Primary Subscription, the remaining unsubscribed Shares ("Excess
Shares") will be offered, by means of the Over-Subscription Privilege, to
holders of Rights who have exercised all the Rights initially issued to them and
who wish to acquire more than the number of Shares to which their Rights entitle
them. Holders of Rights who exercise all their Rights initially issued to them
(other than those Rights which cannot be exercised because they represent the
right to acquire less than one Share) will have the opportunity to indicate on
their Subscription Certificate how many Shares they are willing to acquire
pursuant to this Over-Subscription privilege. If there are sufficient Excess
Shares, all over-subscriptions will be honored in full. If the Excess Shares are
insufficient to honor all over-subscriptions, the available Excess Shares will
be allocated (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 by them on the Record Date; provided, however,
that if such pro rata allocation results in any holder being allocated a greater
number of Excess Shares than such holder subscribed for pursuant to the exercise
of such holder's Over-Subscription Privilege, then such holder will be allocated
only such number of Excess Shares as such holder subscribed for and the
remaining Excess Shares will be allocated among all other holders exercising
Over-Subscription Privileges. The formula to be used in allocating the Excess
Shares is as follows:
Holder's Record Date Position
-----------------------------
Total Record Date Position x Excess Shares
of all Oversubscribers Remaining
The allocation process may involve a series of allocations in order to
assure that the total number of share available for Over-Subscription is
distributed on a pro rata basis. The Fund will not offer or sell any Shares
which are not subscribed for under the Primary Subscription or the
Over-Subscription Privilege.
The Subscription Price
The Subscription Price for the Shares to be issued pursuant to the Rights
will be 95% of the lower of (i) the last reported sale price of a share of
beneficial interest of All-Star on the New York Stock Exchange on April , 1998
(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 New York Stock Exchange on December 19, 1997. The net asset value per share
of All-Star at the close of business on December 18, 1997 and on March , 1998
was $13.35 and $_________, respectively, and the last reported sale price of a
share on such Exchange on those dates was $13.3125 and $_________, respectively.
Expiration of the Offer
The Offer will expire at 5:00 p.m., New York time, on April , 1998 (the
"Expiration Date"). Rights will expire on the Expiration Date and thereafter may
not be exercised, unless the Offer is extended. Since the Expiration Date is
prior to the Pricing Date, shareholders who decide to acquire Shares on Primary
Subscription or pursuant to the Over-Subscription Privilege will not know, when
they make such decision, what the purchase price for such Shares will be.
Any extension, termination, or amendment of the Offer will be followed as
promptly as practical 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 New Service or such other means of announcement as the
Fund deems appropriate.
Subscription Agent
The Subscription Agent is State Street Bank and Trust Company, P.O. Box
8200, Boston, Massachusetts 02266-8200. State Street Bank and Trust Company is
also the Fund's dividend paying agent, transfer agent and registrar. The
Subscription Agent will receive from All-Star a fee estimated to be
$____________ and reimbursement for its out-of-pocket expenses related to the
Offer. Inquiries by all holders of Rights should be directed to P.O. Box 9061,
Boston, Massachusetts 02205-8686 (telephone 1-800-542-3863); holders may also
consult their brokers or nominees.
Method of Exercise of Rights
Rights may be exercised by filling in and signing the Subscription
Certificate and mailing it in the envelope provided, or otherwise delivering the
completed and signed Subscription Certificate to the Subscription Agent,
together with payment for the Shares as described below under "Payment for
Shares." Rights may also be exercised through a Rights holder's broker, who may
charge such Rights holder a servicing fee in connection with such exercise.
Fractional Shares will not be issued, and Rights holders who receive, or who are
left with, fewer than twenty 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 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 STATE STREET
BANK AND TRUST COMPANY by one of the following methods:
Subscription Certificate
Delivery Method Address/Number
- ------------------------ ---------------------------
By Mail State Street Bank and Trust Company
Corporate Reorganization
P.O. Box 9061
Boston, MA 02205-8686
By Hand State Street Bank and Trust Company
225 Franklin Street, Concourse Level
New York, New York 10006
or
Securities Transfer and Reporting
Services
One Exchange Place
55 Broadway, Concourse Level
New York, New York 10006
By Overnight Courier State Street Bank and Trust Company
or Express Mail Corporate Reorganization Department
70 Campanelli Drive
Braintree, MA 02184
By Broker-Dealer or Shareholders whose Shares are held in
other Nominee a brokerage, bank or trust account
(Notice of Guaranteed may contact their broker or other
Delivery) 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) If, prior to 5:00 p.m., New York 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 New York Stock
Exchange 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
will be accepted by the Subscription Agent. The Subscription Agent will not
honor a notice of guaranteed delivery if a properly completed and executed
Subscription Certificate is not received by the Subscription Agent by the
close of business on the third business day after the Expiration Date and
full payment for the Shares is not received by it by the close of business
on the __th business day after the Confirmation Date (as defined below).
(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 an estimated
purchase price of $___ per Share. To be accepted, such payment, together
with the Subscription Certificate, must be received by the Subscription
Agent prior to 5:00 p.m., New York time, on the Expiration Date.
A PAYMENT BY CHECK OR MONEY ORDER, PURSUANT TO THE SECOND METHOD DESCRIBED
ABOVE, MUST ACCOMPANY ANY SUBSCRIPTION CERTIFICATE FOR SUCH EXERCISE TO BE
ACCEPTED. The check or money order must be drawn on a bank located in the United
States and must be made payable to Liberty All-Star Equity Fund.
Within ____ business days following the Pricing 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 time, on the
__th business day after the Confirmation Date, and any excess payment to be
refunded by All-Star to such shareholder will be mailed by the Subscription
Agent no later than __ business days after the Expiration Date. All payments by
a shareholder must be in United States dollars by money order or check drawn on
a bank located in the United States of America and be payable to Liberty
All-Star Equity Fund. Such payments will be held by the Subscription Agenda
pending completion of the processing of the subscription, and will then be paid
to All-Star. Any interest earned on such amounts will accrue to All-Star and
none will be paid to the subscriber.
Whichever of the above two methods of payment is used, issuance and
delivery of the Shares subscribed for are subject to collection of checks and
actual payment pursuant to any notice of guaranteed delivery.
Rights holders will have no right to rescind their subscription after
receipt of their payment for Shares by the Subscription Agent.
If a holder of Rights who acquires Shares pursuant to the Primary
Subscription or the Over-Subscription Privilege does not make payment of any
amounts due, All-Star reserves the right to take any or all of the following
actions: (i) find other purchasers for such subscribed and unpaid for Shares;
(ii) apply any payment actually received by it toward the purchase of the
greatest number of whole Shares which could be acquired by such holder upon
exercise of the Primary Subscription or the Over-Subscription Privilege; (iii)
sell in the open market all or a portion of the Shares purchased by the holder,
and apply the proceeds to the amounts owed; and (iv) exercise any and all other
rights or remedies to which it may be entitled, including, without limitation,
the right to set off against payments actually received by it with respect to
such subscribed Shares to enforce the relevant guaranty of payment or monetary
damages.
All-Star shareholders whose shares are held by a broker-dealer, bank, trust
company or other nominee should contact the nominee to exercise their Rights and
request the nominee to exercise their Rights in accordance with their
instructions.
Brokers, banks, trust companies, depositories and other nominees who hold
All-Star shares for the account of others should notify the respective
beneficial owners of such shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to
exercising the Rights. If the beneficial owner so instructs, the record holder
of such Right should complete Subscription Certificates and submit them to the
Subscription Agent with the proper payment.
The instructions accompanying the Subscription Certificate should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO
All-Star. (They should be sent to State Street Bank and Trust Company as
indicated above).
Delivery of Share Certificates
Participants in All-Star's Automatic Dividend Reinvestment and Cash
Purchase Plan (the "Plan") who exercise the Rights issued on the shares held in
their accounts in the Plan will have their Shares acquired on Primary
Subscription and pursuant to the Over-Subscription Privilege credited to their
shareholder distribution reinvestment accounts in the Plan. Shareholders whose
shares are held of record by Cede or by any other depository or nominee on their
behalf or their broker-dealers' behalf will have their Shares acquired on
Primary Subscription and pursuant to the Over-Subscription Privilege credited to
the account of Cede or such other depository or nominee. With respect to all
other shareholders, share certificates for all Shares acquired on Primary
Subscription and pursuant to the Over-Subscription Privilege will be mailed
within fifteen business days after the Confirmation Date, provided payment for
the Shares subscribed for has cleared, which clearance may take up to fifteen
days from the date of receipt of the payment. If such payment does not clear
within fifteen days from the date of receipt, All-Star may exercise its rights
in the event of non-payment under "Payment for Shares" above.
Federal Income Tax Consequences
For federal income tax purposes, neither the receipt nor the exercise of
the Rights will result in taxable income to holders of shares, and no loss will
be realized if the Rights expire without being exercised. All-Star will realize
no gain or loss on the issuance, exercise or expiration of the Rights.
The holding period for a Share acquired upon exercise of a Right begins
with the date of exercise. In the absence of a special election by the
shareholder, the shareholder's basis for determining gain or loss upon the sale
of that Share will be the per share Subscription Price. The gain or loss
recognized upon such sale will be capital gain or loss if the Share was held as
a capital asset at the time of sale taxable, in the case of noncorporate
shareholders, at a maximum rate of 20% if the shareholder's holding period for
the Share is more than eighteen months, or 28% if the shareholder's holding
period for the Share is more than twelve months but less than or equal to
eighteen months.
The foregoing does not cover the state or local tax consequences of
receiving or exercising a Right or address tax aspects of the Offer that may be
relevant to shareholders subject to special treatment under the Internal Revenue
Code (such as insurance companies, financial institutions, tax-exempt entities,
employee benefit plans, dealers in securities, foreign corporations, and persons
who are not citizens or residents of the U.S.). The foregoing is intended solely
as general information, based on the Internal Revenue Code, applicable
regulations and judicial precedent as of the date hereof, and each shareholder
is advised to consult his or her own tax adviser regarding tax consequences.
Special Considerations and Risk Factors
As a result of the terms of the Offer, shareholders who do not exercise
their Rights will, at the completion of the Offer, own a smaller proportional
interest in All-Star. In addition, because the Subscription Price will be less
than the then current net asset value per Share, the Offer will result in a
dilution of net asset value, which will disproportionately affect shareholders
who do not exercise their Rights.
Possible Suspension of the Offer
All-Star has, as required by the Securities and Exchange Commission's
registration form, undertaken to suspend the Offer until it amends this
Prospectus if subsequent to March __, 1998,- the effective date of the Fund's
Registration Statement,- All-Star's net asset value declines more than 10% from
its net asset value as of March , 1998. Accordingly, All-Star will notify
shareholders of any such decline and thereby permit them to cancel their
exercise of Rights.
USE OF PROCEEDS
The net proceeds of the Offer, assuming that all Shares offered hereby are
sold at an assumed Subscription Price of $________ per share, are estimated to
be approximately $__________, after deducting expenses payable by All-Star
estimated at $220,000. Such net proceeds will be invested by All-Star's
Portfolio Managers in portfolio securities in accordance with All-Star's
investment objective and policies. It is anticipated that investment of such net
proceeds under normal market conditions will take place during a period of
approximately 30 days from their receipt by All-Star, and would in any event be
completed within three months. Pending such investment the net proceeds will be
invested in Short-Term Money Market Instruments (as defined under "Investment
Objective and Policies" below).
THE MULTI-MANAGER CONCEPT
All-Star allocates its portfolio assets on an approximately equal basis
among a number of independent investment management firms ("Portfolio
Managers"),currently five in number,- recommended by Liberty Asset Management
Company (the "Fund Manager"), 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 the Fund Manager, the multi-manager concept provides
advantages over the use of a single manager because of the following primary
factors:
(i) most equity investment management firms consistently employ a
distinct investment style which causes them to emphasize stocks with
particular characteristics;
(ii) because of changing investor preferences, any given investment
style will move into and out of market favor and will result in better
investment performance under certain market conditions but less successful
performance under other conditions;
(iii) consequently, by allocating All-Star's portfolio on an
approximately equal basis among Portfolio Managers employing different
styles, the impact of any one such style on investment performance will be
diluted, and the investment performance of the total portfolio will be more
consistent and less volatile over the long-term than if a single style were
employed throughout the entire period;
(iv) consistent performance at a given annual rate of return over time
produces a higher rate of return for the long-term than more volatile
performance having the same average annual rate of return.
The Fund Manager, 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 several hundred 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.
The Fund Manager 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 inception All-Star has had seven
Portfolio Manager changes.
All-Star Portfolio Manager changes, as well as the periodic rebalancings of
its portfolio among the Portfolio Managers and the possible need to raise cash
for All-Star's quarterly distributions, may result in some portfolio turnover in
excess of what would otherwise be the case (see "Financial Highlights" above).
Increased portfolio turnover would cause increased brokerage commission costs to
the Fund, and may result in realization of capital gains, which are taxable to
shareholders.
Under the terms of an exemptive order issued to All-Star and the Fund
Manager by the Securities and Exchange Commission, a portfolio management
agreement with a new or additional Portfolio Manager may be entered into in
advance of shareholder approval, provided that the new agreement is at a fee no
higher than that provided in, and is on other terms and conditions substantially
similar to, All-Star's agreements with its other Portfolio Managers, and that
its continuance is subject to approval by shareholders at All-Star's regularly
scheduled annual shareholder meeting (normally held in April) next following the
date of the new or additional portfolio management agreement. Information about
Portfolio Manager changes or additions made in advance of shareholder approval
will be announced to the press following Board of Trustee action and will be
included in the next report to shareholders.
All-Star's current Portfolio Managers are:
J.P. Morgan Investment Management Inc.
Oppenheimer Capital
Palley-Needelman Asset Management, Inc.
Westwood Management Corporation
Wilke/Thompson Capital Management, Inc.
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 AND POLICIES
All-Star's investment objective is to seek total investment return,
comprised of long-term capital appreciation and current income, through
investment primarily in a diversified portfolio of equity securities.
All-Star invests primarily 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 35% of the value of All-Star's total assets will be invested in rights
and warrants). 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 circumstances All-Star will remain substantially
fully invested in equity securities, up to 35% of the value of All-Star's total
assets may 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 and Poor's Corporation
("Standard & Poor's") or Prime-1 by Moody's Investors Service, Inc. ("Moody's"),
short-term corporate debt securities rated not lower than AA by Standard &
Poor's or Aa by Moody's, and repurchase agreements with respect to the
foregoing. All-Star may temporarily reduce its investments in equity securities
and 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 65% of the value of
its total assets 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.
Investment Practices
The following describes certain of the investment practices in which one or
more of All-Star's Portfolio Managers may engage, each of which may involve
certain special risks.
Lending of Portfolio Securities
Although All-Star has not to date engaged in securities lending, consistent
with applicable regulatory requirements, All-Star, in order to generate
additional income, may lend its portfolio securities (principally to
broker-dealers) where such loans are callable at any time and are continuously
secured by collateral (cash or U.S. Government Securities) equal to not less
than the market value, determined daily, of the securities loaned. All-Star
would receive amounts equal to the interest on the securities loaned. It will
also be paid for having made the loan. Any cash collateral pursuant to these
loans would be invested in Short-Term Money Market Instruments. All-Star could
be subjected to delays in recovering the loaned securities in the event of
default or bankruptcy of the borrower. All-Star will limit such lending to not
more than 30% of the value of All-Star's total assets. The Fund may pay fees to
its custodian bank or others for administrative services in connection with
securities loans.
Repurchase Agreements
All-Star may enter into repurchase agreements with banks or broker-dealer
firms whereby such institutions sell U.S. Government Securities or other
securities in which it may invest to All-Star and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. The resale price is
greater than the purchase price, reflecting an agreed-upon interest rate which
is effective during the time between the purchase and resale and is not related
to the stated interest rate on the purchased securities. All-Star requires the
seller of the securities to maintain on deposit with All-Star's custodian bank
securities in an amount at all times equal to or in excess of the value of the
repurchase agreement. In the event that the seller of the securities defaults on
its repurchase obligation or becomes bankrupt, All-Star could receive less than
the repurchase price on the sale of the securities to another party or could be
subjected to delays in selling the securities. Under normal market conditions,
not more than 35% of All-Star's total 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. Risks are inherent in investment in equities, and investors
should be able to tolerate significant fluctuations in the value of their
investments. 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. See "Share Price Data" for information
about the market price and net asset value of All-Star's shares since January 1,
1996.
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 or if it would own more than 10% of
the outstanding voting securities of such issuer, (ii) invest more than 25% of
its assets in the securities of issuers conducting their principal business
activity in the same industry, or (iii) invest more than 10% of its net assets
in securities which are restricted or not readily marketable (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 Liberty Asset Management
Company (the "Fund Manager") pursuant to which the Fund Manager provides the
Portfolio Manager selection, evaluation, monitoring and rebalancing services
("investment management services") described above under "The Multi-Manager
Concept". No single individual at the Fund Manager is responsible for the Fund
Manager's decisions with respect to the retention or replacement of the
Portfolio Managers.
The Fund Manager 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 all officers of All-Star who are
officers or employees of the Fund Manager or its affiliates, and the supervision
of transfer agency, dividend disbursing, custodial and other services provided
to others. Certain of the Fund Manager's administrative responsibilities have
been delegated to Colonial.
The Fund Manager has its offices at 600 Atlantic Avenue, 23rd Floor,
Boston, Massachusetts 02210. The Fund Manager was organized in 1985 and is an
indirect wholly-owned subsidiary of Liberty Financial Companies, Inc., which in
turn is an indirect majority-owned subsidiary of Liberty Mutual Insurance
Company, an international multi-line insurance carrier.
Under All-Star's Portfolio Management Agreements with each of its Portfolio
Managers and the Fund Manager, 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 the Fund Manager 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 the Fund Manager. As described under "The
Multi-Manager Concept", the Fund Manager from time to time reallocates
All-Star's portfolio assets in order to maintain an approximately equal
allocation of them 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 the Fund Manager and the Trustees and officers of All-Star, neither
the Fund Manager nor such Trustees and officers evaluate the investment merits
of the Portfolio Managers' selections of individual securities.
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.
All-Star's Fund Management Agreement with the Fund Manager and its
Portfolio Management Agreements with the Portfolio Managers and Fund Manager
provide that (i) All-Star pay the Fund Manager a fund management fee for its
investment management services at an annual rate of 0.80% of All-Star's average
weekly net asset value up to $400 million, 0.72% of such net asset value
exceeding $400 million up to $800 million, 0.648% of such net asset value
exceeding $800 million up to $1.2 billion, and 0.584% of such net asset value
over $1.2 billion; (ii) the Fund Manager then pay each Portfolio Manager at 50%
of the above rates in proportion to the portions of All-Star's investment
portfolio managed by it, and (iii) All-Star pay the Fund Manager a fee for
administrative services at an annual rate of 0.20% of All-Star's average weekly
net asset value up to $400 million, 0.18% of such net asset value exceeding $400
million up to $800 million, 0.162% of such net asset value exceeding $800
million up to $1.2 billion, and 0.146% of such net asset value over $1.2
billion.
Colonial provides pricing and bookkeeping services to All-Star for an
annual fee of $36,000 plus an annual asset-based fee of 0.0233% of net assets in
excess of $50 million, with breakpoint reductions at $500 million and $1
billion.
Custodian and Transfer Agent
Boston Safe Deposit and Trust Company, One Boston Place, Boston MA
02108-4402 is All-Star's custodian. State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110 is the transfer and dividend
disbursing agent and registrar for All-Star.
Expenses of the Fund
The Fund Manager 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 the Fund
Manager, and pays the management fees of the Portfolio Managers. All-Star pays
all its expenses, other than those expressly assumed by the Fund Manager. The
expenses payable by All-Star include: management and administrative fees payable
to the Fund Manager; pricing and bookkeeping fees payable to Colonial; 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 directors, officers, employees or stockholders of the Fund Manager or
its affiliates; insurance and fidelity bond premiums; and any extraordinary
expenses of a non-recurring nature.
Year 2000
Many existing computer programs and systems, including some used by the
Fund Manager, by All-Star's custodian bank, transfer and dividend dispersing
agent, and by Colonial in connection with its pricing and bookkeeping services
to the Fund, have been written in such a way that, without modification, they
will not properly process and calculate date-related information and data from
and after January 1, 2000. All-Star has been advised that the Fund Manager,
Colonial, and the Fund's custodian bank and transfer agent (neither of which are
affiliated with the Fund Manager) are in the process of making any required
modifications of their programs and systems and that they believe that they will
complete such modifications on a timely basis and will be able properly to
process such information and data for All-Star after that date. The cost of
these modifications will not affect All-Star. However, failure by the Fund
Manager or any of All-Star's other service providers to successfully complete
the required modifications in a timely manner could have a materially adverse
impact on All-Star.
DESCRIPTION OF SHARES
General
All-Star's capitalization consists of an unlimited number of shares of
beneficial interest in All-Star without par value, of which 86,362,669 shares
were 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
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 the
holders 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 Objectives and Policies" above).
In addition, a 75% vote of All-Star's shareholders 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 two-thirds 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 or consent 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. In
addition, the Declaration of Trust requires the affirmative vote or consent or
the holders of 75% of the shares for the termination and liquidation of
All-Star.
The foregoing super-majority vote requirements may not be amended except by
a similar super-majority 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 its 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 Trustee's 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 requirement 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 policy is to pay distributions on its common shares
totaling approximately 10% of its net asset value per year, payable in four
quarterly distributions of 2.5% of All-Star's net asset value at the close of
the New York Stock Exchange on the Friday prior to each quarterly declaration
date. If, for any calendar year, the total distributions required by the 10%
pay-out policy exceed All-Star's net investment income and net realized capital
gains, the excess will generally be treated as a tax-free return of capital to
the extent of the shareholder's basis in his or her shares, and thereafter, to
the extent of any excess over such basis, as capital gain. 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 sale of his or her shares. All-Star made distributions
from capital in 1987, 1988, 1989, 1990, 1992, 1993 and 1994 (see "Financial
Highlights").
To the extent All-Star's 10% payout policy results in distributions in
excess of its net investment income and net realized capital gains, such
distributions will decrease All-Star's 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 long-term capital gains in excess of net
short-term capital losses for any year to the extent that its net investment
income, net short-term realized gains and net long-term realized gains exceed
the minimum amount required to be distributed for such year under the 10%
pay-out policy, although All-Star reserves the right to distribute such excess.
Any such retained capital gains would be taxed to shareholders as long-term
capital gains and shareholders would be able to claim their proportionate share
of the federal income taxes paid by All-Star with respect to such retained gains
as a credit against their own federal income tax liabilities, and would be
entitled to increase the adjusted tax basis of their All-Star shares by the
difference between their pro rata share of the undistributed capital gains and
their tax credit.
All-Star intends to pay all or a substantial portion of its distributions
in each year to shareholders in the form of newly issued shares (plus cash in
lieu of any fractional shares that would otherwise be issuable), to all
shareholders except those non-participants in All-Star's Automatic Dividend
Reinvestment and Cash Purchase Plan who specifically elect to receive their
distribution in cash by completing and signing an option card, a copy of which
will be enclosed with the notice of each such distribution payable in shares,
and returning it on a timely basis to State Street Bank and Trust Company,
All-Star's transfer agent and dividend paying agent.
The number of shares to be issued in payment of distributions declared
payable in shares will be determined by dividing the total dollar amount of the
distribution payable to the shareholder 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 New York Stock Exchange on the
valuation date or, if there are no sales on that day, the mean between the
closing bid and closing asked quotations for that date.
Automatic Dividend Reinvestment and Cash Purchase Plan
Under All-Star's Automatic Dividend Reinvestment and Cash Purchase Plan
(the "Plan"), shareholders whose shares are registered in their own name may
elect to participate in the Plan and have all distributions automatically
reinvested by State Street Bank and Trust Company, as agent for participants in
the Plan (the "Plan Agent"), in additional shares of All-Star. Shareholders who
do not elect to participate in the Plan will receive all distributions (other
than those declared payable in shares as described above) in cash.
Under the Plan, distributions declared payable in shares or cash at the
option of shareholders are paid to participants in the Plan entirely in newly
issued full and fractional shares valued at the lower of market value or net
asset value per share on the valuation date for the distribution (but not a
discount of more than 5% from market price). Distributions declared payable only
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 New
York Stock Exchange 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" below).
Participants in the Plan have the option of making additional cash payments
in any amount on a monthly basis for investment in All-Star shares purchased on
the open market. These voluntary cash payments will be invested on or shortly
after 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 five business days before
the next investment date. Barring suspension of trading, voluntary cash payments
will be invested within 30 days of receipt. A participant may withdraw a
voluntary cash payment by written notice received by the Plan Agent at least 48
hours before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in non-certificated form in the name
of the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan.
In the case of shareholders such as banks, brokers or nominees which 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 distributions will not relieve
plan participants of any income tax which may be payable on such dividends or
distributions. See "Tax Status" below.
Experience under the Plan may indicate that changes are desirable.
Accordingly, All-Star reserves the right to amend or terminate the Plan.
Shareholders must affirmatively elect to participate in the Plan, and may
do so by completing an application and filing it with the Plan Agent.
Shareholders may call or write the Plan Agent, State Street Bank & Trust
Company, P.O. Box 8200, Boston, Massachusetts 02266-8200 (1-800-542-3863) for
information about the Plan.
Shareholders whose All-Star shares are held of record in "street name" by
broker-dealer firms or banks may not be able to participate in the Plan, and
such shareholders who are participating in the Plan may not be able to transfer
their shares to another broker-dealer or bank and continue to participate in the
Plan.
A shareholder may elect to withdraw form the Plan at any time by notifying
the Plan Agent in writing. There will be no penalty for withdrawal from the Plan
and shareholders who have previously withdrawn from the Plan may rejoin it at
any time. A withdrawal will only be effective for subsequent distributions with
a record date at least ten days after the notice of withdrawal is received by
the Plan Agent.
TAX STATUS
The following discussion summarizes the general rules applicable to
taxation of All-Star and its shareholders. Shareholders are urged to consult
with their own tax advisors concerning the tax consequences of their continued
investment in All-Star and of their receipt and exercise of the Rights.
All-Star intends to elect and to qualify each year for federal income tax
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code"), and to make distributions to the shareholders in
accordance with the timing requirements set out in the Code. As a result, it is
expected that All-Star will be relieved of federal income taxes on its net
investment income and net realized capital gains to the extent distributed to
shareholders. (See "Distributions; Automatic Dividend Reinvestment and Cash
Purchase Plan--10% Distribution Policy" regarding the authority of All-Star to
retain and pay taxes on, and not distribute, net realized capital gains). If
All-Star should fail to qualify as a regulated investment company in any year,
it would incur a federal corporate income tax upon its taxable income and its
distributions would generally be taxable as ordinary dividend income to the
shareholders.
Dividends and 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
distribution in the form of newly issued shares will be treated for federal
income tax purposes as receiving a distribution in an amount equal to the fair
market value, determined as of the distribution date, of the shares received.
Such shareholders will have a cost basis in each newly issued share equal to the
fair market value of a share of All-Star on the distribution date. Distributions
are generally taken into account for tax purposes when paid, except that
distributions paid in January but declared in the last quarter of the preceding
calendar year must be taken into account as if paid on December 31 of such
preceding calendar year. A portion of All-Star's net investment income paid to
corporate shareholders which 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 realized capital gains 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 for corporations. Net long-term
capital gains are taxable, in the case of noncorporate shareholders, at a
maximum rate of 20% if attributable to the disposition of assets the holding
period for which was more than eighteen months or 28% if attributable to the
disposition of assets the holding period for which was more than twelve months
but less than or equal to eighteen months.
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 upon 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 held by All-Star. As of March , 1998,
All-Star had net unrealized appreciation of its investments of $__________
million. A subsequent distribution to the investor of such amounts, although it
may in effect constitute a return of his or her investment, would be taxable to
the shareholder as ordinary income or capital gain as described above. For
federal income tax purposes, All-Star is permitted to carry forward its net
realized capital losses, if any, and may realize net capital gains up to the
amount of such losses without being required to pay taxes on or distribute such
gains. As of December 31, 1997, All-Star had no capital loss carryovers.
Under the Interest and Dividend Tax Compliance Act of 1983, certain
non-corporate All-Star shareholders may be subject to 31% withholding on
reportable dividends and capital gains 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 from distributions to any
shareholder who does not certify to All-Star that such shareholder is not
subject to back-up withholding due to notification by the Internal Revenue
Service that such taxholder has under-reported interest or dividend income.
Distributions from net investment income paid to shareholders who are
non-resident aliens or entities may be subject to 30% United States withholding
tax (but not, in such event, subject to backup withholding) under the existing
provisions of the Code applicable to foreign individuals and entities 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
advisors concerning the applicability of the United States withholding tax.
Information concerning the federal income tax status of All-Star dividends
and distributions is mailed to shareholders annually.
Under present law, All-Star is not liable for any Massachusetts personal
income or corporate excise tax so long as it qualifies as a regulated investment
company under the Code. 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 advisors concerning
the application of state and local taxes.
See "The Offer-Federal Income Tax Consequences" for a discussion of the
federal income tax consequences of the receipt and exercise of Rights.
GENERAL
All-Star was organized on August 20, 1986 as a "Massachusetts business
trust" and commenced investment operations on November 3, 1986. Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, All-Star's Declaration of Trust contains an express disclaimer of
shareholder liability for the acts or obligations of All-Star and provides for
indemnification and reimbursement of expenses out of All-Star's property for any
shareholder held personally liable for the obligations of All-Star. Thus, the
risk of a shareholder incurring financial loss on account of an All-Star
liability is limited to circumstances in which both inadequate insurance existed
and All-Star itself were unable to meet its obligations from the liquidation of
its portfolio investments.
The Fund Manager is an indirect wholly-owned subsidiary of Liberty
Financial Companies, Inc., itself an indirect majority-owned subsidiary of
Liberty Mutual
Insurance Company.
Under the Fund Management Agreement between All-Star and the Fund Manager,
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 the Fund Manager. In addition, the Fund Manager may grant the
non-exclusive right to use the name "Liberty All-Star" to any other entity,
including any other investment company of which the Fund Manager 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 or
writing Liberty Investment Services, Inc. at the address or 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
-----------------
Page
----
Investment Objective and Policies 2
Investment Restrictions 6
Investment Advisory and Other Services 7
Trustees and Officers of All-Star 9
Portfolio Security Transactions 11
Principal Shareholders 12
Financial Statements 13
APPENDIX A
INFORMATION ABOUT THE PORTFOLIO MANAGERS
J.P. MORGAN INVESTMENT MANAGEMENT INC.
522 Fifth Avenue
New York, NY 10036
J.P. Morgan Investment Management Inc. ("J.P.
Morgan") was appointed a Portfolio Manager of All-Star
effective July 1, 1996. J.P. Morgan is a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated, a New York
Stock Exchange listed bank holding company the principal
banking subsidiary of which is Morgan Guaranty Trust
Company of New York. As of December 31, 1997, J.P. Morgan
& Co. Incorporated and its subsidiaries had total
combined assets under management of approximately $255
billion. J.P. Morgan & Co. Incorporated, through its
predecessor firms, has been in business for over a
century and has been managing investments since 1913.
Henry D. Cavanna, Managing Director of J.P. Morgan,
has managed the portion of All-Star's portfolio assigned
to J.P. Morgan since its appointment as an All-Star
Portfolio Manager. Mr. Cavanna has been associated with
J.P. Morgan for over 27 years.
OPPENHEIMER CAPITAL
Oppenheimer Tower
World Financial Center
New York, NY 10281
Oppenheimer Capital ("Opp Cap") has been a Portfolio Manager of All-Star
since February 16, 1990. Opp Cap is a Delaware general partnership formed on
July 1, 1987 as the successor to a corporation formed in 1975. Opp Cap is owned
and controlled by PIMCO Advisors L.P. ("PIMCO"), an investment adviser with
approximately $199 billion in assets under management. One of PIMCO's general
partners is PIMCO Partners, G.P., a general partnership of which the managing
general partner is a limited liability company whose members are the Managing
Directors of Pacific Investment Management Company, and the other general
partner of which is a subsidiary of Pacific Mutual Life Insurance Company.
Approximately 42% of the limited partnership interests in PIMCO are owned by
PIMCO Advisors Holdings, L.P., units of which are publicly traded.
As at December 31, 1997, Opp Cap had approximately $61 billion in assets
under management. John Lindenthal, Managing Director of Opp Cap, has managed the
portion of All-Star's portfolio assigned to Opp Cap since its appointment as an
All-Star Portfolio Manager. Mr. Lindenthal has been associated with Opp Cap for
over 18 years.
PALLEY-NEEDELMAN ASSET MANAGEMENT, INC.
800 Newport Center Drive, Suite 450
Newport Beach, CA 92660
Palley-Needelman Asset Management, Inc., appointed as an All-Star Portfolio
Manager effective July 1, 1993, was established in 1985 as the successor to a
firm founded in 1973. The firm is owned by Roger B. Palley, President and Senior
Investment Officer, and Chester J. Needelman, Chief Executive Officer, and had
approximately $5 billion in assets under management as at December 31, 1997.
Mr. Palley has managed the portion of All-Star's
portfolio assigned to Palley-Needelman Asset Management,
Inc. since its appointment as an All-Star Portfolio
Manager.
WESTWOOD MANAGEMENT CORPORATION
300 Crescent Court, #1320
Dallas, TX 75201
Westwood Management Corporation was appointed as an All-Star Portfolio
Manager effective November 1, 1997. The firm was organized by Susan M. Byrne,
its President and Chief Executive Officer, in June, 1983, and became a wholly
owned subsidiary of Southwest Securities Group, Inc., a New York Stock Exchange
listed securities firm, in June, 1993. Westwood Management had approximately
$1.7 billion in assets under management as at December 31, 1997.
Ms. Byrne manages the portion of All-Star's portfolio
assigned to Westwood Management Corporation.
WILKE/THOMPSON CAPITAL MANAGEMENT, INC.
3800 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Wilke/Thompson Capital Management, Inc., appointed an All-Star Portfolio
Manager effective March 1, 1997, was founded in July 1987. Mark A. Thompson, its
Chairman and Chief Investment Officer, owns 56%, Anthony L. Ventura, its
President, owns 23% and four other of its investment professionals own the
remainder, of the outstanding shares of the firm. As of December 31, 1997, the
firm had approximately $1.32 billion in assets under management.
Mr. Thompson leads the team that manages the portion
of All-Star's portfolio assigned to Wilke/Thompson
Capital Management, Inc.
[Back Cover]
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.
[Logo] LIBERTY
All-Star
EQUITY FUND
TABLE OF CONTENTS
Expenses........................
Prospectus Summary..............
Financial Highlights............
Share Price Data................
Investment Performance..........
The Offer.......................
Use of Proceeds.................
The Multi-Manager Concept....... A Multi-Managed Investment
Investment Objective Company
and Policies..................
Management of All-Star.......... 4,318,134 Shares of Beneficial
Description of Shares........... Interest Issuable upon
Distributions; Automatic Exercise of Rights to
Dividend Reinvestment and Subscribe for such Shares
Cash Purchase Plan............
Tax Status PROSPECTUS
General.........................
Statement of Additional
Information...................
Appendix A--Information about
the Portfolio Managers..........
[Preliminary]
LIBERTY ALL-STAR EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
March , 1998
This Statement of Additional Information is not a prospectus, and should be
read in conjunction with the Prospectus of Liberty All-Star Equity Fund
("All-Star") dated March , 1998. A copy of the Prospectus may be obtained by
calling or writing Liberty Asset Management Company at 600 Atlantic Avenue,
Boston, Massachusetts 02110 (1-800-542-3863).
TABLE OF CONTENTS PAGE
- ----------------- -----
Investment Objectives and Policies...........
Investment Restrictions......................
Investment Advisory and Other Services.......
Trustees and Officers of All-Star............
Portfolio Security Transactions..............
Principal Shareholders.......................
Financial Statements.........................
INVESTMENT OBJECTIVES AND POLICIES
A description of All-Star's investment objective, the types of securities
in which it may invest, and certain investment practices in which it may engage
and certain risks associated therewith is contained in the Prospectus under
"Investment Objectives and Policies."
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 even 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 or 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 nave 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
In connection with any futures and options transactions, All-Star has filed
with the Commodity Futures Trading Commission ("CFTC") a notice of eligibility
for exemption from the definition of (and therefore from CFTC regulation as) a
"commodity pool operator" under the Commodity Exchange Act. All-Star has
represented in its notice of eligibility that it will not purchase or sell
futures contracts or options on futures contracts or stock indices otherwise
than for bona fide hedging purposes as defined CFTC Rule 1.3(z)(1) if the
aggregate initial margin and premiums required to establish such positions not
entered into for such hedging purposes would exceed 5% of All-Star's assets
after taking into account unrealized profits and losses on such controls.
The staff of the Securities and Exchange Commission ("SEC") has taken the
position that the purchase and sale of futures contracts and the writing of
related options may involve senior securities for the purposes of the
restrictions contained in Section 18 of the Investment Company Act of 1940 on
investment companies is using senior securities. However, the staff has issued
letters declaring that it will not recommend enforcement action under Section 18
if an investment company:
(i) sells futures contracts to offset expected declines in the value of
the investment company's portfolio securities, provided the value of such
futures contracts does not exceed the total market value of those
securities (plus such additional amount as may be necessary because of
differences in the volatility factor of the portfolio securities vis a vis
the futures contracts);
(ii) writes call options on futures contracts, stock indexes or other
securities, provided that such options are covered by the investment
company's holding of a corresponding long futures position, by its
ownership of portfolio securities which correlate with the underlying stock
index, or otherwise;
(iii) purchases futures contracts, provided the investment company
establishes a segregated account ("cash segregated account") consisting of
cash or cash equivalents in an amount equal to the total market value of
such futures contracts less the initial margin deposited therefor; and
(iv) writes put options on futures contracts, stock indexes or other
securities, provided that such options are covered by the investment
company's holding of a corresponding short futures position, by
establishing a cash segregated account in an amount equal to the value of
its obligation under the option, or otherwise.
All-Star will conduct its purchases and sales of futures contracts and
writing of related options transactions in accordance with the foregoing.
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 and Policies" 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 (the "Fund Manager") performs the investment management
services and is responsible for the administrative services described therein.
The Fund Manager, through Liberty Financial Companies, Inc., is an indirect
majority owned subsidiary of Liberty Mutual Insurance Company, Boston,
Massachusetts.
Reference is made to Appendix A of the Prospectus for the names of the
controlling persons of All-Star's current Portfolio Managers and the names of
the individuals 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 the Fund Manager or (except as
Portfolio Manager) with All-Star.
As described under "Management of All-Star" in the Prospectus, All-Star
pays the Fund Manager a fund management fee for its investment management
services at an annual rate of 0.80% of All-Star's average weekly net asset value
up to $400 million, 0.72% of such net asset value exceeding $400 million up to
$800 million, 0.648% of such net asset value exceeding $800 million up to $1.2
billion, and 0.584% of such net asset value over $1.2 billion. The Fund Manager
pays each Portfolio Manager at 50% of the above rates in proportion to the
portions of All-Star's investment portfolio managed by it. All-Star also pays
the Fund Manager a fee for its administrative services at an annual rate of
0.20% of All-Star's average weekly net asset value up to $400 million, 0.18% of
such net asset value in exceeding $400 million up to $800 million, 0.162% of
such net asset value exceeding $800 million up to $1.2 billion, and 0.146% of
such net asset value over $1.2 billion.
For the years ended December 31, 1995, 1996 and 1997 the total fund
management and administrative fees paid to the Fund Manager were $7,433,793,
$8,451,693, and $9,947,093, respectively, of which an aggregate of $2,931,529,
$3,353,614, and $3,961,159, respectively, was paid to the Portfolio Managers.
All-Star's Fund Management Agreement and Portfolio Management Agreements
will continue in effect until July 31, 1998 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 and Policies" 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 Fund Manager 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.
Custodian and Pricing and Bookkeeping Agent
Boston Safe Deposit and Trust Company (the "Bank"), One Boston Place,
Boston, MA 02108, is the custodian of the portfolio securities and cash of
All-Star. As such, the Bank holds All-Star's portfolio securities and cash in
separate accounts on All-Star's behalf and receives and delivers portfolio
securities and cash in connection with portfolio transactions initiated by
All-Star's Portfolio Managers, collects income due on its portfolio securities
and disburses funds in connection with the payment of distributions and
expenses.
Colonial Management Associates, Inc., an affiliate of the Fund Manager,
performs pricing and bookkeeping services for All-Star (see "Management of
All-Star" in the Prospectus). For the years ended December 31, 1996 and 1997,
All-Star paid pricing and bookkeeping fees to Colonial Management Associates,
Inc. of $211,776 and $239,161, respectively.
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110, are the
independent auditors of All-Star. KPMG Peat Marwick LLP audits and reports on
All-Star's annual financial statements, reviews certain of its regulatory
reports and its Federal income tax returns, and performs such other accounting,
tax and advisory services as All-Star may engage it to do.
TRUSTEES AND OFFICERS OF ALL-STAR
The following is a list of All-Star's Trustees and officers, together with
information about their present positions with All-Star and their principal
occupations during the past five years. The Trustee who is an "interested
person" of All-Star, as defined by the 1940 Act, is indicated with an asterisk.
Position
with Principal Occupation During
Name and Address All-Star Past Five Years
- ------------------ --------- -------------------------------
Robert J. Birnbaum Trustee Retired (since January,
313 Bedford Road 1994); Special Counsel,
Ridgewood, NJ Dechert, Price & Rhoads
07450 (September, 1988 to December,
1993); President and Chief
Operating Officer, New York
Stock Exchange, Inc. (May,
1985 to June, 1988).
James E. Grinnell Trustee Private investor (since
22 Harbor Avenue November, 1988); President
Marblehead, MA and Chief Executive Officer,
01945 Distribution Management
Systems, Inc. (1983 to May
1986); Senior Vice
President-Operations, The
Rockport Company, importer
and distributor of shoes
(May, 1986 to November, 1988).
Harold W. Cogger* Trustee Executive Vice President and
Liberty Financial and Director, Liberty Financial
Companies, Inc. Chairman Companies, Inc. (since March,
600 Atlantic 1995); Director (since
Avenue October, 1981) and Chairman
Boston, MA 02210 of the Board (since March,
1996), The Colonial Group, Inc.; Executive Vice
President (October, 1989 to July, 1993), Colonial
Management Associates, Inc.; President (since
March 1996), Stein Roe & Farnham Incorporated.
Richard W. Lowry Trustee Private investor (since
10701 Charleston August, 1987); Chairman and
Drive Chief Executive Officer, U.S.
Vero Beach, FL Plywood Corporation,
32963 manufacturer and distributor
of wood products (August,
1985 to August, 1987).
Richard R. President President of the Fund Manager
Christensen and Chief (since January, 1995);
Liberty Asset Executive President of Liberty
Management Officer Investment Services, Inc.
Company (April, 1987 to March, 1995).
600 Atlantic
Avenue
Boston, MA 02210
- ------
* Interested Trustee
Position
with Principal Occupation During
Name and Address All-Star Past Five Years
- ---------------- --------- ------------------------------
William R. Vice Senior Vice President and
Parmentier President Chief Investment Officer of
Liberty Asset - Chief the Fund Manager (since May,
Management Investment 1995); Consultant (October,
Company Officer 1994 to May, 1995);
600 Atlantic President, GQ Asset
Avenue Management, Inc. (July, 1993
Boston, MA 02210 to October, 1994); Assistant
Treasurer, Grumman
Corporation (December, 1974
to July, 1993).
Christopher S. Vice Vice President-Investments of
Carabell President the Fund Manager (since
Liberty Asset March, 1996); Associate
Management Director, U.S. Equity
Company Research of Rogers Casey &
600 Atlantic Associates, investment
Avenue consultants (January, 1995 to
Boston, MA 02210 February, 1996); Director of
Investments, Boy Scouts of
America (June, 1990 to
January, 1995).
Timothy J. Jacoby Treasurer Senior Vice President, Fund
Colonial and Administration, Colonial
Management Controller Management Associates, Inc.
Associates, (since September, 1996);
Inc. Senior Vice President,
One Financial Fidelity Accounting and
Center Custody Services (September,
Boston, MA 02111 1993 to September, 1996);
Assistant Treasurer, Fidelity
Group of Funds (August, 1990
to September, 1993).
John L. Davenport Secretary Vice President and Associate
Liberty Financial General Counsel of Liberty
Companies, Financial Companies, Inc. and
Inc. predecessor (since January,
600 Atlantic 1984).
Avenue
Boston, MA 02210
Messrs. Birnbaum, Grinnell and Lowry comprise the Audit Committee
of the Board of Trustees.
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 or office of Mr. Lowry will
expire upon the final adjournment of the 1998 annual meeting; the term of office
of Messrs. Grinnell and Cogger will expire upon final adjournment of the 1999
annual meeting; and the term of office of Mr. Birnbaum will expire upon final
adjournment of the annual meeting for the year 2000. Messrs. Birnbaum, Grinnell
and Lowry are also trustees of Colonial Trusts I through VII, the umbrella
trusts for an aggregate of 39 open-end funds managed by Colonial Management
Associates, Inc. ("Colonial"), an affiliate of the Fund Manager, five closed-end
funds managed by Colonial, and LFC Utilities Trust, an open-end investment
company managed by Stein Roe & Farnham Incorporated, another affiliate of the
Fund Manager. Messrs. Birnbaum, Cogger, Grinnell and Lowry are also directors of
Liberty All-Star Growth Fund, Inc., another closed-end multi-managed fund
managed by the Fund Manager.
The Fund Manager or its affiliates pay the compensation of all the officers
of All-Star, including the Trustee who is affiliated with the Fund Manager.
All-Star currently pays the independent Trustees an annual retainer of $5,000,
plus $1,800 per meeting attended, with a minimum of $14,000 per annum if less
than five meetings are held and all meetings are attended, plus out-of-pocket
expenses relating to attendance at meetings. For 1997, All-Star paid the
independent Trustees an aggregate of $47,400 in fees and $3,797 in expenses.
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 the Fund Manager has
the right to request that transactions giving rise to brokerage commissions, in
amounts to be agreed upon from time to time between the Fund Manager and the
Portfolio Manager, be executed by brokers and dealers (to be agreed upon from
time to time between the Fund Manager and the Portfolio Manager) which provide,
directly or through third parties, research products and services to the Fund
Manager 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 the Fund Manager
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 the Fund Manager in connection with its selection and monitoring of
portfolio managers (including the Portfolio Managers) for All-Star and other
multi-managed clients of the Fund Manager, the assembly of a mix of investment
styles appropriate to the investment objectives of All-Star or such other
clients, and the determination of overall portfolio strategies.
The Fund Manager 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 the
Fund Manager 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 the Fund Manager 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 the Fund Manager, regardless of the source of the brokerage commissions. In
instances where the Fund Manager receives from broker-dealers products or
services which are used both for research purposes and for administrative or
other non-research purposes, the Fund Manager 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 1995, 1996 and 1997, All-Star paid total brokerage commissions of
$1,006,594 and $1,216,875, and $2,039,852 respectively. Approximately $452,000
$578,000 and $1,017,000, respectively, of those commissions on transactions
aggregating $421,791,000, $479,964,000 and $877,914,000, respectively, were paid
to brokerage firms which provided or made available to All-Star's Portfolio
Managers or to the Fund Manager 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 40 Act.
During 1996 aggregate commissions of $17,359, representing less than 2.0% of the
total commissions paid by All-Star, were paid to J.P. Morgan Securities, Inc.,
an affiliate of J.P. Morgan Investment Management Inc., a Portfolio Manager of
the Fund, in connection with the execution of portfolio transactions for the
Fund initiated by Portfolio Managers other then J.P. Morgan Investment
Management Inc. During 1997 aggregate commissions of $1,397, representing less
than one percent of the total commissions paid by All-Star, were paid to
Oppenheimer & Co., Inc., then a broker-dealer affiliate of Oppenheimer Capital,
a Portfolio Manager of the Fund, in connection with the execution of portfolio
transactions initiated by other Portfolio Managers.
PRINCIPAL SHAREHOLDERS
As of March , 1998, Liberty Mutual Insurance Company, the owner of __% of
the common stock of the Fund Manager's indirect parent, Liberty Financial
Companies, Inc., and its affiliate Liberty Mutual Fire Insurance Company,
beneficially owned an aggregate of __________shares of All-Star, comprising
______% of the amount outstanding on that date. To the knowledge of All-Star, no
other shareholder owns beneficially 5% or more of the outstanding shares of
All-Star.
As of February , 1998, all officers and Trustees of All-Star as a group
owned less than 1% of All-Star's outstanding shares.
FINANCIAL STATEMENTS
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Schedule of Investments
As of December 31, 1997
COMMON STOCKS (101.1%) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
AEROSPACE (2.1%)
Boeing Co. 375,200 $ 18,361,350
Lockheed Martin Corp. 57,300 5,644,050
------------
24,005,400
------------
AUTO, TIRES & ACCESSORIES (1.8%)
Chrysler Corp. 88,000 3,096,500
General Motors Corp. 123,500 7,487,188
Goodyear Tire & Rubber Co. 36,800 2,341,400
Lear Corp. (a) 66,700 3,168,250
TRW, Inc. 81,300 4,339,388
------------
20,432,726
------------
BANKS (6.3%)
ABN AMRO Holding NV ADR 136,200 2,655,900
Ahmanson H.F. & Co. 135,200 9,049,950
Banc One Corp. 16,925 919,239
Chase Manhattan Corp. 26,600 2,912,700
Citicorp 100,000 12,643,750
First Hawaiian, Inc. 26,900 1,089,450
First Union Corp. 306,300 15,697,875
Fleet Financial Group, Inc. 149,400 11,186,325
U.S. Bancorp 74,800 8,372,925
Washington Mutual, Inc. 37,400 2,386,588
Wells Fargo & Co. 17,000 5,770,438
------------
72,685,140
------------
BUSINESS SERVICES (6.5%)
Acxiom Corp. (a) 191,600 3,688,300
America Online, Inc. (a) 75,100 6,697,981
Autodesk, Inc. 67,400 2,476,950
Automatic Data Processing, Inc. 144,100 8,844,137
Cabletron Systems, Inc. (a) 140,800 2,112,000
Catalina Marketing Corp. (a) 84,500 3,908,125
Cintas Corp. 155,600 6,068,400
Concord EFS, Inc. (a) 195,400 4,860,575
Fiserv, Inc. (a) 192,500 9,456,562
J.D. Edwards & Co. (a) 72,400 2,135,800
Oracle Corp. (a) 201,650 4,499,316
Robert Half International, Inc. (a) 148,600 5,944,000
Sitel Corp. (a) 519,700 4,742,263
See Notes to Schedule of Investments.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Schedule of Investments
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
BUSINESS SERVICES (CONT.)
Sterling Commerce, Inc. (a) 85,800 $ 3,297,937
Sterling Software, Inc. (a) 97,500 3,997,500
Sykes Enterprises, Inc. (a) 120,900 2,357,550
------------
75,087,396
------------
CHEMICALS (2.9%)
Albemarle Corp. 57,600 1,375,200
E.I. du Pont de Nemours & Co. 95,000 5,705,937
Monsanto Co. 260,000 10,920,000
Morton International, Inc. 176,900 6,080,937
Praxair, Inc. 125,200 5,634,000
Union Carbide Corp. 95,700 4,109,119
------------
33,825,193
------------
COMPUTER & BUSINESS EQUIPMENT (6.8%)
Cisco Systems, Inc. (a) 106,950 5,962,462
EMC Corp. (a) 172,000 4,719,250
HBO & Co. 275,200 13,192,400
Ingram Micro, Inc., Class A (a) 173,400 5,050,275
Intel Corp. 100,000 7,025,000
International Business Machines Corp. 173,700 18,162,506
Microsoft Corp. (a) 35,100 4,536,675
Saville Systems Ireland PLC ADR (a) 70,700 2,934,050
Sun Microsystems, Inc. (a) 103,000 4,107,125
Tech Data Corp. (a) 121,600 4,727,200
Xerox Corp. 105,200 7,765,075
------------
78,182,018
------------
CONSTRUCTION (0.9%)
Foster Wheeler Corp. 153,800 4,162,213
Masco Corp. 125,000 6,359,375
------------
10,521,588
------------
CONSUMER PRODUCTS (2.1%)
Electronic Arts, Inc. (a) 61,700 2,333,031
Philip Morris Companies, Inc. 239,100 10,834,219
Procter & Gamble Co. 44,000 3,511,750
Ralston-Ralston Purina Group 46,700 4,340,181
Unilever NV ADR 43,800 2,734,763
------------
23,753,944
------------
See Notes to Schedule of Investments.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Schedule of Investments
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COSMETICS & TOILETRIES (0.9%)
Avon Products, Inc. 135,000 $ 8,285,625
Gillette Co. 23,300 2,340,194
------------
10,625,819
------------
DIVERSIFIED (3.0%)
Allied Signal, Inc. 83,900 3,261,613
Cooper Industries, Inc. 78,700 3,856,300
Eaton Corp. 67,000 5,979,750
General Electric Co. 130,000 9,538,750
Loews Corp. 67,700 7,176,200
Tyco International Ltd. 115,584 5,208,504
------------
35,021,117
------------
DRUGS & HEALTH CARE (10.0%)
Alza Corp. (a) 84,100 2,675,431
American Home Products Corp. 80,000 6,125,000
Crescendo Pharmaceuticals Corp. (a) 4,150 48,244
DENTSPLY International, Inc. 107,600 3,281,800
Elan Corp. ADR (a) 169,700 8,686,519
Eli Lilly & Co. 113,000 7,867,625
Forest Laboratories, Inc. (a) 51,600 2,544,525
Genzyme Corp. (a) 104,800 2,934,400
HEALTHSOUTH Corp. (a) 233,400 6,476,850
Henry Shein, Inc. (a) 78,400 2,744,000
Humana, Inc. (a) 212,000 4,399,000
Medtronic, Inc. 141,500 7,411,062
Merck & Co., Inc. 25,500 2,709,375
Omnicare, Inc. 118,200 3,664,200
Pfizer, Inc. 170,400 12,705,450
R.P. Scherer Corp. (a) 58,700 3,580,700
SmithKline Beecham PLC ADR 52,000 2,674,750
Steris Corp. (a) 124,700 6,016,775
Tenet Healthcare Corp. (a) 187,300 6,204,313
United Healthcare Corp. 86,700 4,307,906
Warner-Lambert Co. 98,800 12,251,200
------------
109,309,125
------------
ELECTRIC & GAS UTILITIES (2.3%)
Dominion Resources, Inc. 59,800 2,545,238
Duke Energy Corp. 179,355 9,931,783
Edison International 58,800 1,598,625
Florida Progress Corp. 56,000 2,198,000
See Notes to Schedule of Investments.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Schedule of Investments
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
ELECTRIC & GAS UTILITIES (CONT.)
Houston Industries, Inc. 245,000 $ 6,523,125
P G & E Corp. 69,000 2,100,188
Southern Co. 65,000 1,681,875
------------
26,578,834
------------
ELECTRONICS & ELECTRICAL EQUIPMENT (4.0%)
Anixter International, Inc. (a) 59,300 978,450
Arrow Electronics, Inc. (a) 270,000 8,758,125
Berg Electronics Corp. (a) 102,500 2,331,875
General Semiconductor, Inc. (a) 42,025 485,914
International Game Technology 152,700 3,855,675
Input/Output, Inc. (a) 61,500 1,825,781
Linear Technology Corp. 91,700 5,272,750
Molex, Inc. 154,875 4,975,359
Motorola, Inc. 98,800 5,637,775
Perkin-Elmer Corp. 41,500 2,949,094
Raytheon Co. Class A 9,196 453,460
Raytheon Co. Class B 124,100 6,267,050
Sensormatic Electronics Corp. 153,400 2,511,925
------------
46,303,233
------------
FINANCIAL SERVICES (5.8%)
Beneficial Corp. 88,500 7,356,562
Countrywide Credit Industries, Inc. 150,000 6,431,250
Federal Home Loan Mortgage Corp. 340,000 14,258,750
Federal National Mortgage Co. 98,800 5,637,775
Merrill Lynch & Co., Inc. 18,200 1,327,463
Morgan Stanley, Dean Witter, Discover & Co. 160,000 9,460,000
Paychex, Inc. 157,100 7,953,187
Travelers Group, Inc. 255,000 13,738,125
------------
66,163,112
------------
FOOD, BEVERAGE & RESTAURANTS (4.2%)
Anheuser Busch, Inc. 212,600 9,354,400
Campbell Soup Co. 105,000 6,103,125
Diageo PLC ADR 120,000 4,545,000
Dole Food Co. 150,000 6,862,500
Dreyers Grand Ice Cream 148,800 3,589,800
General Mills, Inc. 80,700 5,780,138
Landry's Seafood Restaurants, Inc. (a) 15,000 360,000
Starbucks Corp. (a) 150,300 5,767,763
Wendy's International, Inc. 256,100 6,162,406
------------
48,525,132
------------
See Notes to Schedule of Investments.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Schedule of Investments
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HOTELS & ENTERTAINMENT / LEISURE (0.4%)
Marriott International, Inc. 25,000 $ 1,731,250
Time Warner, Inc. 54,500 3,379,000
------------
5,110,250
------------
INDUSTRIAL EQUIPMENT (2.4%)
Caterpillar, Inc. 130,000 6,313,125
Deere & Co. 112,500 6,560,156
Fastenal Co. (a) 164,100 6,276,825
JLK Direct Distribution, Inc. (a) 125,200 3,505,600
New Holland NV 207,500 5,485,781
------------
28,141,487
------------
INSURANCE (7.1%)
AEGON NV 33,915 3,039,632
AFLAC, Inc. 200,000 10,225,000
Aon Corp. 155,675 9,126,447
CIGNA Corp. 36,400 6,299,475
Conseco, Inc. 132,100 5,994,038
EXEL Limited 225,000 14,259,375
Marsh & McLennan Companies, Inc. 41,400 3,086,888
Progressive Corp. 85,000 10,189,375
Providian Financial Corp. 236,800 10,700,400
Transamerica Corp. 85,000 9,052,500
------------
81,973,130
------------
METALS & MINING (1.2%)
Allegheny Teledyne, Inc. 166,000 4,295,250
Aluminum Company of America 85,600 6,024,100
Freeport-McMoRan Copper & Gold, Inc., Class A 185,000 2,913,750
------------
13,233,100
------------
OIL & GAS (7.6%)
Atlantic Richfield Co. 16,700 1,338,088
British Petroleum Co. ADR 26,532 2,114,269
Burlington Resources, Inc. 62,500 2,800,781
Elf Aquitaine ADR 113,200 6,636,350
Enron Corp. 63,800 2,643,712
Exxon Corp. 75,300 4,607,419
Kerr-McGee Corp. 107,300 6,793,431
Mobil Corp. 170,400 12,300,750
Pioneer Natural Resources Co. 84,800 2,453,900
See Notes to Schedule of Investments.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Schedule of Investments
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
OIL & GAS (CONT.)
Royal Dutch Petroleum Co. ADR 70,100 $ 3,798,544
Schlumberger Ltd. 86,400 6,955,200
Texaco, Inc. 202,400 11,005,500
Tosco Corp. 204,000 7,713,750
Triton Energy Corp. (a) 170,000 4,961,875
Union Pacific Resources Group 275,600 6,683,300
USX-Marathon Group 120,000 4,050,000
------------
86,856,869
------------
PAPER (0.8%)
Champion International Corp. 120,000 5,430,000
Temple-Inland, Inc. 74,400 3,892,050
------------
9,322,050
------------
POLLUTION CONTROL (0.4%)
Waste Management, Inc. 155,800 4,284,500
------------
PUBLISHING (1.4%)
American Greetings Corp., Class A 140,400 5,493,150
Gannett Co., Inc. 98,200 6,069,987
R. R. Donnelley & Sons Co. 120,000 4,470,000
------------
16,033,137
------------
REAL ESTATE INVESTMENT TRUST (1.5%)
Crescent Real Estate Equities Co. 90,000 3,543,750
Equity Office Properties Trust 75,377 2,379,087
Patriot American Hospitality, Inc. 92,000 2,650,750
Starwood Lodging Trust 117,700 6,811,888
Vornado Realty Trust 50,000 2,346,875
------------
17,732,350
------------
RETAIL TRADE (7.4%)
Arbor Drugs, Inc. 242,900 4,493,650
CDW Computer Centers, Inc. (a) 73,500 3,831,187
Circuit City Stores, Inc. 105,100 3,737,619
Corporate Express, Inc. (a) 321,900 4,144,462
CVS Corp. 76,400 4,894,375
Dollar General Corp. 99,900 3,621,375
Family Dollar Stores 132,900 3,895,631
Federated Department Stores, Inc. (a) 52,000 2,239,250
Home Depot, Inc. 103,550 6,096,506
See Notes to Schedule of Investments.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Schedule of Investments
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
RETAIL TRADE (CONT.)
May Department Stores Co. 262,000 $ 13,804,125
MSC Industrial Direct Co. (a) 136,900 5,749,800
Quality Food Centers, Inc. (a) 83,700 5,607,900
Safeway, Inc. (a) 44,100 2,783,812
Staples, Inc. (a) 301,200 8,395,950
Toys R Us, Inc. (a) 142,700 4,477,212
Walgreen Co. 154,200 4,838,025
Wal-Mart Stores, Inc. 70,600 2,784,287
------------
85,395,166
------------
TELECOMMUNICATIONS (9.0%)
ADC Telecommunications, Inc. (a) 96,700 4,049,312
Bay Networks, Inc. (a) 153,600 3,926,400
Bell Atlantic Corp. 63,000 5,725,125
Brightpoint, Inc. (a) 153,400 2,118,838
CommScope, Inc. (a) 56,033 752,943
GTE Corp. 152,100 7,947,225
Lucent Technologies, Inc. 78,100 6,238,237
MCI Communications Corp. 130,000 5,565,625
Nextlevel Systems, Inc. (a) 168,000 3,003,000
Nokia Corp. ADR 100,000 7,000,000
SBC Communications, Inc. 243,300 17,821,725
Scientific-Atlanta, Inc. 332,000 5,561,000
Sprint Corp. 229,300 13,399,719
TCI Communications, Inc. (a) 34,800 2,231,550
TCI Pacific, Class A 15,600 2,574,000
TCI Satellite Entertainment, Inc. (a) 84,000 577,500
Tele-Communications -- TCI Ventures Group,
Class A (a) 159,081 4,503,981
US West Media Group (a) 100,700 2,907,712
WorldCom, Inc. (a) 248,200 7,508,050
------------
103,411,942
------------
TRANSPORTATION (2.7%)
AMR Corp. (a) 75,000 9,646,875
Burlington Northern Santa Fe 69,500 6,459,156
CSX Corp. 77,700 4,195,800
Delta Air Lines, Inc. 23,600 2,809,875
Union Pacific Corp. 119,400 7,455,037
------------
30,566,743
------------
See Notes to Schedule of Investments.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Schedule of Investments
COMMON STOCKS (CONT.) SHARES MARKET VALUE
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost $856,959,325) $1,163,080,501
--------------
PREFERRED STOCKS (0.2%)
ELECTRIC UTILITIES (0.2%)
Houston Industries 7% Convertible
(Cost $2,793,250) 50,000 2,853,125
--------------
CONVERTIBLE BONDS & NOTES (0.4%)
DIVERSIFIED (0.4%) PAR VALUE
Berkshire Hathaway Sr. Note 1.00% 12/03/01 ----------
(Cost $2,828,707) $2,700,000 4,355,640
--------------
SHORT-TERM INVESTMENTS (2.3%) INTEREST MATURITY
COMMERCIAL PAPER (0.3%) RATE DATE
-------- --------
Household Finance Corp. 6.08% 01/02/98 500,000 499,916
Household Finance Corp. 6.10 01/05/98 3,300,000 3,297,763
--------------
TOTAL COMMERCIAL PAPER 3,797,679
--------------
REPURCHASE AGREEMENT (2.0%)
ABN AMRO Chicago Corp., Repurchase Agreement
dated 12/31/97, 6.60% to be repurchased at
$22,576,275 on 01/2/98, collateralized by
U.S. Treasury notes maturing in 2016, with
a current market value of $23,088,561. 22,568,000 22,568,000
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $26,365,679) 26,365,679
--------------
TOTAL INVESTMENTS (104.0%) (COST $888,946,961) (b) 1,196,654,946
OTHER ASSETS AND LIABILITIES, NET (-4.0%) (46,316,263)
--------------
NET ASSETS (100.0%) $1,150,338,683
==============
NET ASSET VALUE PER SHARE (86,362,669 SHARES OUTSTANDING) $13.32
==============
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) The cost of investments for federal income tax purposes is $890,809,749.
Gross unrealized appreciation and depreciation
of investments at December 31, 1997, is as follows:
Gross unrealized appreciation $330,276,412
Gross unrealized depreciation (24,431,215)
-----------
Net unrealized appreciation $305,845,197
============
Acronym Name
- --------- -----------------------------
ADR American Depository Receipt
See Notes to Schedule of Investments.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Statement of Assets and Liabilities
December 31, 1997
ASSETS:
Investments at market value (identified cost $888,946,961) $1,196,654,946
Cash 264,644
Receivable for investments sold 5,301,258
Dividends and interest receivable 1,090,467
Other assets 48,201
-------------
TOTAL ASSETS 1,203,359,516
-------------
LIABILITIES:
Payable for investments purchased 9,264,892
Distributions payable to shareholders 12,077,652
Management fees payable 693,210
Administrative and bookkeeping fees payable 193,817
Accrued expenses 116,054
Accrued income tax 30,675,208
-------------
TOTAL LIABILITIES 53,020,833
-------------
NET ASSETS $1,150,338,683
=============
NET ASSETS REPRESENTED BY:
Paid-in capital (unlimited number of shares
of beneficial interest without par value
authorized, 86,362,669 shares outstanding) $ 797,440,139
Accumulated net realized gains on investments
less distributions 45,190,559
Net unrealized appreciation on investments 307,707,985
-------------
TOTAL NET ASSETS APPLICABLE
TO OUTSTANDING SHARES
OF BENEFICIAL INTEREST
($13.32 PER SHARE) $1,150,338,683
=============
See Notes to Financial Statements.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Statement of Operations
Year ended December 31, 1997
INVESTMENT INCOME:
Dividends $ 13,479,362
Interest 1,881,322
-------------
TOTAL INVESTMENT INCOME (NET OF
FOREIGN TAXES WITHHELD AT SOURCE
WHICH AMOUNTED TO $151,465) 15,360,684
EXPENSES:
Management fees $ 7,922,024
Administrative fee 2,025,069
Bookkeeping fee 239,161
Custodian and transfer agent fees 284,340
Proxy and shareholder communication expense 329,476
Printing expense 190,021
Legal and audit fees 84,954
Insurance expense 22,795
Trustees' fees and expense 51,197
Miscellaneous expense 5,809
-----------
TOTAL EXPENSE 11,154,846
-------------
NET INVESTMENT INCOME 4,205,838
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Sale of investments 234,528,620
Provision for federal income tax (30,675,208)
-----------
Net realized gain on investments after
provision for federal income tax 203,853,412
Net unrealized appreciation on investments:
Beginning of year 290,828,589
End of year 307,707,985
-----------
Change in unrealized appreciation -- net 16,879,396
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 224,938,646
=============
See Notes to Financial Statements.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Statements of Changes in Net Assets
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996
- --------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 4,205,838 $ 6,708,437
Net realized gain on investments
after provision for federal income tax 203,853,412 104,260,734
Change in unrealized appreciation -- net 16,879,396 59,017,670
-------------- ------------
Net increase in net assets resulting
from operations 224,938,646 169,986,841
-------------- ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income (4,205,838) (6,708,437)
Net realized gain on investments (107,028,243) (87,663,477)
-------------- ------------
Total distributions (111,234,081) (94,371,914)
-------------- ------------
CAPITAL TRANSACTIONS:
Increase in net assets from capital
share transactions 48,707,853 40,600,510
-------------- ------------
Total increase in net assets 162,412,418 116,215,437
NET ASSETS:
Beginning of year 987,926,265 871,710,828
-------------- ------------
End of year $1,150,338,683 $987,926,265
============== ============
See Notes to Financial Statements.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of year $ 11.95 $ 11.03 $ 9.26 $10.40 $ 10.78
------- ------- ------- ------ -------
Income from Investment Operations:
Net investment income 0.05 0.08 0.10 0.11 0.12
Net realized and unrealized gains
(losses) on investments 3.01(a) 2.15(a) 2.71 (0.20) 0.78(a)
Provision for federal income tax (0.36) (0.13) -- -- (0.18)
------- ------- ------- ------ -------
Total from Investment Operations 2.70 2.10 2.81 (0.09) 0.72
------- ------- ------- ------ -------
Less Distributions:
Dividends from net investment income (0.05) (0.08) (0.10) (0.12) (0.12)
Distributions from realized capital gains (1.28) (1.10) (0.94) (0.52) (0.58)
Return of capital -- -- -- (0.36) (0.37)
------- ------- ------- ------ -------
Total Distributions (1.33) (1.18) (1.04) (1.00) (1.07)
------- ------- ------- ------ -------
Change due to rights offerings (b) -- -- -- (0.05) (0.03)
------- ------- ------- ------ -------
Net asset value at end of year $ 13.32 $ 11.95 $ 11.03 $ 9.26 $ 10.40
======= ======= ======= ====== =======
Per share market value at end of year $13.313 $11.250 $10.875 $8.500 $11.125
======= ======= ======= ====== =======
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS: (c)
Based on net asset value 26.6% 21.7% 31.8% (0.08)% 8.8%
Based on market price 34.4% 16.2% 41.4% (14.9)% 12.7%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year (millions) $1,150 $988 $872 $710 $725
Ratio of expenses to average net assets 1.01% 1.03% 1.06% 1.07% 1.08%
Ratio of net investment income to
average net assets 0.38% 0.73% 0.92% 1.16% 1.08%
Portfolio turnover rate 99% 70% 54% 44% 72%
Average commission rate (d) $0.0502 $0.0537 -- -- --
</TABLE>
(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) Calculated assuming all distributions reinvested and all rights exercised.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate paid per share for trades
on which commissions are charged.
See Notes to Financial Statements.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Notes to Financial Statements
December 31, 1997
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
Liberty All-Star Equity Fund (All-Star or the Fund), organized as a
Massachusetts business trust on August 20, 1986, is a closed-end, diversified
management investment company. All-Star's investment objective is to seek total
investment return, comprised of long-term capital appreciation and current
income, through investment primarily in a diversified portfolio of equity
securities. All-Star is managed by Liberty Asset Management Company (the
"Manager"). The Manager is a subsidiary of Liberty Financial Companies, Inc., a
publicly traded company of which Liberty Mutual Insurance Company is the
majority shareholder.
The following is a summary of significant accounting policies followed
by All-Star in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results, if different,
are expected to be immaterial to the net assets of the Fund.
VALUATION OF INVESTMENTS -- Portfolio securities listed on an exchange
and over-the-counter securities quoted on the NASDAQ system are valued on the
basis of the last sale on the date as of which the valuation is made, or,
lacking any sales, at the current bid prices. Over-the-counter securities not
quoted on the NASDAQ system are valued on the basis of the mean between the
current bid and asked prices on that date. Securities for which reliable
quotations are not readily available are valued at fair value, as determined in
good faith and pursuant to procedures established by the Board of Trustees.
Short-term instruments maturing in more than 60 days for which market quotations
are readily available are valued at the current market value. Short-term
instruments with remaining maturities of 60 days or less are valued at amortized
cost, unless the Board of Trustees determines that this does not represent fair
value.
PROVISION FOR FEDERAL INCOME TAX -- All-Star qualifies as a "regulated
investment company." As a result, a federal income tax provision is not required
for amounts distributed to shareholders. All-Star has elected to retain a
portion of its net realized long-term capital gains amounting to $87,643,452 and
has recorded a provision for federal income taxes thereon of $30,675,208.
OTHER -- Security transactions are accounted for on the trade date.
Interest income and expenses are recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date.
NOTE 2. FEES PAID TO AFFILIATES
Under All-Star's Management and Portfolio Management Agreements,
All-Star pays the Manager a management fee for its investment management
services at an annual rate of 0.80% of All-Star's average weekly net asset
value. The Manager pays each Portfolio Manager a portfolio management fee at an
annual rate of 0.40% of the average weekly net asset value of the portion of the
investment portfolio managed by it. All-Star also pays the Manager an
administrative fee for its administrative services at an annual rate of 0.20% of
All-Star's average weekly net asset value. The annual fund management and
administrative fees are reduced to 0.72% and 0.18%, respectively, on average
weekly net assets in excess of $400 million, and the aggregate annual fees
payable by the Manager to the Portfolio Managers are reduced to 0.36% of
All-Star's average weekly net assets in excess of $400 million. Effective August
1, 1997, the annual fund management and administrative fees were further reduced
to 0.648% and 0.162%, respectively, on average weekly net assets in excess of
$800 million to $1.2 billion and 0.584% and 0.146%, respectively, on average
weekly net assets in excess of $1.2 billion. The aggregate annual fees payable
by the Manager to the Portfolio Managers are also reduced to 0.324% of the
Fund's average weekly net assets in excess of $800 million to $1.2 billion and
0.292% of the Fund's average net assets in excess of $1.2 billion. Colonial
Management Associates, Inc., an affiliate of the Manager, provides bookkeeping
and pricing
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Notes to Financial Statements
services for $36,000 per year plus 0.0233% of All-Star's average weekly net
assets over $50 million, 0.0167% in excess of $500 million, and 0.015% in excess
of $1 billion.
Under the terms of a settlement of litigation initiated in 1988, the
Manager, until July 31, 1997, made monthly rebates of a portion of its fee for
investment management services in the amount of 3.875% of such fee. During the
year ended December 31, 1997, $177,551 in rebates was offset against management
fees of the Fund.
NOTE 3. CAPITAL TRANSACTIONS
During the year ended December 31, 1997 and December 31, 1996,
distributions in the amount of $48,707,853 and $40,600,510, respectively, were
paid in newly issued shares valued at market value or net asset value, but not
less than 95% of market value, resulting in the issuance of 3,656,443 and
3,687,524 shares, respectively.
NOTE 4. SECURITIES TRANSACTIONS
Realized gains and losses are recorded on the identified cost basis for
both financial reporting and federal income tax purposes. The cost of
investments purchased and the proceeds from investments sold excluding
short-term debt obligations for the year ended December 31, 1997, were
$1,061,079,219 and $1,122,256,154, respectively.
The Fund may enter into repurchase agreements and require the seller of
the instrument to maintain on deposit with the Fund's custodian bank or in the
Federal Reserve Book-Entry System securities in the amount at all times equal to
or in excess of the value of the repurchase agreement, plus accrued interest.
The Fund may experience costs and delays in liquidating the collateral if the
issuer defaults or enters bankruptcy.
NOTE 5. DISTRIBUTIONS TO SHAREHOLDERS
All-Star currently has a policy of paying distributions on its common
shares totaling approximately 10% of its net asset value per year, payable in
four quarterly distributions of 2.5% of All-Star's net asset value at the close
of the New York Stock Exchange on the Friday prior to each quarterly declaration
date. Distributions to shareholders are recorded on the ex-dividend date. The
characterization of income and capital gain distributions are determined in
accordance with federal income tax regulations, which may differ from generally
accepted accounting principles. Reclassifications are made to the Fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
................................................................................
Independent Auditors' Report
[Logo: KPMG Peat Marwick LLP]
The Board of Trustees and Shareholders
Liberty All-Star Equity Fund:
We have audited the accompanying statement of assets and liabilities of Liberty
All-Star Equity Fund (the Fund), including the schedule of investments, as of
December 31, 1997, and the related statement of operations for the year then
ended, statements of changes in net assets for each of the years in the two-year
period then ended, and financial highlights for each of the years in the
ten-year period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Investment securities held in custody are
confirmed to us by the custodian. As to securities purchased and sold, but not
received or delivered, we request confirmations from brokers and, where replies
are not received, we carry out other appropriate procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Liberty All-Star Equity Fund as of December 31, 1997, the results of its
operations for the year then ended, changes in its net assets for each of the
years in the two-year period then ended, and financial highlights for each of
the years in the ten-year period then ended, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
February 13, 1998
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(1) Financial Statements
Included in Part A
------------------
Financial highlights for ten years ended December 31, 1997
Included in Part B
------------------
Schedule of Investments, December 31, 1997
Statement of Assets and Liabilities, December 31, 1997
Statement of Operations for the year ended December 31, 1997
Statements of Changes in Net Assets for the years ended
December 31, 1997 and December 31, 1996
Financial Highlights for five years ended December 31, 1997
Notes to Financial Statements
Independent Auditors' Report
(2) Exhibits
(a) Amended and Restated Declaration Trust(2)
(a)(1) Amendment to Declaration of Trust dated May 11,
1993(6)
(b) Restated By-laws, as amended through April 18, 1996
(c) Not applicable
(d)(1) Specimen certificate for shares of beneficial
interest(1)
(d)(2) Form of subscription certificate
(e) Automatic Dividend Reinvestment and Cash Purchase
Plan Brochure, as amended effective
October 23, 1995
(f) Inapplicable
(g)(1) Fund Management Agreement dated May 15, 1997 between
Registrant and Liberty Asset Management Company(4)
(g)(1)(a) Agreement of Amendment dated August 1, 1997 to Fund Management
Agreement dated May 15, 1987.
(g)(2)(a) Composite Form of Portfolio
Management Agreement among Registrant, Liberty Asset
Management Company and (i) J.P. Morgan Investment
Management Inc. and (ii) Wilke/Thompson Capital
Management, Inc.(6)
(g)(2)(a)(i)Letter Agreement dated July 1, 1996
between J.P. Morgan Investment Management Inc. and
Liberty Asset Management Company.
(g)(2)(b) Portfolio Management Agreement dated
November 5, 1997 among Registrant, Liberty Asset
Management Company and Oppenheimer Capital
(g)(2)(c) Portfolio Management Agreement dated
July 1, 1993 among Registrant, Liberty Asset
Management Company and Palley-Needelman Asset
Management, Inc.(5)
(g)(2)(d) Portfolio Management Agreement dated
November 1, 1997 among Registrant, Liberty Asset
Management Company and Westwood Management
Corporation.
(g)(2)(e) Form of Amendment dated August 1,
1997 to Portfolio Management Agreements among
Registrant, Liberty Asset Management Company and each
of J.P. Morgan Investment Management, Inc., Palley
Needelman Asset Management, Inc. and Wilke/Thompson
Capital Management, Inc.
(h) Inapplicable
(i) Inapplicable
(j) Custodian Agreement with Boston Safe Deposit and
Trust Company
(k)(1) Registrar, Transfer Agency and Service Agreement with
State Street Bank and Trust Company(3)
(2) Pricing and Bookkeeping Agreement
dated January 1, 1996 between Registrant and Colonial
Management Associates, Inc.
(3) Form of Subscription Rights Agency
Agreement between Registrant and State Street
Bank & Trust Company
(l) Opinion of counsel
(m) Inapplicable
(n) Consent of independent auditors
----------------------
(1) Filed as an Exhibit to Amendment No.
3 to Registrant's Registration Statement on Form N-2
(File No. 811-4809), and incorporated herein by reference.
(2) Filed as an Exhibit to Pre-Effective
Amendment No. 2 to Registrant's Registration Statement on
Form N-2 (File No. 33-5132), and incorporated herein by
reference.
(3) Filed as an Exhibit to Registrant's
Registration Statement on Form N-2 (File No. 33-5132) as
initially filed August 20, 1986 or to Pre-Effective
Amendment No. 1 thereto, and incorporated herein by
reference.
(4) Filed as an Exhibit to Amendment No.
4 to Registrant's Registration Statement on form N-2
(File No. 811-4809), and incorporated herein by reference.
(5) Filed as an exhibit to Registrant's
Registration Statement (File No. 33-66022).
(6) Attached as Appendix B to Registrant's definitive Proxy Statement dated
March 1, 1997 for its Annual Meeting of Shareholders held April 16,
1997, and incorporated herein by reference.
Item 25. Marketing Arrangements
Not applicable.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses expected
to be incurred in connection with the offering described in this
Registration Statement:
Registration fee..................... $17,477
New York Stock Exchange Listing fee.. 15,113
Printing of Prospectus............... 16,000
Mailing.............................. 55,000
Subscription Agent fees.............. 100,000
Accounting fees and expense.......... 5,000
Legal fees and expenses.............. 5,000
Miscellaneous........................ 6,410
-------
Total $220,000
=======
Item 27. Persons Controlled by or Under Common Control of Registrant
Not applicable
Item 28. Number of Holders of Securities
Title of Class No. of Record Holders
-------------- ------------------------
(as of February 13, 1998)
Shares of Bene-
ficial Interest,
without par value 7,118
Item 29. Indemnification
---------------
Reference is made to Item 3, hereby incorporated by reference, to
Registrant's Registration Statement on Form N-2 (File No. 33-44389) for
provisions of Registrant's Declaration of Trust relating to indemnification and
exculpation.
The Registrant, Liberty Asset Management Company and their respective
trustees, directors and officers are insured by a directors and officers/errors
and omissions liability policy.
Item 30. Business and Other Connections of Investment Adviser
----------------------------------------------------
Liberty Asset Management Company, Registrant's Fund Manager, was organized
in August 1985 and is primarily engaged in the corporate administration of and
the provision of its multi-management services (see "The Multi-Manager Concept"
in the Prospectus) for Registrant and Liberty All-Star Growth Fund, Inc.
(formerly "The Charles Allmon Trust, Inc."), another multi-managed closed-end
investment company. It also provides its multi-management services to Liberty
All-Star Equity Fund, Variable Series, a multi-managed open-end investment
company which serves as an investment vehicle for variable annuity contracts
issued by affiliated insurance companies.
Kenneth R. Leibler, Chairman of the Board, Lindsay Cook, Senior Vice
President and a Director, C. Allen Merritt, Jr., Vice President, Treasurer and a
Director, John A. Benning, Vice President and Secretary, and Michael E.
Santilli, Controller, of Liberty Asset Management Company, are each officers
(and in the case of Mr. Leibler, a Director) of and devote substantially all
their time to the business of Liberty Asset Management Company's parent, Liberty
Financial Companies, Inc. The remaining officers and directors of Liberty Asset
Management Company devote all or substantially all of their time to its affairs.
The business and other connections of the officers and directors of the
Portfolio Managers of Registrant are listed in Schedules A and D of their
respective ADV Forms as currently on file with the Commission, which information
is hereby incorporated herein by reference. The file numbers of such ADV Forms
are as follows:
Oppenheimer Capital 801-10708
Palley-Needelman Asset Management, Inc. 801-9755
J.P. Morgan Investment Management Inc. 801-21011
Wilke/Thompson Capital Management, Inc. 801-30224
Westwood Management Corporation 801-18727
Item 31. Location of Accounts and Records
The records of Registrant specified in items (1) through (3) and (5)
through (8) of Rule 31a-1(b) under the Investment Company Act of 1940 are
maintained by Registrant's pricing and bookkeeping agent, Colonial Management
Associates, Inc., One Financial Center, Boston, MA 02111.
The records of Registrant specified in items (4) and (11) of Rule 31a-1(b)
are maintained by Registrant's Fund Manager, Liberty Asset Management Company,
Federal Reserve Plaza, Boston, MA 02210.
The records of Registrant specified in items (9) and (10) of Rule 31a-1(b)
with respect to portfolio transactions initiated by a Portfolio Manager of
Registrant are maintained by that Portfolio Manager (see Appendix A to Part I).
Item 32. Management Services
Inapplicable
Item 33 Undertakings
(1) Registrant undertakes to suspend the offering of the shares covered
hereby until it amends its prospectus contained herein if (1) subsequent to the
effective date of this Registration Statement, its net asset value per share
declines more than 10 percent from its net assets value per share as of the
effective date of this Registration Statement, or (2) its net asset value
increases to an amount greater than its net proceeds as stated in the prospectus
contained herein.
(2) Not applicable
(3) Not applicable
(4) The Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in the Registration Statement;"
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(5) The Registrant hereby undertakes that:
a. for the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant under Rule 497(h)
under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective; and
b. for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering thereof.
(6) The Registrant hereby 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement on Form N-2 (File No. 33-46741) to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston and
the Commonwealth of Massachusetts on March 11, 1998.
LIBERTY ALL-STAR EQUITY FUND
By:\s\ RICHARD R. CHRISTENSEN
-------------------------------------
Richard R. Christensen, President
Pursuant to the requirements of the Securities Act 1993, this Amendment to
the Registration Statement on Form N-2 has been signed below by the following
persons in the capacities and on the dates indicated.
(Signature) (Title and Capacity) (Date)
- ----------------------- -------------------- --------
RICHARD R. CHRISTENSEN* President March 11, 1998
Richard R. Christensen (Chief Executive Officer)
TIMOTHY J. JACOBY* Treasurer and Controller March 11, 1998
Timothy J. Jacoby (Principal Financial and
Accounting Officer)
ROBERT J. BIRNBAUM* Trustee March 11, 1998
Robert J. Birnbaum
HAROLD W. COGGER* Trustee March 11, 1998
Harold W. Cogger
JAMES E. GRINNELL* Trustee March 11, 1998
James E. Grinnell
RICHARD W. LOWRY * Trustee March 11, 1998
Richard W. Lowry
*By/s/ John L. Davenport
----------------------
John L. Davenport,
Attorney-in-fact
