PRESIDENT'S LETTER
................................................................................
To Our Fellow Shareholders: May 1999
The net asset value (NAV) of a common share of the Fund decreased from $14.22
on December 31, 1998, to $13.96 on March 31, 1999, after deducting the
distribution of 34 cents declared during the quarter. The market price for a
share of the Fund traded in a range from $12.25 to $13.25 before closing the
quarter at $12.813. The ending price represented a discount to NAV of 8.2
percent compared with a discount to NAV of 9.0 percent on December 31, 1998. Key
investment results and comparisons are noted below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
First Quarter Latest 12 Months
- -------------------------------------------------------------------------------------------------------------------
LIBERTY ALL-STAR EQUITY FUND:
<S> <C> <C>
Shares Valued at Net Asset Value 0.6% 5.9%
Shares Valued at Market Price with Dividends Reinvested 1.6% 1.1%
Fund's Closing Price Range $12.375 to $13.063 $10.50 to $14.50
Fund's (Discount)/Premium Range (5.6%) to (11.0%) (9.2%) to 2.5%
Lipper Growth & Income Mutual Fund Average 1.8% 5%
S&P 500 Stock Index 5.0% 18.5%
Dow Jones Industrial Average 7.0% 13.1%
Figures shown for the Fund and the Lipper Growth & Income Mutual Fund Average are total returns, which include
dividends, after deduction of fund expenses. The Fund's market price reinvested return for the latest 12
months assumes the exercise of all primary subscription rights in the recent rights offering. Figures shown
for the unmanaged S&P 500 Index and Dow Jones Industrial Average are total returns including income.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
As the table shows, the Fund's NAV increased 0.6 percent during the first
quarter, which compares with increases of 1.8 percent for the Lipper Growth &
Income Mutual Fund Average (the Fund's primary benchmark) and 5.0 percent and
7.0 percent for the S&P 500 Stock Index and Dow Jones Industrial Average,
respectively. For the latest 12 months, the Fund's NAV was up 5.9 percent
compared with 5.5 percent for the Lipper Growth & Income Mutual Fund Average
and 18.5 percent and 13.1 percent for the S&P 500 Stock Index and Dow Jones
Industrial Average, respectively.
The extraordinarily narrow market leadership experienced during 1998 came to
a climax during the first quarter, as the large capitalization growth stocks
again dominated the widely followed S&P 500 Stock Index. This narrow leadership
has caused considerable frustration for portfolio managers, particularly those
that have more value driven approaches. The entire 5 percent gain in the S&P 500
Stock Index during the first quarter was attributable to just 18 stocks, with
more than half the gain concentrated in just five names.
1
<PAGE>
PRESIDENT'S LETTER
................................................................................
In April, however, there was a shift in market leadership to cyclical and
more economically sensitive stocks, which has benefited value managers. The
Russell Large Cap Value Index outperformed the Russell Large Cap Growth Index by
more than 9 percent in April, its largest monthly advantage in more than 15
years. This shift in leadership has also been accompanied by an improvement in
the market's overall breadth, which simply means more stocks are participating
in the market's advance. This is a welcome and healthy trend if it can be
sustained, and since the Fund's multi-managed approach combines both growth and
value styles, it benefits from these unpredictable shifts in leadership and,
thereby, provides more consistent returns.
Mr. Richard R. (Chris) Christensen, President of the Fund since 1994, has
retired and I have been elected by the Board of Trustees to succeed him. I will
also continue to serve as Chief Investment Officer of the Fund. Chris served the
Fund with distinction; we thank him and wish him well in his retirement.
The annual meeting of shareholders was held on April 21, 1999, where John V.
Carberry was elected and James E. Grinnell was re-elected as Trustees. Mr.
Grinnell has served as Trustee since the Fund's inception in 1986 and Mr.
Carberry was elected by the Board of Trustees on June 30, 1998. All other
Trustees continue in office and all other proposals placed before the meeting
were approved.
Thank you for your continuing support of the Fund.
Sincerely,
/s/ William R. Parmentier, Jr.
- -------------------------------------
William R. Parmentier, Jr.
President and Chief Executive Officer
Liberty All-Star Equity Fund and
Liberty Asset Management Company
2
<PAGE>
SHAREHOLDERS' INVESTMENT GROWTH AS OF MARCH 31, 1999
................................................................................
<TABLE>
<CAPTION>
Net Asset Net Asset Value Additional Investments
Value of of Shares Acquired Made Through Rights
One Share Through Dividend Offerings
Reinvestment
<S> <C> <C>
10.17 10.17 10.17
10.87 10.87 10.87
10.03 11.09 11.09
10.72 10.77 10.77
10.81 10.86 10.86
11.23 11.32 11.32
11.73 11.82 11.82
11.6 12.39 12.39
10.87 11.94 11.94
8.31 9.12 9.12
7.58 8.32 8.32
7.9 9.01 9.01
8.29 9.45 9.45
8.64 9.85 9.85
8.29 9.51 9.51
8.3 9.52 9.52
8.26 9.47 9.47
8.43 9.95 9.95
8.33 9.83 9.83
8.12 9.58 9.58
8.28 10.05 10.05
8.43 10.23 10.23
8.3 10.08 10.08
8.29 10.34 10.34
8.83 11.01 11.01
8.67 10.81 10.81
8.6 11.03 11.03
9.01 11.56 11.56
9.4 12.06 12.06
9.07 12 12
9.81 12.98 12.98
10.03 13.27 13.27
9.82 13.38 13.38
9.61 13.1 13.1
9.72 13.25 13.25
9.58 13.44 13.44
9.02 12.66 12.66
9.11 12.78 12.78
9.14 13.18 13.18
9 12.98 12.98
9.92 14.3 14.3
9.72 14.42 14.42
9.69 14.38 14.38
8.91 13.22 13.22
8.23 12.59 12.59
8.21 12.56 12.56
8.77 13.42 13.42
8.92 14.01 14.01
9.37 14.72 14.72
10.04 15.77 15.77
10.18 16.42 16.42
10.11 16.31 16.31
10.62 17.13 17.13
9.87 16.33 16.33
10.35 17.13 17.13
10.39 17.65 17.65
10.33 17.55 17.55
10.52 17.87 17.87
9.92 17.28 17.28
11.2 19.51 19.51
11 19.16 19.16
10.77 19.25 19.25
10.56 18.87 18.87
10.66 19.05 20.96
10.76 19.23 21.15
10.23 18.77 20.65
10.69 19.59 21.56
10.21 19.18 21.11
10.45 19.64 21.61
10.55 19.82 21.82
10.68 20.57 22.64
10.78 20.76 22.85
10.86 20.92 23.02
10.7 20.61 22.68
10.75 21.23 23.37
10.42 20.58 22.65
10.52 21.29 23.44
10.56 21.37 23.53
10.54 21.33 23.48
10.73 22.26 24.52
10.79 22.39 24.66
10.84 22.49 26.27
10.34 22 25.69
10.4 22.48 26.25
10.77 23.28 27.18
10.34 22.91 26.75
9.85 21.83 25.48
9.93 22 25.69
9.8 22.26 25.98
9.48 21.53 25.13
9.78 22.21 25.93
9.99 23.28 27.17
9.69 22.58 27.86
9.86 22.97 28.35
9.17 21.97 27.11
9.26 22.19 27.79
9.4 22.52 26.75
9.49 23.31 28.78
9.83 24.14 29.78
9.98 24.51 30.24
10.13 25.49 31.44
10.53 26.49 32.69
10.95 27.55 33.99
10.74 27.73 34.21
11.05 28.53 35.19
10.93 28.22 34.81
11.04 29.23 36.07
11.03 29.21 36.04
11.39 30.16 37.21
11.57 30.64 37.8
11.42 31.01 38.26
11.65 31.63 39.03
11.62 32.42 40.01
11.53 32.17 39.7
10.88 30.36 37.46
10.98 31.41 37.5
11.71 33.5 38.5
11.88 33.99 41.94
12.35 36.31 44.81
11.95 35.54 43.86
12.65 37.62 46.43
12.55 37.32 46.06
11.73 35.81 44.19
12.19 37.22 45.92
12.77 39.96 49.3
13.31 41.65 51.39
14.29 44.71 55.17
13.34 42.81 52.83
14.01 44.96 55.48
13.51 43.35 53.5
13.52 44.49 54.92
13.32 45.02 55.57
13.3 44.95 55.49
14.4 48.67 60.08
14.8 51.24 63.26
14.93 51.64 63.77
14.05 48.6 60.01
14.42 51.29 65.83
14.12 50.22 61.63
11.46 41.96 49.33
12.26 44.88 57.6
13.1 47.96 61.64
13.39 50.35 64.61
14.22 53.47 68.61
14.12 50.22 61.63
11.46 41.96 49.33
12.26 44.88 57.6
13.1 47.96 61.64
13.39 50.35 64.61
14.22 53.47 68.61
14.27 53.66 68.65
13.79 51.85 66.54
13.96 53.86 69.12
</TABLE>
To evaluate your investment in All-Star, these values should be used. Each shows
how your investment has fared by keeping distributions at work in the Fund. The
upper value includes additional investments made through rights offerings in
1992, 1993, 1994 and 1998.
This is the net asset value of one share of All-Star as of 3/31/99.
Since its inception, the Fund has maintained an optional Automatic Dividend
Reinvestment and Cash Purchase Plan, whereby distributions are automatically
invested in additional shares of the Fund. In addition, four rights offerings
have allowed investors to acquire additional shares at a discount from the
market price. The rights offering in April 1992 allowed investors to acquire one
share at $10.05 for every 10 shares held; the one in October 1993 allowed
investors to acquire one share at $10.41 for every 15 shares held; the one in
September 1994 allowed investors to acquire one share at $9.14 for every 15
shares held; and the one in April 1998 allowed investors to acquire one share at
$12.83 for every 20 shares held.
As the graph above shows, an original share, assuming participation in all
of the rights offerings and reinvestment of all distributions, has grown to a
net asset value of $69.12 (4.951 shares times the current $13.96 net asset value
per share) and a market price value of $63.43 (4.951 shares times the current
$12.813 market price per share). Excluding the rights offerings shares, an
original share has grown to 3.858 shares. Thus, the original share has grown to
a net asset value of $53.86 (3.858 shares times the current $13.96 net asset
value per share) and a market price value of $49.43 (3.858 shares times the
current $12.813 market price per share).
3
<PAGE>
A TABLE OF PER-SHARE VALUES, DISTRIBUTIONS AND REINVESTMENT
................................................................................
<TABLE>
<CAPTION>
Shares Shares
Shares Purchased Acquired Shares NAV(1) Market Price Total Market
Owned At Through Through Owned Per Share Total NAV Per Share Price Of
Beginning Per Share Reinvestment Rights At End At End Of Shares At End Shares
Year Of Period Distributions Program Offering Of Period Of Period Owned Of Period Owned
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 1.000 $1.18 .140 -- 1.140 $7.90 $9.01 $6.00 $6.84
- -----------------------------------------------------------------------------------------------------------------------
1988 1.140 0.64 .107 -- 1.247 8.29 10.34 7.25 9.04
- -----------------------------------------------------------------------------------------------------------------------
1989 1.247 0.95 .156 -- 1.403 9.58 13.44 8.25 11.57
- -----------------------------------------------------------------------------------------------------------------------
1990 1.403 0.90 .167 -- 1.570 8.92 14.00 7.75 12.17
- -----------------------------------------------------------------------------------------------------------------------
1991 1.570 1.02 .171 -- 1.741 11.20 19.50 10.75 18.72
- -----------------------------------------------------------------------------------------------------------------------
1992 1.741 1.07 .199 0.179(2) 2.119 10.78 22.84 11.125 23.57
- -----------------------------------------------------------------------------------------------------------------------
1993 2.119 1.25(3) .266 0.138(2) 2.523 10.40 26.24 11.125 28.07
- -----------------------------------------------------------------------------------------------------------------------
1994 2.523 1.00 .277 0.155(2) 2.955 9.26 27.36 8.50 25.12
- -----------------------------------------------------------------------------------------------------------------------
1995 2.955 1.04 .310 -- 3.265 11.03 36.01 10.875 35.51
- -----------------------------------------------------------------------------------------------------------------------
1996 3.265 1.31(3) .403 -- 3.668 11.95 43.83 11.25 41.27
- -----------------------------------------------------------------------------------------------------------------------
1997 3.668 1.69(3) .501 -- 4.169 13.32 55.53 13.313 55.50
- -----------------------------------------------------------------------------------------------------------------------
1998 4.169 1.40 .483 0.173(2) 4.825 14.22 68.61 12.938 62.42
- -----------------------------------------------------------------------------------------------------------------------
1999
1st Quarter 4.825 0.34 .126 -- 4.951 13.96 69.12 12.813 63.43
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Net Asset Value.
2. 1992: Rights offering completed in April 1992. One share offered at $10.05
for every 10 shares owned.
1993: Rights offering completed in October 1993. One share offered at $10.41
for every 15 shares owned.
1994: Rights offering completed in September 1994. One share offered at $9.14
for every 15 shares owned.
1998: Rights offering completed in April 1998. One share offered at $12.83
for every 20 shares owned.
3. 1993: Includes the $0.18 per share tax credit passed through to shareholders,
which was assumed to be reinvested at the year-end market price of
$11.125.
1996: Includes the $0.13 per share tax credit passed through to shareholders,
which was assumed to be reinvested at the year-end market price of
$11.25.
1997: Includes the $0.36 per share tax credit passed through to shareholders,
which was assumed to be reinvested at the year-end market price of
$13.313.
4
<PAGE>
PORTFOLIO MANAGERS / PORTFOLIO CHARACTERISTICS
................................................................................
THE FUND'S FIVE PORTFOLIO MANAGERS AND THE INVESTMENT STYLES THEY PRACTICE ARE:
BOSTON PARTNERS ASSET MANAGEMENT, L.P.
Companies with low price-to-earnings and price-to-book ratios where a catalyst
for positive change has been identified.
J.P. MORGAN INVESTMENT MANAGEMENT INC.
Companies diversified across all sectors that are undervalued relative to the
firm's projected growth rates.
OPPENHEIMER CAPITAL
Companies that exhibit the ability to generate excess cash flow while earning
high returns on invested capital.
WESTWOOD MANAGEMENT CORPORATION
Growth companies selling at reasonable valuations based on the firm's earnings
projections which are not yet being reflected in consensus estimates.
WILKE/THOMPSON CAPITAL MANAGEMENT, INC.
Growth companies that demonstrate the ability to sustain strong secular growth,
notwithstanding economic conditions, across a broad range of market
capitalizations.
MANAGERS' DIFFERING INVESTMENT STYLES ARE REFLECTED IN PORTFOLIO CHARACTERISTICS
The Portfolio Characteristics table below is a regular feature of the Fund's
shareholder reports. It serves as a useful tool for understanding the value of a
multi-managed portfolio. The characteristics are different for each of the
Fund's five Portfolio Managers. These differences are a reflection of the fact
that each pursues a different Investment Style. The shaded column highlights the
characteristics of the Fund as a whole, while the final column shows portfolio
characteristics for the S&P 500 Stock Index.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS INVESTMENT STYLE SPECTRUM
AS OF MARCH 31, 1999
(UNAUDITED) VALUE GROWTH
---------------------------------------------------------
Boston J.P. Oppen- Wilke/ Total S&P
Partners Morgan heimer Westwood Thompson Fund 500 Index
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Number of Holdings 32 79 28 45 46 195 500
- ---------------------------------------------------------------------------------------------------------------------
Percent of Holdings in Top 10 44% 28% 59% 30% 38% 18% 22%
- ---------------------------------------------------------------------------------------------------------------------
Weighted Average Market
Capitalization (billions) $32 $62 $56 $41 $50 $48 $101.3
- ---------------------------------------------------------------------------------------------------------------------
Average Five-Year Earnings
Per Share Growth 13% 15% 19% 18% 37% 20% 18%
- ---------------------------------------------------------------------------------------------------------------------
Dividend Yield 1.4% 1.3% 1.3% 1.4% 0.2% 1.2% 1.3%
- ---------------------------------------------------------------------------------------------------------------------
Average Price/Earnings Ratio 15x 25x 20x 21x 41x 24x 26x
- ---------------------------------------------------------------------------------------------------------------------
Average Price/Book Value Ratio 3.7x 4.4x 4.2x 4.4x 7.6x 4.8x 5.9x
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
TOP 50 HOLDINGS
................................................................................
<TABLE>
<CAPTION>
RANK RANK MARKET
AS OF AS OF VALUE PERCENT OF
3/31/99 12/31/98 SECURITY NAME ($000) NET ASSETS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 1 Citigroup, Inc. $40,056 3.0%
2 3 Freddie Mac 23,741 1.8
3 7 Monsanto Co. 23,672 1.8
4 2 MCI WorldCom, Inc. 23,545 1.8
5 79 BankAmerica Corp. 20,625 1.6
6 15 Microsoft Corp. 20,569 1.6
7 14 CIGNA Corp. 19,914 1.5
8 5 Waste Management, Inc. 19,519 1.5
9 8 AFLAC, Inc. 19,053 1.4
10 16 Nokia Corp. ADR 17,133 1.3
11 17 Sprint Corp. 16,681 1.3
12 26 Morgan Stanley Dean Witter & Co. 15,680 1.2
13 10 International Business Machines Corp. 15,097 1.1
14 18 Cisco Systems, Inc. 14,747 1.1
15 12 CVS Corp. 14,172 1.1
16 20 Intel Corp. 14,128 1.1
17 9 XL Capital Ltd.* 13,365 1.0
18 21 Avon Products, Inc. 12,707 1.0
19 47 Temple-Inland, Inc. 14,425 0.9
20 22 American Home Products Corp. 12,306 0.9
21 11 Lockheed Martin Corp. 12,109 0.9
22 68 Peco Energy Co. 11,711 0.9
23 27 Conseco, Inc. 11,186 0.8
24 19 Staples, Inc. 11,097 0.8
25 174 Federated Department Stores, Inc. 10,770 0.8
26 61 Lucent Technologies, Inc. 10,678 0.8
27 37 Boeing Co. 10,599 0.8
28 84 Conoco, Inc. 10,324 0.8
29 70 Northern Telecom Limited 10,257 0.8
30 108 General Motors Corp. 10,156 0.8
31 56 AMR Corp. 9,956 0.8
32 23 GTE Corp. 9,910 0.7
33 71 Hewlett-Packard Co. 9,867 0.7
34 28 Fleet Financial Group, Inc. 9,862 0.7
35 90 Nabisco Holdings Corp. 9,713 0.7
36 86 Union Pacific Corp. 9,512 0.7
37 4 AT&T Corp. 9,410 0.7
38 49 Ingersoll-Rand Co. 9,116 0.7
39 62 Kohl's Corp. 9,111 0.7
40 78 Allstate Corp. 9,028 0.7
41 32 Cintas Corp. 8,963 0.7
42 60 General Electric Co. 8,850 0.7
43 45 Wells Fargo & Co. 8,825 0.7
44 38 ACE Limited 8,804 0.7
45 41 May Department Stores Co. 8,803 0.7
46 46 Home Depot, Inc. 8,796 0.7
47 40 Starbucks Corp. 8,775 0.7
48 New Computer Associates International, Inc. 8,713 0.7
49 New Tiffany & Co. 8,641 0.7
50 69 Linear Technology Corp. 8,482 0.6
</TABLE>
* Formerly EXEL Limited.
6
<PAGE>
MAJOR STOCK CHANGES IN THE FIRST QUARTER
...............................................................................
The following are the major ($4.0 million or more) stock changes-- both
additions and reductions -- that were made in the Fund's portfolio during the
first quarter of 1999.
<TABLE>
<CAPTION>
SHARES
---------------------------------------------------------
HELD AS
SECURITY NAME ADDITIONS REDUCTIONS OF 3/31/99
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Avery Dennison Corp. 120,500 120,500
BankAmerica Corp. 174,400 293,034
BMC Software, Inc. 88,250 88,250
Computer Associates International, Inc. 245,000 245,000
Federated Department Stores, Inc. 221,300 268,400
Florida Progress Corp. 103,800 183,800
General Motors Corp. 47,500 116,900
Intuit, Inc. 43,450 43,450
The Limited, Inc. 208,700 208,700
Linens 'n Things, Inc. 132,000 132,000
Medtronic, Inc. 67,150 67,150
Monsanto Co. 159,200 515,300
Nucor Corp. 181,600 181,600
P G & E Corp. 132,500 242,200
PNC Bank Corp. 122,700 122,700
Tiffany & Co. 115,600 115,600
AT&T Corp. (157,600) 117,900
Albertson's, Inc. (113,600) 37,800
America Online, Inc.* (48,600) 37,400
Anheuser-Busch Companies, Inc. (65,200) 94,400
Atlantic Richfield Co. (72,700) 102,220
Bell Atlantic Corp. (111,300) 58,200
Campbell Soup Co. (132,900) 0
Catalina Marketing Corp. (71,100) 0
Citigroup, Inc. (71,000) 627,100
Compaq Computer Corp. (213,500) 167,000
Dayton Hudson Corp. (176,600) 0
Elan Corp. ADR (78,200) 47,250
Electronic Arts, Inc. (113,200) 0
Eli Lilly & Co. (89,350) 39,150
EMC Corp. (56,800) 23,300
First Union Corp. (175,900) 108,200
Houston Industries, Inc. (51,200) 0
MCI WorldCom, Inc. (105,000) 265,853
Rite Aid Corp. (98,600) 0
Transamerica Corp.* (170,000) 0
</TABLE>
* Adjusted for stock split.
7
<PAGE>
MANAGER INTERVIEW
................................................................................
[PHOTO OF JOHN G. LINDENTHAL]
[CAPTION]
JOHN G. LINDENTHAL
Oppenheimer Capital
Manager Interview: Oppenheimer Capital Searches
for Companies with Quality Management Dedicated
to Value Creation -- and When It Finds Them It's
Likely to Be a Long-Term Investor
Oppenheimer Capital is one of All-Star's five portfolio managers. Oppenheimer is
a value style manager investing in the stocks of quality companies with sound
business prospects that are considered undervalued. Research focuses on cash
flow analysis. Purchase candidates exhibit a high return on equity, large
undedicated cash flow and reasonable prices in relation to intrinsic value. We
recently had the opportunity to talk with Managing Director John G. Lindenthal.
The Fund Manager, Liberty Asset Management Company (LAMCO), serves as moderator
for the discussion.
[CALLOUT]
The views expressed in this interview represent the manager's views at the time
of the discussion and are subject to change.
[END CALLOUT]
LAMCO: Let's open up with a look at the overall stock market. The Dow Jones
Industrial Average closed above 10,000 for the first time on March 29. More than
anything, this event may serve as a symbol of this remarkable decade in the
equity markets. What broad observations would you make about the 1990s and their
meaning for investors?
LINDENTHAL: I think in terms of broad observations, the most overwhelming one of
all is that during most of the decade inflation has been very low. When
inflation is low we know historically that financial assets do well. And with
low inflation we've had a pretty tame interest rate environment and a friendly
Federal Reserve. When you have the Fed on your side, that creates excess
liquidity for the stock market. But all of this is keyed off of the fact that
inflation has been low, not only in the United States, but around the world.
Another factor is that during the 1990s management practices have improved
dramatically. In other words, companies are just better managed. There's more of
an emphasis on return on invested capital, free cash flow and shareholder value.
There's little doubt that companies have also benefited from the use of
technology. Most companies have spent heavily to improve their internal
communications and by using technology both internally and externally they've
been able to improve productivity. One reason that the economy has done so well
while inflation has remained quiet is productivity has been very strong.
All of this has come together to give us the kind of decade where the Dow
Jones Industrial Average started out at about 2,800 and if things hold together
the rest of this year will end up somewhere around 10,000 or higher.
LAMCO: Some people feel that the Internet is going to drive even more inflation
out of the economy. What does that say about the future?
LINDENTHAL: We've seen companies learn how to sell through the Internet and
we've seen consumers learn how to purchase through the Internet. And, yes,
companies have been able to take costs out by doing this. However, I still
believe that future inflation will remain tied to monetary policy and what
happens there. So, the Internet will certainly help but it's really what happens
with monetary policy that's going to make the difference.
LAMCO: How about the meaning of all this for investors?
[CALLOUT]
" ... individual investors have created a lot of their own good fortune by
staying the course. Bottom line is, this has been the decade of the individual
investor."
[END CALLOUT]
LINDENTHAL: Yes, that was the other part of the original question. To me, one
major thought to reflect on is that the investors who have done the best over
this remarkable decade are the ones who have stayed pretty fully invested.
Another way of saying it is that the ones who have done best are the ones who
have been patient because there has been plenty of volatility along the way.
These investors have persevered and stayed either with funds or individual
companies that they know and like. So, I think individual
8
<PAGE>
MANAGER INTERVIEW
................................................................................
investors have created a lot of their own good fortune by staying the course.
Bottom line is, this has been the decade of the individual investor.
LAMCO: Good thought. Let's shift to the market as it stands right now. One of
the major stories continues to be the performance gap between large cap stocks
and small/mid-cap stocks. If anything, it grew wider during the first quarter.
What do you think has to happen in order for the market to broaden out?
[CALLOUT]
"We've had this tiered market in which the better performers by a good margin
have been the larger cap growth stocks, primarily technology ... This will
change once we begin to benefit from heightened economic activity around the
world."
[END CALLOUT]
LINDENTHAL: That's right, market breadth actually peaked a year ago. We've had
this tiered market in which the better performers by a good margin have been the
larger cap growth stocks, primarily technology. It's somewhat bothersome, at
least from a technical standpoint. Let's try to understand this phenomenon.
In part, this move has been driven by the trend toward index investing. That
drives money toward the larger cap stocks that are in the better known indexes.
But, there's another factor -- one that operates on a global scale -- that
accounts for a lot of it. It's this worldwide deflationary environment we've
been in. It's an environment in which higher prices have been exceedingly
difficult for companies to achieve. That goes for big companies and small ones.
But, the big companies have kept the pressure on because they can grow their
businesses globally and they open up new markets and get higher revenues by
growing their unit sales. Small to mid-sized companies don't necessarily have
those advantages and, therefore, they have had a tougher time competing. The
stock market, meanwhile, has gravitated toward the best relative earnings
growth, and that's been in large companies. As a result, price/earnings ratios
have gone up for the large companies that are growing while they've actually
declined for the rest of the market.
So, what changes this? This will change once we begin to benefit from
heightened economic activity around the world. If we see worldwide demand
strengthen it will take some of the heat off the very competitive pricing
environment we've had worldwide. Once that happens, you'll get better earnings
out of small and medium-sized companies, and the market will pay more for those
earnings. Having said that, I think this is something that will evolve over the
next two or three years. We're not there yet. It will take recovery in Asia and
South America as well as in certain parts of Europe before we'll have a more
favorable supply/demand environment.
LAMCO: Does this overvaluation/undervaluation scenario create any buying
opportunities for you?
LINDENTHAL: We are value managers, so, yes, we have found some very compelling
opportunities. I could mention a couple mid-cap stocks that we own where we
think the values are terrific, such as Countrywide Credit and Conseco in the
financial area. In the industrial area, we own one of the largest printers in
the country, R.R. Donnelly, which is more of a medium cap company. Another
industrial, Dover, is a very solid company.
LAMCO: You bring up financials -- you've long been overweighted in that sector.
You mention industrials, too. How is Oppenheimer's portion of the Fund weighted
from a sector standpoint?
[CALLOUT]
"We've been in financial stocks for the same reason the stock market has been
strong: low inflation, low interest rate environment in which financial assets
and financial companies can thrive."
[END CALLOUT]
LINDENTHAL: We're still close to 40 percent in financial stocks and we have been
heavily weighted in the sector for a long time, as you indicate. We've been in
financials for the same reason the stock market has been strong: low inflation,
low interest rate environment in which financial assets and financial companies
can thrive. In terms of other sectors, we're underweighted in oils. We have zero
weighting there, but only because we haven't surfaced individual ideas. It's not
really a call on whether we think oil is going to stay down at $12 a barrel or
go higher, it's just that our process hasn't surfaced any strong buy candidates.
For the same reason we've been virtually zero in the utility sector. The balance
of the portfolio is spread evenly among capital goods types of companies and
consumer companies as well as some technology.
LAMCO: Oppenheimer has been very consistent in terms of executing its strategy
for Liberty All-Star Equity Fund. Would you say that the firm has changed at all
over the decade of the `90s, even subtly?
LINDENTHAL: We've been very steady. But, your term "subtle" may be the right one
because we have undergone the
9
<PAGE>
MANAGER INTERVIEW
................................................................................
[CALLOUT]
"We've always felt we wanted to buy quality businesses because they're the best
at creating value ... We interact with management because management quality is
key..."
[END CALLOUT]
gradual, evolutionary kinds of changes that are healthy for any company. I think
the main change has been in the way we analyze businesses. We've always felt
that investing is a dynamic process. In other words, it's not statistically
driven by looking solely at things such as book value, cash flow or dividend
yield. We've always felt we wanted to buy quality businesses because they're the
best at creating value. So it's value creation at the company level that we've
been focused on. We've looked at that in different ways, but certainly in the
last three or four years we've been putting more emphasis on return on capital
and free cash flow generation. We interact with management because management
quality is key, and we focus on how management goes through the capital
allocation process because we think that goes a long way in determining how
value is created.
Still, the basic premise of what we do has not really changed. We've always
run a reasonably concentrated portfolio with low turnover. We've always felt
that it is the quality of the business that creates value over long periods of
time and we want to capture that for shareholders. We think a good way of doing
that is to buy stocks not just as an investor, but to think of ourselves as
owners of the business.
LAMCO: Let's revisit a few of the basics about Oppenheimer Capital.
LINDENTHAL: The firm was founded in 1969. For most of our lives we were owned by
Oppenheimer, the brokerage house. In 1997, Oppenheimer sold the last of its
position in us to PIMCO (Pacific Investment Management Company), which is
predominantly a fixed income investment manager headquartered in Newport Beach.
We still operate out of New York City, however, and as a firm that primarily
manages equities we're a good fit with PIMCO. We have about $62 billion in
assets under management.
[CALLOUT]
"Our objective is to provide our investors with consistently above average
returns with less risk."
[END CALLOUT]
As investors, we have a value orientation. Our objective is to provide our
investors with consistently above average returns with less risk. Our investment
process is to assemble skilled analysts and portfolio managers together as a
team. All the names in the portfolio are followed by us as a firm and we're all
very much involved in the process.
LAMCO: How does Oppenheimer surface potential new candidates for investment?
LINDENTHAL: With some exceptions, we primarily run a larger cap portfolio, so
anything with a market cap of $7 billion or more is fair game, as far as we're
concerned. We don't limit what we'll do or what we'll look at. We compensate our
people to find ideas and we find them however we can -- going to conferences,
talking with analysts, reviewing reports, meeting with management and other
ways. We come up with ideas and build a "work in progress" list where people are
given a certain amount of time to work on individual ideas. They then present a
report to their peer group and the idea is debated and, if adopted, the stock is
added to our approved list.
LAMCO: What has this process led to lately -- sells as well as buys?
LINDENTHAL: We sold Transamerica Corp. recently after it was acquired by a Dutch
company called AEGON. Actually, the merger is still pending, but we enjoyed a
nice move up with Transamerica and took advantage of the opportunity to sell the
position. Another name that we sold was a spin-out of Sprint called PCS. Sprint
spun out its cellular phone company into a separate unit. Even though Sprint
still controls it, we took advantage of that move and went ahead and sold the
PCS portion. Both of those two recent sales worked out very well for Fund
shareholders.
In terms of recent buys, we're not big investors in technology, but we added a
couple of names in that sector, Compaq and Computer Associates. Both stocks have
come off considerably from their highs for reasons that we think we understand,
so we took advantage of price weakness to start positions in those two names.
LAMCO: How about some long-term favorites?
LINDENTHAL: All of the top positions in the Fund have been there for quite
awhile, some since we started managing for Liberty All-Star Equity Fund in 1990.
Within our portfolio, Citigroup is our largest position at about 10%. We've
stuck with the stock, having owned both Travelers and Citibank when
10
<PAGE>
MANAGER INTERVIEW
................................................................................
these two companies were merged. It's a name that we still like a lot.
AFLAC is our second largest position. AFLAC is the insurance company whose
primary assets are in Japan where it dominates certain lines of insurance. We
trimmed our position a little recently, but we still like the stock a lot. Nokia
has been one of our best positions ever. We have trimmed it from time to time,
but it's still our third largest position. Sprint, which I mentioned a moment
ago, is our fourth largest holding even though it's a little smaller after
selling our PCS position. Sprint has done very well of late. Freddie Mac is
another holding that goes back to the inception of the All-Star Equity Fund
relationship. We think the value creation here has been terrific. Management
does well when interest rates are high and they do well when interest rates are
low -- they create value in both of those environments. The stock does better,
obviously, in a low interest rate environment, and we've certainly had that.
Those are the top five positions in our portion of the Fund and all are
longstanding positions that we still own.
LAMCO: We all hope they continue to do as well in the future as they have in the
past. Thank you very much for an interesting interview.
11
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
................................................................................
<TABLE>
<CAPTION>
COMMON STOCKS (98.8%) SHARES MARKET VALUE
AEROSPACE & DEFENSE (1.7%)
<S> <C> <C>
Boeing Co. 310,600 $ 10,599,225
Lockheed Martin Corp. 321,300 12,108,994
-------------
22,708,219
-------------
AUTOS, TIRES & ACCESSORIES (2.6%)
DaimlerChrysler AG (a) 81,250 6,972,266
Delphi Automotive Systems
Corp. (a) 116,000 2,059,000
Ford Motor Co. 143,400 8,137,950
General Motors Corp. 116,900 10,155,687
Lear Corp. (a) 166,300 7,098,931
-------------
34,423,834
-------------
BANKS (5.0%)
ABN AMRO Holding NV ADR 173,764 3,594,743
Astoria Financial Corp. 51,400 2,570,000
BankAmerica Corp. 292,034 20,624,901
Bankers Trust Co. 33,000 2,912,250
First Union Corp. 108,200 5,781,938
Fleet Financial Group, Inc. 262,100 9,861,512
PNC Bank Corp. 122,700 6,817,519
Washington Mutual, Inc. 136,000 5,559,000
Wells Fargo & Co. 251,700 8,825,231
-------------
66,547,094
-------------
BROADCASTING & CABLE (0.5%)
Chancellor Media Corp. (a) 93,900 4,425,037
The News Corp., Ltd. ADR 89,400 2,637,300
-------------
7,062,337
-------------
BUSINESS & CONSUMER SERVICES (2.6%)
America Online, Inc. (a) 37,400 5,460,400
Apollo Group, Inc. (a) 130,950 3,912,131
Cendant Corp. (a) 268,200 4,224,150
Cintas Corp. 137,100 8,962,912
IMS Health, Inc. 198,000 6,558,750
Robert Half International,
Inc. (a) 131,250 4,306,641
Service Corp. International 77,600 1,105,800
-------------
34,530,784
-------------
CHEMICALS (2.2%)
Monsanto Co. 515,300 23,671,594
Rohm & Haas Co. 148,300 4,977,319
-------------
28,648,913
-------------
COMMUNICATIONS EQUIPMENT (4.1%)
Cisco Systems, Inc. (a) 134,600 14,747,112
CommScope, Inc. (a) 103,333 2,163,535
Lucent Technologies, Inc. 99,100 10,678,025
Nokia Corp. ADR 110,000 17,132,500
Northern Telecom Ltd. 165,100 10,256,837
-------------
54,978,009
-------------
<CAPTION>
SHARES MARKET VALUE
COMPUTER & BUSINESS EQUIPMENT (3.3%)
<S> <C> <C>
Compaq Computer Corp. 167,000 $ 5,291,812
EMC Corp. (a) 23,300 2,976,575
Hewlett-Packard Co. 145,500 9,866,719
International Business
Machines Corp. 85,175 15,097,269
Solectron Corp. (a) 82,150 3,989,409
Sun Microsystems, Inc. (a) 53,900 6,734,131
3Com Corp. (a) 14,200 331,037
-------------
44,286,952
-------------
COMPUTER SERVICES & SOFTWARE (6.9%)
Acxiom Corp. (a) 199,550 5,288,075
Autodesk, Inc. 13,000 525,687
Automatic Data Processing,
Inc. 182,650 7,557,144
Best Software, Inc. (a) 140,850 1,901,475
BMC Software, Inc. (a) 88,250 3,270,766
Computer Associates
International, Inc. 245,000 8,712,812
Computer Sciences Corp. 60,550 3,341,603
Fiserv, Inc. (a) 150,050 8,046,431
Intuit, Inc. (a) 43,450 4,421,037
Microsoft Corp. (a) 229,500 20,568,937
Oracle Corp. (a) 284,350 7,499,731
Policy Management
Systems Corp. (a) 110,200 3,374,875
Sterling Commerce, Inc. (a) 115,200 3,542,400
Sterling Software, Inc. (a) 316,000 7,505,000
SunGard Data Systems, Inc. (a) 93,300 3,732,000
Wang Laboratories, Inc. (a) 136,600 2,680,775
-------------
91,968,748
-------------
CONSUMER PRODUCTS (2.3%)
Avon Products, Inc. 270,000 12,706,875
Kimberly-Clark Corp. 46,500 2,229,094
Philip Morris Companies, Inc. 225,300 7,927,744
Procter & Gamble Co. 52,500 5,141,719
Ralston Purina Co. 81,800 2,183,038
-------------
30,188,470
-------------
DIVERSIFIED (2.7%)
AlliedSignal, Inc. 107,400 5,282,737
Cooper Industries, Inc. 20,900 890,862
General Electric Co. 80,000 8,850,000
Loews Corp. 61,900 4,619,287
Minnesota Mining &
Manufacturing Co. 70,000 4,952,500
The Seagram Co., Ltd. 67,300 3,365,000
Tyco International Ltd. 101,584 7,288,652
-------------
35,249,038
-------------
DRUGS & HEALTH CARE (7.9%)
Abbott Laboratories 110,400 5,168,100
Alza Corp. (a) 95,300 3,645,225
</TABLE>
12 See Notes to Schedule of Investments.
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
................................................................................
<TABLE>
<CAPTION>
COMMON STOCKS (CONT.) SHARES MARKET VALUE
DRUGS & HEALTH CARE (CONT.)
<S> <C> <C>
American Home Products Corp. 188,600 $ 12,306,150
Bristol-Myers Squibb Co. 94,600 6,083,962
Cardinal Health, Inc. 72,955 4,815,030
Elan Corp. ADR (a) 47,250 3,295,687
Eli Lilly & Co. 39,150 3,322,856
Forest Laboratories, Inc. (a) 70,500 3,974,437
Genzyme Corp. (a) 129,000 6,506,437
HEALTHSOUTH Corp. (a) 190,300 1,974,363
Humana, Inc. 109,600 1,890,600
Medtronic, Inc. 67,150 4,818,013
Merck & Co., Inc. 56,650 4,542,622
Patterson Dental Co. (a) 87,000 3,762,750
Pediatrix Medical Group,
Inc. (a) 146,800 4,128,750
Pfizer, Inc. 45,900 6,368,625
Pharmacia & Upjohn, Inc. 126,400 7,884,200
SmithKline Beecham PLC ADR 109,900 7,857,850
Steris Corp. (a) 224,950 5,989,294
Sybron International Corp. (a)101,850 2,546,250
Warner-Lambert Co. 61,500 4,070,531
-------------
104,951,732
-------------
ELECTRIC & GAS UTILITIES (3.3%)
Allegheny Energy, Inc. 41,700 1,230,150
Central & South West Corp. 53,800 1,260,938
Columbia Energy Group 61,000 3,187,250
Florida Progress Corp. 183,800 6,938,450
Northern States Power Co. 83,900 1,945,431
Peco Energy Co. 253,200 11,710,500
P G & E Corp. 242,200 7,523,338
PP&L Resources, Inc. 143,300 3,546,675
Reliant Energy, Inc. 264,300 6,888,319
-------------
44,231,051
-------------
ELECTRONICS & ELECTRICAL EQUIPMENT (2.7%)
Intel Corp. 118,600 14,128,225
International Game Technology 134,700 1,961,569
Linear Technology Corp. 165,500 8,481,875
Maxim Integrated Products,
Inc. (a) 89,950 4,868,544
Molex, Inc. 85,025 2,497,609
Perkin-Elmer Corp. 24,000 2,329,500
Texas Instruments, Inc. 13,400 1,329,950
-------------
35,597,272
-------------
FINANCIAL SERVICES (7.7%)
The Charles Schwab Corp. 43,000 4,133,375
The CIT Group, Inc. 99,600 3,044,025
Citigroup, Inc. 627,100 40,056,013
Countrywide Credit
Industries, Inc. 150,000 5,625,000
Freddie Mac 415,600 23,741,150
Morgan Stanley Dean
Witter & Co. 156,900 15,680,194
Newcourt Credit Group, Inc. 47,400 1,282,763
Paychex, Inc. 175,050 8,303,934
-------------
101,866,454
-------------
<CAPTION>
SHARES MARKET VALUE
FOOD, BEVERAGE & RESTAURANTS (3.8%)
<S> <C> <C>
Anheuser-Busch Companies,
Inc. 94,400 $ 7,192,100
Diageo PLC ADR 130,000 5,947,500
Dole Food Co., Inc. 150,000 4,462,500
Dreyers Grand Ice Cream, Inc. 73,200 947,025
International Home Foods,
Inc. (a) 206,900 3,323,331
Nabisco Holdings Corp. 233,700 9,713,156
The Pepsi Bottling Group,
Inc. (a) 80,300 1,741,506
PepsiCo, Inc. 96,500 3,781,594
Starbucks Corp. (a) 312,700 8,775,144
U.S. Foodservice (a) 89,500 4,161,750
-------------
50,045,606
-------------
HOTELS & ENTERTAINMENT/LEISURE (1.7%)
Marriott International,
Inc., Class A 174,200 5,857,475
Mirage Resorts, Inc. (a) 105,600 2,244,000
Starwood Hotels & Resorts
Worldwide, Inc. 198,000 5,655,375
Time Warner, Inc. 115,700 8,221,931
-------------
21,978,781
-------------
INDUSTRIAL EQUIPMENT (2.0%)
Caterpillar, Inc. 130,000 5,971,875
Deere & Co. 96,100 3,711,863
Dover Corp. 110,000 3,616,250
Ingersoll-Rand Co. 183,700 9,116,113
MSC Industrial Direct Co.,
Inc. (a) 245,600 4,175,200
-------------
26,591,301
-------------
INSURANCE (8.6%)
ACE Ltd. 282,300 8,804,231
Aetna, Inc. 77,200 6,407,600
AFLAC, Inc. 350,000 19,053,125
Allmerica Financial Corp. 143,200 7,884,950
Allstate Corp. 243,600 9,028,425
Ambac Financial Group, Inc. 20,500 1,107,000
CIGNA Corp. 237,600 19,913,850
Conseco, Inc. 362,300 11,186,013
Marsh & McLennan Companies,
Inc. 61,900 4,592,206
Progressive Corp. 50,000 7,175,000
UNUM Corp. 103,300 4,913,206
XL Capital Ltd. 220,000 13,365,000
-------------
113,430,606
-------------
METALS & MINING (1.4%)
Allegheny Teledyne, Inc. 146,300 2,770,556
Aluminum Company of America 184,600 7,603,213
Nucor Corp. 181,600 8,001,750
-------------
18,375,519
-------------
OIL & GAS (4.3%)
Apache Corp. 162,900 4,245,581
Atlantic Richfield Co. 102,200 7,460,600
Burlington Resources, Inc. 93,500 3,734,156
</TABLE>
See Notes to Schedule of Investments. 13
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
................................................................................
<TABLE>
<CAPTION>
COMMON STOCKS (CONT.) SHARES MARKET VALUE
OIL & GAS (CONT.)
<S> <C> <C>
Conoco, Inc. 420,300 $ 10,323,619
Cooper Cameron Corp. (a) 51,200 1,734,400
Elf Aquitaine ADR 94,200 6,340,838
Mobil Corp. 36,000 3,168,000
PennzEnergy Co. 266,300 2,796,150
Phillips Petroleum Co. 46,400 2,192,400
Royal Dutch Petroleum Co. 78,062 4,059,224
Texaco, Inc. 133,300 7,564,775
Tosco Corp. 152,000 3,771,500
-------------
57,391,243
-------------
PAPER (1.6%)
Avery Dennison Corp. 120,500 6,928,750
Georgia-Pacific Corp. 25,600 1,900,800
Temple-Inland, Inc. 198,000 12,424,500
-------------
21,254,050
-------------
POLLUTION CONTROL (1.5%)
Waste Management, Inc. 439,855 19,518,566
-------------
PUBLISHING (0.5%)
R.R. Donnelley & Sons Co. 200,000 6,437,500
-------------
REAL ESTATE INVESTMENT TRUSTS (0.3%)
Kimco Realty Corp. 43,200 1,593,000
Vornado Realty Trust 81,200 2,801,400
-------------
4,394,400
-------------
RETAIL TRADE (10.4%)
Albertson's Inc. 37,800 2,053,013
American Stores Co. 94,400 3,115,200
AnnTaylor Stores Corp. (a) 101,900 4,502,706
CDW Computer Centers, Inc. (a) 69,900 4,823,100
Circuit City Stores, Inc. 58,300 4,467,238
CVS Corp. 298,350 14,171,625
Family Dollar Stores, Inc. 233,900 5,379,700
Federated Department
Stores, Inc. (a) 268,400 10,769,550
<CAPTION>
SHARES MARKET VALUE
RETAIL TRADE (CONT.)
<S> <C> <C>
Fred Meyer, Inc. (a) 95,490 $ 5,621,974
Harcourt General, Inc. 110,400 4,892,100
Home Depot, Inc. 141,300 8,795,925
Kohl's Corp. (a) 128,550 9,110,981
The Limited, Inc. 208,700 8,269,738
Linens 'n Things, Inc. (a) 132,000 5,989,500
May Department Stores Co. 225,000 8,803,125
Safeway, Inc. (a) 130,700 6,706,544
Staples, Inc. (a) 337,550 11,096,956
Tiffany & Co. 115,600 8,641,100
Toys R Us, Inc. (a) 68,000 1,279,250
Walgreen Co. 274,650 7,758,863
Wal-Mart Stores, Inc. 23,900 2,203,281
-------------
138,451,469
-------------
TELECOMMUNICATIONS (5.4%)
AT&T Corp. 117,900 9,409,894
Bell Atlantic Corp. 58,200 3,008,213
GTE Corp. 163,800 9,909,900
Level 3 Communications,
Inc. (a) 14,200 1,033,938
MCI WorldCom, Inc. (a) 265,853 23,544,606
SBC Communications, Inc. 173,000 8,152,625
Sprint Corp. (FON Group) 170,000 16,681,250
-------------
71,740,426
-------------
TRANSPORTATION (1.8%)
AMR Corp. (a) 170,000 9,955,625
CNF Transportation, Inc. 96,300 3,641,344
Union Pacific Corp. 178,000 9,511,875
-------------
23,108,844
-------------
TOTAL COMMON STOCKS
(Cost $951,229,914) 1,309,957,218
-------------
</TABLE>
14 See Notes to Schedule of Investments.
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
...............................................................................
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS (1.6%) INTEREST MATURITY PAR MARKET
COMMERCIAL PAPER (0.8%) RATE DATE VALUE VALUE
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
CIT Group Holdings 4.63% 04/01/99 $3,500,000 $3,500,000
Household Finance 4.84 04/06/99 4,000,000 3,997,555
Household Finance 4.88 04/08/99 2,500,000 2,497,628
----------
TOTAL COMMERCIAL PAPER (COST $9,995,183) 9,995,183
----------
REPURCHASE AGREEMENT (0.8%)
SBC Warburg Ltd., Repurchase Agreement dated 3/31/99, 4.90%
to be repurchased at $11,068,506 on 4/1/99, collateralized
by U.S. Treasury bonds and notes with various maturities to
2019, with a current market value of $11,327,532. 11,067,000 11,067,000
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $21,062,183) 21,062,183
--------------
TOTAL INVESTMENTS (100.4%) (COST $972,292,097) 1,331,019,401
OTHER ASSETS AND LIABILITIES, NET (-0.4%) (5,074,345)
--------------
NET ASSETS (100.0%) $1,325,945,056
==============
NET ASSET VALUE PER SHARE (94,996,907 SHARES OUTSTANDING) $13.96
==============
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
Gross unrealized appreciation and depreciation of investments at March 31, 1999 is as follows:
Gross unrealized appreciation $405,088,571
Gross unrealized depreciation (46,361,267)
------------
Net unrealized appreciation $358,727,304
============
</TABLE>
Acronym Name
- --------- ---------------------------
ADR American Depositary Receipt
15
<PAGE>
PER SHARE CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED -----------------------------------------------------------
MARCH 31, 1999
(UNAUDITED) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
PER SHARE CHANGES IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 14.22 $ 13.32 $ 11.95 $ 11.03 $ 9.26 $ 10.40
------- ------- ------- ------- ------- -------
Net investment income 0.01 0.05 0.05 0.08 0.10 0.11
Distributions declared (0.34) (1.40) (1.33) (1.18) (1.04) (1.00)
Change due to rights offering (a) -- (0.10) -- -- -- (0.05)
Net realized and unrealized
gains (losses) on investments 0.07 2.35 3.01(b) 2.15(b) 2.71 (0.20)
Provision for federal income tax -- -- (0.36) (0.13) -- --
------- ------- ------- ------- ------- -------
Net asset value at end of period $ 13.96 $ 14.22 $ 13.32 $ 11.95 $ 11.03 $ 9.26
======= ======= ======= ======= ======= =======
(a) Effect of All-Star's rights offerings for shares at a price below net asset value.
(b) Before provision for federal income tax.
</TABLE>
16
<PAGE>
DISTRIBUTION POLICY / DIVIDEND REINVESTMENT PLAN
................................................................................
DISTRIBUTION POLICY
Liberty All-Star Equity Fund's current policy, in effect since 1988, is to pay
distributions on its common shares totaling approximately 10 percent of its net
asset value per year, payable in four quarterly installments of 2.5 percent of
the Fund's net asset value at the close of the New York Stock Exchange on the
Friday prior to each quarterly declaration date. The fixed distributions are not
related to the amount of the Fund's net investment income or net realized
capital gains or losses. If, for any calendar year, the total distributions
required by the 10 percent pay-out policy exceed the Fund's net investment
income and net realized capital gains, the excess will generally be treated as a
tax-free return of capital, reducing the shareholder's adjusted basis in his or
her shares. If the Fund's net investment income and net realized capital gains
for any year exceed the amount required to be distributed under the 10 percent
pay-out policy, the Fund may, at its discretion, retain and not distribute net
realized capital gains to the extent of such excess. The Fund retained such
excess gains in 1993, 1996 and 1997.
DIVIDEND REINVESTMENT PLAN
Through the Fund's Automatic Dividend Reinvestment and Cash Purchase Plan, the
Fund's shareholders have the opportunity to have their dividends and
distributions automatically reinvested in additional shares of the Fund.
Participating shareholders have been rewarded as a result of the consistent
reinvestment of distributions. Each share of the Fund owned by shareholders who
have participated in the Dividend Reinvestment Program since the Fund began
operations in 1986 would have grown to 3.858 shares as of March 31, 1999, with a
total net asset value of $53.86. Participants are kept apprised of the status of
their account through quarterly statements.
For complete information and enrollment forms, please call Investor Assistance
toll-free at 1-800-LIB-FUND (1-800-542-3863) weekdays between 9 AM and 5 PM
Eastern time. If your shares are held for you by a broker, bank or other
nominee, you should contact the institution holding your shares if you wish to
participate in the Plan.
17
<PAGE>
NOTES
................................................................................
18
<PAGE>
NOTES
................................................................................
19
<PAGE>
[LIBERTY LOGO] USA
Listed
LIBERTY NYSE
ALL*STAR THE NEW YORK STOCK EXCHANGE
- -----------
EQUITY FUND
A MEMBER OF THE
CLOSED-END
FUND
ASSOCIATION, INC.
WWW.CLOSED-ENDFUNDS.COM
FUND MANAGER
Liberty Asset Management Company
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210-2214
1-617-722-6036
Internet: http://www.lamco.com
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
99 High Street
Boston, Massachusetts 02110
CUSTODIAN
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017-2070
INVESTOR ASSISTANCE,
TRANSFER & DIVIDEND
DISBURSING AGENT & REGISTRAR
State Street Bank and Trust Company c/o EquiServe
P.O. Box 8200, Boston, Massachusetts 02266-8200
1-800-LIB-FUND (1-800-542-3863)
Internet: http://www.equiserve.com
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
TRUSTEES
Robert J. Birnbaum*
John V. Carberry
James E. Grinnell*
Richard W. Lowry*
William E. Mayer
Dr. John J. Neuhauser*
OFFICERS
John V. Carberry, Chairman of the Board of Trustees
William R. Parmentier, Jr., President and Chief Executive Officer
Christopher S. Carabell, Vice President
Mark T. Haley, Vice President
Timothy J. Jacoby, Treasurer
Nancy L. Conlin, Secretary
J. Kevin Connaughton, Controller
* Member of the audit committee.
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Liberty Asset Management Company, the Fund's manager,
is one of the Liberty Financial Companies (NYSE: L).
[LIBERTY LOGO]
LIBERTY FINANCIAL
FIRST
QUARTER
REPORT
1999
[LIBERTY LOGO]
LIBERTY
ALL*STAR
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EQUITY FUND
